FIRST FUNDS, 485APOS, 1999-08-27

FIRST FUNDS
485APOS, 1999-08-27

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<PAGE>

As filed with the Securities and Exchange Commission on August 27, 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. 20 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):

_ immediately upon filing pursuant to paragraph (b)
_ on _____________, pursuant to paragraph (b)
x 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

<PAGE>

[LOGO]

BOND PORTFOLIO

PROSPECTUS
Dated ________, 1999

CLASS I
CLASS II
CLASS III

[ART]

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? ..................................................7

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

No person has been authorized to give any information or to make any
representation that is not contained in this Prospectus, or in the Statement of
Additional Information that is incorporated herein by reference, in connection
with the offering made by this Prospectus and, if given or made, such
information o representations must not be relied upon. Also, this Prospectus
does not constitute an offering by the Trust or its Distributor in any
jurisdiction where such an offering would not be lawful.

<PAGE>

- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND PRIMARY RISKS
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE -- The objective of the Bond Portfolio (the "Portfolio") is
to achieve maximum total return through high current income by investing at
least 65% of its total assets in fixed-income securities.

PRINCIPAL INVESTMENT STRATEGY -- Under normal market conditions, the Portfolio
primarily invests in medium to long term investment grade debt securities and
obligations issued by the U.S. government and U.S. corporations, as well as,
investment grade mortgage backed and asset-backed securities. Investment grade
debt securities are securities rated Baa or higher by Moody's Investors Service,
Inc. ("Moody's") or BBB by Standard & Poor's Corporation (`S&P"). The Portfolio
may also invest in unrated securities that Highland determines are of equivalent
quality to the other securities in which the Portfolio invests. Unrated
securities may be more speculative in nature than rated securities. The
Portfolio also may invest in securities of foreign issuers and engage in foreign
currency transactions.

While the dollar-weighted average maturity of the Portfolio may range from 5 to
15 years, Highland currently anticipates that the dollar-weighted average
portfolio maturity of the Portfolio will be between 7 and 11 years.

PRIMARY RISKS -- Because the Portfolio invests substantially all of its assets
in fixed-income securities, they are subject to risks such as credit or default
risks, and decreased value due to interest rate increases. The Portfolio's
performance may also be affected by risks to certain types of investments, such
as foreign securities and derivative instruments.

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.

- --------------------------------------------------------------------------------
FUND FACTS

GOAL:
To achieve maximum total return through high current income by investing in
fixed income securities.

PRINCIPAL INVESTMENTS:
- - U.S. Government Obligations
- - Debt Obligations Issued by U.S.
Corporations
- - Mortgage-Backed and other Asset-Back
Securities

AVERAGE PORTFOLIO MATURITY:
7-11 years

CLASSES OF SHARES OFFERED IN THIS PROSPECTUS:
- - Class I
- - Class II
- - Class III

INVESTMENT ADVISER:
- - First Tennessee Bank National Association
("First Tennessee" or "Adviser")

INVESTMENT SUB-ADVISER:
- - Highland Capital Management Corporation
("Highland" or "Sub-Adviser")

PORTFOLIO MANAGERS:
- - James R. Turner
- - Steven Wishnia

DISTRIBUTOR:
- - ALPS Mutual Funds Services, Inc. ("ALPS")

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

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 BOND PORTFOLIO?

The Portfolio may be appropriate for you if:

- - You are seeking higher potential returns than money market funds and you
can tolerate the risks associated with investing in fixed income
securities.
- - You are seeking an income mutual fund for an asset allocation program.
- - You have a longer term investment perspective and are prepared to maintain
your investment in the Portfolio for several years (REMEMBER, NO SINGLE
INVESTMENT CAN PROVIDE AN EFFECTIVE, BALANCED INVESTMENT PLAN.)

<PAGE>

- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------

The following bar chart and table can help you evaluate the potential risks of
investing in the Portfolio. Both the bar chart and the table show the
variability the Portfolio has experienced in its performance in the past. THE
PAST PERFORMANCE OF THE PORTFOLIO DOES NOT INDICATE HOW IT WILL PERFORM IN THE
FUTURE AND IS INTENDED TO BE USED FOR PURPOSES OF COMPARISON ONLY.

The performance of the Class I shares shown in the bar chart reflects the
expenses associated with those shares from year to year.

- --------------------------------------------------------------------------------
WHAT IS THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX?

The Lehman Brothers Government/Corporate Bond Index represents an unmanaged
diversified portfolio of investment grade bonds with maturities over one year.

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

YEAR-BY-YEAR TOTAL RETURN (CLASS I)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
12/31/94 -3.35%
12/31/95 19.38%
12/31/96 1.93%
12/31/97 9.28%
12/31/98 8.99%
</TABLE>

Best Quarter (quarter ended June 30, 1995) -- 6.58%
Worst Quarter (quarter ended March 31, 1996) -- (2.88)%
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(for the period ended December 31, 1998)
- --------------------------------------------------------------------------------
INCEPTION DATE 1 YEAR 5 YEARS SINCE INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS I 8/2/93 8.99% 6.97% 6.90%
- --------------------------------------------------------------------------------
CLASS II 12/20/95 4.47% N/A 6.03%
- --------------------------------------------------------------------------------
CLASS III 12/9/93 6.70% 5.64% 5.68%
- --------------------------------------------------------------------------------
LEHMAN BROTHERS
GOV'T/CORP. BOND INDEX 9.49% 7.31% 7.19%
- --------------------------------------------------------------------------------
</TABLE>

<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
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on None 3.75% None
purchases as a percentage of offering price
- -------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) None None 1.00%*/
(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**/ .55% .55% .55%
- -------------------------------------------------------------------------------------------
Distribution (12b-1) Fees .00% .00% .75%***/
- -------------------------------------------------------------------------------------------
Other Expenses .34% .69% .77%
---- ---- ----
- -------------------------------------------------------------------------------------------
Total Portfolio Operating Expenses .89% 1.24% 2.07%
---- ----- -----
---- ----- -----
- -------------------------------------------------------------------------------------------
</TABLE>

*/Applied to redemptions made during the first year after purchase. No deferred
sales charges are imposed on redemptions from Class III after one year from date
of purchase.
**/First Tennessee, as Investment Adviser, has voluntarily agreed to waive a
portion of the investment management fee that it is entitled to receive under
the Investment Advisory and Management to the extent such management fee exceeds
.15% of the average net assets of the Portfolio.
***/TheTrustees have agreed to limit the 12b-1 fees applicable to Class III
shares to .50%.

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 III
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
After 1 year $91 $497 $310 $210
- --------------------------------------------------------------------------------
After 3 years $284 $754 $649 $649
- --------------------------------------------------------------------------------
After 5 years $493 $1,030 $1,113 $1,113
- --------------------------------------------------------------------------------
After 10 years $1,095 $1,817 $2,397 $2,397
- --------------------------------------------------------------------------------
</TABLE>

<PAGE>

- --------------------------------------------------------------------------------
MORE INFORMATION ABOUT INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------

OUR INVESTMENT STRATEGY -- The Portfolio seeks to maximize total return by
assembling a portfolio of income producing obligations that Highland believes
will provide the optimal balance between risk and return within the universe of
securities in which the Portfolio is permitted to invest. In selecting
securities for the Portfolio, Highland evaluates a number of factors concerning
the security, including: the issuer's creditworthiness, the features of the
security, and the current price of the security compared to Highland's estimate
of the security's long-term value. Highland believes that by lessening the
effect of market and interest rate risk, investors should experience greater
overall returns; accordingly, during periods of fluctuating economic conditions
and interest rates, Highland may attempt to minimize market risk by adjusting
the dollar-weighted average maturity of the Portfolio. Highland also will
attempt to time Portfolio transactions to take advantage of anticipated changes
in interest rates.

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

CREDIT RISK -- The risk that the
issuer of a security, or a party to a
contract, will default or otherwise
not honor a financial obligation.

EXTENSION RISK -- The risk that an
issuer will exercise its right to pay
principal on an obligation held by the
Portfolio (such as a Mortgage-Backed
Security) later than expected. This
may happen when there is a rise in
interest rates. Under these
circumstances, the value of the
obligation will decrease and the
Portfolio will also suffer from the
inability to invest in higher yielding
securities.

LIQUIDITY RISK -- The risk that
certain securities or other
investments may be difficult or
impossible to sell at the time the
Portfolio would like to sell them or
it may be difficult for the Portfolio
to sell the investment for the value
the Portfolio has placed on it.
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
SECURITIES PRINCIPAL RISKS ASSOCIATED WITH
THE SECURITY
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS: U.S. CALL RISK
government obligations are debt
obligations issued or guaranteed by EXTENSION RISK
the U.S. Treasury or by an agency or
instrumentality of the U.S. INTEREST RATE RISK
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. There is
no guarantee that the government will
support these types of obligations,
and, therefore, they involve more risk
than other government obligations.
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES: CALL RISK
Mortgage-backed securities represent
direct or indirect participations in, CREDIT RISK
or are collateralized by and payable
from, mortgage loans secured by real EXTENSION RISK
property. Mortgage-backed securities
can be backed by either fixed rate INTEREST RATE RISK
mortgage loans or adjustable rate
mortgage loans, and may be issued by LIQUIDITY RISK
either a governmental or
non-governmental entity. Typically,
mortgage-backed securities issued by
private entities do not have the same
credit standing as mortgage-backed
securities issued or guaranteed by the
U.S. Government.
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES: Asset-backed CREDIT RISK
securities are securities whose
principal and interest payments are INTEREST RATE RISK
collateralized by pools of assets such
as auto loans, credit card LIQUIDITY RISK
receivables, leases, installment
contracts and personal property.
Principal and interest payments may be
credit enhanced by a letter of credit,
a pool insurance policy or a
senior/subordinated structure.
- --------------------------------------------------------------------------------
SECURITIES OF FOREIGN ISSUERS: The FOREIGN INVESTMENT RISK -- The risk
Portfolio may invest the majority of that foreign securities may be
its assets in securities of issuers adversely affected by political
that are organized outside of the instability of the issue's country,
United States. Investing in securities changes in currency exchange rates,
of foreign issuers and non-dollar foreign economic conditions, or
securities may involve risks that are regulatory and reporting standards
not normally associated with that are less stringent than those of
dollar-denominated securities of the United States. Foreign investment
domestic issuers. The risks associated risks will normally be greatest when a
with such securities normally will be Fund invests in issuers located in
greatest when the Fund invests in emerging countries.
issuers located in emerging countries.
LIQUIDITY RISK

MARKET RISK

VALUATION RISK

CREDIT RISK

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

<PAGE>

- --------------------------------------------------------------------------------
SECURITIES PRINCIPAL RISKS ASSOCIATED WITH
THE SECURITY
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS AND REVERSE CREDIT RISK
REPURCHASE 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.
- --------------------------------------------------------------------------------

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 -------------------------------------
may invest in instruments and WHAT IS A DERIVATIVE INSTRUMENT?
securities generally known as
derivative investments for hedging A derivative is a financial contract
purposes only. These investments may whose value is based on (or "derived"
include the use of forward currency from) a traditional security (such as
contracts, put and call option a stock or bond), an asset (such as a
contracts, zero coupon bonds, and commodity like gold), or a market
stripped fixed-income obligations. index (such as the S&P 500 Index).
Futures and options are derivatives
Highland may not buy any of these that have been traded on regulated
instruments or use any of these exchanges for more than two decades.
techniques unless it believes that -------------------------------------
doing so will help the Portfolio achieve its investment objective. Use of these
instruments and techniques can alter the risk and return characteristics of the
Portfolio. They may increase the Portfolio's volatility and may involve the
investment of 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.

<PAGE>

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

First Tennessee, 530 Oak Court Dr., Memphis, Tennessee, serves as Investment
Adviser to the Portfolio. For managing its investment and business affairs, the
Bond Portfolio is obligated to pay First Tennessee a monthly management fee at
the annual rate of .55% of its average net assets. First Tennessee has
voluntarily agreed to waive that portion of the management fee that exceeds .15%
of the average net assets of the Portfolio.

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 0.33% of the Portfolio's average net assets. The Portfolio is not
responsible for paying any portion of Highland's sub-advisory fee. Highland is
currently waiving some or all of its sub-advisory fee.

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

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

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

- --------------------------------------------------------------------------------
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?

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.

<PAGE>

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
following 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 or Class III 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 BOND PORTFOLIO OFFER?

The Portfolio offers investors three 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.
- --------------------------------------------------------------------------------

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 of redemption. If an account is closed, any
accrued dividends will be paid at the beginning of the following month.

Institutional Investors may make redemptions by wire provided they have
established a wire account with 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.

<PAGE>

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 AND III

WHO MAY INVEST?

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

INVESTMENT REQUIREMENTS

The minimum initial investment in Class II and III 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.

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

<PAGE>

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 BOND PORTFOLIO, and mail it,
along with the application, to the address indicated on the application. Your
account will be credited on the business day that 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.

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.

<PAGE>

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.

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

<PAGE>

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

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 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.

<PAGE>

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.

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

<PAGE>

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.

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 earns interest from bond, money market, and other fixed-income
investments. These are passed along as dividend distributions. Income dividends
for the Portfolio are declared daily and paid monthly. 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?

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.

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

<PAGE>

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 are declared daily
and paid monthly.

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. 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.

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 Class III shares of the Portfolio (the "Distribution Plan").
The Distribution Plan permits the use of portfolio assets to compensate ALPS for
its services and costs in distributing Class III shares and servicing
shareholder accounts.

<PAGE>

Under the Distribution Plan, ALPS receives an amount up to .75% of the average
net assets of the Portfolio that are attributable to Class III shares. The
Trustees have limited the amount that may be paid under the Distribution Plan to
.50%. All or a portion of the fees paid to ALPS under the Distribution Plan
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 shares and for providing
ongoing sales support services.

The Trustees also have adopted Shareholder Servicing Plans on behalf of the
Class II and Class 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.

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.

- --------------------------------------------------------------------------------
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).

BOND PORTFOLIO
<TABLE>
<CAPTION>
CLASS I
---------------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
---------------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994**
---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $10.29 $9.84 $9.73 $9.91 $9.41 $10.00
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.30 0.61 0.61 0.60 0.57 0.45
Net realized and unrealized gain (loss) on
investments 0.16 0.45 0.11 (0.18) 0.50 (0.57)
---------------------------------------------------------------------------------
Total from investment operations 0.46 1.06 0.72 0.42 1.07 (0.12)
---------------------------------------------------------------------------------
Distributions:
Net investment income (0.30) (0.61) (0.61) (0.60) (0.57) (0.46)
Net realized gain (0.09) - - - - (0.01)
---------------------------------------------------------------------------------
Total distributions (0.39) (0.61) (0.61) (0.60) (0.57) (0.47)
---------------------------------------------------------------------------------
Net asset value, end of period $10.36 $10.29 $9.84 $9.73 $9.91 $9.41
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
TOTAL RETURN+ 4.51%# 11.02% 7.58% 4.23% 11.87% (1.38)%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $224,561 $219,088 $123,184 $107,832 $90,574 $75,686
Ratio of expenses to average daily net assets (1) 0.48%* 0.49% 0.49% 0.41% 0.35% 0.36%*
Ratio of net investment income to average net assets 5.68%* 5.98% 6.20% 5.99% 6.07% 5.07%*
Portfolio turnover rate 22%* 26% 56% 56% 23% 36%*

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.88%* 0.89% 0.89% 0.91% 0.91% 0.96%*
</TABLE>

<PAGE>

FINANCIAL HIGHLIGHTS
BOND PORTFOLIO (CONTINUED)
<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 $10.26 $9.81 $9.71 $10.18
------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.28 0.57 0.57 0.29
Net realized and unrealized gain (loss) on
investments 0.16 0.46 0.10 (0.47)
------------------------------------------------------------------------
Total from investment operations 0.44 1.03 0.67 (0.18)
------------------------------------------------------------------------
Distributions:
Net investment income (0.28) (0.58) (0.57) (0.29)
Net realized gain (0.09) - - -
------------------------------------------------------------------------
Total distributions (0.37) (0.58) (0.57) (0.29)
------------------------------------------------------------------------
Net asset value, end of period $10.33 $10.26 $9.81 $9.71
------------------------------------------------------------------------
------------------------------------------------------------------------

TOTAL RETURN+*** 4.37%# 10.72% 7.12% (1.75)%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $3,396 $1,801 $841 $67
Ratio of expenses to average daily net assets(1) 0.83%* 0.84% 0.90% 0.80%*
Ratio of net investment income to average net assets 5.33%* 5.63% 5.79% 5.61%*
Portfolio turnover rate 22%* 26% 56% 56%

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.23%* 1.24% 1.30% 1.30%*
</TABLE>

* Annualized.
** Classes I and II commenced operations on August 2, 1993 and December 20,
1995, respectively.
*** Class II total return does not include the one time sales charge.
+ Total return would have been lower had various fees not been waived during
the period.
# Total return for periods of less than one year are not annualized.

<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 $10.27 $9.82 $9.71 $9.89 $9.40 $10.04
------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.24 0.48 0.49 0.49 0.43 0.21
Net realized and unrealized gain (loss) on
investments 0.16 0.46 0.11 (0.18) 0.49 (0.62)
------------------------------------------------------------------------------
Total from investment operations 0.40 0.94 0.60 0.31 0.92 (0.41)
------------------------------------------------------------------------------
Distributions:
Net investment income (0.24) (0.49) (0.49) (0.49) (0.43) (0.22)
Net realized gain (0.09) - - - - (0.01)
------------------------------------------------------------------------------
Total distributions (0.33) (0.49) (0.49) (0.49) (0.43) (0.23)
------------------------------------------------------------------------------
Net asset value, end of period $10.34 $10.27 $9.82 $9.71 $9.89 $9.40
------------------------------------------------------------------------------
------------------------------------------------------------------------------

TOTAL RETURN+ 3.89%# 9.72% 6.37% 3.11% 10.12% (4.19)%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $2,722 $2,113 $2,553 $3,445 $1,916 $923
Ratio of expenses to average daily net assets(1) 1.65%* 1.67% 1.63% 1.49% 1.84% 1.82%*
Ratio of net investment income to average net assets 4.52%* 4.80% 5.07% 4.92% 4.58% 3.61%*
Portfolio turnover rate 22%* 26% 56% 56% 23% 36%*

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 2.05%* 2.07% 2.03% 1.99% 3.35% 6.36%*
</TABLE>

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

<PAGE>

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

ADDITIONAL INFORMATION ABOUT THE PORTFOLIO'S INVESTMENTS

The following information provides 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.

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

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

ILLIQUID INVESTMENTS. 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 may involve time-consuming
negotiation and legal expense, and it may be difficult or impossible for the
Portfolio to sell them promptly at an acceptable price. The Portfolio may invest
up to 15% of its assets in illiquid investments and private placement.

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.

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

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

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

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

<PAGE>

LOGO 370 Seventeenth Street
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 1-800-422-1941 (OPTION 1).

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

Investment Company Act File No. 811-6589

-------------------------------------
[LOGO First Tennessee] FIRST FUNDS
Investment Adviser
- Are NOT insured by the FDIC or
any other governmental agency.
- Are NOT bank deposits or
other obligations of or guaranteed
by First Tennessee Bank National
Association or any of its affiliates
[LOGO ALPS Mutual Funds Services] - Involve investment risks, including
Sponsor and Distributor the possible loss of the principal
amount invested.
-------------------------------------

<PAGE>

[LOGO]
INTERMEDIATE BOND PORTFOLIO

PROSPECTUS
Dated ________, 1999

CLASS I
CLASS II
CLASS III

[ART]

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? ...................................................7

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

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

Distribution Plans and Shareholders Servicing Plans .........................16

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

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

Additional Information about the Portfolio ..........................BACK COVER
- --------------------------------------------------------------------------------

<PAGE>

INVESTMENT OBJECTIVE -- The objective of the Intermediate Bond Portfolio (the
"Portfolio") is to seek current income consistent with the preservation of
capital.

PRINCIPAL INVESTMENT STRATEGY -- Under normal market conditions, the Portfolio
primarily invests in investment-grade debt securities and obligations issued by
the U.S. government and U.S. corporations, as well as investment-grade
mortgage-backed and asset-backed securities. Investment-grade debt securities
are securities rated Baa or higher by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Corporation ("S&P"). The Portfolio may
also invest up to 5% of its net assets in unrated securities that the
Sub-Adviser determines are of equivalent quality to the other securities in
which the Portfolio invests. Unrated securities may be more speculative in
nature than rated securities. The Portfolio also may invest in securities of
foreign issuers and engage in foreign currency transactions.

The Portfolio primarily invests in short to intermediate bonds. While the
Portfolio may invest in securities of any duration, the Portfolio's average
portfolio maturity will range between 3 and 6 years. The Sub-Adviser may vary
the average portfolio maturity based upon prevailing interest rates and economic
conditions.

- --------------------------------------------------------------------------------
FUND FACTS

GOAL:
To To seek high current income consistent with the preservation of capital.

PRINCIPAL INVESTMENTS:
- - U.S. Government Obligations
- - Debt Obligations Issued by U.S. Corporations
- - Mortgage-Backed and other Asset-Back Securities

AVERAGE PORTFOLIO MATURITY:
3-6 years

CLASSES OF SHARES OFFERED IN THIS PROSPECTUS:
- - Class I
- - Class II
- - Class III

INVESTMENT ADVISER:
- - First Tennessee Bank National Association
("First Tennessee" or "Adviser")

INVESTMENT SUB-ADVISER:
- - Martin & Company, Inc. ("Martin" or "Sub-Adviser")

PORTFOLIO MANAGERS:
- - Ralph W. Herbert
- - Ted L. Flickinger, Jr.

DISTRIBUTOR:
- - ALPS Mutual Funds Services, Inc. ("ALPS")

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

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.

SHOULD I INVEST IN THE INTERMEDIATE BOND PORTFOLIO?

The Portfolio may be appropriate for you if:

- - You are seeking higher potential returns than money market funds and you
can tolerate the risks associated with investing in fixed income
securities.

- - You are seeking an income mutual fund for an asset allocation program.

- - You have a longer term investment perspective and are prepared to maintain
your investment in the Portfolio for several years (REMEMBER, NO SINGLE
INVESTMENT CAN PROVIDE AN EFFECTIVE, BALANCED INVESTMENT PLAN.)

<PAGE>

- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------

The performance of the Class I shares shown in the bar chart reflects the
expenses associated with those shares from year to year.

- --------------------------------------------------------------------------------
WHAT IS THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX?

The Lehman Brothers Intermediate Government/Corporate Bond Index represents
an unmanaged diversified portfolio of investment grade bonds with maturities
between one and ten year.

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

YEAR-BY-YEAR TOTAL RETURN (CLASS I)
- --------------------------------------------------------------------------------

Best Quarter (quarter ended September 30, 1998) -- 3.78%
Worst Quarter (quarter ended June 30, 1999) -- (0.68)%
- --------------------------------------------------------------------------------

The following table lists the Portfolio's average year-by-year return by class
over the past one, five, and ten 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 for the periods shown to the performance of the Lehman
Brothers Intermediate Government/Corporate Bond Index over the same periods of
time.
<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 3/2/98 N/A N/A
- --------------------------------------------------------------------------------
CLASS II 3/9/98 N/A N/A
- --------------------------------------------------------------------------------
CLASS III 5/19/98 N/A N/A
- --------------------------------------------------------------------------------
LEHMAN BROTHERS
INTERMEDIATE GOV'T/CORP.
BOND INDEX 7.14% N/A
- --------------------------------------------------------------------------------
</TABLE>

<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
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on None 2.50% None
purchases as a percentage of offering price
- --------------------------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) None None 1.00%*/
(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**/ .50% .50% .50%
- --------------------------------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees .00% .00% .75%***/
- --------------------------------------------------------------------------------------------------------------------------
Other Expenses .37% .65% .65%
---- ---- ----
- --------------------------------------------------------------------------------------------------------------------------
Total Portfolio Operating Expenses .87% 1.15% 1.90%
---- ----- -----
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

*/Applied to redemptions made during the first year after purchase. No deferred
sales charges are imposed on redemptions from Class III after one year from date
of purchase.
**/First Tennessee, as Investment Adviser, has voluntarily agreed to waive the
entire investment management fee that it is entitled to receive under the
Investment Advisory and Management.
***/The Trustees have agreed to limit the 12b-1 fees applicable to Class III
shares to .50%.

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 III
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
After 1 year $89 $364 $293 $193
- --------------------------------------------------------------------------------
After 3 years $277 $606 $597 $597
- --------------------------------------------------------------------------------
After 5 years $482 $867 $1,026 $1,026
- --------------------------------------------------------------------------------
After 10 years $1,072 $1,611 $2,219 $2,219
- --------------------------------------------------------------------------------
</TABLE>

<PAGE>

OUR INVESTMENT STRATEGY -- The Portfolio seeks current income while attempting
to minimize risk to principal by assembling a portfolio of income producing
obligations that Martin believes will provide the optimal balance between risk
and return within the universe of securities in which the Portfolio is permitted
to invest. In selecting securities for the Portfolio, Martin uses a seven factor
risk analysis that evaluates a number of factors concerning the security,
including: the security's return potential, the issuer's creditworthiness, and
the current price of the security compared to Martin's estimate of the
security's long-term value. In making investment decisions, Martin also
considers the affect purchasing the security would have on certain
characteristics of the Portfolio. More particularly, Martin considers the effect
the security will have on the Portfolio's target duration and yield curve and
sector spread characteristics. Martin believes that by lessening the effect of
market and interest rate risk, investors should experience greater overall
returns; accordingly, during periods of fluctuating economic conditions and
interest rates, Martin may attempt to minimize market risk by adjusting the
dollar-weighted average maturity of the Portfolio. Martin also will attempt to
time Portfolio transactions to take advantage of anticipated changes in interest
rates.

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

CREDIT RISK -- The risk that the
issuer of a security, or a party to a
contract, will default or otherwise
not honor a financial obligation.

<PAGE>

MARKET RISK

VALUATION RISK

CREDIT RISK
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
SECURITIES PRINCIPAL RISKS ASSOCIATED WITH
THE SECURITY
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS AND REVERSE CREDIT RISK
REPURCHASE 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.
- --------------------------------------------------------------------------------

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 ---------------------------------------
may invest in instruments and WHAT IS A DERIVATIVE INSTRUMENT?
securities generally known as
derivative investments for hedging A derivative is a financial contract
purposes only. These investments may whose value is based on (or "derived"
include the use of forward currency from) a traditional security (such as
contracts, put and call option a stock or bond), an asset (such as a
contracts, zero coupon bonds, and commodity like gold), or a market
stripped fixed-income obligations. index (such as the S&P 500 Index).
Futures and options are derivatives
Highland may not buy any of these that have been traded on regulated
instruments or use any of these exchanges for more than two decades.
techniques unless it believes that ---------------------------------------
doing so will help the Portfolio
achieve its investment objective. Use of these instruments and techniques can
alter the risk and return characteristics of the Portfolio. They may increase
the Portfolio's volatility and may involve the investment of 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.

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

<PAGE>

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

First Tennessee, 530 Oak Court Dr., Memphis, Tennessee, serves as Investment
Adviser to the Portfolio. For managing its investment and business affairs, the
Intermediate Bond Portfolio is obligated to pay First Tennessee a monthly
management fee at the annual rate of .50% of its average net assets. First
Tennessee has voluntarily agreed to waive the entire management fee that it is
entitled to receive under the Investment Advisory and Management Agreement.

Martin serves as the Sub-Adviser to the Portfolio. In January 1998, Martin
became an investment advisory subsidiary of First Tennessee National
Corporation, which also owns First Tennessee. Martin and its predecessors have
been in the investment advisory business for over 8 years and have considerable
experience in securities selection, including expertise in the selection of
fixed-income securities. Martin has not previously advised or sub-advised a
registered investment company such as First Funds, although Martin is subject to
the supervision of First Tennessee, which has a history of investment management
since 1929 and has served as the investment adviser to First Funds since its
inception in 1992. Martin has a total of $1.6 billion in assets under management
as of June 30, 1998.

First Tennessee is obligated to pay Martin a monthly sub-advisory fee at the
annual rate of 0.30% of the Portfolio's average net assets. The Portfolio is not
responsible for paying any portion of Martin's sub-advisory fee. Martin has
agreed to voluntarily waive its sub-advisory fee, although this waive could be
discontinued in whole or in part at any time. Martin's principal office is
located at Two Centre Square, Suite 200, 625 South Gay Street, Knoxville, TN
37902.

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

[PHOTO] Ralph W. Herbert, Vice President and Fixed Income
Portfolio Manager with Martin, is a co-manager for the
Tennessee Tax-Free Portfolio. Mr. Herbert has over 19
years of experience in the financial services industry
and specializes in fixed-income securities. Mr. Herbert
is a 1977 graduate of The University of Tennessee.

Ted L. Flickinger, Jr., Senior Vice President and Fixed
Income Portfolio Manager with Martin, co-manages the
Tennessee Tax-Free Portfolio with Mr. Herbert. Mr.
Flickinger is a Chartered Financial Analyst and has over
20 years of experience in the investment management
industry, at least 8 of which have been with Martin
concentrating on fixed-income securities. Mr. Flickinger
is a 1977 graduate of the University of Tennessee.

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

CLASS I

WHO MAY INVEST?

HOW IS AN INSTITUTIONAL ACCOUNT ESTABLISHED?

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.

<PAGE>

HOW ARE INVESTMENTS MADE?

- --------------------------------------------------------------------------------
WHAT CLASSES OF SHARES DOES THE BOND PORTFOLIO OFFER?

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.

HOW ARE REDEMPTIONS MADE?

<PAGE>

to the Transfer Agent at P.O. Box 8050, Boston, MA, 02266.

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
Martin's opinion, they are of a size that would disrupt management of the
Portfolio.

In order to allow Martin 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.

CLASS II AND III

WHO MAY INVEST?

INVESTMENT REQUIREMENTS

<PAGE>

HOW DO I SET UP AN ACCOUNT?

HOW DO I INVEST DIRECTLY?

Investments may be made in several ways:

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

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 shares in several ways:

<PAGE>

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, Martin, 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).

HOW DO I INVEST THROUGH MY INVESTMENT PROFESSIONAL?

SYSTEMATIC INVESTING PROGRAM

SYSTEMATIC WITHDRAWAL PLAN

ADDITIONAL INFORMATION

<PAGE>

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 $100,000 2.50 2.56 2.25
- --------------------------------------------------------------------------------
$100,000 to $249,999 2.00 2.04 1.75
- --------------------------------------------------------------------------------
$250,000 to $499,999 1.75 1.78 1.50
- --------------------------------------------------------------------------------
$500,000 to $999,999 1.25 1.27 1.00
- --------------------------------------------------------------------------------
$1,000,000 and over 0.50 0.50 0.40
- --------------------------------------------------------------------------------
</TABLE>

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

(A) 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;

(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.

<PAGE>

can be exercised only one time with respect to any particular redemption.

QUANTITY DISCOUNTS

- 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 Plans and Shareholder Servicing Plans."

CLASS III

<PAGE>

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.

ALL CLASSES

HOW ARE PORTFOLIO SHARES VALUED?

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.

WHAT ARE MY DISTRIBUTION OPTIONS?

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?

<PAGE>

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.

STATEMENTS AND REPORTS

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

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.

<PAGE>

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

INTERMEDIATE BOND PORTFOLIO
<TABLE>
<CAPTION>
CLASS I
---------------------------------------------------------------
For the Six Months
Ended December 31, For the Period
(Unaudited) Ended June 30,
---------------------------------------------------------------
1998 1998**
---- ------
<S> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $10.02 $10.00
---------------------------------------------------------------
Income from investment operations:
Net investment income 0.29 0.19
Net realized and unrealized gain on
investments 0.13 0.02
---------------------------------------------------------------
Total from investment operations 0.42 0.21
---------------------------------------------------------------
Distributions:
Net investment income (0.29) (0.19)
Net realized gain (0.02) -
---------------------------------------------------------------
Total distributions (0.31) (0.19)
---------------------------------------------------------------
Net asset value, end of period $10.13 $10.02
---------------------------------------------------------------
---------------------------------------------------------------

TOTAL RETURN+ 4.27%# 2.17%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $213,058 $199,872
Ratio of expenses to average daily net assets(1) 0.37%* 0.37%*
Ratio of net investment income to average net assets 5.74%* 5.87%*
Portfolio turnover rate 42%* 9%*

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.87%* 0.87%*
</TABLE>

<PAGE>

FINANCIAL HIGHLIGHTS
INTERMEDIATE BOND 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 $10.02 $9.99
---------------------------------------------------------------
Income from investment operations:
Net investment income 0.28 0.18
Net realized and unrealized gain on
investments 0.13 0.03
---------------------------------------------------------------
Total from investment operations 0.41 0.21
---------------------------------------------------------------
Distributions:
Net investment income (0.28) (0.18)
Net realized gain (0.02) -
---------------------------------------------------------------
Total distributions (0.30) (0.18)
---------------------------------------------------------------
Net asset value, end of period $10.13 $10.02
---------------------------------------------------------------
---------------------------------------------------------------
TOTAL RETURN+*** 4.13%# 2.07%#

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period (thousands) $2,783 $923
Ratio of expenses to average daily net assets(1) 0.69%* 0.65%*
Ratio of net investment income to average net assets 5.42%* 5.59%*
Portfolio turnover rate 42%* 9%*

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.19%* 1.16%*
</TABLE>

* Annualized.
** Class I commenced operations on March 2, 1998 and Classes II commenced
operations on March 9, 1998.
*** Class II total return does not include the one time sales charge.
+ Total return would have been lower had various fees not been waived during
the period.
# Total return for periods of less than one year are not annualized.

<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 $10.02 $9.99
---------------------------------------------------------------
Income from investment operations:
Net investment income 0.24 0.06
Net realized and unrealized gain on
investments 0.14 0.03
---------------------------------------------------------------
Total from investment operations 0.38 0.09
---------------------------------------------------------------
Distributions:
Net investment income (0.24) (0.06)
Net realized gain (0.02) 0.00
---------------------------------------------------------------
Total distributions (0.27) (0.06)
---------------------------------------------------------------
Net asset value, end of period $10.13 $10.02
---------------------------------------------------------------
---------------------------------------------------------------
TOTAL RETURN+ 3.36%# 0.92%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $624 $17
Ratio of expenses to average daily net assets(1) 1.29%* 1.35%*
Ratio of net investment income to average net assets 4.81%* 4.89%*
Portfolio turnover rate 42%* 9%*

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.80%* 1.86%*
</TABLE>

* Annualized.
** Class III commenced operations on May 19, 1998.
+ Total return would have been lower had various fees not been waived during
the period.
# Total return for periods of less than one year are not annualized.

<PAGE>

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

ADDITIONAL INFORMATION ABOUT THE PORTFOLIO'S INVESTMENTS

The following information provides 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.

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

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

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

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

A-1

<PAGE>

[LOGO] 370 Seventeenth Street
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] FIRST FUNDS
Investment Adviser
- Are NOT insured by the FDIC or
any other governmental agency.
- Are NOT bank deposits or
other obligations of or guaranteed
by First Tennessee Bank National
Association or any of its affiliates.
[LOGO] - Involve investment risks, including
Sponsor and Distributor the possible loss of the principal
amount invested.
-------------------------------------

<PAGE>

FIRST
FUNDS

U.S. TREASURY MONEY MARKET PORTFOLIO
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
MUNICIPAL MONEY MARKET PORTFOLIO
CASH RESERVE PORTFOLIO

PROSPECTUS
Dated _________ 1999

CLASS I
CLASS II
CLASS III

[GRAPHIC]

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
U.S. Treasury Money Market Portfolio ....................................1
U.S. Government Money Market Portfolio ..................................4
Municipal Money Market Portfolio ........................................7
Cash Reserve Portfolio .................................................10

Performance
U.S. Treasury Money Market Portfolio ....................................2
U.S. Government Money Market Portfolio ..................................5
Municipal Money Market Portfolio ........................................8
Cash Reserve Portfolio .................................................11

Fees and Expenses of the Portfolio
U.S. Treasury Money Market Portfolio ....................................3
U.S. Government Money Market Portfolio ..................................6
Municipal Money Market Portfolio ........................................9
Cash Reserve Portfolio .................................................12

More Information about Investment Objectives, Strategies and Risks ..........13

Who Manages the Portfolio? ..................................................16

Portfolio Managers ..........................................................16

How to Invest in the Portfolio ..............................................16

Distribution Plans and Shareholders Servicing Plans .........................23

Financial Highlights ........................................................24

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

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

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

<PAGE>

- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND PRIMARY RISKS OF THE
U.S. TREASURY MONEY MARKET PORTFOLIO
- -------------------------------------------------------------------------------

INVESTMENT OBJECTIVE -- The objective of the U.S. Treasury Money Market
Portfolio (the "Portfolio") is to seek high current income as is consistent with
the preservation of capital and liquidity.

PRINCIPAL INVESTMENT STRATEGY -- The Portfolio may invest in U.S. Treasury
bills, notes, and bonds and in other direct obligations of the U.S. Treasury.
The Portfolio also may invest in repurchase and reverse repurchase agreements.
Under normal market conditions, the Portfolio will seek to invest 100% of its
net assets in the securities described above.

PRIMARY RISKS -- The primary risks of investing in this Fund are interest rate
risk and credit risk.

- - INTEREST RATE RISK. When interest rates change, the value of the Portfolio's
holdings will be affected. An increase in interest rates tends to reduce the
market value of debt securities, while a decline in interest rates tends to
increase their values.

- - CREDIT RISK. The value of the debt securities held by the Portfolio fluctuates
with the credit quality of the issuers of those securities. Credit risk relates
to the ability of the issuer to make payments of principal and interest when
due, including default risk.

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.

SHOULD I INVEST IN THE U.S. TREASURY MONEY MARKET PORTFOLIO?

The Portfolio may be appropriate for you if:

- - You require stability of principal.

- - You are seeking a money market mutual fund for the cash portion of your
asset allocation program.

- - You are looking for an investment with a lower degree of risk during
uncertain economic times or periods of stock market volatility.

- - You consider yourself a saver rather than an investor.

(REMEMBER, NO SINGLE INVESTMENT CAN PROVIDE AN EFFECTIVE, BALANCED INVESTMENT
PLAN.)

The U.S. Treasury Money Market Portfolio, the U.S. Government Money Market
Portfolio, the Municipal Money Market Portfolio, and the Cash Reserves Portfolio
are each referred to as the "Portfolio" or a "Portfolio" and together as the
"Portfolios" or the "Money Market Portfolios."

- -------------------------------------------------------------------------------
FUND FACTS

GOAL:
The U.S. Treasury Money Market Portfolio seeks a high level of current income
consistent with the preservation of principal and liquidity and the maintenance
of a stable share price of $1.00.

PRINCIPAL INVESTMENTS:
- - U.S. Treasury bills, notes and bonds
- - Direct obligations of the U.S. Treasury
- - Repurchase and reverse repurchase agreements

CLASSES OF SHARES OFFERED IN THIS PROSPECTUS:
- - Class I
- - Class II
- - Class III
- - Class IV

AVERAGE PORTFOLIO MATURITY:
90 days or less

INVESTMENT ADVISER:
- - First Tennessee Bank National Association ("First Tennessee" or "Adviser")

INVESTMENT SUB-ADVISER:
- - BlackRock Institutional Management Corporation ("BIMC" or "Sub-Adviser")

DISTRIBUTOR:
- - ALPS Mutual Funds Services, Inc. ("ALPS")
- -------------------------------------------------------------------------------

1
<PAGE>

- -------------------------------------------------------------------------------
PERFORMANCE OF THE U.S. TREASURY MONEY MARKET PORTFOLIO
- -------------------------------------------------------------------------------

The performance of the Class I shares shown in the bar chart reflects the
expenses associated with those shares from year to year.

- -------------------------------------------------------------------------------
YEAR-BY-YEAR TOTAL RETURN (CLASS I)
- -------------------------------------------------------------------------------
Best Quarter (quarter ended _____________) -- 0.00%
Worst Quarter (quarter ended _____________) -- 0.00%
- -------------------------------------------------------------------------------

The table below lists the U.S. Treasury Money Market Portfolio's average
year-by-year return by class over the past one, five, and ten year periods and
since the inception of each class of shares. If you would like to know the
current 7 day yield of the U.S. Treasury Money Market Portfolio, please call
ALPS at 1-800-442-1941.

- -------------------------------------------------------------------------------
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 11/12/92 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------
CLASS II 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------
CLASS III 8/8/95 0.00% N/A 0.00%
- -------------------------------------------------------------------------------
CLASS IV*/ N/A N/A N/A
- -------------------------------------------------------------------------------
</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 U.S. TREASURY MONEY MARKET 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 None None None
purchases as a percentage of offering price
- --------------------------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) None None None None
(as a percentage of original purchase price
or redemption proceeds, as applicable)
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from portfolio assets)
(For the year ended June 30, 1998) Class I Class II Class III Class IV
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Management Fees*/ .25% .25% .25% .25%
- --------------------------------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees .00% .00% .45%***/ .65%
- --------------------------------------------------------------------------------------------------------------------------
Other Expenses**/ .38% .55% .30% .30%****/
- --------------------------------------------------------------------------------------------------------------------------
Total Portfolio Operating Expenses .63% .80% 1.00% 1.20%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

*/First Tennessee, as Investment Adviser, has voluntarily agreed to waive a
portion of the investment management fee that it is entitled to receive under
the Investment Advisory and Management to the extent such fee exceeds .08% of
the Portfolio's average net assets.

**/ First Tennessee , as Co-administrator, has voluntarily agreed to waive its
entire co-administration fee (.50%) that it is entitled to receive under the
Co-administration Agreement. ALPS, as administrator, has voluntarily agreed to
waive its entire administration fee (.075%) that it is entitled to receive under
the Administration Agreement.

***/The Trustees have agreed to limit the 12b-1 fees applicable to Class III
shares to .25%.

****/Because the Class IV shares have not been in existence for a full year,
this amount is estimated.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CLASS I CLASS II CLASS III CLASS IV*/
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
After 1 year $64 $82 $102 $122
- -------------------------------------------------------------------------------
After 3 years $202 $255 $318 $381
- -------------------------------------------------------------------------------
After 5 years $351 $444 $552 $659
- -------------------------------------------------------------------------------
After 10 years $786 $989 $1,223 $1,453
- -------------------------------------------------------------------------------
</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>

- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND PRIMARY RISKS OF THE
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
- -------------------------------------------------------------------------------

INVESTMENT OBJECTIVE -- The objective of the U.S. Government Money Market
Portfolio (the "Portfolio") is to seek high current income as is consistent with
the preservation of capital and liquidity.

PRINCIPAL INVESTMENT STRATEGY -- Under normal market conditions, the Portfolio
will invest at least 65% of its assets in instruments issued or guaranteed as to
principal and interest by the U.S. government or by any of its agencies or
instrumentalities. Most of the securities held by the Portfolio are backed by
the full faith and credit of the U.S. government. The Portfolio also may invest
in repurchase and reverse repurchase agreements.

PRIMARY RISKS -- The primary risks of investing in this Fund are interest rate
risk and credit risk.

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.

SHOULD I INVEST IN THE U.S. GOVERNMENT MONEY MARKET PORTFOLIO?

The Portfolio may be appropriate for you if:

- - You require stability of principal.

- - You are seeking a money market mutual fund for the cash portion of your
asset allocation program.

- - You are looking for an investment with a lower degree of risk during
uncertain economic times or periods of stock market volatility.

- - You consider yourself a saver rather than an investor.

(REMEMBER, NO SINGLE INVESTMENT CAN PROVIDE AN EFFECTIVE, BALANCED INVESTMENT
PLAN.)

- -------------------------------------------------------------------------------
FUND FACTS

GOAL:
The U.S. Government Money Market Portfolio seeks a high level of current income
consistent with the preservation of principal and liquidity and the maintenance
of a stable share price of $1.00.

PRINCIPAL INVESTMENTS:
- - U.S. Treasury bills, notes and bonds
- - Repurchase and reverse repurchase agreements
- - Variable or floating rate instruments

CLASSES OF SHARES OFFERED IN THIS PROSPECTUS:
- - Class I
- - Class II
- - Class III

AVERAGE PORTFOLIO MATURITY:
90 days or less

INVESTMENT ADVISER:
- - First Tennessee

INVESTMENT SUB-ADVISER:
- - BIMC

DISTRIBUTOR:
- - ALPS

4
<PAGE>

- -------------------------------------------------------------------------------
PERFORMANCE OF THE U.S. GOVERNMENT MONEY MARKET PORTFOLIO
- -------------------------------------------------------------------------------

The performance of the Class I shares shown in the bar chart reflects the
expenses associated with those shares from year to year.

- -------------------------------------------------------------------------------
YEAR-BY-YEAR TOTAL RETURN (CLASS I)
- -------------------------------------------------------------------------------
Best Quarter (quarter ended ____________) -- 0.00%
Worst Quarter (quarter ended ____________) -- 0.00%
- -------------------------------------------------------------------------------

The table below lists the U.S. Government Money Market Portfolio's average
year-by-year return by class over the past one, five, and ten year periods and
since the inception of each class of shares. If you would like to know the
current 7 day yield of the U.S. Government Money Market Portfolio, please call
ALPS at 1-800-442-1941.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(for the period ended December 31, 1998)
- -------------------------------------------------------------------------------

INCEPTION DATE 1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS I 11/12/92 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------
CLASS II 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------
CLASS III 8/8/95 0.00% N/A 0.00%
- -------------------------------------------------------------------------------
</TABLE>

5
<PAGE>

- -------------------------------------------------------------------------------
FEES AND EXPENSES OF THE U.S. GOVERNMENT MONEY MARKET 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
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on None None None
purchases as a percentage of offering price
- -------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) None None None
(as a percentage of original purchase price
or redemption proceeds, as applicable)
- -------------------------------------------------------------------------------------------------------

<CAPTION>
ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from portfolio assets)
(For the year ended June 30, 1998) Class I Class II Class III
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees*/ .25% .25% .25%
- -------------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees .00% .00% .45%***/
- -------------------------------------------------------------------------------------------------------
Other Expenses**/ .28% .58% .33%
- -------------------------------------------------------------------------------------------------------
Total Portfolio Operating Expenses .53% .83% 1.03%
- -------------------------------------------------------------------------------------------------------
</TABLE>

**/First Tennessee , as Co-administrator, is entitled to receive an annual fee
of .05% of the Portfolio's average net assets. First Tennessee has voluntarily
agreed to limit the fee that it is entitled to receive as Co-administrator to
.025% of the Portfolio's average net assets.

***/The Trustees have agreed to limit the 12b-1 fees applicable to Class III
shares to .25%.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CLASS I CLASS II CLASS III
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
After 1 year $54 $85 $105
- -------------------------------------------------------------------------------
After 3 years $170 $265 $328
- -------------------------------------------------------------------------------
After 5 years $296 $460 $568
- -------------------------------------------------------------------------------
After 10 years $665 $1,025 $1,258
- -------------------------------------------------------------------------------
</TABLE>

6
<PAGE>

- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND PRIMARY RISKS OF THE
MUNICIPAL MONEY MARKET PORTFOLIO
- -------------------------------------------------------------------------------

INVESTMENT OBJECTIVE -- The objective of the Municipal Money Market Portfolio
(the "Portfolio") is to seek a high level of federally tax exempt as is
consistent with the preservation of capital and liquidity.

PRINCIPAL INVESTMENT STRATEGY -- Under normal market conditions, the Portfolio
will invest at least 65% of its assets in high-quality, short-term municipal
obligations. The Portfolio also may invest in high-quality, long-term, fixed,
variable, or floating rate instruments (including tender option bonds) that have
interest rates, maturities, and prices comparable to similar short-term
instruments. Under normal market conditions, the investments of the Portfolio
will be managed in a manner so that at least 80% of the income earned by the
Portfolio will be exempt from federal income tax. The Portfolio also may invest
in repurchase and reverse repurchase agreements.

PRIMARY RISKS -- The primary risks of investing in this Fund are interest rate
risk and credit risk.

- - TAXABLE INCOME RISK. The risk that income earned on municipal obligations may
be subject to state or and local taxes or may be treated as a preference item
for determining the federal alternative minimum tax.

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.

- -------------------------------------------------------------------------------
FUND FACTS

GOAL:
The The Municipal Money Market Portfolio seeks a high level of federally tax
exempt income consistent with the preservation of principal and liquidity and
the maintenance of a stable share price of $1.00.

PRINCIPAL INVESTMENTS:
- - Tax, revenue or bond anticipation notes
- - Tax-exempt commercial paper
- - Municipal lease obligations
- - Resource recovery bonds
- - Standby commitments
- - Zero coupon bonds

CLASSES OF SHARES OFFERED IN THIS PROSPECTUS:
- - Class I
- - Class II
- - Class III

AVERAGE PORTFOLIO MATURITY:
90 days or less

INVESTMENT ADVISER:
- - First Tennessee

INVESTMENT SUB-ADVISER:
- - BIMC

DISTRIBUTOR:
- - ALPS

7
<PAGE>

SHOULD I INVEST IN THE MUNICIPAL MONEY MARKET PORTFOLIO?

The Portfolio may be appropriate for you if:

- - You require stability of principal.

- - You are seeking a money market mutual fund for the cash portion of your
asset allocation program.

- - You are looking for an investment with a lower degree of risk during
uncertain economic times or periods of stock market volatility.

- - You consider yourself a saver rather than an investor.

(REMEMBER, NO SINGLE INVESTMENT CAN PROVIDE AN EFFECTIVE, BALANCED INVESTMENT
PLAN.)

- -------------------------------------------------------------------------------
PERFORMANCE OF THE MUNICIPAL MONEY MARKET PORTFOLIO
- -------------------------------------------------------------------------------

The performance of the Class I shares shown in the bar chart reflects the
expenses associated with those shares from year to year.

- -------------------------------------------------------------------------------
YEAR-BY-YEAR TOTAL RETURN (CLASS I)
- -------------------------------------------------------------------------------
Best Quarter (quarter ended ____________) -- 0.00%
Worst Quarter (quarter ended ____________) -- (0.00%)
- -------------------------------------------------------------------------------

The table below lists the Municipal Money Market Portfolio's average
year-by-year return by class over the past one, five, and ten year periods and
since the inception of each class of shares. If you would like to know the
current 7 day yield of the Municipal Money Market Portfolio, please call ALPS at
1-800-442-1941.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(for the period ended December 31, 1998)
- -------------------------------------------------------------------------------
INCEPTION DATE 1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS I 11/12/92 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------
CLASS II 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------
CLASS III 7/28/95 0.00% N/A 0.00%
- -------------------------------------------------------------------------------
</TABLE>

8
<PAGE>

- -------------------------------------------------------------------------------
FEES AND EXPENSES OF THE MUNICIPAL MONEY MARKET 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
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on None None None
purchases as a percentage of offering price
- --------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) None None None
(as a percentage of original purchase price
or redemption proceeds, as applicable)
- --------------------------------------------------------------------------------------------------------

<CAPTION>
ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from portfolio assets)
(For the year ended June 30, 1998) Class I Class II Class III
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees*/ .25% .25% .25%
- --------------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees .00% .00% .45%***/
- --------------------------------------------------------------------------------------------------------
Other Expenses**/ .31% .56% .31%
- --------------------------------------------------------------------------------------------------------
Total Portfolio Operating Expenses .56% .81% 1.01%
- --------------------------------------------------------------------------------------------------------
</TABLE>

***/The Trustees have agreed to limit the 12b-1 fees applicable to Class III
shares to .25%.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CLASS I CLASS II CLASS III
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
After 1 year $57 $83 $103
- -------------------------------------------------------------------------------
After 3 years $179 $259 $321
- -------------------------------------------------------------------------------
After 5 years $313 $449 $558
- -------------------------------------------------------------------------------
After 10 years $701 $1,001 $1,235
- -------------------------------------------------------------------------------
</TABLE>

9
<PAGE>

- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND PRIMARY RISKS OF THE
CASH RESERVE PORTFOLIO
- -------------------------------------------------------------------------------

INVESTMENT OBJECTIVE -- The objective of the (the "Portfolio") Municipal Money
Market Portfolio is to seek high current income as is consistent with the
preservation of capital and liquidity.

PRINCIPAL INVESTMENT STRATEGY -- The Portfolio may invest in a broad range of
high-quality, short-term, U.S. dollar-denominated money market obligations,
including, but not limited to: certificates of deposit, commercial paper,
bankers' acceptances, and notes issued by U.S. banks. The securities in which
the Portfolio typically invests are issued by issuers in the financial services
industry, including, foreign and domestic banks, insurance companies, brokerage
firms, and consumer and industrial finance companies. The Portfolio also may
invest in repurchase and reverse repurchase agreements.

PRIMARY RISKS -- The primary risks of investing in this Fund are interest rate
risk and credit risk.

- - FOREIGN RISKS. The risk that foreign securities may be adversely affected by
political instability of the issuer's country, changes in currency exchange
rates, foreign economic conditions, or regulatory and reporting standards that
are less stringent than those of the United States. Foreign investment risks
will normally be greatest when a Fund invests in issuers located in emerging
countries.

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.

- -------------------------------------------------------------------------------
FUND FACTS

GOAL:
The Cash Reserve Portfolio seeks a high level of current income consistent with
the preservation of principal and liquidity and the maintenance of a stable
share price of $1.00.

PRINCIPAL INVESTMENTS:
- - Certificates of deposit
- - Commercial paper
- - Bankers' acceptances
- - Bank notes
- - U.S. government obligations

CLASSES OF SHARES OFFERED IN THIS PROSPECTUS:
- - Class I
- - Class II
- - Class III

INVESTMENT ADVISER:
- - First Tennessee

INVESTMENT SUB-ADVISER:
- - BIMC

DISTRIBUTOR:
- - ALPS

10
<PAGE>

SHOULD I INVEST IN THE CASH RESERVE PORTFOLIO?

The Portfolio may be appropriate for you if:

- - You require stability of principal.

- - You are seeking a money market mutual fund for the cash portion of your
asset allocation program.

- - You are looking for an investment with a lower degree of risk during
uncertain economic times or periods of stock market volatility.

- - You consider yourself a saver rather than an investor.

(REMEMBER, NO SINGLE INVESTMENT CAN PROVIDE AN EFFECTIVE, BALANCED INVESTMENT
PLAN.)

- -------------------------------------------------------------------------------
PERFORMANCE OF THE CASH RESERVE PORTFOLIO
- -------------------------------------------------------------------------------

The performance of the Class I shares shown in the bar chart reflects the
expenses associated with those shares from year to year.

- -------------------------------------------------------------------------------
YEAR-BY-YEAR TOTAL RETURN (CLASS I)
- -------------------------------------------------------------------------------
Best Quarter (quarter ended _____________ -- 0.00%
Worst Quarter (quarter ended _____________ -- (0.00%)
- -------------------------------------------------------------------------------

The table below lists the Cash Reserve Portfolio's average year-by-year return
by class over the past one, five, and ten year periods and since the inception
of each class of shares. If you would like to know the current 7 day yield of
the Cash Reserve Portfolio, please call ALPS at 1-800-442-1941.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(for the period ended December 31, 1998)
- -------------------------------------------------------------------------------
INCEPTION DATE 1 YEAR 5 YEARS SINCE INCEPTION
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS I 9/26/94 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------
CLASS II 0.00% 0.00% 0.00%
- -------------------------------------------------------------------------------
CLASS III 7/28/95 0.00% N/A 0.00%
- -------------------------------------------------------------------------------
</TABLE>

11
<PAGE>

- -------------------------------------------------------------------------------
FEES AND EXPENSES OF THE CASH RESERVE 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
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) imposed on None None None
purchases as a percentage of offering price
- ---------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) None None None
(as a percentage of original purchase price
or redemption proceeds, as applicable)
- ---------------------------------------------------------------------------------------------------------

<CAPTION>
ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from portfolio assets)
(For the year ended June 30, 1998) Class I Class II Class III
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees*/ .25% .25% .25%
- ---------------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees .00% .00% .45%***/
- ---------------------------------------------------------------------------------------------------------
Other Expenses**/ .29% .53% .28%
- ---------------------------------------------------------------------------------------------------------
Total Portfolio Operating Expenses .54% .78% .98%
- ---------------------------------------------------------------------------------------------------------
</TABLE>

***/The Trustees have agreed to limit the 12b-1 fees applicable to Class III
shares to .25%.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CLASS I CLASS II CLASS III
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
After 1 year $55 $80 $100
- -------------------------------------------------------------------------------
After 3 years $173 $249 $312
- -------------------------------------------------------------------------------
After 5 years $302 $433 $541
- -------------------------------------------------------------------------------
After 10 years $677 $965 $1,200
- -------------------------------------------------------------------------------
</TABLE>

12
<PAGE>

- -------------------------------------------------------------------------------
MORE INFORMATION ABOUT INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- -------------------------------------------------------------------------------

OUR INVESTMENT STRATEGY -- Each Portfolio seeks a high level of current income
consistent with the preservation of capital and liquidity by investing in a
portfolio of high quality money market instruments. Pursuant to procedures
adopted by the Trustees, each Portfolio may purchase only high quality money
market obligations that satisfy the investment restrictions of the applicable
Portfolio and that the Sub-Adviser believes present minimal credit risks. To be
considered high quality, a security must be a U.S. government security; or rated
in accordance with applicable rules in one of the two highest rating categories
for short-term obligations by at least two nationally recognized rating services
(or by one, if only one rating service has rated the security); or, if unrated,
judged to be of equivalent quality by BIMC. Also, with limited exceptions, each
Portfolio must limit its investments to obligations with remaining maturities of
397 days or less, as determined in accordance with applicable rules adopted by
the SEC. Each Portfolio also must maintain a dollar-weighted average maturity of
90 days or less.

The Cash Reserve Portfolio also may invest in U.S. dollar-denominated
obligations of foreign banks or foreign branches of U.S. banks where BIMC deems
the instrument to present minimal credit risks. Such investments may include
Eurodollar Certificates of Deposit (ECDs), which are U.S. dollar-denominated
certificates of deposit issued by offices of foreign and domestic banks located
outside the United States; Eurodollar Time Deposits (ETDs), which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank; Canadian Time Deposits (CTDs), which are essentially the same U.S.
dollar-denominated instruments as ETDs, except that they are issued by Canadian
offices of major Canadian banks; and Yankee Certificates of Deposit (Yankee
CDs), which are U.S. dollar-denominated certificates of deposit issued by a U.S.
branch of a foreign bank and held in the United States.

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

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>

COMMERCIAL PAPER: Unsecured promissory notes that CREDIT RISK -- The risk that the issuer of a security, or a
corporations typically issue to finance current party to a contract, will default or otherwise not honor a
operations and other expenditures. inancial obligation.

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. In general, shorter
term securities offer greater stability and are less
sensitive to changes in interest rates. Longer term
securities of the type in which a Portfolio invests offer
less stability and tend to be more sensitive to changes in
interest rates, but generally offer higher yields.

LIQUIDITY RISK -- The risk that certain securities or other
investments may be difficult or impossible to sell at the
time a Portfolio would like to sell them or it may be
difficult for a Portfolio to sell the investment for the
value the Portfolio has placed on it.
- -----------------------------------------------------------------------------------------------------------------------------------

13
<PAGE>

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

INDUSTRIAL REVENUE BONDS: Revenue bonds that are backed by a CREDIT RISK
state of a private issuer .
INTEREST RATE RISK

LIQUIDITY RISK
- -----------------------------------------------------------------------------------------------------------------------------------
CORPORATE DEBT OBLIGATIONS: Corporate debt obligations include CALL RISK -- The risk that an issuer will exercise its right
bonds, notes, debentures, and other obligations of corporate to pay principal on an obligation held by a Portfolio (such
entities to pay interest and repay principal. as a mortgage backed security) earlier than expected. This
may happen when there is a decline in interest rates. Under
these circumstances, the Portfolio may be unable to recoup
all of its initial investment and will also suffer from
having to reinvest in lower yielding securities.

CREDIT RISK

EXTENSION RISK -- The risk that an issuer will exercise its
right to pay principal on an obligation held by a Portfolio
(such as a Mortgage-Backed Security) later than expected.
This may happen when there is a rise in interest rates. Under
these circumstances, the value of the obligation will
decrease and the Portfolio will also suffer from the
inability to invest in higher yielding securities.

INTEREST RATE RISK

LIQUIDITY RISK
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS: U.S. government obligations are CALL RISK
debt obligations issued or guaranteed by the U.S. Treasury or
by an agency or instrumentality of the U.S. government. Not EXTENSION RISK
all U.S. government obligations are backed by the full faith
and credit of the United States. For example, obligations INTEREST RATE RISK
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. There is no guarantee that the government
will support these obligations if it is not required to do so,
and, therefore, they involve more risk than other government
obligations.
- -----------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL OBLIGATIONS (IN GENERAL): Securities that are issued CREDIT RISK
to raise money for various public purposes, including general
purpose financing for state and local governments as well as INTEREST RATE RISK
financing for specific projects or public facilities. Municipal
obligations may be backed by the full taxing power of a TAXABLE INCOME RISK -- The risk that income earned on
municipality or by the revenues from a specific project or the municipal obligations may be subject to state or and local
credit of a private organization. Some municipal obligations taxes or may be treated as a preference item for determining
are insured by private insurance companies, while others may be the federal alternative minimum tax.
supported by letters of credit furnished by domestic or
foreign banks. LIQUIDITY RISK
- -----------------------------------------------------------------------------------------------------------------------------------

14
<PAGE>

MUNICIPAL LEASE OBLIGATIONS: Securities issued by state and local CREDIT RISK
governments or authorities to acquire land and a wide variety of
equipment and facilities. These obligations typically are not INTEREST RATE RISK
backed by the credit of the issuing municipality, and their
interest may become taxable if the lease is assigned. If funds LIQUIDITY RISK
are not appropriated for the lease payments for the following
year, the lease may terminate, with the possibility of
significant loss to the Portfolio holding the securities.
Certificates of Participation in municipal lease obligations or
installment sales contracts entitle the holder to a proportionate
interest in the lease purchase payments made.
- -----------------------------------------------------------------------------------------------------------------------------------
SECURITIES OF FOREIGN ISSUERS: Securities issued by: (1) FOREIGN RISKS -- The risk that foreign securities may be
Companies organized outside the United States, (2) companies adversely affected by political instability of the issuer's
whose securities are principally traded outside of the United country, changes in currency exchange rates, foreign economic
States, and (3) foreign governments and agencies or conditions, or regulatory and reporting standards that are
instrumentalities of foreign governments. Securities of foreign less stringent than those of the United States. Foreign
issuers includes American Depositary Receipts (ADRs), which are investment risks will normally be greatest when a Fund
U.S. dollar-denominated securities. invests in issuers located in emerging countries.
- -----------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS: An CREDIT RISK
agreement between a buyer and seller of securities in which the
seller agrees to buy the securities back within a specified
period of time at the same price the buyer paid for them, plus an
amount equal to an agreed upon interest rate.
- -----------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT COMMERCIAL PAPER: Promissory notes issued by CREDIT RISK
municipalities to help finance short-term capital or operating
needs. INTEREST RATE RISK

LIQUIDITY RISK
- -----------------------------------------------------------------------------------------------------------------------------------

</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 Municipal Money Market and Cash Reserve Portfolios
also may invest in instruments and securities generally known as derivative
investments. These investments may include the use of derivative/synthetic
municipals (e.g., tender option bonds and certificates of participation), zero
coupon bonds, and stripped fixed-income obligations. BIMC may not buy any of
these instruments or use any of these techniques unless it believes that doing
so will help the Portfolio achieve its investment objective. Use of these
instruments and techniques can alter the risk and return characteristics of a
Portfolio. They also may result in a loss of principal if BIMC judges market
conditions incorrectly or employs a strategy that does not correlate well with
the investment strategy of the Portfolio.

WHAT IS A DERIVATIVE INSTRUMENT?

A derivative is a financial contract whose value is based on (or "derived" from)
a traditional security (such as a stock or bond), an asset (such as a commodity
like gold), or a market index (such as the S&P 500 Index). Futures and options
are derivatives that have been traded on regulated exchanges for more than two
decades.

15
<PAGE>

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.

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

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

First Tennessee, 530 Oak Court Dr., Memphis, Tennessee, Memphis, Tennessee,
serves as the investment adviser to each Portfolio. For managing its investment
and business affairs, each Portfolio is obligated to pay First Tennessee a
monthly management fee at the annual rate of .25% of aggregate average net
assets of all the Money Market Portfolios through $1 billion, and .22% on
amounts greater than $1 billion. First Tennessee has voluntarily agreed to a
portion of the fee that it is entitled to receive under the Investment Advisory
and Management Agreement (the "Agreement") to the extent such fees exceed .10%
of each Money Market Portfolio's average net assets.

BIMC (formerly known as PNC Institutional Management Corporation), 400 Bellevue
Parkway, Wilmington, Delaware, serves as the Sub-Adviser for each Portfolio
subject to the supervision of First Tennessee, pursuant to the authority granted
to it under its Sub-Advisory Agreement with First Tennessee. BIMC is an
indirect, wholly owned subsidiary of PNC Bank Corp. (PNC Bank), a multi-bank
holding company. BIMC was organized in 1973 to perform advisory services for
investment companies. BIMC changed its name in 1998 following a reorganization
of its investment management operations. PNC Bank and its predecessors have been
in the business of managing the investments of fiduciary and other accounts
since 1847. BIMC advises or manages approximately 48 short-term liquid asset
portfolios, including money market portfolios, with total assets of
approximately $44 billion as of September 30, 1998.

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

CLASS I

WHO MAY INVEST?

HOW IS AN INSTITUTIONAL ACCOUNT ESTABLISHED?

An initial investment must be preceded by or made in conjunction with the
establishment of an Institutional Account with an Institutional Investor.
Establishment of an Institutional Account may require that documents and
applications be completed and signed before the investment can be implemented.
The Institutional Investor may require that certain documents be provided prior
to making a redemption from the Portfolio.

16
<PAGE>

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 2:00 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 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
Portfolios 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
2:00 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 Portfolios 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
Portfolios. Subsequent investments may be in any amount. If an Institutional
Investor's Class I account falls below $375,000 due to redemption, the
Portfolios 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 another class of 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.

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 through the day prior to redemption. If an account is closed, any
accrued dividends will be paid at the beginning of the following month.

Institutional Investors may make redemptions by wire provided they have
established a wire account with 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 2:00 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 a 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
- --------------------------------------------------------------------------------

WHAT CLASS OF SHARES DO THE MONEY MARKET PORTFOLIOS OFFER?

The U.S. Treasury Money Market Portfolio offers investors four different classes
of shares. The other Money Market Portfolios offer investors three different
class 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 vest.

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

CLASS II, III AND IV SHARES. Class II, III and IV shares are offered to
investors with a lower investment minimum. These classes also incur varying
levels of distribution or shareholder servicing fees. Class IV shares are only
offered by the U.S. Treasury Money Market Portfolio.

17
<PAGE>

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, each Portfolio's NAV may be affected on
days when investors do not have access to the Portfolios to purchase or redeem
shares.

ADDITIONAL INFORMATION

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

In order to allow BIMC to manage the Portfolios 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 Portfolios and
their agents will not be responsible for any losses resulting from unauthorized
telephone transactions if the Portfolios or their 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 Portfolios or their 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 structures to choose between.

See "Fees and Expenses of the 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 a 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). Each Portfolio reserves the
right to limit the number of checks processed at one time. If your check does
not clear, your purchase will be canceled and you could be liable for any losses
or fees incurred.

You may initiate any transaction either directly or through your Investment
Professional. Please note that the Portfolios and their agents will not be
responsible for any losses resulting from unauthorized transactions if the
Portfolios or their 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 a Portfolio or you may invest in a
Portfolio through your Investment Professional (see "How Do I Invest Through My

18
<PAGE>

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 2:00 p.m. Eastern Time in order for you to receive that day's dividend
accrual.

HOW DO I INVEST DIRECTLY?

Investments may be made in several ways:

BY MAIL: Make your check payable to FIRST FUNDS [NAME OF PORTFOLIO], and mail
it, along with the application, to the address indicated on the application.
Your account will be credited on the business day that 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.

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

BY 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, BIMC, 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 a Portfolio, you must have
indicated this account privilege

19
<PAGE>

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 2:00 p.m. Eastern Time, proceeds of the redemption will be
wired as federal funds on the same 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 Portfolios 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, a 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?

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 each 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

HOW ARE PORTFOLIO SHARES VALUED?

The term "net asset value per share," or NAV, means the worth of one share. The
NAV of each Class of each Portfolio is calculated by adding that Class' pro rata
share of the value of all securities and other assets attributable to that
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 Portfolios are 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 a 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

20
<PAGE>

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?

Each Portfolio earns interest from its investments. These are passed along as
dividend distributions. Income dividends for the Portfolios are declared daily
and paid monthly. The Portfolios 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. 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, each 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 2:00 p.m. Eastern Time on any Business Day.

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

Each exchange may produce a gain or loss for tax purposes. In order to protect
each Portfolio's performance and its shareholders, First Tennessee and BIMC
discourage frequent exchange activity by investors in response to short-term
market fluctuations. The Portfolios reserve the right to refuse any specific
purchase order, including certain purchases by exchange if, in BIMC's opinion, a
Portfolio would be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise be affected adversely.
Exchanges or purchase orders may be restricted or refused if a Portfolio
receives or anticipates individual or simultaneous orders affecting significant
portions of that Portfolio's assets. Although each Portfolio will attempt to
give prior notice whenever it is reasonably able to do so, it may impose these
restrictions at any time. The Portfolios reserve 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.

STATEMENTS AND REPORTS

21
<PAGE>

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

The Portfolios intend to distribute substantially all of their 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 Portfolios are declared daily
and paid monthly.

FEDERAL TAXES. Distributions of gains from the sale of assets held by a
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.

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
Portfolios will send each investor or, if Class I, each Institutional Investor,
an IRS Form 1099-DIV by January 31 of each year.

Federally tax-free interest earned by the Municipal Money Market Portfolio is
federally tax-free when distributed as income dividends. If the Portfolio earns
federally taxable income from any of its investments, it will be distributed as
a taxable dividend. Gains from the sale of tax-free bonds held by the Municipal
Money Market Portfolio for more than one year result in a taxable capital gain
distribution. Short-term capital gains and a portion of the gain on bonds
purchased at a discount are taxed as dividends.

REDEMPTIONS AND EXCHANGES. A capital gain or loss may be realized when shares of
a 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, a 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.

OTHER TAX INFORMATION. The information above is only a summary of some of the
federal tax consequences generally affecting the Portfolios and their
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 each Portfolio is suitable given your particular tax
situation.

- -------------------------------------------------------------------------------
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 shares of each Portfolio and Class IV shares
of the U.S. Treasury Money Market Portfolio (each a "Distribution Plan" and
together the "Distribution Plans"). The 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 up to .45% of the average
net assets of each Portfolio that are attributable to Class III shares and an
amount up to .65% of the average net assets of the U.S. Treasury Money Market
Portfolio that are attributable to Class IV shares. The Trustees have limited
the amount that may be paid under the Class III Distribution Plan to .25%. 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.

The Trustees have also adopted a Shareholder Servicing Plan on behalf of Class
II shares of each Portfolio. Under the Shareholder Servicing Plan, certain
broker-dealers, banks, and other financial institutions (collectively "Service
Organizations") are paid an amount equal to .25% of the average net assets of
each Portfolio that are attributable to Class II 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.

22
<PAGE>

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

U.S. TREASURY MONEY MARKET PORTFOLIO

CLASS I
---------------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>

SELECTED PER-SHARE DATA
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.024 0.051 0.050 0.052 0.050 0.030
---------------------------------------------------------------------------------

Distributions:
Net investment income (0.024) (0.051) (0.050) (0.052) (0.050) (0.030)
---------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

TOTAL RETURN+ 2.41%# 5.19% 5.09% 5.30% 5.10% 3.06%

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $18,246 $19,314 $6,141 $75,703 $67,377 $100,868
Ratio of expenses to average net assets (1) 0.47%* 0.45% 0.37% 0.36% 0.36% 0.33%
Ratio of net investment income to average net assets 4.75%* 5.09% 5.01% 5.19% 5.00% 3.04%

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.65%* 0.63% 0.55% 0.56% 0.63% 0.60%

</TABLE>

CLASS III
-----------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
- ----------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996**
---- ---- ---- ------
<S> <C> <C> <C> <C>

SELECTED PER-SHARE DATA
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
-----------------------------------------------------------------
Income from investment operations:
Net investment income 0.023 0.049 0.047 0.044
-----------------------------------------------------------------

Distributions:
Net investment income (0.023) (0.049) (0.047) (0.044)
-----------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
-----------------------------------------------------------------
-----------------------------------------------------------------

TOTAL RETURN+ 2.29%# 5.03% 4.84% 4.47%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $52,636 $42,288 $61,135 $3,528
Ratio of expenses to average net assets (1) 0.70%* 0.62% 0.62% 0.62%*
Ratio of net investment income to average net assets 4.52%* 4.92% 4.76% 4.93%*

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.88%* 0.80% 0.80% 0.82%*
</TABLE>

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

23
<PAGE>

FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT MONEY MARKET PORTFOLIO

<TABLE>
<CAPTION>
CLASS I
---------------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.025 0.052 0.051 0.053 0.053 0.032
---------------------------------------------------------------------------------

Distributions:
Net investment income (0.025) (0.052) (0.051) (0.053) (0.053) (0.032)
---------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

TOTAL RETURN+ 2.49%# 5.37% 5.23% 5.37% 5.39% 3.23%

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $89,336 $88,255 $94,541 $88,111 $88,057 $67,854
Ratio of expenses to average net assets (1) 0.39%* 0.35% 0.35% 0.33% 0.31% 0.28%
Ratio of net investment income to average net assets 4.92%* 5.24% 5.11% 5.28% 5.27% 3.18%

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.57%* 0.52% 0.53% 0.53% 0.58% 0.55%

</TABLE>

<TABLE>
<CAPTION>
CLASS III
-----------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
- ----------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996**
---- ---- ---- ------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
-----------------------------------------------------------------
Income from investment operations:
Net investment income 0.023 0.049 0.048 0.044
-----------------------------------------------------------------

Distributions:
Net investment income (0.023) (0.049) (0.048) (0.044)
-----------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
-----------------------------------------------------------------
-----------------------------------------------------------------

TOTAL RETURN+ 2.28%# 5.05% 4.91% 4.49%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $1,429 $2,513 $3,486 $228
Ratio of expenses to average net assets (1) 0.75%* 0.65% 0.65% 0.65%*
Ratio of net investment income to average net assets 4.56%* 4.94% 4.81% 4.96%*

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.93%* 0.82% 0.83% 0.85%*
</TABLE>

24
<PAGE>

FINANCIAL HIGHLIGHTS
MUNICIPAL MONEY MARKET PORTFOLIO

<TABLE>
<CAPTION>
CLASS I
---------------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.015 0.033 0.033 0.035 0.034 0.024
---------------------------------------------------------------------------------

Distributions:
Net investment income (0.015) (0.033) (0.033) (0.035) (0.034) (0.024)
---------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------

TOTAL RETURN+ 1.52%# 3.33% 3.32% 3.52% 3.48% 2.40%

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $42,839 $36,279 $45,988 $71,665 $94,078 $76,231
Ratio of expenses to average net assets (1) 0.33%* 0.38% 0.35% 0.32% 0.30% 0.28%
Ratio of net investment income to average net assets 3.02%* 3.28% 3.25% 3.50% 3.44% 2.39%

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.51%* 0.56% 0.53% 0.52% 0.57% 0.55%

</TABLE>

<TABLE>
<CAPTION>
CLASS III
-----------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
- ----------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996**
---- ---- ---- ------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net investment income 0.013 0.030 0.030 0.030

Distributions:
Net investment income (0.013) (0.030) (0.030) (0.030)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00

TOTAL RETURN+ 1.33%# 3.06% 3.03% 3.03%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $2,926 $3,929 $12,886 $2,905
Ratio of expenses to average net assets (1) 0.70%* 0.63% 0.62% 0.58%*
Ratio of net investment income to average net assets 2.65%* 3.03% 2.98% 3.24%*

(1)During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.88%* 0.81% 0.79% 0.78%*

</TABLE>

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

25
<PAGE>

FINANCIAL HIGHLIGHTS
CASH RESERVE PORTFOLIO

<TABLE>
<CAPTION>
CLASS I
-------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
- --------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------
Income from investment operations:
Net investment income 0.026 0.053 0.051 0.053 0.042
-------------------------------------------------------------------

Distributions:
Net investment income (0.026) (0.053) (0.051) (0.053) (0.042)
-------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------
-------------------------------------------------------------------

TOTAL RETURN+ 2.58%# 5.46% 5.23% 5.39% 4.27%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $31,333 $40,242 $14,241 $16,369 $15,460
Ratio of expenses to average net assets (1) 0.38%* 0.36% 0.40% 0.42% 0.43%*
Ratio of net investment income to average net assets 5.08%* 5.33% 5.13% 5.22% 5.48%*

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.55%* 0.54% 0.57% 0.61% 0.70%*
</TABLE>

<TABLE>
<CAPTION>
CLASS III
-----------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
- ----------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996**
---- ---- ---- ------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
-----------------------------------------------------------------
Income from investment operations:
Net investment income 0.024 0.051 0.049 0.047
-----------------------------------------------------------------

Distributions:
Net investment income (0.024) (0.051) (0.049) (0.047)
-----------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
-----------------------------------------------------------------
-----------------------------------------------------------------

TOTAL RETURN+ 2.44%# 5.21% 5.00% 4.78%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $56,877 $58,243 $35,592 $24,190
Ratio of expenses to average net assets (1) 0.64%* 0.60% 0.64% 0.62%*
Ratio of net investment income to average net assets 4.82%* 5.09% 4.88% 5.02%*

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.82%* 0.77% 0.82% 0.81%*
</TABLE>

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

26
<PAGE>

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

ADDITIONAL INFORMATION ABOUT THE PORTFOLIO'S INVESTMENTS

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

DELAYED-DELIVERY AND WHEN-ISSUED TRANSACTIONS. Each Portfolio may buy and sell
obligations on an 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 a Portfolio's share price, yield, and return. Ordinarily, a
Portfolio will not earn interest on obligations until they are delivered.

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

ILLIQUID INVESTMENTS. Under guidelines established by the Trustees, BIMC
determines the liquidity of a Portfolio's investments. The absence of a trading
market can make it difficult to ascertain a market value for illiquid
investments. Disposing of illiquid investments may involve time-consuming
negotiation and legal expense, and it may be difficult or impossible for a
Portfolio to sell them promptly at an acceptable price. Each Portfolio may
invest up to 10% of its assets in illiquid investments and private placement.

RESTRICTED SECURITIES. Each 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.

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

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

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

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

27
<PAGE>

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

- --------------------------------------------------------------------------------
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 1-800-422-1941 (OPTION 1).
- --------------------------------------------------------------------------------

INVESTMENT COMPANY ACT FILE NO. 811-6589

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

- Are NOT insured by the FDIC or any
[LOGO] other governmental agency.
Sponsor and Distributor
- 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
U.S. TREASURY MONEY MARKET PORTFOLIO
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
MUNICIPAL MONEY MARKET PORTFOLIO
CASH RESERVE PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION FOR CLASS I, CLASS II, AND CLASS III
__________________, 1999

This Statement is not a prospectus but should be read in conjunction with the
current Prospectus for each Class of First Funds (Trust): U.S. Treasury Money
Market Portfolio, U.S. Government Money Market Portfolio, Municipal Money Market
Portfolio, and Cash Reserve Portfolio dated ______________, 1999. Please retain
this Statement for future reference. The Portfolios' financial statements and
financial highlights, included in the Annual Report for the fiscal year ended
June 30, 1998 and the Semi-Annual Report dated December 31, 1998, are
incorporated herein by reference. To obtain additional free copies of this
Statement, the Annual Report, the Semi-Annual Report, or the Prospectus, please
call the Distributor at 1-800-442-1941, option 1 or write to the Distributor at
370 17th Street, Suite 3100, Denver CO 80202.

TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT RESTRICTIONS AND LIMITATIONS......................................2
INVESTMENT INSTRUMENTS.......................................................3
PORTFOLIO TRANSACTIONS.......................................................7
VALUATION OF PORTFOLIO SECURITIES............................................7
PERFORMANCE..................................................................8
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...............................9
DISTRIBUTIONS AND TAXES.....................................................10
TRUSTEES AND OFFICERS.......................................................11
INVESTMENT ADVISORY AGREEMENTS..............................................12
ADMINISTRATION AGREEMENT AND OTHER CONTRACTS................................13
DESCRIPTION OF THE TRUST....................................................15
FINANCIAL STATEMENTS........................................................16
APPENDIX....................................................................17
</TABLE>

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

SUB-ADVISER
BlackRock Institutional Management Corporation (BIMC or the Sub-Adviser)

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

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

TRANSFER AGENT & SHAREHOLDER SERVICING AGENT
Boston Financial Data Services (Boston Financial or the Transfer Agent)

CUSTODIAN
State Street Bank & Trust Company (State Street or the Custodian)

<PAGE>

INVESTMENT RESTRICTIONS AND LIMITATIONS

The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of a Portfolio's assets that may be invested in any
security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of a Portfolio's acquisition of such security or other asset.
Accordingly, borrowings and illiquid securities, any subsequent change in
values, net assets, or other circumstances will not be considered when
determining whether the investment complies with a Portfolio's investment
policies and limitations. With respect to borrowings and illiquid securities,
any investment in such securities that exceed the applicable limitations set
forth below or limitations imposed by rules adopted by the SEC will be reduced
promptly to meet such limitations.

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

INVESTMENT LIMITATIONS OF THE U.S. TREASURY MONEY MARKET, U.S. GOVERNMENT MONEY
MARKET, MUNICIPAL MONEY MARKET AND CASH RESERVE PORTFOLIOS

THE FOLLOWING ARE THE FUNDAMENTAL LIMITATIONS FOR EACH PORTFOLIO SET FORTH IN
THEIR ENTIRETY. THE PORTFOLIOS MAY NOT:

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

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

(3) borrow money, except that each Portfolio may (i) borrow money for
temporary or emergency purposes (not for leveraging or investment) and
(ii) engage in reverse repurchase agreements for any purpose; provided
that (i) and (ii) in combination do not exceed 33 1/3% of a Portfolio's
total assets (including the amount borrowed) less liabilities (other
than borrowings). Any borrowings that come to exceed this amount will be
reduced within three days (not including Sundays and holidays) to the
extent necessary to comply with the 33 1/3% limitation;

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

(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or with respect to the Municipal Money Market
Portfolio, tax-exempt obligations issued or guaranteed by a territory or
possession or a state or local government, or a political subdivision of
any of the foregoing) if, as a result, 25% or more of a Portfolio's
total assets would be invested in the securities of companies whose
principal business activities are in the same industry, except that the
Cash Reserve Portfolio will invest 25% or more of its total assets in
the financial industry;

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

(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; or

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

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

<PAGE>

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

(i) The Portfolios do not currently intend during the coming year to
purchase the voting securities of any issuer.

(ii) The Portfolios do not currently intend during the coming year to
purchase a security (other than a security insured or guaranteed by the
U.S. government or any of its agencies or instrumentalities) if, as a
result, more than 5% of a Portfolio's total assets would be invested in
the securities of a single issuer; provided that each Portfolio may
invest up to 25% of its total assets in the first tier securities of a
single issuer for up to three business days.

(iii) The Portfolios do not currently intend during the coming year to
purchase securities on margin, except that each Portfolio may obtain
such short-term credits as are necessary for the clearance of
transactions.

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

(v) The Portfolios do not currently intend during the coming year to
purchase any security, if, as a result, more than 10% of a Portfolio's
net assets would be invested in securities that are deemed to be
illiquid because they are subject to legal or contractual restrictions
on resale or because they cannot be sold or disposed of in the ordinary
course of business at approximately the prices at which they are valued.

(vi) The Portfolios do not currently intend during the coming year to
purchase or sell futures contracts or call options. This limitation does
not apply to options attached to, or acquired or traded together with,
their underlying securities, and does not apply to securities that
incorporate features similar to options or futures contracts.

(vii) The Portfolios do not currently intend during the coming year to make
loans, but this limitation does not apply to purchases of debt
securities, to repurchase agreements or to loans of portfolio
securities.

(viii) The Portfolios do not currently intend during the coming year to invest
in oil, gas, or other mineral exploration or development programs or
leases.

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

INVESTMENT INSTRUMENTS

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

RULE 2a-7. The Money Market Portfolios seek to maintain a stable net asset value
per share by limiting Portfolio investments in accordance with the terms of Rule
2a-7 under the 1940 Act which sets forth limitations on the quality, maturity
and other investment characteristics of registered investment companies which
hold themselves out as money market funds.

ASSET-BACKED SECURITIES for Cash Reserve Portfolio may include pools of
mortgages, loans, receivables or other assets. Payment of principal and interest
may be largely dependent upon the cash flows generated by the assets backing the
securities, and, in certain cases, supported by letters of credit, surety bonds,
or other credit enhancements. The value of asset-backed securities may also be
affected by the creditworthiness of the servicing agent for the pool, the
originator of the loans or receivables, or the financial institution(s)
providing the credit support.

COMMERCIAL PAPER. Cash Reserve Portfolio may purchase commercial paper rated at
the time of purchase A-1 by Standard & Poor's Corporation (S&P) or Prime-1 by
Moody's Investors Service, Inc. (Moody's). The Portfolio may also purchase
unrated commercial paper determined to be of comparable quality at the time of
purchase by BIMC, pursuant to guidelines approved by the Trustees.

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

<PAGE>

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

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

FEDERALLY-TAXABLE OBLIGATIONS. Municipal Money Market Portfolio does not intend
to invest in securities whose interest is federally taxable; however, from time
to time, the Portfolio may invest a portion of its assets on a temporary basis
in fixed-income obligations whose interest is subject to federal income tax. For
example, the Portfolio may invest in obligations whose interest is federally
taxable pending the investment or reinvestment in municipal securities of
proceeds from the sale of its shares or sales of portfolio securities.

Should the Portfolio invest in taxable obligations, it would purchase securities
which in the judgment of BIMC are of high quality. These would include
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities, obligations of domestic banks, and repurchase agreements. The
Portfolio will purchase taxable obligations only if they meet its quality
requirements as set forth in the Prospectus.

Proposals to restrict or eliminate the federal income tax exemption for interest
on municipal obligations are introduced before Congress from time to time.
Proposals also may be introduced before state legislatures that would affect the
state tax treatment of the Portfolio's distributions. If such proposals were
enacted, the availability of municipal obligations and the value of the
Portfolio's holdings would be affected and the Trustees would reevaluate the
Portfolio's investment objectives and policies.

Municipal Money Market Portfolio anticipates being as fully invested as
practicable in municipal securities; however, there may be occasions when as a
result of maturities of portfolio securities, or sales of Portfolio shares, or
in order to meet redemption requests, the Portfolio may hold cash that is not
earning income. In addition, there may be occasions when, in order to raise cash
to meet redemptions, the Portfolio may be required to sell securities at a loss.

ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued. Under guidelines established by the Trustees, BIMC, under the
supervision of First Tennessee, determines the liquidity of Municipal Money
Market Portfolio and Cash Reserve Portfolio's investments and, through reports
from BIMC, the Trustees monitor investments in illiquid instruments. In
determining the liquidity of the Portfolios' investments, BIMC may consider
various factors including (1) the frequency of trades and quotations, (2) the
number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or tender features) and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Portfolios' rights and
obligations relating to the investment). Investments currently considered by
Cash Reserve Portfolio to be illiquid include repurchase agreements not
entitling the holder to payment of principal and interest within seven days, and
some restricted securities and time deposits determined by BIMC to be illiquid.
Investments currently considered by Municipal Money Market Portfolio to be
illiquid include some restricted securities and municipal lease obligations
determined by BIMC to be illiquid. In the absence of market quotations, illiquid
investments are valued for purposes of monitoring amortized cost valuation at
fair value as determined in good faith by the Trustees. If through a change in
values, net assets or other circumstances, the Portfolios were in a position
where more than 10% of their net assets were invested in illiquid securities,
the Trustees would seek to take appropriate steps to protect liquidity.

MONEY MARKET OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS, DOMESTIC BRANCHES OF
FOREIGN BANKS, AND FOREIGN BRANCHES OF DOMESTIC BANKS. Cash Reserve Portfolio
may purchase bank obligations, such as certificates of deposit, bankers'
acceptances, bank notes and time deposits, including instruments issued or
supported by the credit of U.S. or foreign banks or savings institutions that
have total assets at the time of purchase in excess of $1 billion. The assets of
a bank or savings institution will be deemed to include the assets of its
domestic and foreign branches for purposes of the Portfolio's investment
policies. Investments in short-term bank obligations may include obligations of
foreign banks and domestic branches of foreign banks, and also foreign branches
of domestic banks.

MUNICIPAL LEASE OBLIGATIONS. Municipal Money Market Portfolio may invest a
portion of its assets in municipal leases and participation interests therein.
These obligations, which may take the form of a lease, an installment purchase,
or a conditional sale contract, are issued by state and local governments and
authorities to acquire land and a wide variety of equipment and

<PAGE>

facilities. Generally, the Portfolio will not hold such obligations directly as
a lessor of the property, but will purchase a participation interest in a
municipal obligation from a bank or other third party. A participation interest
gives a Portfolio a specified, undivided interest in the obligation in
proportion to its purchased interest in the total amount of the obligation.

Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set forth
requirements that states or municipalities must meet to incur debt. These may
include voter referenda, interest rate limits, or public sale requirements.
Leases, installment purchase, or conditional sale contracts (which normally
provide for title to the leased asset to pass to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting their constitutional and statutory requirements for the issuance
of debt. Many leases and contracts include "non-appropriation clauses" providing
that the governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis.
Non-appropriation clauses free the issuer from debt issuance limitations.

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

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

RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
Municipal Money Market Portfolio and Cash Reserve Portfolio may be obligated to
pay all or part of the registration expense and a considerable period may elapse
between the time it decides to seek registration and the time the Portfolios may
be permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, the Portfolios
might obtain a less favorable price than prevailed when they decided to seek
registration of the security. However, in general, the Portfolios anticipate
holding restricted securities to maturity or selling them in an exempt
transaction

SHORT SALES AGAINST THE BOX. A Portfolio may sell securities short when it owns
or has the right to obtain securities equivalent in kind or amount to the
securities sold short. Short sales could be used to protect the net asset value
per share (NAV) of that Portfolio in anticipation of increased interest rates
without sacrificing the current yield of the securities sold short. If a
Portfolio enters into a short sale against the box, it will be required to set
aside securities equivalent in kind and amount to the securities sold short (or
securities convertible or exchangeable into such securities) and will be
required to hold such securities while the short sale is outstanding. A
Portfolio will incur transaction costs, including interest expense, in
connection with opening, maintaining and closing short sales against the box.

STANDBY COMMITMENTS are puts that entitle holders to same-day settlement at an
exercise price equal to the amortized cost of the underlying security plus
accrued interest, if any, at the time of exercise. Municipal Money Market
Portfolio may acquire standby commitments to enhance the liquidity of portfolio
securities, but only when the issuers of the commitments present minimal risk of
default.

Ordinarily, the Portfolio will not transfer a standby commitment to a third
party, although it could sell the underlying municipal security to a third party
at any time. The Portfolio may purchase standby commitments separate from or in
conjunction with the purchase of securities subject to such commitments. In the
latter case, the Portfolio would pay a higher price for the securities acquired,
thus reducing their yield to maturity. Standby commitments will not affect the
dollar-weighted average maturity of the Portfolio, or the valuation of the
securities underlying the commitments.

Issuers or financial intermediaries may obtain letters of credit or other
guarantees to support their ability to buy securities on demand. BIMC may rely
upon its evaluation of a bank's credit in determining whether to support an
instrument supported by

<PAGE>

a letter of credit. In evaluating a foreign bank's credit, BIMC will consider
whether adequate public information about the bank is available and whether the
bank may be subject to unfavorable political or economic developments, currency
controls, or other governmental restrictions that might affect the bank's
ability to honor its credit commitment.

Standby commitments are subject to certain risks, including the ability of
issuers to pay for securities at the time the commitments are exercised; the
fact that standby commitments are not marketable by the Portfolio; and that the
maturities of the underlying securities may be different from those of the
commitments.

TENDER OPTION BONDS are created by coupling an intermediate or long-term,
tax-exempt bond (generally held pursuant to a custodial arrangement) with a
tender agreement that gives the holder the option to tender the bond at its face
value. As consideration for providing the tender option, the sponsor (usually a
bank, broker-dealer, or other financial institution) receives periodic fees
equal to the difference between the bond's fixed coupon rate and the rate
(determined by a remarketing or similar agent) that would cause the bond,
coupled with the tender option, to trade at par on the date of such
determination. After payment of the tender option fee, Municipal Money Market
Portfolio effectively holds a demand obligation that bears interest at the
prevailing short-term tax-exempt rate. Subject to applicable regulatory
requirements, the Portfolio may buy tender option bonds if the agreement gives
the Portfolio the right to tender the bond to its sponsor no less frequently
than once every 397 days. In selecting tender option bonds for the Portfolio,
BIMC will consider the creditworthiness of the issuer of the underlying bond,
the custodian, and the third party provider of the tender option. In certain
instances, a sponsor may terminate a tender option if, for example, the issuer
of the underlying bond defaults on interest payments.

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

A demand instrument with a conditional demand feature must have received both a
short-term and a long-term high quality rating, or, if unrated, have been
determined to be of comparable quality pursuant to procedures adopted by the
Trustees. A demand instrument with an unconditional demand feature may be
acquired solely in reliance upon a short-term high quality rating or, if
unrated, upon a finding of comparable short-term quality pursuant to procedures
to be adopted by the Trustees.

Municipal Money Market Portfolio and Cash Reserve Portfolio may invest in
fixed-rate bonds that are subject to third party puts and in participation
interests in such bonds held by a bank in trust or otherwise. These bonds and
participation interests have tender options or demand features that permit the
Portfolios to tender (or put) their bonds to an institution at periodic
intervals and to receive the principal amount thereof. The Portfolios consider
variable rate instruments structured in this way (Participating VRDOs) to be
essentially equivalent to other VRDOs they purchase. The IRS has not ruled
whether the interest on participating VRDOs is tax exempt and accordingly,
Municipal Money Market Portfolio and Cash Reserve Portfolio intend to purchase
these instruments based on opinions of BIMC's fund counsel.

Municipal Money Market Portfolio and Cash Reserve Portfolio may invest in
variable or floating rate instruments that ultimately mature in more than 397
days, if the Portfolios acquire a right to sell the instruments that meets
certain requirements set forth in Rule 2a-7. A variable rate instrument
(including instruments subject to a demand feature) that matures in 397 days or
less may be deemed to have a maturity equal to the earlier of the period
remaining until the next readjustment of the interest rate or the date on which
principal can be recovered on demand. A variable rate instrument that matures in
greater than 397 days but that is subject to a demand feature that is 397 days
or less may be deemed to have a maturity equal to the longer of the period
remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand. A floating
rate instrument that matures in more than 397 days but that is subject to a
demand feature may be deemed to have a maturity equal to the period remaining
until the principal amount may be recovered through demand. A floating rate
instrument that matures in 397 days or less shall be deemed to have a maturity
of one day.

U.S. Government Money Market Portfolio and Cash Reserve Portfolio may invest in
variable and floating rate instruments of the U.S. Government, its agencies and
instrumentalities, with remaining maturities of 397 days or more provided that
they are deemed to have a maturity of less than 397 days as defined in
accordance with the rules of the SEC. A variable rate instrument that matures in
397 days or more may be deemed to have a maturity equal to the period remaining
until the next readjustment of the interest rate.

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

<PAGE>

PORTFOLIO TRANSACTIONS

First Tennessee and BIMC (collectively, the Advisers) are responsible for
decisions to buy and sell securities for each Portfolio, broker-dealer
selection, and negotiation of commission rates. Since purchases and sales of
portfolio securities by the Portfolios are usually principal transactions, the
Portfolios incur little or no brokerage commissions. Portfolio securities are
normally purchased directly from the issuer or from a market maker for the
securities. The purchase price paid to dealers serving as market makers may
include a spread between the bid and asked prices. The Portfolios may also
purchase securities from underwriters at prices which include a commission paid
by the issuer to the underwriter. No brokerage commissions were paid by the
Portfolios during the last three fiscal years.

Each Portfolio does not seek to profit from short-term trading, and will
generally (but not always) hold portfolio securities to maturity. Each Portfolio
requires that investments mature within 397 days or less, as determined in
accordance with the rules of the SEC. The amortized cost method of valuing
portfolio securities requires that each Portfolio maintain an average weighted
portfolio maturity of 90 days or less. Both policies may result in relatively
high portfolio turnover, but since brokerage commissions are not normally paid
on money market instruments, the high rate of portfolio turnover is not expected
to have a material effect on the Portfolios' net income or expenses.

The Advisers' primary consideration in effecting a security transaction is to
obtain the best net price and the most favorable execution of the order. To the
extent that the executions and prices offered by more than one dealer are
comparable, the Advisers may, at their discretion, effect transactions with
dealers that furnish statistical, research and other information or services
which are deemed by the Advisers to be beneficial to the Portfolios' investment
program. Certain research services furnished by dealers may be useful to the
Advisers with clients other than the Portfolios. Similarly, any research
services received by the Advisers through placement of portfolio transactions of
other clients may be of value to the Advisers in fulfilling their obligations to
the Portfolios. The Advisers are of the opinion that the material received is
beneficial in supplementing their research and analysis, and therefore, may
benefit the Portfolios by improving the quality of their investment advice. The
advisory fee paid by the Portfolios is not reduced because the Advisers receive
such services.

The Advisers and their affiliates manage several other investment accounts, some
of which may have objectives similar to that of the Portfolios. It is possible
that at times, identical securities will be acceptable for one or more of such
investment accounts. However, the position of each account in the securities of
the same issue may vary and the length of time that each account may choose to
hold its investment in the securities of the same issue may likewise vary. The
timing and amount of purchase by each account will also be determined by its
cash position. If the purchase or sale of securities consistent with the
investment policies of each Portfolio and one or more of these accounts is
considered at or about the same time, transactions in such securities will be
allocated in good faith among the Portfolios and such accounts in a manner
deemed equitable by the Advisers. The Advisers may combine such transactions, in
accordance with applicable laws and regulations, in order to obtain the best net
price and most favorable execution. The allocation and combination of
simultaneous securities purchases on behalf of each Portfolio will be made in
the same way that such purchases are allocated among or combined with those of
other such investment accounts. Simultaneous transactions could adversely affect
the ability of each Portfolio to obtain or dispose of the full amount of a
security which it seeks to purchase or sell.

Except to the extent permitted by law, portfolio securities will not be
purchased from or sold to or through any "affiliated person," as defined in the
1940 Act, of the Advisers.

VALUATION OF PORTFOLIO SECURITIES

Each Portfolio values its investments on the basis of amortized cost. This
technique involves valuing an instrument at its cost as adjusted for
amortization of premium or accretion of discount rather than its value based on
current market quotations or appropriate substitutes which reflect current
market conditions. The amortized cost value of an instrument may be higher or
lower than the price each Portfolio would receive if it sold the instrument.
Valuing each Portfolio's instruments on the basis of amortized cost and use of
the term "money market fund" are permitted by Rule 2a-7 under the 1940 Act, as
amended. Each Portfolio must adhere to certain conditions under Rule 2a-7.

The Trustees and First Tennessee oversee BIMC's adherence to Securities and
Exchange Commission (SEC) rules concerning money market funds, and the Trustees
have established procedures designed to stabilize each Portfolio's NAV at $1.00.
At such intervals as they deem appropriate, the Trustees consider the extent to
which NAV calculated by using market valuations would deviate from $1.00 per
share. If the Trustees believe that a deviation from each Portfolio's amortized
cost per share may result in material dilution or other unfair results to
shareholders, the Trustees have agreed to take such corrective action, if any,
as they deem appropriate to eliminate or reduce, to the extent reasonably
practicable, the dilution or unfair results. Such corrective action could
include selling portfolio instruments prior to maturity to realize capital gains
or losses or to shorten average portfolio maturity; withholding dividends;
redeeming shares in kind; establishing NAV by using available market quotations;
and such other measures as the Trustees may deem appropriate.

<PAGE>

During periods of declining interest rates, yield based on amortized cost may be
higher than the yield based on market valuations. Under these circumstances, a
shareholder would be able to obtain a somewhat higher yield than would result if
a Portfolio utilized market valuations to determine its NAV. The converse would
apply in a period of rising interest rates.

PERFORMANCE

From time to time, each Class of each Portfolio may quote the CURRENT YIELD and
EFFECTIVE YIELD for each Class in advertisements or in reports or other
communications with shareholders. Both yield figures are based on historical
earnings and are not intended to indicate future performance. The net change in
value of a hypothetical account containing one share reflects the value of
additional shares purchased with dividends from the one original share and
dividends declared on both the original share and any additional shares. This
income is then annualized; that is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The effective yield is
calculated similarly but, when annualized, the income earned by an investment is
assumed to be reinvested. The effective yield will be slightly higher than the
current yield because of the compounding effect of this assumed reinvestment. In
addition to the current yield, yields may be quoted in advertising based on any
historical seven-day period.

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

Investors should recognize that in periods of declining interest rates, yield
will tend to be somewhat higher than prevailing market rates, and in periods of
rising interest rates, yield will tend to be somewhat lower. Also, when interest
rates are falling, the inflow of net new money from the continuous sale of its
shares will likely be invested in instruments producing lower yields than the
balance of the holdings, thereby reducing the current yield. In periods of
rising interest rates, the opposite can be expected to occur. The 7-day yields
as of June 30, 1998 were as follows:

<TABLE>
<CAPTION>
Class I Class III
<S> <C> <C>
U.S. Treasury Money Market 5.05% 4.80%
U.S. Government Money Market 5.24% 4.93%
Municipal Money Market 3.37% 3.05%
Cash Reserve 5.37% 5.12%
</TABLE>

Municipal Money Market Portfolio also may quote the tax-equivalent yield for
each class, which shows the taxable yield an investor would have to earn, before
taxes, to equal the tax-free yield. Tax-equivalent yield is the current yield
that would have to be earned, in the investor's tax bracket, to match the
tax-free yields shown below after taking federal income taxes into account.
Tax-equivalent yields are calculated by dividing current yield by the result of
one minus a stated federal or combined federal and state tax rate. It gives the
approximate yield a taxable security must provide at various income brackets to
produce after-tax yields equivalent to those of tax-exempt obligations yielding
from 2.0% to 4.0%. Of course, no assurance can be given that each class will
achieve any specific tax-exempt yield. While the Portfolio invests principally
in municipal obligations whose interest is not includable in gross income for
purposes of calculating federal income tax, other income received by the
Portfolio may be taxable.

The following table shows the effect of a shareholder's tax status on effective
yield under the federal income tax laws for 1998:

1998 TAX RATES AND TAX-EQUIVALENT YIELDS

<TABLE>
<CAPTION>
Federal
Taxable Tax If individual tax-exempt yield is:
Income* Bracket** 2.00% 3.00% 4.00%
single return joint return Then taxable equivalent yield is:
<S> <C> <C> <C> <C> <C>
$0 -$245,350 $0 -$42,350 15% 2.35% 3.53% 4.71%
$25,351-$61,400 $42,351 -$102,300 28% 2.78% 4.17% 5.56%
$61,401-$128,100 $102,301-$155,950 31% 2.90% 4.35% 5.80%
$128,101-$278,450 $155,951-$278,450 36% 3.13% 4.69% 6.25%
$278,451-above $278,451-above 39.6% 3.31% 4.97% 6.62%
</TABLE>

<PAGE>

* Taxable income (gross income after all exemptions, adjustments, and
deductions) based on 1998 tax rates.

** Excludes the impact of the phase out of personal exemptions, limitation
on itemized deductions, and other credits, exclusions, and adjustments
which may raise a taxpayer's marginal tax rate. An increase in a
shareholder's marginal tax rate would increase that shareholder's
tax-equivalent yield.

The Portfolio may invest a portion of its assets in obligations that are subject
to federal income tax. When the Portfolio invests in these obligations, its
tax-equivalent yield will be lower. In the table above, tax-equivalent yields
are calculated assuming investments are 100% federally and state tax-free.

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

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

Each Portfolio may compare its performance to the yields or averages of other
money market securities as reported by the Federal Reserve Bulletin, by
TeleRate, a financial information network, or by Salomon Brothers Inc., a
broker-dealer firm; and other fixed-income investments such as certificates of
deposit (CDs). The principal value and interest rate of CDs and money market
securities are fixed at the time of purchase whereas yield will fluctuate.
Unlike some CDs and certain other money market securities, money market mutual
funds, and each Portfolio in particular, are not insured by the Federal Deposit
Insurance Corporation (FDIC). Investors should give consideration to the quality
and maturity of the Portfolio securities of the respective investment companies
when comparing investment alternatives. Each Portfolio may also quote mutual
fund rating services in its advertising materials, including data from a mutual
fund rating service which rates mutual funds on the basis of risk adjusted
performance. Each Portfolio may reference the growth and variety of money market
mutual funds and First Tennessee's or Sub-Adviser's skill and participation in
the industry.

Because the fees for Class II and Class III are higher than the fees for Class
I, yields and returns for those classes will be lower than for Class I.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

The following holiday closings have been scheduled: Veterans' Day, Thanksgiving
Day, Christmas Day, New Year's Day, Dr. Martin Luther King Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, and Columbus Day.
Although First Tennessee expects the same holiday schedule to be observed in the
future, the New York Stock Exchange (NYSE) and the Federal Reserve Bank of New
York (New York Federal Reserve) may modify their holiday schedules at any time.

If the Trustees determine that existing conditions make cash payment
undesirable, redemption payments may be made in whole or in part in securities
or other property, valued for this purpose as they are valued in computing each
Portfolio's NAV. Shareholders receiving securities or other property on
redemption may realize a gain or loss for tax purposes and will incur any costs
of sale, as well as the associated inconveniences.

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

<PAGE>

DISTRIBUTIONS AND TAXES

DIVIDENDS. Dividends will not normally qualify for the dividends-received
deduction available to corporations, since the Portfolios' income is primarily
derived from interest income and short-term capital gains. Depending upon state
law, a portion of each Portfolio's dividends attributable to interest income
derived from U.S. government securities may be exempt from state and local
taxation. It is not anticipated that dividends attributable to U.S. government
securities will be exempt from Tennessee income tax. The Portfolios will provide
information on the portion of each Portfolio's dividends, if any, that qualifies
for this exemption.

Dividends derived from Municipal Money Market Portfolio's tax-exempt income are
not subject to federal income tax, but must be reported to the IRS by
shareholders. Exempt-interest dividends are included in income for purposes of
computing the portion of social security and railroad retirement benefits that
may be subject to federal tax. If the Portfolio earns taxable income or capital
gains from its investments, these amounts will be designated as taxable
distributions. Dividends derived from taxable investment income and short-term
capital gains are taxable as ordinary income. Municipal Money Market Portfolio
will send a tax statement showing the amount of tax-exempt distributions for the
past calendar year, and will send an IRS Form 1099-DIV by January 31 if the
Portfolio makes any taxable distributions. It is not anticipated that the
Portfolio's distributions will be exempt from Tennessee income tax.

Each Portfolio's distributions are taxable when they are paid whether taken in
cash or reinvested in additional shares, except that distributions declared in
December and paid in January are taxable as if paid on December 31. Each
Portfolio will send an IRS Form 1099-DIV by January 31.

CAPITAL GAIN DISTRIBUTIONS. Each Portfolio may distribute short-term capital
gains once a year or more often as necessary to maintain their NAVs at $1.00 per
share or to comply with distribution requirements under federal tax law. Each
Portfolio does not anticipate earning long-term capital gains on securities
held.

TAX STATUS OF THE TRUST. Each Portfolio has qualified and intends to qualify as
a "regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the Code), so that each Portfolio will not be liable for
federal income or excise taxes on net investment income or capital gains to the
extent that these are distributed to shareholders in accordance with applicable
provisions of the Code. The Portfolios also intend to comply with other federal
tax rules applicable to regulated investment companies. The Portfolios'
principal place of business is located in Denver, Colorado. The Portfolios
intend to comply with Colorado tax rules applicable to registered investment
companies.

STATE AND LOCAL TAX ISSUES. For mutual funds organized as business trusts, state
law provides for a pass-through of the state and local income tax exemption
afforded to direct owners of U.S. government securities. Some states limit this
passthrough to mutual funds that invest a certain amount in U.S. government
securities, and some types of securities, such as repurchase agreements and some
agency backed securities, may not qualify for this pass-through benefit. The tax
treatment of dividend distributions from U.S. Treasury Money Market Portfolio
and U.S. Government Money Market Portfolio will be the same as if a shareholder
directly owned a proportionate share of the U.S. government securities in the
Portfolio. Because the income earned on most U.S. government securities in which
the Portfolios invest is exempt from the state and local income taxes, the
portion of dividends from the Portfolios attributable to these securities will
also be free from income taxes. The exemption from state and local income
taxation does not preclude states from assessing other taxes on the ownership of
U.S. government securities.

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

Federal income tax will be withheld at a 20% rate on any eligible rollover
distributions that are not transferred directly to another qualified plan or
IRA. Actual income tax may be higher or lower and will be due when tax forms for
the year are filed. Taxes will not be withheld in cases of direct rollover into
an IRA or another qualified plan.

<PAGE>

TRUSTEES AND OFFICERS

The Trustees and executive officers of the Trust are listed below. Each Trustee
or officer that is an "interested person" (as defined in the 1940 Act) by virtue
of his affiliation with First Tennessee or ALPS, is indicated by an
asterisk(*).

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Position(s)
Name, Address, and Age Held Principal Occupation
with Trust During Past 5 Years
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
THOMAS M. BATCHELOR, age 76, Trustee Mr. Batchelor presently operates a management consultant business on
4325 Woodcrest Drive, Memphis, TN a limited basis, retired after owning and operating two General
Insurance Companies agencies for over thirty years. He was one of
the founders and served as a director of First American State Bank
in Memphis, TN (now part of United American Bank of Memphis). He
currently serves as Chairman, Memphis Union Mission, TN, as well as
a charity and a non-profit foundation.
- -----------------------------------------------------------------------------------------------------------------------------------
JOHN A. DECELL, age 62, Trustee Mr. DeCell is the proprietor of DeCell & Company (real estate and
5178 Wheelis Dr., Suite 2, Memphis, TN business consulting), and President of Capital Advisers, Inc. (real
estate consulting and asset management).
- -----------------------------------------------------------------------------------------------------------------------------------
L. R. JALENAK, JR., age 68, Trustee Mr. Jalenak was Chairman of the Board (1990 -1993 (retired)), Cleo
6094 Apple Tree Drive, Suite 11, Inc. (manufacturer of gift-related products), a Gibson Greetings
Memphis,TN Company. Mr. Jalenak is also a Director of Perrigo Company (1988 -
present), Lufkin Industries (1990 - present), Dyersburg Corporation
(1990 - present), was President and CEO (until 1990) of Cleo Inc.,
and was a Director of Gibson Greetings, Inc. from 1983 to 1991.
- -----------------------------------------------------------------------------------------------------------------------------------
LARRY W. PAPASAN, age 57, Trustee Mr. Papasan is President of Smith & Nephew, Inc. (orthopedic
5114 Winton Place, Memphis, TN division). Mr. Papasan is a former Director of First American
National Bank of Memphis and The West Tennessee Board of First
American National Bank (1988 - 1991) and was President of Memphis
Light Gas and Water Division of the City of Memphis (1984 - 1991).
Mr. Papasan is also a member of the Board of the Plough Foundation,
a non-profit trust.
- -----------------------------------------------------------------------------------------------------------------------------------
RICHARD C. RANTZOW, age 60, President and Mr. Rantzow was Vice President/Director, Ron Miller Associates, Inc.
5790 Shelby Avenue, Memphis, TN Trustee (manufacturer). Mr. Rantzow was Managing Partner (until 1990) of
the Memphis office of Ernst & Young.
- -----------------------------------------------------------------------------------------------------------------------------------
*JEREMY O. MAY, age 28, Treasurer Mr. May is a Vice President and Director of Mutual Fund Operations
370 17th Street, Denver, CO at ALPS Mutual Funds Services, Inc. (ALPS), the Administrator and
Distributor. Prior to joining ALPS, Mr. May was an auditor with
Deloitte & Touche LLP in their Denver office.
- -----------------------------------------------------------------------------------------------------------------------------------
*RUSSELL C. BURK, age 40, Secretary Mr. Burk is General Counsel of ALPS. Prior to joining ALPS, Mr.
370 17th Street, Denver CO Burk served as Securities Counsel for Security Life of Denver, a
wholly-owned subsidiary of ING.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

Effective after the May 1998 meeting of the Board, the Trustees of the Trust
each receive from the Trust an annual fee of $6,000 and a fee in the amount of
$2,000 for attending each regularly scheduled quarterly meeting of the Trustees
and $500 for each unscheduled meeting. Previously, the Trustees of the Trust
each received from the Trust an annual fee of $4,000 and a fee in the amount of
$1,250 for attending each regularly scheduled quarterly meeting of the Trustees
and $500 for each unscheduled meeting. The Trustees were compensated as follows
for their services provided during the Trust's fiscal year ended June 30, 1998:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Pension Or
Retirement Estimated Aggregate
Benefits Annual Compensation
Aggregate Accrued As Benefits From The Trust
Compensation Part of Fund Upon And Fund
From the Expenses Retirement Complex Paid
Trust To Trustees
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas M. Batchelor
Trustee $9,500 $0 $0 $9,500
- -------------------------------------------------------------------------------------------------------------------------------
John A. DeCell
Trustee $9,500 $0 $0 $9,500
- -------------------------------------------------------------------------------------------------------------------------------
L. R. Jalenak, Jr.
Trustee $9,500 $0 $0 $9,500
- -------------------------------------------------------------------------------------------------------------------------------
Larry W. Papsan, $7,000 $0 $0 $7,500
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Richard C. Rantzow
Trustee $9,500 $0 $0 $9,500
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

As of September 30, 1998, the officers and Trustees of the Trust owned less than
1% of the outstanding shares of any Portfolio.

INVESTMENT ADVISORY AGREEMENTS

Each Portfolio employs First Tennessee Bank National Association, Memphis,
Tennessee, to furnish investment advisory and other services to the Portfolio.
Under the Investment Advisory and Management Agreement with each Portfolio,
First Tennessee is authorized to appoint one or more sub-advisers at First
Tennessee's expense. BlackRock Institutional Management Corporation, formerly
known as PNC Institutional Management Corporation, Wilmington, Delaware, acts as
Sub-Adviser and, subject to the direction of the Trustees and of First
Tennessee, directs the investments of each Portfolio in accordance with its
investment objective, policies and limitations.

In addition to First Tennessee's fee and the fees payable to the Transfer Agent,
Pricing and Accounting Agent, and to the Administrator, each Portfolio pays for
all its expenses, without limitation, that are not assumed by these parties.
Each Portfolio pays for typesetting, printing and mailing of proxy material to
existing shareholders, legal expenses, and the fees of the custodian, auditor
and Trustees. Other expenses paid by each Portfolio include: interest, taxes,
brokerage commissions, each Portfolio's proportionate share of insurance
premiums and Investment Company Institute dues, and costs of registering shares
under federal and state securities laws. Each Portfolio also is liable for such
nonrecurring expenses as may arise, including costs of litigation to which each
Portfolio is a party, and its obligation under the Declaration of Trust to
indemnify its officers and Trustees with respect to such litigation.

For managing its investment and business affairs, each Portfolio pays First
Tennessee its prorated portion of a monthly management fee at the annual rate of
.25% of aggregate average monthly net assets of all Money Market Portfolios of
the Trust managed by First Tennessee through $1 billion, and .22% on amounts
greater than $1 billion. First Tennessee has voluntarily agreed to waive its fee
to .10% of average net assets. The fee waiver may be discontinued at any time.
For the fiscal year ended June 30, 1998, First Tennessee earned $137,999,
$238,922, $131,526 and $166,825 from the U.S. Treasury Money Market, U.S.
Government Money Market, Municipal Money Market and Cash Reserve Portfolios,
respectively, before waiving $82,799, $143,353, $78,915 and $100,095 for the
respective Portfolios. For the fiscal year ended June 30, 1997, First Tennessee
earned $206,512, $237,756, $196,108 and $122,479 from the U.S. Treasury Money
Market Portfolio, U.S. Government Money Market Portfolio, Municipal Money Market
Portfolio and the Cash Reserve Portfolio, respectively, before waiving fees of
$123,907, $142,654, $117,665 and $73,488 for the respective Portfolios. For the
fiscal year ended June 30, 1996, First Tennessee earned $209,632, $241,977,
$241,730, and $69,195 from U.S. Treasury Money Market, U.S. Government Money
Market, Municipal Money Market, and Cash Reserve Portfolios, respectively,
before waiving fees of $133,588, $155,065, $155,521, and $43,354 for the
respective Portfolios.

Under the Investment Advisory and Management Agreement, First Tennessee is
authorized, at its own expense, to hire sub-advisers to provide investment
advice to each Portfolio. As Sub-Adviser, BIMC is paid by First Tennessee a
monthly sub-

<PAGE>

advisory fee at the annual rate of .08% of aggregate average monthly net assets
of all money market Portfolios of the Trust advised by BIMC, through $500
million, .06% of the next $500 million, and .05% on amounts greater than $1
billion. Under the terms of the subadvisory agreement with First Tennessee,
BIMC, subject to the supervision of First Tennessee, supervises the day-to-day
operations of each Portfolio and provides investment research and credit
analysis concerning each Portfolio's investments, conducts a continual program
of investment of each Portfolio's assets and maintains the books and records
required in connection with its duties under each sub-advisory agreement. In
addition, BIMC keeps First Tennessee informed of the developments materially
affecting each Portfolio.

ADMINISTRATION AGREEMENT AND OTHER CONTRACTS

ADMINISTRATOR AND DISTRIBUTOR. ALPS Mutual Funds Services, Inc. is the
Administrator and Distributor to each Portfolio under separate Administration
and General Distribution Agreements with respect to each Portfolio. ALPS, a
Colorado corporation, is a broker-dealer registered under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc.

As the Administrator, ALPS assists in each Portfolio's administration and
operation, including, but not limited to, providing office space and various
legal and accounting services in connection with the regulatory requirements
applicable to each Portfolio. ALPS is entitled to and receives from each
Portfolio a monthly fee at the annual rate of .075% of average net assets.

For each Portfolio's fiscal year ended June 30, 1998, ALPS earned administration
fees in the amount of $41,400, $71,676, $39,458 and 50,048 from the U.S.
Treasury Money Market Portfolio, U.S. Government Money Market Portfolio,
Municipal Money Market Portfolio and the Cash Reserve Portfolio, respectively.
For each Portfolio's fiscal year ended June 30, 1997, ALPS earned administration
fees in the amount of $61,953, $71,327, $58,833 and $36,744 from the U.S.
Treasury Money Market Portfolio, U.S. Government Money Market Portfolio,
Municipal Money Market Portfolio and Cash Reserve Portfolio, respectively. For
each Portfolio's fiscal year ended June 30, 1996, ALPS earned administration
fees in the amount of $62,889, $72,593, $72,519, and $20,758 from the U.S.
Treasury Money Market Portfolio, U.S. Government Money Market Portfolio,
Municipal Money Market Portfolio and the Cash Reserve Portfolio, respectively.

As the Distributor, ALPS sells shares of Class I as agent on behalf of the Trust
at no additional cost to the Trust. Class II, III and IV are obligated to pay
ALPS monthly an additional annual fee of up to .25%, .45% and .65% of average
net assets, respectively, which consists of up to .25% in shareholder servicing
fees for Class II and up to .45% and .65% in 12b-1 fees for Class III and IV,
respectively, all or a portion of which may be paid out to broker-dealers or
others involved in the distribution of Class II, Class III or Class IV shares.
See "Distribution Plans" and "Shareholder Services Plans" below. First Tennessee
and its affiliates neither participate in nor are responsible for the
underwriting of Portfolio shares. Consistent with applicable law, affiliated
brokers of First Tennessee may receive commissions or asset-based fees.

CO-ADMINISTRATOR. First Tennessee, serves as the Co-Administrator for each
Portfolio. As the Co-Administrator, First Tennessee assists in each Portfolio's
operation, including, but not limited to, providing non-investment related
research and statistical data and various operational and administrative
services. First Tennessee is entitled to receive from each Portfolio a monthly
fee at the annual rate of .05% of average net assets. First Tennessee has
voluntarily agreed to waive its co-administration fee to .025% of each
Portfolio's average net assets. The fee waiver may be discontinued at any time.
For each Portfolio's fiscal year ended June 30, 1998, First Tennessee earned
co-administration fees in the amount of $27,600, $47,784, $26,305 and $33,365
from the U.S. Treasury Money Market Portfolio, U.S. Government Money Market
Portfolio, Municipal Money Market Portfolio and the Cash Reserve Portfolio,
respectively, before waiving $13,800, $23,892, $13,153 and $16,682,
respectively. For each Portfolio's fiscal year ended June 30, 1997, First
Tennessee earned co-administration fees in the amount of $41,302, $47,551,
$39,222 and $24,496 from the U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio, Municipal Money Market Portfolio and Cash
Reserve Portfolio, respectively, before waiving $20,651, $23,775, $19,611 and
$12,248, respectively. For each Portfolio's fiscal year ended June 30, 1996,
First Tennessee earned co-administration fees in the amount of $41,850, $48,327,
$48,285 and $13,808 from the U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio, Municipal Money Market Portfolio and the Cash
Reserve Portfolio, respectively, before waiving $30,649, $36,477, $37,216 and
$9,183, respectively.

TRANSFER AGENT FUND, ACCOUNTING AND CUSTODIAN. State Street Bank & Trust
Company, through its affiliate Boston Financial Data Services, provides transfer
agent and shareholder services for each Portfolio. For such services, State
Street is entitled to receive a fee from each Portfolio based on their net asset
value, plus out-of-pocket expenses.

<PAGE>

State Street is also Custodian of the assets of the Portfolios and calculates
the NAV and dividends of each Class of each Portfolio and maintains the
portfolio general accounting records. The Custodian is responsible for the
safekeeping of each Portfolio's assets and the appointment of sub-custodian
banks and clearing agencies. For such services, State Street is entitled to
receive a fee from each Portfolio based on its net asset value, plus certain
minimum monthly accounting fees and out-of-pocket expenses. The Custodian takes
no part in determining the investment policies of the Portfolios or in deciding
which securities are purchased or sold by the Portfolios. The Portfolios,
however, may invest in obligations of the Custodian and may purchase securities
from or sell securities to the Custodian.

DISTRIBUTION PLANS. The Trustees of the Trust have adopted a Distribution Plan
on behalf of Class III of each Portfolio and Class IV of the U.S. Treasury Money
Market Portfolio (collectively the "Distribution Plans") pursuant to Rule 12b-1
(the Rule) under the 1940 Act. The Rule provides in substance that a mutual fund
may not engage directly or indirectly in financing any activity that is intended
primarily to result in the sale of shares of the fund except pursuant to a plan
adopted by the fund under the Rule. The Trustees have adopted the Distribution
Plans to allow Class III of each Portfolio and Class IV of the U.S. Treasury
Money Market Portfolio and ALPS to incur distribution expenses. The Distribution
Plans provide for payment of a distribution fee (12b-1 fee) of up to 0.45% of
the average net assets of Class III of each Portfolio and 0.65% of the average
net assets of Class IV of the U.S. Treasury Money Market Portfolio. The Trustees
have limited the fees payable by Class III of each Portfolio to .25% of each
Class III's average net assets. These fees are in addition to the fees paid to
ALPS under the Administration Agreement. The Trust or ALPS, on behalf of Class
III of each Portfolio and Class IV of the U.S. Treasury Money Market Portfolio,
may enter into servicing agreements (Service Agreements) with banks,
broker-dealers or other institutions (Agency Institutions). The Distribution
Plans provide that ALPS may use its fees and other resources to make payments to
Agency Institutions for performance of distribution-related services, including
those enumerated above. The Service Agreements further provide for compensation
to broker-dealers for their efforts to sell Class III and Class IV shares. The
distribution-related services include, but are not limited to, the following:
formulation and implementation of marketing and promotional activities, such as
mail promotions and television, radio, newspaper, magazine and other mass media
advertising; preparation, printing and distribution of sales literature;
preparation, printing and distribution of prospectuses of each Portfolio and
reports to recipients other than existing shareholders of each Portfolio;
obtaining such information, analyses and reports with respect to marketing and
promotional activities as ALPS may from time to time, deem advisable; making
payments to securities dealers and others engaged in the sales of Class III and
Class IV shares; and providing training, marketing and support to such dealers
and others with respect to the sale of Class III and Class IV shares. The
Distribution Plans recognize ALPS may use its fees and other resources to pay
expenses associated with the promotion and administration of activities
primarily intended to result in the sale of shares.

The Distribution Plans have been approved by the Trustees, including the
majority of disinterested Trustees. As required by the Rule, the Trustees
carefully considered all pertinent factors relating to the implementation of the
Plans prior to its approval, and have determined that there is a reasonable
likelihood that each Distribution Plan will benefit each Portfolio and its
shareholders. To the extent that the Distribution Plans give ALPS greater
flexibility in connection with the distribution of shares of the class,
additional sales of shares may result.

The Distribution Plans could be construed as compensation plans because ALPS is
paid a fixed fee and is given discretion concerning what expenses are payable
under the Distribution Plans. ALPS may spend more for marketing and distribution
than it receives in fees and reimbursements from each Portfolio. However, to the
extent fees received exceed expenses, including indirect expenses such as
overhead, ALPS could be said to have received a profit. For example, if ALPS
pays $1 for distribution-related expenses and receives $2 under a Distribution
Plan, the $1 difference could be said to be a profit for ALPS. Because ALPS is
reimbursed for its out-of-pocket direct promotional expenses, a Distribution
Plan also could be construed as a reimbursement plan. Until the issue is
resolved by the SEC, unreimbursed expenses incurred in one year will not be
carried over to a subsequent year. If after payments by ALPS for marketing and
distribution there are any remaining fees attributable to a Distribution Plan,
these may be used as ALPS may elect. Since the amount payable under the
Distribution Plans will be commingled with ALPS's general funds, including the
revenues it receives in the conduct of its business, it is possible that certain
of ALPS's overhead expenses will be paid out of Plan fees and that these
expenses may include items such as the costs of leases, depreciation,
communications, salaries, training and supplies. Each Portfolio believes that
such expenses, if paid, will be paid only indirectly out of the fees being paid
under the Plan.

For fiscal year ended June 30, 1998, Class III of the U.S. Treasury Money
Market, U.S. Government Money Market, Municipal Money Market and Cash Reserve
Portfolios paid distribution fees in the amounts of $117,407, $11,375, $23,088
and $120,021, respectively. All of these fees were paid as compensation to
dealers.

SHAREHOLDER SERVICES PLANS. In addition to the Rule 12b-1 Distribution Plans
described above, Class II of each Portfolio has adopted Shareholder Services
Plans to compensate Agency Institutions for individual shareholder services and
account maintenance. These functions include: maintaining account records for
each shareholder who beneficially owns Class II Shares; answering questions and
handling correspondence from shareholders about their accounts; handling the
transmission of funds representing the purchase price or redemption proceeds;
issuing confirmations for transactions in Class II Shares by shareholders;
assisting customers in completing application forms; communicating with the
transfer agent; and providing

<PAGE>

account maintenance and account level support for all transactions. For these
services the participating Agency Institutions are paid a service fee at the
annual rate of up to .25% of average net assets of Class II.

Banking laws and regulations, including the Glass-Steagall Act as currently
interpreted by the Board of Governors of the Federal Reserve System, prohibit a
bank holding company registered under the Bank Holding Company Act of 1956 or
any affiliate thereof from sponsoring, organizing, controlling, or distributing
the shares of a registered, open-end investment company continuously engaged in
the issuance of its shares and prohibit banks generally from issuing,
underwriting, selling or distributing securities. The same laws and regulations
generally permit a bank or bank affiliate to act as an investment adviser and
co-administrator and to purchase shares of the investment company as agent for
and upon the order of a customer. In the Trust's and Investment Adviser's
opinion, banks and their affiliates may be paid for investment advisory,
shareholder servicing, recordkeeping and co-administration functions. Changes in
federal or state statutes and regulations pertaining to the permissible
activities of banks and their affiliates or subsidiaries, as well as further
judicial or administrative decisions or interpretations, could prevent a bank
from continuing to perform all or a part of the contemplated services. If a bank
or its affiliates were prohibited from so acting, the Trustees would consider
what actions, if any, would be necessary to continue to provide efficient and
effective shareholder services. In such event, changes in the operation of the
Portfolios might occur, including possible termination of any automatic
investment or redemption or other services then being provided by any bank. It
is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences. The Portfolios may execute
portfolio transactions with and purchase securities issued by depository
institutions that receive payments under the Plans. No preference will be shown
in the selection of investments for the instruments of such depository
institutions. In addition, state securities laws on this issue may differ from
the interpretations of federal law expressed herein, and banks and other
financial institutions may be required to register as dealers pursuant to state
law.

DESCRIPTION OF THE TRUST

TRUST ORGANIZATION. U.S. Treasury Money Market Portfolio, U.S. Government Money
Market Portfolio, Municipal Money Market Portfolio, and Cash Reserve Portfolio
are portfolios of First Funds, an open-end management investment company
organized as a Massachusetts business trust by a Declaration of Trust dated
March 6, 1992, as amended and restated on September 4, 1992. The Declaration of
Trust permits the Trustees to create additional portfolios and classes. There
are nine portfolios of the Trust, each with multiple Classes.

The assets of the Trust received for the issue or sale of shares of each
Portfolio and all income, earnings, profits, and proceeds thereof, subject only
to the rights of creditors, are specially allocated to such Portfolio, and
constitute the underlying assets of such Portfolio. The underlying assets of
each Portfolio are segregated on the books of account, and are to be charged
with the liabilities with respect to such Portfolio and with a share of the
general expenses of the Trust. Expenses with respect to the Trust are to be
allocated in proportion to the asset value of the respective Portfolios except
where allocations of direct expense can otherwise be fairly made. The officers
of the Trust, subject to the general supervision of the Trustees, have the power
to determine which expenses are allocable to a given Portfolio, or which are
general or allocable to all of the Portfolios. In the event of the dissolution
or liquidation of the Trust, shareholders of a Portfolio are entitled to receive
as a class the underlying assets of such Portfolio available for distribution.

SHAREHOLDER AND TRUSTEE LIABILITY. The Trust is an entity of the type commonly
known as a "Massachusetts business trust." Under Massachusetts law, shareholders
of such a trust may, under certain circumstances, be held personally liable for
the obligations of the trust. The Declaration of Trust provides that the Trust
shall not have any claim against shareholders except for the payment of the
purchase price of shares and requires that each agreement, obligation, or
instrument entered into or executed by the Trust or the Trustees shall include a
provision limiting the obligations created thereby to the Trust and its assets.
The Declaration of Trust provides for indemnification out of each Portfolio's
property of any shareholders held personally liable for the obligations of each
Portfolio. The Declaration of Trust also provides that each Portfolio shall,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of a Portfolio and satisfy any judgment thereon. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Portfolio itself would be
unable to meet its obligations. The Trustees believe that, in view of the above,
the risk of personal liability to shareholders is remote.

The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or wrongdoing, but
nothing in the Declaration of Trust protects a Trustee against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office.

As of _______________, 1999, the following shareholders owned more than 5% of
the outstanding shares of the indicated Class of the Portfolios: [PLEASE UPDATE]

<TABLE>
<CAPTION>
Total % of Total Outstanding
Name and Address Portfolio Class Shares Owned Class Held In Class
- ---------------- --------- ----- ------------ ---------- --------
<S><C>
</TABLE>

<PAGE>

VOTING RIGHTS. Each Portfolio's capital consists of shares of beneficial
interest. The shares have no preemptive or conversion rights; the voting and
dividend rights, the right of redemption, and the privilege of exchange are
described in the Prospectus. Shares are fully paid and nonassessable, except as
set forth under the heading "Shareholder and Trustee Liability" above.
Shareholders representing 10% or more of the Trust or a Portfolio may, as set
forth in the Declaration of Trust, call meetings of the Trust or a Portfolio for
any purpose related to the Trust or Portfolio, as the case may be, including, in
the case of a meeting of the entire Trust, the purpose of voting on removal of
one or more Trustees. The Trust or any Portfolio may be terminated upon the sale
of its assets to another open-end management investment company, or upon
liquidation and distribution of its assets, if approved by vote of the holders
of a majority of the outstanding shares of the Trust or that Portfolio. If not
so terminated, the Trust and each Portfolio will continue indefinitely.

CLASSES. Pursuant to the Declaration of Trust, the Trustees have authorized
additional Classes of shares for each Portfolio of the Trust. Although the
investment objective for each separate Class of a particular Portfolio is the
same, fee structures are different such that one Class may have a higher yield
than another Class of the same Portfolio at any particular time. Shareholders of
the Trust will vote together in the aggregate and not separately by Portfolio,
or by Class thereof, except as otherwise required by law or when the Trustees
determine that the matter to be voted upon affects only the interests of the
shareholders of a particular Portfolio or a Class thereof. Pursuant to a vote by
the Board of Trustees, the Trust has adopted Rule 18f-3 under the Act and has
issued multiple Classes of shares with respect to each of its Portfolios.
Accordingly, the rights, privileges and obligations of each such Class will be
determined in accordance with such rule.

INDEPENDENT ACCOUNTANTS. Deloitte & Touche LLP, 555 Seventeenth Street, Suite
3600, Denver, Colorado 80202, serves as the Trust's independent accountant. The
independent accountant examines the annual financial statements for the Trust
and provides other audit, tax, and related services.

FINANCIAL STATEMENTS

The Portfolios' financial statements and financial highlights for the fiscal
year ended June 30, 1998, and the six-month period ended December 31, 1998, are
included in the Trust's Annual and Semi-Annual Reports, which are separate
reports supplied independent of this Statement of Additional Information. The
Portfolios' financial statements and financial highlights are incorporated
herein by reference.

The Portfolio's financial statements for the year ended June 30, 1998 were
audited by PricewaterhouseCoopers LLP, whose report thereon is included in the
Portfolio's annual report. On April 29, 1999, PricewaterhouseCoopers LLP
resigned as the Portfolio's auditors; such resignation was accepted by the Board
of Trustees. The Trustees have approved the appointment of Deloitte & Touche LLP
as independent auditors of the Portfolio, effective upon the resignation of
PricewaterhouseCoopers LLP.

<PAGE>

APPENDIX

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S COMMERCIAL PAPER RATINGS:

Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:

- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- - Broad margins in earning coverage of fixed financial charges and with high
internal cash generation.
- - Well established access to a range of financial markets and assured sources
of alternate liquidity.

DESCRIPTION OF STANDARD & POOR'S CORPORATION'S COMMERCIAL PAPER RATINGS:

A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2, and 3 to indicate the relative degree of safety.

A-1- This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.

<PAGE>

PART C. OTHER INFORMATION

Item 23. EXHIBITS

Exhibit
Number Description
- ------ -----------
(a)(1) Declaration of Trust dated as of March 6, 1992. (1)

(2) Supplement to the Declaration of Trust effective April 24,
1992. (1)

(3) Amended and Restated Declaration of Trust dated as of September 4,
1992. (1)

(4) Supplement to the Declaration of Trust effective August 1,
1993. (1)

(b)(1) Bylaws of the Trust. (1)

(2) Amendment to the Bylaws dated November 17, 1992. (1)

(d)(1) Investment Advisory and Management Agreements between the First
Funds on behalf of U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio, and Municipal Money Market
Portfolio, and First Tennessee Bank National Association dated
September 4, 1992. (1)

(2) Sub-Advisory Agreements between Provident Institutional Management
Corporation and First Tennessee Bank National Association on behalf
of U.S. Treasury Money Market Portfolio, U.S. Government Money
Market Portfolio, and Municipal Money Market Portfolio, dated
September 4, 1992. (1)

(3) Investment Advisory and Management Agreement between the First
Funds on behalf of Cash Reserve Portfolio, Total Return Equity
Portfolio, and Total Return Fixed Income Portfolio, and First
Tennessee Bank National Association dated February 15, 1993. (1)

(4) Sub-Advisory Agreements between First Tennessee Investment
Management, Inc. and First Tennessee Bank National Association on
behalf of Cash Reserve Portfolio, Total Return Equity Portfolio and
Total Return Fixed Income Portfolio, dated May 4, 1993. (1)

(5) Investment Advisory and Management Agreement between First Funds on
behalf of Tennessee Tax-Free Portfolio and First Tennessee Bank
National Association dated October 25, 1995 is incorporated by
reference to Exhibit 5(e) to Post-Effective Amendment No. 9 to the
Trust's Registration Statement.

(6) Investment Advisory and Management Agreement between First Funds on
behalf of Capital Appreciation Portfolio and First Tennessee Bank
National Association dated August 29, 1997. (1)

<PAGE>

(7) Investment Advisory and Management Agreement between First Funds on
behalf of Capital Appreciation Portfolio and Investment Advisers,
Inc. dated August 29, 1997. (1)

(8) Investment Advisory and Management Agreement between First Funds on
behalf of Intermediate Bond Portfolio and First Tennessee Bank
National Association dated August 29, 1997. (1)

(9) Sub-Advisory Agreement between First Tennessee Bank National
Association and Martin & Company, Inc. with respect to the
Intermediate Bond Portfolio dated March 2, 1998. (1)

(10) Sub-Advisory Agreement between First Tennessee Bank National
Association and Martin & Company, Inc. with respect to the
Tennessee Tax-Free Portfolio dated March 2, 1998. (1)

(e)(1) General Distribution Agreement between First Funds on behalf of all
Portfolios, and ALPS Mutual Funds Services, Inc., dated July 1,
1995. (1)

(2) Amended and Restated General Distribution Agreement between First
Funds on behalf of all Portfolios, and ALPS Mutual Funds Services,
Inc., dated August 19, 1998. (1)

(3) Administration Agreement between First Funds on behalf of all
Portfolios, and ALPS Mutual Funds Services, Inc., dated July 1,
1995. (1)

(4) Amended and Restated Administration Agreement between First Funds
on behalf of all Portfolios, and ALPS Mutual Funds Services, Inc.,
dated November 19, 1997. (1)

(5) Amended and Restated Administration Agreement between First Funds
on behalf of all Portfolios, and ALPS Mutual Funds Services, Inc.,
dated August 19, 1998. (1)

(6) Form of Servicing Agreement between ALPS Mutual Funds Services,
Inc. and an

<PAGE>

Agency Institution. (3)

(7) Form of Selling Dealer Agreement between ALPS Mutual Funds
Services, Inc. and selected dealers. (3)

(8) Form of Bank Agency Agreement between ALPS Mutual Funds Services,
Inc., and banks. (3)

(9) Power of Attorney dated September 25, 1998 (2)

(f) Not Applicable.

(g) Custody Agreement between the First Funds and State Street Bank &
Trust Company dated May 7, 1999. (3)

(h) Transfer Agency Agreement between First Funds and State Street Bank
& Trust Company dated May 7, 1999.

(i) Opinion and Consent of Baker, Donelson, Bearman & Caldwell [to be
provided by amendment]

(j) Opinion and Consent of PricewaterhouseCoopers LLP, independent
accountants [to be provided by amendment]

(k) Not Applicable.

(l) Written assurances that purchase representing initial capital was
made for investment purposes without any present intention of
redeeming or reselling. (1)

(m)(1) Form of Shareholder Servicing Plan for First Funds Class II and
III. (3)

(2) Form of Distribution Plan for First Funds Class III shares. (3)

(3) Form of Distribution Plan for First Funds Class IV shares. (3)

(4) Form of Shareholder Services Plan for First Funds Class IV shares.
(3)

(n) Not Applicable.

(o) Form of Plan Providing for Multiple Classes of Shares pursuant to
Rule 18f-3 is filed herewith electronically.

- ----------------
(1) Incorporated by reference to Post-Effective Amendment No. 15 to the Trust's
Registration

<PAGE>

Statement.
(2) Incorporated by reference to Post-Effective Amendment No. 16 to the Trust's
Registration Statement.
(3) Incorporated by reference to Post-Effective Amendment No. 17 to the Trust's
Registration Statement.

Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

Not Applicable.

Item 25. INDEMNIFICATION

Article XI, Section 2 of the Declaration of Trust sets forth the
reasonable and fair means for determining whether indemnification
shall be provided to any past or present Trustee or officer. It
states that the Registrant shall indemnify any present or past
Trustee, or officer to the fullest extent permitted by law against
liability and all expenses reasonably incurred by him in connection
with any claim, action suit or proceeding in which he is involved
by virtue of his service as a trustee, officer, or both.
Additionally, amounts paid or incurred in settlement of such
matters are covered by this indemnification. Indemnification will
not be provided in certain circumstances, however. These include
instances of willful misfeasance, bad faith, gross negligence, and
reckless disregard of the duties involved in the conduct of the
particular office involved.

Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy is expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.

Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGER

<PAGE>

FIRST TENNESSEE BANK NATIONAL ASSOCIATION (FTB) - INVESTMENT ADVISER

<TABLE>
<CAPTION>
Position Other Business Type of
with FTB Name connections* Business
- -------- ---- ------------ --------
<S> <C> <C> <C>
Director Robert C. Blattberg Polk Brothers Distinguished Education
Professor of Retailing
J.L. Kellogg Graduate School
of Management
Northwestern University (1)

Director, Factory Card Outlet Corp. (2) Retail

Director, Golub Corporation (3) Grocery

Director Carlos H. Cantu President, Chief Executive Officer, Consumer services
Director, The ServiceMaster Company(4) and Supportive
Management services

Director, Unicom Corporation (5) Utility

Director George E. Cates Chairman of the Board and Chief Real estate investment
Executive Officer, Mid-America trust
Apartment Communities, Inc. (6)

Director, J. Kenneth Glass Executive Vice President, Director, Bank holding company
President, FTNC (7)
Retail Financial
Services Chairman and Director, Norlen Life Credit life insurance
Insurance Company (7)

Director, FT Mortgage Companies (8) Mortgage company

Director, FT Mortgage Holding Mortgage company
Corporation (9)

Director, First Tennessee Mortgage Mortgage company
Services, Inc. (10)

Director, Highland Capital Management Investment Advisor
Corp. (11)

Chairman and Director, First Horizon Consumer access/discount
Strategic Alliances, Inc. (12) card program and finder

Director, First Tennessee Merchant Merchant processing
Services, Inc. (13)

Director, Federal Flood Certification Flood insurance
Corp. (14)

Director, FT Reinsurance Company (15) Insurance

Director, Martin & Company (16) Investment adviser

Director, First Horizon Asset Securities, Securitization conduit
Inc. (17)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Position Other Business Type of
with FTB Name connections* Business
- -------- ---- ------------ --------
<S> <C> <C> <C>
Director James A. Haslam, III Chief Executive Officer, Pilot Retail operator of
Corporation (18) convenience stores and
travel centers

Director, Ruby Tuesday, Inc. (19) Restaurant

President, Ralph Horn President, Chairman of the Board, Chief Bank holding company
Chairman of the Executive Officer and Director, FTNC(7)
Board, Chief
Executive Officer Director, Harrah's Entertainment, Inc.(20) Casino, entertainment
and Director
Director, Mid-America Apartment Real estate investment
Communities, Inc. (6) trust

Director, John C. Kelley, Jr. Executive Vice President, Director, Bank holding company
President, Business FTNC (7)
Financial Services/
Memphis Financial Director, Check Consultants, Inc. (7) Check processing and
Services related services

Director, Check Consultants Company Check processing and
of Tennessee (7) related services

Director, First Tennessee Housing Public welfare
Corporation (21) investments

Director, First Tennessee Equipment Equipment financing
Finance Corporation (22)

Director R. Brad Martin Chairman of the Board, Chief Executive Retail
Officer, Saks, Incorporated (23)

Director, Harrah's Entertainment, Inc. (20) Casino, entertainment

Director, Pilot Corporation (18) Retail operator of
convenience stores and
travel centers

Director Joseph Orgill, III Chairman of the Board, West Union Distributor and
Corporation (24) manufacturer for
construction industry

Director, Chairman of the Board Wholesale hardware
Orgill, Inc. (25) distributor

Mallory Group (26) Warehousing,
distribution and
transportation

Director Vicki R. Palmer Corporate Vice President and Treasurer of Bottler of soft drink
Coca Cola Enterprises, Inc. (27) products

Director Michael D. Rose Director, Nextera Enterprises, Inc. (28) Business consulting

Director, General Mills, Inc. (29) Food processing

Director, Ashland Inc. (30) Oil company
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Position Other Business Type of
with FTB Name connections* Business
- -------- ---- ------------ --------
<S> <C> <C> <C>
Michael D. Rose Director, Darden Restaurants, Inc.(31) Restaurant
(continued)
Director, Stein Mart, Inc.(32) Retail

Director, FelCor Lodging Trust, Inc.(33) Hotel

Director, ResortQuest International, Vacation property
Inc. (34) management

Director William B. Sansom Chairman of the Board and Chief Wholesale distributor
Executive Officer, The H.T.
Hackney Company (35)

Director, Martin Marietta Materials, Construction aggregate
Inc. (36) materials producer

Director, Astec Industries, Inc. (37) Construction aggregate
Materials producer
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Position Other Business Type of
with FTB Name connections* Business
- -------- ---- ------------ --------
<S> <C> <C> <C>
Executive Vice Susan Schmidt Bies Executive Vice President, Auditor, Bank holding company
President, FTNC (7)
Auditor

Executive Vice Harry A. Johnson, III Executive Vice President and Bank holding company
President and General Counsel of FTNC(7)
General Counsel

Executive Vice George Perry Lewis Director, First Tennessee Broker Dealer
President-Group Brokerage, Inc. (38)
Manager, Money
Management Director, Highland Capital Investment Adviser
Management Corp. (11)

Director, Hickory Venture Venture Capital
Capital Corporation (39)

Director, Hickory Capital Venture Capital
Corporation (40)

Director, Martin & Co., Inc.(16) Investment Adviser

Director, FT Insurance Corporation(41) Insurance

Executive Vice John P. O'Connor, Jr. Executive Vice President and Chief Bank holding company
President and Credit Officer of FTNC(7)
Chief Credit Officer

Executive Vice Sarah Meyerrose Executive Vice President Employee Bank holding company
President- Services of FTNC(7)
Employee Services

Executive Vice Elbert L. Thomas, Jr. Executive Vice President and Chief Bank holding company
President, Chief Financial Officer of FTNC(7)
Financial Officer
Director, First Tennessee ABS, Inc.(42) REIT/REMIC

Director, FT Real Estate Securities REIT/REMIC
Company, Inc.(43)

Director, FT Realty Securities QRS, REIT/REMIC
Inc.(44)

Director, FT Real Estate Securities REIT/REMIC
Holding Company, Inc.(45)

Executive Vice Charles Burkett Director, Highland Capital Management Investment Adviser
President, Affluent Corp.(11)
Market Manager

Executive Vice David L. Berry None
President

Executive Vice William E. Woodson Director, Martin & Co., inc.(16) Investment Adviser
President
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Position Other Business Type of
with FTB Name connections* Business
- -------- ---- ------------ --------
<S> <C> <C> <C>
Senior Vice President Wayne C. Marsh None

Senior Vice President John Curtis None

Senior Vice President Deborah McDonald None

Senior Vice President Yvonne Watson None

Senior Vice President C. Douglas Kelso None

Senior Vice President David M. Taylor None

Senior Vice President David B. Lantz None

Senior Vice President Steven J. McNally None

Senior Vice President Scott Bovee None

Senior Vice President Maureen MacIver None

Senior Vice President Otis M. Clyaton None

Vice President Suzanne Donaldson None

Vice President Craig Harris None

Vice President Edward C. Dellinger None

Vice President Claudette S. Sanders None

Vice President John Barringer None

Trust Officer Robert Johnston None

Chairman and CEO Larry B. Martin Director, Martin & Co., Inc.(16) Investment Adviser
First Tennessee Bank-
Knoxville

President, First Lew Weems Director, Martin & Co., Inc.(16) Investment Adviser
Tennessee Bank-
Knoxville
</TABLE>

<PAGE>

NOTES:

* All directors of FTB are also directors of its parent, First Tennessee
National Corporation, which controls FTB. Messrs, Glass, Horn, Johnson,
Keen, Kelley, Lewis, O'Connor and Thomas and Ms. Bies and Ms. Meyerrose
are considered executive officers of FTNC.

(1) J.L. Kellog Graduate School of Management, 875 N. Michigan Ave., Suite 2945,
Chicago, IL 60611

(2) Factory Card Outlet Corp., 745 Birbinal Drive, Bensenville, IL 60106-1212

(3) Golub Corporation, P.O. Box 1074, Schenectady, NY 12301

(4) ServiceMaster Company, One ServiceMaster Way, Downers Grove, IL 30515

(5) Unicom Corporation, 1 First National Plaza, Chicago, IL 60690

(6) Mid-America Apartment Communities, Inc., 6584 Poplar Ave., Ste. 340,
Memphis, TN 38138

(7) First Tennessee Bank National Association and First Tennessee National
Corporation, 165 Madison Avenue, Memphis, TN 38103

(8) FT Mortgage Companies, 2974 LBJ Freeway, Dallas, TX 75234

(9) FT Mortgage Holding Corporation, 165 Madison Ave., Memphis, TN 38103

(10)FT Mortgage Services, Inc., 165 Madison Ave., Memphis, TN 38103

(11)Highland Capital
Management Corp., 6077 Primacy Parkway, Suite 228, Memphis, TN 38117

(12)First Horizon Strategic Alliances, Inc., 1700 Rambling Road, Richmond, VA
23235

(13)First Tennessee Merchant Services, Inc., 300 Court Ave., Memphis, TN 38103

(14)Federal Flood Certification Corporation, 6220 Gaston Ave., Dallas, TX 75214

(15)FT Reinsurance Company, 7 Burlington Square, 6th Floor, Burlington, VT 05401

(16)Martin & Company, Two Centre Square, 625 S. Gay Street, Suite 200,
Knoxville, TN 37902-1669

(17)First Horizon Asset Securities, 2974 LBJ Freeway, Dallas, TX 75234

(18)Pilot Corporation, 5508 Lonas Road, Knoxville, TN 37909

(19)Ruby Tuesday, Inc., 150 West Church Ave., Maryville, TN 37801

(20)Harrah's Entertainment, Inc., 1023 Cherry Road, Memphis, TN 38117

(21)First Tennessee Housing Corporation, 165 Madison Ave., Memphis, TN 38103

(22)First Tennessee Equipment Finance Corporation, 165 Madison Ave., Memphis, TN
38103

(23)Saks, Incorporated, 5810 Shelby Oaks Drive, Memphis, TN 38134

(24)West Union Corporation, 35 Union Ave., Suite 300, Memphis, TN 38103

(25)Orgill, Inc., 2100 Latham Street, Memphis, TN 38109

<PAGE>

(26)Mallory Group, 4294 Sweeney Road, Memphis, TN 38118

(27)Coca Cola Enterprises, Inc., 2500 Windy ridge Pkwy, Marietta, GA 30067

(28)Nextera Enterprises, Inc., One Cranberry Hill, Lexington, MA 02421

(29)General Mills, Inc., 9200 Wayzata Blvd., Minneapolis, MN 55426

(30)Ashland Co., 2351 Channel Ave., Memphis, TN

(31)Darden Restaurants, Inc., 5900 Lake Ellenor Drive, Orlando, FL 32809

(32)Stein Mart, Inc., 1200 Riverplace Blvd., Jacksonville, FL 32207

(33)FelCor Lodging Trust, Inc., 545 East John Carpenter Freeway, Suite 1300,
Irving, TX 75062-3933

(34)ResortQuest International, Inc., 530 Oak Court Drive, #360, Memphis, TN
38117

(35)The H.T Hackney Company, Fidelity Bldg., 502 S. Gay Street, Suite 300,
Knoxville, TN 37902

(36)Martin Marietta Materials, Inc., P.O. Box 30013, Raleigh, NC 27622-0013

(37)Astec Industries, Inc., P.O. Box 72787, Chattanooga, TN 37407

(38)First Tennessee Brokerage, Inc., 5100 Poplar Avenue, Memphis, TN 38117

(39)Hickory Venture Capital Corporation, 200 West Court Square, Suite 100,
Huntsville, AL 35801

(40)Hickory Capital Corporation, 200 West Court Square, Suite 100, Huntsville,
AL 35801

(41)FT Insurance Corporation, 530 Oak Court Drive, Memphis, TN 38117

(42)First Tennessee ABS, Ins., P.O. Box 249, Springdale, AR 72765

(43)FT Real Estate Securities, Company, Inc., P.O. Box 249, Springdale, AR 72765

(44)FT Realty Securities QRS, Inc., P.O. Box 249, Springdale, AR 72765

(45)FT Real Estate Securities Holding Company, Inc., P.O. Box 249, Springdale,
AR 72765

<PAGE>

HIGHLAND CAPITAL MANAGEMENT CORP. (HIGHLAND)
6077 PRIMACY PARKWAY, MEMPHIS, TN

<TABLE>
<CAPTION>
Position Other Business
with Highland Name Connections
- ------------- ---- -----------
<S> <C> <C>
Director, Executive Vice President, Edward J. Goldstein None
Treasurer, Secretary

Director, President Steven Wishnia None

Director, Executive Vice President James M. Weir None

Director, Chairman of the Board Paul H. Berz None

Director Charles Thomas Whitman (1)(2) Director, NexAir, LLC

Director J. Kenneth Glass see FTB listing

Director Charles Burkett see FTB listing

Director George Perry Lewis see FTB listing

Senior Vice President Steven T. Ashby None

Senior Vice President David L. Thompson None

Senior Vice President James R. Turner None
</TABLE>

(1) Previously, Executive Vice President of Highland Capital Management Corp.,
6077 Primacy Parkway, Memphis, TN 38119

(2) NexAir, LLC, 1385 Corporate Avenue, Memphis, TN 38186-1182, distributor of
industrial gases, welding supplies and medical products

<PAGE>

MARTIN & COMPANY, INC. (MARTIN)
TWO CENTRE SQUARE, 625 S. GAY STREET, SUITE 200
KNOXVILLE, TN 37902

<TABLE>
<CAPTION>
Position Other Business
with Martin Name Connections
- ----------- ---- -----------
<S> <C> <C>
Director, President A. David Martin (1) None

Director Larry B. Martin See FTB listing

Director George P. Lewis See FTB listing

Director J. Kenneth Glass See FTB listing

Director William F. Woodson, Jr. See FTB listing

Director Lew Weems See FTB listing

Senior Vice President, Portfolio Manager Ted Flickinger, Jr. (2) None

Vice President, Portfolio Manager Paul Spitznagel (2) None

Vice President, Portfolio Manager Charles Stewart (3) None

Vice President, Senior Securities Analyst Stanley Erwin, Jr. None

Vice President, Portfolio Manager Gary Hoemann (4) None

Vice President, Portfolio Manager John C. Miller (5) None

Vice President, Portfolio Manager David Zandstra (5) None

Vice President, Portfolio Manager Ralph Herbert (5) None
</TABLE>

(1) Previously, President, Martin & Co., L.P., a registered investment
adviser, 625 S. Gay Street, Knoxville, TN 37902 ("Martin, L.P)

(2) Previously, Vice President, Martin, L.P.

(3) Previously, Assistant Portfolio Manager, Martin, L.P.

(4) Previously, Senior Vice President, First Tennessee Bank, 800 S. Gay
Street, Knoxville, TN 37902 ("FTB")

(5) Previously, Vice President, FTB

<PAGE>

Item 27. PRINCIPAL UNDERWRITERS

(1) The sole principal underwriter for the Fund is ALPS Mutual Funds
Services, Inc. which acts as distributor for the Registrant and the
following other funds: Westcore Trust, Financial Investors Trust,
Stonebridge Growth Fund, Inc., Stonebridge Aggressive Growth Fund,
Inc., SPDR Trust, MidCap SPDR Trust, and DIAMONDS Trust.

(b) To the best of Registrant's knowledge, the directors and executive
officers of ALPS Mutual Funds Services, Inc., the distributor for
Registrant, are as follows:

<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions and Offices with
Business Address* Registrant Underwriter
- --------------------------- --------------------------- ---------------------------
<S> <C> <C>
W. Robert Alexander None Chairman,Chief Executive
Officer and Secretary

Arthur J. L. Lucey None President and Director

Thomas A. Carter None Chief Financial Officer

Edmund J. Burke None Executive Vice President
and Director

William N. Paston None Vice President

Jeremy May Treasurer Vice President

Russell C. Burk Secretary General Counsel

John W. Hannon, Jr. None Director

Rick A. Pederson None Director

Chris Woessner None Director
</TABLE>

* All addresses are 370 Seventeenth Street, Suite 3100, Denver, Colorado 80202.

Item 28. LOCATION OF ACCOUNTS AND RECORDS

<PAGE>

First Tennessee Bank National Association, located at 530 Oak Court
Dr., Suite 200, Memphis, Tennessee, Highland Capital Management
Corp., located at 6011 Privacy Parkway, Suite 228, Memphis,
Tennessee, BlackRock Institutional Management Corporation, 103
Bellevue Parkway, Wilmington, Delaware, Investment Advisors, Inc.,
located at 3700 First Bank Place, Minneapolis, Minnesota, Martin &
Company, Inc., located at Two Centre Square, Knoxville, Tennessee,
and ALPS Mutual Funds Services, Inc., located at 370 17th Street,
Denver, Colorado, will maintain physical possession of each such
account, book or other documents of the Trust, except for those
documents relating to the custodial functions maintained by the
Trust's Custodian, State Street Bank and Trust Company, Two
Heritage Drive, 9th Floor, North Quincy, MA and those transfer
agent, pricing and bookkeeping and general accounting records
maintained by the Trust's Transfer Agent and Pricing and Accounting
Agent, State Street Bank and Trust Company at the same address
listed above.

Item 29. MANAGEMENT SERVICES

Not Applicable.

Item 30. UNDERTAKINGS

The Registrant, on behalf of each Portfolio undertakes, provided
the information required by Item 5A is contained in the Annual
Report, to furnish each person to whom a prospectus has been
delivered, upon their request and without charge, a copy of the
Registrant's latest annual report to shareholders.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and Rule 485(a)
thereunder and the Investment Company Act of 1940, the Registrant certifies that
it has duly caused this Post-Effective Amendment No. 20 to the Registration
Statement to be signed on its behalf by the undersigned, hereunto duly
authorized, in the City of Memphis, and State of Tennessee, on the 27th day of
August, 1999.

FIRST FUNDS

By /s/ Richard C. Rantzow, President
---------------------------------
Richard C. Rantzow, President*

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.

/s/ Richard C. Rantzow President and Trustee August 27, 1999
- ----------------------
Richard C. Rantzow*

/s/ L.R. Jalenak, Jr. Trustee August 27, 1999
- ---------------------
L.R. Jalenak, Jr.*

/s/ Jeremy O. May Treasurer August 27, 1999
- -----------------
Jeremy O. May*

/s/ Thomas M. Batchelor Trustee August 27, 1999
- -----------------------
Thomas M. Batchelor*

/s/ John A. DeCell Trustee August 27, 1999
- ------------------
John A. DeCell*

/s/ Larry W. Papasan Trustee August 27, 1999
- --------------------
Larry W. Papasan*

* Signature affixed by Desiree M. Franklin pursuant to a power of attorney dated
September 25, 1998, filed herein.