<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-6589
FIRST FUNDS
-----------
(Exact name of registrant as specified in charter)
1625 Broadway, Suite 2200, Denver, Colorado 80202
-------------------------------------------------
(Address of principal executive offices) (Zip code)
Traci A. Thelen, Secretary
First Funds
1625 Broadway, Suite 2200
Denver, Colorado 80202
----------------------
(Name and address of agent for service)
Registrant's Telephone Number, including Area Code: (303) 623-2577
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Date of fiscal year end: June 30
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Date of reporting period: June 30, 2003
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
<Page>
Item 1. REPORTS TO SHAREHOLDERS
The following is a copy of the report to shareholders pursuant to Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1).
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[GRAPHIC]
FIRSTFUNDS
ANNUAL REPORT - JUNE 30, 2003
[FIRST FUNDS LOGO]
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[GRAPHIC]
LETTER FROM THE CHAIRMAN
DEAR SHAREHOLDERS:
Amid a mixture of economic indicators at the close of the 12-month period, many
consumers appeared to be of two minds: discouraged about the current economic
situation, yet optimistic about the future.
In the first half of 2003, several events occurred to offer hope for the U.S.
economy. In June, the Bureau of Economic Analysis released data that showed
personal income has continued to grow since January 2003, marked by a strong
gain in May with a 0.3 percent increase. Concurrently, disposable incomes have
also been escalating and could benefit from tax cuts under the Job and Growth
Tax Relief Reconciliation Act (JGTRRA) of 2003.
Signed into law in May, the JGTRRA could provide $350 billion worth of tax
reductions to Americans, including relief for individuals, married couples and
parents. The new law also includes provisions to freeze the dividend tax at 15
percent for taxpayers in the top four tax brackets, and reduce the long-term
capital gains tax rate to 15 percent from 20 percent.
In other good news, the Federal Reserve has maintained its accommodative
monetary policy, which, as a result, allowed interest rates to remain at
extremely low levels. In June, the Fed's Open Market Committee decreased its
federal funds rate on overnight loans between banks to 1 percent from 1.25
percent, in a move to further stimulate the stagnant economy. The rate cut
marked the 13th reduction by the Fed since 2001.
Yet, among these positive trends, pockets of weakness still persist. The
unemployment rate rose to 6.4 percent in June, causing many to question the
sustainability of economic activity moving forward. Additionally, real gross
domestic product -- the output of goods and services produced by labor and
property -- increased at an annual rate of 1.4 percent from January through
March of 2003, which represented a much lower figure than many initially
anticipated.
For the past 12 months, the stock market, as measured by the S&P 500 Index, was
up 0.25% as of June 30, 2003. Bonds generally performed well and at the close of
the past 12 months, the Lehman Brothers Aggregate Bond Index, a measure of the
overall bond market, managed a 10.40% increase.
Along with the evolving economy and markets, First Funds has also undergone
several new developments as we strive to better meet investor needs with the
Portfolios we offer and the information we provide.
i
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This past June, the shareholders of the First Funds Growth & Income Portfolio
approved an amendment to the Portfolio's fundamental investment policy.
Subsequently, the Trustees changed the fund's name to the Core Equity Portfolio.
In fact, for several years, fund-rating services such as Morningstar and Lipper,
Inc. have compared the Portfolio against other funds labeled large-cap blend and
large-cap core.
Also in June, the shareholders of the Bond Portfolio approved the merger of the
Bond Portfolio assets into the Intermediate Bond Portfolio. The primary reasons
for the reorganization of the Funds are to seek future economies of scale and to
eliminate certain costs associated with operating both Portfolios separately.
Market trends and net shareholder activity were additional factors supporting
the funds' merger.
In light of these changes and the changing markets, the First Funds portfolio
managers attempt a strategy of discipline, patience and consistency with their
security selections. The results of this approach are included within this
annual report.
Thank you for your investment with First Funds.
Sincerely,
/s/ Richard C. Rantzow
Richard C. Rantzow
Chairman, Board of Trustees
[SIDENOTE]
FIRST FUNDS
- - Are NOT insured by the FDIC or any other governmental agency.
- - Are NOT bank deposits or other obligations of or guaranteed by First
Tennessee Bank National Association or any of its affiliates.
- - Involve investment risks, including the possible loss of the principal amount
invested.
- - Although the MoneyMarket Portfolios seek to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in
the portfolios.
ii
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[GRAPHIC]
FIRST FUNDS CORE EQUITY PORTFOLIO
CORE EQUITY PORTFOLIO MANAGERS
EDWARD GOLDSTEIN AND DAVID THOMPSON, CFA
[PHOTO OF EDWARD GOLDSTEIN AND DAVID THOMPSON]
MR. GOLDSTEIN is executive vice president of Memphis, Tennessee-based Highland
Capital Management Corp., sub-adviser to the Portfolio. After graduating from
Boston University in 1971, he went on to receive his MBA from Columbia
University in 1976. Joining Goldman, Sachs & Company in New York in 1976, he
became a vice president in the international department with responsibility for
Japan, the Middle East and Latin America. Mr. Goldstein joined Highland Capital
in 1989, and has been a portfolio manager for the Portfolio since 1994.
MR. THOMPSON is senior vice president with Highland Capital Management Corp. and
is a Chartered Financial Analyst. After graduating from the University of
Mississippi in 1981, he worked as an analyst for Gulf Oil for three years, then
went on to receive his MBA from the University of North Carolina in 1986. With
nine years of experience managing both individual and institutional investment
portfolios at major regional banks, Mr. Thompson joined Highland Capital's
equity team in 1995.
FISCAL YEAR REVIEW
MARKET REVIEW AND PORTFOLIO UPDATE
For the year ended June 30, 2003, the Portfolio's benchmark, the S&P 500 Index,
gained a mere 0.25%. While only marginally positive, it still marked a welcome
reprieve from the negative stock market returns of 2000, 2001 and 2002.
Throughout the year, volatility ruled equities as evidenced by S&P 500 Index
performance ranging from a loss of 17.27% in the third calendar quarter of 2002,
to a gain of 15.39% in the second calendar quarter of 2003. July through
September of 2002 actually registered as the market's worst quarter since the
fourth quarter of 1987, as the slowing economy in the middle of 2002 caused
earnings estimates to be cut, resulting in poor equity performance. However, the
market recovered from this decline from October through December of 2002 to
produce a gain of 8.43% for the index.
Compared to the S&P 500, the Portfolio continues to be overweighted in the
financial and consumer discretionary sectors which both performed well during
the last six months. Consumer discretionary holdings, particularly retail stocks
such as Home Depot, Inc., Federated Department Stores, Inc., and Costco
Wholesale Corp., rose significantly in the first half of 2003. This was in part
due to improved consumer confidence post-Iraqi war and to consumers who took
savings from home refinancings to continue purchasing goods.
Detractors from performance during the period were Schering-Plough Corp. (-21%)
and American International Group, Inc. (-19%). Additionally, the Portfolio is
underweighted versus the index in information technology, consumer staples, and
industrials. Although the technology sector has been the best performing sector
of the market in 2003, we view the valuations on a number of the technology
stocks as being excessive at current price levels.
In the first half of 2003, the stock market has moved substantially higher as
corporate earnings have improved. Yet it's important to note that we do not
attempt to predict future market movements. Instead, our investment strategy is
based on finding stocks at attractive valuations that we feel have strong
financial characteristics and earnings per share growth rates, regardless of
market conditions.
iii
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INDUSTRY BREAKDOWN AND PERFORMANCE
AS OF JUNE 30, 2003
<Table>
Financials 30.6%
Diversified Financials 13.3%
Insurance 11.5%
Banks 5.8%
Consumer Discretionary 15.7%
Healthcare 14.3%
Information Technology 12.7%
Consumer Staples 10.6%
Industrials 5.0%
Telecommunications 4.9%
Money Market Mutual Funds 3.4%
Energy 2.8%
</Table>
<Table>
<Caption>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN* TOTAL RETURN*
SINCE SINCE
INCEPTION 1 YEAR 5 YEAR INCEPTION
Class I 206.23% 2.76% 1.71% 11.95%
Class A 182.97% (3.32)% 0.25% 11.06%
Class B 175.79% (3.24)% 0.23% 10.76%
Class C 175.79% 0.72% 0.66% 10.77%
S&P 500 160.32% 0.25% (1.60)% 10.13%
</Table>
[CHART]
COMPARISON OF CHANGE IN VALUE OF A $750,000 INVESTMENT IN THE FIRST FUNDS CORE
EQUITY PORTFOLIO (CLASS I) AND THE S&P 500.
<Table>
<Caption>
GROWTH & INCOME
PORTFOLIO (CLASS I) S&P 500
8/2/1993 750,000 750,000
780,000 774,750
776,256 768,784
783,786 784,698
783,786 777,244
804,164 786,648
839,789 813,394
824,588 791,351
797,130 756,848
810,123 766,536
823,085 779,107
6/30/1994 805,553 760,019
830,042 784,948
872,208 817,131
854,589 797,111
867,408 815,046
835,314 785,378
846,591 797,002
872,497 817,644
896,839 849,532
922,040 874,594
945,645 900,394
974,203 936,410
6/30/1995 1,000,410 958,134
1,036,420 989,945
1,036,420 992,419
1,052,070 1,034,300
1,033,980 1,030,580
1,080,090 1,075,820
1,096,400 1,096,580
1,140,810 1,133,860
1,158,260 1,144,410
1,190,580 1,155,400
1,202,840 1,172,380
1,237,720 1,202,630
6/30/1996 1,235,990 1,207,200
1,187,910 1,153,840
1,216,780 1,178,190
1,272,990 1,244,520
1,307,230 1,278,870
1,400,440 1,375,550
1,380,690 1,348,310
1,467,260 1,432,580
1,454,200 1,443,760
1,424,390 1,384,420
1,467,270 1,467,070
1,555,890 1,556,410
6/30/1997 1,592,300 1,626,140
1,728,760 1,755,580
1,669,810 1,657,270
1,786,030 1,748,090
1,742,800 1,689,700
1,834,820 1,767,930
1,879,780 1,798,340
1,895,380 1,818,300
2,007,590 1,949,400
2,117,000 2,049,210
2,114,040 2,069,910
2,053,360 2,034,310
6/30/1998 2,110,240 2,116,900
2,069,090 2,094,250
1,783,970 1,791,420
1,913,310 1,906,250
2,065,230 2,061,230
2,179,020 2,186,140
2,307,580 2,312,060
2,384,190 2,409,400
2,385,150 2,334,230
2,465,770 2,427,600
2,536,530 2,521,540
2,522,330 2,462,040
6/30/1999 2,652,480 2,598,680
2,612,960 2,517,600
2,557,300 2,505,010
2,552,440 2,436,370
2,770,170 2,590,600
2,765,180 2,643,180
2,823,250 2,798,870
2,748,570 2,658,370
2,659,170 2,608,120
2,905,850 2,863,200
2,835,670 2,777,020
2,894,530 2,720,090
6/30/2000 2,868,500 2,787,270
2,854,910 2,743,790
3,012,320 2,914,180
3,012,310 2,760,310
3,143,730 2,748,720
3,031,570 2,532,120
3,124,150 2,544,530
3,109,830 2,634,860
2,961,500 2,394,560
2,784,550 2,242,980
2,905,620 2,417,260
2,936,860 2,433,460
6/30/2001 2,848,320 2,374,320
2,822,270 2,351,060
2,675,100 2,203,880
2,518,890 2,026,030
2,554,110 2,064,720
2,725,000 2,223,090
2,739,520 2,242,650
2,739,520 2,242,650
2,637,530 2,209,910
2,545,450 2,167,260
2,641,780 2,248,750
2,471,710 2,112,470
2,439,110 2,096,840
6/30/2002 2,235,040 1,947,540
2,046,310 1,795,830
2,090,300 1,807,500
1,837,660 1,611,210
1,994,000 1,752,840
2,129,020 1,855,900
2,005,640 1,746,960
1,984,300 1,701,360
1,972,920 1,675,840
1,985,700 1,692,100
2,194,950 1,831,360
2,305,980 1,927,690
6/30/2003 $2,296,716 $1,952,363
</Table>
PLEASE NOTE: CLASS I INCEPTION IS AUGUST 2, 1993. MINIMUM INVESTMENT FOR CLASS I
IS $750,000. THE GRAPH AND THE PERFORMANCE TABLE ABOVE DO NOT REFLECT THE
DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON PORTFOLIO DISTRIBUTIONS OR
THE REDEMPTION OF PORTFOLIO SHARES.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
*TOTAL RETURNS ARE FOR THE PERIOD ENDED 06/30/2003 AND REFLECT REINVESTMENT OF
ALL DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS, ALL FEE WAIVERS IN EFFECT, AND ANY
EXPENSE REIMBURSEMENTS. WITHOUT THE FEE WAIVERS AND EXPENSE REIMBURSEMENTS, THE
TOTAL RETURN FIGURES WOULD HAVE BEEN LOWER. CLASS I INCEPTION DATE IS 8/2/1993.
ON 12/9/1993, THE PORTFOLIO COMMENCED SALES OF CLASS C SHARES, WHICH INCLUDE A
..75% DISTRIBUTION FEE AND A .25% SHAREHOLDER SERVICES FEE. PERFORMANCE
INFORMATION PRIOR TO 12/9/1993 FOR CLASS C SHARES IS BASED ON THE PERFORMANCE OF
CLASS I SHARES AND DOES NOT REFLECT THE EFFECTS OF THESE FEES, WHICH, IF
INCLUDED, WOULD LOWER CLASS C PERFORMANCE. QUOTATION OF CLASS C PERFORMANCE
REFLECTS A 1% DEFERRED SALES LOAD APPLIED TO REDEMPTIONS MADE DURING THE FIRST
YEAR AFTER PURCHASE. WITHOUT THIS LOAD, THE FIGURES QUOTED WOULD HAVE BEEN 1.72%
FOR 1 YEAR. THE PORTFOLIO COMMENCED SALES OF CLASS A SHARES ON 12/20/1995, WHICH
INCLUDE A .25% SHAREHOLDER SERVICES FEE. CLASS A PERFORMANCE SHOWN IS BASED ON A
MAXIMUM 5.75% INITIAL SALES CHARGE. PERFORMANCE INFORMATION FOR CLASS A SHARES
PRIOR TO THEIR INCEPTION DATE IS BASED ON THE PERFORMANCE OF CLASS I SHARES AND
DOES NOT REFLECT THE EFFECTS OF THESE FEES WHICH, IF INCLUDED, WOULD LOWER CLASS
A PERFORMANCE. THE PORTFOLIO COMMENCED SALES OF CLASS B SHARES ON 8/3/1999.
THESE SHARES INCLUDE A 1.00% DISTRIBUTION FEE. PERFORMANCE INFORMATION FOR CLASS
B SHARES PRIOR TO THEIR INCEPTION REFLECT APPLICABLE CLASS C AND CLASS I
PERFORMANCE DATA. CLASS B PERFORMANCE SHOWN IS NET OF CDSC. CLASS B SHARES OF
THE PORTFOLIO ARE SUBJECT TO A 5.00% CDSC WHICH DECLINES TO 0.00% FOR SHARES
HELD UP TO SIX YEARS.
iv
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[GRAPHIC]
FIRST FUNDS CAPITAL APPRECIATION PORTFOLIO
CAPITAL APPRECIATION PORTFOLIO MANAGERS
PORTFOLIO MANAGEMENT TEAM
[PHOTO]
A team of Portfolio Managers is responsible for the day-to-day operations of the
Portfolio. The team is lead by Gerald S. Frey, Managing Director/Chief
Investment Officer, growth equities of Delaware Investments who has 23 years of
professional experience.
Other team members: MARSHALL T. BASSETT, Senior Vice President/Portfolio
Manager, Consumer and Retail Sector Specialty; JOHN A. HEFFERN, Senior Vice
President/Portfolio, Business & Financial Services Sector; FRANCIS J. HOUGHTON,
JR. (not pictured), Senior Vice President/Portfolio Manager, Healthcare Sector
Specialty; Jeffrey W. Hynoski, Vice President/Portfolio Manager, Technology
Sector Specialty; STEVEN T. LAMPE, Vice President/Portfolio Manager, Healthcare
Sector Specialty; and LORI P. WACHS, Vice President/Portfolio Manager, Consumer
& Retail Sector Specialty.
FISCAL YEAR REVIEW
MARKET REVIEW AND PORTFOLIO UPDATE
After many periods of declining stock prices since March 2000, the Portfolio's
benchmark, the Russell 2000 Growth Index, was decidedly positive for the first
six months of 2003. From January through June, the index showed a gain of 18.82%
due in part to stronger corporate earnings, the conclusion of major combat in
the Iraqi war and Congress' fiscal stimulus package. However, despite the rally,
the index fell 0.18% for the year ended June 30, 2003.
The main catalyst behind the Portfolio's strong performance was individual stock
selection in a variety of sectors. Inspire Pharmaceuticals, Inc. was the
Portfolio's biggest contributor to returns, as it rose more than 150% during the
year based on positive results regarding several of its drugs in development.
Coach, Inc. was also a solid performer during the past year, rising over 80%, as
it continued to post strong earnings and sales gains. Additionally, stocks with
exposure to the housing market, such as American Home Mortgage Holdings and WCI
Communities, did well during the period as these companies benefited from the
current low interest rate environment.
First Horizon Pharmaceuticals was the Portfolio's worst performer during the
year as it declined after drastically lowering its future sales and earnings
guidance. Wet Seal also did poorly as it lowered guidance during the 12-month
period. As a result, we sold the Portfolio's positions in both stocks.
Looking forward, we are encouraged by the market's recent strength. We feel that
the next few months will be critical in determining whether the current rally
can be sustained as many companies, particularly technology-related stocks, will
be expected to live up to the current high expectations surrounding their future
prospects.
As we enter the new year, we will continue to rely on our sector experienced
team management approach to help us manage the Portfolio and select small
company stocks that, we believe, appear poised for future growth.
v
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INDUSTRY BREAKDOWN AND PERFORMANCE
AS OF JUNE 30, 2003
<Table>
Healthcare 20.2%
Financials 18.5%
Consumer Services 16.6%
Technology 12.6%
Consumer Non-Durables 11.3%
Business Services 6.4%
Energy 4.0%
U.S. Government & Agency Obligations 3.6%
Transportation 2.9%
Consumer Durables 2.4%
Capital Goods 1.5%
</Table>
<Table>
<Caption>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN* TOTAL RETURN*
SINCE SINCE
INCEPTION 1 YEAR 5 YEAR INCEPTION
Class I 21.01% 13.82% 2.41% 3.33%
Class A 6.34% 6.95% 0.86% 1.08%
Class B 7.91% 7.63% 1.09% 1.33%
Class C 7.85% 11.65% 1.27% 1.32%
Russell 2000
Growth Index (16.46)% (0.17)% (4.39)% (3.04)%
</Table>
[CHART]
COMPARISON OF CHANGE IN VALUE OF A $750,000 INVESTMENT IN THE FIRST FUNDS
CAPITAL APPRECIATION PORTFOLIO (CLASS I) AND THE RUSSELL 2000 GROWTH INDEX.
<Table>
<Caption>
CAPITAL APPRECIATION RUSSELL 2000
PORTFOLIO (CLASS I) GROWTH INDEX
750,000 750,000
9/2/1997 788,250 809,850
728,974 761,259
720,007 743,141
742,543 743,587
745,514 733,697
816,785 798,483
861,790 832,019
863,255 837,094
808,524 776,238
6/30/1998 805,533 784,155
750,032 718,678
597,025 552,807
611,294 608,862
657,813 640,645
694,585 690,359
754,389 752,836
728,212 786,714
670,537 714,729
691,324 740,174
722,088 805,531
750,538 806,820
6/30/1999 789,791 849,339
772,100 823,095
748,242 792,311
745,923 807,603
762,855 828,277
831,283 915,826
964,288 1,077,290
947,371 1,067,270
1,184,210 1,315,620
1,224,200 1,177,350
1,116,540 1,058,440
1,008,890 965,718
6/30/2000 1,112,700 1,090,490
1,114,240 997,033
1,189,600 1,101,920
1,181,140 1,047,160
1,122,700 962,127
971,978 787,405
1,059,560 835,594
1,055,590 903,193
925,503 779,365
831,165 708,521
897,698 795,244
963,238 813,694
6/30/2001 991,043 836,884
879,824 765,498
832,158 717,654
723,918 601,825
794,423 659,720
842,089 714,807
921,531 759,340
883,796 732,307
831,165 684,927
889,754 744,447
879,824 728,367
847,054 685,757
6/30/2002 797,402 627,605
697,106 530,640
702,072 530,056
662,350 491,998
697,106 507,742
762,646 553,033
734,842 522,284
716,967 512,642
698,099 498,647
724,911 505,678
797,402 553,262
887,768 615,228
6/30/2003 907,629 626,548
</Table>
Please note: Class I inception is September 2, 1997. Minimum investment for
Class I is $750,000. The graph and the performance table above do not reflect
the deduction of taxes that a shareholder would pay on Portfolio distributions
or the redemption of Portfolio shares.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
*TOTAL RETURNS ARE FOR THE PERIOD ENDED 06/30/2003 AND REFLECT REINVESTMENT OF
ALL DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS, ALL FEE WAIVERS IN EFFECT AND ANY
EXPENSE REIMBURSEMENTS. WITHOUT THE FEE WAIVERS AND EXPENSE REIMBURSEMENTS, THE
TOTAL RETURN FIGURES WOULD HAVE BEEN LOWER. CLASS I INCEPTION DATE IS 9/2/1997.
THE PORTFOLIO COMMENCED SALES OF CLASS A SHARES ON 10/2/1997. THESE SHARES
INCLUDE A .25% SHAREHOLDER SERVICES FEE. CLASS A PERFORMANCE SHOWN IS BASED ON A
MAXIMUM 5.75% INITIAL SALES CHARGE. ON 10/2/1997, THE PORTFOLIO COMMENCED SALES
OF CLASS C SHARES, WHICH INCLUDE A .75% DISTRIBUTION FEE AND A .25% SHAREHOLDER
SERVICES FEE. QUOTATION OF CLASS C PERFORMANCE REFLECTS A 1% DEFERRED SALES LOAD
APPLIED TO REDEMPTIONS MADE DURING THE FIRST YEAR AFTER PURCHASE. WITHOUT THIS
LOAD, THE FIGURES QUOTED WOULD HAVE BEEN 12.65% FOR 1 YEAR. THE PORTFOLIO
COMMENCED SALES OF CLASS B SHARES ON 8/3/1999. THESE SHARES INCLUDE A 1.00%
DISTRIBUTION FEE. CLASS B SHARES OF CAPITAL APPRECIATION PRIOR TO THEIR
INCEPTION REFLECT APPLICABLE CLASS C PERFORMANCE DATA. CLASS B PERFORMANCE SHOWN
IS NET OF CDSC. CLASS B SHARES OF THE PORTFOLIO ARE SUBJECT TO A 5.00% CDSC
WHICH DECLINES TO 0.00% FOR SHARES HELD UP TO SIX YEARS.
vi
<Page>
[GRAPHIC]
FIRST FUNDS INTERMEDIATE BOND PORTFOLIO
INTERMEDIATE BOND PORTFOLIO MANAGERS
RALPH W. HERBERT, TED L. FLICKINGER, JR. AND MICHAEL W. HOLT
[PHOTO OF RALPH W. HERBERT, TED L. FLICKINGER, JR. AND MICHAEL W. HOLT]
MR. HERBERT is vice president for Martin & Company, the sub-adviser to the
Portfolio. He is a graduate of the University of Tennessee and in 1979 he began
his career with First American Bank. In 1987 he joined Culver Securities as a
municipal debt underwriter and two years later became portfolio manager for
Valley Fidelity Bank. That bank merged with First Tennessee Bank in 1991. Mr.
Herbert joined Martin & Company in 1998 when the firm became a subsidiary of
First Tennessee National Corporation.
MR. FLICKINGER is executive vice president for Martin & Company and is a
Chartered Financial Analyst. Prior to joining the firm in 1990, he was an
assistant manager of the investment department of Home Federal Bank of Tennessee
for six years. His 22-year career includes management positions in the
investment departments of the Park National Bank and Fidelity Federal Savings
and Loan of Knoxville.
MR. HOLT is a Chartered Financial Analyst, holds an MBA and is senior vice
president for Martin & Company. Prior to joining the firm in 2002, he was senior
vice president fixed income portfolio manager and head of fixed income research
for Wachovia Asset Management. Mr. Holt's 17-year investment career also
included being a fixed income portfolio manager with Third National Bank (now
Sun Trust) and a fixed income account representative with Morgan Keegan &
Company.
FISCAL YEAR REVIEW
MARKET REVIEW AND PORTFOLIO UPDATE
During the past 12 months, volatility remained pronounced throughout the bond
market. The 10-year Treasury rate, for example, ranged from 4.18% to 3.56%
during the January through March quarter, equating to a 4.89% swing in its
price.
In the first half of the 12-month period, the cut in the federal funds rate by
0.50% helped push short-term rates lower. The Federal Reserve then met in the
fourth quarter to decide further reductions. At the May meeting, the Fed left
the federal funds rate unchanged at 1.25%. At the June meeting, however, the Fed
cut the federal funds rate by 0.25% to 1.00%.
During the first quarter, we shortened the Portfolio's duration to 85% of the
fund's benchmark, the Lehman Brothers Government/Credit Index, and ended the
quarter with the duration at 3.0 years. At that time, the average credit quality
was AA3. The Portfolio then remained at 85% of the duration of the index
throughout the second quarter.
With real rates at low levels, we believed a reduced level of interest rate risk
was warranted. During the third quarter of the 12-month period, the fund was
shortened to a duration of 82% of the index. The Portfolio also had no
allocation to the Treasury market since agency and corporate bonds offered
higher yields than Treasuries during the quarter.
At the beginning of June, we cut the Portfolio's targeted duration to 80% from
82% of the index to further reduce the Portfolio's interest rate exposure. We
also reduced the Portfolio's exposure to the agency market, targeting sales of
Federal Home Loan Mortgage Corporation bonds. As of June 30, 2003, the Portfolio
had an average credit quality of AA1. Currently, we target a market-weighted
position in Freddie Mac and an over-weighted position in other U.S. agencies and
has an average credit quality of AA1.
vii
<Page>
INDUSTRY BREAKDOWN AND PERFORMANCE
AS OF JUNE 30, 2003
<Table>
U.S. Government & Agency Obligations 58.0%
Financials 25.8%
Broker/Dealers 10.3%
Banks 7.1%
Financial Services 6.2%
Insurance 2.2%
Industrials 12.4%
MoneyMarket Mutual Funds 3.1%
Utilities 0.7%
</Table>
<Table>
<Caption>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN* TOTAL RETURN*
SINCE SINCE
INCEPTION 1 YEAR 5 YEAR INCEPTION
Class I 45.40% 9.35% 7.31% 7.27%
Class A 38.51% 5.23% 6.29% 6.32%
Class B 37.03% 4.61% 6.15% 6.35%
Class C 37.94% 7.54% 6.45% 6.49%
Lehman Bros.
Intermediate
Gov't/Credit Index 47.71% 10.82% 7.64% 7.59%
</Table>
[CHART]
COMPARISON OF CHANGE IN VALUE OF A $750,000 INVESTMENT IN THE FIRST FUNDS
INTERMEDIATE BOND PORTFOLIO (CLASS I) AND THE LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CREDIT INDEX.
<Table>
<Caption>
INTERMEDIATE BOND LEHMAN BROTHERS INTERMEDIATE
PORTFOLIO (CLASS I) GOV'T/CREDIT INDEX
3/2/1998 750,000 750,000
752,100 752,400
755,785 756,162
761,832 761,682
6/30/1998 766,250 766,557
768,472 769,240
779,923 781,317
795,131 800,928
794,893 800,127
795,528 800,047
798,870 803,247
802,784 807,665
794,435 795,792
799,202 801,761
800,640 804,246
794,876 798,053
6/30/1999 793,842 798,612
792,890 797,893
793,603 798,532
801,698 805,958
803,141 808,053
804,507 809,104
801,047 806,434
798,241 803,450
803,616 810,038
811,796 818,463
811,438 816,580
812,061 817,887
6/30/2000 825,426 832,282
831,178 838,607
842,155 848,503
850,465 856,224
855,416 860,163
868,197 871,861
886,416 887,903
898,475 902,465
906,746 911,038
913,454 918,053
911,215 915,666
915,320 920,794
6/30/2001 918,509 924,201
936,282 943,424
944,954 952,858
963,716 966,770
977,960 982,819
968,118 972,990
963,607 967,639
968,635 972,671
974,521 980,355
958,654 965,453
974,097 981,383
987,639 991,197
6/30/2002 997,445 999,721
1,013,900 1,011,520
1,024,570 1,026,590
1,039,150 1,044,970
1,038,150 1,040,890
1,037,100 1,039,950
1,055,870 1,062,620
1,053,810 1,062,520
1,068,620 1,077,500
1,067,400 1,078,580
1,074,180 1,086,770
1,091,970 1,108,620
6/30/2003 $1,090,659 1,107,840
</Table>
PLEASE NOTE: CLASS I INCEPTION IS MARCH 2, 1998. MINIMUM INVESTMENT FOR CLASS I
IS $750,000. THE GRAPH AND THE PERFORMANCE TABLE ABOVE DO NOT REFLECT THE
DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON PORTFOLIO DISTRIBUTIONS OR
THE REDEMPTION OF PORTFOLIO SHARES.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
*TOTAL RETURNS ARE FOR THE PERIOD ENDED 06/30/2003 AND REFLECT REINVESTMENT OF
ALL DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS, ALL FEE WAIVERS IN EFFECT AND ANY
EXPENSE REIMBURSEMENTS. WITHOUT THE FEE WAIVERS AND EXPENSE REIMBURSEMENTS, THE
TOTAL RETURN FIGURES WOULD HAVE BEEN LOWER. CLASS I INCEPTION DATE IS 3/2/1998.
THE PORTFOLIO COMMENCED SALES OF CLASS A SHARES ON 3/9/1998. THESE SHARES
INCLUDE A .25% SHAREHOLDER SERVICES FEE. CLASS A PERFORMANCE SHOWN IS BASED ON A
MAXIMUM 3.50% INITIAL SALES CHARGE. ON 5/19/1998, THE PORTFOLIO COMMENCED SALES
OF CLASS C SHARES, WHICH INCLUDE A .50% DISTRIBUTION FEE AND A .25% SHAREHOLDER
SERVICES FEE. QUOTATION OF CLASS C PERFORMANCE REFLECTS A 1% DEFERRED SALES LOAD
APPLIED TO REDEMPTIONS MADE DURING THE SIXTEEN MONTHS AFTER PURCHASE. WITHOUT
THIS LOAD, THE FIGURES QUOTED WOULD HAVE BEEN 8.54% FOR 1 YEAR. THE PORTFOLIO
COMMENCED SALES OF CLASS B SHARES ON 10/28/2002. THESE SHARES INCLUDE A 0.70%
DISTRIBUTION FEE. CLASS B SHARES PRIOR TO THEIR INCEPTION REFLECT APPLICABLE
CLASS C PERFORMANCE DATA. CLASS B SHARES OF THE INTERMEDIATE BOND PORTFOLIO ARE
SUBJECT TO A 4.00% CDSC WHICH DECLINES TO 0.00% FOR SHARES HELD UP TO SIX YEARS.
TREASURY BONDS ARE GUARANTEED AS TO THE TIMELY PAYMENT OF INTEREST AND REPAYMENT
OF PRINCIPAL IF HELD TO MATURITY.
viii
<Page>
[GRAPHIC]
FIRST FUNDS TENNESSEE TAX-FREE PORTFOLIO
TENNESSE TAX-FREE PORTFOLIO MANAGERS
RALPH W. HERBERT AND TED L. FLICKINGER, JR.
[PHOTO OF RALPH W. HERBERT AND TED L. FLICKINGER, JR.]
MR. HERBERT is vice president for Martin & Company, the sub-adviser to the
Portfolio. He is a graduate of the University of Tennessee and in 1979 he began
his career with First American Bank. In 1987 he joined Culver Securities as a
municipal debt underwriter and two years later became portfolio manager for
Valley Fidelity Bank. That bank merged with First Tennessee Bank in 1991. Mr.
Herbert joined Martin & Company in 1998 when the firm became a subsidiary of
First Tennessee National Corporation.
MR. FLICKINGER is executive vice president for Martin & Company and is a
Chartered Financial Analyst. Prior to joining the firm in 1990, he was an
assistant manager of the investment department of Home Federal Bank of Tennessee
for six years. His 22-year career includes management positions in the
investment departments of the Park National Bank and Fidelity Federal Savings
and Loan of Knoxville.
FISCAL YEAR REVIEW
MARKET REVIEW AND PORTFOLIO UPDATE
In the first quarter of the 12-month period, yields fell 0.50% to 0.65% across
the intermediate sector of the municipal yield curve. Meanwhile, the relative
value of 10-year, AA-rated municipals rose from 85% to 95% of 10-year Treasury
yield.
During the second quarter, the supply of new municipal bonds increased, which
pressured longer municipal yields to rise as much as 0.69% in less than two
weeks. Also, during the quarter, the Federal Reserve unexpectedly cut the
federal funds rate 0.50%.
In late March, in synch with the outbreak of war, intermediate yields rose
0.35%. This spike in yields wiped out most of the earlier gains. On average,
municipal bond yields finished the first quarter 0.10% lower. However, the yield
ratio of 10-year, AA-rated municipals continued to be attractive relative to
10-year Treasury notes at 97.90%.
During the first quarter, we shortened the average maturity of the Portfolio
from 7.8 years to 7.7 years as expected real returns dropped. Nominal yields
were lower than they had been in more than 40 years with the 10-year Treasury
rate at 3.52%. After incorporating our assumed inflation rate of 2%, expected
real rates dropped to below 2% on 10-year Treasuries and below 4.0% on
tax-adjusted, 10-year, AA-rated municipals.
We extended the average maturity from 7.7 years to 8.2 years in the second
quarter when bond yields spiked upwards and continued to extend the average
maturity from 8.2 years to 8.3 years during the third quarter. From April to
June 2003, we lengthened the average maturity of the Portfolio from 8.3 years to
8.5 years by buying high-coupon bonds with short-call dates. High-coupon bonds
may lose less value than par bonds when interest rates rise.
At its meeting in June, the Federal Reserve expressed a commitment to keep
short-term rates low in order to get inflation and deflation risk back into
balance. As a result, we do not believe at today's low interest rates that there
is enough return to continue to extend the average maturity, and the associated
interest rate risk.
ix
<Page>
INDUSTRY BREAKDOWN AND PERFORMANCE
AS OF JUNE 30, 2003
<Table>
General Obligations 53.4%
Health & Education 21.7%
Utilities 16.6%
Other 3.4%
General Revenue 2.1%
Money Market Mutual Funds 1.8%
Housing 1.0%
</Table>
<Table>
<Caption>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN* TOTAL RETURN*
SINCE SINCE
INCEPTION 1 YEAR 5 YEAR INCEPTION
Class I 51.26% 6.89% 5.39% 5.64%
Class A 43.33% 2.61% 4.37% 4.91%
Class B 45.57% 2.15% 4.36% 5.10%
Class C 46.80% 5.48% 4.87% 5.22%
Lehman Bros.
10-Year
Municipal
Bond Index 61.41% 9.19% 6.49% 6.55%
</Table>
[CHART]
COMPARISON OF CHANGE IN VALUE OF A $750,000 INVESTMENT IN THE FIRST FUNDS
TENNESSEE TAX-FREE PORTFOLIO (CLASS I) AND THE LEHMAN BROTHERS 10-YEAR MUNICIPAL
BOND INDEX.
<Table>
<Caption>
TENNESSEE TAX-FREE LEHMAN BROTHERS 10-YEAR
PORTFOLIO (CLASS I) MUNICIPAL BOND INDEX
12/15/1995 750,000 750,000
755,175 754,575
759,706 762,196
756,895 759,071
746,753 749,659
741,899 747,035
740,860 744,943
6/30/1996 745,083 752,020
753,503 759,240
756,743 759,240
763,856 767,060
771,113 776,725
783,836 792,415
782,582 788,849
782,112 791,925
789,229 799,369
779,206 788,658
784,115 794,494
796,269 805,776
6/30/1997 806,700 814,639
828,562 837,530
819,696 829,406
830,188 839,940
834,339 844,392
838,427 848,276
850,082 861,679
858,412 871,243
859,013 871,243
861,762 870,633
860,039 865,845
869,327 880,564
6/30/1998 872,630 883,822
874,288 885,236
885,305 900,640
893,715 914,059
897,022 914,425
899,444 917,168
901,962 920,011
914,048 934,087
908,381 925,681
910,107 925,218
911,654 927,716
908,099 921,222
6/30/1999 894,659 904,087
899,043 910,144
896,256 906,777
897,869 909,860
891,494 903,491
898,537 913,339
896,111 908,590
893,170 904,864
896,337 912,013
908,130 929,706
904,957 925,057
899,118 919,600
6/30/2000 919,983 944,613
930,835 957,648
942,653 972,492
939,439 968,018
947,617 977,892
952,894 983,173
970,615 1,006,280
981,737 1,019,260
984,011 1,020,990
991,359 1,029,670
984,280 1,017,000
993,640 1,028,090
6/30/2001 998,076 1,034,260
1,009,420 1,048,430
1,022,730 1,066,360
1,024,270 1,064,860
1,033,780 1,077,640
1,024,480 1,063,740
1,017,060 1,052,460
1,031,520 1,072,360
1,042,090 1,087,690
1,025,580 1,065,280
1,045,140 1,090,000
1,049,670 1,095,120
6/30/2002 1,061,320 1,108,700
1,072,000 1,123,450
1,081,720 1,138,050
1,099,620 1,165,250
1,086,840 1,144,040
1,082,260 1,134,660
1,098,370 1,159,510
1,097,850 1,153,370
1,110,850 1,173,320
1,110,280 1,173,910
1,115,840 1,182,590
1,137,230 1,216,420
6/30/2003 $1,098,367 $1,159,511
</Table>
PLEASE NOTE: CLASS I INCEPTION IS DECEMBER 15, 1995. MINIMUM INVESTMENT FOR
CLASS I IS $750,000. THE GRAPH AND THE PERFORMANCE TABLE ABOVE DO NOT REFLECT
THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON PORTFOLIO DISTRIBUTIONS
OR THE REDEMPTION OF PORTFOLIO SHARES.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
*TOTAL RETURNS ARE FOR THE PERIOD ENDED 06/30/2003 AND REFLECT REINVESTMENT OF
ALL DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS, ALL FEE WAIVERS IN EFFECT AND ANY
EXPENSE REIMBURSEMENTS. WITHOUT THE FEE WAIVERS AND EXPENSE REIMBURSEMENTS, THE
TOTAL RETURN FIGURES WOULD HAVE BEEN LOWER. CLASS I INCEPTION DATE IS
12/15/1995. ON 12/15/1995, THE PORTFOLIO ALSO COMMENCED SALES OF CLASS C SHARES,
WHICH INCLUDE A .50% DISTRIBUTION FEE. ON 12/29/1995, THE PORTFOLIO COMMENCED
SALES OF CLASS A SHARES, WHICH INCLUDE A .25% SHAREHOLDER SERVICES FEE. CLASS A
PERFORMANCE SHOWN IS BASED ON A MAXIMUM 3.75% INITIAL SALES CHARGE. QUOTATION OF
CLASS C PERFORMANCE REFLECTS A 1% DEFERRED SALES LOAD APPLIED TO REDEMPTIONS
MADE DURING THE FIRST TWO YEARS AFTER PURCHASE. WITHOUT THIS LOAD, THE FIGURES
QUOTED WOULD HAVE BEEN 6.48% FOR 1 YEAR. THE PORTFOLIO COMMENCED SALES OF CLASS
B SHARES ON 8/3/1999. THESE SHARES INCLUDE A 0.70% DISTRIBUTION FEE. CLASS B
SHARES PRIOR TO THEIR INCEPTION REFLECT APPLICABLE CLASS C PERFORMANCE DATA.
CLASS B PERFORMANCE SHOWN IS NET OF CDSC. CLASS B SHARES OF THE TENNESSEE
TAX-FREE PORTFOLIO ARE SUBJECT TO A 4.00% CDSC WHICH DECLINES TO 0.00% FOR
SHARES HELD UP TO SIX YEARS. TREASURY BONDS ARE GUARANTEED AS TO THE TIMELY
PAYMENT OF INTEREST AND REPAYMENT OF PRINCIPAL IF HELD TO MATURITY.
x
<Page>
[GRAPHIC]
DEFINITIONS
COMMON TERMS
BASIS POINT
Smallest measure of quoting yields on bonds and notes. One basis point is 0.01%
of yield.
BOND RATINGS
The quality of bonds can, to some degree, be determined from the ratings of the
two most prominent rating services: Moody's and Standard & Poor's. The ratings
are used by the government and industry regulatory agencies, the investing
public, and portfolio managers as a guide to the relative security and value of
each bond. The ratings are not used as an absolute factor in determining the
strength of the pledge securing a particular issue. However, since Moody's and
Standard & Poor's rate bonds on a fee basis, some issuers choose not to be
rated. Many non-rated issues are sound investments. The rating symbols of the
two services are shown in the accompanying table.
<Table>
<Caption>
MOODY'S INVESTORS STANDARD & POOR'S CORP.
SERVICES, INC. (PLUS (+) OR MINUS (-))
- -----------------------------------------------------------
Prime Aaa AAA
Excellent Aa AA
Good A A
Average Baa BBB
Fair Ba BB
Poor B B
Marginal Caa C
</Table>
DIVIDEND
Net income distributed to shareholders generated by securities in a portfolio.
The Intermediate Bond, Tennessee Tax-Free, and all the Money Market Portfolios
pay dividends monthly. The Core Equity Portfolio pays dividends quarterly and
the Capital Appreciation Portfolio pays dividends annually.
GAIN (OR LOSS)
If a stock or bond appreciates in price, there is an unrealized gain; if it
depreciates there is an unrealized loss. A gain or loss is "realized" upon the
sale of a security; if a Portfolio's net gains exceed net losses, there may be a
capital gain distribution to shareholders. There could also be an ordinary
income distribution if the net gain is short term or no distribution if there is
a capital loss carryover.
GENERAL OBLIGATION BONDS
General Obligation Bonds (GOs) are debt-backed by the general taxing power of
the issuer. Payment of the obligation may be backed by a specific tax or the
issuer's general tax fund. Examples of GOs include sidewalk bonds, sewer bonds
and street bonds. These bonds are also known as FULL FAITH AND CREDIT bonds
because the debt is a general obligation of the issuer.
INSURED BONDS
Insured Bonds refer to municipal obligations which are covered by an insurance
policy issued by independent insurance companies. The policies insure the
payment of principal and/or interest of the issuer. Examples of such companies
are MBIA (Municipal Bond Investors Assurance Corporation), and AMBAC (American
Municipal Bond Assurance Corporation).
NET ASSET VALUE (NAV)
NAV is the total value of all securities and other assets held by a portfolio,
minus liabilities, divided by the number of shares outstanding. It is the value
of a single share of a mutual fund on a given day. The total value of your
investment would be the NAV multiplied by the number of shares you own.
REVENUE BONDS
Revenue Bonds are issued to provide capital for the construction of a
revenue-producing facility. The interest and principal payments are backed to
the extent that the facility produces revenue to pay. Examples of revenue bonds
include toll bridges, roads, parking lots and ports. The municipality is not
obligated to cover debt payments on revenue bonds in default.
xi
<Page>
SEC YIELD
The SEC Yield was mandated by the Securities and Exchange Commission in 1988 as
a standardized yield calculation intended to put performance presentations for
all bond and money market funds on a level playing field. The SEC Yield does not
take into account income derived from capital gains, option writing, futures, or
return of capital. The formula also adjusts the income from premium or
discounted bonds to reflect the amortization of that bond.
TOTAL RETURN
Total return measures a portfolio's performance over a stated period of time,
taking into account the combination of dividends paid and the gain or loss in
the value of the securities held in the Portfolio. It may be expressed on an
average annual basis or a cumulative basis (total change over a given period).
INDICES
STANDARD & POOR'S 500 INDEX is a broad-based measurement of changes in stock
market conditions based on the average performance of 500 widely-held common
stocks. It has an average market capitalizaton of $18 billion.
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CREDIT INDEX, an unmanaged index, is a
broad measure of bond performance, and includes reinvestment of dividends and
capital gains. This index includes only investment-grade bonds with maturities
of up to 10 years.
LEHMAN BROTHERS 10-YEAR MUNICIPAL BOND INDEX, an unmanaged index, is a broad
measure of shorter-term municipal bond performance and includes reinvestment of
dividends and capital gains.
NASDAQ COMPOSITE INDEX is an unmanaged market capitalization price-only index
that tracks the performance of domestic common stocks traded on the regular
NASDAQ market, as well as National Market System traded foreign common stocks
and ADRs. The index includes over 5,000 companies with a market capitalization
over$2.3 trillion.
RUSSELL 2000(R) INDEX, an unmanaged index, measures the performance of the 2,000
smallest companies in the Russell 3000 Index, which represents approximately 8%
of the total market capitalization of the Russell 3000 Index. As of the latest
reconstitution, the average market capitalization was approximately $490
million; the median market capitalization was approximately $395 million. The
index had a total market capitalization range of approximately $1.3 billion to
$128 million.
THE RUSSELL 2000(R) GROWTH INDEX, measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth values.
xii
<Page>
[GRAPHIC]
INDEPENDENT AUDITORS' REPORT
[DELOITTE & TOUCHE LOGO]
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST FUNDS
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of First Funds (comprising the Core Equity
(formerly Growth & Income), Capital Appreciation, Intermediate Bond, Tennessee
Tax-Free, U.S. Government Money Market, Municipal Money Market and Cash Reserve
Portfolios, collectively, the "Trust") as of June 30, 2003, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 2003, by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the portfolios constituting First Funds as of June 30, 2003, the results of
their operations for the year then ended, the changes in their net assets for
each of the two years in the period then ended, and their financial highlights
for each of the periods indicated, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Denver, Colorado
August 4, 2003
[DELOITTE TOUCHE TOHMATSU LOGO]
<Page>
THIS PAGE INTENTIONALLY LEFT BLANK
<Page>
[GRAPHIC]
PORTFOLIO OF INVESTMENTS
(AS OF JUNE 30, 2003 - SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS)
CORE EQUITY PORTFOLIO
<Table>
<Caption>
VALUE
SHARES (NOTE 1)
------ --------
COMMON STOCKS - 96.6%
CONSUMER DISCRETIONARY - 15.7%
MEDIA - 9.9%
Comcast Corp., Class A* 979,335 $ 28,234,228
McGraw-Hill Co., Inc. 180,480 11,189,760
Omnicom Group, Inc. 301,715 21,632,966
--------------
TOTAL MEDIA 61,056,954
--------------
RETAILING - 5.8%
Federated Department Stores, Inc. 211,800 7,804,830
Home Depot, Inc. 772,090 25,571,621
Kohl's Corp.* 47,100 2,419,998
--------------
TOTAL RETAILING 35,796,449
--------------
TOTAL CONSUMER DISCRETIONARY 96,853,403
--------------
CONSUMER STAPLES- 10.6%
FOOD, BEVERAGE & TOBACCO - 8.3%
Costco Wholesale Corp.* 751,500 27,504,900
Pepsico, Inc. 529,300 23,553,850
--------------
TOTAL FOOD, BEVERAGE & TABACCO 51,058,750
--------------
HOUSEHOLD & PERSONAL PRODUCTS - 2.3%
Avon Products, Inc. 227,100 14,125,620
--------------
TOTAL CONSUMER STAPLES 65,184,370
--------------
ENERGY - 2.8%
ENERGY - 2.8%
Exxon Mobil Corp. 480,200 17,243,982
--------------
TOTAL ENERGY 17,243,982
--------------
FINANCIALS - 30.6%
BANKS 5.8%
FleetBoston Financial Corp. 436,131 12,957,452
Wells Fargo & Co. 456,506 23,007,902
--------------
TOTAL BANKS 35,965,354
--------------
DIVERSIFIED FINANCIALS - 13.3%
Capital One Financial Corp. 583,500 28,696,530
Federal Home Loan Mortgage Corp. 212,325 10,779,740
Federal National Mortgage Association 171,000 11,532,240
J. P. Morgan Chase & Co. 899,975 30,761,145
--------------
TOTAL DIVERSIFIED FINANCIALS 81,769,655
--------------
INSURANCE - 11.5%
AFLAC, Inc. 673,400 20,707,050
American International Group, Inc. 425,270 23,466,399
XL Capital Ltd., Class A 325,700 27,033,100
--------------
TOTAL INSURANCE 71,206,549
--------------
TOTAL FINANCIALS 188,941,558
--------------
HEALTHCARE - 14.3%
HEALTHCARE EQUIPMENT & SUPPLIES - 3.9%
Medtronic, Inc. 505,450 24,246,437
--------------
PHARMACEUTICALS & BIOTECHNOLOGY - 10.4%
Cardinal Health, Inc. 246,400 $ 15,843,520
Pfizer, Inc. 954,615 32,600,102
Schering-Plough Corp. 848,000 15,772,800
--------------
TOTAL PHARMACEUTICALS & BIOTECH. 64,216,422
--------------
TOTAL HEALTHCARE 88,462,859
--------------
INDUSTRIALS - 5.0%
CAPITAL GOODS - 3.6%
General Electric Co. 776,500 22,270,020
--------------
COMMERCIAL SERVICES & SUPPLIES - 1.4%
Equifax, Inc. 336,050 8,737,300
--------------
TOTAL INDUSTRIALS 31,007,320
--------------
INFORMATION TECHNOLOGY - 12.7%
SOFTWARE - 3.7%
Microsoft Corp. 881,000 22,562,410
--------------
TECHNOLOGY HARDWARE & EQUIPMENT - 9.0%
Cisco Systems, Inc.* 1,184,230 19,646,376
Intel Corp. 952,900 19,805,074
Texas Instruments, Inc. 928,775 16,346,440
--------------
TOTAL TECHNOLOGY HARDWARE & EQUIPMENT 55,797,890
--------------
TOTAL INFORMATION TECHNOLOGY 78,360,300
--------------
TELECOMMUNICATIONS - 4.9%
TELECOMMUNICATION SERVICES - 4.9%
Vodafone Group, plc ADR 1,550,025 30,457,991
--------------
TOTAL TELECOMMUNICATIONS 30,457,991
--------------
TOTAL COMMON STOCKS 596,511,783
(Cost $589,812,131) --------------
MONEY MARKET MUTUAL FUNDS - 3.4%
SSgA Prime Money Market Fund 10,488,627 10,488,627
SSgA U.S. Treasury Money Market Fund 10,319,934 10,319,934
--------------
TOTAL MONEY MARKET MUTUAL FUNDS 20,808,561
(Cost $20,808,561) --------------
TOTAL INVESTMENTS - 100.0% $ 617,320,344
(Cost $610,620,692) ==============
</Table>
* Non-income producing security
ADR - American Depositary Receipt
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
1
<Page>
INCOME TAX INFORMATION:
At June 30, 2003, the net unrealized appreciation based on cost for income tax
purposes of $610,943,318 was as follows:
<Table>
Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost $ 65,287,654
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value (58,910,628)
--------------
Net unrealized appreciation $ 6,377,026
==============
</Table>
As of June 30, 2003, the Core Equity Portfolio had a capital loss carryover of
$4,747,501 available to offset capital gains to the extent provided in
regulations, which will expire on June 30, 2011.
The Core Equity Portfolio intends to elect to defer to its fiscal year ending
June 30, 2004, $5,254,350 of losses recognized during the period November 1,
2002 to June 30, 2003.
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities, for the
year ended June 30, 2003, aggregated $129,112,040 and $229,702,353,
respectively.
CAPITAL APPRECIATION PORTFOLIO
<Table>
<Caption>
DUE PRINCIPAL VALUE
DATE COUPON AMOUNT (NOTE 1)
- ---- ------ --------- --------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 3.6%
FEDERAL HOME LOAN MORTGAGE CORPORATION
DISCOUNT NOTES - 3.6%
07/07/03 1.2% $ 190,000 $ 189,963
07/11/03 1.1% 895,000 894,721
07/16/03 1.0% 850,000 849,660
--------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS 1,934,344
(Cost $1,934,344) --------------
<Caption>
SHARES
------
COMMON STOCKS - 96.4%
BUSINESS SERVICES - 6.4%
Advisory Board Company* 38,600 1,564,072
Getty Images, Inc.* 20,400 842,520
Gevity HR, Inc. 37,000 437,340
Kroll, Inc.* 21,000 568,260
--------------
TOTAL BUSINESS SERVICES 3,412,192
--------------
CAPITAL GOODS - 1.5%
Varian, Inc.* 22,700 787,009
--------------
TOTAL CAPITAL GOODS 787,009
--------------
CONSUMER DURABLES - 2.4%
Gentex Corp.* 24,500 749,945
WCI Communities, Inc.* 28,900 555,747
--------------
TOTAL CONSUMER DURABLES 1,305,692
--------------
CONSUMER NON-DURABLES - 11.3%
American Italian Pasta Co., Class A* 13,000 541,450
Coach, Inc.* 24,000 1,193,760
Cost Plus, Inc.* 30,400 1,084,064
Guitar Centers, Inc.* 19,300 559,700
Hibbett Sporting Goods, Inc.* 39,950 1,315,953
Krispy Kreme Doughnuts, Inc.* 11,600 477,688
Urban Outfitters, Inc.* 24,400 875,960
--------------
TOTAL CONSUMER NON-DURABLES 6,048,575
--------------
CONSUMER SERVICES - 16.6%
Cheesecake Factory, Inc.* 24,800 890,072
Cumulus Media, Inc., Class A* 69,000 1,306,170
Extended Stay America, Inc.* 12,200 164,578
First Cash Financial Services, Inc.* 53,600 761,656
Four Seasons Hotel, Inc. 12,600 545,076
Gray Television, Inc. 43,600 540,640
Idine Rewards Network, Inc.* 11,800 162,132
Landry's Restaurants, Inc. 27,200 641,920
Lin TV Corp.* 39,400 927,870
Mediacom Communications Corp.* 85,200 840,924
Rare Hospitality Int'l, Inc.* 22,200 725,496
Ruby Tuesday, Inc. 27,700 685,021
Sonic Corp.* 26,875 683,431
--------------
TOTAL CONSUMER SERVICES 8,874,986
--------------
ENERGY - 4.0%
Cal Dive International, Inc.* 42,800 933,040
Denbury Resources, Inc.* 45,300 608,379
Pride International, Inc.* 30,600 575,892
--------------
TOTAL ENERGY 2,117,311
--------------
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
2
<Page>
<Table>
<Caption>
VALUE
SHARES (NOTE 1)
------ --------
FINANCIALS - 18.5%
Allegiant Bancorp, Inc. 40,900 $ 828,225
American Home Mtg. Holdings 33,500 655,930
Baldwin & Lyons, Inc. 5,300 125,875
BankAtlantic Bancorp, Inc. 31,300 372,157
Brookline Bancorp, Inc. 40,100 561,400
Delphi Financial Group, Inc. 32,300 1,511,640
Doral Financial Corp. 5,300 236,645
Downey Financial Corp. 10,500 433,650
Partners Trust Financial Group, Inc. 10,500 200,340
R&G Financial Corp., Class B 57,700 1,713,690
RLI Corp. 27,500 904,750
Redwood Trust, Inc. 21,800 870,038
South Financial Group, Inc. 25,800 601,914
Stewart Information Services Corp.* 15,500 431,675
Wintrust Financial Corp. 14,700 435,120
--------------
TOTAL FINANCIALS 9,883,049
--------------
HEALTHCARE - 20.2%
Align Technology, Inc. * 66,100 829,555
CIMA Labs, Inc.* 29,500 793,255
Conceptus, Inc.* 66,500 934,325
Connetics Corp.* 43,200 646,704
CV Therapuetics, Inc.* 26,600 788,956
Inspire Pharmaceuticals, Inc.* 58,300 629,640
IntraBiotics Pharmaceuticals, Inc.* 30,825 123,300
Medicis Pharmaceutical Corp. 17,900 1,014,930
NPS Pharmaceutical, Inc. * 33,800 822,692
Nektar Therapeutics* 137,400 1,268,202
Neurocrine Biosciences, Inc.* 10,500 524,370
Pain Therapeutics, Inc.* 100,000 646,000
Tanox Biosciences, Inc.* 25,700 412,485
The Medicines Co.* 22,200 442,224
Trimeris, Inc.* 5,100 232,968
XOMA, Ltd.* 127,900 681,707
--------------
TOTAL HEALTHCARE 10,791,313
--------------
TECHNOLOGY - 12.6%
Agile Software Corp.* 132,500 1,278,625
CIENA Corp.* 40,292 209,116
Cymer, Inc.* 30,400 973,104
Integral Systems, Inc.* 45,400 902,552
O2Micro International, Ltd.* 93,900 1,512,729
Skyworks Solutions, Inc.* 53,400 361,518
Tekelec* 36,000 406,800
Viasys Healthcare, Inc. * 14,200 293,940
Veridian Corp.* 22,600 788,514
--------------
TOTAL TECHNOLOGY 6,726,898
--------------
TRANSPORTATION - 2.9%
Heartland Express, Inc.* 33,760 751,160
Knight Transportation, Inc.* 31,400 781,860
--------------
TOTAL TRANSPORTATION 1,533,020
--------------
TOTAL COMMON STOCKS 51,480,045
(Cost $42,867,641) --------------
MONEY MARKET MUTUAL FUNDS - 0.0%
SSgA Prime Money Market Fund 10,641 $ 10,641
SSgA U.S. Treasury Money Market Fund 10,634 10,634
--------------
TOTAL MONEY MARKET MUTUAL FUNDS 21,275
(Cost $21,275) --------------
TOTAL INVESTMENTS - 100.0% $ 53,435,664
(Cost $44,823,260) ==============
</Table>
* Non-income producing security.
INCOME TAX INFORMATION:
At June 30, 2003, the net unrealized appreciation based on cost for income tax
purposes of $45,505,531 was as follows:
<Table>
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost $ 10,297,668
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value (2,367,535)
--------------
Net unrealized appreciation $ 7,930,133
==============
</Table>
At June 30, 2003, the Capital Appreciation Portfolio had capital loss carryovers
of $1,358,307, $9,707,159 and $2,232,199 available to offset capital gains to
the extent provided in regulations, which will expire on June 30, 2009, 2010,
and 2011, respectively.
The Capital Appreciation Portfolio intends to elect to defer to its fiscal year
ending June 30, 2004, $551,335 of losses recognized during the period November
1, 2002 to June 30, 2003.
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities, for the
year ended June 30, 2003, aggregated $29,017,600 and $27,610,165, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
3
<Page>
INTERMEDIATE BOND PORTFOLIO
<Table>
<Caption>
DUE PRINCIPAL VALUE
DATE COUPON AMOUNT (NOTE 1)
- ---- ------ ------ --------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 58.0%
U.S. TREASURY NOTES - 12.0%
05/31/05 1.125% $ 5,000,000 $ 4,997,070
05/15/06 4.625% 10,000,000 10,840,230
08/15/07 6.125% 1,185,000 1,370,758
02/15/08 5.500% 1,125,000 1,281,841
05/15/08 5.625% 950,000 1,089,086
05/15/08 2.625% 34,000,000 34,310,794
08/15/11 5.000% 4,580,000 5,137,473
--------------
TOTAL U.S. TREASURY NOTES 59,027,252
--------------
FEDERAL FARM CREDIT BANK - 1.0%
10/01/04 1.700% 5,000,000 5,000,000
--------------
FEDERAL HOME LOAN BANK - 6.8%
11/14/03 6.375% 2,000,000 2,039,660
03/06/06 5.125% 20,000,000 21,774,280
08/15/06 6.375% 5,000,000 5,677,755
03/08/11 6.350% 3,800,000 3,920,015
--------------
TOTAL FEDERAL HOME LOAN BANK 33,411,710
--------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 8.8%
01/15/05 6.875% 1,000,000 1,084,916
01/15/06 5.250% 6,500,000 7,075,835
04/21/06 2.500% 1,500,000 1,516,781
01/05/07 6.700% 5,000,000 5,784,465
09/15/07 3.500% 1,950,000 2,038,571
01/23/08 3.650% 10,540,000 10,942,902
04/15/08 5.750% 3,750,000 4,285,133
03/15/09 5.750% 7,510,000 8,626,084
07/15/12 5.125% 1,810,000 1,996,875
--------------
TOTAL FEDERAL HOME LOAN MRTG. CORP. 43,351,562
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 25.1%
02/13/04 5.125% 4,500,000 4,611,947
06/15/05 5.750% 2,000,000 2,168,184
08/15/05 3.125% 10,000,000 10,025,380
12/15/05 6.000% 500,000 552,823
02/15/06 5.500% 18,500,000 20,308,893
04/13/06 2.375% 6,000,000 6,058,806
05/02/06 5.500% 18,000,000 19,761,750
06/15/06 5.250% 1,390,000 1,526,409
01/15/07 5.000% 20,000,000 22,013,080
01/20/07 5.000% 4,000,000 4,077,388
02/15/08 5.750% 2,850,000 3,251,759
05/15/08 6.000% 2,500,000 2,886,943
11/15/10 6.625% 1,475,000 1,783,130
02/01/11 6.250% 5,000,000 5,766,120
02/17/11 6.250% 2,000,000 2,056,972
02/28/12 5.625% 11,000,000 12,112,639
08/01/12 5.250% 4,500,000 4,863,285
--------------
TOTAL FEDERAL NAT'L MORTGAGE ASSOC. 123,825,508
--------------
OTHER - 4.3%
Private Export Funding Corp.
03/15/06 5.340% 10,000,000 10,957,400
Tennessee Valley Authority
07/15/04 4.750% 10,000,000 10,367,020
--------------
TOTAL OTHER 21,324,420
--------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS 285,940,452
(Cost $274,232,203) --------------
CORPORATE BONDS & NOTES - 38.9%
FINANCIALS - 25.8%
BANKS - 7.1%
AmSouth Bank, 144A*
02/01/08 6.450% $ 2,600,000 $ 2,960,058
Bank of America Corp.
01/15/13 4.875% 940,000 991,609
Bank of New York Co., Inc.
09/01/07 3.900% 2,415,000 2,537,895
Bank One Corp.
08/01/06 6.875% 2,000,000 2,278,232
05/01/07 7.600% 725,000 845,552
CCB Financial Corp.
12/01/03 6.750% 1,225,000 1,251,024
First Union National Bank
02/15/10 7.875% 5,000,000 6,125,080
National City Corp.
03/01/04 6.625% 1,650,000 1,707,489
05/15/05 7.200% 2,000,000 2,193,236
Regions Financial Corp.
03/01/11 7.000% 4,500,000 5,369,485
Synovus Financial Corp., 144A*
02/15/13 4.875% 1,775,000 1,859,795
Union Planters Corp.
11/01/05 6.750% 2,000,000 2,207,258
06/15/07 5.125% 1,500,000 1,615,587
US Bank
02/04/14 6.300% 2,500,000 2,925,675
--------------
TOTAL BANKS 34,867,975
--------------
BROKER/DEALERS - 10.3%
Bear Stearns Co.
01/15/07 5.700% 4,830,000 5,347,960
Donaldson, Lufkin & Jenrette, Inc.
07/15/03 6.170% 3,000,000 3,004,986
11/01/05 6.875% 1,000,000 1,107,623
Goldman Sachs Group, Inc.
08/17/05 7.625% 3,800,000 4,282,201
01/15/11 6.875% 3,500,000 4,129,818
J.P. Morgan Chase & Co.
03/01/07 5.350% 2,730,000 2,989,331
Lehman Brothers, Inc.
05/15/04 7.375% 3,700,000 3,893,495
01/18/12 6.625% 4,500,000 5,275,692
Merrill Lynch & Co., Inc.
01/15/04 5.880% 4,000,000 4,096,916
08/01/04 6.550% 1,400,000 1,477,843
01/15/07 7.000% 2,580,000 3,002,475
Morgan Stanley Group, Inc.
03/01/07 6.875% 5,000,000 5,730,290
05/15/10 4.250% 2,500,000 2,573,227
Salomon, Inc.
02/01/04 7.200% 4,000,000 4,138,148
--------------
TOTAL BROKER/DEALERS 51,050,005
--------------
FINANCIAL SERVICES - 6.2%
Boeing Capital Corp.
09/27/05 7.100% 3,000,000 3,309,039
05/15/06 5.650% 2,250,000 2,431,517
Countrywide Funding Corp.
10/22/04 6.840% 2,500,000 2,663,940
Ford Motor Credit Co.
08/01/05 7.600% 7,000,000 7,515,816
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
<Page>
<Table>
<Caption>
DUE PRINCIPAL VALUE
DATE COUPON AMOUNT (NOTE 1)
- ---- ------ ------ --------
FINANCIAL SERVICES (CONTINUED)
General Electric Corp.
09/11/03 6.750% $ 3,425,000 $ 3,461,435
General Motors Acceptance Corp.
07/15/05 7.500% 3,000,000 3,214,935
01/15/06 6.750% 3,500,000 3,715,747
International Lease Finance Corp.
01/17/06 4.000% 1,950,000 2,004,231
John Deere Capital
01/15/13 5.100% 2,000,000 2,110,610
--------------
TOTAL FINANCIAL SERVICES 30,427,270
--------------
INSURANCE - 2.2%
AIG Sunamerica Global Financing, 144A*
08/01/08 5.850% 5,000,000 5,637,605
Cigna Corp.
01/15/06 6.375% 1,350,000 1,468,751
Marsh & McLennan Cos., Inc.
06/15/04 6.625% 1,210,000 1,269,256
Nationwide Mutual Ins. Co., 144A*
02/15/04 6.500% 2,620,000 2,698,259
--------------
TOTAL INSURANCE 11,073,871
--------------
TOTAL FINANCIALS 127,419,121
--------------
INDUSTRIALS - 12.4%
CAPITAL GOODS - 1.3%
Dover Corp.
11/15/05 6.450% 3,525,000 3,900,959
Lockheed Martin Corp.
05/15/06 7.250% 2,300,000 2,619,339
--------------
TOTAL CAPITAL GOODS 6,520,298
--------------
CONSUMER CYCLICALS - 1.8%
DaimlerChrysler AG
01/18/11 7.750% 3,000,000 3,489,075
Walt Disney Co.
12/15/03 5.125% 5,000,000 5,088,785
--------------
TOTAL COMSUMER CYCLICALS 8,577,860
--------------
CONSUMER STAPLES - 1.8%
Kraft Foods, Inc.
06/01/12 6.250% 4,395,000 4,971,536
Price/Costco, Inc.
06/15/05 7.125% 3,700,000 4,062,678
--------------
TOTAL CONSUMER STAPLES 9,034,214
--------------
HEALTHCARE - 1.2%
Abbott Laboratories
07/01/06 5.625% 3,500,000 3,875,305
Cardinal Health, Inc.
02/15/04 6.500% 2,000,000 2,063,564
--------------
TOTAL HEALTHCARE 5,938,869
--------------
TECHNOLOGY - 1.1%
Pitney Bowes, Inc.
02/01/05 5.950% 5,000,000 5,311,495
--------------
TELECOMMUNICATIONS - 4.7%
BellSouth Corp.
10/15/11 6.000% 5,000,000 5,713,995
GTE Corp.
04/15/06 6.360% 4,400,000 4,895,158
11/01/08 6.900% 7,000,000 8,255,534
New York Telephone Co.
02/15/04 6.250% $ 875,000 $ 901,109
Verizon Communications, Inc.
12/15/06 5.375% 3,000,000 3,295,032
--------------
TOTAL TELECOMMUNICATIONS 23,060,828
--------------
TRAVEL & TRANSPORTATION - 0.5%
Norfolk Southern Corp.
02/15/04 7.875% 2,400,000 2,493,130
--------------
TOTAL INDUSTRIALS 60,936,694
--------------
UTILITIES - 0.7%
GAS - 0.7%
ONEOK, Inc.
08/15/06 7.750% 2,900,000 3,361,097
--------------
TOTAL UTILITIES 3,361,097
--------------
TOTAL CORPORATE BONDS & NOTES 191,716,912
(Cost $176,674,676) --------------
MORTGAGE-BACKED OBLIGATIONS - 0.0%
Government National Mortgage Association
Pool #26825
09/15/08 9.000% 27,588 29,961
--------------
TOTAL MORTGAGE-BACKED OBLIGATIONS 29,961
(Cost $26,310) --------------
<Caption>
SHARES
------
MONEY MARKET MUTUAL FUNDS - 3.1%
SSgA Prime Money Market Fund 15,428,087 15,428,087
SSgA Treasury Money Market Fund 1,660 1,660
--------------
TOTAL MONEY MARKET MUTUAL FUNDS 15,429,747
(Cost $15,429,747) --------------
TOTAL INVESTMENTS - 100.0% $ 493,117,072
(Cost $466,362,936) ==============
</Table>
* Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At June 30, 2003, these securities
amounted to a value of $13,155,717 or 2.63% of net assets.
INCOME TAX INFORMATION:
At June 30, 2003, the net unrealized appreciation based on cost for income tax
purposes of $466,390,792 was as follows:
<Table>
Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost $ 27,181,600
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value (455,320)
--------------
Net unrealized appreciation $ 26,726,280
==============
</Table>
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities, for the
year ended June 30, 2003, aggregated $92,736,890 and $92,690,208, respectively.
Purchases and sales of U.S. government and agency securities, other than
short-term securities, for the year ended June 30, 2003, aggregated $72,948,953
and $48,178,636, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
5
<Page>
TENNESSEE TAX-FREE PORTFOLIO
<Table>
<Caption>
DUE BOND RATING PRINCIPAL VALUE
DATE COUPON MOODY/S&P AMOUNT (NOTE 1)
- ---- ------ --------- ------ --------
TENNESSEE MUNICIPAL OBLIGATIONS - 97.7%
GENERAL OBLIGATION BONDS - 53.4%
Bradley County
03/01/10 4.250%, FGIC Aaa/AAA $ 1,000,000 $ 1,082,470
Collierville
Water & Sewer Systems
11/01/16 5.500%, MBIA Aaa/AAA 1,000,000 1,127,960
Crockett County
04/01/11 5.000%, AMBAC Aaa/NR 500,000 538,825
Franklin City
Special School District
06/01/12 5.100% Aa2/NR 2,500,000 2,865,675
Franklin County
03/01/13 5.250%, MBIA Aaa/NR 750,000 806,632
04/01/15 4.500% Aaa/NR 1,700,000 1,826,174
Grundy County
05/01/06 5.350%, FGIC Aaa/AAA 300,000 331,941
Hamilton County
07/01/05 5.400% Aa1/NR 500,000 532,395
11/01/09 5.000% Aa1/NR 3,100,000 3,506,410
11/01/15 5.300% Aa1/NR 3,535,000 3,925,653
Jackson
03/01/14 5.125%, MBIA Aaa/NR 3,100,000 3,287,829
Johnson City
06/01/08 5.600%, FSA Aaa/AAA 500,000 526,465
06/01/12 5.900%, FSA Aaa/AAA 245,000 258,634
05/01/14 5.550%, FGIC Aaa/AAA 2,250,000 2,510,257
Knoxville
05/01/07 5.250%, MBIA Aaa/AAA 3,000,000 3,157,830
05/01/08 5.300%, MBIA Aaa/AAA 1,350,000 1,418,688
La Vergne
Water & Sewer
03/01/14 5.400% A1/NR 500,000 538,550
Lawrenceburg
Water & Sewer
07/01/15 5.500%, FSA Aaa/AAA 1,330,000 1,520,070
Lincoln County
04/01/14 5.250%, FGIC Aaa/NR 1,315,000 1,516,984
Madison County
04/01/15 5.000% Aa3/NR 4,425,000 4,921,042
McNairy County
03/01/15 4.000%, MBIA Aaa/NR 1,750,000 1,805,177
Memphis
11/01/10 5.200% Aa2/AA 1,000,000 1,104,540
10/01/11 5.125% Aa2/AA 1,000,000 1,102,380
07/01/12 5.250% Aa2/AA 3,000,000 3,160,170
04/01/13 5.250% Aa2/AA 4,000,000 4,448,560
11/01/13 5.250% Aa2/AA 1,000,000 1,108,530
10/01/16 4.750% Aa2/AA 2,000,000 2,122,300
Metropolitan Nashville & Davidson
Energy Production
07/01/13 5.250% Aa2/AA 1,000,000 1,163,010
Monroe County
05/01/06 5.250%, FSA Aaa/NR 1,500,000 1,655,580
Murfreesboro
08/01/04 5.500% A1/NR 1,000,000 1,013,500
Rutherford County
04/01/09 5.250% Aa2/AA 500,000 550,500
04/01/14 5.000% Aa2/AA 5,000,000 5,526,100
Shelby County
04/01/09 5.500% Aa2/AA+ 1,125,000 1,205,224
06/01/09 5.625% Aa2/AA+ 1,000,000 1,117,660
11/01/09 5.300% Aa2/AA+ 3,000,000 3,364,470
03/01/10 5.500% Aa3/AA+ 2,000,000 2,315,460
04/01/14 5.625% Aa2/AA+ 500,000 542,605
04/01/14 5.625% Aa2/AA+ $ 1,500,000 $ 1,608,810
05/01/14 4.700% Aa2/AA+ 2,000,000 2,130,880
Tennessee State
03/01/07 5.400% Aa2/AA 1,740,000 1,818,022
05/01/11 5.000% Aa2/AA 4,160,000 4,727,133
05/01/13 5.300% Aa2/AA 750,000 835,238
05/01/15 5.000% Aa2/AA 3,290,000 3,545,830
Tipton County
04/01/12 5.250%, AMBAC Aaa/NR 500,000 541,570
Warren County
06/01/12 5.000%, MBIA Aaa/NR 1,845,000 2,106,806
Weakley County
05/01/09 5.000%, FGIC Aaa/AAA 350,000 372,523
Williamson County
03/01/11 6.000% Aa1/NR 1,000,000 1,197,210
04/01/12 5.000% Aa1/NR 2,500,000 2,840,750
03/01/13 5.000% Aa1/NR 2,500,000 2,780,150
03/01/14 5.000% Aa1/NR 2,000,000 2,211,300
03/01/15 5.150% Aa1/NR 1,500,000 1,718,685
Wilson County
04/01/11 5.000%, FGIC Aaa/NR 1,000,000 1,130,610
--------------
TOTAL GENERAL OBLIGATION BONDS 99,071,767
--------------
REVENUE BONDS - 44.3%
HEALTH & EDUCATION - 21.7%
Blount County
07/01/09 5.250% Baa1/NR 2,765,000 2,911,103
Bristol
Memorial Hospital
09/01/13 5.125%, FGIC Aaa/AAA 1,500,000 1,536,075
Franklin County
09/01/09 4.750% NR/A+ 2,150,000 2,370,913
Jackson
04/01/06 5.300% A1/A+ 1,000,000 1,074,680
04/01/07 5.300% A1/A+ 2,000,000 2,125,760
04/01/10 5.500%, AMBAC Aaa/AAA 400,000 431,960
Johnson City
07/01/09 5.125%, MBIA Aaa/AAA 5,705,000 6,533,879
Knox County
Baptist Health
04/15/11 5.500%, CONLEE NR/AAA 3,000,000 3,330,120
Knox County
Ft. Sanders
01/01/14 5.750%, MBIA Aaa/AAA 1,000,000 1,184,600
Knox County
Health Education
01/01/12 4.200% NR/NR* 3,400,000 3,449,062
07/01/16 5.000% Baa1/BBB+ 3,810,000 3,894,201
01/01/18 5.500% Aaa/AAA 2,000,000 2,226,700
Metropolitan Nashville & Davidson
Vanderbilt University
07/01/14 5.375% Aa2/AA 1,000,000 1,120,540
05/01/16 5.600% Aa2/AA 2,600,000 2,947,958
Shelby County
08/01/12 5.500%, MBIA Aaa/AAA 650,000 705,185
08/01/12 5.500% Aaa/AAA 1,350,000 1,570,941
Tennessee State School
Board Authority
05/01/11 5.500% Aa3/AA- 500,000 555,835
Wilson County
03/30/07 5.000%, FSA Aaa/NR 2,000,000 2,225,140
--------------
TOTAL HEALTH & EDUCATION 40,194,652
--------------
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
6
<Page>
<Table>
<Caption>
DUE BOND RATING PRINCIPAL VALUE
DATE COUPON MOODY/S&P AMOUNT (NOTE 1)
- ---- ------ --------- ------ --------
HOUSING - 1.0%
Metropolitan Nashville & Davidson
Multi-Family Housing
02/01/21 5.200% NR/AAA $ 1,000,000 $ 1,070,600
Tennessee Housing
Development Agency
01/01/11 5.800% Aa2/AA 400,000 429,000
07/01/13 5.800% Aa2/AA 330,000 339,497
--------------
TOTAL HOUSING 1,839,097
--------------
INDUSTRIAL DEVELOPMENT - 2.3%
Chattanooga
10/01/16 5.400%, AMBAC Aaa/AAA 3,210,000 3,592,760
Memphis-Shelby County
03/15/05 5.400% NR/A+ 650,000 688,201
--------------
TOTAL INDUSTRIAL DEVELOPMENT 4,280,961
--------------
PUBLIC BUILDING AUTHORITY - 0.6%
Blount County
06/01/26 1.100%, AMBAC Aaa/NR 1,200,000 1,200,000
--------------
STATE AUTHORITY - 2.1%
Tennessee State Local
Development Authority
09/01/05 5.500% A1/AA 655,000 670,098
03/01/14 5.125%, MBIA Aaa/AAA 2,000,000 2,170,840
10/01/14 6.450% NR/AA 1,000,000 1,088,950
--------------
TOTAL STATE AUTHORITY 3,929,888
--------------
UTILITIES - 16.6%
Clarksville
Water, Sewer & Gas
02/01/10 5.300%, MBIA Aaa/NR 900,000 1,024,191
Dickson
Electric
09/01/11 5.625%, MBIA Aaa/AAA 1,000,000 1,185,690
Fayetteville
Electric
04/01/11 5.250% A2/NR 1,750,000 1,815,048
Harpeth Valley
Utility District
09/01/03 5.250% A1/A 1,000,000 1,006,820
09/01/06 5.500% A1/A 500,000 513,250
09/01/11 5.500% A1/A 1,650,000 1,690,293
Johnson City
Electric
05/01/10 5.400%, MBIA Aaa/AAA 500,000 546,065
05/01/12 5.100%, MBIA Aaa/AAA 1,500,000 1,629,840
Knoxville
Electric
07/01/13 5.000% Aa3/AA 1,000,000 1,105,410
Knoxville
Gas
03/01/14 5.350% Aa3/AA 2,760,000 2,869,130
La Follette
Electric
06/01/11 5.800%, AMBAC Aaa/AAA 430,000 475,313
03/01/15 5.250%, AMBAC Aaa/NR 1,000,000 1,072,390
Lawrenceburg
Electric
07/01/06 5.200%, MBIA Aaa/AAA 345,000 381,815
Lenoir City
Electric
06/01/07 5.000%, AMBAC Aaa/NR 2,000,000 2,235,000
Madison
Utility District
02/01/10 5.600%, MBIA Aaa/AAA $ 500,000 $ 562,495
Memphis
Sanitation Sewer System
01/01/05 5.250% Aa2/AA+ 2,250,000 2,380,073
Metropolitan Nashville & Davidson
Electric
05/15/15 5.125% Aa3/AA 1,000,000 1,101,310
Metropolitan Nashville & Davidson
Water & Sewer
01/01/08 5.000%, FGIC Aaa/AAA 4,000,000 4,469,520
01/01/13 5.200%, FGIC Aaa/AAA 1,500,000 1,720,140
Rutherford County
Utilities District
02/01/11 5.100%, FGIC Aaa/NR 500,000 545,705
Sevier County
Gas
05/01/11 5.400%, AMBAC Aaa/NR 1,000,000 1,095,620
Sevier County
Solid Waste
09/01/06 5.500%, AMBAC Aaa/AAA 775,000 835,349
09/01/10 5.400%, AMBAC Aaa/AAA 500,000 534,595
--------------
TOTAL UTILITIES 30,795,062
--------------
TOTAL REVENUE BONDS 82,239,660
--------------
TOTAL TENNESSEE MUNICIPAL OBLIGATIONS 181,311,427
(Cost $169,076,074) --------------
OTHER STATE MUNICIPAL OBLIGATIONS - 0.5%
REVENUE BONDS - 0.5%
TRANSPORTATION - 0.5%
Indianapolis
Public Improvement Transportation
07/01/10 6.000% Aa2/AA- 950,000 969,000
--------------
TOTAL REVENUE BONDS 969,000
--------------
TOTAL OTHER STATE MUNICIPAL OBLIGATIONS 969,000
(Cost $948,439) --------------
<Caption>
SHARES
------
MONEY MARKET MUTUAL FUNDS - 1.8%
Federated Tax Free Fund 705 705
SSgA Tax Free Fund 3,309,104 3,309,104
--------------
TOTAL MONEY MARKET MUTUAL FUNDS 3,309,809
(Cost $3,309,809) --------------
TOTAL INVESTMENTS - 100.0% $ 185,590,236
(Cost $173,334,322) ==============
</Table>
* At June 30, 2003, this security was rated A by Fitch.
The Portfolio had the following insurance concentration of 10% or greater at
June 30, 2003 (as a percentage of net assets):
MBIA 15.8%
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
7
<Page>
INCOME TAX INFORMATION:
At June 30, 2003, the net unrealized appreciation based on cost for income tax
purposes of $173,334,322 was as follows:
<Table>
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost $ 12,331,420
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value (75,506)
--------------
Net unrealized appreciation $ 12,255,914
==============
</Table>
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities, for the
year ended June 30, 2003, aggregated $33,801,034 and $33,612,889, respectively.
RATINGS:
The Moody's and S&P ratings are believed to be the most recent ratings at June
30, 2003. Ratings are not covered by the report of Independent Auditors.
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
<Table>
<Caption>
DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ----------- ------ --------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 95.8%
FEDERAL FARM CREDIT BANK - 16.7%
07/03/03 1.200%* $ 10,000,000 $ 9,999,647
07/10/03 1.140%* 10,000,000 9,999,965
11/04/03 4.850% 2,000,000 2,020,487
--------------
TOTAL FEDERAL FARM CREDIT BANK 22,020,099
--------------
FEDERAL HOME LOAN BANK - 43.0%
07/06/03 1.193%* 20,000,000 19,996,071
07/06/03 1.139%* 5,000,000 4,998,708
07/09/03 1.235%** 5,000,000 4,998,628
07/30/03 1.875% 4,000,000 4,000,000
08/12/03 1.625% 2,000,000 1,999,458
08/13/03 1.145%** 10,000,000 9,986,324
09/02/03 5.630% 800,000 806,205
09/02/03 5.575% 2,000,000 2,012,421
09/15/03 5.125% 1,700,000 1,712,070
12/03/03 3.180% 1,500,000 1,512,502
03/12/04 5.680% 1,500,000 1,546,813
04/15/04 3.750% 1,000,000 1,019,447
04/16/04 4.875% 1,000,000 1,028,597
06/09/04 6.060% 1,000,000 1,045,096
--------------
TOTAL FEDERAL HOME LOAN BANK 56,662,340
--------------
FEDERAL HOME LOAN MORTGAGE CORP. - 16.4%
09/08/03 1.170%** 783,000 781,244
09/15/03 3.500%** 3,580,000 3,597,067
09/24/03 1.180%** 247,000 246,312
09/30/03 1.180%** 100,000 99,702
10/15/03 1.050%** 4,840,000 4,825,036
10/24/03 1.050%** 4,935,000 4,916,871
10/27/03 1.050%** 1,218,000 1,213,808
10/30/03 1.170%** 813,000 809,803
12/01/03 1.170%** 900,000 895,525
12/19/03 1.255%** 3,000,000 2,982,116
02/26/04 6.313% 1,000,000 1,034,366
02/26/04 1.170%** 135,000 133,947
--------------
TOTAL FEDERAL HOME LOAN MRTG. CORP. 21,535,797
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 19.7%
07/25/03 1.800%** 2,000,000 1,997,600
08/01/03 1.130%* 5,000,000 4,999,702
08/15/03 4.000% 1,634,000 1,639,908
08/20/03 1.200%** 1,000,000 998,333
08/22/03 1.215%** 5,000,000 4,991,225
09/17/03 1.180%** 300,000 299,233
11/14/03 4.750% 5,200,000 5,267,589
12/12/03 1.170%** 272,000 270,550
12/23/03 1.170%** 175,000 174,005
02/13/04 5.125% 2,000,000 2,047,183
04/15/04 3.625% 121,000 123,245
06/15/04 3.000% 3,000,000 3,050,678
--------------
TOTAL FEDERAL NAT'L MORTGAGE ASSOC. 25,859,251
--------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS 126,077,487
--------------
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
8
<Page>
<Table>
<Caption>
DUE DISCOUNT RATE OR MATURITY VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ----------- ------ --------
REPURCHASE AGREEMENTS - 4.2%
State Street, 1.050%,
dated 06/30/03, due 07/01/03,
collaterized by $5,741,694
Federal Home Loan Bank
1.400%, due 05/04/04 $ 5,570,162 $ 5,570,000
--------------
TOTAL REPURCHASE AGREEMENTS 5,570,000
--------------
TOTAL INVESTMENTS - 100% $ 131,647,487
==============
</Table>
* Floating or variable rate security rate disclosed as of June 30, 2003.
Maturity date represents the next interest rate reset date.
**Discount Note.
INCOME TAX INFORMATION:
Total cost for Federal income tax purposes - $131,647,487.
As of June 30, 2003, the U.S. Government Money Market Portfolio had capital loss
carryovers of $7,104, $919, $6,010, $3,440, $557, and $1,243 available to offset
capital gains to the extent provided in regulations, which will expire on June
30, 2005, 2006, 2008, 2009, 2010, and 2011, respectively.
MUNICIPAL MONEY MARKET PORTFOLIO
<Table>
<Caption>
DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ----------- ------ --------
MUNICIPAL BONDS & NOTES - 100.0%
ARIZONA - 2.2%
Apache County
Industrial Development Authority
07/02/03 0.950%* $ 1,600,000 $ 1,600,000
Arizona School Facilities
07/01/03 5.000% 500,000 500,000
--------------
2,100,000
--------------
ARKANSAS - 0.9%
Arkansas Hospital Equipment
Financial Authority
07/03/03 0.850%* 500,000 500,000
Arkansas State University
12/01/03 1.600% 225,000 225,000
University of Central Arkansas
06/01/04 2.000% 115,000 115,837
--------------
840,837
--------------
CALIFORNIA - 3.4%
California State
06/16/04 2.000% 2,000,000 2,017,100
Irvine Improvement
07/01/03 0.650%* 500,000 500,000
Northern California Power Agency
07/02/03 0.950%* 800,000 800,000
--------------
3,317,100
--------------
COLORADO - 1.5%
Colorado Educational & Cultural Facilities Authority
07/03/03 1.000%* 900,000 900,000
Denver City & County
08/01/03 5.000% 500,000 501,522
--------------
1,401,522
--------------
GEORGIA - 3.6%
Georgia Local Government
07/03/03 1.060%* 3,500,000 3,500,000
--------------
HAWAII - 1.0%
Hawaii State Department Budget & Finance
07/03/03 1.000%* 1,000,000 1,000,000
--------------
ILLINOIS - 8.5%
Du Page County
01/01/04 5.000% 730,000 743,971
Illinois Educational Facilities Authority
07/02/03 1.050%* 1,400,000 1,400,000
Illinois State
07/02/03 1.080%* 2,000,000 2,000,000
Rockford Industrial Development
07/03/03 1.100%* 4,000,000 4,000,000
--------------
8,143,971
--------------
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
<Page>
<Table>
<Caption>
DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ----------- ------ --------
INDIANA - 1.0%
Hendricks County
Industrial Redevelopment
07/03/03 1.100%* $ 1,000,000 $ 1,000,000
--------------
IOWA - 2.1%
Des Moines
Commercial Development
07/03/03 1.010%* 2,000,000 2,000,000
--------------
KANSAS - 0.2%
Butler & Sedgewick Counties
09/01/03 5.700% 205,000 206,352
--------------
KENTUCKY - 0.8%
Kentucky State Property & Buildings
08/01/03 5.000% 250,000 250,809
McCreary County School District
05/01/04 2.000% 245,000 246,825
Pike County
12/01/03 1.150% 250,000 249,967
--------------
747,601
--------------
LOUISIANA - 1.0%
Louisiana Public Facilities
10/15/03 3.000% 1,000,000 1,004,886
--------------
MASSACHUSETTS - 1.1%
Scituate
03/04/04 2.000% 1,000,000 1,005,981
--------------
MICHIGAN - 2.0%
Detroit
Economic Development***
07/03/03 1.150%* 1,900,000 1,900,000
--------------
MINNESOTA - 2.5%
Hennepin County
07/03/03 0.850%* 240,000 240,000
Minneapolis
07/03/03 1.050%* 270,000 270,000
03/01/04 4.800% 425,000 435,347
Minneapolis Convention Center
07/03/03 1.050%* 300,000 300,000
Minnesota State
07/03/03 1.050%* 1,165,000 1,165,000
--------------
2,410,347
--------------
MISSISSIPPI - 3.7%
Mississippi State Development Bank
07/02/03 1.080%* 3,525,000 3,525,000
--------------
MISSOURI - 0.1%
Missouri State Development Financial Board Lease
07/02/03 1.080%* 100,000 100,000
--------------
NEBRASKA - 0.3%
Public Power District
07/01/04 4.750% $ 275,000 $ 287,730
--------------
NEW JERSEY - 3.5%
New Jersey Healthcare Facilities
07/03/03 1.000%* 600,000 600,000
07/03/03 0.950%* 2,800,000 2,800,000
--------------
3,400,000
--------------
NEW MEXICO - 1.1%
Farmington Pollution Control
07/01/03 0.900%* 600,000 600,000
Santa Fe
06/01/04 6.300% 400,000 419,156
--------------
1,019,156
--------------
NEW YORK - 0.4%
New York City
08/15/03 6.750% 250,000 251,742
New York State Tollway Authority
04/01/04 3.500% 150,000 152,628
--------------
404,370
--------------
NORTH CAROLINA - 1.9%
North Carolina Medical Care
Community Hospital - Park Ridge
07/03/03 1.000%* 1,700,000 1,700,000
North Carolina Medical Care
Community Retirement Facilities
07/02/03 1.050%* 100,000 100,000
--------------
1,800,000
--------------
OHIO - 13.8%
American Municipal Power
11/25/03 1.600% 1,350,000 1,350,000
Avon
09/04/03 1.750% 500,000 500,199
Erie County
07/10/03 2.125% 1,000,000 1,000,110
Greene County
05/28/04 1.380% 275,000 275,588
Marysville Vehicle & Equipment
03/11/04 1.450% 835,000 836,581
Norwalk City
06/17/04 2.000% 250,000 252,137
Richland County
11/12/03 2.100% 1,167,000 1,168,379
Shelby County
02/26/04 1.480% 1,000,000 1,001,768
St. Marys
06/10/04 1.400% 541,000 542,252
Strongsville
07/29/03 1.800% 1,800,000 1,800,241
University of Toledo
07/02/03 1..050%* 1,255,000 1,255,000
Wapakoneta
01/30/04 1.690% 1,100,000 1,102,407
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
10
<Page>
<Table>
<Caption>
DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ----------- ------ --------
OHIO (CONTINUED)
Warrensville Heights
07/17/03 1.800% $ 1,200,000 $ 1,200,091
Wooster
08/13/03 2.250% 1,000,000 1,000,815
--------------
13,285,568
--------------
PENNSYLVANIA - 10.1%
Harrisburg Authority
07/03/03 1.030%* 500,000 500,000
Lower Merion
05/01/04 2.000% 355,000 357,347
Pennsylvania State Higher Educational Facilities
Holy Family College
07/03/03 1.060%* 2,900,000 2,900,000
Sayre Healthcare Facilities
07/02/03 1.000%* 2,000,000 2,000,000
York General Authority
07/04/03 1.080%* 4,000,000 4,000,000
--------------
9,757,347
--------------
PUERTO RICO - 2.7%
Commonwealth Highway & Transportation
07/03/03 1.030%* 2,595,000 2,595,000
--------------
SOUTH CAROLINA - 1.0%
North Charleston
09/18/03 2.000% 1,000,000 1,001,905
--------------
TENNESSEE - 12.6%
Knox County
11/01/03 1.000% 1,000,000 1,000,159
02/01/04 5.000% 1,000,000 1,032,469
Lauderdale County
04/01/04 3.000% 715,000 725,658
Memphis
07/02/03 1.000%* 900,000 900,000
Metro. Gov't Nashville Airport
07/02/03 1.000%* 800,000 800,000
Montgomery County
05/01/04 3.000% 2,000,000 2,032,616
Montgomery County Public Building Authority
07/03/03 1.000%* 2,675,000 2,675,000
Shelby County Health, Education & Housing Facilities
07/02/03 1.010%* 3,000,000 3,000,000
--------------
12,165,902
--------------
TEXAS - 11.0%
Bedford**
02/01/04 2.000% 1,820,000 1,830,465
Colony
08/15/03 3.500% 420,000 421,036
Dallas Texas Independent School District
08/15/03 5.600% 450,000 452,456
Harris County
07/03/03 1.050%* 3,500,000 3,500,000
Hays Independent School District
08/15/03 2.000% 1,145,000 1,146,318
San Antonio
08/01/03 5.700% $ 125,000 $ 125,441
Texas Housing Agency
07/03/03 1.040%* 3,100,000 3,100,000
--------------
10,575,716
--------------
VIRGINIA - 1.8%
Virginia Commowealth Transportation
07/03/03 1.030%* 1,755,000 1,755,000
--------------
WASHINGTON - 1.1%
Granty County
12/01/03 6.250% 1,000,000 1,021,364
--------------
WISCONSIN - 3.1%
Waukesha School District
08/21/03 1.850% 1,500,000 1,500,889
Wisconsin State
09/01/03 4.500% 1,515,000 1,522,598
--------------
3,023,487
--------------
TOTAL MUNICIPAL BONDS & NOTES 96,296,142
--------------
TOTAL INVESTMENTS - 100.0% $ 96,296,142
==============
</Table>
* Floating or variable rate security - rate disclosed as of June 30, 2003.
Maturity date represents the next interest rate reset date.
** When-issued security to be delivered and settled July 30, 2003.
***Security, or a portion thereof, has been segregated at the custodial bank for
a when-issued security.
INCOME TAX INFORMATION:
Total cost for federal income tax purposes - $96,296,142
As of June 30, 2003, the Municipal Money Market Portfolio had capital loss
carryovers of $897, $3,392, $1,764, and $1,684 available to offset capital gains
to the extent provided in regulations, which will expire on June 30, 2006, 2009,
2010, and 2011, respectively.
The Municipal Money Market Portfolio intends to elect to defer to its fiscal
year ending June 30, 2004, $1,501 of losses recognized during the period
November 1, 2002 to June 30, 2003.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
11
<Page>
CASH RESERVE PORTFOLIO
<Table>
<Caption>
DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ----------- ------ --------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 13.2%
FEDERAL HOME LOAN BANK - 6.5%
11/14/03 3.125% $ 430,000 $ 432,970
04/16/04 4.875% 6,000,000 6,168,214
05/12/04 1.450% 7,000,000 7,000,000
05/14/04 1.400% 3,000,000 3,000,000
--------------
TOTAL FEDERAL HOME LOAN BANK 16,601,184
--------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 3.4%
11/15/03 6.375% 1,093,000 1,113,712
02/26/04 1.260%*** 5,000,000 4,957,887
11/28/03 3.050% 2,525,000 2,543,497
--------------
TOTAL FEDERAL HOME LOAN MORTGAGE
CORPORATION 8,615,096
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 3.3%
11/14/03 4.750% 1,215,000 1,230,648
02/13/03 5.125% 5,000,000 5,116,271
11/15/03 3.125% 2,000,000 2,013,852
--------------
TOTAL FEDERAL NATIONAL
MORTGAGE ASSOCIATION 8,360,771
--------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS 33,577,051
--------------
CERTIFICATES OF DEPOSIT - 28.8%
DEPOSITORY INSTITUTIONS - 28.8%
BNP Paribas New York Branch
07/01/03 1.030%* 13,000,000 12,997,479
Canadian Imperial Bank
07/01/03 1.058%* 5,000,000 4,999,739
07/11/03 2.130% 7,000,000 7,000,000
National City Bank of Indiana
07/01/03 1.040%* 13,000,000 12,997,479
U.S. Bank National Association
07/01/03 1.050%* 10,000,000 9,999,425
Washington Mutual Bank
07/10/03 1.270% 12,500,000 12,499,957
Wells Fargo Bank
07/01/03 1.040%* 13,000,000 13,000,000
--------------
TOTAL CERTIFICATES OF DEPOSIT 73,494,079
--------------
COMMERCIAL PAPER - 36.6%
ASSET-BACKED SECURITIES - 20.4%
Concord Minute Men Capital
07/07/03 1.270% 4,295,000 4,294,090
Giro Funding Corp.
08/15/03 1.230% 12,000,000 11,981,521
Grampian Funding Ltd.
08/14/03 1.230% $ 12,000,000 $ 11,981,929
K2 LLC
08/12/03 1.230% 12,000,000 11,982,751
Tannehill Capital Co.
08/06/03 1.240% 12,000,000 11,985,091
--------------
52,225,382
--------------
DESPOSITORY INSTITUTIONS - 9.4%
Bank of America Corp.
07/10/03 1.230% 12,000,000 11,996,303
Citicorp
07/18/03 1.255% 12,000,000 11,992,873
--------------
23,989,176
--------------
FINANCIAL SERVICES - 6.8%
General Electric Capital Services
09/24/03 1.260% 4,000,000 3,988,058
Nestle Capital Corp.
10/02/03 1.120% 13,500,000 13,460,908
--------------
17,448,966
--------------
TOTAL COMMERCIAL PAPER 93,663,524
--------------
CORPORATE NOTES - 21.4%
BROKER/DEALER - 11.0%
Bear Stearns Companies, Inc.
07/01/03 1.110%* 15,000,000 15,000,000
Goldman Sachs Group, Inc.
08/22/03 1.290% 13,000,000 13,000,000
--------------
28,000,000
--------------
DEPOSITORY INSTITUTIONS - 3.9%
HBOS Treasury Services plc
09/24/03 1.270%* 10,000,000 10,000,000
--------------
FINANCIAL SERVICES - 0.6%
General Electric Capital Corp.
04/23/04 5.375% 1,440,000 1,489,637
--------------
INSURANCE - 5.9%
John Hancock Global Funding, 144A**
09/11/03 1.250%* 8,000,000 8,010,249
Monumental Global Funding, 144A**
10/01/03 6.950% 7,000,000 7,097,776
--------------
15,108,025
--------------
TOTAL CORPORATE NOTES 54,597,662
--------------
TOTAL INVESTMENTS - 100.0% $ 255,332,316
==============
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
12
<Page>
* Floating or variable rate security - rate disclosed as of 6/30/03. Maturity
date represents the next interest rate reset date.
** Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At June 30, 2003, these
securities amounted to a value of $15,108,025 or 5.90% of net assets.
***Discount Notes.
INCOME TAX INFORMATION:
Total cost for federal income tax purposes - $255,332,316
The Cash Reserve Portfolio had a capital loss carryover of $19,750 available to
offset capital gains to the extent provided in regulations, which will expire on
June 30, 2011.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
13
<Page>
[GRAPHIC]
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2003
<Table>
<Caption>
CORE EQUITY CAPITAL APPRECIATION
PORTFOLIO PORTFOLIO
---------------------------------------
ASSETS:
Investments, at value (cost -see below)(Note 1) $ 617,320,344 $ 53,435,664
Receivable for investments sold 0 269,704
Receivable for portfolio shares sold 297,698 180,145
Dividends receivable 622,090 22,902
Interest receivable 20,616 14
Other assets 21,906 3,721
---------------------------------------
Total assets 618,282,654 53,912,150
---------------------------------------
LIABILITIES:
Payable for investments purchased 0 182,576
Payable for portfolio shares redeemed 334,223 3,018
Accrued management fee 347,132 36,259
Accrued administration fee 72,025 5,848
Accrued co-administration fee 35,076 2,883
Accrued distribution fee 45,193 557
Accrued shareholder servicing fee 33,419 797
Other payables and accrued expenses 182,268 35,309
---------------------------------------
Total Liabilities 1,049,336 267,247
---------------------------------------
NET ASSETS $ 617,233,318 $ 53,644,903
=======================================
NET ASSETS CONSIST OF:
Paid in capital $ 620,548,148 $ 59,563,770
Undistributed net investment income 309,995 0
Accumulated net realized loss on investments (10,324,477) (14,531,271)
Net unrealized appreciation in value of
investments 6,699,652 8,612,404
---------------------------------------
NET ASSETS $ 617,233,318 $ 53,644,903
=======================================
COST OF INVESTMENTS $ 610,620,692 $ 44,823,260
=======================================
NET ASSET VALUE PER SHARE
Net Assets
Class I $ 470,854,686 $ 49,572,479
Class A $ 79,264,705 $ 3,083,189
Class B $ 14,068,960 $ 507,568
Class C $ 53,044,967 $ 481,667
---------------------------------------
Shares of beneficial interest outstanding of $.01 par value,
unlimited shares authorized
Class I 29,214,377 5,421,847
Class A 4,920,762 345,443
Class B 900,684 57,446
Class C 3,441,906 56,899
---------------------------------------
Net Asset Value and redemption price per share
Class I $ 16.12 $ 9.14
Class A $ 16.11 $ 8.93
Class B $ 15.62 $ 8.84
Class C $ 15.41 $ 8.47
---------------------------------------
Maximum offering price per share
Class I (no sales charge) $ 16.12 $ 9.14
Class A (net asset value plus maximum
sales charge of 5.75% of offering price) $ 17.09 $ 9.47
Class B (no sales charge) $ 15.62 $ 8.84
Class C (no sales charge) $ 15.41 $ 8.47
---------------------------------------
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
14
<Page>
<Table>
<Caption>
INTERMEDIATE BOND TENNESSEE TAX-FREE
PORTFOLIO PORTFOLIO
--------------------------------------
ASSETS:
Investments, at value (cost -see below)(Note 1) $ 493,117,072 $ 185,590,236
Receivable for portfolio shares sold 745,173 132,957
Interest receivable 7,483,334 2,538,663
Other assets 25,177 1,957
--------------------------------------
Total assets 501,370,756 188,263,813
--------------------------------------
LIABILITIES:
Payable for portfolio shares redeemed 151,690 224,092
Accrued management fee 113,477 42,309
Accrued administration fee 54,929 20,860
Accrued co-administration fee 26,449 10,126
Dividends payable 502,383 502,983
Accrued distribution fee 2,575 7,263
Accrued shareholder servicing fee 11,796 2,414
Other payables and accrued expenses 164,698 71,813
--------------------------------------
Total Liabilities 1,027,997 881,860
--------------------------------------
NET ASSETS $ 500,342,759 $ 187,381,953
======================================
NET ASSETS CONSIST OF:
Paid in capital $ 470,473,239 $ 174,526,148
Undistributed net investment income 835,399 8,179
Accumulated net realized gain on investments 2,279,985 591,712
Net unrealized appreciation in value of investment 26,754,136 12,255,914
--------------------------------------
NET ASSETS $ 500,342,759 $ 187,381,953
======================================
COST OF INVESTMENTS $ 466,362,936 $ 173,334,322
======================================
NET ASSET VALUE PER SHARE
Net Assets
Class I $ 443,510,744 $ 163,440,285
Class A $ 52,686,011 $ 11,660,642
Class B $ 678,123 $ 4,673,119
Class C $ 3,467,881 $ 7,607,907
--------------------------------------
Shares of beneficial interest outstanding of $.01 par value,
unlimited shares authorized
Class I 41,010,844 15,234,971
Class A 4,870,201 1,084,680
Class B 62,695 435,525
Class C 320,406 708,605
--------------------------------------
Net Asset Value and redemption price per share
Class I $ 10.81 $ 10.73
Class A $ 10.82 $ 10.75
Class B $ 10.82 $ 10.73
Class C $ 10.82 $ 10.74
--------------------------------------
Maximum offering price per share
Class I (no sales charge) $ 10.81 $ 10.73
Class A (net asset value plus maximum
sales charge of 3.50% and 3.75%,
respectively, of offering price) $ 11.21 $ 11.17
Class B (no sales charge) $ 10.82 $ 10.73
Class C (no sales charge) $ 10.82 $ 10.74
--------------------------------------
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
15
<Page>
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL CASH
MONEY MARKET MONEY MARKET RESERVE
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------
ASSETS:
Investments, at value (1)(Note 1) $ 131,647,487 $ 96,296,142 $ 255,332,316
Cash 921 0 789
Receivable for investments sold 0 500,026 0
Receivable for portfolio shares sold 0 0 18
Interest receivable 422,101 449,482 640,576
Other assets 3,060 2,230 12,448
--------------------------------------------------------
Total assets 132,073,569 97,247,880 255,986,147
--------------------------------------------------------
LIABILITIES:
Payable for investments purchased 0 3,853,540 0
Payable for portfolio shares redeemed 0 0 3,333
Dividends payable 109,880 47,976 37,769
Bank overdraft 0 8,012 0
Accrued management fee 9,582 8,092 17,928
Accrued administration fee 5,548 3,616 10,654
Accrued co-administration fee 2,455 4,114 10,700
Accrued distribution fee 1,695 5,154 44,194
Other payables and accrued expenses 36,023 24,915 64,147
--------------------------------------------------------
Total Liabilities 165,183 3,955,419 188,725
--------------------------------------------------------
NET ASSETS $ 131,908,386 $ 93,292,461 $ 255,797,422
========================================================
NET ASSETS CONSIST OF:
Paid in capital $ 131,927,234 $ 93,301,699 $ 255,803,938
Undistributed net investment income 335 0 13,234
Accumulated net realized loss on investments (19,183) (9,238) (19,750)
--------------------------------------------------------
NET ASSETS $ 131,908,386 $ 93,292,461 $ 255,797,422
========================================================
NET ASSET VALUE, offering price and redemption
price per share (2) $ 1.00 $ 1.00 $ 1.00
========================================================
</Table>
(1) Including repurchase agreements for the U.S. Government Money Market,
Municipal Money Market and Cash Reserve Portfolios in the amounts of
$5,570,000, $0 and $0, respectively.
<Table>
<Caption>
(2) SHARES OF BENEFICIAL INTEREST
NET OUTSTANDING, ($.01 PAR VALUE,
ASSETS UNLIMITED SHARES AUTHORIZED)
---------------------------------------------------
U.S. Government Money Market
Class I $ 124,310,087 124,328,663
Class C 7,598,299 7,598,569
Municipal Money Market
Class I 67,515,846 67,526,212
Class C 25,776,615 25,778,500
Cash Reserve
Class I 46,716,983 46,718,309
Class B 18,471 18,471
Class C 209,061,968 209,071,832
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
16
<Page>
[GRAPHIC]
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2003
<Table>
<Caption>
CORE EQUITY CAPITAL APPRECIATION
PORTFOLIO PORTFOLIO
---------------------------------------
INVESTMENT INCOME:
Dividends $ 8,353,312 $ 162,331
Interest 344,468 27,390
---------------------------------------
Total investment income 8,697,780 189,721
---------------------------------------
EXPENSES:
Management fee (Note 3) 3,900,294 360,208
Administration fee (Note 4) 810,061 57,233
Co-administration fee (Note 4) 390,029 27,557
Fund accounting fee 116,724 10,563
Custody fee 76,609 7,851
Transfer agent fee 225,074 17,137
Transfer agent out of pocket fee:
Class I 137,001 7,928
Class A 27,923 130
Class B 7,746 113
Class C 15,345 22
Blue sky fee 33,195 17,438
Distribution fee:
Class B 133,085 4,168
Class C 386,270 3,115
Shareholder servicing fee:
Class A 195,705 6,914
Class C 128,757 1,039
Trustees fee 24,917 1,550
Audit & tax 21,467 14,808
Legal 32,806 3,104
Reports to shareholders 28,441 3,379
Miscellaneous 44,944 4,360
---------------------------------------
Net expenses 6,736,393 548,617
---------------------------------------
NET INVESTMENT INCOME/(LOSS) 1,961,387 (358,896)
---------------------------------------
Net realized loss on investments (7,098,825) (1,985,661)
Change in net unrealized appreciation/depreciation 9,909,791 9,005,198
---------------------------------------
Net gain on investments 2,810,966 7,019,537
---------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 4,772,353 $ 6,660,641
=======================================
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
17
<Page>
<Table>
<Caption>
INTERMEDIATE BOND TENNESSEE TAX-FREE
PORTFOLIO PORTFOLIO
----------------------------------------
INTEREST INCOME: $ 12,579,978 $ 8,347,555
----------------------------------------
EXPENSES:
Management fee (Note 3) 1,246,022 916,621
Administration fee (Note 4) 336,547 247,488
Co-administration fee (Note 4) 162,041 119,161
Fund accounting fee 53,872 47,820
Custody fee 36,890 22,916
Transfer agent fee 98,228 73,426
Transfer agent out of pocket fee:
Class I 11,034 5,584
Class A 5,879 0
Blue sky fee 14,021 1,538
Distribution fee
Class B 1,847 20,056
Class C 15,061 52,399
Shareholder servicing fee:
Class A 128,873 24,445
Class C 5,020 17,467
Trustees fee 11,278 8,190
Audit & tax 27,668 27,228
Legal 22,361 15,836
Reports to shareholders 15,380 10,321
Miscellaneous 22,071 19,387
----------------------------------------
Total expenses before waiver 2,214,093 1,629,883
Waiver of expenses (Note 5) (503,161) (401,582)
----------------------------------------
Net expenses 1,710,932 1,228,301
----------------------------------------
NET INVESTMENT INCOME 10,869,046 7,119,254
----------------------------------------
Net realized gain on investments 2,931,688 673,317
Change in net unrealized appreciation/depreciation 18,718,131 4,345,890
----------------------------------------
Net gain on investments 21,649,819 5,019,207
----------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 32,518,865 $ 12,138,461
========================================
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
18
<Page>
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET CASH RESERVE
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------
INTEREST INCOME: $ 2,149,861 $ 1,229,366 $ 4,430,732
--------------------------------------------------------
EXPENSES:
Management fee (Note 3) 176,438 115,063 351,419
Administration fee (Note 4) 67,861 44,255 135,161
Co-administration fee (Note 4) 67,861 44,255 135,161
Fund accounting fee 19,001 12,391 37,845
Custody fee 15,072 10,151 33,221
Transfer agent fee 36,077 23,971 71,813
Transfer agent out of pocket fee:
Class I 4,980 1,761 4,452
Class B - - 9
Class C 288 698 20,120
Blue sky fee 6,606 4,889 35,053
Distribution fee:
Class B - - 334
Class C 35,086 113,055 960,445
Trustees fee 6,822 4,036 11,322
Audit & tax 24,181 12,932 39,732
Legal 9,983 5,824 15,210
Reports to shareholders 8,712 4,938 17,410
Registration fee 451 0 946
Miscellaneous 13,756 10,119 24,933
--------------------------------------------------------
Total expenses before waiver 493,175 408,338 1,894,586
Waiver of expenses (Note 5) (134,387) (79,913) (549,932)
--------------------------------------------------------
Net expenses 358,788 328,425 1,344,654
--------------------------------------------------------
NET INVESTMENT INCOME 1,791,073 900,941 3,086,078
--------------------------------------------------------
Net realized gain/(loss) on investments 0 (2,609) 1,440
--------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,791,073 $ 898,332 $ 3,087,518
========================================================
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
19
<Page>
[GRAPHIC]
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
CORE EQUITY CAPITAL APPRECIATION
PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
2003 2002 2003 2002
----------------------------------------------------------------------------
OPERATIONS:
Net investment income/(loss) $ 1,961,387 $ 2,596,281 $ (358,896) $ (475,017)
Net realized loss on investments (7,098,825) (2,997,810) (1,985,661) (2,344,204)
Change in net unrealized
appreciation/depreciation 9,909,791 (206,318,000) 9,005,198 (7,635,316)
----------------------------------------------------------------------------
Net increase/(decrease) in net assets
from operations 4,772,353 (206,719,529) 6,660,641 (10,454,537)
----------------------------------------------------------------------------
DISTRIBUTIONS:
From net investment income:
Class I (1,775,265) (2,678,564) 0 0
Class A (122,852) (259,185) 0 0
Class B 0 0 0 0
Class C 0 0 0 0
From net realized gain:
Class I 0 (52,653,389) 0 0
Class A 0 (10,369,812) 0 0
Class B 0 (1,183,052) 0 0
Class C 0 (6,788,347) 0 0
----------------------------------------------------------------------------
Net decrease in net assets
from distributions (1,898,117) (73,932,349) 0 0
----------------------------------------------------------------------------
SHARE TRANSACTIONS (NOTE 2):
Proceeds from sales of shares 60,523,606 188,854,474 8,597,749 12,637,426
Reinvested dividends 1,143,196 47,131,112 0 0
Cost of shares redeemed (173,401,093) (186,963,432) (5,646,983) (9,541,294)
----------------------------------------------------------------------------
Net increase/(decrease) in net assets
from share transactions (111,734,291) 49,022,154 2,950,766 3,096,132
----------------------------------------------------------------------------
Net increase/(decrease) in net assets (108,860,055) (231,629,724) 9,611,407 (7,358,405)
NET ASSETS:
Beginning of period 726,093,373 957,723,097 44,033,496 51,391,901
----------------------------------------------------------------------------
End of period* $ 617,233,318 $ 726,093,373 $ 53,644,903 $ 44,033,496
============================================================================
*Includes undistributed
net investment income of $ 309,995 $ 5,689 $ 0 $ 0
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
20
<Page>
<Table>
<Caption>
INTERMEDIATE BOND TENNESSEE TAX-FREE
PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
2003 2002 2003 2002
----------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 10,869,046 $ 11,884,595 $ 7,119,254 $ 7,607,168
Net realized gain on investments 2,931,688 1,706,142 673,317 653,884
Change in net unrealized
appreciation/depreciation 18,718,131 6,155,146 4,345,890 2,966,519
----------------------------------------------------------------------------
Net increase in net assets
from operations 32,518,865 19,745,883 12,138,461 11,227,571
----------------------------------------------------------------------------
DISTRIBUTIONS:
From net investment income:
Class I (8,646,237) (9,499,850) (6,427,078) (6,857,371)
Class A (2,139,216) (2,318,123) (359,541) (479,498)
Class B (9,586) - (92,243) (24,014)
Class C (74,007) (66,622) (240,392) (246,285)
From net realized gain:
Class I (1,120,347) (673,836) (474,243) (291,540)
Class A (292,851) (169,531) (27,212) (23,295)
Class B (1,207) - (8,267) (1,222)
Class C (11,124) (5,807) (20,817) (11,892)
----------------------------------------------------------------------------
Net decrease in net assets
from distributions (12,294,575) (12,733,769) (7,649,793) (7,935,117)
----------------------------------------------------------------------------
SHARE TRANSACTIONS (NOTE 2):
Proceeds from sales of shares 296,607,692 38,031,899 25,222,559 16,240,270
Reinvested dividends 5,218,307 5,503,746 979,815 964,710
Cost of shares redeemed (61,873,921) (45,192,794) (25,076,713) (27,240,609)
----------------------------------------------------------------------------
Net increase/(decrease) in net assets
from share transactions 239,952,078 (1,657,149) 1,125,661 (10,035,629)
----------------------------------------------------------------------------
Net increase/(decrease)
in net assets 260,176,368 5,354,965 5,614,329 (6,743,175)
NET ASSETS:
Beginning of period 240,166,391 234,811,426 181,767,624 188,510,799
----------------------------------------------------------------------------
End of period* $ 500,342,759 $ 240,166,391 $ 187,381,953 $ 181,767,624
============================================================================
*Includes undistributed
net investment income of $ 835,399 $ 709,573 $ 8,179 $ 7,483
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
21
<Page>
<Table>
<Caption>
U.S. GOVERNMENT MONEY
MARKET PORTFOLIO
--------------------------------------
FOR THE YEAR FOR THE YEAR
ENDED JUNE 30, ENDED JUNE 30,
2003 2002
--------------------------------------
OPERATIONS:
Net investment income $ 1,791,073 $ 2,713,364
Net realized loss on investments 0 (1,243)
--------------------------------------
Net increase in net assets from
operations 1,791,073 2,712,121
--------------------------------------
DISTRIBUTIONS:
From net investment income
Class I (1,705,994) (2,629,483)
Class C (85,079) (83,988)
--------------------------------------
Net decrease in net assets from
distributions (1,791,073) (2,713,471)
--------------------------------------
SHARE TRANSACTIONS AT NET ASSET VALUE
OF $1.00 PER SHARE (NOTE 2):
Proceeds from sales of shares 131,193,918 319,098,164
Reinvested dividends 82,129 76,365
Cost of shares redeemed (136,193,759) (266,418,451)
--------------------------------------
Net increase/(decrease) in net assets
from share transactions (4,918,712) 52,756,078
--------------------------------------
Net increase/(decrease) in
net assets (4,918,712) 52,754,728
NET ASSETS:
Beginning of period 136,827,098 84,072,370
--------------------------------------
End of period* $ 131,908,386 $ 136,827,098
======================================
*Includes undistributed net
investment income of $ 335 $ 335
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
22
<Page>
<Table>
<Caption>
MUNICIPAL MONEY CASH RESERVE
MARKET PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
2003 2002 2003 2002
----------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 900,941 $ 1,281,743 $ 3,086,078 $ 6,276,877
Net realized gain/(loss) on
investments (2,609) (2,340) 1,440 (21,190)
----------------------------------------------------------------------------
Net increase in net assets from
operations 898,332 1,279,403 3,087,518 6,255,687
----------------------------------------------------------------------------
DISTRIBUTIONS:
From net investment income
Class I (690,247) (924,641) (778,658) (1,056,224)
Class B - - (102) -
Class C (210,694) (357,102) (2,307,318) (5,220,653)
----------------------------------------------------------------------------
Net decrease in net assets from
distributions (900,941) (1,281,743) (3,086,078) (6,276,877)
----------------------------------------------------------------------------
SHARE TRANSACTIONS AT NET ASSET VALUE
OF $1.00 PER SHARE (NOTE 2):
Proceeds from sales of shares 143,234,292 133,013,093 511,935,377 1,070,621,474
Reinvested dividends 209,725 355,650 2,333,771 5,261,902
Cost of shares redeemed (131,811,740) (121,834,680) (518,125,424) (1,082,863,393)
----------------------------------------------------------------------------
Net increase/(decrease) in net
assets from share transactions 11,632,277 11,534,063 (3,856,276) (6,980,017)
----------------------------------------------------------------------------
Net increase/(decrease) in
net assets 11,629,668 11,531,723 (3,854,836) (7,001,207)
NET ASSETS:
Beginning of period 81,662,793 70,131,070 259,652,258 266,653,465
----------------------------------------------------------------------------
End of period* $ 93,292,461 $ 81,662,793 $ 255,797,422 $ 259,652,258
============================================================================
*Includes undistributed net
investment income of $ 0 $ 0 $ 13,234 $ 13,234
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
23
<Page>
[GRAPHIC]
FINANCIAL HIGHLIGHTS
CORE EQUITY PORTFOLIO
CLASS I
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003^ 2002 2001 2000 1999
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.74 $ 21.87 $ 25.33 $ 26.26 $ 21.56
----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.07 0.08 0.07 0.11 0.13
Net realized and unrealized gain/(loss)
on investments 0.37 (4.52) 0.06 1.88 5.30
----------------------------------------------------------------------------
Total from investment operations 0.44 (4.44) 0.13 1.99 5.43
----------------------------------------------------------------------------
Distributions:
Net investment income (0.06) (0.08) (0.04) (0.09) (0.12)
Net realized gain - (1.61) (3.55) (2.83) (0.61)
----------------------------------------------------------------------------
Total distributions (0.06) (1.69) (3.59) (2.92) (0.73)
----------------------------------------------------------------------------
Net asset value, end of period $ 16.12 $ 15.74 $ 21.87 $ 25.33 $ 26.26
============================================================================
TOTAL RETURN+ 2.82% (21.53)% (0.70)% 8.15% 25.69%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 470,855 $ 541,058 $ 716,068 $ 790,050 $ 790,985
Ratio of expenses to average daily net assets(1) 0.98% 0.94% 0.97% 0.87% 0.80%
Ratio of net investment income to average net assets 0.47% 0.44% 0.31% 0.44% 0.57%
Portfolio turnover rate 22% 38% 26% 28% 21%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.98% 0.94% 0.97% 0.95% 0.95%
</Table>
CLASS A
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003^ 2002 2001 2000 1999
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.73 $ 21.85 $ 25.33 $ 26.30 $ 21.58
----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.04 0.01 0.03 0.06
Net realized and unrealized gain/(loss)
on investments 0.37 (4.51) 0.06 1.88 5.31
----------------------------------------------------------------------------
Total from investment operations 0.40 (4.47) 0.07 1.91 5.37
----------------------------------------------------------------------------
Distributions:
Net investment income (0.02) (0.04) - (0.05) (0.04)
Net realized gain - (1.61) (3.55) (2.83) (0.61)
----------------------------------------------------------------------------
Total distributions (0.02) (1.65) (3.55) (2.88) (0.65)
----------------------------------------------------------------------------
Net asset value, end of period $ 16.11 $ 15.73 $ 21.85 $ 25.33 $ 26.30
============================================================================
TOTAL RETURN+* 2.58% (21.73)% (0.95)% 7.80% 25.33%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 79,265 $ 105,294 $ 134,604 $ 101,907 $ 82,896
Ratio of expenses to average daily net assets(1) 1.24% 1.19% 1.23% 1.18% 1.10%
Ratio of net investment income to average net assets 0.21% 0.20% 0.05% 0.13% 0.28%
Portfolio turnover rate 22% 38% 26% 28% 21%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.24% 1.19% 1.23% 1.25% 1.25%
</Table>
* Class A 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.
^ Per share amounts calculated based on the average shares outstanding during
the period.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
24
<Page>
CLASS B
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003^ 2002 2001 2000**
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.35 $ 21.49 $ 25.13 $ 25.83
------------------------------------------------------------
Income from investment operations:
Net investment loss (0.08) (0.05) (0.05) (0.07)
Net realized and unrealized gain/(loss)
on investments 0.35 (4.48) (0.04) 2.20
------------------------------------------------------------
Total from investment operations 0.27 (4.53) (0.09) 2.13
------------------------------------------------------------
Distributions:
Net investment income - - - -
Net realized gain - (1.61) (3.55) (2.83)
------------------------------------------------------------
Total distributions - (1.61) (3.55) (2.83)
------------------------------------------------------------
Net asset value, end of period $ 15.62 $ 15.35 $ 21.49 $ 25.13
============================================================
TOTAL RETURN+ 1.76% (22.39)% (1.65)% 8.72%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 14,069 $ 15,636 $ 13,849 $ 5,372
Ratio of expenses to average daily net assets(1) 2.01% 1.98% 1.99% 1.91%*
Ratio of net investment loss to average net assets (0.56)% (0.59)% (0.71)% (0.60)%*
Portfolio turnover rate 22% 38% 26% 28%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 2.01% 1.98% 1.99% 1.98%*
</Table>
CLASS C
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003^ 2002 2001 2000 1999
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.15 $ 21.23 $ 24.87 $ 26.00 $ 21.47
----------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.08) (0.12) (0.13) (0.13) (0.11)
Net realized and unrealized gain/(loss)
on investments 0.34 (4.35) 0.04 1.83 5.25
----------------------------------------------------------------------------
Total from investment operations 0.26 (4.47) (0.09) 1.70 5.14
----------------------------------------------------------------------------
Distributions:
Net investment income - - - - -
Net realized gain - (1.61) (3.55) (2.83) (0.61)
----------------------------------------------------------------------------
Total distributions - (1.61) (3.55) (2.83) (0.61)
----------------------------------------------------------------------------
Net asset value, end of period $ 15.41 $ 15.15 $ 21.23 $ 24.87 $ 26.00
============================================================================
TOTAL RETURN+ 1.72% (22.38)% (1.66)% 7.02% 24.35%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 53,045 $ 64,105 $ 93,201 $ 101,084 $ 95,528
Ratio of expenses to average daily net assets(1) 1.98% 1.95% 1.96% 1.92% 1.88%
Ratio of net investment loss to average
net assets (0.53)% (0.56)% (0.69)% (0.61)% (0.50)%
Portfolio turnover rate 22% 38% 26% 28% 21%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.98% 1.95% 1.96% 2.00% 2.03%
</Table>
* Annualized
** Class B commenced operations on August 3, 1999.
+ Total return would have been lower had various fees not been waived during
the period.
# Total returns for periods of less than one year are not annualized.
^ Per share amounts calculated based on the average shares outstanding during
the period.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
25
<Page>
CAPITAL APPRECIATION PORTFOLIO
CLASS I
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003^ 2002^ 2001^ 2000^ 1999^
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 8.03 $ 9.98 $ 14.47 $ 10.25 $ 10.74
----------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.06) (0.09) (0.05) (0.09) (0.09)
Net realized and unrealized gain/(loss) on
investments 1.17 (1.86) (1.22) 4.31 (0.16)
----------------------------------------------------------------------------
Total from investment operations 1.11 (1.95) (1.27) 4.22 (0.25)
----------------------------------------------------------------------------
Distributions:
Net realized gain - - (3.22) - (0.24)
----------------------------------------------------------------------------
Net asset value, end of period $ 9.14 $ 8.03 $ 9.98 $ 14.47 $ 10.25
============================================================================
TOTAL RETURN+ 13.82% (19.54)% (10.93)% 41.17% (2.16)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 49,572 $ 39,175 $ 44,746 $ 46,042 $ 33,803
Ratio of expenses to average daily net assets(1) 1.26% 1.46% 1.27% 1.19% 1.29%
Ratio of net investment loss to average net assets (0.81)% (1.01)% (0.45)% (0.77)% (1.00)%
Portfolio turnover rate 67% 137% 130% 286% 47%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.26% 1.46% 1.27% 1.26% 1.44%
</Table>
CLASS A
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003^ 2002^ 2001^ 2000^ 1999^
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 7.86 $ 9.80 $ 14.31 $ 10.20 $ 10.71
----------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.08) (0.11) (0.09) (0.15) (0.13)
Net realized and unrealized gain/(loss) on
investments 1.15 (1.83) (1.20) 4.26 (0.14)
----------------------------------------------------------------------------
Total from investment operations 1.07 (1.94) (1.29) 4.11 (0.27)
----------------------------------------------------------------------------
Distributions:
Net realized gain - - (3.22) - (0.24)
----------------------------------------------------------------------------
Net asset value, end of period $ 8.93 $ 7.86 $ 9.80 $ 14.31 $ 10.20
============================================================================
TOTAL RETURN+* 13.61% (19.80)% (11.21)% 40.29% (2.35)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 3,083 $ 3,879 $ 5,150 $ 3,883 $ 2,051
Ratio of expenses to average daily net assets(1) 1.49% 1.76% 1.62% 1.63% 1.66%
Ratio of net investment loss to average net assets (1.05)% (1.32)% (0.80)% (1.21)% (1.37)%
Portfolio turnover rate 67% 137% 130% 286% 47%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.49% 1.76% 1.62% 1.70% 1.81%
</Table>
* Class A total return does not include the one-time front-end sales charge.
^ Per share amounts calculated based on the average shares outstanding during
the period.
+ Total return would have been lower had various fees not been waived during
the period.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
26
<Page>
CLASS B
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003^ 2002^ 2001^ 2000**
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 7.84 $ 9.86 $ 14.49 $ 10.06
------------------------------------------------------------
Income from investment operations:
Net investment loss (0.13) (0.18) (0.16) (0.19)
Net realized and unrealized gain/(loss)
on investments 1.13 (1.84) (1.25) 4.62
------------------------------------------------------------
Total from investment operations 1.00 (2.02) (1.41) 4.43
------------------------------------------------------------
Distributions:
Net realized gain - - (3.22) -
------------------------------------------------------------
Net asset value, end of period $ 8.84 $ 7.84 $ 9.86 $ 14.49
============================================================
TOTAL RETURN+ 12.76% (20.49)% (12.00)% 44.04%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 508 $ 515 $ 737 $ 175
Ratio of expenses to average daily net assets(1) 2.26% 2.62% 2.48% 2.46%*
Ratio of net investment loss to average net assets (1.82)% (2.17)% (1.66)% (2.04)%*
Portfolio turnover rate 67% 137% 130% 286%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 2.26% 2.62% 2.48% 2.52%*
</Table>
CLASS C
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003^ 2002^ 2001^ 2000^ 1999^
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 7.51 $ 9.43 $ 14.02 $ 10.04 $ 10.64
----------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.12) (0.18) (0.19) (0.25) (0.19)
Net realized and unrealized gain/(loss) on
investments 1.08 (1.74) (1.18) 4.23 (0.17)
----------------------------------------------------------------------------
Total from investment operations 0.96 (1.92) (1.37) 3.98 (0.36)
----------------------------------------------------------------------------
Distributions:
Net realized gain - - (3.22) - (0.24)
----------------------------------------------------------------------------
Net asset value, end of period $ 8.47 $ 7.51 $ 9.43 $ 14.02 $ 10.04
============================================================================
TOTAL RETURN+ 12.78% (20.36)% (12.13)% 39.64% (3.22)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 482 $ 463 $ 758 $ 634 $ 392
Ratio of expenses to average daily net assets(1) 2.24% 2.63% 2.60% 2.50% 2.44%
Ratio of net investment loss to average net assets (1.80)% (2.18)% (1.78)% (2.09)% (2.15)%
Portfolio turnover rate 67% 137% 130% 286% 47%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 2.24% 2.63% 2.60% 2.57% 2.59%
</Table>
* Annualized.
** Class B commenced operations on August 3, 1999.
+ Total return would have been lower had various fees not been waived during
the period.
# Total returns for periods of less than one year are not annualized.
^ Per share amounts calculated based on the average shares outstanding during
the period.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
27
<Page>
INTERMEDIATE BOND PORTFOLIO
CLASS I
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003 2002 2001 2000 1999
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.39 $ 10.10 $ 9.59 $ 9.78 $ 10.02
----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.45 0.52 0.55 0.56 0.58
Net realized and unrealized gain/(loss)
on investments 0.50 0.33 0.50 (0.19) (0.22)
----------------------------------------------------------------------------
Total from investment operations 0.95 0.85 1.05 0.37 0.36
----------------------------------------------------------------------------
Distributions:
Net investment income (0.47) (0.52) (0.55) (0.56) (0.58)
Net realized gain (0.06) (0.04) - - (0.02)
----------------------------------------------------------------------------
Total distributions (0.53) (0.56) (0.55) (0.56) (0.60)
----------------------------------------------------------------------------
Net asset value, end of period $ 10.81 $ 10.39 $ 10.10 $ 9.59 $ 9.78
============================================================================
TOTAL RETURN+ 9.35% 8.59% 11.28% 3.97% 3.60%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 443,511 $ 188,425 $ 188,381 $ 202,385 $ 219,298
Ratio of expenses to average daily net assets(1) 0.62% 0.62% 0.60% 0.46% 0.36%
Ratio of net investment income to average net assets 4.41% 5.08% 5.52% 5.86% 5.76%
Portfolio turnover rate 36% 61% 59% 22% 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. 0.82% 0.82% 0.80% 0.81% 0.86%
</Table>
CLASS A
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003 2002 2001 2000 1999
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.40 $ 10.10 $ 9.59 $ 9.78 $ 10.02
----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.44 0.50 0.52 0.53 0.55
Net realized and unrealized gain/(loss)
on investments 0.48 0.34 0.51 (0.19) (0.22)
----------------------------------------------------------------------------
Total from investment operations 0.92 0.84 1.03 0.34 0.33
----------------------------------------------------------------------------
Distributions:
Net investment income (0.44) (0.50) (0.52) (0.53) (0.55)
Net realized gain (0.06) (0.04) - - (0.02)
----------------------------------------------------------------------------
Total distributions (0.50) (0.54) (0.52) (0.53) (0.57)
----------------------------------------------------------------------------
Net asset value, end of period $ 10.82 $ 10.40 $ 10.10 $ 9.59 $ 9.78
============================================================================
TOTAL RETURN+* 9.08% 8.43% 10.99% 3.66% 3.32%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 52,686 $ 50,032 $ 45,098 $ 7,485 $ 3,057
Ratio of expenses to average daily net assets(1) 0.88% 0.87% 0.84% 0.75% 0.68%
Ratio of net investment income to average net assets 4.15% 4.83% 5.27% 5.57% 5.43%
Portfolio turnover rate 36% 61% 59% 22% 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. 1.08% 1.07% 1.04% 1.11% 1.19%
</Table>
* Class A 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.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
28
<Page>
CLASS B
<Table>
<Caption>
FOR THE PERIOD ENDED JUNE 30,
2003**
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.55
------------
Income from investment operations:
Net investment income 0.27
Net realized and unrealized gain
on investments 0.33
------------
Total from investment operations 0.60
------------
Distributions:
Net investment income (0.27)
Net realized gain (0.06)
------------
Total distributions (0.33)
------------
Net asset value, end of period $ 10.82
============
TOTAL RETURN+ 5.75%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 678
Ratio of expenses to average daily net assets(1) 1.31%*
Ratio of net investment income to average net assets 3.72%*
Portfolio turnover rate 36%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.51%*
</Table>
CLASS C
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003 2002 2001 2000 1999
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.40 $ 10.10 $ 9.59 $ 9.77 $ 10.02
----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.38 0.44 0.47 0.48 0.49
Net realized and unrealized gain/(loss)
on investments 0.49 0.34 0.51 (0.18) (0.23)
----------------------------------------------------------------------------
Total from investment operations 0.87 0.78 0.98 0.30 0.26
----------------------------------------------------------------------------
Distributions:
Net investment income (0.39) (0.44) (0.47) (0.48) (0.49)
Net realized gain (0.06) (0.04) - - (0.02)
----------------------------------------------------------------------------
Total distributions (0.45) (0.48) (0.47) (0.48) (0.51)
----------------------------------------------------------------------------
Net asset value, end of period $ 10.82 $ 10.40 $ 10.10 $ 9.59 $ 9.77
============================================================================
TOTAL RETURN+ 8.54% 7.81% 10.38% 3.16% 2.58%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 3,468 $ 1,710 $ 1,333 $ 1,269 $ 1,097
Ratio of expenses to average daily net assets(1) 1.37% 1.44% 1.42% 1.35% 1.22%
Ratio of net investment income to average net assets 3.66% 4.25% 4.70% 4.97% 4.90%
Portfolio turnover rate 36% 61% 59% 22% 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. 1.82% 1.89% 1.86% 1.95% 1.92%
</Table>
* Annualized.
** Class B commenced operations on October 28, 2002.
+ Total return would have been lower had various fees not been waived during
the period.
# Total returns for periods of less than one year are not annualized.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
29
<Page>
TENNESSEE TAX-FREE PORTFOLIO
CLASS I
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003 2002 2001 2000 1999
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.47 $ 10.28 $ 9.89 $ 10.08 $ 10.31
----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.42 0.43 0.44 0.45 0.46
Net realized and unrealized gain/(loss) on
investments 0.29 0.21 0.39 (0.18) (0.20)
----------------------------------------------------------------------------
Total from investment operations 0.71 0.64 0.83 0.27 0.26
----------------------------------------------------------------------------
Distributions:
Net investment income (0.42) (0.43) (0.44) (0.45) (0.46)
Net realized gain (0.03) (0.02) - (0.01) (0.03)
----------------------------------------------------------------------------
Total distributions (0.45) (0.45) (0.44) (0.46) (0.49)
----------------------------------------------------------------------------
Net asset value, end of period $ 10.73 $ 10.47 $ 10.28 $ 9.89 $ 10.08
============================================================================
TOTAL RETURN+ 6.89% 6.34% 8.49% 2.83% 2.54%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 163,440 $ 164,437 $ 168,940 $ 172,620 $ 185,445
Ratio of expenses to average daily net assets (1) 0.63% 0.64% 0.62% 0.45% 0.36%
Ratio of net investment income to average net assets 3.93% 4.14% 4.29% 4.57% 4.49%
Portfolio turnover rate 19% 8% 13% 6% 31%
(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% 0.84% 0.82% 0.81% 0.86%
</Table>
CLASS A
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003 2002 2001 2000 1999
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.49 $ 10.31 $ 9.92 $ 10.11 $ 10.34
----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.39 0.40 0.41 0.44 0.46
Net realized and unrealized gain/(loss) on
investments 0.29 0.20 0.39 (0.18) (0.20)
----------------------------------------------------------------------------
Total from investment operations 0.68 0.60 0.80 0.26 0.26
----------------------------------------------------------------------------
Distributions:
Net investment income (0.39) (0.40) (0.41) (0.44) (0.46)
Net realized gain (0.03) (0.02) - (0.01) (0.03)
----------------------------------------------------------------------------
Total distributions (0.42) (0.42) (0.41) (0.45) (0.49)
----------------------------------------------------------------------------
Net asset value, end of period $ 10.75 $ 10.49 $ 10.31 $ 9.92 $ 10.11
============================================================================
TOTAL RETURN+* 6.62% 5.98% 8.20% 2.70% 2.46%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 11,661 $ 9,252 $ 12,836 $ 10,580 $ 13,227
Ratio of expenses to average daily net assets (1) 0.87% 0.88% 0.87% 0.58% 0.44%
Ratio of net investment income to average net assets 3.68% 3.90% 4.04% 4.44% 4.41%
Portfolio turnover rate 19% 8% 13% 6% 31%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.07% 1.08% 1.08% 1.09%^ 1.13%^
</Table>
* Class A 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.
^ These ratios were previously reported net of the shareholder servicing fee
waiver.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
30
<Page>
CLASS B
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003 2002 2001 2000**
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.47 $ 10.29 $ 9.90 $ 10.09
------------------------------------------------------------
Income from investment operations:
Net investment income 0.34 0.35 0.36 0.34
Net realized and unrealized gain/(loss)
on investments 0.29 0.20 0.39 (0.18)
------------------------------------------------------------
Total from investment operations 0.63 0.55 0.75 0.16
------------------------------------------------------------
Distributions:
Net investment income (0.34) (0.35) (0.36) (0.34)
Net realized gain (0.03) (0.02) - (0.01)
------------------------------------------------------------
Total distributions (0.37) (0.37) (0.36) (0.35)
------------------------------------------------------------
Net asset value, end of period $ 10.73 $ 10.47 $ 10.29 $ 9.90
============================================================
TOTAL RETURN+ 6.15% 5.46% 7.72% 1.69%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 4,673 $ 1,090 $ 309 $ 200
Ratio of expenses to average daily
net assets (1) 1.32% 1.37% 1.33% 1.16%*
Ratio of net investment income to average net assets 3.23% 3.41% 3.58% 3.86%*
Portfolio turnover rate 19% 8% 13% 6%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.52% 1.57% 1.53% 1.52%*
</Table>
CLASS C
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003 2002 2001 2000 1999
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.48 $ 10.29 $ 9.90 $ 10.09 $ 10.32
----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.37 0.38 0.38 0.40 0.42
Net realized and unrealized gain/(loss) on
investments 0.29 0.21 0.39 (0.18) (0.20)
----------------------------------------------------------------------------
Total from investment operations 0.66 0.59 0.77 0.22 0.22
----------------------------------------------------------------------------
Distributions:
Net investment income (0.37) (0.38) (0.38) (0.40) (0.42)
Net realized gain (0.03) (0.02) - (0.01) (0.03)
----------------------------------------------------------------------------
Total distributions (0.40) (0.40) (0.38) (0.41) (0.45)
----------------------------------------------------------------------------
Net asset value, end of period $ 10.74 $ 10.48 $ 10.29 $ 9.90 $ 10.09
============================================================================
TOTAL RETURN+ 6.37% 5.81% 7.89% 2.29% 2.13%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 7,608 $ 6,989 $ 6,426 $ 8,969 $ 17,378
Ratio of expenses to average daily net assets (1) 1.12% 1.14% 1.17% 0.96% 0.75%
Ratio of net investment income to average net assets 3.43% 3.65% 3.74% 4.06% 4.10%
Portfolio turnover rate 19% 8% 13% 6% 31%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.82% 1.84% 1.87% 1.84%^ 1.90%^
</Table>
* Annualized.
** Class B commenced operations on August 3, 1999.
+ Total return would have been lower had various fees not been waived during
the period.
# Total returns for periods of less than one year are not annualized.
^ These ratios were previously reported net of the shareholder servicing fee
waiver.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
31
<Page>
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
CLASS I
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003 2002 2001 2000 1999
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 0.013 0.024 0.057 0.053 0.047
----------------------------------------------------------------------------
Distributions:
Net investment income (0.013) (0.024) (0.057) (0.053) (0.047)
----------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============================================================================
TOTAL RETURN+ 1.34% 2.42% 5.85% 5.48% 4.81%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 124,310 $ 128,530 $ 81,572 $ 81,992 $ 94,079
Ratio of expenses to average net assets (1) 0.25% 0.25% 0.23% 0.28% 0.39%
Ratio of net investment income to average net assets 1.33% 2.27% 5.74% 5.35% 4.71%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.34% 0.32% 0.40% 0.45% 0.56%
</Table>
CLASS C
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003 2002 2001 2000 1999
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 0.011 0.021 0.055 0.050 0.043
----------------------------------------------------------------------------
Distributions:
Net investment income (0.011) (0.021) (0.055) (0.050) (0.043)
----------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============================================================================
TOTAL RETURN+ 1.08% 2.17% 5.59% 5.15% 4.42%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 7,598 $ 8,297 $ 2,500 $ 3,435 $ 1,674
Ratio of expenses to average net assets (1) 0.50% 0.50% 0.48% 0.59% 0.73%
Ratio of net investment income to average net assets 1.08% 2.02% 5.49% 5.04% 4.37%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.79% 0.77% 0.85% 0.97%^ 1.10%^
</Table>
+ Total return would have been lower had various fees not been waived during
the period.
^ These ratios were previously reported net of the 12b-1 waiver.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
32
<Page>
MUNICIPAL MONEY MARKET PORTFOLIO
CLASS I
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003 2002 2001 2000 1999
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 0.011 0.017 0.036 0.035 0.029
----------------------------------------------------------------------------
Distributions:
Net investment income (0.011) (0.017) (0.036) (0.035) (0.029)
----------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============================================================================
TOTAL RETURN+ 1.10% 1.69% 3.66% 3.56% 2.92%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 67,516 $ 57,482 $ 47,665 $ 44,535 $ 56,438
Ratio of expenses to average net assets (1) 0.30% 0.25% 0.28% 0.27% 0.33%
Ratio of net investment income to average net assets 1.09% 1.65% 3.53% 3.48% 2.87%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.33% 0.31% 0.46% 0.45% 0.50%
</Table>
CLASS C
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003 2002 2001 2000 1999
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 0.008 0.014 0.033 0.032 0.025
----------------------------------------------------------------------------
Distributions:
Net investment income (0.008) (0.014) (0.033) (0.032) (0.025)
----------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============================================================================
TOTAL RETURN+ 0.85% 1.44% 3.37% 3.24% 2.56%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 25,777 $ 24,181 $ 22,466 $ 5,527 $ 5,333
Ratio of expenses to average net assets (1) 0.55% 0.50% 0.55% 0.58% 0.68%
Ratio of net investment income to average net assets 0.84% 1.40% 3.26% 3.17% 2.52%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.78% 0.76% 0.93% 0.96%^ 1.06%^
</Table>
+ Total return would have been lower had various fees not been waived during
the period.
^ These ratios were previously reported net of the 12b-1 waiver.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
33
<Page>
CASH RESERVE PORTFOLIO
CLASS I
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003 2002 2001 2000 1999
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 0.013 0.024 0.058 0.054 0.048
----------------------------------------------------------------------------
Distributions:
Net investment income (0.013) (0.024) (0.058) (0.054) (0.048)
----------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============================================================================
TOTAL RETURN+ 1.33% 2.44% 5.92% 5.56% 4.94%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 46,717 $ 47,402 $ 35,453 $ 32,028 $ 29,351
Ratio of expenses to average net assets (1) 0.30% 0.25% 0.27% 0.31% 0.39%
Ratio of net investment income to average net assets 1.34% 2.36% 5.51% 5.55% 4.84%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.34% 0.31% 0.45% 0.48% 0.56%
</Table>
CLASS B
<Table>
<Caption>
FOR THE PERIOD ENDED JUNE 30,
2003**
SELECTED PER - SHARE DATA
Net asset value, beginning of period $ 1.00
------------
Income from investment operations:
Net investment income 0.002
------------
Distributions:
Net investment income (0.002)
------------
Net asset value, end of period $ 1.00
============
TOTAL RETURN+ 0.21%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 18
Ratio of expenses to average net assets (1) 1.14%*
Ratio of net investment income to average net assets 0.50%*
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.36%*
</Table>
* Annualized.
** Class B commenced operations on October 28, 2002.
+ Total return would have been lower had various fees not been waived during
the period.
# Total returns for periods less than one year are not annualized.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
34
<Page>
CLASS C
<Table>
<Caption>
FOR THE YEAR ENDED JUNE 30,
2003 2002 2001 2000 1999
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 0.011 0.022 0.055 0.053 0.046
----------------------------------------------------------------------------
Distributions:
Net investment income (0.011) (0.022) (0.055) (0.053) (0.046)
----------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============================================================================
TOTAL RETURN+ 1.08% 2.19% 5.65% 5.38% 4.67%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 209,062 $ 212,250 $ 231,201 $ 107,154 $ 62,961
Ratio of expenses to average net assets (1) 0.55% 0.50% 0.52% 0.55% 0.66%
Ratio of net investment income to average net assets 1.09% 2.11% 5.26% 5.30% 4.58%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.79% 0.76% 0.90% 0.93%^ 1.03%^
</Table>
+ Total return would have been lower had various fees not been waived during
the period.
^ These ratios were previously reported net of the 12b-1 waiver.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
35
<Page>
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING AND OPERATING POLICIES
First Funds (the Trust) is registered under the Investment Company Act of 1940,
as amended (the 1940 Act), as an open-ended management investment company
organized as a Massachusetts business trust by a Declaration of Trust dated
March 6, 1992, as amended and restated on September 4, 1992, as amended and
restated on June 26, 2003.
The Trust currently has seven active investment portfolios (each referred to as
a "Portfolio"). The Trust's financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America. This
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
The U.S. Government Money Market and Municipal Money Market Portfolios may offer
three classes of shares (Classes I,A and C) and the Core Equity, Capital
Appreciation, Intermediate Bond, Tennessee Tax-Free and Cash Reserve Portfolios
may offer four classes of shares (Classes I,A, B and C). As of June 30, 2003,
Class A shares have not been issued for the U.S. Government Money Market,
Municipal Money Market and Cash Reserve Portfolios ("Money Market Portfolios").
Each class of shares has equal rights as to earnings, assets and voting
privileges except that each class bears different distribution and shareholder
service expenses. Each class has exclusive voting rights with respect to its
Distribution Plans and Shareholder Servicing Plans. Income, expenses (other than
expenses incurred under each Class Distribution and Service Plan and other class
specific expenses) and realized and unrealized gains or losses on investments
are allocated to each class of shares based upon their relative net assets.
The following summarizes the significant accounting policies for the Trust.
SECURITY VALUATION:
CORE EQUITY, CAPITAL APPRECIATION, INTERMEDIATE BOND AND TENNESSEE TAX-FREE
PORTFOLIOS: Securities held in the Core Equity and Capital Appreciation
Portfolios for which exchange quotations are readily available are valued at the
last sale price, or if no sale price or if traded on the over-the-counter
market, at the closing bid price. Over-the-counter securities traded on NASDAQ
are valued based upon the NASDAQ Official Closing Price. Securities held in the
Intermediate Bond and Tennessee Tax-Free Portfolios are valued based upon a
computerized matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations. Securities for
which quotations are not readily available are valued using dealer-supplied
valuations or at the fair value as determined in good faith under consistently
applied procedures under the general supervision of the Board of Trustees.
Short-term fixed-income securities maturing within 60 days are valued at
amortized cost or original cost plus accrued interest, both of which approximate
current value.
MONEY MARKET PORTFOLIOS: Each of the Money Market Portfolios values securities
utilizing the amortized cost method of valuation under Rule 2a-7 of the 1940
Act, pursuant to which each Money Market Portfolio must adhere to certain
conditions. Under this method, investments are valued initially at cost and
thereafter assume a constant amortization to maturity of any discount or
premium.
REPURCHASE AGREEMENTS: Each Portfolio, through its custodian, receives delivery
of underlying securities, whose market value, including interest, is required to
be at least equal to 102% of the resale price. The Trust's advisers are
responsible for determining that the value of these underlying securities
remains at least equal to 102% of the resale price. If the seller defaults, each
Portfolio would suffer a loss to the extent that the proceeds from the sale of
the underlying securities were less than the repurchase price.
SECURITIES PURCHASED ON A WHEN-ISSUED OR FORWARD COMMITMENT BASIS: Delivery and
payment for securities that have been purchased by the portfolios on a
when-issued basis can take place a month or more after the trade date. Normally,
the settlement date occurs within six months after the trade date; however, the
portfolios may, from time to time, purchase securities whose settlement date
extends beyond six months or more beyond trade date. During this period, such
securities do not earn interest, are subject to market fluctuation and may
increase or decrease in value prior to their delivery. The portfolios maintain
segregated assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a when-issued or forward
commitment basis may increase the volatility of the portfolio's net asset value
to the extent the portfolio makes such purchases while remaining substantially
fully invested.
INCOME TAXES: As a qualified regulated investment company under Subchapter M of
the Internal Revenue Code, each Portfolio is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal year. The
Portfolios intend to comply with the provisions of the Internal Revenue Code.
INTEREST INCOME: Interest income, which includes amortization of premium and
accretion of discount, is accrued as earned. Dividend income is recorded on the
ex-dividend date.
EXPENSES: Most expenses of the Trust can be directly attributed to a Portfolio.
Expenses which cannot be directly attributed are apportioned among the
Portfolios based on average net assets.
DISTRIBUTIONS TO SHAREHOLDERS: For the Money Market Portfolios, Intermediate
Bond Portfolio and Tennessee Tax-Free Portfolio, distributions are declared
daily and paid monthly from net investment income. Distributions for the Core
Equity Portfolio are declared and paid quarterly. Distributions for the Capital
Appreciation Portfolio are declared and paid annually. Any net capital gains
earned by each Portfolio are distributed at least annually to the extent
necessary to avoid federal income and excise taxes.
Income and capital gains to be distributed are determined in accordance with
income tax regulations which may differ from income and gains reported under
accounting principles generally accepted in the United States of America.
Accordingly, for the fiscal year ended June 30, 2003, the effects of certain
differences were reclassified. The Core Equity Portfolio increased undistributed
net investment income and increased accumulated net realized loss on investments
by $241,036. The Capital Appreciation Portfolio decreased paid in capital and
decreased overdistributed net investment income by $358,896. The Intermediate
Bond Portfolio increased undistributed net investment income and decreased
accumulated net realized gain on investments by $125,826. The Tennessee Tax-Free
Portfolio decreased paid in capital by $861, increased undistributed net
investment income by $696, and increased accumulated net realized gain on
investments by $165. Net assets of the portfolios were unaffected by the
reclassifications and the calculation of net investment income per share in the
Financial Highlights excludes these adjustments.
36
<Page>
The tax character of the distributions paid by the Portfolios during the last
two fiscal years ended June 30, 2003 and 2002, respectively, were as follows:
<Table>
<Caption>
CORE EQUITY CAPITAL APPRECIATION INTERMEDIATE BOND TENNESSEE TAX-FREE
2003 2002 2003 2002 2003 2002 2003 2002
-----------------------------------------------------------------------------------------------------
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 1,898,117 $ 2,937,749 - - $ 10,869,046 $ 11,884,595 $ 27,017 -
Tax-Exempt Income - - - - - - 7,092,237 $ 7,607,168
Short-Term Capital Gain - 70,994,600 - - 774,870 306,339 - -
Long-Term Capital Gain - - - - 650,659 542,835 530,539 327,949
-----------------------------------------------------------------------------------------------------
TOTAL $ 1,898,117 $ 73,932,349 $ - $ - $ 12,294,575 $ 12,733,769 $ 7,649,793 $ 7,935,117
=====================================================================================================
</Table>
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET CASH RESERVE
2003 2002 2003 2002 2003 2002
----------------------------------------------------------------------------------
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 1,791,073 $ 2,713,471 - - $ 3,086,078 $ 6,276,877
Tax-Exempt Income - - $ 900,941 $ 1,281,743 - -
Short-Term Capital Gain - - - - - -
Long-Term Capital Gain - - - - - -
----------------------------------------------------------------------------------
TOTAL $ 1,791,073 $ 2,713,471 $ 900,941 $ 1,281,743 $ 3,086,078 $ 6,276,877
==================================================================================
</Table>
As of June 30, 2003, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
U.S. GOV'T MUNICIPAL
CORE CAPITAL INTERMEDIATE TENNESSEE MONEY MONEY CASH
EQUITY APPRECIATION BOND TAX-FREE MARKET MARKET RESERVE
-------------------------------------------------------------------------------------------------
Undistributed ordinary income $ 309,995 $ 0 $ 835,399 $ 8,179 $ 335 - $ 13,234
Accumulated net realized
gain/(loss) (10,324,477) (14,531,271) 2,279,985 591,712 (19,183) $ (9,238) (19,750)
Net unrealized appreciation 6,377,026 7,930,133 26,726,280 12,255,914 - - -
-------------------------------------------------------------------------------------------------
TOTAL $ (3,637,456) $ (6,601,138) $ 29,841,664 $ 12,855,805 $ (18,848) $ (9,238) $ (6,516)
=================================================================================================
</Table>
OTHER: Investment security transactions are accounted for as of trade date.
Realized gains and losses from securities transactions are determined using the
identified cost basis for both financial reporting and income tax purposes.
2. SHARES OF BENEFICIAL INTEREST
<Table>
<Caption>
CORE EQUITY PORTFOLIO CAPITAL APPRECIATION PORTFOLIO
---------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, JUNE 30,
2003 2002 2003 2002
---------------------------------------------------------------------
Dollars issued and redeemed:
Class I:
Issued $ 34,207,345 $ 87,004,353 $ 7,802,772 $ 11,574,092
Distributions reinvested 1,025,408 29,478,864 0 0
Redeemed (109,427,157) (84,205,598) (3,789,733) (7,983,570)
---------------------------------------------------------------------
Net increase/(decrease) $ (74,194,404) $ 32,277,619 $ 4,013,039 $ 3,590,522
=====================================================================
Class A:
Issued $ 23,168,197 $ 87,475,935 $ 472,397 $ 888,394
Distributions reinvested 117,788 10,092,432 0 0
Redeemed (48,504,956) (85,323,859) (1,447,464) (1,153,260)
---------------------------------------------------------------------
Net increase/(decrease) $ (25,218,971) $ 12,244,508 $ (975,067) $ (264,866)
=====================================================================
Class B:
Issued $ 1,262,043 $ 8,621,261 $ 181,637 $ 132,875
Distributions reinvested 0 1,076,652 0 0
Redeemed (2,839,038) (2,575,438) (234,023) (208,572)
---------------------------------------------------------------------
Net increase/(decrease) $ (1,576,995) $ 7,122,475 $ (52,386) $ (75,697)
=====================================================================
Class C:
Issued $ 1,886,021 $ 5,752,925 $ 140,943 $ 42,065
Distributions reinvested 0 6,483,164 0 0
Redeemed (12,629,942) (14,858,537) (175,763) (195,892)
---------------------------------------------------------------------
Net decrease $ (10,743,921) $ (2,622,448) $ (34,820) $ (153,827)
=====================================================================
</Table>
37
<Page>
<Table>
<Caption>
CORE EQUITY PORTFOLIO CAPITAL APPRECIATION PORTFOLIO
---------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, JUNE 30,
2003 2002 2003 2002
---------------------------------------------------------------------
Shares issued and redeemed:
Class I:
Issued 2,337,674 4,575,839 1,043,941 1,315,759
Distributions reinvested 72,097 1,560,034 0 0
Redeemed (7,560,640) (4,512,115) (502,413) (919,339)
---------------------------------------------------------------------
Net increase/(decrease) (5,150,869) 1,623,758 541,528 396,420
=====================================================================
Class A:
Issued 1,586,563 4,493,352 61,877 108,030
Distributions reinvested 8,293 533,855 0 0
Redeemed (3,369,544) (4,491,320) (210,298) (139,827)
---------------------------------------------------------------------
Net increase/(decrease) (1,774,688) 535,887 (148,421) (31,797)
=====================================================================
Class B:
Issued 87,722 452,732 22,902 15,881
Distributions reinvested 0 58,041 0 0
Redeemed (205,561) (136,683) (31,225) (24,925)
---------------------------------------------------------------------
Net increase/(decrease) (117,389) 374,090 (8,323) (9,044)
=====================================================================
Class C:
Issued 131,005 300,273 21,015 5,264
Distributions reinvested 0 354,271 0 0
Redeemed (920,792) (813,838) (25,861) (23,935)
---------------------------------------------------------------------
Net decrease (789,787) (159,294) (4,846) (18,671)
=====================================================================
</Table>
<Table>
<Caption>
INTERMEDIATE BOND PORTFOLIO TENNESSEE TAX-FREE PORTFOLIO
---------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, JUNE 30,
2003 2002 2003 2002
---------------------------------------------------------------------
Dollars issued and redeemed:
Class I:
Issued $ 275,535,719 $ 27,645,256 $ 16,154,032 $ 12,669,814
Distributions reinvested 2,893,703 3,166,047 372,520 281,818
Redeemed (41,295,158) (36,360,893) (21,549,890) (20,439,923)
---------------------------------------------------------------------
Net increase/(decrease) $ 237,134,264 $ (5,549,590) $ (5,023,338) $ (7,488,291)
=====================================================================
Class A:
Issued $ 18,228,314 $ 9,699,061 $ 3,596,629 $ 1,537,048
Distributions reinvested 2,260,031 2,286,740 299,804 426,988
Redeemed (19,960,929) (8,429,571) (1,721,902) (5,728,277)
---------------------------------------------------------------------
Net increase/(decrease) $ 527,416 $ 3,556,230 $ 2,174,531 $ (3,764,241)
=====================================================================
Class B:
Issued $ 713,214 - $ 3,666,891 $ 1,182,814
Distributions reinvested 8,130 - 64,500 18,831
Redeemed (51,690) - (202,212) (432,204)
---------------------------------------------------------------------
Net increase $ 669,654 - $ 3,529,179 $ 769,441
=====================================================================
Class C:
Issued $ 2,130,445 $ 687,582 $ 1,805,007 $ 850,594
Distributions reinvested 56,443 50,959 242,991 237,073
Redeemed (566,144) (402,330) (1,602,709) (640,205)
---------------------------------------------------------------------
Net increase $ 1,620,744 $ 336,211 $ 445,289 $ 447,462
=====================================================================
</Table>
38
<Page>
<Table>
<Caption>
INTERMEDIATE BOND PORTFOLIO TENNESSEE TAX-FREE PORTFOLIO
---------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, JUNE 30,
2003 2002 2003 2002
---------------------------------------------------------------------
Shares issued and redeemed:
Class I:
Issued 26,482,764 2,686,462 1,520,946 1,222,003
Distributions reinvested 271,229 306,657 35,092 27,223
Redeemed (3,870,263) (3,524,234) (2,027,020) (1,970,517)
---------------------------------------------------------------------
Net increase/(decrease) 22,883,730 (531,115) (470,982) (721,291)
=====================================================================
Class A:
Issued 1,729,079 941,686 336,302 147,678
Distributions reinvested 211,748 221,476 28,184 41,067
Redeemed (1,882,778) (816,751) (161,721) (552,365)
---------------------------------------------------------------------
Net increase/(decrease) 58,049 346,411 202,765 (363,620)
=====================================================================
Class B:
Issued 66,772 - 344,246 113,781
Distributions reinvested 758 - 6,070 1,811
Redeemed (4,835) - (18,917) (41,505)
---------------------------------------------------------------------
Net increase 62,695 - 331,399 74,087
=====================================================================
Class C:
Issued 204,103 66,558 169,673 81,599
Distributions reinvested 5,290 4,936 22,873 22,829
Redeemed (53,402) (39,058) (150,911) (61,791)
---------------------------------------------------------------------
Net increase/(decrease) 155,991 (32,436) 41,635 42,637
=====================================================================
</Table>
<Table>
<Caption>
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
--------------------------------------
FOR THE YEAR ENDED JUNE30,
2003 2002
---------------------------------
Shares/Dollars issued and redeemed:
Class I:
Issued $ 108,063,608 $ 297,161,378
Distributions reinvested 3 9
Redeemed (112,283,640) (250,202,353)
---------------------------------
Net increase/(decrease) $ (4,220,029) $ 46,959,034
=================================
Class C:
Issued $ 23,129,310 $ 21,936,786
Distributions reinvested 82,126 76,356
Redeemed (23,910,119) (16,216,098)
---------------------------------
Net increase/(decrease) $ (698,683) $ 5,797,044
=================================
</Table>
39
<Page>
<Table>
<Caption>
MUNICIPAL MONEY MARKET PORTFOLIO CASH RESERVE PORTFOLIO
---------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, JUNE 30,
2003 2002 2003 2002
---------------------------------------------------------------------
Shares/Dollars issued and redeemed:
Class I:
Issued $ 77,678,265 $ 67,682,528 $ 146,955,464 $ 353,573,731
Distributions reinvested 1 14 32,425 57,724
Redeemed (67,642,285) (57,864,501) (147,673,655) (341,678,460)
---------------------------------------------------------------------
Net increase/(decrease) $ 10,035,981 $ 9,818,041 $ (685,766) $ 11,952,995
=====================================================================
Class B:
Issued $ - $ - $ 161,608 $ -
Distributions reinvested - - 71 -
Redeemed - - (143,208) -
---------------------------------------------------------------------
Net increase $ - $ - $ 18,471 $ -
=====================================================================
Class C:
Issued $ 65,556,027 $ 65,330,565 $ 364,818,305 $ 717,047,743
Distributions reinvested 209,724 355,636 2,301,275 5,204,178
Redeemed (64,169,455) (63,970,179) (370,308,561) (741,184,933)
---------------------------------------------------------------------
Net increase/(decrease) $ 1,596,296 $ 1,716,022 $ (3,188,981) $ (18,933,012)
=====================================================================
</Table>
3. INVESTMENT ADVISORY AND MANAGEMENT AND SUB-ADVISORY AGREEMENTS
For managing its investment and business affairs, the Core Equity Portfolio is
obligated to pay First Tennessee Bank National Association ("First Tennessee") a
monthly management fee at the annual rate of .65% of the Core Equity Portfolio's
average net assets up to $1 billion and .60% of the Core Equity Portfolio's
average net assets over $1 billion. The Intermediate Bond Portfolio and
Tennessee Tax-Free Portfolio are obligated to pay First Tennessee a monthly
management fee at the annual rate of .50% of each portfolios average net assets
up to $250 million and .45% of each portfolios average net assets over $250
million. Under the Investment Advisory and Management Agreement, First Tennessee
is authorized, at its own expense, to hire sub-advisers to provide investment
advice to it and to each Portfolio.
First Tennessee and Delaware Management Company ("DMC") serve as Co-advisers of
the Capital Appreciation Portfolio pursuant to the authority granted to them
under their respective Co-Advisory Agreements with the Portfolio. The Capital
Appreciation Portfolio is obligated to pay First Tennessee monthly management
fees at the annual rate of .15% of its average net assets. The Capital
Appreciation Portfolio is obligated to pay DMC monthly management fees at the
annual rate of .70% for the first $50 million of the Portfolio's average net
assets and .65% on average net assets of the Portfolio in excess of $50 million.
Information contained in this report prior to June 1, 2000, for the Capital
Appreciation Portfolio reflects the operations of the Portfolio while Investment
Advisers Inc. was co-adviser. DMC was approved as the Portfolio co-adviser at a
special meeting of the shareholders of the Portfolio on May 17, 2000.
First Tennessee and BlackRock Institutional Management Corporation ("BIMC")
serve as Co-advisers to the U.S. Government Money Market Portfolio, Municipal
Money Market Portfolio, and the Cash Reserve Portfolio.
At a special meeting on June 1, 2001, shareholders of each of the Money Market
Portfolios approved an Investment Advisory and Management Agreement between the
Trust and First Tennessee, as co-adviser to the Money Market Portfolios, and a
new Investment Advisory and Management Agreement between the Trust and BIMC, as
investment adviser to the Money Market Portfolios effective July 1, 2001.
Each Money Market Portfolio is obligated to pay First Tennessee monthly
management fees at the annual rate of .05% of its average net assets. Each Money
Market Portfolio is also obligated to pay BIMC monthly management fees at the
annual rate of .08% of aggregate average monthly net assets of each portfolio up
to $500 million, .06% of the next $500 million, and .05% on amounts greater than
$1 billion.
For the Core Equity Portfolio, Highland Capital Management Corporation
("Highland") serves as the sub-adviser pursuant to the authority granted to it
under its Sub-Advisory Agreement with First Tennessee. Highland is an affiliate
of First Tennessee and is a wholly-owned subsidiary of First Tennessee National
Corporation. First Tennessee is obligated to pay Highland a monthly sub-advisory
fee at the annual rate of .38% of the Core Equity Portfolio's average net assets
up to $1 billion and .35% of the Core Equity Portfolio's average net assets over
$1 billion.
For the Intermediate Bond and Tennessee Tax-Free Portfolios, Martin & Company,
Inc. ("Martin"), serves as sub-adviser of each Portfolio pursuant to the
authority granted to it under its Sub-Advisory Agreement with First Tennessee.
Martin is an affiliate of First Tennessee and is a wholly-owned subsidiary of
First Tennessee National Corporation. First Tennessee is obligated to pay Martin
a monthly sub advisory fee at the annual rate of .30% of each Portfolio's
average net assets up to $250 million and .27% of each Portfolio's average net
assets over $250 million.
40
<Page>
4. ADMINISTRATOR, CO-ADMINISTRATOR AND DISTRIBUTOR
ALPS Mutual Funds Services, Inc. ("ALPS") and ALPS Distributors, Inc. ("ADI")
serve as Administrator and Distributor, respectively, for the Trust under
separate Administration and General Distribution Agreements. ALPS' duties
include providing office space and various legal and accounting services in
connection with the regulatory requirements applicable to each Portfolio. ALPS
is entitled to receive administration fees from each of the Money Market
Portfolios at the annual rate of .050% of average net assets and from the Core
Equity, Capital Appreciation, Intermediate Bond and Tennessee Tax-Free
Portfolios, at the annual rate of .135% of average net assets.
First Tennessee serves as the Co-Administrator for each Portfolio. As the
Co-Administrator, First Tennessee assists in each Portfolio's operation,
including but not limited to, providing non-investment related research and
statistical data and various operational and administrative services. First
Tennessee is entitled to receive co-administration fees from each of the Money
Market Portfolios, at the annual rate of .050% of average net assets and from
the Core Equity, Capital Appreciation, Intermediate Bond and Tennessee Tax-Free
Portfolios, at the annual rate of .065% of average net assets.
The Trustees have adopted Distribution Plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, on behalf of Classes B and C of the
Trust. Each Plan provides for payments to ADI at the annual rates up to the
amounts listed below. The Trustees have also adopted Shareholder Servicing Plans
on behalf of Classes A, B and C of the Portfolios indicated below, under which
brokers/dealers, advisers or other financial institutions are paid at the annual
rates up to the amounts shown in the table.
<Table>
<Caption>
CLASS A CLASS B CLASS C
------- ------- -------
SHAREHOLDER SHAREHOLDER
SERVICING FEE 12b-1 FEE 12b-1 FEE SERVICING FEE
- -------------------------------------------------------------------------------------------------------
Core Equity 0.25% 1.00% 0.75% 0.25%
Capital Appreciation 0.25% 1.00% 0.75% 0.25%
Intermediate Bond 0.25% 0.70% 0.75% 0.25%
Tennessee Tax-Free 0.25% 0.70% 0.75% 0.25%
U.S. Government Money Market - - 0.45% -
Municipal Money Market - - 0.45% -
Cash Reserve - 1.00% 0.45% -
</Table>
5. WAIVER OF EXPENSES
INTERMEDIATE BOND AND TENNESSEE TAX-FREE PORTFOLIOS:
For the year ended June 30, 2003, First Tennessee voluntarily agreed to waive
its management fee for the Intermediate Bond and Tennessee Tax-Free Portfolios
to .30% of each portfolio's average net assets.
For the year ended June 30, 2003, the 12b-1 fee charged by Class C of the
Intermediate Bond and Tennessee Tax-Free Portfolios was waived to .50% of
average net assets. Additionally, the shareholder servicing fee charged by Class
C of the Tennessee Tax-Free Portfolio was waived to .00% of its average net
assets.
Pursuant to these voluntary waivers, for the year ended June 30, 2003, fees
waived for the Portfolios were as follows:
<Table>
<Caption>
INTERMEDIATE BOND TENNESSEE TAX-FREE
------------------------------------------------------------------------------
Management fees waived $ 498,141 $ 366,648
12b-1 fees waived 5,020 17,467
Shareholder servicing fees waived - 17,467
</Table>
MONEY MARKET PORTFOLIOS:
For the year ended, June 30, 2003, First Tennessee, as co-adviser and
co-administrator, contractually agreed to waive its co-advisory and
co-administration fees, to the extent necessary for Class I of the U.S.
Government Money Market Portfolio to maintain a total expense ratio of no more
than .25% of its average net assets, and Class I of the Municipal Money Market
and Cash Reserve Portfolios to maintain a total expense ratio of no more than
..30% of their average net assets, respectively.
For the year ended, June 30, 2003, the 12b-1 fee charged by Class C of the U. S.
Government Money Market, Municipal Money Market and Cash Reserve Portfolios were
limited to .25% of average net assets. Effective March 14, 2003, the 12b-1 fee
charged by Class B of the Cash Reserve Portfolio was limited to .75% of average
net assets.
41
<Page>
Pursuant to these voluntary waivers, for the year ended, June 30, 2003, fees
were waived for the Money Market Portfolios as follows:
<Table>
<Caption>
MANAGEMENT FEE CO-ADMINISTRATION FEE CLASS B 12b-1 FEE CLASS C 12b-1 FEE
-------------- --------------------- ----------------- -----------------
U.S. Government Money Market $ 67,857 $ 50,936 $ - $ 15,594
Municipal Money Market $ 29,666 $ - $ - $ 50,247
Cash Reserve $ 118,377 $ 4,629 $ 61 $ 426,926
</Table>
6. OTHER (UNAUDITED)
For the year ended June 30, 2003, 100% of the Core Equity Portfolio's dividends
from investment income qualify for the corporate dividends received deduction.
In addition, it is estimated that 100% of the Core Equity Portfolio's ordinary
income distributions for the period January 1, 2003 to June 30, 2003 will meet
the requirements for qualifying dividend income.
During the year ended June 30, 2003, 99.6% and 100% of the income dividends paid
by the Tennessee Tax-Free and Municipal Money Market Portfolios, respectively,
should be treated as tax-exempt dividends.
As of June 30, 2003, one shareholder (a related party) owned 27% of the Core
Equity Portfolio, 60% of the Capital Appreciation Portfolio and 24% of the
Intermediate Bond Portfolio. Additionally, as of June 30, 2003, one shareholder
owned 16% of the Municipal Money Market Portfolio, and 61% of the Cash Reserve
Portfolio.
Effective October 28, 2002, the Trustees of the Trust receive an annual fee of
$9,000, with the exception of the Chairman of the Board of Trustees who receives
$11,000 annually. Each Trustee also receives an additional fee for each
Trustees' meeting attended. Prior to November 1, 2002, the Trustees of the Trust
received an annual Trustees fee of $6,000, with the exception of the Chairman of
the Board of Trustees who received $8,000 annually.
A special meeting of the shareholders of the Bond Portfolio was held on June 26,
2003, for the purpose of voting on a proposal to approve an Agreement and Plan
of Reorganization providing for the exchange of all of the assets of the First
Funds Bond Portfolio into the First Funds Intermediate Bond Portfolio. The
proposal was passed by the required majority of shareholders of the Bond
Portfolio. 23,355,137.735 shares were voted for the proposal, 11,959.030 shares
were voted against the proposal and 1,294.783 shares abstained from voting.
A special meeting of First Funds shareholders was held on June 26, 2003, for the
purposes of:
1. To elect a Board of Trustees;
2. To vote on an Amended and Restated Declaration of Trust with respect to the
following:
(a) Reorganizations;
(b) Future Amendments;
(c) Redemptions of First Funds' shares;
(d) Custodians;
(e) Advisory Agreements;
(f) Termination or Reclassification of the Trust or a Fund; and
(g) Other Changes.
3. To vote on an amendment to the fundamental investment policies and the
redesignation of certain fundamental policies to non-fundamental policies for
the Growth and Income Portfolio that eliminates dividend income as a
component of the investment objective;
4. To vote on an amendment to the Distribution Plans for each class of a
portfolio which has a Distribution Plan that allows for a defensive Rule
12b-1 plan; and
5. To vote on a Distribution Plan for class I and class A of each portfolio that
allows for a defensive Rule 12b-1 plan.
Proposals passed by the required majority of shareholders are described in the
following table. Proposals that were not passed by the required majority of
shareholders were adjourned as noted in the table.
42
<Page>
<Table>
<Caption>
SHARES VOTED SHARES VOTED SHARES ABSTAINED
PROPOSAL FOR PROPOSAL AGAINST PROPOSAL FROM VOTING
- --------------------------------------------------------------------------------------------------------------------
1. TO ELECT A BOARD OF TRUSTEES
a. John A. Decell 386,064,491.406 0.000 5,816,105.752
b. Larry W. Papasan 386,182,521.166 0.000 5,698,075.992
c. Richard C. Rantzow 386,101,759.166 0.000 5,778,837.992
d. George P. Lewis 386,204,588.621 0.000 5,676,008.537
e. Charles Burkett 386,297,201.145 0.000 5,583,396.013
2. TO APPROVE AN AMENDED AND RESTATED
DECLARATION OF TRUST FOR FIRST FUNDS; WITH
RESPECT TO THE FOLLOWING:
a. Reorganization 382,805,727.951 4,183,132.610 4,891,736.597
b. Future Amendments 382,865,507.793 3,888,524.122 5,126,565.243
c. Redemptions of First Funds' shares 382,620,270.002 4,181,102.450 5,079,224.706
d. Custodians 382,839,711.488 4,206,903.976 4,833,981.694
e. Advisory Agreements 381,074,011.143 5,567,889.994 5,238,696.021
f. Termination or Reclassification
of the Trust or a Fund 381,791,043.039 4,646,757.670 5,442,796.449
3. TO APPROVE AN AMENDMENT TO THE FUNDAMENTAL
INVESTMENT POLICIES AND THE REDESIGNATION
OF CERTAIN FUNDAMENTAL POLICIES TO NON-
FUNDAMENTAL POLICIES FOR THE GROWTH
AND INCOME PORTFOLIO 31,267,077.305 174,442.579 172,054.016
4. TO APPROVE AN AMENDMENT TO THE DISTRIBUTION
PLANS FOR EACH CLASS OF A PORTFOLIO WHICH
HAS A DISTRIBUTION PLAN
a. Capital Appreciation - Class B Adjourned to 8/1/03
b. Cash Reserve Portfolio - Class B Permanently Adjourned
c. Growth and Income Portfolio - Class B Adjourned to 8/1/03
d. Intermediate Bond Portfolio - Class B 39,846.683 0.000 506.000
e. Tennessee Tax-Free Portfolio - Class B 185,514.000 0.000 0.000
f. Bond Portfolio - Class C 63,415.227 11,959.030 2,442.682
g. Municipal Money Market Portfolio - Class C 11,800,349.390 1,506,283.980 107.570
h. Capital Appreciation Portfolio - Class C 32,485.022 1,493.000 828.936
i. Cash Reserve Portfolio - Class C Adjourned to 8/1/03
j. Growth and Income Portfolio - Class C Adjourned to 8/1/03
k. Intermediate Bond Portfolio - Class C 133,911.065 5,462.367 2,409.080
l. Tennessee Tax-Free Portfolio - Class C 399,193.953 6,444.255 22,813.739
m. U.S. Gov't Money Market Portfolio - Class C 3,886,237.740 38,895.480 181,411.430
5. TO APPROVE DISTRIBUTION PLANS FOR CLASS I AND
CLASS A OF EACH PORTFOLIO
a. Bond Portfolio - Class I 23,213,800.556 0.000 0.000
b. Municipal Money Market Portfolio - Class I 46,788,258.700 0.000 115,644.670
c. Capital Appreciation Portfolio - Class I 5,351,093.854 0.000 0.000
d. Cash Reserve Portfolio - Class I 45,820,020.190 36,878.430 0.000
e. Growth and Income Portfolio - Class I 28,324,020.830 63,143.445 0.000
f. Intermediate Bond Portfolio - Class I 17,943,297.518 0.000 0.000
g. Tennessee Tax-Free Portfolio - Class I 13,940,740.667 0.000 0.000
h. U.S. Gov't Money Market Portfolio - Class I 109,591,354.890 0.000 0.000
i. Bond Portfolio - Class A Adjourned to 8/1/03
j. Capital Appreciation Portfolio - Class A Adjourned to 8/1/03
k. Growth and Income Portfolio - Class A Adjourned to 8/1/03
l. Intermediate Bond Portfolio - Class A Adjourned to 8/1/03
m. Tennessee Tax-Free Portfolio - Class A 477,273.996 11,947.919 5,021.709
</Table>
43
<Page>
7. TRUSTEES (UNAUDITED)
INDEPENDENT TRUSTEES
<Table>
<Caption>
TERM OF OFFICE, LENGTH
OF TIME SERVED AND PRINCIPAL OCCUPATION DURING THE PAST 5
POSITION(S) HELD NUMBER OF PORTFOLIOS YEARS** AND OTHER DIRECTORSHIPS HELD BY
NAME, ADDRESS & AGE WITH TRUST OVERSEEN TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN A. DECELL (67) Trustee John A. DeCell has been a Mr. DeCell is the proprietor of DeCell &
Trustee since 1992 and Company (real estate and business
1625 Broadway, Suite 2200 oversees 7 portfolios. consulting), and President of Capital
Denver, Colorado 80202 Advisers, Inc. (real estate consulting
and asset management).
L. R. JALENAK, JR. (72) Trustee L.R. Jalenak, Jr. has been a Mr. Jalenak was Chairman of the Board (1990 -1993
Trustee since 1992 and (retired)), Cleo Inc. (manufacturer of
1625 Broadway, Suite 2200 oversees 8 portfolios. gift-related products), a Gibson Greetings
Denver, Colorado 80202 Company. Mr. Jalenak is also a Director of
Perrigo Company (1988 - present), Lufkin
MR. JALENAK RETIRED 1/31/03. 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 (62) Trustee Larry W. Papasan has been Mr. Papasan is Chairman of Smith & Nephew, Inc.
a Trustee since 1992 and (orthopedic division). Mr. Papasan is a former
1625 Broadway, Suite 2200 oversees 7 portfolios. Director of First American National Bank of
Denver, Colorado 80202 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 (64) Chairman & Trustee Richard C. Rantzow has Mr. Rantzow was Vice President/Director, Ron
been Chairman and Trustee Miller Associates, Inc. (manufacturer).
1625 Broadway, Suite 2200 since 1992 and oversees 7 Mr. Rantzow was Managing Partner (until 1990)
Denver, Colorado 80202 portfolios. of the Memphis office of Ernst & Young.
INTERESTED TRUSTEES
*GEORGE P. LEWIS (64) Trustee George P. Lewis has been a Mr. Lewis is currently a director of
Trustee since 1999 and Methodist Home Care and Methodist
1625 Broadway, Suite 2200 oversees 7 portfolios. Extended Care Hospital, a non-profit
Denver, Colorado 80202 health care company. From 1976 until
October 1999, Mr. Lewis was Executive
Vice President and Manager of Money
Management Group of First Tennessee
Bank. During that time he was also a
director of certain First Tennessee
affiliates including Hickory Venture
Capital Corporation, a venture capital
company, and First Tennessee Brokerage, a
broker/dealer. He was also a director
for Martin & Company and Highland
Capital Management Corp., both
investment advisers and affiliates of
First Tennessee.
*CHARLES BURKETT (52) Trustee Charles Burkett has been a Mr. Burkett is currently the President,
Trustee since June 2003 and Memphis Financial Services, of First
1625 Broadway, Suite 2200 oversees 7 portfolios. Tennessee Bank. Mr. Burkett served as an
Denver, Colorado 80202 Executive Vice President, Manager Affluent
Markets, First Tennessee Bank, from 1997 to
2001. Mr. Burkett is a director of certain First
Tennessee affiliates, including First Tennessee
Brokerage, a broker/dealer and Highland
Capital Management Corp. and Martin &
Company, both investment advisers and
affiliates of First Tennessee. Because
of his affiliation with First Tennessee,
Mr. Burkett is considered an "Interested"
Trustee of First Funds Trust.
</Table>
* Trustees deemed "interested persons" of the Trust for purposes of the 1940
Act.
** Except as otherwise indicated, each individual has held the office shown or
other offices in the same company for the last five years.
44
<Page>
[GRAPHIC]
INVESTMENT ADVISER
Core Equity, Intermediate Bond, and Tennessee Tax-Free Portfolios
FIRST TENNESSEE BANK NATIONAL ASSOCIATION - Memphis, Tennessee
CO-INVESTMENT ADVISERS
Capital Appreciation Portfolio
FIRST TENNESSEE BANK NATIONAL ASSOCIATION - Memphis, Tennessee
DELAWARE MANAGEMENT COMPANY - Philadelphia, Pennsylvania
CO-INVESTMENT ADVISERS
Money Market Portfolios
FIRST TENNESSEE BANK NATIONAL ASSOCIATION - Memphis, Tennessee
BLACKROCK INSTITUTIONAL MANAGEMENT CORPORATION - Wilmington, Delaware
SUB-ADVISER
Core Equity Portfolio
HIGHLAND CAPITAL MANAGEMENT CORP. - Memphis, Tennessee
SUB-ADVISER
Intermediate Bond and Tennessee Tax-Free Portfolios
MARTIN & COMPANY, INC. - Knoxville, Tennessee
ADMINISTRATOR & FUND ACCOUNTANT
ALPS MUTUAL FUNDS SERVICES, INC. - Denver, Colorado
DISTRIBUTOR
ALPS DISTRIBUTORS, INC. - Denver, Colorado
CO-ADMINISTRATOR
FIRST TENNESSEE BANK NATIONAL ASSOCIATION - Memphis, Tennessee
TRANSFER AND SHAREHOLDER SERVICING AGENT
BOSTON FINANCIAL DATA SERVICES - Boston, Massachusetts
CUSTODIAN
STATE STREET BANK & TRUST COMPANY
Boston, Massachusetts
OFFICERS
JEREMY MAY, President & Treasurer
TRACI THELEN, Secretary
TRUSTEES
CHARLES BURKETT
JOHN A. DECELL
L.R. JALENAK, JR. *
GEORGE P. LEWIS
LARRY W. PAPASAN
RICHARD C. RANTZOW
*Retired January 31, 2003
This report has been prepared for First Funds shareholders and may be
distributed to others only if preceded or accompanied by a prospectus.
FIRSTFUNDS
1625 BROADWAY
SUITE 2200
DENVER, CO 80202
800.442.1941
www.FirstFunds.com
[FIRST TENNESSEE LOGO]
<Page>
Item 2. CODE OF ETHICS
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
Item 3. AUDIT COMMITTEE FINANCIAL EXPERT
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
Item 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
Item 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. NOT APPLICABLE.
Item 6. [RESERVED]
Item 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
N/A
Item 8. [RESERVED]
Item 9. CONTROLS AND PROCEDURES
(a) Based on their evaluation of registrant's disclosure controls and
procedures (as defined in rule 30a-3(c) under the Investment Company Act
of 1940) as of June 30, 2003, registrant's principal executive officer
and principal financial officer found registrant's disclosure controls
and procedures to be effective to ensure that information required to be
disclosed by registrant in the reports that it files under the Securities
Exchange Act of 1934 (a) is accumulated and communicated to registrant's
management, including its principal executive officer and principal
financial officer, to allow timely decisions regarding required
disclosure, and (b) is recorded, processed, summarized and reported,
within the time periods specified in the rules and forms adopted by the
U.S. Securities and Exchange Commission.
(b) There were no significant changes in the registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Act (17
CFR 270.30a-3(d)) during the registrant's last fiscal half-year (the
registrant's second fiscal half-year in the case of an annual report)
that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting.
Item 10. EXHIBITS
(a) Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
<Page>
(b) The certifications required by Rule 30a-2 of the Investment Company Act
of 1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley Act
of 2002 are attached hereto as EX-99.CERT and EX-99.906CERT.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
FIRST FUNDS
By: /s/George Lewis
---------------
George Lewis
President
Date: September 3, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/George Lewis
---------------
George Lewis
President
Date: September 3, 2003
By: /s/Jeremy O. May
----------------
Jeremy O. May
Treasurer
Date: September 3, 2003