FIRST FUNDS, 485BPOS, 1999-10-28

FIRST FUNDS
485BPOS, 1999-10-28

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<PAGE> 1
As filed with the Securities and Exchange Commission on October 28, 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. 22 x
--- ---

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. x
--- ---

(Check appropriate box or boxes.)

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

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

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

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

Copy to:

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

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

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

x immediately upon filing pursuant to paragraph (b)
- ---

on ____________, pursuant to paragraph (b)
- ---

60 days after filing pursuant to paragraph (a) (1)
- ---

on ____________, pursuant to paragraph (a) (1)
- ---

75 days after filing pursuant to paragraph (a) (2)
- ---

on (date) pursuant to paragraph (a) (2)
- ---

If appropriate, check the following box:

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

Title of Securities Being Registered: Shares of Beneficial Interest for the
Bond, Intermediate Bond, U.S. Treasury Money Market, U.S. Government Money
Market, Municipal Money Market, Cash Reserve, Tennessee Tax-Free, Growth &
Income and Capital Appreciation Portfolios.

<PAGE> 2

[FIRST FUNDS LOGO]

GROWTH & INCOME PORTFOLIO

PROSPECTUS
Dated October 28, 1999

CLASS I
CLASS II
CLASS III
CLASS IV

[PHOT0]

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> 3
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective, Principal Strategies and Risks.........................1

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

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

Investment Details...........................................................4

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

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

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

Distribution Plans and Shareholder Servicing Plans..........................16

Financial Highlights........................................................17

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

Additional Information about the Portfolio..........................Back Cover
</TABLE>

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

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 or 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> 4

- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND RISKS
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE -- The objective of the Growth & Income Portfolio (the
"Portfolio") is to achieve maximum total return through a combination of capital
appreciation and dividend income by investing at least 65% of its total assets
in equity securities.

PRINCIPAL INVESTMENT STRATEGY -- Under normal market conditions, the Investment
Adviser and Sub-Adviser currently intend to invest at least 80% of the
Portfolio's assets in common stock and American Depositary Receipts (ADRs) of
U.S. and international companies that are traded on major domestic securities
exchanges (NYSE, ASE, NASDAQ). The Portfolio may also invest in convertible
preferred stock, bonds, and debentures that are convertible into common stock.

PRIMARY RISKS -- You may be interested in the Portfolio if you are comfortable
with the risks of equity and fixed-income investing and intend to make a
long-term investment commitment. Like all managed funds, there is a risk that
the Investment Adviser's strategy for managing the Portfolio may not achieve the
desired results. In addition, the price of common stock moves up and down in
response to corporate earnings and developments, interest rate movements,
economic and market conditions and anticipated events. As a result, the price of
the Portfolio's investments may go down and you could lose money on your
investment.

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:
Maximum current total return through -
o Capital Appreciation
o Dividend Income

PRINCIPAL INVESTMENTS:
o Common Stocks
o ADRs
o Convertible Securities

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

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

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

PORTFOLIO MANAGERS:
o Edward J. Goldstein
o David L. Thompson

DISTRIBUTOR:
o 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 GROWTH & INCOME PORTFOLIO?

The Portfolio may be appropriate for you if:

o You can tolerate the price fluctuations and volatility that are inherent in
investing in a broad-based stock mutual fund.
o You are seeking an investment that seeks to provide long-term growth as
well as some dividend income.
o You wish to add a growth and income stock fund to your existing investment
portfolio. REMEMBER, NO SINGLE INVESTMENT CAN PROVIDE AN EFFECTIVE,
BALANCED INVESTMENT PLAN.
o You are seeking growth of capital and income over a long-term investment
time horizon--at least five years.

1
<PAGE> 5

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

WHAT IS THE S&P 500 INDEX?

The S&P 500 Index is an unmanaged index tracking the performance of 500 publicly
traded U.S. stocks and is often used to indicate the performance of the overall
domestic stock market. The S&P 500 is not a mutual fund, and you cannot invest
in it directly. Also, the performance of the S&P 500 does not reflect the costs
associated with operating a mutual fund, such as buying, selling, and holding
securities.

YEAR-BY-YEAR TOTAL RETURN (CLASS I)

[CHART]

<TABLE>
<CAPTION>
YEAR TOTAL RETURN
- ---- ------------
<S> <C>
12/31/94 5.27%
12/31/95 29.52%
12/31/96 25.92%
12/31/97 36.16%
12/31/98 22.76%
</TABLE>

Best Quarter (quarter ended December 31, 1998) -- 20.60%
Worst Quarter (quarter ended September 30, 1998) -- (9.33)%
Year-to-date return (as of September 30, 1999) -- 10.62%

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

AVERAGE ANNUAL TOTAL RETURN
(for the period ended December 31, 1998)

<TABLE>
<CAPTION>
INCEPTION DATE 1 YEAR 5 YEARS SINCE INCEPTION
-------------- ------ ------- ---------------
<S> <C> <C> <C> <C>
Class I 8/2/93 22.76% 23.46% 23.06%
Class II 12/20/95 15.32% N/A 25.76%
Class III 12/9/93 20.49% 22.05% 21.90%
Class IV*/ 8/3/99 N/A N/A N/A
S&P 500 8/2/93 28.34% 24.02% 23.14%
</TABLE>

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

2
<PAGE> 6

- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE PORTFOLIO
- --------------------------------------------------------------------------------

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.

<TABLE>
<CAPTION>
SHAREHOLDER FEES
(fees paid directly from your investment) CLASS I CLASS II CLASS III CLASS IV
- ----------------------------------------- ------- -------- --------- --------
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on None 5.75% None None
purchases as a percentage of offering price

Maximum deferred sales charge (load) None None 1.00%*/ 5.00%
(as a percentage of original purchase price
or redemption proceeds, as applicable)

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from portfolio assets)
Management Fees**/ .65% .65% .65% .65%
Distribution (12b-1) Fees .00% .00% .75% 1.00%
Other Expenses .30% .60% .63% .38%***/
----- ------ ------- ------
Total Portfolio Operating Expenses .95% 1.25% 2.03% 2.03%
===== ====== ====== ======
</TABLE>

EXAMPLE -- The following example is intended to help you compare the cost of
investing in the Portfolio to the cost of investing in other mutual funds with
similar investment objectives. The example shows the cumulative amount of
portfolio expenses you would pay on a hypothetical investment of $10,000 in each
class of shares offered by the Portfolio. The example assumes a 5% average
annual return and that you reinvest all of your dividends. Your actual costs may
be higher or lower.

<TABLE>
<CAPTION>
ASSUMING REDEMPTION ASSUMING NO
AT END OF PERIOD REDEMPTION
-------------------------------------------- ---------------------
CLASS I CLASS II CLASS III CLASS IV*/ CLASS III CLASS IV*/
<S> <C> <C> <C> <C> <C> <C>
After 1 year $ 97 $ 695 $ 306 $ 706 $ 206 $ 206
After 3 years $ 303 $ 949 $ 636 $ 936 $ 636 $ 636
After 5 years $ 525 $1,222 $1,092 $1,292 $1,092 $1,092
After 10 years $1,165 $1,998 $2,355 $2,155 $2,355 $2,155
</TABLE>

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

3
<PAGE> 7

- --------------------------------------------------------------------------------
INVESTMENT DETAILS
- --------------------------------------------------------------------------------

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

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

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

VALUATION RISK -- The risk that the
Portfolio has valued certain securities
at a higher price than it can sell them
for. This risk is common where the
security is from a relatively new issuer
with little or no previous market
history and a mutual fund's management
is called upon to assign a value to the
security.

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

</TABLE>

4
<PAGE> 8

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SECURITIES PRINCIPAL RISKS ASSOCIATED WITH THE SECURITY
- -------------------------------------------------------------------------------------------------
<S> <C>
MONEY MARKET FUNDS: Open-ended mutual CREDIT RISK -- The risk that the issuer
funds that invest in commercial paper, of a security, or a party to a contract,
banker's acceptances, repurchase will default or otherwise not honor a
agreements, government securities, financial obligation.
certificates of deposit, and other
highly liquid and safe securities, and INTEREST RATE RISK -- The risk of a
pay money market rates of interest. 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.

INFLATION RISK -- The risk that your
investment will not provide enough
income to keep pace with inflation.

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.

</TABLE>

In addition to the securities identified above, the Portfolio may, from time to
time, engage in the following non-principal 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.

CONVERTIBLE SECURITIES. The Portfolio may invest in convertible securities which
are preferred stock or debt obligations that pay a fixed dividend or interest
payment and are convertible into common stock at a specified price or conversion
ratio.

DERIVATIVE INSTRUMENTS. The Portfolio may invest in instruments and securities
generally known as derivative investments for hedging purposes only. These
investments may include the use of forward currency contracts, put and call
option contracts, zero coupon bonds, and stripped fixed-income obligations.

Highland 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 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.

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.

5
<PAGE> 9

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.

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 accounting, 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.

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

For managing its investment and business affairs, the Portfolio is obligated to
pay First Tennessee a monthly management fee at the annual rate of .65% of its
average net assets. First Tennessee has voluntarily agreed to limit its advisory
fees to .50% of the Portfolio's average net assets. First Tennessee serves as an
investment adviser to individual, corporate and institutional advisory clients,
pension plans and collective investment funds, with approximately $22.0 billion
in assets under administration (including nondiscretionary accounts) and $9.4
billion in assets under management as of June 30, 1999, 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 $5.1
billion in assets under management as of June 30, 1999. First Tennessee is
obligated to pay Highland a monthly sub-advisory fee at the annual rate of .38%
of the Portfolio's average net assets. 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.

6
<PAGE> 10

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

[PHOTO]

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

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

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

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

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

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

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

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

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?

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

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

HOW ARE INVESTMENTS MADE?

Each Institutional Investor will transmit orders to Boston Financial Data
Services (the "Transfer Agent"). 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 the close of business (normally 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 of Class I shares cease to be eligible to
participate in this Class, Class I shares held in an Institutional Account may
be converted to Class II, Class III or Class IV shares. Any such conversion will
be made on the basis of the relative NAVs of the two Classes without the
imposition of any sales load, fee or other charge. Institutional Investors
converted to Class III shares will not be subject to the 1% CDSC in year 1.
Institutional Investors will receive at least 30 days prior notice of any
proposed conversion.

7
<PAGE> 11

HOW ARE REDEMPTIONS MADE?

Institutional Investors may make redemptions by wire provided they have
established a wire account with the Transfer Agent. Please call 1-800-442-1941
(option 2), to advise the Transfer Agent of the wire. If telephone instructions
are received before the close of business (normally 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.

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.

8
<PAGE> 12

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

CLASS II, III, AND IV

WHO MAY INVEST?

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

INVESTMENT REQUIREMENTS

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

If you are an employee of First Tennessee or any of its affiliates and you
participate in the Systematic Investing Program, the minimum initial investment
is $50, and subsequent investments may be in any amount of $25 or greater.

If your balance in the Portfolio falls below the applicable minimum investment
requirement due to redemption, you may be given 30 days notice to reestablish
the minimum balance. If you do not re-establish the minimum balance, your
account may be closed and the proceeds mailed to you at the address on record.
Shares will be redeemed on the day the account is closed.

All purchases must be made in U.S. dollars and checks must be drawn on U.S.
banks. No cash or third party checks will be accepted. If you make a purchase
with more than one check, each check must have a value of at least $100, and the
minimum investment requirement still applies (excluding the specific
circumstances, stated above, which reduce the minimum investment requirement).
The Portfolio reserves the right to limit the number of checks processed at one
time. If your check does not clear, your purchase will be canceled and you could
be liable for any losses or fees incurred. You may initiate any transaction
either directly or through your Investment Professional. Please note that the
Portfolio and its agents will not be responsible for any losses resulting from
unauthorized transactions if the Portfolio or its agents follow reasonable
procedures designed to verify the identity of the caller. These procedures may
include requesting additional information or using personalized security codes.
Your Investment Professional may also record calls and you should verify the
accuracy of your confirmation statements immediately after you receive them. If
you do not want to be able to redeem and exchange by telephone, please check the
box on your application (if you invest directly) or, if you invest through an
Investment Professional, please call them for instructions.

HOW DO I SET UP AN ACCOUNT?

If you are investing through an Investment Professional, transactions that your
Investment Professional initiates should be transmitted to the Transfer Agent
prior to the close of business (normally 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.

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.

9
<PAGE> 13

Investments may be made in several ways:

BY MAIL: Make your check payable to First Funds Growth & Income Portfolio, and
mail it, along with the application, to the address indicated on the
application. Your account will be credited on the business day that the Transfer
Agent receives your completed application.

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 First Funds account. First, an 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 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 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 (if required) 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 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 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 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 your
account to accommodate wire transactions. If telephone instructions are received
before the close of business (normally 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.

10
<PAGE> 14

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 the
NYSE 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.

HOW DO I REDEEM THROUGH MY INVESTMENT PROFESSIONAL?

On your behalf, the broker of record listed on your account may redeem shares.
Proceeds from the redemption can only be sent to your address of record.

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.

SYSTEMATIC EXCHANGE PROGRAM

This account option may be added to your account if you would like to
automatically withdraw from one First Funds account into another First Funds
account on a regular basis. Please note that there may be a tax liability
associated with redemptions made from your mutual fund investment. Talk to your
Investment Professional regarding your specific tax situation.

The systematic exchange program is established between identically registered
accounts. New accounts must meet the account minimum standards listed
previously. Systematic exchanges are only made among the same share class,
except for the Money Market Portfolios, which are not subject to sales charges.
Call First Funds at 1-800-442-1941 (option 2) for more details on establishing
this program. See "How Are Exchanges Made?" for more information on exchanges.

ADDITIONAL INFORMATION

11
<PAGE> 15

investment income. Minimums may differ from those listed previously under
"Investment Requirements." Plans include Individual Retirement Accounts (IRAs)
Roth IRA's, Education IRAs, Rollover IRAs, Keogh Plans, and Simplified Employee
Pension Plans (SEP-IRAs).

CLASS II

SALES LOADS

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

TOTAL SALES LOAD FOR CLASS II SHARES

<TABLE>
<CAPTION>
AS A % OF OFFERING BROKER-DEALER
AMOUNT OF TRANSACTION PRICE PER SHARE AS A % OF NAV REALLOWANCE
--------------------- --------------- ------------- -----------
<S> <C> <C> <C>
Less than $50,000 5.75 6.10 5.00

$50,000 to $99,999 4.50 4.71 4.00

$100,000 to $249,999 3.50 3.63 3.00

$250,000 to $499,999 2.50 2.56 2.25

$500,000 to $999,999 1.50 1.52 1.25

$1,000,000 and over 0.50 0.50 0.40
</TABLE>

The broker-dealer reallowance may be changed from time to time.

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 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

12
<PAGE> 16

purchase to the extent of the sales load you paid on the shares you redeemed.
This reinstatement privilege may be exercised only with respect to redemptions
and purchases in the same First Funds Portfolio. The reinstatement privilege can
be exercised only one time with respect to any particular redemption.

QUANTITY DISCOUNTS

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

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

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

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

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

If 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."

13
<PAGE> 17

CLASS III

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

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

CLASS IV

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

DEFERRED SALES CHARGES. A CDSC of up to 5.00% is imposed on redemptions of Class
IV shares, based on the lower of the shares cost and the current net asset
value. As shown in the table below, the CDSC associated with the Class IV shares
is phased out over a period of six years. Any shares acquired by reinvestment of
dividends will be redeemed without the imposition of any CDSC. In addition, the
CDSC imposed on redemptions of Class IV shares may be waived for Systematic
Withdrawal Plans with respect to up to 10% per year of the account value at the
time of establishment.

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

ALL CLASSES

HOW ARE PORTFOLIO SHARES VALUED?

The price at which you buy, sell or exchange Portfolio shares is the share price
or net asset value (NAV). The share price for each Class of shares of the
Portfolio is determined by adding the value of each Class' proportional share of
the Portfolio's investments, cash and other assets, deducting each Class'
proportional share of liabilities, and then dividing that value by the total
number of the shares outstanding in that Class. The Portfolio is open for
business each day that the NYSE is open (a "Business Day"). The NAV is
calculated at the close of the Portfolio's business day, which coincides with
the close of regular trading of the NYSE (normally 4:00 p.m. Eastern Time).
Share price is not calculated on the days that the NYSE is closed.

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

WHAT ARE MY DISTRIBUTION OPTIONS?

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

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

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

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

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

HOW ARE EXCHANGES MADE?

14
<PAGE> 18

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 of 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 the close of business (normally 4:00
p.m. Eastern Time) on any Business Day.

Investors in Class II or Class IV shares wishing to exchange into one of the
Money Market Portfolios that do not offer these Classes 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. Also,
Institutional Investors converted to Class III shares will not be subject to the
1% CDSC in year 1.

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

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

STATEMENTS AND REPORTS

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

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

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

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

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

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.

15
<PAGE> 19

"BUYING A DIVIDEND." If you purchase shares just prior to a distribution of
income or capital gains, the purchase price will reflect the amount of the
upcoming distribution, but you will be taxed on the entire amount of the
distribution received, even though, as an economic matter, the distribution
simply constitutes a return of your capital. This is known as "buying a
dividend".

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

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

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

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

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

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.

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.

16
<PAGE> 20

- --------------------------------------------------------------------------------
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. The total returns in
the table represent the rate that an investor would have earned on an investment
in the Portfolio (assuming reinvestment of all dividends and distributions).
This information has been audited by Deloitte & Touche LLP, whose report, along
with the Portfolio's financial statements, is included in the Portfolio's annual
report, which is available upon request by calling First Funds at 1-800-442-1941
(option 1).

GROWTH & INCOME PORTFOLIO

<TABLE>
<CAPTION>
CLASS I
-------------------------------------------------------------
For the Year
Ended June 30,
-------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 21.56 $ 17.03 $ 14.12 $ 12.22 $ 10.53
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income 0.13 0.17 0.18 0.19 0.23
Net realized and unrealized gain on investments 5.30 5.25 3.75 2.58 2.21
-------- -------- -------- -------- --------
Total from investment operations 5.43 5.42 3.93 2.77 2.44
-------- -------- -------- -------- --------
Distributions:
Net investment income (0.12) (0.17) (0.18) (0.19) (0.23)
Net realized gain (0.61) (0.72) (0.84) (0.68) (0.52)
-------- -------- -------- -------- --------
Total distributions (0.73) (0.89) (1.02) (0.87) (0.75)
-------- -------- -------- -------- --------
Net asset value, end of period $ 26.26 $ 21.56 $ 17.03 $ 14.12 $ 12.22
======== ======== ======== ======== ========
TOTAL RETURN+ 25.69% 32.55% 28.83% 23.54% 24.20%

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $790,985 $651,363 $221,136 $159,146 $114,000
Ratio of expenses to average daily net assets(1) 0.80% 0.82% 0.83% 0.76% 0.47%
Ratio of net investment income to average net assets 0.57% 0.78% 1.19% 1.40% 2.12%
Portfolio turnover rate 21% 7% 25% 41% 33%

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.95% 0.97% 0.98% 1.00% 0.99%
</TABLE>

+ Total return would have been lower had various fees not been waived during the
period.

17
<PAGE> 21

FINANCIAL HIGHLIGHTS
GROWTH & INCOME PORTFOLIO (CONTINUED)

<TABLE>
<CAPTION>
CLASS II
---------------------------------------------------------------
For the Year
Ended June 30,
---------------------------------------------------------------
1999 1998 1997 1996**
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 21.58 $ 17.05 $ 14.12 $ 13.05
---------- ---------- ---------- ---------
Income from investment operations:
Net investment income 0.06 0.10 0.13 0.09
Net realized and unrealized gain on investments 5.31 5.27 3.76 1.74
---------- ---------- ---------- ---------
Total from investment operations 5.37 5.37 3.89 1.83
---------- ---------- ---------- ---------
Distributions:
Net investment income (0.04) (0.12) (0.12) (0.08)
Net realized gain (0.61) (0.72) (0.84) (0.68)
---------- ---------- ---------- ---------
Total distributions (0.65) (0.84) (0.96) (0.76)
---------- ---------- ---------- ---------
Net asset value, end of period $ 26.30 $ 21.58 $ 17.05 $ 14.12
========== ========== ========== =========
TOTAL RETURN+*** 25.33% 32.17% 28.48% 14.71%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 82,896 $ 46,863 $ 16,514 $ 1,918
Ratio of expenses to average daily net assets(1) 1.10% 1.13% 1.14% 1.06%*
Ratio of net investment income to average net assets 0.28% 0.47% 0.88% 1.10%*
Portfolio turnover rate 21% 7% 25% 41%

(1) During the period, various fees were waived
The ratio of expenses to average net assets had
such waivers not occurred is as follows 1.25% 1.28% 1.29% 1.30%*
</TABLE>

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

<TABLE>
<CAPTION>
CLASS III
---------------------------------------------------------------
For the Year
Ended June 30,
---------------------------------------------------------------

1999 1998 1997 1996 1995
-------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 21.47 $ 16.99 $ 14.11 $ 12.23 $ 10.51
-------- -------- --------- --------- --------
Income from investment operations:
Net investment income (loss) (0.11) (0.04) 0.02 0.03 0.06
Net realized and unrealized gain (loss) on
investments 5.25 5.24 3.74 2.60 2.24
-------- -------- --------- --------- --------
Total from investment operations 5.14 5.20 3.76 2.63 2.30
-------- -------- --------- --------- --------
Distributions:
Net investment income -- -- (0.04) (0.07) (0.06)
Net realized gain (0.61) (0.72) (0.84) (0.68) (0.52)
-------- -------- --------- --------- --------
Total distributions (0.61) (0.72) (0.88) (0.75) (0.58)
-------- -------- --------- --------- --------
Net asset value, end of period $ 26.00 $ 21.47 $ 16.99 $ 14.11 $ 12.23
======== ======== ========= ========= ========

TOTAL RETURN+ 24.35% 31.16% 27.44% 22.19% 22.61%

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 95,528 $ 79,360 $ 50,178 $ 36,892 $ 19,363
Ratio of expenses to average daily net assets(1) 1.88% 1.87% 1.94% 1.87% 1.72%
Ratio of net investment income to average net assets (0.50)% (0.28)% 0.08% 0.29% 0.87%
Portfolio turnover rate 21% 7% 25% 41% 33%

(1) During the period, various fees were waived
The ratio of expenses to average net assets had
such waivers not occurred is as follows 2.03% 2.02% 2.09% 2.11% 2.26%
</TABLE>

+ Total return would have been lower had various fees not been waived during the
period.

18
<PAGE> 22

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

ADDITIONAL INFORMATION ABOUT THE PORTFOLIO'S INVESTMENTS

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

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

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

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

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

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

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

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

A-1
<PAGE> 23

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

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

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

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

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

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

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

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

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

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

A-2
<PAGE> 24

[FIRST FUNDS LETTERHEAD]

- --------------------------------------------------------------------------------
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 AND TO MAKE SHAREHOLDER INQUIRIES, YOU MAY WRITE TO FIRST FUNDS AT
370 17TH STREET, SUITE 3100, DENVER, COLORADO 80202 OR CALL FIRST FUNDS AT
1-800-442-1941 (OPTION 1).

================================================================================

Investment Company Act File No. 811-6589

- --------------------------------------------------------------------------------
FIRST FUNDS

o Are NOT insured by the FDIC, or any other governmental agency

o Are NOT bank deposits or other obligations of or guaranteed by First
Tennessee Bank National Association or any of its affiliates.

o Involves investment risks, including the possible loss of the principal
amount invested.
- --------------------------------------------------------------------------------

[FIRST TENNESSEE INVESTMENT ADVISOR LOGO]

[ALPS MUTUAL FUNDS SERVICES LOGO]

<PAGE> 25
[FIRST FUNDS LOGO]

CAPITAL APPRECIATION PORTFOLIO

PROSPECTUS
DATED OCTOBER 28, 1999

CLASS I
CLASS II
CLASS III
CLASS IV

[PHOTO]

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

<PAGE> 26

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

Page
----
<S> <C>
Investment Objective, Principal Strategies and Risks......................1

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

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

Investment Details........................................................4

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

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

How to Invest in the Portfolio............................................8

Distribution Plans and Shareholder Servicing Plans.......................17

Financial Highlights.....................................................18

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

Additional Information about the Portfolio.......................Back Cover
- --------------------------------------------------------------------------------
</TABLE>

<PAGE> 27

INVESTMENT OBJECTIVE -- The objective of the Capital Appreciation Portfolio (the
"Portfolio") is to seek long-term capital appreciation by investing at least 65%
of its total assets in equity securities of medium and smaller capitalization
companies.

PRINCIPAL INVESTMENT STRATEGIES -- Under normal market conditions, IAI currently
intends to invest at least 80% of the Portfolio's total assets in equity
securities of companies with market capitalizations generally between $100
million and $1 billion. The Portfolio also may invest in preferred stock, bonds
and debentures convertible into common stock of U.S. based companies of all
sizes, industries, and geographical markets. The Portfolio may also invest in
securities of foreign issuers.

PRIMARY RISKS -- You may be interested in the Portfolio if you are comfortable
with above-average risk and intend to make a long-term investment commitment.
Like all managed funds, there is a risk that the Investment Adviser's strategy
for managing the Portfolio may not achieve the desired results. In addition, the
price of common stock moves up and down in response to corporate earnings and
developments, interest rate movements, economic and market conditions and
anticipated events. As a result, the price of the Portfolio's investments may go
down and you could lose money on your investment.

The Portfolio's share price may fluctuate more than that of funds primarily
invested in stocks of large companies. Occasionally, small company securities
may under perform as compared to the securities of larger companies. They may
also pose greater risk due to narrow product lines, limited financial resources,
less depth in management or a limited trading market for their stocks.

FUND FACTS

GOAL:
Long-term capital appreciation

PRINCIPAL INVESTMENTS:
o Common Stocks
o Small Company Stocks

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

CO-INVESTMENT ADVISERS:
o First Tennessee Bank National Association
("First Tennessee")
o Investment Advisers, Inc. ("IAI" or "Adviser")

PORTFOLIO MANAGERS:
o Curt D. McLeod
o Scott Billeadeau
o Robert E. Scott
o Robert J. Mlnarik

DISTRIBUTOR:
o 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 CAPITAL APPRECIATION PORTFOLIO?

The Portfolio may be appropriate for you if:

o You can tolerate the price fluctuations and volatility that are inherent in
investing in a stock mutual fund that invests in small and
medium-capitalization companies.
o You are seeking long-term capital appreciation in your investment.
o You wish to add an aggressive growth oriented stock fund to your existing
investment portfolio. REMEMBER, NO SINGLE INVESTMENT CAN PROVIDE AN
EFFECTIVE, BALANCED INVESTMENT PLAN.
o You are not seeking current income or the preservation of capital.

<PAGE> 28

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

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

WHAT IS THE RUSSELL 2500(TM) GROWTH INDEX?

The Russell 2500(TM) Growth Index measures the performance of those Russell
2500(TM) Index companies with higher price-to-book ratios and higher forecasted
growth values. The Russell 2500(TM) Growth Index is not a mutual fund and you
cannot invest in it directly. Also, the performance of the Russell 2500(TM)
Growth Index does not reflect the costs associated with operating a mutual fund,
such as buying, selling, and holding securities.

YEAR-BY-YEAR TOTAL RETURN (CLASS I)

[CHART]

TOTAL
YEAR RETURNS
- ---- -------
<S> <C>
12/31/1998 1.59%
</TABLE>

The following table lists the Portfolio's average year-by-year return by class
over the past one year period and since the inception of each class of shares.
The table also compares the average annual total returns of each class of shares
of the Portfolio for the periods shown to the performance of the Russell
2500(TM) Growth Index.

AVERAGE ANNUAL TOTAL RETURN
(for the period ended December 1, 1998)

INCEPTION DATE 1 YEAR SINCE INCEPTION
-------------- ------ ---------------
<S> <C> <C> <C>
CLASS I 9/2/97 1.59% 0.43%
CLASS II 10/2/97 (4.41)% (8.23)%
CLASS III 10/2/97 (0.52)% (4.63)%
CLASS IV*/ 8/3/99 N/A N/A
RUSSELL 2500(TM) GROWTH 9/2/97 3.39% 1.37%
</TABLE>

2
<PAGE> 29

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.

SHAREHOLDER FEE
(fee paid directly from your investment) CLASS I CLASS II CLASS III CLASS IV
- ---------------------------------------- ------- -------- --------- --------
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on None 5.75% None None
purchases as a percentage of offering price

Maximum deferred sales charge (load) None None 1.00%*/ 5.00%
(as a percentage of original purchase price
or redemption proceeds, as applicable)

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from portfolio assets)

MANAGEMENT FEES**/ .85% .85% .85% .85%

DISTRIBUTION (12B-1) FEES .00% .00% .75% 1.00%

OTHER EXPENSES .59% .96% .99% .74%***/
==== ==== ==== ====

TOTAL PORTFOLIO OPERATING EXPENSES 1.44% 1.81% 2.59% 2.59%
==== ==== ==== ====
</TABLE>

EXAMPLE -- The following example is intended to help you compare the cost of
investing in the Portfolio to the cost of investing in other mutual funds with
similar investment objectives. The example shows the cumulative amount of
portfolio expenses you would pay on a hypothetical investment of $10,000 in each
class of shares offered by the Portfolio. The example assume a 5% average annual
return and that you reinvest all of your dividends. Your actual costs may be
higher or lower.

ASSUMING REDEMPTION ASSUMING NO
AT END OF PERIOD REDEMPTION
---------------------------------------------- ----------------------
CLASS I CLASS II CLASS III CLASS IV*/ CLASS III CLASS IV*/
------- -------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
After 1 year $ 147 $ 748 $ 362 $ 762 $ 262 $ 262
After 3 years $ 455 $ 1,112 $ 805 $ 1,105 $ 805 $ 805
After 5 years $ 786 $ 1,498 $ 1,374 $ 1,574 $ 1,374 $ 1,374
After 10 years $ 1,722 $ 2,577 $ 2,920 $ 2,731 $ 2,920 $ 2,731
</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 Class IV shares.

<PAGE> 30

- --------------------------------------------------------------------------------
INVESTMENT DETAILS
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE -- The objective of the Portfolio is to seek long-term
capital appreciation by investing at least 65% of its total assets in equity
securities of medium and smaller capitalization companies.

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

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

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

SMALL COMPANY STOCKS: Common stocks LIQUIDITY RISK -- The risk that certain
issued by companies with smaller market securities or other investments may be
capitalizations. difficult or impossible to sell at the
time the Portfolio would like to sell
them. It may be difficult for the
Portfolio to sell the investment for the
value the Portfolio has placed on it.

MARKET RISK

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

VALUATION RISK
</TABLE>

<PAGE> 31

SECURITIES PRINCIPAL RISKS ASSOCIATED WITH THE SECURITY
---------- --------------------------------------------
<S> <C>
MONEY MARKET FUNDS: Open-ended mutual CREDIT RISK -- The risk that the issuer
funds that invest in commercial paper, of a security, or a party to a contract,
banker's acceptances, repurchase will default or otherwise not honor a
agreements, government securities, financial obligation.
certificates of deposit, and other
highly liquid and safe securities, and INTEREST RATE RISK -- The risk of a
pay money market rates of interest. 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.

INFLATION RISK -- The risk that your
investment will not provide enough
income to keep pace with inflation.

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

LIQUIDITY RISK

MARKET RISK

VALUATION RISK

<PAGE> 32

In addition to the securities identified above, the Portfolio may, from time to
time, engage in the following non-principal 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 securities
generally known as derivative investments. These investments may include the use
of forward currency contracts, put and call option contracts, zero coupon bonds,
and stripped fixed-income obligations.

IAI may not buy any of these instruments or use any of these techniques unless
they believe 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. This is called leverage. They also may result in
a loss of principal if IAI judges market conditions incorrectly or employs a
strategy that does not correlate well with the investment strategy of the
Portfolio. Positions in options involve the risk that such options may fail as a
hedging technique and that closing transactions may not be effected where a
liquid secondary market does not exist.

WHAT IS A DERIVATIVE INSTRUMENT?

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, and their associated risks, in which
the Portfolio invests, please refer to the SAI.

<PAGE> 33

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

First Tennessee (530 Oak Court Drive, Memphis, Tennessee) and IAI (P.O. Box 357,
Minneapolis, Minnesota 55440-0357) serve as Co-Investment Advisers to the
Portfolio. First Tennessee, among other things, provides investment management
evaluations to the Board of Trustees of First Funds (the "Trustees"), monitors
the activities of IAI, including IAI's Portfolio transactions, and coordinates
IAI's activities with the Portfolio's custodian, transfer agent, administrator,
and independent accountants. IAI is responsible for the day-to-day investment
management of the Portfolio, including providing investment research and credit
analysis concerning portfolio investments and conducting a continuous program of
investment of portfolio assets in accordance with the investment policies and
objective of the Portfolio.

The Portfolio is obligated to pay First Tennessee a monthly management fee at
the annual rate of 0.15% of its average net assets for the investment advisory
services First Tennessee provides. First Tennessee has voluntarily agreed to
waive its entire management fee. First Tennessee serves as an investment adviser
to individual, corporate and institutional advisory clients, pension plans and
collective investment funds, with approximately $22.0 billion in assets under
administration (including nondiscretionary accounts) and $9.4 billion in assets
under management as of June 30, 1999, as well as experience in supervising
sub-advisers.

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

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

IAI also furnishes investment advice to other concerns including other
investment companies, pension and profit sharing plans, foundations, religious,
educational and charitable institutions, trusts, municipalities and individuals,
having total assets in excess of $4.1 billion as of June 30, 1999. IAI's
ultimate corporate parent is Lloyds TSB Group plc, a publicly-held financial
services organization headquartered in London, England. Lloyds TSB Group plc is
one of the largest personal and corporate financial services groups in the
United Kingdom and is engaged in a wide range of activities including commercial
and retail banking.

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

[PHOTO]

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

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

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

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

<PAGE> 34

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

WHAT CLASSES OF SHARES DOES THE CAPITAL APPRECIATION 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.

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 entities 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?

HOW ARE INVESTMENTS MADE?

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

<PAGE> 35

Investor's Class I account falls below $375,000 due to redemption, the Portfolio
may close the account. An Institutional Investor may be notified if the minimum
balance is not being maintained and will be allowed 30 days to make additional
investments before its account is closed. Shares will be redeemed at the NAV on
the day the account is closed, and proceeds will be sent to the address of
record

Should an Institutional Investor of Class I shares cease to be eligible to
participate in this Class, Class I shares held in an Institutional Account may
be converted to shares of another Class. Any such conversion will be made on the
basis of the relative NAVs of the two Classes without the imposition of any
sales load, fee or other charge. Institutional Investors converted to Class III
shares will not be subject to the 1% CDSC in year 1. Institutional Investors
will receive at least 30 days prior notice of any proposed conversion.

HOW ARE REDEMPTIONS MADE?

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

ADDITIONAL INFORMATION

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

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

CLASS II, III, AND IV

WHO MAY INVEST?

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

INVESTMENT REQUIREMENTS

<PAGE> 36

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 your balance in the Portfolio falls below the applicable minimum investment
requirement due to redemption, you may be given 30 days' notice to reestablish
the minimum balance. If you do not reestablish the minimum balance, your account
may be closed and the proceeds mailed to you at the address on record. Shares
will be redeemed on the day the account is closed.

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

HOW DO I SET UP AN ACCOUNT?

You may set up an account directly in the Portfolio or you may invest in the
Portfolio through your Investment Professional (see "How Do I Invest Through My
Investment Professional" below). Shares will be purchased based on the NAV next
calculated after the Transfer Agent has received the request in proper form. If
you are investing through an Investment Professional, transactions that your
Investment Professional initiates should be transmitted to the Transfer Agent
prior to the close of business (normally 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.

HOW DO I INVEST DIRECTLY?

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

Investments may be made in several ways:

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

BY WIRE: Call 1-800-442-1941, (option 2) to set up your 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:

<PAGE> 37

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

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

Your bank may charge you a fee for this service.

HOW DO I REDEEM SHARES WHEN INVESTING DIRECTLY?

You may redeem all or a portion of your shares on any day that the Portfolio is
open for business. Shares will be redeemed at the NAV next calculated after the
Transfer Agent has received the redemption request.

You may redeem shares in several ways:

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

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

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

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

<PAGE> 38

HOW DO I INVEST THROUGH MY INVESTMENT PROFESSIONAL?

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

HOW DO I REDEEM THROUGH MY INVESTMENT PROFESSIONAL?

On your behalf, the broker of record listed on your account may redeem shares.
Proceeds from the redemption can only be sent to your address of record.

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

SYSTEMATIC EXCHANGE PROGRAM

ADDITIONAL INFORMATION

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

CLASS II

SALES LOADS

12
<PAGE> 39

TOTAL SALES LOAD OR CLASS II SHARES

AS A % OF OFFERING BROKER-DEALER
AMOUNT OF TRANSACTION PRICE PER SHARE AS A % OF NAV REALLOWANCE
- --------------------- ------------------ ------------- -------------
<S> <C> <C> <C>
Less than $50,000 5.75 6.10 5.00

$50,000 to $99,999 4.50 4.71 4.00

$100,000 to $249,999 3.50 3.63 3.00

$250,000 to $499,999 2.50 2.56 2.25

$500,000 to $999,999 1.50 1.52 1.25

$1,000,000 and over 0.50 0.50 0.40
</TABLE>

The broker-dealer reallowance may be changed from time to time.

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

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

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

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

(G) through certain promotions where the load is waived for investors. In
addition, 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 Class II shares.

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

QUANTITY DISCOUNTS

<PAGE> 40

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.

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

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

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

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

CLASS III

CLASS IV

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

14
<PAGE> 41

DEFERRED SALES CHARGES. A CDSC of up to 5.00% is imposed on redemptions of Class
IV shares based on the lower of the shares' cost and the current net asset
value. The CDSC associated with the Class IV shares is phased out over a period
of six years. Any shares acquired by reinvestment of dividends will be redeemed
without the imposition of any CDSC. In addition, the CDSC imposed on redemptions
of Class IV shares may be waived for Systematic Withdrawal Plans with respect to
up to 10% per year of the account value at the time of establishment.

YEAR YEAR YEAR YEAR YEAR YEAR
1 2 3 4 5 6
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
5% 4% 3% 3% 2% 1%
</TABLE>

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

ALL CLASSES

HOW ARE PORTFOLIO SHARES VALUED?

The Portfolio is open for business each day that the NYSE is 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?

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

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

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

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

HOW ARE EXCHANGES MADE?

An exchange is the redemption of shares of one Portfolio and the purchase of
shares of another. The exchange privilege is a convenient way to sell and buy
shares of other Portfolios within First Funds. Not all First Funds Portfolios
may be available in your state. Please check with your Investment Professional
or call First Funds at 1-800-442-1941. Except as noted below, the Portfolio's
shares may be exchanged for the same Class of 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 the close of business (normally 4:00 p.m.
Eastern Time) on any Business Day.

Investors in Class II or Class IV shares wishing to exchange into one of the
Money Market Portfolios that do not offer these classes will receive Class III
shares.

15
<PAGE> 42

shares. Also, Institutional Investors converted to Class III shares will not be
subject to the 1% CDSC in year 1.

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

STATEMENTS AND REPORTS

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

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

Institutional Investors and other shareholders should consult their tax advisor
for details and up-to-date information on the tax laws in your state to
determine whether the Portfolio is suitable given your particular

16
<PAGE> 43

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.

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

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. 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.

<PAGE> 44

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

The Financial Highlights Table is presented to help you understand the
Portfolio's financial performance since inception. Certain information reflects
financial results for a single Portfolio share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Portfolio (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche 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).

CAPITAL APPRECIATION PORTFOLIO

<TABLE>
<CAPTION>
CLASS I
------------------------------
For the Year For the Period
Ended June 30, Ended June 30,
------------------------------
1999= 1998**
----- ------
<S> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.74 $ 10.00
---------- ----------
Income from investment operations:
Net investment loss (0.09) (0.03)
Net realized and unrealized gain (loss) on
investments (0.16) 0.77
---------- ----------
Total from investment operations (0.25) 0.74
---------- ----------
Distributions:
Net realized gain (0.24) --
---------- ----------
Net asset value, end of period $ 10.25 $ 10.74
========== ==========

TOTAL RETURN+ (2.16)% 7.40%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 33,803 $ 37,014
Ratio of expenses to average daily net assets(1) 1.29% 1.16%*
Ratio of net investment loss to average net assets (1.00)% (0.54)%*
Portfolio turnover rate 47% 44%*

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.44% 1.36%*

<CAPTION>
CLASS II
------------------------------
For the Year For the Period
Ended June 30, Ended June 30,
------------------------------
1999= 1998**
---- ------
<S> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.71 $ 10.51
---------- ----------
Income from investment operations:
Net investment loss (0.13) (0.05)
Net realized and unrealized gain (loss) on
investments (0.14) 0.25
---------- ----------
Total from investment operations (0.27) 0.20
---------- ----------
Distributions:
Net realized gain (0.24) --
---------- ----------
Net asset value, end of period $ 10.20 $ 10.71
========== ==========
TOTAL RETURN+*** (2.35)% 1.90%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 2,051 $ 1,400
Ratio of expenses to average daily net assets(1) 1.66% 1.52%*
Ratio of net investment loss to average net assets (1.37)% (0.90)%*
Portfolio turnover rate 47% 44%*

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.81% 1.72%*
</TABLE>

* Annualized.
** Classes I and II commenced operations on September 2, 1997 and October 2,
1997, 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.
= Per share amounts calculated based on the average shares outstanding during
the period.

<PAGE> 45

CAPITAL APPRECIATION PORTFOLIO
FINANCIAL HIGHLIGHTS (CONTINUED)

CLASS III
----------------------------------
For the Year For the Period
Ended June 30, Ended June 30,
----------------------------------
1999= 1998**
----- ------
<S> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.64 $ 10.51
------- -------
Income from investment operations:
Net investment loss (0.19) (0.10)
Net realized and unrealized gain (loss) on
investments (0.17) 0.23
------- -------
Total from investment operations (0.36) 0.13
------- -------
Distributions:
Net realized gain (0.24) --
------- -------
Net asset value, end of period $ 10.04 $ 10.64
======= =======

TOTAL RETURN+ (3.22)% 1.24%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 392 $ 590
Ratio of expenses to average daily net assets(1) 2.44% 2.28%*
Ratio of net investment loss to average net assets (2.15)% (1.65)%*
Portfolio turnover rate 47% 44%*

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 2.59% 2.47%*
</TABLE>

* Annualized.
** Class III commenced operations on October 2, 1997.
+ Total return would have been lower had various fees not been waived during
the period.
# Total return for periods of less than one year are not annualized.
= Per share amounts calculated based on the average shares outstanding during
the period.

<PAGE> 46

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

ADDITIONAL INFORMATION ABOUT THE PORTFOLIO'S INVESTMENTS

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

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

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

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

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

A-1
<PAGE> 47

adjust the risk and return characteristics of the overall strategy. The
Portfolio may enter into forward contracts for settlement or hedging purposes.
The Portfolio may invest in options based on any type of security, index, or
currency, including options traded on foreign exchanges and options not traded
on exchanges.

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

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

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

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

A-2

<PAGE> 48

[FIRST FUNDS LETTERHEAD]

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

- --------------------------------------------------------------------------------
FIRST FUNDS

o Are NOT insured by the FDIC or any other governmental agency.

o Are NOT bank deposits or other obligations of or guaranteed by First
Tennessee Bank National Association or any of its affiliates.

o Involve investment risks, including the possible loss of the principal
amount invested.
- --------------------------------------------------------------------------------

[FIRST TENNESSEE INVESTMENT ADVISER LOGO]

[ALPS MUTUAL FUNDS SERVICES LOGO]

<PAGE> 49

[FIRST FUNDS LOGO]

BOND PORTFOLIO

PROSPECTUS
Dated October 28, 1999

CLASS I
CLASS II
CLASS III

[PHOTO]

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

<PAGE> 50

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------

TABLE OF CONTENTS

Page
----

<S> <C>
Investment Objective, Principal Strategies and Risks........................................................................1

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

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

Investment Details..........................................................................................................4

Who Manages the Portfolio?..................................................................................................7

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

How to Invest in the Portfolio..............................................................................................8

Distribution Plans and Shareholder Servicing Plans.........................................................................17

Financial Highlights.......................................................................................................18

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

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

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

<PAGE> 51

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. 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
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, it is 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:

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

Average Portfolio Maturity:

7-11 years

Classes of Shares Offered in this Prospectus:

o Class I
o Class II
o Class III

Investment Adviser:

o First Tennessee Bank National Association
("First Tennessee" or "Adviser")

Investment Sub-Adviser:

o Highland Capital Management Corporation
("Highland" or "Sub-Adviser")

Portfolio Managers:

o James R. Turner
o Steven Wishnia

Distributor:

o 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 BOND PORTFOLIO?

The Portfolio may be appropriate for you if:

o You are seeking higher potential returns than money market funds and you
can tolerate the risks associated with investing in fixed income
securities.
o You are seeking an income mutual fund for an asset allocation program.
o You have a 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> 52

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

The performance of 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.
The Lehman Brothers Government/Corporate Bond Index is not a mutual fund and you
cannot invest in it directly. Also, the performance of the Lehman Brothers
Government/Corporate Bond Index does not reflect the costs associated with
operating a mutual fund, such as buying, selling and holding securities.

YEAR-BY-YEAR TOTAL RETURN (CLASS I)

[CHART]

<TABLE>
<CAPTION>
TOTAL RETURN
------------
<S> <C>
12/31/94 13.35%
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)%
Year-to-date return (as of September 30, 1999) -- (2.09)%

The following table lists the Portfolio's average year-by-year return by class
over the past one and five year periods and since the inception of each class of
shares. The table also compares the average annual total returns of each class
of shares for the periods shown to the performance of the Lehman Brothers
Government/Corporate Bond Index over the same periods of time.

AVERAGE ANNUAL TOTAL RETURN
(for the period ended December 31, 1998)

<TABLE>
<CAPTION>
INCEPTION DATE 1 YEAR 5 YEARS SINCE INCEPTION
-------------- ------ ------- ---------------

<S> <C> <C> <C> <C>
CLASS I 8/2/93 8.99% 6.97% 6.90%

CLASS II 12/20/95 4.47% N/A 5.40%

CLASS III 12/9/93 6.70% 5.64% 5.62%

LEHMAN BROTHERS
GOV'T/CORP. BOND INDEX 8/2/93 9.49% 7.31% 7.19%
</TABLE>

<PAGE> 53

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 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)

Management Fees**/ .55% .55% .55%

Distribution (12b-1) Fees .00% .00% .75%***/

Other Expenses .33% .66% .82%
------- -------- --------
Total Portfolio Operating Expenses .88% 1.21% 2.12%
======= ======== ========
</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 Agreement to the extent such management
fee exceeds .15% of the average net assets of the Portfolio.

***/The Trustees have agreed to limit the 12b-1 fees applicable to Class III
shares to .50%.

<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 $ 90 $ 494 $ 315 $ 215
After 3 years $ 281 $ 745 $ 664 $ 664
After 5 years $ 487 $ 1,015 $ 1,138 $ 1,138
After 10 years $ 1,083 $ 1,784 $ 2,448 $ 2,448
</TABLE>

<PAGE> 54

- --------------------------------------------------------------------------------
INVESTMENT DETAILS
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE -- The objective of the Bond Portfolio (the "Portfolio") is
to achieve maximum total return through current income by investing at least 65%
of its total assets in fixed-income securities. The Portfolio attempts 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 RISKS -- 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>
CORPORATE DEBT OBLIGATIONS: Corporate debt obligations CALL RISK -- The risk that an issuer will exercise its right
include bonds, notes, debentures, and other obligations of to pay principal on an obligation held by the Portfolio
corporate entities to pay interest and repay principal. (such as a mortgage backed security) earlier than expected.
This may happen when there is a decline in interest rates.

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.

<PAGE> 55

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

<S> <C>

CORPORATE DEBT OBLIGATIONS (CONTINUE) 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.

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. EXTENSION RISK
Not all U.S. government obligations are backed by the full
faith and credit of the United States. For example, INTEREST RATE RISK
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: Mortgage-backed securities CALL RISK
represent direct or indirect participations in, or are
collateralized by and payable from, mortgage loans secured CREDIT RISK
by real property. Mortgage-backed securities can be backed
by either fixed rate mortgage loans or adjustable rate EXTENSION RISK
mortgage loans, and may be issued by either a governmental
or non-governmental entity. Typically, mortgage-backed INTEREST RATE RISK
securities issued by private entities do not have the same
credit standing as mortgage-backed securities issued or LIQUIDITY RISK
guaranteed by the U.S. Government.

ASSET-BACKED SECURITIES: Asset-backed securities are CREDIT RISK
securities whose principal and interest payments are
collateralized by pools of assets such as auto loans, credit INTEREST RATE RISK
card receivables, leases, installment contracts and personal
property. Principal and interest payments may be credit LIQUIDITY RISK
enhanced by a letter of credit, a pool insurance policy or a
senior/subordinated structure.

MONEY MARKET FUNDS: Open-ended mutual funds that invest in CREDIT RISK
commercial paper, banker's acceptances, repurchase
agreements, government securities, certificates of deposit, INTEREST RATE RISK
and other highly liquid and safe securities, and pay money
market rates of interest. INFLATION RISK -- The risk that your investment will not
provide enough income to keep pace with inflation.
</TABLE>

<PAGE> 56

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

<S> <C>

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

LIQUIDITY RISK

MARKET RISK

VALUATION RISK

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

In addition to the securities identified above, the Portfolio may, from time to
time, engage in the following non-principal 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.

WHAT IS A DERIVATIVE INSTRUMENT?

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.

<PAGE> 57

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

For managing its investment and business affairs, the 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 $22.0 billion in assets under
administration (including nondiscretionary accounts) and $9.4 billion in assets
under management as of June 30, 1999, 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 $5.1
billion in assets under management as of June 30, 1999. 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.

<PAGE> 58

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

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 I

WHO MAY INVEST?

HOW IS AN INSTITUTIONAL ACCOUNT ESTABLISHED?

HOW ARE INVESTMENTS MADE?

Each Institutional Investor will transmit orders to Boston Financial Data
Services (the "Transfer Agent").

<PAGE> 59

If an order is received by the Transfer Agent prior to the close of business
(normally 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 the close of business (normally 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.

Should an Institutional Investor 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 converted to Class
III shares will not be subject to the 1% CDSC in year 1. Institutional Investors
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, 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 the close of business (normally 4:00 p.m. Eastern Time) on
any Business Day, proceeds of the redemption will be wired as federal funds on
the next Business Day to the bank account designated with the Transfer Agent.
The Institutional Investor may change the bank account designated to receive an
amount redeemed at any time by sending a letter of instruction with a signature
guarantee to the Transfer Agent at P.O. Box 8050, Boston, MA, 02266.

Pursuant to the Investment Company Act of 1940, as amended, if making immediate
payment of redemption proceeds could adversely affect the Portfolio, payments
may be made up to seven days later. Also, when the New York Stock Exchange
(NYSE) is closed (or when trading is restricted) for any reason other than
customary weekend or holiday closings, or under any emergency circumstances as
determined by the SEC to merit such action, the right of redemption may be
suspended or the date of payment postponed for a period of time that may exceed
seven days. To the extent Portfolio securities are traded in other markets on
days when the NYSE 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

Transactions may be initiated by telephone. Please note that the Portfolio and
its agents will not be responsible

<PAGE> 60

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 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.

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

HOW DO I SET UP AN ACCOUNT?

HOW DO I INVEST DIRECTLY?

Investments may be made in several ways:

<PAGE> 61

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 completed application.

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

You may redeem shares in several ways:

<PAGE> 62

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.

HOW DO I INVEST THROUGH MY INVESTMENT PROFESSIONAL?

HOW DO I REDEEM THROUGH MY INVESTMENT PROFESSIONAL?

On your behalf, the broker of record listed on your account may redeem shares.
Proceeds from the redemption can only be sent to your address of record.

SYSTEMATIC INVESTING PROGRAM

SYSTEMATIC WITHDRAWAL PLAN

SYSTEMATIC EXCHANGE PROGRAM

ADDITIONAL INFORMATION

TAX-DEFERRED RETIREMENT PLANS: Retirement plans can offer significant tax
savings to individuals. Please call First Funds at 1-800-442-1941 (option 1) or
your

<PAGE> 63

Investment Professional for more information on the plans and their benefits,
provisions and fees. The Transfer Agent or your Investment Professional can set
up your new account in the Portfolio under one of several tax-deferred plans.
These plans let you invest for retirement and defer or eliminate the tax on your
investment income. Minimums may differ from those listed previously under
"Investment Requirements." Plans include Individual Retirement Accounts (IRAs)
Roth IRA's, Education IRAs, Rollover IRAs, Keogh Plans, and Simplified Employee
Pension Plans (SEP-IRAs).

CLASS II

SALES LOADS

TOTAL SALES LOAD FOR CLASS II SHARES

<TABLE>
<CAPTION>
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 broker-dealer reallowance may be changed from time to time.

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

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

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

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

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

In addition, if you purchase Class II shares within 60 days after redeeming
shares of the Portfolio, you will

<PAGE> 64

receive credit toward the sales load payable on the purchase to the extent of
the sales load you paid on the shares you redeemed. This reinstatement privilege
may be exercised only with respect to redemptions and purchases in the same
First Funds Portfolio. The reinstatement privilege can be exercised only one
time with respect to any particular redemption.

QUANTITY DISCOUNTS

- 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."

14
<PAGE> 65
CLASS III

ALL CLASSES

HOW ARE PORTFOLIO SHARES VALUED?

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:

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?

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.

<PAGE> 66

STATEMENTS AND REPORTS

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

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

<PAGE> 67

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.

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.

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.

<PAGE> 68

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

FINANCIAL HIGHLIGHTS
BOND PORTFOLIO

<TABLE>
<CAPTION>
CLASS I
-----------------------------------------------------------------------
For the Year
Ended June 30,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <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
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income 0.59 0.61 0.61 0.60 0.57
Net realized and unrealized gain (loss) on
investments (0.37) 0.45 0.11 (0.18) 0.50
----------- ----------- ----------- ----------- -----------
Total from investment operations 0.22 1.06 0.72 0.42 1.07
----------- ----------- ----------- ----------- -----------
Distributions:
Net investment income (0.59) (0.61) (0.61) (0.60) (0.57)
Net realized gain (0.09) -- -- -- --
----------- ----------- ----------- ----------- -----------
Total distributions (0.68) (0.61) (0.61) (0.60) (0.57)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 9.83 $ 10.29 $ 9.84 $ 9.73 $ 9.91
=========== =========== =========== =========== ===========

TOTAL RETURN+ 2.04% 11.02% 7.58% 4.23% 11.87%

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 224,467 $ 219,088 $ 123,184 $ 107,832 $ 90,574
Ratio of expenses to average daily net assets (1) 0.48% 0.49% 0.49% 0.41% 0.35%
Ratio of net investment income to average net assets 5.73% 5.98% 6.20% 5.99% 6.07%
Portfolio turnover rate 22% 26% 56% 56% 23%

(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%
</TABLE>

+ Total return would have been lower had various fees not been waived during the
period.

<PAGE> 69

FINANCIAL HIGHLIGHTS
BOND PORTFOLIO (CONTINUED)

<TABLE>
<CAPTION>
CLASS II
------------------------------------------------
For the Year
Ended June 30,
------------------------------------------------
1999 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 0.55 0.57 0.57 0.29
Net realized and unrealized gain (loss) on
investments (0.35) 0.46 0.10 (0.47)
--------- --------- --------- ---------
Total from investment operations 0.20 1.03 0.67 (0.18)
--------- --------- --------- ---------
Distributions:
Net investment income (0.56) (0.58) (0.57) (0.29)
Net realized gain (0.09) -- -- --
--------- --------- --------- ---------
Total distributions (0.65) (0.58) (0.57) (0.29)
--------- --------- --------- ---------
Net asset value, end of period $ 9.81 $ 10.26 $ 9.81 $ 9.71
========= ========= ========= =========

TOTAL RETURN+*** 1.86% 10.72% 7.12% (1.75)%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 5,172 $ 1,801 $ 841 $ 67
Ratio of expenses to average daily net assets(1) 0.81% 0.84% 0.90% 0.80%*
Ratio of net investment income to average net assets 5.40% 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 1.21% 1.24% 1.30% 1.30%*
</TABLE>

<TABLE>
<CAPTION>
CLASS III
-------------------------------------------------------------
For the Year
Ended June 30,
-------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <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
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income 0.47 0.48 0.49 0.49 0.43
Net realized and unrealized gain (loss) on
investments (0.36) 0.46 0.11 (0.18) 0.49
--------- --------- --------- --------- ---------
Total from investment operations 0.11 0.94 0.60 0.31 0.92
--------- --------- --------- --------- ---------
Distributions:
Net investment income (0.48) (0.49) (0.49) (0.49) (0.43)
Net realized gain (0.09) -- -- -- --
--------- --------- --------- --------- ---------
Total distributions (0.57) (0.49) (0.49) (0.49) (0.43)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 9.81 $ 10.27 $ 9.82 $ 9.71 $ 9.89
========= ========= ========= ========= =========

TOTAL RETURN+ 0.94% 9.72% 6.37% 3.11% 10.12%

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 2,656 $ 2,113 $ 2,553 $ 3,445 $ 1,916
Ratio of expenses to average daily net assets(1) 1.55% 1.67% 1.63% 1.49% 1.84%
Ratio of net investment income to average net assets 4.66% 4.80% 5.07% 4.92% 4.58%
Portfolio turnover rate 22% 26% 56% 56% 23%

(1)During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 2.12% 2.07% 2.03% 1.99% 3.35%
</TABLE>

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

<PAGE> 70

- --------------------------------------------------------------------------------
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 entitles 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 net 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 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> 71

[FIRST FUNDS LETTERHEAD]

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

STATEMENT OF ADDITIONAL INFORMATION (SAI)

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. 20519-6009. 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

================================================================================
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
AND TO MAKE SHAREHOLDER INQUIRIES, YOU MAY WRITE TO FIRST FUNDS AT
370 17TH STREET, SUITE 3100, DENVER, COLORADO 80202 OR CALL FIRST FUNDS
AT 1-800-442-1941 (OPTION 1).
================================================================================

Investment Company Act File No. 811-6589

- --------------------------------------------------------------------------------
FIRST FUNDS

o Are NOT insured by the FDIC or any other governmental agency.
o Are NOT bank deposits or other obligations of or guaranteed by First
Tennessee Bank National Association or any of its affiliates.
o Involve investment risks, including the possible loss of the principal
amount invested.
- --------------------------------------------------------------------------------

[FIRST TENNESSEE INVESTMENT ADVISOR LOGO]

[ALPS MUTUAL FUNDS SERVICES LOGO]
<PAGE> 72
[FIRST FUNDS LOGO]

INTERMEDIATE BOND PORTFOLIO

PROSPECTUS
Dated October 28, 1999

CLASS I
CLASS II
CLASS III

[PHOTO]

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

<PAGE> 73

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----

<S> <C>
Investment Objective, Principal Strategies and Risks........................................................................1

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

Fees and Expenses of the Portfolio..........................................................................................2

Investment Details..........................................................................................................3

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

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

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

Distribution Plans and Shareholder Servicing Plans.........................................................................16

Financial Highlights.......................................................................................................17

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

Additional Information about the Portfolio.........................................................................Back Cover
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 74

- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND RISKS
- -------------------------------------------------------------------------------

The Portfolio primarily invests in short to intermediate bonds. While the
Portfolio may invest in securities of any maturity, the Portfolio's
dollar-weighted average 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.

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.

FUND FACTS

GOAL:

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

PRINCIPAL INVESTMENTS:

o U.S. Government Obligations

o Debt Obligations Issued by U.S. Corporations

o Mortgage-Backed and other Asset-Back Securities

AVERAGE PORTFOLIO MATURITY:

3-6 years

CLASSES OF SHARES OFFERED IN THIS PROSPECTUS:

o Class I

o Class II

o Class III

INVESTMENT ADVISER:

o First Tennessee Bank National Association

("First Tennessee" or "Adviser")

INVESTMENT SUB-ADVISER:

o Martin & Company, Inc. ("Martin" or "Sub-Adviser")

PORTFOLIO MANAGERS:

o Ralph W. Herbert

o Ted L. Flickinger, Jr.

DISTRIBUTOR:

o 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 INTERMEDIATE BOND PORTFOLIO?

The Portfolio may be appropriate for you if:

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

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

o 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.

1
<PAGE> 75

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

Because the Portfolio commenced operations in March of 1998, historical
performance is not yet presented for the Portfolio. Performance history will be
presented for the Portfolio after it has been in operation for one calendar
year, i.e., January through December.

- -------------------------------------------------------------------------------
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 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)

MANAGEMENT FEES**/ .50% .50% .50%
DISTRIBUTION (12b-1) FEES .00% .00% .75%***/
OTHER EXPENSES .36% .69% .67%
--- --- ---
TOTAL PORTFOLIO OPERATING EXPENSES .86% 1.19% 1.92%
=== ==== ====
</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 Agreement.

***/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 $ 88 $ 368 $ 295 $ 195
After 3 years $ 274 $ 618 $ 603 $ 603
After 5 years $ 477 $ 888 $1,036 $1,036
After 10 years $1,060 $1,656 $2,240 $2,240
</TABLE>

2
<PAGE> 76

- -------------------------------------------------------------------------------
INVESTMENT DETAILS
- -------------------------------------------------------------------------------

INVESTMENT OBJECTIVE -- The objective of the Intermediate Bond Portfolio (the
"Portfolio") is to seek current income consistent with the preservation of
capital by investing at least 65% of its total assets in fixed-income
securities. 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.

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. The Portfolio also may invest in securities of
foreign issuers and engage in foreign currency transactions. 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.
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 RISKS -- 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>
CORPORATE DEBT OBLIGATIONS: Corporate debt CALL RISK -- The risk that an issuer will
obligations include bonds, notes, exercise its right to pay principal on an
debentures, and other obligations of obligation held by the Portfolio (such as a
corporate entities to pay interest and mortgage backed security) earlier than
repay principal. expected. This may happen when there is a
decline in interest rates.

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.

3
<PAGE> 77

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

<S> <C>
CORPORATE DEBT OBLIGATIONS (CONTINUED) 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.

U.S. GOVERNMENT OBLIGATIONS: U.S. CALL RISK
government obligations are debt obligations
issued or guaranteed by the U.S. Treasury EXTENSION RISK
or by an agency or instrumentality of the
U.S. government. Not all U.S. government INTEREST RATE RISK
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: Mortgage-backed CALL RISK
securities represent direct or indirect
participations in, or are collateralized by CREDIT RISK
and payable from, mortgage loans secured by
real property. Mortgage-backed securities EXTENSION RISK
can be backed by either fixed rate mortgage
loans or adjustable rate mortgage loans, INTEREST RATE RISK
and may be issued by either a governmental
or non-governmental entity. Typically, LIQUIDITY RISK
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 collateralized by INTEREST RATE RISK
pools of assets such as auto loans, credit
card receivables, leases, installment LIQUIDITY RISK
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.
</TABLE>

4
<PAGE> 78

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

<S> <C>
MONEY MARKET FUNDS: Open-ended mutual funds CREDIT RISK
that invest in commercial paper, banker's
acceptances, repurchase agreements, INTEREST RATE RISK
government securities, certificates of
deposit, and other highly liquid and safe INFLATION RISK -- The risk that your
securities, and pay money market rates of investment will not provide enough income
interest. to keep pace with inflation.

SECURITIES OF FOREIGN ISSUERS: Securities FOREIGN INVESTMENT RISK -- The risk that
issued by: (1) companies organized outside foreign securities may be adversely
the United States, (2) companies whose affected by political instability of the
securities are principally traded outside issue's country, changes in currency
of the United States, and (3) foreign exchange rates, foreign economic
governments and agencies or conditions, or regulatory and reporting
instrumentalities of foreign governments. 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.

LIQUIDITY RISK

MARKET RISK

VALUATION RISK

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.
</TABLE>

In addition to the securities identified above, the Portfolio may, from time to
time, engage in the following non-principal 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.

Martin 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 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

5
<PAGE> 79

of principal if Martin 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.

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.

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.

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 accounting, 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.

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

For managing its investment and business affairs, the 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. First Tennessee serves as an
investment adviser to individual, corporate and institutional advisory clients,
pension plans and collective investment funds, with approximately $22.0 billion
in assets under administration (including nondiscretionary accounts) and $9.4
billion in assets under management as of June 30, 1999, as well as experience
in supervising sub-advisers.

Martin, Two Centre Square, Suite 200, 625 South Gay Street, Knoxville,
Tennessee, 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 $1.8 billion in assets under
management as of June 30, 1999.

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

6
<PAGE> 80

agreed to voluntarily waive its sub-advisory fee, although this waiver could be
discontinued in whole or in part at any time.

- -------------------------------------------------------------------------------
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 16 years of experience and specializes in fixed-income securities. Mr.
Herbert is a 1977 graduate of The University of Tennessee.

Ted L. Flickinger, Jr., Executive Vice President and Fixed Income Portfolio
Manager with Martin, co-manages the 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
- -------------------------------------------------------------------------------

WHAT CLASSES OF SHARES DOES THE INTERMEDIATE 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.

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 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. Class III shares also incur distribution and
shareholder servicing fees.

CLASS I

WHO MAY INVEST?

HOW IS AN INSTITUTIONAL ACCOUNT ESTABLISHED?

7
<PAGE> 81

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 the close of business (normally 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 the close of business
(normally 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 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 converted to Class
III shares will not be subject to the 1% CDSC in year 1. Institutional
Investors will receive at least 30 days prior notice of any proposed
conversion.

HOW ARE REDEMPTIONS MADE?

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

8
<PAGE> 82

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?

INVESTMENT REQUIREMENTS

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

HOW DO I SET UP AN ACCOUNT?

You may set up an account directly in the Portfolio or you may invest in the
Portfolio through your Investment Professional (see "How Do I Invest Through My
Investment Professional" below). Shares will be purchased based on the NAV next
calculated after the Transfer Agent has received the request in proper form. If
you are investing through an Investment Professional, transactions that your
Investment Professional initiates should be transmitted to the Transfer Agent
before the close of business (normally 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
business day following the day payment is received by the Transfer Agent.

HOW DO I INVEST DIRECTLY?

9
<PAGE> 83

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 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 completed application.

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 First Funds account. First, an 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 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 of redemption. If an 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 (if required) 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 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 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 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).

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.

10
<PAGE> 84

BY WIRE: You may make redemptions by wire provided you have established your
account to accommodate wire transactions. If telephone instructions are
received before the close of business (normally 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 the NYSE 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.

HOW DO I REDEEM THROUGH MY INVESTMENT PROFESSIONAL?

On your behalf, the broker of record listed on your account may redeem shares.
Proceeds from the redemption can only be sent to your address of record.

SYSTEMATIC INVESTING PROGRAM

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.

SYSTEMATIC EXCHANGE PROGRAM

11
<PAGE> 85

ADDITIONAL INFORMATION

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

CLASS II

SALES LOADS

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

TOTAL SALES OF LOAD FOR CLASS II SHARES

<TABLE>
<CAPTION>
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>

The broker-dealer reallowance may be changed from time to time.

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 Class II shares.

12
<PAGE> 86

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

QUANTITY DISCOUNTS

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 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.

- 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.

13
<PAGE> 87

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

CLASS III

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 day that the NYSE is 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:

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?

14
<PAGE> 88

exchanged your shares that would result in your paying the highest CDSC
applicable to your class of shares. Also, Institutional Investors converted to
Class III shares will not be subject to the 1% CDSC in year 1.

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 Martin
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 Martin's
opinion, the Portfolio would be unable to invest effectively in accordance with
its investment objective and policies, or would otherwise be affected
adversely. Exchanges or purchase orders may be restricted or refused if the
Portfolio receives or anticipates individual or simultaneous orders affecting
significant portions of the Portfolio's assets. Although the Portfolio will
attempt to give prior notice whenever it is reasonably able to do so, it may
impose these restrictions at any time. The Portfolio reserves the right to
modify or withdraw the exchange privilege upon 60 days notice and to suspend
the offering of shares in any Class without notice to shareholders. You or your
Institutional Investor, if you are invested in Class I, will receive written
confirmation of each exchange transaction.

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?

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.

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

15
<PAGE> 89

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.

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.

16
<PAGE> 90

- -------------------------------------------------------------------------------
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. The total returns in
the table represent the rate that an investor would have earned on an
investment in the Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP,
whose report, along with the Portfolio's financial statements, is included in
the Portfolio's annual report, which is available upon request by calling First
Funds at 1-800-442-1941 (option 1).

FINANCIAL HIGHLIGHTS
INTERMEDIATE BOND PORTFOLIO

<TABLE>
<CAPTION>
CLASS I
------------------------------------------
For the Year For the Period
Ended June 30, Ended June 30,
-------------- --------------
1999 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 0.58 0.19
Net realized and unrealized gain (loss)
on investments (0.22) 0.02
-------- --------
Total from investment operations 0.36 0.21
-------- --------
Distributions:
Net investment income (0.58) (0.19)
Net realized gain (0.02) --
-------- --------
Total distributions (0.60) (0.19)
-------- --------
Net asset value, end of period $ 9.78 $ 10.02
======== ========

TOTAL RETURN+ 3.60% 2.17%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $219,298 $199,872
Ratio of expenses to average daily net assets(1) 0.36% 0.37%*
Ratio of net investment income to average net assets 5.76% 5.87%*
Portfolio turnover rate 48% 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 0.86% 0.87%*
</TABLE>

* Annualized.

** Class I commenced operations on March 2, 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.

17
<PAGE> 91

FINANCIAL HIGHLIGHTS
INTERMEDIATE BOND PORTFOLIO (CONTINUED)

<TABLE>
<CAPTION>
CLASS II
------------------------------------------
For the Year For the Period
Ended June 30, Ended June 30,
-------------- --------------
1999 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 0.55 0.18
Net realized and unrealized gain (loss)
on investments (0.22) 0.03
-------- --------
Total from investment operations 0.33 0.21
-------- --------
Distributions:
Net investment income (0.55) (0.18)
Net realized gain (0.02) --
-------- --------
Total distributions (0.57) (0.18)
-------- --------
Net asset value, end of period $ 9.78 $ 10.02
======== ========

TOTAL RETURN+*** 3.32% 2.07%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 3,057 $ 923
Ratio of expenses to average daily net assets(1) 0.68% 0.65%*
Ratio of net investment income to average net assets 5.43% 5.59%*
Portfolio turnover rate 48% 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>

<TABLE>
<CAPTION>
CLASS III
------------------------------------------
For the Year For the Period
Ended June 30, Ended June 30,
-------------- --------------
1999 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 0.49 0.06
Net realized and unrealized gain (loss)
on investments (0.23) 0.03
-------- --------
Total from investment operations 0.26 0.09
-------- --------
Distributions:
Net investment income (0.49) (0.06)
Net realized gain (0.02) 0.00
-------- --------
Total distributions (0.51) (0.06)
-------- --------
Net asset value, end of period $ 9.77 $ 10.02
======== ========

TOTAL RETURN+ 2.58% 0.92%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 1,097 $ 17
Ratio of expenses to average daily net assets(1) 1.22% 1.35%*
Ratio of net investment income to average net assets 4.90% 4.89%*
Portfolio turnover rate 48% 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 1.92% 1.86%*
</TABLE>

* Annualized.

** Classes II and III commenced operations on March 9,1998 and May 19, 1998,
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.

18
<PAGE> 92

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

ADDITIONAL INFORMATION ABOUT THE PORTFOLIO'S INVESTMENTS

ILLIQUID INVESTMENTS. Under guidelines established by the Trustees, Martin
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 net 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.
Martin 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, Martin 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.

A-1

<PAGE> 93

[FIRST FUNDS LETTERHEAD]

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

STATEMENT OF ADDITIONAL INFORMATION (SAI)

Information about the Portfolio (including the SAI) also may be reviewed and
copied, upon payment of a duplication fee, at the SEC's Public Reference Room in
Washington, D.C. You also can obtain this information, upon payment of a
duplication fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20519-6009. 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 allocated 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 AND
TO MAKE SHAREHOLDER INQUIRIES, YOU MAY WRITE TO FIRST FUNDS AT 370 17TH
STREET, SUITE 3100, DENVER, COLORADO 80202 OR CALL FIRST FUNDS AT
1-800-442-1941 (OPTION 1).
================================================================================

Investment Company Act File No. 811-6589

- --------------------------------------------------------------------------------
FIRST FUNDS

o Are NOT insured by the FDIC on any other governmental agency.
o Are NOT bank deposits or other obligations of or guaranteed by First
Tennessee Bank National Association or any of its affiliates.
o Involve investment risks, including the possible loss of the principal
amount invested.
- --------------------------------------------------------------------------------

[FIRST TENNESSEE INVESTMENT ADVISOR LOGO]

[ALPS MUTUAL FUNDS SERVICES LOGO]
<PAGE> 94

[FIRST FUNDS LOGO]

TENNESSEE TAX-FREE PORTFOLIO

PROSPECTUS
Dated October 28, 1999

CLASS I
CLASS II
CLASS III
CLASS IV

[PHOTO]

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

<PAGE> 95

- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>

Page
----
<S> <C>
Investment Objective, Principal Strategies and Risks.......................1

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

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

Investment Details.........................................................4

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

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

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

Distribution Plans and Shareholder Servicing Plans........................16

Financial Highlights......................................................17

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

Additional Information about the Portfolio........................Back Cover
- --------------------------------------------------------------------------------
</TABLE>

<PAGE> 96

INVESTMENT OBJECTIVE -- The objective of the Tennessee Tax-Free Portfolio (the
"Portfolio") is to provide a high level of current income, which is exempt from
federal and Tennessee personal income tax, by investing in a portfolio
consisting primarily of Tennessee tax-free obligations.

PRINCIPAL INVESTMENT STRATEGIES -- Under normal market conditions, the Portfolio
invests in investment grade municipal obligations issued by the State of
Tennessee or any city, county, school district or any other political agency or
sub-division of the State of Tennessee. The Portfolio seeks to invest its assets
so that, to the fullest extent possible, the income that is received by the
Portfolio will be exempt from both Tennessee and federal income taxes.

The Portfolio may invest in a wide range of municipal obligations, including
tax, revenue, or bond anticipation notes; tax-exempt commercial paper; general
obligations or revenue bonds (including municipal lease obligations and
resources recovery bonds); and industrial development bonds. The Portfolio may
invest in obligations of any duration.

However, while the dollar-weighted average maturity of the Portfolio may vary,
the Sub-Adviser currently anticipates that the dollar-weighted average portfolio
maturity of the Portfolio will be between 5 and 15 years. As a fixed-income
securities adviser, Martin historically has favored securities with a maturity
range between 3 and 10 years.

PRIMARY RISKS -- The Portfolio may be appropriate for you if you are seeking a
high quality portfolio of municipal obligations and you are seeking income that
is exempt from both federal and Tennessee income tax. The Portfolio is not
diversified and it may invest a higher percentage of its assets in the
securities of a smaller number of issuers. (REMEMBER, NO SINGLE INVESTMENT CAN
PROVIDE AN EFFECTIVE, BALANCED INVESTMENT PLAN.)

FUND FACTS
GOAL:
To provide a high level of current income that is exempt from both federal and
Tennessee personal income tax.

PRINCIPAL INVESTMENTS:
o Tennessee Municipal Bonds

AVERAGE PORTFOLIO MATURITY:
3-10 Years

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

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

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

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

DISTRIBUTOR:
o 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 TENNESSEE TAX-FREE PORTFOLIO?

The Portfolio may be appropriate for you if:
o You are seeking higher potential returns than money market funds and you can
tolerate the risks associated with investing in fixed income securities.
o You are seeking an income mutual fund for an asset allocation program.
o 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> 97

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

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

WHAT IS THE LEHMAN BROTHERS 10-YEAR MUNICIPAL BOND INDEX?

The Lehman Brothers 10-Year Municipal Bond Index is a broad market performance
benchmark for the shorter-term tax-exempt municipal bond market. The Lehman
Brothers 10-Year Municipal Bond Index is not a mutual fund, and you cannot
invest in it directly. Also, the performance of the Lehman Brothers 10-Year
Municipal Bond Index does not reflect the costs associated with operating a
mutual fund, such as buying, selling, and holding securities.

YEAR-BY-YEAR TOTAL RETURN (CLASS I)

[CHART]
<TABLE>
<CAPTION>
TOTAL
YEAR RETURN
- ---------- ------
<S> <C>
12/31/1996 3.64%
12/31/1997 8.61%
12/31/1998 6.11%
</TABLE>

Best Quarter (quarter ended June 30, 1997) -- 3.53%
Worst Quarter (quarter ended March 31, 1996) -- (1.12)%
Year-to-date return (as of September 30, 1999) -- (0.45)%

The following table lists the Portfolio's average year-by-year return by class
over the past one year period and since the inception of each class of shares.
The table also compares the average annual total returns of each class of shares
for the periods shown to the performance of the Lehman Brothers 10-Year
Municipal Bond Index.

AVERAGE ANNUAL TOTAL RETURN
(for the period ended December 31, 1998)

INCEPTION DATE 1 YEAR SINCE INCEPTION
-------------- ------ ---------------
<S> <C> <C> <C>
CLASS I 12/15/95 6.11% 6.24%
CLASS II 12/29/95 3.34% 5.20%
CLASS III 12/15/95 4.80% 6.00%
CLASS IV*/ 8/3/99 N/A N/A
LEHMAN BROTHERS 10-YEAR 12/15/95 6.76% 6.85%
MUNICIPAL BOND INDEX
</TABLE>

<PAGE> 98

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.

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 2.50% None None
purchases as a percentage of offering price

Maximum deferred sales charge (load) None None 1.00%*/ 3.00%
(as a percentage of original purchase price
or redemption proceeds, as applicable)

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from portfolio assets

Management Fees**/ .50% .50% .50% .50%

12b-1 Fees .00% .00% .75%***/ .70%

Other Expenses .36% .69%****/ .65%****/ .40%*****/
----- ---- ---- ----
Total Portfolio Operating Expenses .86% 1.19% 1.90% 1.60%
===== ==== ==== ====
</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 Agreement.
***/The Trustees have agreed to limit the 12b-1 fees applicable to Class III
shares to .50%.
****/Other Expenses include shareholder servicing fees of 0.25% with respect to
Class II and III. The Trustees have agreed to limit the shareholder servicing
fees applicable to Class II and III shares to 0.10% and 0.00%, respectively.
*****/Because Class IV shares have not been in existence for a full year, this
amount is estimated.

ASSUMING REDEMPTION ASSUMING NO
AT END OF PERIOD REDEMPTION

CLASS I CLASS II CLASS III CLASS IV*/ CLASS III CLASS IV*/
------- -------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
After 1 year $ 88 $ 368 $ 293 $ 463 $ 193 $ 163
After 3 years $ 274 $ 618 $ 597 $ 705 $ 597 $ 505
After 5 years $ 477 $ 888 $1,026 $ 970 $1,026 $ 870
After 10 years $1,060 $1,656 $2,219 $1,642 $2,219 $1,642
</TABLE>

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

<PAGE> 99

- --------------------------------------------------------------------------------
INVESTMENT DETAILS
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE -- The objective of the Portfolio is to provide a high
level of current income, which is exempt from federal and Tennessee personal
income tax, by investing in a portfolio consisting primarily of Tennessee
tax-free obligations.

It is a fundamental policy of the Portfolio that at least 80% of its income will
be exempt from federal income tax, other than the alternative minimum tax, and
the Portfolio will invest its assets so that at least 65% of its income will be
exempt from Tennessee personal income tax.

In selecting investments for the Portfolio, Martin evaluates a variety of
factors, including bond type, bond quality, and bond maturity allocation based
on economic trends and historic yield comparisons.

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

SECURITIES PRINCIPAL RISKS ASSOCIATED WITH THE SECURITY
---------- --------------------------------------------
<S> <C>
MUNICIPAL OBLIGATIONS (IN GENERAL): CREDIT RISK -- The risk that the issuer
Securities that are issued to raise of a security, or a party to a contract,
money for various public purposes. This will default or otherwise not honor a
includes general purpose financing for financial obligation.
state and local governments as well as
financing for specific projects or INTEREST RATE RISK -- The risk of a
public facilities. Municipal obligations decline in market value of an interest
may be backed by the full taxing power bearing instrument due to changes in
of a municipality or by the revenues interest rates. For example, a rise in
from a specific project or the credit of interest rates typically will cause the
a private organization. Some municipal value of a fixed rate security to fall.
obligations are insured by private On the other hand, a decrease in
insurance companies, while others may be interest rates will cause the value of a
supported by letters of credit furnished fixed rate security to increase. In
by domestic or foreign banks. general, shorter term securities offer
greater stability and are less sensitive
to changes in interest rates. Longer
term securities of the type in which the
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 the Portfolio would like to sell
them. It may be difficult for the
Portfolio to sell the investment for the
value the Portfolio has placed on it.
</TABLE>

<PAGE> 100

SECURITIES PRINCIPAL RISKS ASSOCIATED WITH THE SECURITY
---------- --------------------------------------------
<S> <C>
MUNICIPAL LEASE OBLIGATIONS: Securities CREDIT RISK
issued by state and local governments or
authorities to acquire land and a wide INTEREST RATE RISK
variety of equipment and facilities.
These obligations typically are not LIQUIDITY RISK
backed by the credit of the issuing
municipality, and their interest may
become taxable if the lease is assigned.
If funds are not appropriated for the
lease payments for the following year,
the lease may terminate, with the
possibility of significant loss to the
Portfolio. Certificates of Participation
in municipal lease obligations or
installment sales contracts entitle the
holder to a proportionate interest in
the lease purchase payments made.

MUNICIPAL REFUNDING COLLATERALIZED CREDIT RISK
MORTGAGE OBLIGATIONS (MR CMOs): MR CMOs
originated from revenue bonds issued to INTEREST RATE RISK
fund low interest rate mortgages for
first time home buyers with low to LIQUIDITY RISK
moderate incomes and are now secured by
an "escrow fund" generally consisting
entirely of direct U.S. Government
obligations that are sufficient for
paying the security holders. The
security is considered a "mortgage
related security" for investment
purposes; therefore, banks have no
investment limitations or restrictions
for purchasing the security for their
own account. MR CMOs are attractive for
investors seeking highly rated
instruments with above average yield.

MONEY MARKET FUNDS: Open-ended mutual CREDIT RISK
funds that invest in commercial paper,
banker's acceptances, repurchase INTEREST RATE RISK
agreements, government securities,
certificates of deposit, and other INFLATION RISK -- The risk that your
highly liquid and safe securities, and investment will not provide enough
pay money market rates of interest. income to keep pace with inflation.

TAX-EXEMPT COMMERCIAL PAPER: Promissory INFLATION RISK
notes issued by municipalities to help
finance short-term capital or operating CREDIT RISK
needs.
INTEREST RATE RISK

LIQUIDITY RISK
</TABLE>

<PAGE> 101

In addition to the securities identified above, the Portfolio may, from time to
time, engage in the following non-principal 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.

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. While the Portfolio ordinarily will not invest in
securities that are subject to federal income tax, it may do so in response to
adverse economic or market conditions. During such periods, the Portfolio may
invest without limit in high quality taxable money market instruments including,
but not limited to, U.S. Government obligations, commercial paper, and
repurchase and reverse repurchase agreements. 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. Such a strategy also may
result in investors becoming subject to state or federal income taxes.

NON-DIVERSIFICATION RISK. An investment in a non-diversified mutual fund (as
defined in the Investment Company Act of 1940) such as the Portfolio, entails
greater risks than an investment in a diversified mutual fund. Because the
Portfolio is non-diversified, it may invest a higher percentage of its assets in
the securities of a smaller number of issuers. As a result, the Portfolio may be
more susceptible to any single economic, political, or regulatory occurrence
than a more widely diversified mutual fund and may be subject to greater risk of
loss with respect to its portfolio securities.

GEOGRAPHIC CONCENTRATION RISK. The performance of the Portfolio is susceptible
to various statutory, political, and economic factors that are unique to the
State of Tennessee. Some of these factors include the Tennessee budget process,
the state economy, and the volatility of state tax collections. For more
information about the specific factors that could impact the performance of the
Portfolio, please refer to the SAI.

LIQUIDITY RISK RELATED TO TENNESSEE MUNICIPAL OBLIGATIONS. In general, the
secondary market for municipal obligations issued by Tennessee is less liquid
than that for taxable debt obligations or for large issues of municipal
obligations that are traded across the country. As a result, the securities
available to the Portfolio for purchase may be limited and it may be more
difficult for the Portfolio to sell or otherwise dispose of certain portfolio
securities. At the present time an established resale market exists for the
Tennessee obligations in which the Portfolio invests. However, there is no
guarantee that this secondary market will be available to the Portfolio in the
future.

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

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

First Tennessee, 530 Oak Court Drive, Memphis, Tennessee, serves as the
investment adviser to the Portfolio and, with the prior approval of the Board of
Trustees of First Funds (the "Trustees") has engaged Martin to act as
Sub-Adviser to the Portfolio. Subject to First Tennessee's supervision, Martin
is responsible for the day-to-day

6
<PAGE> 102

investment management of the Portfolio, including providing investment research
and credit analysis concerning Portfolio investments and conducting a continuous
program of investment of Portfolio assets in accordance with the investment
policies and objectives of the Portfolio.

For managing its investment and business affairs, the Tennessee Tax-Free
Portfolio is obligated to pay First Tennessee a monthly management fee at the
annual rate of .50% of its average net assets. First Tennessee has voluntarily
agreed to waive its entire fee. First Tennessee serves as an investment adviser
to individual, corporate and institutional advisory clients, pension plans and
collective investment funds, with approximately $22.0 billion in assets under
administration (including nondiscretionary accounts) and $9.4 billion in assets
under management as of June 30, 1999, as well as experience in supervising
sub-advisers.

Martin, Two Centre Square, Suite 200, 625 South Gay Street, Knoxville, Tennessee
serves as 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. 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 9 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 $1.8 billion in assets under management
as of June 30, 1999.

First Tennessee is obligated to pay Martin a monthly sub-advisory fee at the
annual rate of .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
voluntarily agreed to waive its sub-advisory fee, although this waiver could be
discontinued in whole or in part at any time.

- --------------------------------------------------------------------------------
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 16
years of experience and specializes in fixed-income securities. Mr. Herbert is a
1977 graduate of The University of Tennessee.

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

WHAT CLASSES OF SHARES DOES THE TENNESSEE TAX-FREE PORTFOLIO OFFER?

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

CLASS IV SHARES. Class IV shares are offered to investors without the imposition
of any up-front sales load; however, Class IV shares are subject to a CDSC of up
to 3.00%. The CDSC is phased out over a period of five years. After five years
from the date of purchase, Class IV shares automatically convert to Class II
shares. Class IV shares also incur distribution fees.

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 entities 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?

7
<PAGE> 103

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 the close of business (normally 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 the close of business (normally 4:00 p.m.
Eastern Time) on any Business Day to advise it of the wire. The Trust may
discontinue offering its shares in any Class of a Portfolio without notice to
shareholders.

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

Should an Institutional Investor of Class I shares cease to be eligible to
participate in this Class, Class I shares held in an Institutional Account may
be converted to shares of another Class. Any such conversion will be made on the
basis of the relative NAVs of the two classes without the imposition of any
sales load, fee or other charge. Institutional Investors converted to Class III
shares will not be subject to the 1% CDSC in year 1. Institutional Investors
will receive at least 30 days prior notice of any proposed conversion.

HOW ARE REDEMPTIONS MADE?

<PAGE> 104

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 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 Portfolio securities are traded in other markets on
days when the NYSE 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, an Institutional Investor may
either withdraw its request for redemption, or it will receive payment based on
the NAV next determined after the termination of the suspension.

ADDITIONAL INFORMATION

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, III, AND IV

WHO MAY INVEST?

INVESTMENT REQUIREMENTS

<PAGE> 105

above, which reduce the minimum investment requirement). The Portfolio reserves
the right to limit the number of checks processed at one time. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred.

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

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 TENNESSEE TAX-FREE 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 completed application.

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

You may redeem shares in several ways:

10
<PAGE> 106

BY PHONE: Provided you have elected this option in advance, you may request a
redemption of 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 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?

HOW DO I REDEEM THROUGH MY INVESTMENT PROFESSIONAL?

On your behalf, the broker of record listed on your account may redeem shares.
Proceeds from the redemption can only be sent to your address of record.

11
<PAGE> 107

SYSTEMATIC INVESTING PROGRAM

SYSTEMATIC WITHDRAWAL PLAN

SYSTEMATIC EXCHANGE PROGRAM

CLASS II

SALES LOADS

Total Sales Load for Class II Shares
<TABLE>
<CAPTION>
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>

The broker-dealer reallowance may be changed from time to time.

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

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

12
<PAGE> 108

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

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

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

QUANTITY DISCOUNTS

13
<PAGE> 109

- 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 IV

YEAR YEAR YEAR YEAR YEAR
1 2 3 4 5
---- ---- ---- ---- -----
<S> <C> <C> <C> <C>
3% 2.5% 2% 1.5% 1%
</TABLE>

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

ALL CLASSES

HOW ARE PORTFOLIO SHARES VALUED?

The Portfolio is open for business each day that the NYSE is 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?

The Portfolio may earn interest from its 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:

14
<PAGE> 110

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?

Investors in Class II or IV shares wishing to exchange into one of the Money
Market Portfolios that do not offer these classes will receive Class III shares.

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

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

15
<PAGE> 111

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.

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

Under the Distribution Plans, ALPS receives an amount up to .75% of the average
net assets of the Portfolio that are attributable to Class III shares and an
amount up to .70% of the average net assets of the Portfolio that are
attributable to Class IV shares. The Trustees have limited the amount that may
be paid under the Distribution Plan for Class III shares to .50%. 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 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") receive an amount up 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.
Although the Shareholder Servicing Plans have been approved by the Trustees, no
fees have been paid under the plans with regard to Class III shares. However,
Class II shares incur shareholder servicing fees in an amount equal to .10% of
the average net assets of Class II shares. With regard to Class III shares, the
Trustees reserve the right to authorize the payment of fees under the
Shareholder Servicing Plans in the future.

16
<PAGE> 112

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

TENNESSEE TAX-FREE PORTFOLIO

<TABLE>
<CAPTION>
CLASS I
-----------------------------------------------------------------------
For the Year
Ended June 30,
-----------------------------------------------------------------------
1999 1998 1997 1996**
---- ---- ---- ------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.31 $ 9.99 $ 9.71 $ 10.00
----------- ----------- ----------- -----------
Income from investment operations:
Net investment income 0.46 0.48 0.50 0.23
Net realized and unrealized gain (loss) on
investments (0.20) 0.32 0.28 (0.29)
----------- ----------- ----------- -----------
Total from investment operations 0.26 0.80 0.78 (0.06)
----------- ----------- ----------- -----------
Distributions:
Net investment income (0.46) (0.48) (0.50) (0.23)
Net realized gain (0.03) -- -- --
----------- ----------- ----------- -----------
Total distributions (0.49) (0.48) (0.50) (0.23)
----------- ----------- ----------- -----------
Net asset value, end of period $ 10.08 $ 10.31 $ 9.99 $ 9.71
=========== =========== =========== ===========
TOTAL RETURN+ 2.54% 8.16% 8.26% (0.65)%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 185,445 $ 176,884 $ 8,935 $ 5,925
Ratio of expenses to average daily net assets (1) 0.36% 0.31% 0.07% 0.50%*
Ratio of net investment income to average net assets 4.49% 4.71% 5.09% 4.31%*
Portfolio turnover rate 31% 15% 122% 8%*

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.86% 0.85% 1.14% 1.42%*
</TABLE>

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

<PAGE> 113

FINANCIAL HIGHLIGHTS
TENNESSEE TAX-FREE PORTFOLIO (CONTINUED)

CLASS II
-----------------------------------------------------------------
For the Year
Ended June 30,
-----------------------------------------------------------------
1999 1998 1997 1996**
---- ---- ---- ------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.34 $ 10.01 $ 9.73 $ 10.06
---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.46 0.48 0.51 0.21
Net realized and unrealized gain (loss) on
investments (0.20) 0.33 0.28 (0.33)
---------- ---------- ---------- ----------
Total from investment operations 0.26 0.81 0.79 (0.12)
---------- ---------- ---------- ----------
Distributions:
Net investment income (0.46) (0.48) (0.51) (0.21)
Net realized gain (0.03) -- -- --
---------- ---------- ---------- ----------
Total distributions (0.49) (0.48) (0.51) (0.21)
---------- ---------- ---------- ----------
Net asset value, end of period $ 10.11 $ 10.34 $ 10.01 $ 9.73
========== ========== ========== ==========
TOTAL RETURN+*** 2.46% 8.22% 8.37% (1.25)%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 13,227 $ 8,973 $ 5,941 $ 1,875
Ratio of expenses to average daily
net assets (1) 0.44% 0.37% 0.12% 0.49%*
Ratio of net investment income to average net assets 4.41% 4.65% 5.03% 4.32%*
Portfolio turnover rate 31% 15% 122% 8%*

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.94% 0.91% 1.14% 1.42%*
</TABLE>

CLASS III
------------------------------------------------------------------
For the Year
Ended June 30,
------------------------------------------------------------------
1999 1998 1997 1996**
---- ---- ---- ------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.32 $ 10.00 $ 9.72 $ 10.00
---------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.42 0.45 0.50 0.19
Net realized and unrealized gain (loss) on
investments (0.20) 0.32 0.28 (0.28)
---------- ---------- ---------- ----------
Total from investment operations 0.22 0.77 0.78 (0.09)
---------- ---------- ---------- ----------
Distributions:
Net investment income (0.42) (0.45) (0.50) (0.19)
Net realized gain (0.03) -- -- --
---------- ---------- ---------- ----------
Total distributions (0.45) (0.45) (0.50) (0.19)
---------- ---------- ---------- ----------
Net asset value, end of period $ 10.09 $ 10.32 $ 10.00 $ 9.72
========== ========== ========== ==========
TOTAL RETURN+ 2.13% 7.86% 8.20% (0.87)%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 17,378 $ 9,270 $ 5,750 $ 896
Ratio of expenses to average daily
net assets (1) 0.75% 0.61% 0.23% 0.98%*
Ratio of net investment income to average net assets 4.10% 4.41% 4.93% 3.83%*
Portfolio turnover rate 31% 15% 122% 8%*

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.65% 1.65% 1.91% 1.91%*
</TABLE>

* Annualized.
** Classes II and III commenced operations on December 29, 1995 and December
15, 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.

<PAGE> 114

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

ADDITIONAL INFORMATION ABOUT THE PORTFOLIO'S INVESTMENTS

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 feature is a put that
entitles the security holder to repayment of the principal amount of the
underlying security at any time or at specified intervals. A stand-by commitment
is a put that entitles the security holder to same-day settlement at amortized
cost plus accrued interest.

ILLIQUID SECURITIES. Under guidelines established by the Trustees, Martin
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 net assets in illiquid investments and private placements.

LETTERS OF CREDIT. Issuers or financial intermediaries who provide demand
features or standby commitments often support their ability to buy obligations
on demand by obtaining letters of credit (LOCs) or other guarantees from
domestic or foreign banks. LOCs also may be used as credit supports for
municipal instruments. Martin 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, Martin 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.

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

U.S. GOVERNMENT OBLIGATIONS. U.S. Government obligations are debt obligations
issued or guaranteed by the U.S. Treasury or by an agency or instrumentality of
the U.S. Government. Not all U.S. Government obligations are

A-1
<PAGE> 115

backed by the full faith and credit of the United States. For example,
obligations issued by the Federal Farm Credit Bank or by the Federal National
Mortgage Association are supported by the agency's right to borrow money from
the U.S. Treasury under certain circumstances. Obligations issued by the Federal
Home Loan Bank are supported only by the credit of the agency. There is no
guarantee that the Government will support these types of obligations, and,
therefore, they involve more risk than other government obligations.

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

A-2

<PAGE> 116

[FIRST FUNDS LETTERHEAD]

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

- --------------------------------------------------------------------------------
FIRST FUNDS

o Are NOT insured by the FDIC, or any other governmental agency

o Are NOT bank deposits or other obligations of or guaranteed by First
Tennessee Bank National Association or any of its affiliates.

o Involves investment risks, including the possible loss of the principal
amount invested.
- --------------------------------------------------------------------------------

[FIRST TENNESSEE INVESTMENT ADVISOR LOGO]

[ALPS MUTUAL FUNDS SERVICES LOGO]

<PAGE> 117

[FIRST FUND LOGO]

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

PROSPECTUS
Dated October 28, 1999

CLASS I
CLASS II
CLASS III
CLASS IV

[PHOTO]

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

<PAGE> 118

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

<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objective, Principal Strategies and 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

Investment Details...........................................................13

Who Manages the Portfolio?...................................................17

Portfolio Managers...........................................................17

How to Invest in the Portfolio...............................................17

Distribution Plans and Shareholder Servicing Plans...........................24

Financial Highlights.........................................................25

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

Additional Information about the Portfolios..........................Back Cover
</TABLE>

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

<PAGE> 119

- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND 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 as high a level of 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.

o 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.

o 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.

FUND FACTS

GOAL:

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

PRINCIPAL INVESTMENTS

o U.S. Treasury bills, notes and bonds

o Repurchase and reverse repurchase agreements

CLASSES OF SHARES OFFERED IN THIS PROSPECTUS:

o Class I

o Class II

o Class III

o Class IV

AVERAGE PORTFOLIO MATURITY:

60 days or less

INVESTMENT ADVISER:

o First Tennessee Bank National Association ("First Tennessee" or "Adviser")

INVESTMENT SUB-ADVISER:

o Black Rock Institutional Management Corporation ("BIMC" or Sub-Adviser")

DISTRIBUTOR:

o ALPS Mutual Funds Services, Inc. ("ALPS")

AN INVESTMENT IN THE PORTFOLIO IS NOT A BANK DEPOSIT AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY. ALTHOUGH THE PORTFOLIO SEEKS TO PRESERVE THE VALUE OF YOUR
INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE
PORTFOLIO.

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

The Portfolio may be appropriate for you if:

o You require stability of principal.

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

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

o 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 Reserve Portfolio
are each referred to as the "Portfolio" or a "Portfolio" and together as the
"Portfolios" or the "Money Market Portfolios."

<PAGE> 120

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

The performance of 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)

[CHART]

<TABLE>
<CAPTION>
TOTAL
YEAR RETURN
---- ------
<S> <C>
12/31/93 2.83%

12/31/94 3.87%

12/31/95 5.62%

12/31/96 5.11%

12/31/97 5.13%

12/31/98 5.01%
</TABLE>

Best Quarter (quarter ended June 30, 1995) -- 1.44%
Worst Quarter (quarter ended March 31, 1993) -- 0.66%
Year-to-date return (as of September 30, 1999) -- 3.25%

The table below lists the U.S. Treasury Money Market Portfolio's average
year-by-year return by class over the past one and five year periods and since
the inception of each class of shares. 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 5.01% 4.94% 4.55%
CLASS II*/ N/A N/A N/A
CLASS III 8/8/95 4.80% N/A 4.90%
CLASS IV*/ N/A N/A N/A
</TABLE>

*/Information for Class II and Class IV shares is not included in the table
because these Classes were not operational as of the date of this prospectus.

<PAGE> 121

- --------------------------------------------------------------------------------
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)

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from portfolio assets) CLASS I CLASS II CLASS III CLASS IV
------- -------- --------- --------

Management Fees*/ .25% .25% .25% .25%

Distribution (12b-1) Fees .00% .00% .45%***/ .65%

Other Expenses**/ .44% .66%****/ .41% .41%****/
---- ----- ----- -----
Total Portfolio Operating Expenses .69% .91% 1.11% 1.31%
==== ===== ===== =====
</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 Agreement 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 (.05%) 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 Class II and Class IV shares are not operational at the date of
this prospectus, this amount is estimated.

<TABLE>
<CAPTION>
CLASS I CLASS II CLASS III CLASS IV
------- -------- --------- --------
<S> <C> <C> <C> <C>
After 1 year $ 70 $ 93 $ 113 $ 133
After 3 years $221 $ 290 $ 353 $ 415
After 5 years $384 $ 504 $ 611 $ 718
After 10 years $858 $1,119 $1,350 $1,577
</TABLE>

<PAGE> 122

- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND 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 as high a level of 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.

FUND FACTS

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

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

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

AVERAGE PORTFOLIO MATURITY:
90 days or less

INVESTMENT ADVISER:
o First Tennessee

INVESTMENT SUB-ADVISER:
o BIMC

DISTRIBUTOR:
o ALPS

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

The Portfolio may be appropriate for you if:

o You require stability of principal.
o You are seeking a money market mutual fund for the cash portion of your
asset allocation program.
o You are looking for an investment with a lower degree of risk during
uncertain economic times or periods of stock market volatility.
o You consider yourself a saver rather than an investor.

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

<PAGE> 123

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

The performance of 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)

[CHART]

<TABLE>
<CAPTION>
Total
Year Return
---- ------
<S> <C>
12/31/93 2.97%

12/31/94 4.20%

12/31/95 3.72%

12/31/96 5.20%

12/31/97 5.32%

12/31/98 5.18%
</TABLE>

Best Quarter (quarter ended June 30, 1995) -- 1.45%
Worst Quarter (quarter ended March 31, 1993) -- 0.71%
Year-to-date return (as of September 30, 1999) -- 3.49%

The table below lists the U.S. Government Money Market Portfolio's average
year-by-year return by class over the past one and five year periods and since
the inception of each class of shares. 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.

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 5.18% 5.12% 4.72%
CLASS II*/ N/A N/A N/A
CLASS III 8/8/95 4.80% N/A 4.93%
</TABLE>

*/Information for Class II shares is not included in the table because this
Class was not operational as of the date of this prospectus.

<PAGE> 124

- --------------------------------------------------------------------------------
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)

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from portfolio assets) CLASS I CLASS II CLASS III
------- -------- ---------
Management Fees*/ .25% .25% .25%

Distribution (12b-1) Fees .00% .00% .45%***/

Other Expenses**/ .31% .65%****/ .40%
------- -------- ---------
Total Portfolio Operating Expenses .56% .90% 1.10%
======= ======== =========
</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%.

****/ Because Class II is not currently operational, this amount is estimated.

<TABLE>
<CAPTION>
CLASS I CLASS II CLASS III
------- -------- ---------
<S> <C> <C> <C>
After 1 year $ 57 $ 92 $ 112
After 3 years $179 $ 287 $ 350
After 5 years $313 $ 498 $ 606
After 10 years $701 $1,107 $1,339
</TABLE>

<PAGE> 125

- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND RISKS OF THE
MUNICIPAL MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE -- The objective of the Municipal Money Market Portfolio
(the "Portfolio") is to seek as high a level of federally tax-exempt 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 total 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, credit risk and taxable risk.

o 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.

FUND FACTS

GOAL:

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

PRINCIPAL INVESTMENTS:

o Tax, revenue or bond anticipation notes

o Tax-exempt commercial paper

o Municipal lease obligations

o Resource recovery bonds

o Standby commitments

o Zero coupon bonds

CLASSES OF SHARES OFFERED IN THIS PROSPECTUS:

o Class I

o Class II

o Class III

AVERAGE PORTFOLIO MATURITY:

90 days or less

INVESTMENT ADVISER:

o First Tennessee

INVESTMENT SUB-ADVISER:

o BIMC

DISTRIBUTOR:

o ALPS

SHOULD I INVEST IN THE MUNICIPAL MONEY MARKET PORTFOLIO?

The Portfolio may be appropriate for you if:

o You require stability of principal.

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

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

o You consider yourself a saver rather than an investor.

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

<PAGE> 126

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

The performance of 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)

[CHART]
<TABLE>
<CAPTION>
<S> <C>

YEAR TOTAL RETURN
- -------- ------------
12/31/93 2.30%

12/31/94 2.77%

12/31/95 3.77%

12/31/96 3.34%

12/31/97 3.36%

12/31/98 3.16%
</TABLE>

Best Quarter (quarter ended June 30, 1995) -- 0.99%
Worst Quarter (quarter ended March 31, 1993) -- 0.34%
Year-to-date return (as of September 30, 1999) -- 2.13%

The table below lists the Municipal Money Market Portfolio's average
year-by-year return by class over the past one and five year periods and since
the inception of each class of shares. 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.

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 3.16% 3.28% 3.10%
CLASS II*/ N/A N/A N/A
CLASS III 7/28/95 2.83% N/A 3.05%
</TABLE>

*/Information for Class II shares is not included in the table because this
Class was not operational as of the date of this prospectus.

<PAGE> 127

- --------------------------------------------------------------------------------
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)

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from portfolio assets) CLASS I CLASS II CLASS III
------- -------- ---------

Management Fees*/ .25% .25% .25%
Distribution (12b-1) Fees .00% .00% .45%***/
Other Expenses**/ .25% .61%****/ .36%
--- ----- -----
Total Portfolio Operating Expenses .50% .86% 1.06%
=== ===== =====
</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 Agreement to the extent such fee exceeds
.10% of the Portfolio's average net assets.

**/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%.

****/Because Class II is not currently operational, this amount is estimated.

<TABLE>
<CAPTION>
CLASS I CLASS II CLASS III
------- -------- ---------
<S> <C> <C> <C>
After 1 year $ 51 $ 88 $ 108
After 3 years $160 $ 274 $ 337
After 5 years $280 $ 477 $ 585
After 10 years $628 $1,060 $1,293
</TABLE>

<PAGE> 128

- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND RISKS OF THE
CASH RESERVE PORTFOLIO
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE -- The objective of the Cash Reserve Portfolio (the
"Portfolio") is to seek as high a level of 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, credit risk and foreign risks.

o 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.

FUND FACTS

GOAL:

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

PRINCIPAL INVESTMENTS:

o Certificates of deposit

o Commercial paper

o Bankers' acceptances

o Bank notes

o U.S. government obligations

CLASSES OF SHARES OFFERED IN THIS PROSPECTUS:

o Class I

o Class II

o Class III

INVESTMENT ADVISER:

o First Tennessee

INVESTMENT SUB-ADVISER:

o BIMC

DISTRIBUTOR:

o ALPS

SHOULD I INVEST IN THE CASH RESERVE PORTFOLIO?

The Portfolio may be appropriate for you if:

o You require stability of principal.

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

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

o You consider yourself a saver rather than an investor.

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

<PAGE> 129

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

The performance of 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)

[CHART]

<TABLE>
<CAPTION>
<S> <C>
12/31/95 5.74%

12/31/96 5.18%

12/31/97 5.37%

12/31/98 5.32%
</TABLE>

Best Quarter (quarter ended June 30, 1995) -- 1.45%
Worst Quarter (quarter ended December 31, 1998) -- 1.23%
Year-to-date return (as of September 30, 1999) -- 3.57%

The table below lists the Cash Reserve Portfolio's average year-by-year return
by class over the past one and five year periods and since the inception of each
class of shares. If you would like to know the current 7 day yield of the Cash
Reserve 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 9/26/94 5.32% N/A 5.39%
CLASS II*/ N/A N/A N/A
CLASS III 7/28/95 5.06% N/A 5.09%
</TABLE>

*/Information for Class II shares is not included in the table because this
Class was not operational as of the date of this prospectus.

<PAGE> 130

- --------------------------------------------------------------------------------
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)

ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from portfolio assets) CLASS I CLASS II CLASS III
------- -------- ---------
MANAGEMENT FEES*/ .25% .25% .25%
DISTRIBUTION (12B-1) FEES .00% .00% .45%***/
OTHER EXPENSES**/ .31% .58%****/ .33%
--- ----- -----
Total Portfolio Operating Expenses .56% .83% 1.03%
=== ===== =====
</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 Agreement to the extent such fee exceeds
.10% of the Portfolio's average net assets.

**/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%.

****/Because Class II is not currently operational, this amount is estimated.

<TABLE>
<CAPTION>
CLASS I CLASS II CLASS III
------- -------- ---------
<S> <C> <C> <C>
After 1 year $ 57 $ 85 $ 105
After 3 years $179 $ 265 $ 328
After 5 years $313 $ 460 $ 568
After 10 years $701 $1,025 $1,258
</TABLE>

<PAGE> 131

- --------------------------------------------------------------------------------
INVESTMENT DETAILS
- --------------------------------------------------------------------------------

OUR INVESTMENT STRATEGY -- Each Portfolio seeks as high a level of current
income as is 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. The 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. The Cash Reserve Portfolio may invest 25% or more of
its total assets in securities in the financial services industry. Therefore,
developments affecting a single issuer or industry, or securities financing
similar types of projects, could have a significant effect on the Portfolios'
performance.

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

<PAGE> 132

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

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

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

LIQUIDITY RISK

CORPORATE DEBT OBLIGATIONS: CALL RISK -- The risk that an
Corporate debt obligations include issuer will exercise its right to
bonds, notes, debentures, and other pay principal on an obligation held
obligations of corporate entities by a Portfolio (such as a mortgage
to pay interest and repay backed security) earlier than
principal. 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
</TABLE>

<PAGE> 133

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

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 obligations if it is
not required to do so, and,
therefore, they involve more risk
than other government obligations.

MUNICIPAL OBLIGATIONS (IN GENERAL): CREDIT RISK
Securities that are issued to raise
money for various public purposes, INTEREST RATE RISK
including general purpose financing
for state and local governments as TAXABLE INCOME RISK -- The risk
well as financing for specific that income earned on municipal
projects or public facilities. obligations may be subject to state
Municipal obligations may be backed or and local taxes or may be
by the full taxing power of a treated as a preference item for
municipality or by the revenues determining the federal alternative
from a specific project or the minimum tax.
credit of a private organization.
Some municipal obligations are LIQUIDITY RISK
insured by private insurance
companies, while others may be
supported by letters of credit
furnished by domestic or foreign
banks.

MUNICIPAL LEASE OBLIGATIONS: CREDIT RISK
Securities issued by state and
local governments or authorities to INTEREST RATE RISK
acquire land and a wide variety of
equipment and facilities. These LIQUIDITY RISK
obligations typically are not
backed by the credit of the issuing
municipality, and their interest
may become taxable if the lease is
assigned. If funds 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: FOREIGN RISKS -- The risk that
Securities issued by: (1) Companies foreign securities may be adversely
organized outside the United affected by political instability
States, (2) companies whose of the issuer's country, changes in
securities are principally traded currency exchange rates, foreign
outside of the United States, and economic conditions, or regulatory
(3) foreign governments and and reporting standards that are
agencies or instrumentalities of less stringent than those of the
foreign governments. Securities of United States. Foreign investment
foreign issuers includes American risks will normally be greatest
Depositary Receipts (ADRs), which when a Fund invests in issuers
are U.S. dollar-denominated located in emerging countries.
securities.
</TABLE>

<PAGE> 134

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

REPURCHASE AGREEMENTS AND REVERSE CREDIT RISK
REPURCHASE AGREEMENTS: An 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: CREDIT RISK
Promissory notes issued by
municipalities to help finance INTEREST RATE RISK
short-term capital or operating
needs. LIQUIDITY RISK
</TABLE>

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

BORROWING FROM BANKS. The Portfolios 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 Portfolios 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 Portfolios.

LENDING SECURITIES. The Portfolios 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.

WHAT IS A DERIVATIVE INSTRUMENT?

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 Portfolios have received reasonable assurances from its service
providers that they are addressing these issues to preserve smooth trading,
pricing, shareholder accounting, custodial and other operations. There can be no
assurances, however, that all problems will be avoided.

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

<PAGE> 135

- --------------------------------------------------------------------------------
WHO MANAGES THE PORTFOLIOS?
- --------------------------------------------------------------------------------

First Tennessee, 530 Oak Court Dr., Memphis, Tennessee, serves as the investment
adviser to each Portfolio and, with the prior approval of the Board of Trustees
(the "Trustees") has engaged BlackRock to act as Sub-Adviser to the Portfolios.
Subject to First Tennessee's supervision, BlackRock is responsible for the
day-to-day investment management 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 the Portfolios.

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 waive 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 .08% of the U.S. Treasury Money Market Portfolio's
average net assets and .10% of the U.S. Government Money Market, Municipal Money
Market and Cash Reserve Portfolio's average net assets. First Tennessee serves
as an investment adviser to individual, corporate and institutional advisory
clients, pension plans and collective investment funds, with approximately $22.0
billion in assets under administration (including nondiscretionary accounts) and
$9.4 billion in assets under management as of June 30, 1999, as well as
experience in supervising sub-advisers.

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 $43.7 billion as of June 30, 1999.

- --------------------------------------------------------------------------------
HOW TO INVEST IN THE PORTFOLIOS
- --------------------------------------------------------------------------------

WHAT CLASSES 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
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, 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.

CLASS I

WHO MAY INVEST?

HOW IS AN INSTITUTIONAL ACCOUNT ESTABLISHED?

HOW ARE INVESTMENTS MADE?

<PAGE> 136

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 require 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 the close of business (normally 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 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 will receive at least
30 days prior notice of any proposed conversion.

HOW ARE REDEMPTIONS MADE?

Institutional Investors may make redemptions by wire provided they have
established a wire account with the Transfer Agent. Please call 1-800-442-1941
(option 2), to advise the Transfer Agent of the wire. If telephone instructions
are received before the close of business (normally 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 exceed seven days. To
the extent portfolio securities are traded in other markets on days when the
NYSE 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.

<PAGE> 137

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 Portfolios also reserve 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 Portfolios".

INVESTMENT REQUIREMENTS

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.

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
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

<PAGE> 138

Professional, transactions that your Investment Professional initiates should be
transmitted to the Transfer Agent before the close of business (normally 2:00
p.m. Eastern Time) in order for you to receive that day's share price. An
investor will earn dividends declared on the day of purchase if the funds are
received by the Transfer Agent that day.

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 completed application.

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 an 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 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 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 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).

<PAGE> 139

BY BANK TRANSFER: When establishing your account in a 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 your
account to accommodate wire transactions. If telephone instructions are received
before the close of business (normally 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 the
NYSE is closed, a Portfolio's NAV may be affected on days when investors do not
have access to the Portfolios to purchase or redeem shares.

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 Portfolios 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.

HOW DO I REDEEM THROUGH MY INVESTMENT PROFESSIONAL?

On your behalf, the broker of record listed on your account may redeem shares.
Proceeds from the redemption can only be sent to your address of record.

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

SYSTEMATIC EXCHANGE PROGRAM

<PAGE> 140

ADDITIONAL INFORMATION

TAX-DEFERRED RETIREMENT PLANS: Retirement plans can offer significant tax
savings to individuals. Please call First Funds 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 Portfolios under one of several
tax-deferred plans. These plans let you invest for retirement and defer or
eliminate the tax on your investment income. Minimums may differ from those
listed previously under "Investment Requirements." Plans include Individual
Retirement Accounts (IRAs) Roth IRAs, Education IRAs, Rollover IRAs, Keogh
Plans, and Simplified Employee Pension Plans (SEP-IRAs).

ALL CLASSES

HOW ARE PORTFOLIOS SHARES VALUED?

The price at which you buy, sell or exchange Portfolios shares is the share
price or net asset value (NAV). The share price for each Class of shares of the
Portfolios is determined by adding the value of each Class' proportional share
of the Portfolio's investments, cash and other assets, deducting each Class'
proportional share of liabilities, and then dividing that value by the total
number of the shares outstanding in that Class.

The Portfolios are open for business each day that the NYSE is open (a "Business
Day"). The NAV is calculated at the close of the Portfolios' business day,
(normally 2:00 p.m. Eastern Time). Share price is not calculated on the days
that the NYSE is closed.

The Trustees have established procedures designed to maintain a stable net asset
value of $1.00 per share, to the extent reasonably possible. More particularly,
the Trustees have approved and adopted procedures under Rule 2a-7. Under
guidelines of Rule 2a-7, the Portfolio uses the amortized cost method to value
its portfolio securities. The amortized cost method involves valuing a security
at its cost and amortizing any discount or premium over the period of maturity,
regardless of the impact of fluctuating interest rates on the market value of
the security.

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:

1. REINVESTMENT OPTION. Your dividend distributions and capital gain
distributions, if any, will be automatically reinvested in additional shares of
the Portfolios. 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. 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 the close of business (normally 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 or Class IV shares of other
First Funds Portfolios wishing to exchange into one of the Money Market
Portfolios that do not offer these classes will receive Class III shares.

<PAGE> 141

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

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
Portfolios 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.

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.

<PAGE> 142

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.

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 Portfolios to withhold 31% of taxable
distributions from your account.

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 and Class IV Distribution Plans
to .25% and .60% respectively. 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.

<PAGE> 143

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

The Financial Highlights Table is presented to help you understand the
Portfolios' financial performance for the past five years. Certain information
reflects financial results for a single Portfolio share. The total returns in
the table represent the rate that an investor would have earned on an investment
in each Portfolio (assuming reinvestment of all dividends and distributions).
This information has been audited by Deloitte & Touche LLP, whose report, along
with the Portfolios' financial statements, is included in the Portfolios' annual
report, which is available upon request by calling First Funds at 1-800-442-1941
(option 1).

U.S. TREASURY MONEY MARKET PORTFOLIO

<TABLE>
<CAPTION>
CLASS I
-------------------------------------------------------------------
For the Year
Ended June 30,
-------------------------------------------------------------------
1999 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 0.044 0.051 0.050 0.052 0.050
---------- ---------- ---------- ---------- ----------
Distributions:
Net investment income (0.044) (0.051) (0.050) (0.052) (0.050)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
TOTAL RETURN+ 4.51% 5.19% 5.09% 5.30% 5.10%

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 7,309 $ 19,314 $ 6,141 $ 75,703 $ 67,377
Ratio of expenses to average net assets (1) 0.51% 0.45% 0.37% 0.36% 0.36%
Ratio of net investment income to average net assets 4.57% 5.09% 5.01% 5.19% 5.00%

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.69% 0.63% 0.55% 0.56% 0.63%
</TABLE>

<TABLE>
<CAPTION>
CLASS III
--------------------------------------------------------------
For the Year
Ended June 30,
--------------------------------------------------------------
1999 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 0.042 0.049 0.047 0.044
---------- ---------- ---------- ----------
Distributions:
Net investment income (0.042) (0.049) (0.047) (0.044)
---------- ---------- ---------- ----------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ==========
TOTAL RETURN+ 4.27% 5.03% 4.84% 4.47%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 4,661 $ 42,288 $ 61,135 $ 3,528
Ratio of expenses to average net assets (1) 0.73% 0.62% 0.62% 0.62%*
Ratio of net investment income to average net assets 4.35% 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. 0.91% 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.

<PAGE> 144

FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT MONEY MARKET PORTFOLIO

<TABLE>
<CAPTION>
CLASS I
----------------------------------------------------------------------
For the Year
Ended June 30,
----------------------------------------------------------------------
1999 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 0.047 0.052 0.051 0.053 0.053
---------- ---------- ---------- ---------- ----------
Distributions:
Net investment income (0.047) (0.052) (0.051) (0.053) (0.053)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
TOTAL RETURN+ 4.81% 5.37% 5.23% 5.37% 5.39%

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 94,079 $ 88,255 $ 94,541 $ 88,111 $ 88,057
Ratio of expenses to average net assets (1) 0.39% 0.35% 0.35% 0.33% 0.31%
Ratio of net investment income to average net assets 4.71% 5.24% 5.11% 5.28% 5.27%

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.56% 0.52% 0.53% 0.53% 0.58%
</TABLE>

<TABLE>
<CAPTION>
CLASS III
--------------------------------------------------------
For the Year
Ended June 30,
--------------------------------------------------------
1999 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 0.043 0.049 0.048 0.044
---------- ---------- ---------- ----------
Distributions:
Net investment income (0.043) (0.049) (0.048) (0.044)
---------- ---------- ---------- ----------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ==========
TOTAL RETURN+ 4.42% 5.05% 4.91% 4.49%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 1,674 $ 2,513 $ 3,486 $ 228
Ratio of expenses to average net assets (1) 0.73% 0.65% 0.65% 0.65%*
Ratio of net investment income to average net assets 4.37% 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. 0.90% 0.82% 0.83% 0.85%*
</TABLE>

<PAGE> 145

FINANCIAL HIGHLIGHTS
MUNICIPAL MONEY MARKET PORTFOLIO

<TABLE>
<CAPTION>
CLASS I
--------------------------------------------------------------------------
For the Year
Ended June 30,
--------------------------------------------------------------------------
1999 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 0.029 0.033 0.033 0.035 0.034
---------- ---------- ---------- ---------- ----------
Distributions:
Net investment income (0.029) (0.033) (0.033) (0.035) (0.034)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
TOTAL RETURN+ 2.92% 3.33% 3.32% 3.52% 3.48%

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 56,438 $ 36,279 $ 45,988 $ 71,665 $ 94,078
Ratio of expenses to average net assets (1) 0.33% 0.38% 0.35% 0.32% 0.30%
Ratio of net investment income to average net assets 2.87% 3.28% 3.25% 3.50% 3.44%

(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.50% 0.56% 0.53% 0.52% 0.57%
</TABLE>

<TABLE>
<CAPTION>
CLASS III
--------------------------------------------------------
For the Year
Ended June 30,
--------------------------------------------------------
1999 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 0.025 0.030 0.030 0.030
---------- ---------- ---------- ----------
Distributions:
Net investment income (0.025) (0.030) (0.030) (0.030)
---------- ---------- ---------- ----------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ==========
TOTAL RETURN+ 2.56% 3.06% 3.03% 3.03%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 5,333 $ 3,929 $ 12,886 $ 2,905
Ratio of expenses to average net assets (1) 0.68% 0.63% 0.62% 0.58%*
Ratio of net investment income to average net assets 2.52% 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. 0.86% 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.

<PAGE> 146

FINANCIAL HIGHLIGHTS
CASH RESERVE PORTFOLIO

<TABLE>
<CAPTION>
CLASS I
-----------------------------------------------------------------------
For the Year
Ended June 30,
-----------------------------------------------------------------------
1999 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 0.048 0.053 0.051 0.053 0.042
---------- ---------- ---------- ---------- ----------
Distributions:
Net investment income (0.048) (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+ 4.94% 5.46% 5.23% 5.39% 4.27%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 29,351 $ 40,242 $ 14,241 $ 16,369 $ 15,460
Ratio of expenses to average net assets (1) 0.39% 0.36% 0.40% 0.42% 0.43%*
Ratio of net investment income to average net assets 4.84% 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. 0.56% 0.54% 0.57% 0.61% 0.70%*
</TABLE>

<TABLE>
<CAPTION>
CLASS III
--------------------------------------------------------
For the Year
Ended June 30,
--------------------------------------------------------
1999 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 0.046 0.051 0.049 0.047
---------- ---------- ---------- ----------
Distributions:
Net investment income (0.046) (0.051) (0.049) (0.047)
---------- ---------- ---------- ----------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ==========
TOTAL RETURN+ 4.67% 5.21% 5.00% 4.78%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 62,961 $ 58,243 $ 35,592 $ 24,190
Ratio of expenses to average net assets (1) 0.66% 0.60% 0.64% 0.62%*
Ratio of net investment income to average net assets 4.58% 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. 0.83% 0.77% 0.82% 0.81%*
</TABLE>

* Annualized.
** Class 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.

<PAGE> 147
- --------------------------------------------------------------------------------
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. 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 each
Portfolio's investment objective and policies.

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

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 net 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.

A-1
<PAGE> 148

[FIRST FUNDS LETTERHEAD]

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

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI contains additional information about all aspects of the Portfolios. 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 Portfolios at the address or phone number listed below.

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

================================================================================

Investment Company Act File No. 811-6589

- --------------------------------------------------------------------------------
FIRST FUNDS

o Are NOT insured by the FDIC or any other governmental agency.

o Are NOT bank deposits or other obligations of or guaranteed by First
Tennessee Bank National Association or any of its affiliates.

o Involve investment risks, including the possible loss of the principal
amount invested.
- --------------------------------------------------------------------------------

[FIRST TENNESSEE INVESTMENT ADVISER LOGO]

[ALPS MUTUAL FUNDS SERVICES LOGO]

<PAGE> 149
FIRST FUNDS
GROWTH & INCOME PORTFOLIO
CAPITAL APPRECIATION PORTFOLIO
BOND PORTFOLIO
INTERMEDIATE BOND PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION FOR CLASS I,
CLASS II, AND CLASS III
OF THE BOND AND INTERMEDIATE BOND PORTFOLIOS AND
CLASS I, CLASS II, CLASS III, AND CLASS IV OF THE
GROWTH & INCOME AND CAPITAL APPRECIATION
PORTFOLIOS, DATED OCTOBER 28, 1999

This Statement is not a prospectus but should be read in conjunction with the
current Prospectus for each Class of First Funds: Growth & Income, Capital
Appreciation, Bond and Intermediate Bond Portfolios (Portfolios) dated October
28, 1999, as it may be amended or supplemented from time to time. Please retain
this Statement for future reference. The financial statements and financial
highlights of the Portfolios, included in the Annual Report for the fiscal year
ended June 30, 1999 and the Semi-Annual Report for the six-month period ended
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
Prospectuses for each Portfolio, 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>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
INVESTMENT RESTRICTIONS AND LIMITATIONS..................................................... 2
INVESTMENT INSTRUMENTS...................................................................... 3
PORTFOLIO TRANSACTIONS...................................................................... 8
VALUATION OF PORTFOLIO SECURITIES........................................................... 9
PERFORMANCE.................................................................................10
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..............................................12
DISTRIBUTIONS AND TAXES.....................................................................12
TRUSTEES AND OFFICERS.......................................................................13
INVESTMENT ADVISORY AGREEMENTS..............................................................15
ADMINISTRATION AGREEMENT AND OTHER CONTRACTS................................................16
DESCRIPTION OF THE TRUST....................................................................18
FINANCIAL STATEMENTS........................................................................22
APPENDIX....................................................................................23
</TABLE>

Investment Adviser (Growth & Income, Bond and Intermediate Bond Portfolios)
First Tennessee Bank National Association (First Tennessee)

Sub-Adviser (Growth & Income and Bond Portfolios)
Highland Capital Management Corp. (Highland or a Sub-Adviser)

Sub-Adviser (Intermediate Bond Portfolio)
Martin & Company, Inc. (Martin or a Sub-Adviser)

Co-Investment Advisers (Capital Appreciation Portfolio)
First Tennessee Bank National Association (First Tennessee)
Investment Advisers, Inc. (IAI)

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> 150

INVESTMENT RESTRICTIONS AND LIMITATIONS

The following policies and limitations supplement those set forth in the
Portfolios' Prospectuses. Unless otherwise noted, whenever an investment policy
or limitation states a maximum percentage of a Portfolio's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be determined
immediately after and as a result of a Portfolio's acquisition of such security
or other asset. Accordingly, except as to 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 or illiquid
securities, any borrowing or investment in such securities that exceeds the
applicable limitations listed below will be reduced promptly to meet such
limitation.

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

INVESTMENT LIMITATIONS OF THE GROWTH & INCOME, CAPITAL APPRECIATION, BOND AND
INTERMEDIATE BOND PORTFOLIOS

THE FOLLOWING ARE THE FUNDAMENTAL LIMITATIONS FOR EACH PORTFOLIO, SET FORTH IN
THEIR ENTIRETY. EACH PORTFOLIO 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 of such purchase, (a) more than 5% of a Portfolio's total
assets would be invested in the securities of that issuer; or (b) such
a Portfolio would hold more than 10% of the outstanding voting
securities of that issuer;

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

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

(4) underwrite securities issued by others, except to the extent that 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) if, as a result, 25% or more of such a Portfolio's
total assets would be invested in the securities of companies whose
principal business activities are in the same industry;

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

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

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

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

(i) Each Portfolio does 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, and provided that margin payments in connection with
futures contracts and options on futures contracts shall not constitute
purchasing securities on margin.

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

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

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

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

(vi) 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 the Portfolio.

INVESTMENT INSTRUMENTS

First Tennessee Bank National Association (First Tennessee), serves as
Investment Adviser to the Growth & Income, Bond and Intermediate Bond Portfolios
and, with the prior approval of the Board of Trustees (the Trustees), has
engaged Highland Capital Management Corp. (Highland or a Sub-Adviser) to act as
Sub-Adviser to the Growth & Income and Bond Portfolios, and has engaged Martin
Company, Inc. (Martin or a Sub-Adviser) as Sub-Adviser to the Intermediate Bond
Portfolio. First Tennessee and Investment Advisers, Inc. (IAI) act as
Co-Advisers to the Capital Appreciation Portfolio. The activities of the
Sub-Advisers and IAI include providing investment research and credit analysis
concerning Portfolio investments and conducting a continuous program of
investment of Portfolio assets in accordance with the investment policies and
objectives of each Portfolio.

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

When purchasing securities on a delayed-delivery basis, each Portfolio assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because a Portfolio is not required to pay for securities until
the delivery date, these risks are in addition to the risks associated with such
Portfolio's other investments. If a 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, a Portfolio will set aside
appropriate liquid assets in a segregated custodial account to cover its
purchase obligations. When a Portfolio has sold a security on a delayed-delivery
basis, a 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, such Portfolio could miss a favorable price
or yield opportunity, or could suffer a loss.

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

FOREIGN INVESTMENTS. Foreign investments purchased by each Portfolio can involve
significant risks in addition to the risks inherent in U.S. investments. The
value of securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken to the U.S. dollar. Foreign securities
markets generally have less trading volume and less liquidity than U.S. markets,
and prices on some foreign markets can be highly volatile.

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Many foreign countries lack uniform accounting and disclosure standards
comparable to those applicable to U.S. companies, and it may be more difficult
to obtain reliable information regarding an issuer's financial condition and
operations. In addition, the costs of foreign investing, including withholding
taxes, brokerage commissions, and custodial costs, are generally higher than for
U.S. investments.

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

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

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

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

American Depository Receipts and European Depository Receipts (ADRs and EDRs)
are certificates evidencing ownership of shares of a foreign-based corporation
held in trust by a bank or similar financial institution. Designed for use in
U.S. and European securities markets, respectively, ADRs and EDRs are
alternatives to the purchase of the underlying securities in their national
markets and currencies.

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

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

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

A Portfolio may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if a
Portfolio owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge, sometimes referred
to as a "position hedge," would tend to offset both positive and negative
currency fluctuations, but would not offset changes in security

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values caused by other factors. A Portfolio could also hedge the position by
selling another currency expected to perform similarly to the pound sterling -
for example, by entering into a forward contract to sell Deutsche marks or
European Currency Units in return for U.S. dollars. This type of hedge,
sometimes referred to as a "proxy hedge," could offer advantages in terms of
cost, yield, or efficiency, but generally would not hedge currency exposure as
effectively as a simple hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the currency
in which the hedged securities are denominated.

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

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

Successful use of forward currency contracts will depend on the appropriate
Sub-Adviser's or IAI's skill in analyzing and predicting currency values.
Forward contracts may substantially change a Portfolio's investment exposure to
changes in currency exchange rates, and could result in losses to a Portfolio if
currencies do not perform as the investment adviser anticipates. For example, if
a currency's value rose at a time when the investment adviser had hedged a
Portfolio by selling that currency in exchange for dollars, a Portfolio would be
unable to participate in the currency's appreciation. If the appropriate
Sub-Adviser or IAI hedges currency exposure through proxy hedges, a Portfolio
could realize currency losses from the hedge and the security position at the
same time if the two currencies do not move in tandem. Similarly, if the
appropriate Sub-Adviser or IAI increases a Portfolio's exposure to a foreign
currency, and that currency's value declines, the Portfolio will realize a loss.
There is no assurance that the appropriate Sub-Adviser's or IAI's use of forward
currency contracts will be advantageous to a Portfolio or that it will hedge at
an appropriate time. The policies described in this section are non-fundamental
policies of each Portfolio.

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

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

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

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

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

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

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

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

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

The Bond and Intermediate Bond Portfolios (the Bond Portfolios) 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 these
Portfolios to tender (or put) their bonds to an institution at periodic
intervals and to receive the principal amount thereof. These Portfolios consider
variable rate instruments structured in this way (Participating VRDOs) to be
essentially equivalent to other VRDOs they purchase.

WARRANTS. The Equity Portfolios may invest in warrants which entitle the holder
to buy equity securities at a specific price during a specific period of time.
Warrants may be considered more speculative than certain other types of
investments in that they do not

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entitle a holder to dividends or voting rights with respect to the securities
which may be purchased, nor do they represent any rights in the assets of the
issuing company. The value of a warrant may be more volatile than the value of
the securities underlying the warrants. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date.
Warrants may be allowed to expire if the appropriate Sub-Adviser or IAI deems it
undesirable to exercise or sell.

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

PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a Portfolio obtains
the right (but not the obligation) to sell the option's underlying instrument at
a fixed strike price. In return for this right, a Portfolio pays the current
market price for the option (known as the option premium). Options have various
types of underlying instruments, including specific securities and indexes of
securities prices. A Portfolio may terminate its position in a put option it has
purchased by allowing them to expire or by exercising the option. If the option
is allowed to expire, a Portfolio will lose the entire premium it paid. If a
Portfolio exercises the option, it completes the sale of the underlying
instrument at the strike price. A Portfolio may also terminate a put option
position by closing it out in the secondary market at its current price, if a
liquid secondary market exists.

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

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

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

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

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

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

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

Options prices can also diverge from the prices of their underlying instruments,
even if the underlying instruments match the Portfolios' investments well.
Options prices are affected by such factors as current and anticipated
short-term interest rates, changes in volatility of the underlying instrument,
and the time remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result from
differing levels of demand in the options markets and the securities markets,
from structural differences in how options and securities are traded, or from
imposition of daily price fluctuation limits or trading halts.

The Portfolios may purchase or sell options contracts with a greater or lesser
value than the securities it wishes to hedge or intends to purchase in order to
attempt to compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price changes
in the Portfolios' options positions are poorly correlated with its other
investments, the positions may fail to produce anticipated gains or result in
losses that are not offset by gains in other investments.

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

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

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

DIRECTED BROKERAGE. During the fiscal year ended June 30, 1999, First Funds
directed brokerage transactions to brokers for research services totaling
785,650 in shares and $47,046 in related commissions.

PORTFOLIO TRANSACTIONS

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

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

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

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

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

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

The Growth & Income Portfolio paid brokerage commissions in the amounts of
$493,450, $167,413 and $147,563 during the fiscal years ended June 30, 1999,
1998 and 1997, respectively. The Capital Appreciation Portfolio paid brokerage
commissions in the amount of $55,043 during the fiscal year ended June 30, 1999
and $57,106 for the fiscal period ended June 30, 1998. During the fiscal years
ended June 30, 1999, 1998 and 1997, no brokerage commissions were paid by the
Growth & Income and Capital Appreciation Portfolios to an affiliated broker of
the Trust. No brokerage commissions were paid by the Bond and Intermediate Bond
Portfolios during the last three fiscal years.

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

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

VALUATION OF PORTFOLIO SECURITIES

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

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

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

PERFORMANCE

For each Class of the Portfolios, yields used in advertising are computed by
dividing interest income for a given 30-day or one-month period, net of
expenses, by the average number of shares entitled to receive dividends during
the period, dividing this figure by the NAV at the end of the period and
annualizing the result (assuming compounding of income) in order to arrive at an
annual percentage rate. Income is calculated for purposes of yield quotations in
accordance with standardized methods applicable to all bond funds. In general,
interest income is reduced with respect to bonds trading at a premium over their
par value by subtracting a portion of the premium from income on a daily basis,
and is increased with respect to bonds trading at a discount by adding a portion
of the discount to daily income. Capital gains and losses generally are excluded
from the calculation.

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

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

Investors should recognize that in periods of declining interest rates, yield
will tend to be somewhat higher than prevailing market rates, and in periods of
rising interest rates, yield will tend to be somewhat lower. Also, when interest
rates are falling, the inflow of net new money from the continuous sale of its
shares will likely be invested in instruments producing lower yields than the
balance of the holdings, thereby reducing the current yield. In periods of
rising interest rates, the opposite can be expected to occur. As of June
30,1999, the 30-day yields for Class I, II and III of the Bond Portfolio were
6.24%, 5.70% and 5.38%, respectively; and 6.00%, 5.54% and 5.14% for the
Intermediate Bond Portfolio, respectively. Shares of Class IV were not issued as
of that date.

TOTAL RETURNS for each Class of each Portfolio quoted in advertising reflect all
aspects of return, including the effect of reinvesting dividends and capital
gain distributions (if any), and any change in NAV over the period. Average
annual total returns are calculated by determining the growth or decline in
value of a hypothetical historical investment over a stated period, and then
calculating the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. For example, a cumulative total return of 100% over ten years would
produce an average annual total return of 7.18%, which is the steady annual rate
of return that would equal 100% growth on a compounded basis in ten years. While
average annual total returns are a convenient means of comparing investment
alternatives, investors should realize that performance is not constant over
time, but changes from year to year, and that average annual total returns
represent averaged figures as opposed to the actual year-to-year performance.
Average annual returns covering periods of less than one year are calculated by
determining total return for the period, extending that return for a full year
(assuming that performance remains constant over the year), and quoting the
result as an annual return. The following table shows total returns as of June
30, 1999 for Class I, Class II, and Class III of the Growth & Income, Capital
Appreciation, Bond and Intermediate Bond Portfolios:

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<PAGE> 159

<TABLE>
<CAPTION>
Class I Average Class II Average Class III Average
Annual Total Return Annual Total Return Annual Total Return
------------------- ------------------- -------------------
One Since One Since One Since
Year Inception Year Inception Year Inception
----- --------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Growth & Income Portfolio* 25.69% 23.82% 18.10% 22.38% 23.35% 22.50%
Capital Appreciation* (1.96)% 2.87% (7.76)% (3.50)% (4.00)% (1.06)%
Bond Portfolio 2.04% 5.88% (1.96)% 4.96% (0.06)% 4.65%
Intermediate Bond 3.60% 4.37% 0.70% 2.12% 1.58% 3.15%
</TABLE>

* Information regarding the Class IV Shares is not presented here
because the Class IV Shares were not offered as of the date of this statement.

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

Each Portfolio may compare the performance of each of its Classes or the
performance of securities in which it may invest to other mutual funds,
especially to those with similar investment objectives. These comparisons may be
based on data published by IBC USA (Publications), Inc. of Ashland, MA or by
Lipper Analytical Services, Inc. (Lipper, sometimes referred to as Lipper
Analytical Services), an independent service located in Summit, New Jersey that
monitors the performance of mutual funds. Lipper generally ranks funds on the
basis of total return, assuming reinvestment of distributions, but does not take
sales charges or redemption fees into consideration, and is prepared without
regard to tax consequences. Lipper may also rank funds based on yield. In
addition to the mutual fund rankings, the Portfolio's performance may be
compared to mutual fund performance indices prepared by Lipper. The BOND FUND
REPORT AVERAGES' which is reported in the BOND FUND REPORT; covers taxable bond
funds. When evaluating comparisons to money market funds, investors should
consider the relevant differences in investment objectives and policies.
Specifically, money market funds invest in short-term, high-quality instruments
and seek to maintain a stable $1.00 share price. The Bond Portfolios, however,
invest in longer-term instruments and their share price changes daily in
response to a variety of factors. Investors should give consideration to the
quality and maturity of the portfolio securities of the respective investment
companies when comparing investment alternatives.

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

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

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

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

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

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Growth & Income Portfolio may compare its performance to that of the Standard &
Poor's Composite Index of 500 stocks (S&P 500), a widely recognized, unmanaged
index of the combined performance of the stocks of 500 American companies. The
Capital Appreciation Portfolio may compare its performance to that of the S&P
500, the Standard & Poor's 400 Midcap Index, the Russell 2000 Index or the
Russell 2500 Growth Index. The Bond Portfolio may compare its performance to
that of the Lehman Brothers Government Bond Index, an index comprised of all
public obligations of the U.S. Treasury, U.S. government agencies, quasi-federal
corporations, and corporate debt guaranteed by the U.S. government, and the
Lehman Brothers Corporate Bond Index, an index comprised of all public,
fixed-rate, non-convertible investment-grade domestic corporate debt. Issues
included in this index are rated at least Baa by Moody's or BBB by S&P, or in
the case of non-rated bonds, BBB by Fitch Investors Service. The Government Bond
Index and the Corporate Bond Index are combined to form the Government/Corporate
Bond Index. The Intermediate Bond Portfolio may compare its performance to that
of the Lehman Brothers Government/Corporate Intermediate Bond Index, which
consists of the Government/Corporate Bond Index securities with maturities less
than ten years. Each Portfolio may also quote mutual fund rating services in its
advertising materials, including data from a mutual fund rating service which
rates mutual funds on the basis of risk adjusted performance. Because the fees
for Class II, Class III and Class IV are higher than the fees for Class I,
yields and returns for those classes will be lower than for Class I.

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

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

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

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

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

ADDITIONAL CLASS II, CLASS III, AND CLASS IV INFORMATION

PURCHASE INFORMATION. As provided for in Rule 22d-1 under the 1940 Act, ALPS
Mutual Funds Services, Inc. (ALPS) or the Distributor), exercises its right to
waive each Portfolio's Class II shares' maximum sales charge in connection with
the Portfolio's merger with or acquisition of any investment company or trust.

DISTRIBUTIONS AND TAXES

DIVIDENDS. A portion of the income distributed by the Equity Portfolios may
qualify for the dividends-received deduction available to corporate shareholders
to the extent that the Portfolios' income is derived from qualifying dividends.
Because the Portfolios may also earn other types of income, such as interest,
income from securities loans, non-qualifying dividends and short-term capital
gains, the percentage of dividends from each Portfolio that qualifies for the
deduction will generally be less than 100%. Each Portfolio will notify corporate
shareholders annually of the percentage of portfolio dividends which qualify for
the dividends received deduction. Because the income earned by the Bond
Portfolios is primarily derived from interest, dividends from each such
Portfolio generally will not qualify for the dividends-received deduction
available to corporations. A portion of each Portfolio's dividends derived from

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certain U.S. government obligations may be exempt from state and local taxation.
Gains (losses) attributable to foreign currency fluctuations are generally
taxable as ordinary income and therefore increase (decrease) dividend
distributions. Each Portfolio will send each shareholder a notice in January
describing the tax status of dividends and capital gain distributions for the
prior year.

CAPITAL GAIN DISTRIBUTIONS. Distributions of gains from the sale of assets held
by a Portfolio for more than one year generally are taxable to shareholders of
that Portfolio at the applicable long-term capital gains rate, regardless of how
long the shareholders have owned their Portfolio shares.

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

FOREIGN TAXES. Foreign governments may withhold taxes on dividends and interest
paid with respect to foreign securities. Because each Portfolio does not
currently anticipate that securities of foreign corporations will constitute
more than 50% of each Portfolio's total assets at the end of its fiscal year,
shareholders should not expect to claim a foreign tax credit or deduction on
their federal income tax returns with respect to foreign taxes withheld.

TAX STATUS OF THE TRUST. Each Portfolio has qualified in prior fiscal years and
intends to continue to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code), so
that each Portfolio will not be liable for federal income or excise taxes on net
investment income or capital gains to the extent that these are distributed to
shareholders in accordance with applicable provisions of the Code. In order to
qualify as a regulated investment company and avoid being subject to federal
income or excise taxes, each Portfolio intends to distribute substantially all
of its net investment income and net realized capital gains within each calendar
year as well as on a fiscal year basis. Each Portfolio also intends to comply
with other federal tax rules applicable to regulated investment companies. The
Portfolio's principal place of business is located in Denver, Colorado. The
Portfolio intends to comply with Colorado tax rules applicable to registered
investment companies.

If the Portfolios purchase shares in certain foreign investment entities, called
passive foreign investment companies (PFICs), they may be subject to U.S.
federal income tax on a portion of any excess distribution or gain from the
disposition of such shares. Interest charges may also be imposed on the
Portfolios with respect to deferred taxes arising from such distributions or
gains.

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

TRUSTEES AND OFFICERS

Information regarding the Trustees and executive officers of the Trust is set
forth in the table 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 (*).

TRUSTEES AND OFFICERS

<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name, Address, and Age with Trust During Past 5 Years
---------------------- ---------------- --------------------
<S> <C> <C>
THOMAS M. BATCHELOR, age 76, Trustee Mr. Batchelor presently operates a management consultant business
4325 Woodcrest Drive, Memphis, TN on a limited basis, retired after owning and operating two General
Insurance Companies agencies for over thirty years. He was one of
the founders and served as a director of First American State Bank
in Memphis, TN (now part of United American Bank of Memphis). He
currently serves as Chairman, Memphis Union Mission, TN, as well
as a charity and a non-profit foundation.

JOHN A. DECELL, 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).
</TABLE>

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<PAGE> 162

TRUSTEES AND OFFICERS

<TABLE>
<S> <C> <C>
L. R. JALENAK, JR., age 68, Trustee Mr. Jalenak was Chairman of the Board (1990 -1993 (retired)),
6094 Apple Tree Drive, Suite 11, Cleo Inc. (manufacturer of gift-related products), a Gibson
Memphis, TN Greetings 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,
5790 Shelby Avenue, Memphis, TN Trustee Inc. (manufacturer). Mr. Rantzow was Managing Partner (until
1990) of the Memphis office of Ernst & Young.

*JEREMY O. MAY, age 29, Treasurer Mr. May is a Vice President and Director of Mutual Fund
370 17th Street, Denver, CO Operations 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>

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. The
Trustees were compensated as follows for their services provided during the
Trust's fiscal year ended June 30, 1999:

<TABLE>
<CAPTION>
Pension or Aggregate
Retirement Estimated Compensation
Aggregate Benefits Annual From the Trust
Compensation Accrued As Benefits and Fund
from the Part of Fund Upon Complex Paid
Name Trust Expenses Retirement to Trustees
- ---- ------------ ------------ ---------- --------------
<S> <C> <C> <C> <C>
Thomas M. Batchelor
Trustee $16,000 $0 $0 $16,000

John A. DeCell
Trustee $16,000 $0 $0 $16,000

L.R. Jalenak, Jr.
Trustee $16,000 $0 $0 $16,000

Larry W. Papasan
Trustee $16,000 $0 $0 $16,000

Richard C. Rantzow
Trustee $16,000 $0 $0 $16,000
</TABLE>

As of June 30, 1999, the officers and trustees of the Trust owned less than 1%
of the outstanding shares of any Portfolio.

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<PAGE> 163

INVESTMENT ADVISORY AGREEMENTS

The Growth & Income, Bond and Intermediate Bond Portfolios employ First
Tennessee Bank National Association, Memphis, Tennessee, to furnish investment
advisory and other services to each such Portfolio. Under the Investment
Advisory and Management Agreement with each such Portfolio, First Tennessee is
authorized to appoint one or more sub-advisers at First Tennessee's expense.
Highland Capital Management Corp., Memphis, Tennessee, acts as Sub Adviser to
the Growth & Income and Bond Portfolios. Martin & Company, Inc., Knoxville,
Tennessee, acts as Sub-Adviser to the Intermediate Bond Portfolio. Subject to
the direction of the Trustees and of First Tennessee, the Sub-Advisers will
direct the investments of these Portfolios in accordance with their respective
investment objective, policies and limitations.

First Tennessee and Investment Advisers, Inc., Minneapolis, Minnesota, act as
Co-Advisers to the Capital Appreciation Portfolio. Subject to the direction of
the Trustees and monitoring by First Tennessee, IAI directs the investments of
this Portfolio in accordance with the Portfolio's investment objective, policies
and limitations.

In addition to First Tennessee's and IAI's fees 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 costs of registering shares under federal and state
securities laws. Each Portfolio also is liable for such nonrecurring expenses as
may arise, including costs of litigation to which each Portfolio is a party, and
its obligation under the Declaration of Trust to indemnify its officers and
Trustees with respect to such litigation.

For managing the investment and business affairs of the Growth & Income, Capital
Appreciation, Bond and Intermediate Bond Portfolios, First Tennessee is entitled
to receive a monthly management fee at the annual rate of .65%, .15%, .55% and
.50% of each Portfolio's average net assets, respectively. First Tennessee has
voluntarily agreed to waive its fee to .50%, .00%, .15% and .00% of the average
net assets of the Growth & Income, Capital Appreciation, Bond and Intermediate
Bond Portfolios, respectively. The fee waivers may be discontinued at any time.
For the fiscal years ended June 30, 1999, 1998 and 1997, First Tennessee earned
$5,385,198, $3,169,117 and $1,520,039 from the Growth & Income Portfolio,
respectively, before waiving $1,242,738, $731,335 and $350,778 of its fees,
respectively. For the fiscal years ended June 30, 1999, 1998 and 1997, First
Tennessee earned $1,272,593, $887,260 and $658,049 from the Bond Portfolio,
respectively, before waiving $925,522, $645,280 and $478,581 of its fees,
respectively. For the fiscal year ended June 30, 1999, First Tennessee earned
$49,965 and $1,073,039, respectively, from the Capital Appreciation and
Intermediate Bond Portfolios before waiving these amounts. For the fiscal period
ended June 30, 1998, First Tennessee earned $32,970 and $320,973, respectively,
from the Capital Appreciation and Intermediate Bond Portfolios before waiving
these amounts. For the fiscal year ended June 30, 1999, IAI earned $233,170 from
the Capital Appreciation Portfolio. For the fiscal period ended June 30, 1998,
IAI earned $153,858 from the Capital Appreciation Portfolio.

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<PAGE> 164

Under its Investment Advisory and Management Agreement with each of the Growth &
Income, Bond and Intermediate Bond Portfolios, First Tennessee is authorized, at
its own expense, to hire sub-advisers to provide investment advice to each such
Portfolio. As Sub-Adviser, Highland is entitled to receive from First Tennessee
a monthly sub-advisory fee at the annual rate of .38% of Growth & Income
Portfolio's average net assets and .33% of Bond Portfolio's average net assets.
As Sub-Adviser, Martin is entitled to receive from First Tennessee a monthly
sub-advisory fee at the annual rate of .30% of Intermediate Bond Portfolio's
average net assets. As Co-Adviser to the Capital Appreciation Portfolio, IAI is
entitled to receive .70% of that Portfolio's average net assets up to $50
million and .65% thereafter. Under the terms of each sub-advisory agreement with
First Tennessee and IAI's Investment Advisory and Management Agreement with the
Trust, the Sub-Advisers, subject to the supervision of First Tennessee, and IAI
supervise the day-to-day operations of their respective Portfolios and provide
investment research and credit analysis concerning their respective Portfolios'
investments, conduct a continual program of investment of their respective
Portfolios' assets and maintain the books and records required in connection
with their duties under their advisory agreements. In addition, the Sub-Advisers
and IAI keep First Tennessee informed of the developments materially affecting
each Portfolio. The Sub-Advisers are currently waiving some or all of the fees
they are entitled to receive from First Tennessee.

ADMINISTRATION AGREEMENT AND OTHER CONTRACTS

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

For the fiscal years ended June 30, 1999, 1998 and 1997, ALPS earned
administration fees in the amount of $1,242,738, $731,335 and $350,778,
respectively, from the Growth & Income Portfolio. For the fiscal years ended
June 30, 1999, 1998 and 1997, ALPS earned administration fees in the amount of
$347,071, $241,980 and $179,468 from the Bond Portfolio, respectively. For the
fiscal year ended June 30, 1999, ALPS earned administration fees in the amount
of $49,965 from the Capital Appreciation Portfolio. For the fiscal period ended
June 30, 1998, ALPS earned administration fees in the amount of $32,970 from the
Capital Appreciation Portfolio before waiving $10,780 of its fees. For the
fiscal year ended June 30, 1999, ALPS earned administration fees in the amount
of $321,911 from the Intermediate Bond Portfolio before waiving $2,867 of its
fees. For the fiscal period ended June 30, 1998, ALPS earned administration fees
in the amount of $96,292 from the Intermediate Bond Portfolio before waiving
$5,595 of its fees.

First Tennessee serves as the Co-Administrator for each Portfolio. As the
Co-Administrator, First Tennessee assists in each Portfolio's operation,
including, but not limited to, providing non-investment related research and
statistical data and various operational and administrative services. First
Tennessee is entitled to receive from each Portfolio a monthly fee at the annual
rate of .05% of average net assets. For the fiscal years ended June 30, 1999,
1998 and 1997, First Tennessee earned co-administration fees in the amount of
$414,246, $243,778 and $116,926 from the Growth & Income Portfolio,
respectively. For the fiscal years ended June 30, 1999, 1998 and 1997, First
Tennessee earned co-administration fees in the amount of $115,690, $80,660 and
$59,823 from the Bond Portfolio, respectively. For the fiscal year ended June
30, 1999, First Tennessee earned co-administration fees in the amount of $16,655
and $107,304, from the Capital Appreciation and Intermediate Bond Portfolios,
respectively. For the fiscal period ended June 30, 1998, First Tennessee earned
co-administration fees in the amount of $10,990 and $32,087, from the Capital
Appreciation and Intermediate Bond Portfolios, respectively.

As the Distributor, ALPS sells shares of Class I as agent on behalf of the Trust
at no additional cost to the Trust. Class III and Class IV are obligated to pay
ALPS monthly a 12b-1 fee at the annual rate of up to .75% and 1.00% of average
net assets, respectively, all or a portion of which may be paid out to
broker-dealers or others involved in the distribution of Class III and Class IV
shares. This fee may be limited from time to time by the Board of Trustees. See
"Administration Agreements and Other Contracts - Distribution Plan." Classes II
and III pay shareholder servicing fees to Investment Professionals at an annual
rate of .25% of average net assets as more fully described under the section
"Administration Agreements and Other Contracts Shareholder Services Plans."
First Tennessee and its affiliates neither participate in nor are responsible
for the underwriting of Portfolio shares. Consistent with applicable law,
affiliates of First Tennessee may receive commissions or asset-based fees.

TRANSFER AGENT FUND, ACCOUNTING AND CUSTODIAN. 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.

-16-
<PAGE> 165

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 PLAN. The Trustees of the Trust have adopted a Distribution Plan on
behalf of Class III of each Portfolio (each a "Class III Plan") and Class IV of
the Growth & Income and Capital Appreciation Portfolios (each a "Class IV Plan")
pursuant to Rule 12b-1 (the Rule) under the 1940 Act. The Rule provides in
substance that a mutual fund may not engage directly or indirectly in financing
any activity that is intended primarily to result in the sale of shares of the
fund except pursuant to a plan adopted by the fund under the Rule. The Trustees
have adopted the Plans to allow each class to compensate ALPS for incurring
distribution expenses. ALPS receives a Distribution and Service fee (12b-1 fee)
of up to 0.75% of the average net assets of Class III shares of each Portfolio
and up to 1.00% of the average net assets of Class IV shares of the Growth &
Income and Capital Appreciation Portfolios, although the Trustees may limit such
fees from time to time for one or more Portfolios (see the current Prospectus
for each Portfolio for information concerning such limitations). 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
Growth & Income and Capital Appreciation Portfolios, may enter into servicing
agreements (Service Agreements) with banks, broker-dealers or other institutions
(Agency Institutions).

Each Class III and Class IV Plan provides that ALPS may use its fees and other
resources to make payments to Agency Institutions for performance of
distribution-related services, including those enumerated above. The Service
Agreements further provide for compensation to broker-dealers for their efforts
to sell Class III 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,
analysis 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. Each Class III and Class
IV Plan recognizes ALPS may use its fees and other resources to pay expenses
associated with the promotion and administration of activities primarily
intended to result in the sale of shares.

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

The Class III and Class IV Plans could be construed as compensation plans
because ALPS is paid a fixed fee and is given discretion concerning what
expenses are payable under the Plans. ALPS may spend more for marketing and
distribution than it receives in fees and reimbursements from each Portfolio.
However, to the extent fees received exceed expenses, including indirect
expenses such as overhead, ALPS could be said to have received a profit. For
example, if ALPS pays $1 for Class III distribution-related expenses and
receives $2 under a Class III Plan, the $1 difference could be said to be a
profit for ALPS. (Because ALPS is reimbursed for its out-of-pocket direct
promotional expenses, each Plan also could be construed as a reimbursement plan.
Until the issue is resolved by the SEC, unreimbursed expenses incurred in one
year will not be carried over to a subsequent year). If after payments by ALPS
for marketing and distribution there are any remaining fees attributable to a
Class III or Class IV Plan, these may be used as ALPS may elect. Since the
amount payable under each Plan will be commingled with ALPS's general funds,
including the revenues it receives in the conduct of its business, it is
possible that certain of ALPS' 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 the fiscal year ended June 30, 1999, Class III of the Growth & Income,
Capital Appreciation, Bond and Intermediate Bond Portfolios paid distribution
fees in the amounts of $618,981, $3,018, $18,928 and $4,880, respectively. All
of these fees were paid as compensation to dealers. As of that date no Class IV
Shares were offered.

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<PAGE> 166

SHAREHOLDER SERVICE PLAN. In addition to the Rule 12b-1 Distribution Plans
described above, Class II and Class III have adopted Shareholder Services Plans
to compensate Agency Institutions for individual shareholder services and
account maintenance. These functions include: maintaining account records for
each shareholder who beneficially owns Class II and Class III shares; answering
questions and handling correspondence from shareholders about their accounts;
handling the transmission of funds representing the purchase price or redemption
proceeds; issuing confirmations for transactions in Class II and Class III
shares by shareholders; assisting customers in completing application forms;
communicating with the transfer agent; and providing account maintenance and
account level support for all transactions. For these services the participating
Agency Institutions are paid a service fee at the annual rate of up to .25% of
average net assets of Class II and Class III.

For the fiscal year ended June 30, 1999, the Growth & Income, Capital
Appreciation, Bond and Intermediate Bond Portfolios paid shareholder servicing
fees in the following amounts

<TABLE>
<CAPTION>
Growth & Income Capital Appreciation Bond Intermediate Bond
Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Class II $153,178 $3,906 $9,204 $6,048
Class III $206,312 $1,006 $6,306 $1,619
</TABLE>

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 First Tennessee's opinion,
banks and their affiliates may be paid for investment advisory, shareholder
servicing, recordkeeping and co-administration functions. Changes in federal or
state statutes and regulations pertaining to the permissible activities of banks
and their affiliates or subsidiaries, as well as further judicial or
administrative decisions or interpretations, could prevent a bank from
continuing to perform all or a part of the contemplated services. If a bank or
its affiliates were prohibited from so acting, the Trustees would consider what
actions, if any, would be necessary to continue to provide efficient and
effective shareholder services. In such event, changes in the operation of the
Portfolios might occur, including possible termination of any automatic
investment or redemption or other services then being provided by any bank. It
is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences. The Portfolios may execute
portfolio transactions with and purchase securities issued by depository
institutions that receive payments under the Plans. No preference will be shown
in the selection of investments for the instruments of such depository
institutions. In addition, state securities laws on this issue may differ from
the interpretations of federal law expressed herein, and banks and other
financial institutions may be required to register as dealers pursuant to state
law.

DESCRIPTION OF THE TRUST

TRUST ORGANIZATION. Growth & Income Portfolio, Capital Appreciation Portfolio,
Bond Portfolio and Intermediate Bond 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, six
with three Classes and three with four 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.

-18-
<PAGE> 167

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 June 30, 1999, the following shareholders owned more than 5% of the
outstanding shares of the indicated Class of the Portfolios

<TABLE>
<CAPTION>
Total % of Total Outstanding
Name and Address Portfolio Class Shares Owned Class Held in Class
- ---------------- --------- ----- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
First Tennessee National Corp. Growth & Income I 4,817,094.280 16.15% 29,835,110
D/B Pension Plan
Memphis, TN

First Tennessee National Corp. Growth & Income I 1,796,342.919 6.02% 29,835,110
Savings Plan - Fund A
Memphis, TN

NFSC FEBO Growth & Income II 198,900.694 5.85% 3,398,361.622
Memphis Commerce Square
Reinvest Account
One Commerce Square, 4th Fl.
Memphis, TN 38150

NFSC FEBO Growth & Income IV 7,757.952 27.75% 27,958.560
Ralph Lunati
Amy Lunati
6372 Massey Manor Lane
Memphis, TN 38120

Jackie L Whitlock Growth & Income IV 2,208.280 7.90% 27,958.560
Rollover IRA
6621 Hideaway Rd
Ooltewah, TN 37363

NFSC FEBO Growth & Income IV 2,170.481 7.76% 27,958.560
Loyal E Featherstone
P.O. Box 381602
Germantown, TN 38183

NFSC FEBO Growth & Income IV 1,939.488 6.94% 27,958.560
Michele Lunati
8820 River Rise Drive
Cordova, TN 38108

First Tennessee National Corp. Capital Appreciation I 2,960,545.125 91.09% 3,250,140
D/B Pension Plan
Memphis, TN
</TABLE>

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<PAGE> 168

<TABLE>
<CAPTION>
Total % of Total Outstanding
Name and Address Portfolio Class Shares Owned Class Held in Class
- ---------------- --------- ----- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Resources Trust Company for Capital Appreciation II 74,333.989 34.63% 214,622.461
IMS Customers
P.O. Box 3865
Englewood, CO 80155

Otto Kruse Capital Appreciation II 20,855.390 9.72% 214,622.461
5623 Hillsboro Rd
Nashville, TN 37215

James S Thomas Capital Appreciation III 3,920.730 10.06% 38,981.918
302 Ramblewood Dr
Jackson, TN 38305

W E Davis Capital Appreciation III 3,756.782 9.64% 38,981.918
2406 Holly Springs Rd
Hernando, MS 38632

Donald Thomas Moore Capital Appreciation III 2,385.118 6.12% 38,981.918
1356 Hidden Cove Rd
Gallatin, TN 37066

W E Douglas custodian for Capital Appreciation III 2,125.599 5.45% 38,981.918
Douglas E Davis
2406 Holly Springs Rd
Hernando, MS 38632

NFSC FEBO Capital Appreciation III 2,110.290 5.41% 38,981.918
Shaw Jones Masonry Inc.
Greg Shaw
P.O. Box 3767
Brentwood, TN 37024

C Douglas Kelso III and Capital Appreciation IV 9.94 100% 9.94
Nancy T Kelso
JT Ten
4270 Grandview Ave
Memphis, TN 38117

First Tennessee National Corp Bond I 9,601,564.917 41.15% 23,331,505
D/B Pension Plan
Memphis, TN

Jewish Foundation Bond II 215,547.998 38.61% 558,249
5118 Park Avenue, Ste. 255
Memphis, TN 38117

Hickory Hill Family Med Bond II 58,019.133 10.39% 558,249
3530 Hickory Hill Road
Memphis, TN 38117

NFSC FEBO Bond III 17,736.306 6.91% 256,501.273
Glenn T Batten
Anne W Batten
540 Archer Rd
Winston-Salem, NC 27106
</TABLE>

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<PAGE> 169

<TABLE>
<CAPTION>
Total % of Total Outstanding
Name and Address Portfolio Class Shares Owned Class Held in Class
- ---------------- --------- ----- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Barry David Cummins Bond III 16,653.109 6.49% 256,501.273
Rollover IRA
5145 Hickory Grove Dr
Antioch, TN 37013

The Trust Co. of Knoxville Intermediate Bond II 173,683.546 37.37% 464,768.129
Cara Nita Stiles
620 Market St., Ste. 300
Knoxville, TN 37902

Wangs International 401K Intermediate Bond II 96,301.503 20.72% 464,768.129
P.O. Box 18447
Memphis, TN 38181

Resources Trust Company for Intermediate Bond II 89,219.639 19.20% 464,768.129
IMS Customers
P.O. Box 3865
Englewood, CO 80155

Mary Beth Cooney Trustee Intermediate Bond III 17,809.526 18.23% 97,669.360
1243 NW 14th St
Boca Raton, FL 33486

NFSC FEBO Intermediate Bond III 12,918.578 13.23% 97,669.360
Kathleen H Hood
4212 Spar Drive
Knoxville, TN 37918

First Tennessee Bank Intermediate Bond III 10,274.467 10.52% 97,669.360
FBO Andrews Jones & Midyett
Southern Brokerage Automotive
Michael Peeler
P.O. Box 100
Franklin, TN 37065

NFSC FEBO Intermediate Bond III 10,180.012 10.42% 97,669.360
Comserv Inc.
James Crinklaw
895 North White Station
Memphis, TN 38122

Pain M Webb Intermediate Bond III 9,039.267 9.25% 97,669.360
5 Estates Dr
Sussex, NJ 07461

Evelyn S Meyers Intermediate Bond III 8,555.985 8.76% 97,669.360
51 Cool Springs Rd
Signal Mountain, TN 37377

John R Stagmaier Intermediate Bond III 8,555.985 8.76% 97,669.360
1175 James Blvd
Signal Mountain, TN 37377
</TABLE>

-21-
<PAGE> 170

<TABLE>
<CAPTION>
Total % of Total Outstanding
Name and Address Portfolio Class Shares Owned Class Held in Class
- ---------------- --------- ----- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Susan S Garrett Intermediate Bond III 8,539.996 8.74% 97,669.360
1917 Suck Creek Rd
Chattanooga, TN 37405
</TABLE>

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

Each Portfolio's financial statements and financial highlights for the fiscal
year ended June 30, 1999 and the six-month period ended December 31, 1998 are
included in the Trust's Annual and Semi-Annual Reports, respectively, which are
each a separate report supplied independently of this Statement of Additional
Information. Each Portfolio's financial statements and financial highlights are
incorporated herein by reference.

The Portfolios' financial statements for the year ended June 30, 1999 were
audited by Deloitte & Touche LLP, whose report thereon is included in the
Portfolios' annual report.

-22-
<PAGE> 171

APPENDIX

DOLLAR-WEIGHTED AVERAGE MATURITY for Bond Portfolio is derived by multiplying
the value of each investment by the number of days remaining to its maturity,
adding these calculations, and then dividing the total by the value of the
Portfolio. An obligation's maturity is typically determined on a stated final
maturity basis, although there are some exceptions to this rule.

For example, if it is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be called,
refunded, or redeemed may be considered to be its maturity date. Also, the
maturities of mortgage-backed securities and some asset-backed securities, such
as collateralized mortgage obligations, are determined on a weighted average
life basis, which is the average time for principal to be repaid. For a mortgage
security, this average time is calculated by assuming a constant prepayment rate
for the life of the mortgage. The weighted average life of these securities is
likely to be substantially shorter than their stated final maturity.

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:

Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protections may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than Aaa securities.

A - Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa - Bonds rated Baa are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

DESCRIPTION OF STANDARD & POOR'S CORPORATION'S CORPORATE BOND RATINGS:

AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.

AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated debt issues only in small degree.

A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in highest-rated categories.

The ratings from AA to BBB may be modified by the addition of a plus or minus to
show relative standing within the major rating categories.

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<PAGE> 172
FIRST FUNDS
TENNESSEE TAX-FREE PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION FOR CLASS I, CLASS II, CLASS III,
AND CLASS IV
OCTOBER 28, 1999

This Statement is not a prospectus but should be read in conjunction with the
current Prospectus for each Class of the Tennessee Tax-Free Portfolio dated
October 28, 1999. Please retain this Statement for future reference. The
Portfolio's financial statements and financial highlights, included in the
Annual Report for the fiscal year ended June 30, 1999 and the Semi-Annual Report
for the six month period ended 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>
<CAPTION>
TABLE OF CONTENTS PAGE

<S> <C>
INVESTMENT RESTRICTIONS AND LIMITATIONS.................................... 2
INVESTMENT INSTRUMENTS..................................................... 3
SPECIAL CONSIDERATIONS AFFECTING TENNESSEE................................. 6
PORTFOLIO TRANSACTIONS..................................................... 6
VALUATION OF PORTFOLIO SECURITIES.......................................... 7
PERFORMANCE................................................................ 7
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................. 10
DISTRIBUTIONS AND TAXES.................................................... 10
TRUSTEES AND OFFICERS...................................................... 12
INVESTMENT ADVISORY AGREEMENT.............................................. 13
ADMINISTRATION AGREEMENT AND OTHER CONTRACTS............................... 14
DESCRIPTION OF THE TRUST................................................... 16
FINANCIAL STATEMENTS....................................................... 18
APPENDIX................................................................... A-1
</TABLE>

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

Sub Adviser
Martin & Company, Inc. (Martin 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)

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INVESTMENT RESTRICTIONS AND LIMITATIONS

The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of the Portfolio's assets that may be invested in
any security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Portfolio's acquisition of such security or other asset.
Accordingly, except as to 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 the Portfolio's investment
policies and limitations.

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

INVESTMENT LIMITATIONS OF TENNESSEE TAX-FREE PORTFOLIO

The following are Tennessee Tax-Free Portfolio's fundamental limitations set
forth in their entirety. The Portfolio may not:

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

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

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

(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. Government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a
U.S. territory or possession or the state of Tennessee or any county,
municipality, or political subdivision of any of the foregoing,
including any agency, board authority, or commission of the foregoing)
if, as a result of such purchase, 25% or more of the Portfolio's total
assets would be invested in securities of companies whose principal
business activities are in the same industry;

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

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

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

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

THE FOLLOWING LIMITATIONS OF TENNESSEE TAX-FREE PORTFOLIO ARE NOT FUNDAMENTAL
AND MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL:

(i) To meet federal tax requirements for qualification as a "regulated
investment company," the Portfolio limits its investments so that at
the close of each quarter of its taxable year: (a) with regard to at
least 50% of total assets, no more than 5% of total assets are invested
in the securities of a single issuer, and (b) no more than 25% of total
assets are invested in the securities of a single issuer. Limitations
(a) and (b) do not apply to "government securities" as defined for
federal tax purposes.

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

(iii) The Portfolio may borrow money only (a) from a bank, or (b) by engaging
in reverse repurchase agreements with any party (reverse repurchase
agreements are treated as borrowings for purposes of fundamental
investment limitation (2). The Portfolio will not purchase any security
while borrowings representing more than 5% of its total assets are
outstanding.

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

(v) The Portfolio does not currently intend during the coming year to
engage in repurchase agreements or make loans, but this limitation does
not apply to purchases of debt securities.

INVESTMENT INSTRUMENTS

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

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

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

FEDERALLY-TAXABLE OBLIGATIONS. The Tennessee Tax-Free Portfolio does not intend
to invest in securities whose interest is federally taxable; however, from time
to time, the Portfolio may invest a portion of its assets on a temporary basis
in fixed-income obligations whose interest is subject to federal income tax. As
an operating policy, the Portfolio intends to invest its assets to achieve as
fully as possible tax exempt income for both Tennessee state and federal
purposes. For example, the Portfolio may invest in obligations whose interest is
federally taxable pending the investment or reinvestment in municipal securities
of proceeds from the sale of its shares or sales of portfolio securities.

Should the Portfolio invest in taxable obligations, it would purchase securities
which in the judgment of Martin are of high quality. These would include
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, obligations of domestic banks, and repurchase agreements. The
Portfolio's standards for high-quality taxable obligations are essentially the
same as those described by Moody's Investors Service, Inc. (Moody's) in rating
corporate obligations within its two highest ratings of Aaa and Aa, and those
described by Standard and Poor's Corporation (S&P) in rating corporate
obligations within its two highest ratings of AAA and AA.

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

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

ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued. Under guidelines established by the Trustees, Martin determines the
liquidity of Tennessee Tax-Free Portfolio's investments and, through reports
from Martin, the Trustees monitor investments in illiquid instruments. In
determining the liquidity of the Portfolio's investments, Martin may consider
various factors including (1) the frequency of trades and quotations, (2) the
number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or tender features) and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Portfolio's rights and
obligations relating to the investment). Investments currently considered by the
Portfolio to be illiquid include repurchase agreements not entitling the holder
to payment of principal and interest within seven days, and some restricted
securities determined by Martin to be illiquid. In the absence of market
quotations, illiquid investments are valued at fair value as determined in good
faith by the Trustees. If through a change in values, net assets or other
circumstances, the Portfolio were in a position where more than 15% of its net
assets were invested in illiquid securities, the Trustees would seek to take
appropriate steps to protect liquidity.

MUNICIPAL LEASE OBLIGATIONS. The Portfolio may invest a portion of its assets in
municipal leases and participation interests therein. These obligations, which
may take the form of a lease, an installment purchase, or a conditional sale
contract, are issued by state and local governments and authorities to acquire
land and a wide variety of equipment and facilities. Generally, the Portfolio
will not hold such obligations directly as a lessor of the property, but will
purchase a participation interest in a municipal obligation from a bank or other
third party. A participation interest gives a Portfolio a specified, undivided
interest in the obligation in proportion to its purchased interest in the total
amount of the obligation.

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

REFUNDING CONTRACTS. The Tennessee Tax-Free Portfolio generally will not be
obligated to pay the full purchase price if it fails to perform under a
refunding contract. Instead, refunding contracts generally provide for payment
of liquidated damages to the issuer (currently 15 - 20% of the purchase price).
The Portfolio may secure its obligations under a refunding contract by
depositing collateral or a letter of credit equal to the liquidated damages
provisions of the refunding contract. When required by Securities and Exchange
Commission (SEC) guidelines, the Portfolio will place liquid assets in a
segregated custodial account equal in amount to its obligations under refunding
contracts.

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

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

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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,
the Tennessee Tax-free Portfolio may be obligated to pay all or part of the
registration expense and a considerable period may elapse between the time each
decides to seek registration and the time the Portfolio may be permitted to sell
a security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to seek registration of the
security.

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

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

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

TENDER OPTION BONDS are created by coupling an intermediate or long-term
fixed-rate tax-exempt bond (generally held pursuant to a custodial arrangement)
with a tender agreement that gives the holder the option to tender the bond at
its face value. As consideration for providing the tender option, the sponsor
(usually a bank, broker-dealer, or other financial institution) receives
periodic fees equal to the difference between the bond's fixed coupon rate and
the rate (determined by a remarketing or similar agent) that would cause the
bond, coupled with the tender option, to trade at par on the date of such
determination. After payment of the tender option fee, the Tennessee Tax-Free
Portfolio effectively holds a demand obligation that bears interest at the
prevailing short-term tax-exempt rate. In selecting tender option bonds for the
Portfolio, Martin 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 (VRDO/FRDOS) are obligations that
bear variable or floating interest rates and carry rights that permit holders to
demand payment of the unpaid principal balance plus accrued interest from the
issuers or certain financial intermediaries. Floating rate instruments have
interest rates that change whenever there is a change in a designated base rate
while variable rate obligations provide for a specified periodic adjustment in
the interest rate. These formulas are designed to result in a market value for
the VRDO or FRDO that approximates its par value.

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

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

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

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Original issue zeros are zero coupon securities originally issued by the U.S.
government, a government agency, or a corporation in zero coupon form.

SPECIAL CONSIDERATIONS AFFECTING TENNESSEE

TENNESSEE OBLIGATIONS. The following information as to certain Tennessee
considerations is given to investors in view of the Portfolio's policy of
concentrating its investments in Tennessee. Such information is derived from
sources that are generally available to investors and is believed to be
accurate. Such information constitutes only a brief summary, does not purport to
be a complete description and is based on information from official statements
relating to securities offerings of Tennessee issuers. Neither the Trust nor the
Portfolio has independently verified this information.

In 1978, the voters of the State of Tennessee approved an amendment to the State
Constitution requiring that (1) the total expenditures of the State for any
fiscal year shall not exceed the State's revenues and reserves, including the
proceeds of debt obligations issued to finance capital expenditures and (2) in
no year shall the rate of growth of appropriations from State tax revenues
exceed the estimated rate of growth of the State's economy. In the past the
Governor and the General Assembly have had to restrict expenditures to comply
with the State Constitution.

While the financial operations of the State were negatively impacted by the
national economic downturn, the State's finances have stabilized in recent
years. Several new programs could have a negative impact on the financial
operations of the State. A half percent increase in the sales tax rate, imposed
in fiscal 1993, was dedicated to a new Basic Education Program (BEP). This
increase has since been made permanent and the BEP has been fully funded as of
July 1997. Tennessee will provide health care to the entire Medicaid population
as well as the uninsured population in the State. A service tax that was
implemented to help fund this program was repealed in connection with the
implementation of the expanded health care program although recently, the costs
of this health care plan have stabilized.

The Tennessee economy is largely based on manufacturing and services, which
accounted for approximately 50% of all jobs in the State. The location of
General Motors' Saturn project in Tennessee is believed to demonstrate the
continuing viability of manufacturing in the State. Other important segments of
the State economy include the wholesale and retail trade, transportation, and
the government sector. The State unemployment rate for 1998 was 4.2%. In 1997
the inflation rate averaged 5.4% which was higher than the national average of
4.95% in 1997. In 1996, however, the State unemployment rate of 5.2% was lower
than the 1996 national average of 5.4%. There can be no assurance that
Tennessee's relatively favorable economic performance will continue.

As of the date of this Statement of Additional Information, general obligations
of the State of Tennessee are rated "AAA", "Aaa" and "AAA" by S&P, Moody's and
Fitch, respectively. There can be no assurance that the economic conditions on
which these ratings are based will continue or that particular bond issues may
not be adversely affected by changes in economic, political or other conditions.

PORTFOLIO TRANSACTIONS

All orders for the purchase or sale of securities are placed on behalf of the
Portfolio by Martin pursuant to authority contained in the Portfolio's
Investment Advisory and Management Agreement. Martin is also responsible for the
placement of transaction orders for other investment companies and accounts for
which it or its affiliates act as investment advisor. In selecting
broker-dealers, subject to applicable limitations of the federal securities
laws, Martin considers various relevant factors, including, but not limited to,
the broker's execution capability; the broker's perceived financial stability;
the broker's responsiveness to the Martin's transaction requests; and the
broker's clearance and settlement capability.

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

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

Subject to applicable limitations of the federal securities laws, broker-dealers
may receive commissions for agency transactions that are higher than the
commission of another broker-dealer who might have charged for their research
and execution services. In order

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to cause the Portfolio to pay such higher commissions, Martin must determine in
good faith that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers viewed
in terms of a particular transaction or Martin's overall responsibilities to the
Portfolio and its other clients. In reaching this determination, Martin will not
attempt to place a specific dollar value on the brokerage and research services
provided or to determine what portion of the compensation should be related to
those services.

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

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

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

For the fiscal periods ended June 30, 1999, 1998 and 1997, the portfolio
turnover rate was 31%, 15% and 122%, respectively. The decrease in portfolio
turnover rate between 1997 and 1998 is largely attributable to the fact that the
1997 rate reflects an environment where the Portfolio's assets doubled in size
which resulted in an increase in security purchases. No brokerage commissions
were paid by the Portfolio during the fiscal periods ended June 30, 1999, 1998
and 1997.

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

VALUATION OF PORTFOLIO SECURITIES

Valuations of securities furnished by the pricing service employed by the
Portfolio are based upon a computerized matrix system and/or appraisals by the
independent pricing service, in each case in reliance upon information
concerning market transactions and quotations from recognized securities
dealers. The methods used by the pricing service and the quality of valuations
so established are reviewed by officers of the Portfolio and the Portfolio's
pricing agent under general supervision of the Trustees.

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

PERFORMANCE

For each class of the Portfolio, yields used in advertising are computed by
dividing interest income for a given 30-day or one-month period, net of
expenses, by the average number of shares entitled to receive dividends during
the period, dividing this figure by the net asset value per share (NAV) at the
end of the period and annualizing the result (assuming compounding of income) in
order to arrive at an annual percentage rate. Income is calculated for purposes
of yield quotations in accordance with standardized methods applicable to all
bond funds. In general, interest income is reduced with respect to bonds trading
at a premium over their par value by subtracting a portion of the premium from
income on a daily basis, and is increased with respect to bonds trading at a
discount by adding a portion of the discount to daily income. Capital gains and
losses generally are excluded from the calculation.

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As of June 30, 1999, the 30-day yields were 4.37%, 3.80% and 3.34% for Class I,
II and III, respectively. Class IV shares were not offered as of June 30, 1999.

The Tennessee Tax-Free Portfolio also may quote the tax-equivalent yield for
each class, which shows the taxable yield an investor would have to earn, before
taxes, to equal the tax-free yield. Tax-equivalent yield is the current yield
that would have to be earned, in the investor's tax bracket, to match the
tax-free yields shown below after taking federal income taxes into account.
Tax-equivalent yields are calculated by dividing current yield by the result of
one minus a stated federal or combined federal and state tax rate. It gives the
approximate yield a taxable security must provide at various income brackets to
produce after-tax yields equivalent to those of tax-exempt obligations yielding
from 2.0% to 8.0%. Of course, no assurance can be given that each class will
achieve any specific tax-exempt yield. While the Portfolio invests principally
in municipal obligations whose interest is not includable in gross income for
purposes of calculating federal income tax, other income received by the
Portfolio may be taxable.

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

1998 TAX RATES AND TAX-EQUIVALENT YIELDS
<TABLE>
<CAPTION>

Taxable Federal
Income * Tax If individual tax-exempt yield is:
Bracket** 2.00% 3.00% 4.00%
single return joint return Then taxable equivalent yield is:
<S> <C> <C> <C> <C> <C>
$0 - $25,350 $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>

* Taxable income (gross income after all exemptions, adjustments, and
deductions) based on 1997 tax rates.

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

Tennessee individual income tax is levied at a flat rate of 6%. The tax is
levied on dividend and interest income.

If your effective combined federal and Tennessee state tax rate in 1998 is:

Then your tax-equivalent yield* is:

2.0% 2.50% 2.96% 3.08% 3.32% 3.52%
3.0% 3.75% 4.43% 4.63% 4.99% 5.28%
4.0% 5.01% 5.91% 6.17% 6.65% 7.04%
5.0% 6.26% 7.39% 7.71% 8.31% 8.81%
6.0% 7.51% 8.87% 9.25% 9.97% 10.57%
7.0% 8.76% 10.34% 10.79% 11.64% 12.33%
8.0% 10.01% 11.82% 12.33% 13.30% 14.09%

</TABLE>

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

TOTAL RETURNS for each Class of the Portfolio quoted in advertising reflect all
aspects of return, including the effect of reinvesting dividends and capital
gain distributions (if any), and any change in NAV over the period.

AVERAGE ANNUAL TOTAL RETURNS ARE CALCULATED by determining the growth or decline
in value of a hypothetical historical investment over a stated period, and then
calculating the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. For example, a cumulative total return of 100% over ten years would
produce an average annual total return of 7.18%, which is the steady annual rate
of return that would equal 100% growth on a compounded basis in ten years. While
average annual total returns are a convenient means of comparing investment
alternatives, investors should realize that performance is not constant over
time, but changes from year to year, and that average annual total returns
represent averaged figures as opposed to the actual year-to-year performance.
Average annual returns covering periods of less than one year are calculated by
determining total return for the period, extending that return for a full year
(assuming that performance remains constant over the year), and quoting the
result as an annual return. The following table shows total returns as of June
30, 1999 for each Class of the Portfolio:

Class I Average Class II Average Class III Average
Annual Total Return Annual Total Return Annual Total Return
------------------- ------------------- -------------------
One Since One Since One Since
Year Inception Year Inception Year Inception
---- --------- ---- --------- ---- ---------

<S> <C> <C> <C> <C> <C> <C>
The Tennessee Tax-Free Portfolio* 2.54% 5.11% (0.15)% 4.22% 1.13% 4.83%
</TABLE>

* Information regarding the Class IV Shares is not presented here
because the Class IV shares were not offered as of the date of this statement.

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

The Portfolio may compare the performance of its Classes or the performance of
securities in which it may invest to other mutual funds, especially to those
with similar investment objectives. These comparisons may be based on data
published by IBC/Donoghue's Money Fund Report of Ashland, MA 01721, or by Lipper
Analytical Services, Inc. (Lipper), an independent service located in Summit,
New Jersey that monitors the performance of mutual funds. Lipper generally ranks
funds on the basis of total return, assuming reinvestment of distributions, but
does not take sales charges or redemption fees into consideration, and is
prepared without regard to tax consequences. Lipper may also rank funds based on
yield. In addition to the mutual fund rankings, the Portfolio's performance may
be compared to mutual fund performance indices prepared by Lipper. The BOND FUND
REPORT AVERAGES, which is reported in the BOND FUND REPORT, covers taxable bond
funds. Investors should give consideration to the quality and maturity of the
portfolio securities of the respective investment companies when comparing
investment alternatives.

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

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

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The Portfolio may compare its performance to that of the Lehman Brothers
Municipal Bond Index, an index comprised of revenue bonds and state government
obligations. It may also compare its performance to the Lehman Brothers 5-Year
and 10-Year Municipal Bond Indices. The Portfolio may also compare its
performance to that of the Lehman Brothers General Obligation Bond Index, an
index comprised of all public, fixed-rate, non-convertible investment-grade
domestic corporate debt. The Portfolio may also quote mutual fund rating
services in its advertising materials, including data from a mutual fund rating
service which rates mutual funds on the basis of risk-adjusted performance.
Because the fees for Class II, Class III, and Class IV are higher than the fees
for Class I, yields and returns for those classes will be lower than for Class
I.

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

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

The following holiday closings have been scheduled: Thanksgiving Day, Christmas
Day, New Year's Day, Dr. Martin Luther King Jr. Day, Washington's Birthday, Good
Friday, Memorial Day, Independence Day and Labor Day. Although State Street
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 properly valued for this purpose as they are valued in computing the
Portfolio's NAV. Shareholders receiving securities or other property on
redemption may realize a gain or loss for tax purposes and will incur any costs
of sale, as well as the associated inconveniences.

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

ADDITIONAL CLASS II, CLASS III, AND CLASS IV INFORMATION

PURCHASE INFORMATION. As provided for in Rule 22d-1 under the 1940 Act, ALPS
Mutual Funds Services, Inc. (ALPS or the Distributor), exercises its right to
waive the Portfolio's Class II shares' maximum sales charge in connection with
the Portfolio's merger with or acquisition of any investment company or trust.

DISTRIBUTIONS AND TAXES

DIVIDENDS. To the extent that the Portfolio's income is derived from federally
tax-exempt interest, the daily dividends declared by the Portfolio are also
federally tax-exempt provided that the Portfolio meets the investment and
distribution requirements for treatment as a "regulated investment company" and,
at the close of each quarter of the taxable year, at least 50% of the value of
its total assets consists of tax-exempt state or local bonds. The Portfolio
intends to meet these tests so that its federally tax-free interest will remain
federally tax-free when distributed. The Portfolio will send each shareholder a
notice in January describing the tax status of dividends and capital gain
distributions, if any, for the prior year. Dividends derived from the Tennessee
Tax-Free Portfolio's tax-exempt income are not subject to federal income tax,
but must be reported to the IRS by shareholders. Exempt-interest dividends are
included in income for purposes of computing the portion of social security and
railroad retirement benefits that may be subject to federal tax. If the
Portfolio earns taxable income or capital gains from its investments, these
amounts will be designated as taxable distributions. Dividends derived from
taxable investment income and short-term capital gains are taxable as ordinary
income. The Portfolio will send a tax statement showing the amount of tax-exempt
distributions for the past calendar year, and will send an IRS Form 1099-DIV by
January 31 if the Portfolio made any taxable distributions for the period.

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The Portfolio purchases municipal obligations based on opinions of bond counsel
regarding the federal income tax status of the obligations. These opinions
generally will be based upon covenants by the issuers regarding continuing
compliance with federal tax requirements. If the issuer of an obligation fails
to comply with its covenants at any time, interest on the obligation could
become federally taxable retroactive to the date the obligation was issued.

Interest on certain "specified private activity" bonds is subject to the federal
alternative minimum tax (AMT), although the interest continues to be excludable
from gross income for other purposes. Interest from specified private activity
bonds will be considered tax-exempt for purposes of the Portfolio's policies of
investing so that at least 80% of its income is free from federal income tax.
Interest from specified private activity bonds is a tax preference item for the
purpose of determining whether a taxpayer is subject to the AMT and the amount
of AMT to be paid, if any. Private activity bonds issued after August 7, 1986 to
benefit a private or industrial user or to finance a private facility are
affected by this rule. A portion of the gain on bonds purchased at a discount
after April 30, 1993 (other than original issue discount) and all short term
capital gains distributed by the Portfolio are taxable to shareholders as
dividends, not as capital gains. Distributions from short-term capital gains do
not qualify for the dividends received deduction. Dividend distributions
resulting from a re-characterization of gain from the sale of bonds purchased at
a discount after April 30, 1993 are not considered income for the purposes of
the Portfolio's policy of investing so that at least 80% of its income is free
from federal income tax.

STATE TAXES. In the opinion of fund counsel, Baker, Donelson, Bearman &
Caldwell, investments in the Tennessee Tax-Free Portfolio will not be subject to
Tennessee personal income taxes on distributions received from the Portfolio to
the extent such distributions are attributable to interest on bonds or
securities of the U.S. government or any of its agencies or instrumentalities,
or in bonds or other securities of the State of Tennessee or any county,
municipality or political subdivision, including any agency, board, authority or
commission. Other distributions from the Portfolio, including dividends
attributable to obligations of issuers in other states, and all long-term and
short-term capital gains, will not be exempt from personal income taxes in
Tennessee. The Portfolio will report annually the percentage and source, on a
state-by-state basis, of interest income received by the Portfolio on municipal
bonds during the preceding year.

CAPITAL GAIN DISTRIBUTIONS. Distributions of gains from the sale of assets held
by the Portfolio for more than one year generally are taxable to shareholders of
the Portfolio at the applicable mid-term or long-term capital gains rate, as
designated by the Portfolio, regardless of how long the shareholders have owned
their Portfolio shares.

REDEMPTIONS AND EXCHANGES. A loss on the redemption or exchange of Portfolio
shares may not be deductible if the shareholder invests in the Portfolio within
thirty days before or after the redemption. Any loss on the redemption or
exchange of Portfolio shares held for six months or less will be disallowed to
the extent of the amount of any tax-free dividends received on the shares.
Future Treasury Regulations may shorten this six-month period to 31 days. In
addition, loss on the redemption or exchange of Portfolio shares held for six
months or less will be treated as long-term capital loss to the extent of any
long-term capital gain distributions received on the shares.

TAX STATUS OF THE TRUST. The Portfolio has qualified in prior years and intends
to continue to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the Code), so that the Portfolio will not be
liable for federal income or excise taxes on net investment income or capital
gains to the extent that these are distributed to shareholders in accordance
with applicable provisions of the Code. In order to qualify as a regulated
investment company and avoid being subject to federal income or excise taxes,
the Portfolio intends to distribute substantially all of its net investment
income and net realized capital gains within each calendar year as well as on a
fiscal year basis. The Portfolio also intends to comply with other federal tax
rules applicable to regulated investment companies. The Portfolio's principal
place of business is located in Denver, Colorado. The Portfolio intends to
comply with Colorado tax rules applicable to registered investment companies.

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

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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 (*).

Trustees and Officers
<TABLE>
<CAPTION>

Position(s)
Held Principal Occupation
Name, Address, and Age 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.

L. R. JALENAK, JR., age 68, Trustee Mr. Jalenak was Chairman of the Board (1990 -1993 (retired)), Cleo
6094 Apple Tree Drive, Suite 11, Memphis, TN Inc. (manufacturer of gift-related products), a Gibson Greetings
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.

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 29, 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.

</TABLE>

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Pension or Aggregate
Retirement Estimated Compensation
Aggregate Benefits Annual From the Trust
Compensation Accrued As Benefits and Fund
from the Part of Fund Upon Complex Paid
Trust Expenses Retirement to Trustee
------------ ------------ ---------- --------------

<S> <C> <C> <C> <C>
Thomas M. Batchelor
Trustee $16,000 $0 $0 $16,000

John A. DeCell
Trustee $16,000 $0 $0 $16,000

L. R. Jalenak, Jr.
Trustee $16,000 $0 $0 $16,000

Larry W. Papasan
Trustee $16,000 $0 $0 $16,000

Richard C. Rantzow
Trustee $16,000 $0 $0 $16,000
</TABLE>

As of September 30, 1999, the officers and Trustees of the Trust owned less than
1% of the outstanding shares of any Portfolio.

INVESTMENT ADVISORY AGREEMENT

The Portfolio employs First Tennessee Bank, N.A., Memphis, Tennessee, to furnish
investment advisory and other services to the Portfolio. Under the Investment
Advisory and Management Agreement with the Portfolio, First Tennessee is
authorized to appoint one or more sub-advisers at First Tennessee's expense.
Pursuant to a Sub-Investment and Advisory Agreement, Martin, Knoxville,
Tennessee, acts as Sub-Adviser and day-to-day manager of the Portfolio.

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

For managing its investment and business affairs, the Tennessee Tax-Free
Portfolio pays First Tennessee a monthly management fee at the annual rate of
.50% of average net assets. Under its sub-advisory agreement, Martin is entitled
to receive a monthly fee at the annual rate of .30% of average net assets from
First Tennessee. First Tennessee and Martin voluntarily agreed to waive their
entire fees for the Portfolio. These fee waivers may be discontinued at any
time. For the fiscal years ended June 30, 1999, 1998 and 1997, First Tennessee
earned $1,061,111, $398,898 and $65,349, respectively, before waiving its entire
fee. [Pursuant to the fee waivers discussed above, the Portfolio has not paid
any investment advisory fees in the past three fiscal years.]

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<PAGE> 185

ADMINISTRATION AGREEMENT AND OTHER CONTRACTS

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

As the Administrator, ALPS assists in the Portfolio's administration and
operation, including, but not limited to, providing office space and various
legal and accounting services in connection with the regulatory requirements
applicable to the Portfolio. ALPS is entitled to and receives from the Portfolio
a monthly fee at the annual rate of .15% of average net assets. ALPS has
voluntarily agreed to reimburse one half of the 0.50% 12b-1 fee applicable to
Class III of the Portfolio or 0.25% of that Class' average net assets. Effective
December 31, 1998, ALPS reduced its voluntary waiver of 12b-1 fees applicable to
Class III from .25% to .10%. ALPS reserves the right to modify or terminate this
waiver of 12b-1 expense at any time.

For the fiscal years ended June 30, 1999, 1998 and 1997, ALPS earned
administration fees in the amount of $318,333, $119,670 and 19,605 from the
Portfolio, respectively, before waiving $0, $32,146 and $19,605 of its fees,
respectively.

First Tennessee serves as the Co-Administrator for the Portfolio. As the
Co-Administrator, First Tennessee assists in the Portfolio's operation,
including, but not limited to, providing non-investment related research and
statistical data and various operational and administrative services. First
Tennessee is entitled to and receives from the Portfolio a monthly fee at the
annual rate of .05% of average net assets. For the fiscal years ended June 30,
1999, 1998 and 1997, First Tennessee earned co-administration fees in the amount
of $106,111, $39,890 and $6,535 from the Portfolio, respectively before waiving
$0, $0 and $4,227 of its fees, respectively.

As the Distributor, ALPS sells shares of Class I as agent on behalf of the Trust
at no additional cost to the Trust. Class III and Class IV are obligated to pay
ALPS monthly a 12b-1 fee at the annual rate of up to .75% and .70% of the
average net assets of Class III and Class IV, respectively, all or a portion of
which may be paid out to broker-dealers or others involved in the distribution
of Class III and Class IV shares. See "Administration Agreements and Other
Contracts - Distribution Plan." Class II and III each pay shareholder servicing
fees to Investment Professionals at an annual rate of up to .25% of average net
assets as more fully described under the section "Administration Agreement and
Other Contracts - Shareholder Services Plans." First Tennessee and its
affiliates neither participate in nor are responsible for the underwriting of
Portfolio shares. Consistent with applicable law, affiliates of First Tennessee
may receive commissions or asset-based fees.

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

State Street is also Custodian of the assets of the Portfolio and calculates the
NAV and dividends of each Class of the Portfolio and maintains the portfolio and
general accounting records. The Custodian is responsible for the safekeeping of
the 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 the
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 Portfolio or in deciding which securities are
purchased or sold by the Portfolio. The Portfolio, however, may invest in
obligations of the Custodian and may purchase securities from or sell securities
to the Custodian.

DISTRIBUTION PLAN. The Trustees of the Trust have adopted a Distribution Plan on
behalf of Class III of the Portfolio (the "Class III Plan") and Class IV of the
Portfolio (the "Class IV Plan") pursuant to Rule 12b-1 (the "Rule") under the
1940 Act. The Rule provides in substance that a mutual fund may not engage
directly or indirectly in financing any activity that is intended primarily to
result in the sale of shares of the fund except pursuant to a plan adopted by
the fund under the Rule. The Trustees have adopted the Class III and Class IV
Plans to allow each Class to compensate ALPS for incurring distribution
expenses. The Class III provides for payment of a distribution fee (12b-1 fee)
to ALPS of up to 0.75% of the average net assets of Class III of the Portfolio.
(These fees are in addition to the fees paid to ALPS under the Administration
Agreement.) The Trustees have limited the 12b-1 fee to 0.50% of Class III's
average net assets. ALPS has agreed to voluntarily waive 0.10% of the .50% 12b-1
fee applicable to Class III of the Portfolio. The Class IV Plan provides for
payment of a 12b-1 fee of up to .70% of the average net assets of Class IV of
the Portfolio. The Trust or ALPS, on behalf of Class III and Class IV of the
Portfolio, may enter into servicing agreements (Service Agreements) with banks,
broker-dealers or other institutions (Agency Institutions). The Class III and
Class IV Plans each provides that ALPS may use its fees and other resources to
make payments to Agency Institutions for performance of distribution-related
services, including those

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<PAGE> 186

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 the Portfolio and
reports to recipients other than existing shareholders of the Portfolio;
obtaining such information, analyses and reports with respect to marketing and
promotional activities as ALPS may from time to time, deem advisable; making
payments to securities dealers and others engaged in the sales of Class III 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 Class
III and Class IV Plans each 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.

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

The Plans could be construed as compensation plans because ALPS is paid a fixed
fee and is given discretion concerning what expenses are payable under the
Plans. ALPS may spend more for marketing and distribution than it receives in
fees and reimbursements from the Portfolio. However, to the extent fees received
exceed expenses, including indirect expenses such as overhead, ALPS could be
said to have received a profit. For example, if ALPS pays $1 for Class III
distribution-related expenses and receives $2 under the Class III Plan, the $1
difference could be said to be a profit for ALPS. (Because ALPS is reimbursed
for its out-of-pocket direct promotional expenses, the Class III Plan also could
be construed as a reimbursement plan. Until the issue is resolved by the SEC,
unreimbursed expenses incurred in one year will not be carried over to a
subsequent year.) If after payments by ALPS for marketing and distribution there
are any remaining fees attributable to the Class III or Class IV Plan, these may
be used as ALPS may elect. Since the amount payable under each Plan will be
commingled with ALPS's general funds, including the revenues it receives in the
conduct of its business, it is possible that certain of ALPS's overhead expenses
will be paid out of Plan fees and that these expenses may include items such as
the costs of leases, depreciation, communications, salaries, training and
supplies. The Portfolio believes that such expenses, if paid, will be paid only
indirectly out of the fees being paid under each Plan. For the fiscal year ended
June 30, 1999, the Portfolio paid distribution fees in the amount of $122,030
under the Class III Plan, a portion of which was reimbursed by ALPS pursuant to
the voluntary waiver and reimbursement of portfolio expenses discussed under
"Administration Agreement and Other Contracts - Administrator and Distributor."
All of these fees were paid as compensation to dealers. As of that date, no
Class IV Shares were issued.

SHAREHOLDER SERVICES PLANS. In addition to the Rule 12b-1 Distribution Plans
described above, Class II, Class III and Class IV have adopted Shareholder
Services Plans to compensate Agency Institutions for individual shareholder
services and account maintenance. These functions include: maintaining account
records for each shareholder who beneficially owns Class II, Class III and Class
IV 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, Class III and Class IV shares by shareholders; assisting customers in
completing application forms; communicating with the transfer agent; and
providing account maintenance and account level support for all transactions.
For these services the participating Agency Institutions are paid a service fee
at the annual rate of up to .25% of average net assets of Class II, Class III
and Class IV. Shareholder Servicing Fees for Class III and Class IV have not
currently been authorized by the Board of Trustees although such fees may become
effective at a future time. Effective December 31, 1998, the Class II shares
began to incur Shareholder Servicing Fees in an amount equal to .10% of the
average net assets of the Class II shares. For the fiscal year ended June 30,
1999, the Portfolio paid Shareholder Servicing Fees in the amount of $7,085
under the Class II Plan.

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<PAGE> 187

operation of the Portfolio might occur, including possible termination of any
automatic investment or redemption or other services then being provided by any
bank. It is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences. The Portfolio may execute
portfolio transactions with and purchase securities issued by depository
institutions that receive payments under the Plans. No preference will be shown
in the selection of investments for the instruments of such depository
institutions. In addition, state securities laws on this issue may differ from
the interpretations of federal law expressed herein, and banks and other
financial institutions may be required to register as dealers pursuant to state
law.

DESCRIPTION OF THE TRUST

TRUST ORGANIZATION. The Tennessee Tax Free Portfolio is a portfolio of First
Funds (formerly The Masters Group of Mutual Funds), an open-end management
investment company organized as a Massachusetts business trust by a Declaration
of Trust dated March 6, 1992, as amended and restated on September 4, 1992. The
Declaration of Trust permits the Trustees to create additional portfolios and
classes. There are nine portfolios of the Trust, six with three Classes and
three with four Classes.

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

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

As of September 30, 1999, the following shareholders owned more than 5% of the
outstanding shares of the indicated Class of the Portfolio:

<TABLE>
<CAPTION>
Total % of Total Outstanding
Name and Address Portfolio Class Shares Owned Class Held in Class
- ---------------- --------- ----- ------------ ---------- --------

<S> <C> <C> <C> <C> <C>
Emmett N Kennon Tennessee II 138,626,040 11.71% 1,183,637,749
Rose Kennon
2934 Sidco Dr
Nashville, TN 37204

</TABLE>

-16-
<PAGE> 188

<TABLE>
<CAPTION>
Total % of Total Outstanding
Name and Address Portfolio Class Shares Owned Class Held in Class
- ---------------- --------- ----- ------------ ---------- --------

<S> <C> <C> <C> <C> <C>
Resource Trust Company for Tennessee II 69,133.217 5.84% 1,183,637.749
IMS Customers
P.O. Box 3865
Englewood, CO 80155

Kenneth Cooper Tennessee III 120,040.352 8.03% 1,495,123.113
Debbie Cooper
49 Elmhurst
Jackson, TN 38305

NFSC FEBO Tennessee IV 6,993.007 99.86% 7,002.943
Ronald H Petersen
1504 Spelling Way
Knoxville, TN 37909

</TABLE>

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

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

-17-
<PAGE> 189

FINANCIAL STATEMENTS

The Portfolio's financial statements and financial highlights for the fiscal
year ended June 30, 1999 and the six-month period ended December 31, 1998 are
included in the Portfolio's Annual Report and Semi-Annual Report, respectively,
which are separate reports and are supplied independent of this Statement of
Additional Information. The Portfolio's financial statements and financial
highlights are incorporated herein by reference.

The Portfolio's financial statements for the year ended June 30, 1999 were
audited by Deloitte & Touche LLP, whose report thereon is included in the
Portfolio's annual report.

-18-
<PAGE> 190

APPENDIX

DOLLAR-WEIGHTED AVERAGE MATURITY for the Portfolio is derived by multiplying the
value of each investment by the number of days remaining to its maturity, adding
these calculations, and then dividing the total by the value of the fund's
Portfolio. An obligation's maturity is typically determined on a stated final
maturity basis, although there are some exceptions to this rule.

For example, if it is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be called,
refunded, or redeemed may be considered to be its maturity date. When a
municipal bond issuer has committed to call an issue of bonds and has
established an independent escrow account that is sufficient to, and is pledged
to, refund that issue, the number of days to maturity for the pre-refunded bond
is considered to be the number of days to the announced call date of the bonds.

The descriptions that follow are examples of eligible ratings for the Portfolio.
The Portfolio may, however, consider the ratings for other types of investments
and the ratings assigned by other rating organizations when determining the
eligibility of a particular investment.

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S RATINGS OF STATE AND MUNICIPAL
NOTES:

Moody's ratings for state and municipal and other short-term obligations will be
designated Moody's Investment Grade (MIG or VMIG for variable rate obligations).
This distinction is in recognition of the difference between short-term credit
risk and long-term credit risk. Factors affecting the liquidity of the borrower
and short-term cyclical elements are critical in short-term ratings, while other
factors of major importance in bond risk, long-term secular trends for example,
may be less important over the short run. Symbols used will be as follows:

MIG-LIVMIG-1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancings.

MIG-2/VMIG-2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.

MIG-3/VMIG-3 - This designation denotes favorable quality, with all security
elements accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.

MIG-4/VMIG - This designation denotes adequate quality protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.

DESCRIPTION OF STANDARD & POOR'S CORPORATION'S RATINGS OF STATE AND MUNICIPAL
NOTES:

SP-1 - Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.

SP-2 - Satisfactory capacity to pay principal and interest.

SP-3 - Speculative capacity to pay principal and interest.

DESCRIPTION OF MOODY'S INVESTORS SERVICE. INC.'S MUNICIPAL BOND RATINGS:

AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

AA - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than Aaa securities.

A-1

<PAGE> 191

A - Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

DESCRIPTION OF STANDARD & POOR'S CORPORATION'S MUNICIPAL BOND RATINGS:

AAA - Debt rated AAA has the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.

AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt issues only in small degree.

A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

The ratings may be modified by the addition of a plus or minus to show relative
standing within the major rating categories.

A-2
<PAGE> 192

FIRST FUNDS
U.S. TREASURY MONEY MARKET PORTFOLIO
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
MUNICIPAL MONEY MARKET PORTFOLIO
CASH RESERVE PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
FOR CLASS I, CLASS II, AND CLASS III
OCTOBER 28, 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 October 28, 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, 1999 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..............................................8
PERFORMANCE....................................................................8
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................10
DISTRIBUTIONS AND TAXES.......................................................10
TRUSTEES AND OFFICERS.........................................................12
INVESTMENT ADVISORY AGREEMENTS................................................13
ADMINISTRATION AGREEMENT AND OTHER CONTRACTS..................................14
DESCRIPTION OF THE TRUST......................................................16
FINANCIAL STATEMENTS..........................................................20
APPENDIX......................................................................21
</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> 193

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 of such purchase, (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;

(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 of such purchase, 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.
THE FOLLOWING LIMITATIONS OF EACH PORTFOLIO ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.

2
<PAGE> 194

(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 of such purchase, 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 of such purchase, 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. The 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. The 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.

3
<PAGE> 195

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

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

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

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

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

4
<PAGE> 196

banks or savings institutions that have total assets at the time of purchase in
excess of $1 billion. The assets of a bank or savings institution will be deemed
to include the assets of its domestic and foreign branches for purposes of the
Portfolio's investment policies. Investments in short-term bank obligations may
include obligations of foreign banks and domestic branches of foreign banks, and
also foreign branches of domestic banks.

MUNICIPAL LEASE OBLIGATIONS. Municipal Money Market Portfolio may invest a
portion of its assets in municipal leases and participation interests therein.
These obligations, which may take the form of a lease, an installment purchase,
or a conditional sale contract, are issued by state and local governments and
authorities to acquire land and a wide variety of equipment and facilities.
Generally, the Portfolio will not hold such obligations directly as a lessor of
the property, but will purchase a participation interest in a municipal
obligation from a bank or other third party. A participation interest gives a
Portfolio a specified, undivided interest in the obligation in proportion to its
purchased interest in the total amount of the obligation.

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 purchases, 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.

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<PAGE> 197

standby commitments to enhance the liquidity of portfolio securities, but only
when the issuers of the commitments present minimal risk of default.

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

6
<PAGE> 198

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.

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.

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<PAGE> 199

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.

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, 1999 were as follows:

<TABLE>
<CAPTION>
Class I Class III
------- ---------
<S> <C> <C>
U.S. Treasury Money Market 4.29% 3.95%
U.S. Government Money Market 4.70% 4.38%
Municipal Money Market 3.06% 2.75%
Cash Reserve 4.67% 4.42%
</TABLE>

8
<PAGE> 200

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>
Taxable Federal
Income* Tax If individual tax-exempt yield is:
Bracket** 2.00% 3.00% 4.00%
single return joint return Then taxable equivalent yield is:
<S> <C> <C> <C> <C> <C>
$0-$24,350 $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>

* 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

9
<PAGE> 201

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: Thanksgiving Day, Christmas
Day, New Year's Day, Dr. Martin Luther King Jr. Day, Washington's Birthday, Good
Friday, Memorial Day, Independence Day and Labor 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.

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

10
<PAGE> 202

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

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.

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<PAGE> 203

TRUSTEES AND OFFICERS

- ------------------------------------------------------------------------------------------------------------------------------------
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 TN
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 29, 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>

12
<PAGE> 204

<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 $16,000 $0 $0 $16,000
- ---------------------------------- ------------------------ ---------------------- ------------------- ------------------------
John A. DeCell
Trustee $16,000 $0 $0 $16,000
- ---------------------------------- ------------------------ ---------------------- ------------------- ------------------------
L. R. Jalenak, Jr.
Trustee $16,000 $0 $0 $16,000
- ---------------------------------- ------------------------ ---------------------- ------------------- ------------------------
Larry W. Papsan,
Trustee $16,000 $0 $0 $16,000
- ---------------------------------- ------------------------ ---------------------- ------------------- ------------------------
Richard C. Rantzow
Trustee $16,000 $0 $0 $16,000
- ---------------------------------- ------------------------ ---------------------- ------------------- ------------------------
</TABLE>

As of September 30, 1999, 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 .08%, .10%, .10% and .10% of the U.S. Treasury Money Market, U.S. Government
Money Market, Municipal Money Market and Cash Reserve Portfolios' average net
assets. These fee waivers may be discontinued at any time. For the fiscal year
ended June 30, 1999, First Tennessee earned $137,925, $234,187, $124,234 and
$238,787 from the U.S. Treasury Money Market, U.S. Government Money Market,
Municipal Money Market and Cash Reserve Portfolios, respectively, before waiving
$83,083, $137,583, $72,802 and $140,357 for the respective Portfolios. 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

13
<PAGE> 205

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.

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-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 receive from each Portfolio a
monthly fee at the annual rate of .075% of average net assets. ALPS has
voluntarily agreed to waive its entire administration fee it is entitled to
receive from the U.S. Treasury Money Market Portfolio. This fee waiver may be
discontinued at any time.

For each Portfolio's fiscal year ended June 30, 1999, ALPS earned administration
fees in the amounts of $40,106, $68,205, $36,053 and $69,596 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 $1,423 for the U.S. Treasury Money Market Portfolio. 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.

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 .000%, .025%, .025% and
.025% of the U.S. Treasury Money Market, U.S. Government Money Market, Municipal
Money Market and Cash Reserve Portfolios' average net assets. These fee waivers
may be discontinued at any time. For each Portfolio's fiscal year ended June 30,
1999, First Tennessee earned co-administration fees in the amount of $26,738,
$45,470, $24,036 and $46,397 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 $11,892, $22,930, $12,134 and
$23,393, respectively. 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 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,

14
<PAGE> 206

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 the Cash
Reserve Portfolio, respectively, before waiving $20,651, $23,775, $19,611 and
$12,248, respectively.

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

15
<PAGE> 207

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, 1999, 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 $101,361, $6,522, $11,119
and $152,396, 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 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.

16
<PAGE> 208

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.

As of September 30, 1999, the following shareholders owned more than 5% of the
outstanding shares of the indicated Class of the Portfolios:

<TABLE>
<CAPTION>
Total % of Total Outstanding
Name and Address Portfolio Class Shares Owned Class Held in Class
- ----------------------------- ---------------- ---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Jeanne Anderson Morgan U.S. Treasury MM I 1,079,354.660 9.76% 11,064,431
c/o William L Nichol IV
81 Monroe, Suite 600
Memphis, TN 38103

John E Marek U.S. Treasury MM III 871,261.090 38.12% 2,285,321.030
Diane D Marek
P.O. Box 309
Hixson, TN 37343

Walter N Entrekin U.S. Treasury MM III 224,042.040 9.80% 2,285,321.030
Sammie Entrekin
520 Council Fire Dr
Chattanooga, TN 37421

Thomas Lee Fisackerly U.S. Treasury MM III 180,944.150 7.92% 2,285,321.030
John W Fisackerly
P.O. Box 743
Winona, MS 38967

Our Lady of The Lake U.S. Treasury MM III 133,846.160 5.86% 2,285,321.030
Hospital Inc.
c/o Pitt R Calkin
7777 Hennessy Blvd, Ste. 6002
Baton Rouge, LA 70808

Gordon T Smith U.S. Treasury MM III 130,668.840 5.72% 2,285,321.030
Cynthia V Smith
903 Westmoreland Blvd
Knoxville, TN 37919

Thomas L Fisackerly U.S. Treasury MM III 124,406.560 5.44% 2,285,321.030
Jean M Fisackerly
121 Shirley Ave
Winona, MS 38967
</TABLE>

17
<PAGE> 209

Total % of Total Outstanding
Name and Address Portfolio Class Shares Owned Class Held in Class
- ------------------------------- ---------------- ---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Teamsters Food Employee U.S. Treasury MM III 114,737.730 5.02% 2,285,321.030
Sector Trust Fund
556 S Fair Oaks Ave 101-4
Pasadena, CA 91105

Mary Elizabeth Miller U.S. Government I 13,506,118.620 16.17% 83,535,462
First Tennessee Bank Building
231 Public Square, 3rd Floor
Franklin, TN 37064

Enterprise Investment Partners U.S. Government I 5,790,321.090 6.93% 83,535,462
Attn: Frederick Smith
Federal Express Corp.
P.O. Box 727, Dept. 1841
Memphis, TN 38194

Henry Roy Horton U.S. Government III 306,980.390 19.77% 1,552,556.850
Carolyn Horton
436 Dixon Rd
Knoxville, TN 37922

First Tennessee Collateral Acct U.S. Government III 241,053.900 15.53% 1,552,556.850
FBO H L Williams Jr
c/o Executive Banking
4385 Poplar Ave
Memphis, TN 38117

VIC Davis Construction Inc. U.S. Government III 197,699.420 12.73% 1,552,556.850
Pre-paid Account
905 West Center St
Kingsport, TN 37660

VIC Davis Construction Inc. U.S. Government III 163,936.390 10.56% 1,552,556.850
General Account
905 West Center St
Kingsport, TN 37660

Southland Farm Investors Ltd. U.S. Government III 108,844.970 7.01% 1,552,556.850
5178 Wheelis Dr., Ste. 2
Memphis, TN 38117

Knox County Association U.S. Government III 106,981.260 6.89% 1,552,556.850
For Retarded Citizens
Contingency Account
3000 N Central St
Knoxville, TN 37917

R W D Partners U.S. Government III 102,266.030 6.59% 1,552,556.850
John A Decell
Hedgerow Ltd.
5178 Wheelis Dr, Ste. 2
Memphis, TN 38117
</TABLE>

18
<PAGE> 210

Total % of Total Outstanding
Name and Address Portfolio Class Shares Owned Class Held in Class
- --------------------------------- -------------- -------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Nuclear Fuel Services Municipal MM I 3,763,001.370 9.00% 41,805,286
Attn: Daniel Miller
1205 Banner Hill Rd
Erwin, TN 37650

Agnes Turley Municipal MM I 2,697,110.440 6.45% 41,805,286
Auxiliary Account
4207 Walnut Grove Road
Memphis, TN 38117

National Financial Services Corp. Municipal MM III 3,231,557.180 70.00% 4,616,751.960
P.O. Box 3752
Church Street Station
New York, NY 10008

Ruby Avenue Realty LLC Municipal MM III 290,677.440 6.30% 4,616,751.960
1794 Brooksedge Cove
Germantown, TN 38138

JHD Fixed Income Partnership Municipal MM III 244,091.340 5.29% 4,616,751.960
1000 Rideway Loop Rd., Ste.203
Memphis, TN 38120

Eugenia F. Williams Estate Cash Reserve I 9,765,220.420 32.85% 29,723,439
c/o First Tennessee Bank
Attn: Keith Keisling
800 South Gay, 5th Floor
Knoxville, TN 37929

National Financial Services Corp. Cash Reserve III 52,435,235.190 74.30% 70,576,124.350
P.O. Box 3752
Church Street Station
New York, NY 10008
</TABLE>

19
<PAGE> 211

FINANCIAL STATEMENTS

The Portfolios' financial statements and financial highlights for the fiscal
year ended June 30, 1999, 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 Portfolios' financial statements for the year ended June 30, 1999 were
audited by PricewaterhouseCoopers LLP, whose report thereon is included in the
Portfolios' annual report.

20
<PAGE> 212

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:

o Leading market positions in well established industries.

o High rates of return on funds employed.

o Conservative capitalization structures with moderate reliance on debt and
ample asset protection.

o Broad margins in earning coverage of fixed financial charges and with high
internal cash generation.

o 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.

21
<PAGE> 213

PART C. OTHER INFORMATION

<TABLE>
<CAPTION>
Item 23. Exhibits

Exhibit
Number Description
- -------- -----------
<S> <C>
(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
</TABLE>

<PAGE> 214

<TABLE>
<S> <C>
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)

(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
</TABLE>

<PAGE> 215

<TABLE>
<S> <C>
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 is
filed electronically herewith.

(j) Opinion and Consent of Deloitte & Touche, LLP, independent
accountants is filed electronically herewith.

(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.
</TABLE>

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

<PAGE> 216

(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> 217

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> 218

<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, FTNC (7)
Business
Financial
Services/Memphis
Financial
Services Director, Check Consultants, Inc. (7) Check processing and
related services

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

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

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 manufacturer
Corporation (24) 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 products
Coca Cola Enterprises, Inc. (27)

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> 219

<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> 220

<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, Corp.(11)
Affluent Market
Manager

Executive Vice David L. Berry None
President

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

<PAGE> 221

<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> 222

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> 223

(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> 224

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

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> 225

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

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> 226

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:

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.
<PAGE> 227

Item 28. Location of Accounts and Records

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> 228

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all the requirements
for the effectiveness of this Registration statement pursuant to Rule 485(b)
under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 22 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 28th day of October, 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 October 28, 1999
- ----------------------------
Richard C. Rantzow*

/s/ Jeremy O. May Treasurer October 28, 1999
- ----------------------------
Jeremy O. May*

/s/ Thomas M. Batchelor Trustee October 28, 1999
- ----------------------------
Thomas M. Batchelor*

/s/ John A. DeCell Trustee October 28, 1999
- ----------------------------
John A. DeCell*

/s/ Larry W. Papasan Trustee October 28, 1999
- ----------------------------
Larry W. Papasan*

/s/ L.R. Jalenak, Jr. Trustee October 28, 1999
- ----------------------------
L.R. Jalenak, Jr.*

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

<PAGE> 229

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
(i) Opinion and Consent of Baker, Donelson, Bearman & Caldwell

(j) Opinion and Consent of Deloitte & Touche, LLP
</TABLE>

<PAGE> 1

[BAKER, DONELSON, BEARMAN & CALDWELL LETTERHEAD]

October 27, 1999

Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549

RE: FIRST FUNDS (THE TRUST), COMPRISED OF U.S. GOVERNMENT MONEY MARKET
PORTFOLIO; U.S. TREASURY MONEY MARKET PORTFOLIO; MUNICIPAL MONEY
MARKET PORTFOLIO; CASH RESERVE PORTFOLIO; GROWTH AND INCOME
PORTFOLIO (FORMERLY TOTAL RETURN EQUITY PORTFOLIO); BOND PORTFOLIO
(FORMERLY TOTAL RETURN FIXED INCOME PORTFOLIO); CAPITAL APPRECIATION
PORTFOLIO; INTERMEDIATE BOND PORTFOLIO AND TENNESSEE TAX-FREE
PORTFOLIO (EACH, A PORTFOLIO)

File Nos. 33-46374, 811-6589
Post-Effective Amendment No. 22

Dear Sirs:

We serve as counsel to the above-referenced Trust. In that capacity, we
have reviewed the Post-Effective Amendment No. 22 to the Trust's Registration
Statement on Form N-1A which accompanies this letter ("Amendment"), including
the covering letter thereto. The Amendment was prepared by ALPS Mutual Fund
Services, Inc. ("ALPS"), the Trust's Administrator, and, as stated in the
covering letter to the Amendment, is being filed pursuant to Paragraph (b) of
Rule 485 under the Securities Act of 1933 (the "Securities Act") in accordance
with the amendments to Form N-1A, effective June 1, 1998 and the Commission's
"Plain English" rules, and to reflect the Commission's comments to the Trust's
Post-Effective Amendment No. 20 filed pursuant to Rule 485(a) of the Securities
Act on August 27, 1999. Pursuant to paragraph (b)(4) of Rule 485, we represent
that, to the best of our knowledge based upon the statements of ALPS contained
in the covering letter to the Amendment and our review of the Amendment, the
Amendment does not contain disclosures which would render it ineligible to
become effective pursuant to Rule 485(b).
<PAGE> 2

Securities and Exchange Commission
October 27, 1999
Page 2

Further, we consent to the use of our name in the Registration Statement
and elsewhere as it may appear.

Sincerely,

/s/ BAKER, DONELSON, BEARMAN & CALDWELL
BAKER, DONELSON, BEARMAN & CALDWELL

DMF/ms

<PAGE> 1
INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in this Post-Effective Amendment
No. 22 to Registration Statement No. 33-46374 of First Funds Trust on Form N-1A
of our report dated August 6, 1999, appearing in the Annual Report of First
Funds Trust for the year ended June 30, 1999, and to the references to us under
the headings "Financial Highlights" in the Prospectus and "Independent
Accountants" and "Financial Statements" in the Statement of Additional
Information, which are part of such Registration Statement.

DELOITTE & TOUCHE LLP

Denver, Colorado
October 26, 1999