<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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
--------------
Date of fiscal year end: June 30
-------
Date of reporting period: December 31, 2003
-----------------
<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).
<Page>
[GRAPHIC]
SEMI-ANNUAL REPORT
DECEMBER 31, 2003
[FIRST FUNDS(SM) LOGO]
<Page>
[GRAPHIC]
LETTER FROM THE CHAIRMAN
DEAR SHAREHOLDERS:
Although the economic recovery had a shaky start in early 2003, a rebound began
to appear during the previous six months. Since July 2003, the U.S. economy has
experienced a brighter employment picture, increased consumer spending, stronger
gross domestic product growth, and rising consumer confidence.
During the six-month period, the unemployment rate dropped from 6.2% in July to
5.7% in December. In the July-to-September quarter, the economy experienced an
8.2% annual growth rate, up from 3.1% for the previous quarter. An annual
refinance record of $2.2 trillion in mortgages, along with the tax cuts earlier
in 2003, may have helped the surge in economic growth as well as the rise in
personal consumption expenditures.
Consumer spending remained on solid footing throughout the period, as the
Department of Commerce announced that total U.S. retail and food services sales
for the October through December quarter were up 6.9 percent from the same
period a year ago. These, and other indicators, helped play a role to shift
consumer confidence from a low of 76.7 in July to 91.3 in December.
In other positive news, the stock markets, as measured by several indexes,
finished 2003 with strong gains. In December, the NASDAQ Composite Index closed
above 2000 for the first time since January 2002. Similarly, the S&P 500 Index
finished the year on a high note, returning 26.38% for the year.
As might be expected with cyclical markets, bond funds fell behind in 2003 after
beating stock funds for three years in a row. During the period, uncertainty
surrounding future interest rate hikes created volatility for fixed income
investments.
At year-end, the Federal Open Market Committee maintained its target for the
federal funds rate at 1%. Also in December, the Federal Reserve (the Fed)
changed its assessment of inflation risk, moving one step closer to raising
interest rates. Prior to this, the Fed had stated the probability of an
unwelcome fall in inflation was minor but still greater than an increase in
inflation. The Fed now says the probability of a fall in inflation has
diminished.
If inflation does occur, it could present benefits to the U.S. economy yet prove
detrimental to the bond market. A weaker dollar makes American goods and
services more competitively priced relative to imports, which could increase the
demand for American products. A weaker dollar could also help to stop the
deflation of import prices, giving U.S. companies more pricing power. On the
down side, inflation could negatively affect the bond market by causing yields
to rise and prices to fall.
In addition to inflation, other areas of concern for the near-term include
renewed fears of terrorism, a growing U.S. deficit, the ongoing conflict with
Iraq, and a continued lack of job creation - all of which could affect the
stability of the economy and, consequently, the stock and bond markets.
i
<Page>
FUND NEWS
In October, a new manager joined the First Funds Core Equity Portfolio. Mark
Cronin, senior portfolio manager and vice president, joined David Thompson to
become co-manager of the First Funds Core Equity Portfolio. Cronin, a Chartered
Financial Analyst (CFA), brings 19 years of investment experience. Since joining
Highland Capital in 1999, he has provided investment research advice to First
Tennessee Bank's Trust Division and covered the stocks held in the Core Equity
Portfolio.
As you are probably aware, considerable media attention has been focused on the
mutual fund industry and investigations into market timing and late trading
activities since early September. Market timing refers to the practice of
quickly trading in and out of mutual fund shares in an attempt to make a fast
profit, which can adversely impact the performance of a Portfolio. As a
reminder, the First Funds prospectus provides that the funds can refuse any
purchase order, whether directly or by exchange, by market timers.
Late trading concerns the buying or selling of mutual fund shares after the
official close of the stock market while still obtaining the closing price for
that day. Only trades received directly from investors before 2 p.m. Eastern
time for the Money Market Portfolios and 4 p.m. Eastern time for all other
Portfolios receive that day's closing price.
Also, in compliance with new Securities and Exchange Commission rules, First
Funds will name a chief compliance officer in the coming year. The officer's
role will be to advise on policies and procedures designed to protect fund
investors.
For more than 10 years, First Funds has remained committed to conducting
business in the best interests of fund shareholders. We have worked hard to
improve our policies and procedures to justify investor trust, and we do not
take this trust for granted. In turn, we urge investors to continue their active
participation with their financial matters, so that their goals may be achieved.
As always, we appreciate the confidence you have shown in us by letting us
manage your money.
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 Money Market 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
<Page>
[GRAPHIC]
FIRST FUNDS CORE EQUITY PORTFOLIO
CORE EQUITY PORTFOLIO MANAGERS
DAVID THOMPSON AND MARK CRONIN
[PHOTO OF DAVID THOMPSON AND MARK CRONIN]
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 an MBA from the University of North Carolina in 1986.
Mr. Thompson has 15 years of investment experience including nine years of
experience managing both individual and institutional investment portfolios at
major regional banks. He joined Highland Capital's equity team in 1995.
Mr. CRONIN is vice president with Highland Capital Management Corp. and is a
Chartered Financial Analyst. He has two decades of investment experience and
earned a BA from the University of Washington. Former employers include Merrill
Lynch and Paine Webber. Prior to joining Highland Capital in 1999, Mr. Cronin
was senior portfolio manager and vice president with First Chicago NBD.
FISCAL YEAR REVIEW
MARKET REVIEW AND PORTFOLIO UPDATE
From July through December, more positive news was delivered to equity investors
than the corresponding period in 2002. Instead of ongoing reports of earnings
cuts, weak labor markets and negative returns, the six month period resulted in
analysts raising earnings estimates, and economists forecasting improved
economic growth. Even the anemic labor market began to show improvement as 2003
ended with initial jobless claims dropping to a level not seen since January
2001.
The stock market posted a positive return from July through September, with the
S&P 500 Index gaining 2.65%. During the same time, corporate profits continued
to improve posting an increase of 17.5%. Information technology was the leading
sector of that period with a return of 10.80%, as orders for
computing/electronic products sustained their year over year growth.
The last three months of 2003 saw the market finish with a flourish as the S&P
500 gained 12.15%. The best performing stocks in the Portfolio during this
period included FleetBoston Financial Corp., which gained 46% as BankAmerica bid
to acquire the Boston-based banking firm. Texas Instruments, Inc. was also a top
performer. The company gained 29% and continued to benefit from an improved
environment in the technology sector. Kohl's was the weakest performing stock in
the Portfolio as the retailer suffered disappointing same store sale results
versus 2002.
For the foreseeable future, the outlook appears optimistic due to a
strengthening economy, low inflation, low interest rates and an improvement in
earnings. While all major sectors of the stock market produced positive returns
in 2003, we believe stock selection will be of paramount importance in 2004. In
accordance with our strategy for growth, we will continue to seek and select the
stocks of quality companies that we believe are being sold at attractive
valuations due to short-term problems.
iii
<Page>
INDUSTRY BREAKDOWN AND PERFORMANCE
AS OF DECEMBER 31, 2003
<Table>
Financials 30.9%
Insurance 13.6%
Diversified Financials 11.6%
Banks 5.7%
Consumer Discretionary 17.4%
Information Technology 14.6%
Healthcare 12.3%
Consumer Staples 9.6%
Telecommunications 5.1%
Industrials 5.0%
Energy 3.5%
Money Market Mutual Funds 1.6%
</Table>
<Table>
<Caption>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN* TOTAL RETURN*
SINCE SINCE
INCEPTION 1 YEAR 5 YEAR 10 YEAR INCEPTION
- --------------------------------------------------------------------------------
Class I 249.24% 30.60% 2.57% 12.53% 12.75%
Class A 222.23% 22.77% 1.10% 11.62% 11.89%
Class B 212.59% 24.32% 1.11% 11.30% 11.56%
Class C 213.02% 28.27% 1.52% 11.31% 11.57%
S&P 500 199.70% 28.67% (0.56)% 11.06% 11.11%
</Table>
[CHART]
COMPARISON OF 10 YEAR CHANGE IN VALUE OF A $750,000 INVESTMENT IN THE FIRST
FUNDS CORE EQUITY PORTFOLIO (CLASS I) AND THE S&P 500.
<Table>
<Caption>
CORE EQUITY PORTFOLIO (CLASS I) S&P 500
12/31/1993 $ 750,000 $ 750,000
$ 783,225 $ 775,500
$ 769,049 $ 754,484
$ 743,439 $ 721,588
$ 755,557 $ 730,825
$ 767,646 $ 742,810
$ 751,295 $ 724,611
$ 774,135 $ 748,379
$ 813,461 $ 779,062
$ 797,029 $ 759,975
$ 808,984 $ 777,075
$ 779,052 $ 748,789
12/31/1994 $ 789,569 $ 759,871
$ 813,730 $ 779,552
$ 836,433 $ 809,954
$ 859,937 $ 833,848
$ 881,951 $ 858,447
$ 908,586 $ 892,784
$ 933,027 $ 913,497
$ 966,616 $ 943,825
$ 966,616 $ 946,185
$ 981,212 $ 986,114
$ 964,335 $ 982,564
$ 1,007,340 $ 1,025,700
12/31/1995 $ 1,022,560 $ 1,045,490
$ 1,063,970 $ 1,081,040
$ 1,080,250 $ 1,091,100
$ 1,110,390 $ 1,101,570
$ 1,121,820 $ 1,117,760
$ 1,154,360 $ 1,146,600
$ 1,152,740 $ 1,150,960
$ 1,107,900 $ 1,100,080
$ 1,134,820 $ 1,123,300
$ 1,187,250 $ 1,186,540
$ 1,219,190 $ 1,219,290
$ 1,306,110 $ 1,311,460
12/31/1996 $ 1,287,700 $ 1,285,500
$ 1,368,440 $ 1,365,840
$ 1,356,260 $ 1,376,500
$ 1,328,450 $ 1,319,920
$ 1,368,440 $ 1,398,720
$ 1,451,100 $ 1,483,900
$ 1,485,050 $ 1,550,380
$ 1,612,320 $ 1,673,790
$ 1,557,340 $ 1,580,060
$ 1,665,730 $ 1,666,650
$ 1,625,420 $ 1,610,980
$ 1,711,240 $ 1,685,570
12/31/1997 $ 1,753,170 $ 1,714,560
$ 1,767,720 $ 1,733,590
$ 1,872,370 $ 1,858,580
$ 1,974,410 $ 1,953,740
$ 1,971,650 $ 1,973,480
$ 1,915,060 $ 1,939,530
$ 1,968,110 $ 2,018,280
$ 1,929,730 $ 1,996,680
$ 1,663,810 $ 1,707,960
$ 1,784,440 $ 1,817,440
$ 1,926,120 $ 1,965,200
$ 2,032,250 $ 2,084,290
12/31/1998 $ 2,152,160 $ 2,204,350
$ 2,223,610 $ 2,297,150
$ 2,224,500 $ 2,225,480
$ 2,299,680 $ 2,314,500
$ 2,365,690 $ 2,404,070
$ 2,352,440 $ 2,347,330
$ 2,473,820 $ 2,477,610
$ 2,436,960 $ 2,400,310
$ 2,385,060 $ 2,388,310
$ 2,380,520 $ 2,322,870
$ 2,583,580 $ 2,469,910
$ 2,578,930 $ 2,520,040
12/31/1999 $ 2,633,090 $ 2,668,480
$ 2,563,440 $ 2,534,520
$ 2,480,070 $ 2,486,620
$ 2,710,130 $ 2,729,810
$ 2,644,670 $ 2,647,640
$ 2,699,570 $ 2,593,360
$ 2,675,290 $ 2,657,420
$ 2,662,620 $ 2,615,960
$ 2,809,430 $ 2,778,410
$ 2,809,420 $ 2,631,710
$ 2,931,980 $ 2,620,660
$ 2,827,380 $ 2,414,150
12/31/2000 $ 2,913,720 $ 2,425,980
$ 2,900,370 $ 2,512,100
$ 2,762,030 $ 2,283,000
$ 2,597,000 $ 2,138,490
$ 2,709,910 $ 2,304,650
$ 2,739,050 $ 2,320,090
$ 2,656,470 $ 2,263,710
$ 2,632,180 $ 2,241,530
$ 2,494,920 $ 2,101,210
$ 2,349,240 $ 1,931,640
$ 2,382,080 $ 1,968,530
$ 2,541,460 $ 2,119,520
12/31/2001 $ 2,555,000 $ 2,138,170
$ 2,459,880 $ 2,106,950
$ 2,374,010 $ 2,066,290
$ 2,463,850 $ 2,143,980
$ 2,305,230 $ 2,014,060
$ 2,274,830 $ 1,999,150
$ 2,084,500 $ 1,856,810
$ 1,908,480 $ 1,712,170
$ 1,949,510 $ 1,723,300
$ 1,713,890 $ 1,536,150
$ 1,859,700 $ 1,671,170
$ 1,985,620 $ 1,769,440
$ 1,870,550 $ 1,665,570
12/31/2002 $ 1,850,650 $ 1,622,100
$ 1,840,040 $ 1,597,770
$ 1,851,960 $ 1,613,270
$ 2,047,110 $ 1,746,040
$ 2,150,660 $ 1,837,880
$ 2,142,020 $ 1,861,410
$ 2,176,570 $ 1,894,170
$ 2,181,890 $ 1,931,100
$ 2,199,140 $ 1,910,630
$ 2,344,150 $ 2,018,580
$ 2,360,110 $ 2,036,350
12/31/2003 $ 2,442,863 $ 2,143,053
</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 12/31/2003 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
29.27% 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 led 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 Manager, 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
Improving sentiment regarding an overall economic rebound drove stocks higher
over the past six months. Small-capitalization stocks continued to outperform
larger stocks with the Russell 2000 Index up considerably more than the
large-capitalization Russell 1000 Index. The rally was broad-based as the
majority of stocks posted solid gains during the period. Starting with the
second quarter of 2003, stocks have risen for three consecutive quarters, which
marks the longest sustained rally since 1999.
Among individual stocks, Urban Outfitters, Inc. was the biggest positive
contributor to the Portfolio's performance as it was up more than 100% due to
reported strong earnings and sales gains. Coach, Inc. was another retailer that
posted solid results during the period as the stock was up by more than 50%.
Cymer, Inc. was one of the Portfolio's best performing technology stocks.
CV Therapeutics was one of the biggest negative contributors to the Portfolio's
performance during the period as it declined more than 50% after receiving
disappointing news concerning its developmental drug for angina. As a result of
this development, we reduced the Portfolio's holdings in the stock. Mediacom was
another company that experienced a large dip based on disappointing subscriber
growth during the period.
In summary, the market's strength over the past year has given hope that the
long bear market may finally be at an end. For 2004 our outlook for the overall
economy remains positive with leading indicators continuing to show signs that
point to a sustainable improvement. Going forward we remain committed to finding
and holding the stocks of companies that we believe may have solid competitive
advantages and may be able to thrive in the current environment.
v
<Page>
INDUSTRY BREAKDOWN AND PERFORMANCE
AS OF DECEMBER 31, 2003
<Table>
Healthcare 22.0%
Technology 19.6%
Financials 17.8%
Consumer Non-Durables 13.2%
Consumer Services 11.0%
Business Services 5.4%
U.S. Government & Agency Obligations 5.4%
Consumer Durables 2.3%
Transportation 1.9%
Capital Goods 1.4%
</Table>
<Table>
<Caption>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN* TOTAL RETURN*
SINCE SINCE
INCEPTION 1 YEAR 5 YEAR INCEPTION
- ---------------------------------------------------------------------
Class I 44.57% 47.57% 7.52% 5.99%
Class A 26.85% 38.72% 5.87% 3.88%
Class B 29.51% 41.24% 6.24% 4.22%
Class C 28.24% 45.22% 6.35% 4.06%
Russell 2000
Growth Index 3.74% 48.54% 0.66% 0.58%
</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
$ 953,308 $ 673,727
$ 991,043 $ 709,637
$ 960,259 $ 691,328
$ 1,029,770 $ 750,851
$ 1,085,380 $ 775,029
12/31/2003 $ 1,084,388 $ 778,051
</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 12/31/2003 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 46.22% 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
By many measures, the economy grew during the July through September period. As
a result, the performance of various indexes and sectors of the bond market
indicated that shorter maturities and bonds sensitive to improvement in credit
quality had better performance. For the fourth quarter in a row, lower quality
issues outperformed higher quality ones.
In July, we extended the targeted duration of the Portfolio, moving the
Portfolio target from 80% to 90% of the benchmark. We utilized Treasury
securities and corporate bonds to increase the duration, generating cash for
purchases from the sale of short agency issues.
From October through December, bond prices generally dropped as rates trended
higher. The price declines throughout the yield curve were generally offset by
coupon income resulting in returns that were slightly negative to slightly
positive.
From October through December, AAA-rated issues had a return of -0.02% based on
the Lehman Brothers Intermediate AAA Credit Index, while BBB-rated issues
generated a return of 1.01%, based on the Lehman Brothers Intermediate BBB
Credit Index. The Lehman Brothers High Yield Index, which contains junk (less
than investment grade) bonds, was up 5.91% for the quarter.
When interest rates declined in October, the Portfolio's duration was reduced
from 90% to 85% of the Lehman Brothers Intermediate Government/Credit Index.
Throughout the quarter, real interest rates remained low by historical
standards. In response to these low rates, we concentrated the Portfolio in
corporate and agency bonds, and both performed better than Treasury securities
of comparable duration.
Also during the October through December period, we added to the Portfolio's
corporate allocation by increasing its holdings in the finance sector.
Consequently, we reduced the Portfolio's Treasury holdings to increase exposure
to corporate bonds.
Despite two quarters of strong performance by junk bonds we will continue to
focus on high grade bonds. Managing credit quality is a key component of our
risk management process.
vii
<Page>
INDUSTRY BREAKDOWN AND PERFORMANCE
AS OF DECEMBER 31, 2003
<Table>
U.S. Government & Agency Obligations 49.5%
Financials 35.5%
Banks 12.2%
Broker/Dealers 11.5%
Financial Services 9.4%
Insurance 2.4%
Industrials 13.8%
Utilities 0.7%
Money Market Mutual Funds 0.5%
</Table>
<Table>
<Caption>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN* TOTAL RETURN*
SINCE SINCE
INCEPTION 1 YEAR 5 YEAR INCEPTION
Class I 45.25% 3.18% 6.39% 6.61%
Class A 38.05% (0.69)% 5.36% 5.70%
Class B 36.27% (1.52)% 5.23% 5.66%
Class C 37.27% 1.52% 5.56% 5.80%
Lehman Bros.
Intermediate
Gov't/Credit Index 47.77% 4.30% 6.65% 6.92%
</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 $ 1,090,660 $ 1,107,840
$ 1,062,660 $ 1,077,710
$ 1,064,010 $ 1,080,300
$ 1,089,710 $ 1,107,630
$ 1,079,710 $ 1,097,220
$ 1,079,950 $ 1,098,750
12/31/2003 $ 1,089,484 $ 1,108,311
</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 12/31/2003 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 2.52% 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
The economy, as measured by GDP, grew by 8.2% from July through September.
Interest rates rose significantly during July, changed little in August, then
fell back dramatically in September to finish slightly higher than at the
beginning of the quarter. As a result, intermediate-term municipal bonds
finished the quarter with slightly positive returns.
Ten-year, AA-rated municipal bonds yielded 88% of the 10-year Treasury note at
the end of September. This relative value was close to year-to-date lows.
Additionally, the municipal high-grade yield curve remained very steep with
10-year municipals yielding almost 2.5% more than one-year bonds.
In late July and early August, we extended the duration of the Portfolio from
5.1 years to 5.3 years as interest rates rose almost 0.75% in July. We
accomplished the extension by selling very short maturity bonds and spending
cash from called bonds to purchase 10- to 13-year bonds.
During the October through December period, an improving economy and bridled
inflation resulted in the municipal yield curve flattening. The flattening of
the curve was responsible for moderate returns in the longer end of the yield
curve and meager returns in the short end.
Interest rates rose in early October, changed little in late October, and fell
in November and December to finish slightly lower than at the beginning of the
quarter. At the end of the year, long-term, 10-year, AA-rated municipal bonds
yielded 86% of the 10-year Treasury note. This relative value was also close to
year-to-date lows.
Intermediate-term bonds continued to experience strong demand during the second
quarter, as new issue volume for 2003 is expected to have reached $375 billion,
topping volume of $358 billion in 2002. The volume growth was mostly attributed
to an increase in taxable and budget-balancing issuance.
Throughout the quarter, we allowed the duration of the Portfolio to shorten from
5.3 years to 4.9 years as interest rates fell almost 0.50%. Given a low assumed
rate of inflation, real returns decreased to a level that we no longer felt
comfortable with taking additional interest rate risk.
ix
<Page>
INDUSTRY BREAKDOWN AND PERFORMANCE
AS OF DECEMBER 31, 2003
<Table>
General Obligation Bonds 55.9%
Revenue Bonds 43.5%
Health & Education 21.6%
Utilities 15.2%
Housing 2.9%
Industrial Development 2.0%
State Authority 1.8%
Money Market Mutual Funds 0.6%
</Table>
<Table>
<Caption>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN* TOTAL RETURN*
SINCE SINCE
INCEPTION 1 YEAR 5 YEAR INCEPTION
- ----------------------------------------------------------------------
Class I 52.43% 4.09% 4.85% 5.38%
Class A 44.26% (0.04)% 3.83% 4.68%
Class B 46.18% (0.64)% 3.78% 4.83%
Class C 47.57% 2.57% 4.32% 4.95%
Lehman Bros.
10-Year
Municipal
Bond Index 63.43% 5.71% 5.90% 6.29%
</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 $ 1,134,470 $ 1,210,580
$ 1,102,050 $ 1,159,730
$ 1,107,760 $ 1,169,710
$ 1,134,830 $ 1,209,120
$ 1,127,820 $ 1,199,940
$ 1,135,730 $ 1,212,900
12/31/2003 $ 1,143,243 $ 1,225,751
</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 12/31/2003 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 3.57% 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 CPERFORMANCE 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.
<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>
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.
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.
LEHMAN BROTHERS INTERMEDIATE AAA CREDIT INDEX is the AAA component of the U.S.
Credit Index comprised of both corporate and non-corporate sectors. Securities
have at least one year to maturity and have an outstanding par value of at least
$200 million.
LEHMAN BROTHERS INTERMEDIATE BBB CREDIT INDEX is the BBB component of the U.S.
Credit Index comprised of both corporate and non-corporate sectors. Securities
have at least one year to maturity and have an outstanding par value of at least
$200 million.
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.
LEHMAN BROTHERS HIGH YIELD BOND INDEX, covers the universe of fixed rate,
non-investment grade debt.
RUSSELL 1000(R) INDEX, is a large-cap index measuring the performance of the
largest 1,000 U.S. incorporated companies.
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 of the Russell 3000 Index.
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]
PORTFOLIO OF INVESTMENTS (UNAUDITED)
(AS OF DECEMBER 31, 2003 - SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS)
CORE EQUITY PORTFOLIO
<Table>
<Caption>
VALUE
SHARES (NOTE 1)
------------ -------------
COMMON STOCKS - 98.4%
CONSUMER DISCRETIONARY - 17.4%
MEDIA - 10.8%
Comcast Corp., Class A* 979,335 $ 30,633,599
McGraw-Hill Co., Inc. 180,480 12,619,162
Omnicom Group, Inc. 301,715 26,348,771
-------------
TOTAL MEDIA 69,601,532
-------------
MOTORCYCLE MANUFACTURERS - 1.1%
Harley Davidson, Inc. 146,350 6,956,015
-------------
RETAILING - 5.5%
Home Depot, Inc. 677,790 24,054,767
Kohl's Corp.* 255,950 11,502,393
-------------
TOTAL RETAILING 35,557,160
-------------
TOTAL CONSUMER DISCRETIONARY 112,114,707
-------------
CONSUMER STAPLES - 9.6%
FOOD, BEVERAGE & TOBACCO - 8.2%
Costco Wholesale Corp.* 755,500 28,089,490
Pepsico, Inc. 530,800 24,745,896
-------------
TOTAL FOOD, BEVERAGE & TABACCO 52,835,386
-------------
HOUSEHOLD & PERSONAL PRODUCTS - 1.4%
Colgate-Palmolive Co. 172,625 8,639,881
-------------
TOTAL CONSUMER STAPLES 61,475,267
-------------
ENERGY - 3.5%
ENERGY - 3.5%
Exxon Mobil Corp. 546,000 22,386,000
-------------
TOTAL ENERGY 22,386,000
-------------
FINANCIALS - 30.9%
BANKS - 5.7%
FleetBoston Financial Corp. 218,051 9,517,926
Wells Fargo & Co. 456,506 26,883,638
-------------
TOTAL BANKS 36,401,564
-------------
DIVERSIFIED FINANCIALS - 11.6%
Capital One Financial Corp. 512,500 31,411,125
Federal Home Loan Mortgage Corp. 55,275 3,223,638
Federal National Mortgage Association 171,000 12,835,260
J. P. Morgan Chase & Co. 738,975 27,142,552
-------------
TOTAL DIVERSIFIED FINANCIALS 74,612,575
-------------
INSURANCE - 13.6%
AFLAC, Inc. 673,400 24,363,612
American International Group, Inc. 428,470 28,398,992
Fidelity National Financial, Inc. 200,200 7,763,756
XL Capital Ltd., Class A 352,100 27,305,355
-------------
TOTAL INSURANCE 87,831,715
-------------
TOTAL FINANCIALS 198,845,854
-------------
HEALTHCARE - 12.3%
HEALTHCARE EQUIPMENT & SUPPLIES - 3.5%
Medtronic, Inc. 467,950 22,747,050
-------------
PHARMACEUTICALS & BIOTECHNOLOGY - 8.8%
Cardinal Health, Inc. 387,790 $ 23,717,236
Pfizer, Inc. 929,615 32,843,298
-------------
TOTAL PHARMACEUTICALS & BIOTECH. 56,560,534
-------------
TOTAL HEALTHCARE 79,307,584
-------------
INDUSTRIALS - 5.0%
CAPITAL GOODS - 3.7%
General Electric Co. 776,500 24,055,970
-------------
COMMERCIAL SERVICES & SUPPLIES - 1.3%
Equifax, Inc. 336,050 8,233,225
-------------
TOTAL INDUSTRIALS 32,289,195
-------------
INFORMATION TECHNOLOGY - 14.6%
SOFTWARE - 3.8%
Microsoft Corp. 884,000 24,345,360
-------------
TECHNOLOGY HARDWARE & EQUIPMENT - 10.8%
Flextronics International, Ltd.* 1,212,176 17,988,692
Hewlett-Packard Co. 703,750 16,165,137
Intel Corp. 684,600 22,044,120
Texas Instruments, Inc. 455,875 13,393,608
-------------
TOTAL TECHNOLOGY HARDWARE &
EQUIPMENT 69,591,557
-------------
TOTAL INFORMATION TECHNOLOGY 93,936,917
-------------
TELECOMMUNICATIONS - 5.1%
TELECOMMUNICATION SERVICES - 5.1%
Vodafone Group, plc ADR 1,314,925 32,925,722
-------------
TOTAL TELECOMMUNICATIONS 32,925,722
-------------
TOTAL COMMON STOCKS
(Cost $555,520,434) 633,281,246
-------------
MONEY MARKET MUTUAL FUNDS - 1.6%
SSgA Prime Money Market Fund 5,281,254 5,281,254
SSgA U.S. Treasury Money Market Fund 5,105,908 5,105,908
-------------
TOTAL MONEY MARKET MUTUAL FUNDS
(Cost $10,387,162) 10,387,162
-------------
TOTAL INVESTMENTS - 100.0%
(Cost $565,907,596) $ 643,668,408
=============
</Table>
*Non-income producing security
ADR - American Depostitary Receipt
INCOME TAX INFORMATION:
At December 31, 2003, the net unrealized appreciation based on cost for income
tax purposes of $566,230,222 was as follows:
<Table>
Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost $ 97,790,720
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value (20,352,534)
------------
Net unrealized appreciation $ 77,438,186
============
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
1
<Page>
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 six
months ended December 31, 2003, aggregated $75,522,167 and $119,902,327,
respectively.
CAPITAL APPRECIATION PORTFOLIO
<Table>
<Caption>
DUE PRINCIPAL VALUE
DATE COUPON AMOUNT (NOTE 1)
- ----- ------ ------------ ------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 5.4%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
DISCOUNT NOTES - 5.4%
01/05/04 1.04% $ 270,000 $ 269,976
01/05/04 1.02% 1,290,000 1,289,890
01/06/04 1.03% 490,000 489,944
01/06/04 1.03% 410,000 409,953
01/06/04 1.02% 170,000 169,981
01/14/04 1.02% 730,000 729,752
01/16/04 0.88% 345,000 344,882
01/20/04 1.02% 200,000 199,898
01/26/04 1.00% 120,000 119,920
------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $4,024,196) 4,024,196
------------
<Caption>
SHARES
------------
COMMON STOCKS - 94.6%
BUSINESS SERVICES - 5.4%
Advisory Board Co.* 41,900 1,462,729
eSpeed, Inc.* 36,700 859,147
Gevity HR, Inc. 60,200 1,338,848
Integrated Electrical Service Co.* 43,800 405,150
------------
TOTAL BUSINESS SERVICES 4,065,874
------------
CAPITAL GOODS - 1.4%
Varian, Inc.* 24,600 1,026,558
------------
TOTAL CAPITAL GOODS 1,026,558
------------
CONSUMER DURABLES - 2.3%
Gentex Corp. 24,500 1,081,920
WCI Communities, Inc.* 30,700 632,727
------------
TOTAL CONSUMER DURABLES 1,714,647
------------
CONSUMER NON-DURABLES - 13.2%
Coach, Inc.* 48,000 1,812,000
Cost Plus, Inc.* 40,700 1,668,700
Guitar Centers, Inc.* 18,000 586,440
Hibbett Sporting Goods, Inc.* 65,825 1,961,585
Krispy Kreme Doughnuts, Inc.* 11,600 424,560
PC Mall, Inc.* 29,400 474,810
Tractor Supply Co.* 26,300 1,022,807
Urban Outfitters, Inc.* 53,000 1,963,650
------------
TOTAL CONSUMER NON-DURABLES 9,914,552
------------
CONSUMER SERVICES - 11.0%
Cheesecake Factory, Inc.* 26,900 1,184,407
Extended Stay America, Inc. 31,300 453,224
First Cash Financial Services, Inc.* 47,800 1,225,640
Four Seasons Hotel, Inc. 14,700 751,905
LIN TV Corp.* 42,800 1,104,668
Mediacom Communications Corp.* 120,800 1,047,336
Rare Hospitality Int'l, Inc.* 40,550 991,042
Rewards Network, Inc. * 62,800 669,448
Sonic Corp.* 26,775 819,850
------------
TOTAL CONSUMER SERVICES 8,247,520
------------
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
2
<Page>
<Table>
<Caption>
VALUE
SHARES (NOTE 1)
--------------- ---------------
FINANCIALS - 17.8%
Brookline Bancorp, Inc. 48,500 $ 743,990
Capital Source, Inc.* 76,600 1,660,688
Delphi Financial Group, Inc. 52,500 1,890,000
Downey Financial Corp. 38,200 1,883,260
Franklin Bank Corp.* 12,600 239,400
R&G Financial Corp., Class B 50,100 1,993,980
RAIT Investment Trust 31,500 806,400
Redwood Trust, Inc. 23,300 1,184,805
Seacoast Financial Services Corp. 13,700 375,517
South Financial Group, Inc. 28,900 805,154
Westcorp 48,100 1,758,055
---------------
TOTAL FINANCIALS 13,341,249
---------------
HEALTHCARE - 22.0%
Abgenix, Inc.* 47,100 586,866
Align Technology, Inc. * 91,400 1,509,928
Axonyx, Inc.* 83,900 408,593
CV Therapeutics* 5,200 76,232
Conceptus, Inc.* 113,800 1,208,556
Connetics Corp. * 56,000 1,016,960
Cubist Pharmaceuticals* 98,900 1,202,624
Inspire PharMaceuticals, Inc.* 58,300 825,528
IntraBiotics Pharmaceuticals, Inc.* 30,825 496,283
Medicis Pharmaceutical Corp. 26,400 1,882,320
NPS Pharmaceutical, Inc. * 20,900 642,466
Nektar Therapeutics* 106,500 1,449,465
Neurochem* 69,200 1,632,497
Neurocrine Biosciences, Inc.* 5,800 316,332
North American Scientific* 30,200 317,100
Pain Therapeutics, Inc.* 116,800 811,760
Protein Design Labs, Inc.* 53,100 950,490
XOMA, Ltd.* 171,200 1,129,920
---------------
TOTAL HEALTHCARE 16,463,920
---------------
TECHNOLOGY - 19.6%
Agile Software Corp.* 133,800 1,324,620
Asyst Technology Corp.* 56,200 975,070
Brooks Automation* 69,400 1,677,398
Ciena Corp.* 40,292 267,539
Corillian Corp. * 103,500 653,085
Cymer, Inc.* 33,000 1,524,270
Integral Systems, Inc.* 70,800 1,523,616
Manhattan Associates* 21,400 591,496
O2Micro International, Ltd.* 102,000 2,284,800
Skyworks Solutions, Inc.* 162,300 1,412,010
Tekelec* 39,100 608,005
Tessera Technologies* 36,100 679,041
Varian Semiconductor* 26,500 1,157,785
---------------
TOTAL TECHNOLOGY 14,678,735
---------------
TRANSPORTATION - 1.9%
Heartland Express, Inc. 28,560 690,866
Knight Transportation, Inc.* 27,800 713,070
---------------
TOTAL TRANSPORTATION 1,403,936
---------------
TOTAL COMMON STOCKS
(Cost $55,171,295) 70,856,991
---------------
MONEY MARKET MUTUAL FUNDS - 0.0%
SSgA Prime Money Market Fund 224 $ 224
SSgA U.S. Treasury Money Market Fund 211 211
---------------
TOTAL MONEY MARKET MUTUAL FUNDS
(Cost $435) 435
---------------
TOTAL INVESTMENTS - 100.0%
(Cost $59,195,926) $ 74,881,622
===============
</Table>
* Non-income producing security.
INCOME TAX INFORMATION:
At December 31, 2003, the net unrealized appreciation based on cost for income
tax purposes of $59,878,197 was as follows:
<Table>
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost $ 16,865,544
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value (1,862,119)
---------------
Net unrealized appreciation $ 15,003,425
===============
</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 six
months ended December 31, 2003, aggregated $33,041,021 and $24,799,984,
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 - 49.5%
U.S. TREASURY NOTES - 9.9%
05/15/06 4.625% $ 10,000,000 $ 10,598,440
05/15/08 2.625% 34,000,000 33,488,674
---------------
TOTAL U.S. TREASURY NOTES 44,087,114
---------------
FEDERAL FARM CREDIT BANK - 0.7%
07/21/08 3.150% 3,000,000 2,959,386
---------------
FEDERAL HOME LOAN BANK - 6.9%
03/06/06 5.125% 20,000,000 21,278,260
08/15/06 6.375% 5,000,000 5,495,345
03/08/11 6.350% 3,800,000 3,831,285
---------------
TOTAL FEDERAL HOME LOAN BANK 30,604,890
---------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 8.5%
01/15/06 5.250% 6,500,000 6,914,161
04/21/06 2.500% 1,500,000 1,504,875
01/05/07 6.700% 5,000,000 5,580,895
09/15/07 3.500% 1,950,000 1,983,675
01/23/08 3.650% 10,540,000 10,745,256
04/15/08 5.750% 3,750,000 4,117,455
03/15/09 5.750% 4,510,000 4,958,547
07/15/12 5.125% 1,810,000 1,890,603
---------------
TOTAL FEDERAL HOME LOAN MRTG. CORP. 37,695,467
---------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 18.8%
06/15/05 5.750% 2,000,000 2,119,724
02/15/06 5.500% 14,500,000 15,522,903
04/13/06 2.375% 6,000,000 5,997,318
05/02/06 5.500% 14,000,000 14,977,046
01/15/07 5.000% 13,000,000 13,876,928
01/20/07 5.000% 4,000,000 4,007,320
02/15/08 5.750% 2,850,000 3,130,839
02/01/11 6.250% 5,000,000 5,527,270
02/17/11 6.250% 2,000,000 2,011,086
02/28/12 5.625% 11,000,000 11,510,532
08/01/12 5.250% 4,500,000 4,614,215
---------------
TOTAL FEDERAL NAT'L MORTGAGE ASSOC. 83,295,181
---------------
OTHER - 4.7%
Private Export Funding Corp.
03/15/06 5.340% 10,000,000 10,681,760
Tennessee Valley Authority
07/15/04 4.750% 10,000,000 10,185,310
---------------
TOTAL OTHER 20,867,070
---------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $215,605,351) 219,509,108
---------------
CORPORATE BONDS & NOTES - 50.0%
FINANCIALS - 35.5%
BANKS - 12.2%
AmSouth Bank, 144A*
02/01/08 6.450% 5,100,000 5,589,855
Bank of America Corp.
01/15/13 4.875% 4,940,000 4,931,963
Bank of New York Co., Inc.
09/01/07 3.900% 2,415,000 2,480,712
Bank One Corp.
08/01/06 6.875% 2,000,000 2,211,694
05/01/07 7.600% 725,000 823,939
First Union National Bank
02/15/10 7.875% $ 5,000,000 $ 5,999,445
FleetBoston Financial Corp.
12/01/06 4.875% 7,000,000 7,425,915
National City Corp.
03/01/04 6.625% 1,650,000 1,663,322
05/15/05 7.200% 2,000,000 2,144,226
Regions Bank
12/15/06 2.900% 2,530,000 2,567,765
Regions Financial Corp.
03/01/11 7.000% 4,500,000 5,072,976
Synovus Financial Corp., 144A*
02/15/13 4.875% 1,775,000 1,746,098
Union Planters Corp.
11/01/05 6.750% 2,000,000 2,162,870
06/15/07 5.125% 1,500,000 1,597,807
US Bank
02/04/14 6.300% 7,000,000 7,709,233
---------------
TOTAL BANKS 54,127,820
---------------
BROKER/DEALERS - 11.5%
Bear Stearns Co.
01/15/07 5.700% 4,830,000 5,237,893
Donaldson, Lufkin & Jenrette, Inc.
11/01/05 6.875% 1,000,000 1,085,519
Goldman Sachs Group, Inc.
08/17/05 7.625% 3,800,000 4,153,233
01/15/11 6.875% 3,500,000 3,974,628
J.P. Morgan Chase & Co.
03/01/07 5.350% 2,730,000 2,921,905
05/30/07 5.250% 4,065,000 4,339,070
Lehman Brothers, Inc.
05/15/04 7.375% 3,700,000 3,782,817
01/18/12 6.625% 4,500,000 5,078,322
Merrill Lynch & Co., Inc.
01/30/06 2.940% 5,400,000 5,469,660
01/15/07 7.000% 2,580,000 2,843,735
Morgan Stanley Group, Inc.
03/01/07 6.875% 5,000,000 5,626,370
05/15/10 4.250% 2,500,000 2,496,482
Salomon, Inc.
02/01/04 7.200% 4,000,000 4,016,776
---------------
TOTAL BROKER/DEALERS 51,026,410
---------------
FINANCIAL SERVICES - 9.4%
Boeing Capital Corp.
09/27/05 7.100% 3,000,000 3,244,467
05/15/06 5.650% 2,250,000 2,402,199
Countrywide Funding Corp.
10/22/04 6.840% 2,500,000 2,602,047
Ford Motor Credit Co.
08/01/05 7.600% 7,000,000 7,481,698
General Electric Corp.
12/05/07 3.500% 6,710,000 6,773,128
General Motors Acceptance Corp.
08/28/12 6.875% 6,500,000 6,992,869
International Lease Finance Corp.
01/17/06 4.000% 1,950,000 2,010,362
John Deere Capital
03/15/12 7.000% 7,000,000 8,063,923
01/15/13 5.100% 2,000,000 2,049,008
---------------
TOTAL FINANCIAL SERVICES 41,619,701
---------------
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
4
<Page>
<Table>
<Caption>
DUE PRINCIPAL VALUE
DATE COUPON AMOUNT (NOTE 1)
- -------- ------------ --------------- ---------------
INSURANCE - 2.4%
AIG Sunamerica Global Financing, 144A*
08/01/08 5.850% $ 5,000,000 $ 5,448,310
Cigna Corp.
01/15/06 6.375% 1,350,000 1,432,666
Marsh & McLennan Cos., Inc.
06/15/04 6.625% 1,210,000 1,237,863
Nationwide Mutual Ins. Co., 144A*
02/15/04 6.500% 2,620,000 2,635,314
---------------
TOTAL INSURANCE 10,754,153
---------------
TOTAL FINANCIALS 157,528,084
---------------
INDUSTRIALS - 13.8%
CAPITAL GOODS - 0.9%
Dover Corp.
11/15/05 6.450% 3,525,000 3,803,394
---------------
TOTAL CAPITAL GOODS 3,803,394
---------------
CONSUMER CYCLICALS - 1.8%
DaimlerChrysler AG
01/18/11 7.750% 7,000,000 8,004,906
---------------
TOTAL COMSUMER CYCLICALS 8,004,906
---------------
CONSUMER STAPLES - 0.9%
Price/Costco, Inc.
06/15/05 7.125% 3,700,000 3,976,649
---------------
TOTAL CONSUMER STAPLES 3,976,649
---------------
HEALTHCARE - 3.0%
Abbott Laboratories
07/01/06 5.625% 3,500,000 3,775,233
Bristol-Meyers Squibb Co.
10/01/11 5.750% 7,000,000 7,564,354
Cardinal Health, Inc.
02/15/04 6.500% 2,000,000 2,010,990
---------------
TOTAL HEALTHCARE 13,350,577
---------------
TECHNOLOGY - 1.2%
Pitney Bowes, Inc.
02/01/05 5.950% 5,000,000 5,202,375
---------------
TELECOMMUNICATIONS - 5.5%
BellSouth Corp.
10/15/11 6.000% 7,000,000 7,589,680
GTE Corp.
04/15/06 6.360% 4,400,000 4,765,900
11/01/08 6.900% 7,000,000 7,893,676
New York Telephone Co.
02/15/04 6.250% 875,000 879,728
Verizon Communications, Inc.
12/15/06 5.375% 3,000,000 3,201,306
---------------
TOTAL TELECOMMUNICATIONS 24,330,290
---------------
TRAVEL & TRANSPORTATION - 0.5%
Norfolk Southern Corp.
02/15/04 7.875% 2,400,000 2,415,578
---------------
TOTAL INDUSTRIALS 61,083,769
---------------
UTILITIES - 0.7%
GAS - 0.7%
ONEOK, Inc.
08/15/06 7.750% $ 2,900,000 $ 3,278,847
---------------
TOTAL UTILITIES 3,278,847
---------------
TOTAL CORPORATE BONDS & NOTES
(Cost $212,393,260) 221,890,700
---------------
MORTGAGE-BACKED OBLIGATIONS - 0.0%
Government National Mortgage Association
Pool #26825
09/15/08 9.000% 25,207 27,508
---------------
TOTAL MORTGAGE-BACKED OBLIGATIONS
(Cost $24,129) 27,508
---------------
<Caption>
SHARES
---------------
MONEY MARKET MUTUAL FUNDS - 0.5%
SSgA Prime Money Market Fund 2,093,717 2,093,717
SSgA Treasury Money Market Fund 88 88
---------------
TOTAL MONEY MARKET MUTUAL FUNDS
(Cost $2,093,805) 2,093,805
---------------
TOTAL INVESTMENTS - 100.0%
(Cost $430,116,545) $ 443,521,121
===============
</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 December 31, 2003, these
securities amounted to a value of $15,419,577 or 3.43% of net assets.
INCOME TAX INFORMATION:
At December 31, 2003, the net unrealized appreciation based on cost for income
tax purposes of $430,144,401 was as follows:
<Table>
Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost $ 15,675,224
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value (2,298,504)
---------------
Net unrealized appreciation $ 13,376,720
===============
</Table>
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities, for the
six months ended December 31, 2003, aggregated $80,053,086 and $108,348,346,
respectively. Purchases and sales of U.S. government and agency securities,
other than short-term securities, for the six months ended December 31, 2003,
aggregated $12,525,469 and $73,787,974, 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 - 99.4%
GENERAL OBLIGATION BONDS - 55.9%
Bradley County
03/01/10 4.250%, FGIC Aaa/AAA $ 1,000,000 $ 1,071,960
Collierville
Water & Sewer Systems
11/01/16 5.500%, MBIA Aaa/AAA 1,000,000 1,105,030
Crockett County
04/01/11 5.000%, AMBAC Aaa/NR 500,000 537,315
Dickson County
06/01/16 5.000%, FGIC Aaa/NR 1,535,000 1,668,652
Franklin City
Special School District
06/01/12 5.100% Aa2/NR 2,500,000 2,811,000
Franklin County
03/01/13 5.250%, MBIA Aaa/AAA 750,000 792,862
04/01/15 4.500% Aaa/NR 1,700,000 1,802,000
Grundy County
05/01/06 5.350%, FGIC Aaa/AAA 300,000 325,149
Hamilton County
11/01/09 5.000% Aa1/NR 3,100,000 3,449,401
11/01/15 5.300% Aa1/NR 3,535,000 3,899,883
Jackson
03/01/14 5.125%, MBIA Aaa/NR 3,100,000 3,284,388
Johnson City
06/01/08 5.600%, FSA Aaa/AAA 500,000 514,195
06/01/12 5.900%, FSA Aaa/AAA 245,000 252,250
05/01/14 5.550%, FGIC Aaa/AAA 2,250,000 2,472,502
Knoxville
05/01/07 5.250%, MBIA Aaa/AAA 3,000,000 3,096,540
05/01/08 5.300%, MBIA Aaa/AAA 1,350,000 1,393,659
La Vergne
Water & Sewer
03/01/14 5.400% A1/NR 500,000 529,130
Lawrenceburg
Water & Sewer
07/01/15 5.500%, FSA Aaa/AAA 1,330,000 1,496,583
Lincoln County
04/01/14 5.250%, FGIC Aaa/NR 1,315,000 1,496,470
Madison County
04/01/15 5.000% Aa3/NR 4,425,000 4,811,303
McNairy County
03/01/15 4.000%, MBIA Aaa/NR 1,750,000 1,782,743
Memphis
11/01/10 5.200% Aa2/AA 1,000,000 1,091,300
10/01/11 5.125% Aa2/AA 1,000,000 1,091,120
07/01/12 5.250% Aa2/AA 3,000,000 3,091,530
04/01/13 5.250% Aa2/AA 4,000,000 4,409,160
11/01/13 5.250% Aa2/AA 1,000,000 1,069,020
10/01/16 4.750% Aa2/AA 2,000,000 2,089,980
Metropolitan Nashville & Davidson
Energy Production
07/01/13 5.250% Aa2/AA 1,000,000 1,141,580
Monroe County
05/01/06 5.250%, FSA Aaa/NR 1,500,000 1,622,355
Rockwood
Water & Sewer
06/01/16 3.650%, MBIA Aaa/AAA 1,280,000 1,250,829
Rutherford County
04/01/09 5.250% Aa2/AA 500,000 541,070
04/01/14 5.000% Aa2/AA 5,000,000 5,449,250
Shelby County
04/01/09 5.500% Aa2/AA+ 1,125,000 1,187,055
06/01/09 5.625% Aa2/AA+ 1,000,000 1,096,980
11/01/09 5.300% Aa2/AA+ 3,000,000 3,298,620
03/01/10 5.500% Aa2/AA+ 2,000,000 2,288,520
04/01/14 5.625% NR/AA+ 500,000 532,560
04/01/14 5.625% Aa2/AA+ $ 1,500,000 $ 1,584,075
05/01/14 4.700% Aa2/AA+ 2,000,000 2,104,040
Tennessee State
05/01/11 5.000% Aa2/AA 4,160,000 4,674,467
05/01/13 5.300% Aa2/AA 750,000 825,053
05/01/15 5.000% Aa2/AA 3,290,000 3,458,678
Tipton County
04/01/12 5.250%, AMBAC Aaa/NR 500,000 539,555
Warren County
06/01/12 5.000%, MBIA Aaa/NR 1,845,000 2,066,861
Weakley County
05/01/09 5.000%, FGIC Aaa/AAA 350,000 367,780
Williamson County
03/01/11 6.000% Aa1/NR 1,000,000 1,183,390
04/01/12 5.000% Aa1/NR 2,500,000 2,787,700
03/01/13 5.000% Aa1/NR 2,500,000 2,733,900
03/01/14 5.000% Aa1/NR 2,000,000 2,171,280
03/01/15 5.150% Aa1/NR 1,500,000 1,703,355
Wilson County
04/01/11 5.000%, FGIC Aaa/NR 1,000,000 1,123,780
05/01/13 3.600%, MBIA Aaa/NR 1,010,000 1,018,282
---------------
TOTAL GENERAL OBLIGATION BONDS 98,186,140
---------------
REVENUE BONDS - 43.5%
HEALTH & EDUCATION - 21.6%
Blount County
07/01/09 5.250% Baa1/NR 2,765,000 2,871,065
Franklin County
09/01/09 4.750% NR/A+ 1,880,000 2,041,812
Jackson
04/01/06 5.300% A1/A+ 1,000,000 1,055,760
04/01/07 5.300% A1/A+ 2,000,000 2,095,380
04/01/10 5.500%, AMBAC Aaa/AAA 400,000 424,800
Johnson City
07/01/09 5.125%, MBIA Aaa/AAA 5,705,000 6,437,066
Knox County
Baptist Health
04/15/11 5.500%, CONLEE NR/AAA 3,000,000 3,302,550
Knox County
Ft. Sanders
01/01/14 5.750%, MBIA Aaa/AAA 1,000,000 1,167,690
Knox County
Health Education
01/01/12 4.200% NR/NR* 3,400,000 3,428,764
07/01/16 5.000% Baa1/BBB+ 3,810,000 3,843,490
01/01/18 5.500% Aaa/AAA 2,000,000 2,195,140
Metropolitan Nashville & Davidson
Vanderbilt University
07/01/14 5.375% Aa2/AA 1,000,000 1,102,110
05/01/16 5.600% Aa2/AA 2,600,000 2,901,548
Shelby County
08/01/12 5.500%, MBIA Aaa/AAA 650,000 697,567
08/01/12 5.500%, MBIA Aaa/AAA 1,350,000 1,545,156
Tennessee State School
Board Authority
05/01/11 5.500% Aa3/AA- 500,000 549,990
Wilson County
03/30/07 5.000%, FSA Aaa/AAA 2,000,000 2,190,840
---------------
TOTAL HEALTH & EDUCATION 37,850,728
---------------
HOUSING - 2.9%
Metropolitan Nashville & Davidson
Multi-Family Housing
02/01/21 5.200% NR/AAA 1,000,000 1,053,480
</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)
- ------------ --------------- --------------- --------------- ---------------
Tennessee Housing
Development Agency
01/01/11 5.800% Aa2/AA $ 400,000 $ 424,420
07/01/13 5.800% Aa2/AA 330,000 336,032
07/01/16 4.900% Aa2/AA 3,120,000 3,235,003
---------------
TOTAL HOUSING 5,048,935
---------------
INDUSTRIAL DEVELOPMENT - 2.0%
Chattanooga
10/01/16 5.400%, AMBAC Aaa/AAA 3,210,000 3,558,831
---------------
TOTAL INDUSTRIAL DEVELOPMENT 3,558,831
---------------
STATE AUTHORITY - 1.8%
Tennessee State Local
Development Authority
03/01/14 5.125%, MBIA Aaa/AAA 2,000,000 2,153,240
10/01/14 6.450% NR/AA 1,000,000 1,059,710
---------------
TOTAL STATE AUTHORITY 3,212,950
---------------
UTILITIES - 15.2%
Clarksville
Water, Sewer & Gas
02/01/10 5.300%, MBIA Aaa/NR 900,000 1,008,369
Dickson
Electric
09/01/11 5.625%, MBIA Aaa/AAA 1,000,000 1,162,420
Fayetteville
Electric
04/01/11 5.250% A2/NR 1,750,000 1,794,502
Harpeth Valley
Utility District
09/01/06 5.500% Aa3/A 500,000 510,635
09/01/11 5.500% Aa3/A 1,650,000 1,685,095
Johnson City
Electric
05/01/10 5.400%, MBIA Aaa/AAA 500,000 537,975
05/01/12 5.100%, MBIA Aaa/AAA 1,500,000 1,623,240
Knoxville
Electric
07/01/13 5.000% Aa3/AA 1,000,000 1,085,720
La Follette
Electric
06/01/11 5.800%, AMBAC Aaa/AAA 430,000 465,505
03/01/15 5.250%, AMBAC Aaa/NR 1,000,000 1,069,340
Lawrenceburg
Electric
07/01/06 5.200%, MBIA Aaa/AAA 345,000 374,711
Lenoir City
Electric
06/01/07 5.000%, AMBAC Aaa/NR 2,000,000 2,197,080
Madison
Utility District
02/01/10 5.600%, MBIA Aaa/AAA 500,000 555,705
Memphis
Sanitation Sewer System
01/01/05 5.250% Aa2/AA+ 2,250,000 2,341,328
Metropolitan Nashville & Davidson
Electric
05/15/15 5.125% Aa3/AA 1,000,000 1,093,860
Metropolitan Nashville & Davidson
Water & Sewer
01/01/08 5.000%, FGIC Aaa/AAA 4,000,000 4,413,920
01/01/13 5.200%, FGIC Aaa/AAA 1,500,000 1,695,750
Rutherford County
Utilities District
02/01/11 5.100%, FGIC Aaa/NR $ 500,000 $ 544,915
Sevier County
Gas
05/01/11 5.400%, AMBAC Aaa/NR 1,000,000 1,094,130
Sevier County
Solid Waste
09/01/06 5.500%, AMBAC Aaa/AAA 775,000 817,532
09/01/10 5.400%, AMBAC Aaa/AAA 500,000 526,690
---------------
TOTAL UTILITIES 26,598,422
---------------
TOTAL REVENUE BONDS 76,269,866
---------------
TOTAL TENNESSEE MUNICIPAL OBLIGATIONS
(Cost $164,632,682) 174,456,006
---------------
MONEY MARKET MUTUAL FUNDS - 0.6%
Federated Tax Free Fund 708 708
SSgA Tax Free Fund 1,028,738 1,028,738
---------------
TOTAL MONEY MARKET MUTUAL FUNDS 1,029,446
(Cost $1,029,446) ---------------
TOTAL INVESTMENTS - 100.0%
(Cost $165,662,128) $ 175,485,452
===============
</Table>
* At December 31, 2003, this security was rated A by Fitch.
The Portfolio had the following insurance concentration of 10% or greater at
December 31, 2003 (as a percentage of net assets):
<Table>
MBIA 18.6%
</Table>
INCOME TAX INFORMATION:
At December 31, 2003, the net unrealized appreciation based on cost for income
tax purposes of $165,662,128 was as follows:
<Table>
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost $ 10,071,861
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value (248,537)
---------------
Net unrealized appreciation $ 9,823,324
===============
</Table>
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities, for the
six months ended December 31, 2003, aggregated $7,036,256 and $12,474,550,
respectively.
RATINGS:
The Moody's and S&P ratings are believed to be the most recent ratings at
December 31, 2003.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
7
<Page>
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 - 100.0%
FEDERAL FARM CREDIT BANK - 39.9%
01/06/04 1.010%* $ 5,000,000 $ 4,999,351
01/06/04 1.053%* 20,000,000 19,999,917
02/13/04 3.750% 1,500,000 1,504,494
03/12/04 5.680% 1,500,000 1,512,937
04/15/04 3.750% 9,925,000 9,997,352
04/16/04 4.875% 1,000,000 1,010,378
06/09/04 6.060% 1,000,000 1,020,903
---------------
TOTAL FEDERAL FARM CREDIT BANK 40,045,332
---------------
FEDERAL HOME LOAN MORTGAGE CORP. - 22.0%
01/07/04 1.110%* 5,000,000 5,000,000
01/15/04 5.000% 2,100,000 2,102,816
01/15/04 3.250% 2,900,000 2,902,143
02/15/04 5.250% 5,000,000 5,026,378
02/26/04 6.313% 1,000,000 1,007,872
02/26/04 1.170%** 135,000 134,759
03/11/04 1.040%** 35,000 34,930
03/22/04 1.090%** 1,790,000 1,785,664
11/15/04 3.250% 2,000,000 2,031,826
11/17/04 1.460% 2,000,000 2,000,000
---------------
TOTAL FEDERAL HOME LOAN MRTG. CORP. 22,026,388
---------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 34.1%
01/02/04 0.800%** 3,429,000 3,429,000
01/03/04 1.030%* 10,000,000 9,997,496
02/13/04 5.125% 5,000,000 5,022,380
02/18/04 1.091%* 5,000,000 4,998,599
03/15/04 4.750% 6,412,000 6,458,882
04/02/04 1.150%** 500,000 498,547
04/15/04 3.625% 121,000 121,812
05/28/04 1.170%** 700,000 696,656
06/15/04 3.000% 3,000,000 3,023,960
---------------
TOTAL FEDERAL NAT'L MORTGAGE ASSOC. 34,247,332
---------------
STUDENT LOAN MARKETING ASSOCIATION - 4.0%
04/23/04 4.750% 4,000,000 4,044,061
---------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS 100,363,113
---------------
TOTAL INVESTMENTS - 100.0% $ 100,363,113
===============
</Table>
* Floating or variable rate security rate disclosed as of December 31, 2003.
Maturity date represents the next interest rate reset date.
** Discount Note.
INCOME TAX INFORMATION:
Total cost for Federal income tax purposes - $100,363,113.
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 - 2.3%
Apache County
Industrial Development Authority
01/07/04 1.150%* $ 1,600,000 $ 1,600,000
Pinal County School District
07/01/04 6.000% 565,000 578,689
---------------
2,178,689
---------------
ARKANSAS - 0.6%
Arkansas Hospital Equipment
Financial Authority
01/01/04 1.280%* 500,000 500,000
University of Central Arkansas
06/01/04 2.000% 115,000 115,378
---------------
615,378
---------------
CALIFORNIA - 2.1%
California State
06/16/04 2.000% 2,000,000 2,008,032
---------------
COLORADO - 1.3%
Colorado Educational & Cultural
Facilities Authority
01/01/04 1.300%* 1,255,000 1,255,000
---------------
GEORGIA - 3.9%
Atlanta Water & Waste
01/01/04 1.220%* 280,000 280,000
Georgia Local Government
01/01/04 1.310%* 3,500,000 3,500,000
---------------
3,780,000
---------------
IDAHO - 1.1%
Blaine County School District
07/30/04 2.000% 1,000,000 1,005,577
---------------
ILLINOIS - 10.2%
Du Page County
01/01/04 5.000% 730,000 730,000
Illinois Development Financial Authority
08/16/04 4.200% 500,000 508,893
Illinois Educational Facilities Authority
01/07/04 1.200%* 1,600,000 1,600,000
Illinois State
01/07/04 1.210%* 1,995,000 1,995,000
Regional Transport Authority
01/07/04 1.210%* 1,000,000 1,000,000
Rockford Industrial Development
01/01/04 1.350%* 4,000,000 4,000,000
---------------
9,833,893
---------------
INDIANA - 1.0%
Hendricks County
Industrial Redevelopment
01/01/04 1.350%* 1,000,000 1,000,000
---------------
IOWA - 2.1%
Des Moines
Commercial Development
01/01/04 1.400%* 2,000,000 2,000,000
---------------
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
8
<Page>
<Table>
<Caption>
DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ------------ ---------------- --------------- ---------------
KANSAS - 2.2%
Department of Transportation
01/01/04 1.200%* $ 1,200,000 $ 1,200,000
Topeka
08/15/04 3.000% 860,000 870,590
---------------
2,070,590
---------------
KENTUCKY - 0.9%
Lexington Center Corp.
10/01/04 2.000% 645,000 648,815
McCreary County School District
05/01/04 2.000% 245,000 245,723
---------------
894,538
---------------
MASSACHUSETTS - 1.0%
Scituate
03/04/04 2.000% 1,000,000 1,001,516
---------------
MICHIGAN - 4.1%
Detroit
Economic Development
01/01/04 1.250%* 1,900,000 1,900,000
Detroit
Sewage Disposal
01/02/04 1.300%* 600,000 600,000
01/07/04 1.210%* 1,465,000 1,465,000
---------------
3,965,000
---------------
MINNESOTA - 2.1%
Minneapolis
03/01/04 4.800% 425,000 427,514
Minneapolis Library
01/01/04 1.150%* 400,000 400,000
Minnesota State
01/01/04 1.300%* 1,160,000 1,160,000
---------------
1,987,514
---------------
MISSISSIPPI - 3.9%
Jackson County Pollution Control
01/02/04 1.300%* 200,000 200,000
Mississippi State Development Bank
01/07/04 1.240%* 3,525,000 3,525,000
---------------
3,725,000
---------------
NEBRASKA - 0.3%
Public Power District
07/01/04 4.750% 275,000 282,726
---------------
NEW MEXICO - 0.4%
Santa Fe
06/01/04 6.300% 400,000 408,635
---------------
NEW YORK - 0.4%
New York State Tollway Authority
04/01/04 3.500% 150,000 150,862
Rochester
10/01/04 5.125% 180,000 185,360
---------------
336,222
---------------
NORTH CAROLINA - 0.5%
Charlotte Convention Facility
01/01/04 1.300%* 485,000 485,000
---------------
OHIO - 11.8%
American Municipal Power
04/01/04 1.100% $ 1,000,000 $ 1,000,000
07/22/04 1.200% 500,000 500,000
Franklin County
01/07/04 1.180%* 2,100,000 2,100,000
Greene County
05/28/04 1.380% 275,000 275,255
Marysville Vehicle & Equipment
03/11/04 1.450% 835,000 835,425
Middletown
06/10/04 1.750% 2,500,000 2,506,539
Norwalk City
06/17/04 2.000% 250,000 251,012
Shelby County
02/26/04 1.480% 1,000,000 1,000,395
St. Marys
06/10/04 1.400% 541,000 541,568
University of Toledo
01/07/04 1.170%* 1,255,000 1,255,000
Wapakoneta
01/30/04 1.690% 1,100,000 1,100,315
---------------
11,365,509
---------------
PENNSYLVANIA - 20.8%
Chester County Development Authority
01/07/04 1.230%* 3,500,000 3,500,000
Lawrence County Industrial Development
01/01/04 1.450%* 2,655,000 2,655,000
Lower Merion
05/01/04 2.000% 355,000 355,930
Pennsylvania State
01/01/04 1.380%* 3,500,000 3,500,000
Pennsylvania State Higher Educational
Facilities
01/01/04 1.330%* 2,980,000 2,980,000
South Central General Authority
01/01/04 1.300%* 3,000,000 3,000,000
York General Authority
01/02/04 1.330%* 4,000,000 4,000,000
---------------
19,990,930
---------------
RHODE ISLAND - 2.9%
Cumberland
06/30/04 2.000% 2,800,000 2,812,549
---------------
SOUTH CAROLINA - 2.1%
Oconee County Pollution Control
01/01/04 1.350%* 2,000,000 2,000,000
---------------
TENNESSEE - 11.3%
Knox County
02/01/04 5.000% 1,000,000 1,013,136
Lauderdale County
04/01/04 3.000% 715,000 718,495
Memphis
01/07/04 1.180%* 900,000 900,000
Metro. Gov't Nashville Health &
Educational Facilities
01/01/04 1.280%* 1,165,000 1,165,000
Montgomery County
05/01/04 3.000% 2,000,000 2,012,912
</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)
- ------------ ---------------- --------------- ---------------
Shelby County
06/30/04 2.000% $ 2,000,000 $ 2,010,249
Shelby County Health, Education &
Housing Facilities
01/07/04 1.190%* 3,000,000 3,000,000
---------------
10,819,792
---------------
TEXAS - 6.7%
Bedford
02/01/04 2.000% 1,820,000 1,821,697
Harris County
01/01/04 1.300%* 1,490,000 1,490,000
Houston Water & Sewer Systems
01/01/04 1.280%* 1,595,000 1,595,000
Texas Housing Agency
01/01/04 1.290%* 500,000 500,000
Texas State
08/31/04 2.000% 1,000,000 1,005,262
---------------
6,411,959
---------------
VIRGINIA - 4.0%
University of Virginia
01/07/04 1.210%* 2,695,000 2,695,000
Virginia Commowealth Transportation
01/01/04 1.280%* 1,155,000 1,155,000
---------------
3,850,000
---------------
TOTAL MUNICIPAL BONDS & NOTES 96,084,049
---------------
TOTAL INVESTMENTS - 100.0% $ 96,084,049
===============
</Table>
* Floating or variable rate security - rate disclosed as of December 31, 2003.
Maturity date represents the next interest rate reset date.
INCOME TAX INFORMATION:
Total cost for federal income tax purposes - $96,084,049.
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.
CASH RESERVE PORTFOLIO
<Table>
<Caption>
DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ------------ ---------------- --------------- ---------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 15.8%
FEDERAL HOME LOAN BANK - 2.4%
04/16/04 4.875% $ 6,000,000 $ 6,061,051
---------------
TOTAL FEDERAL HOME LOAN BANK
FEDERAL HOME LOAN MORTGAGE CORPORATION - 5.8%
02/26/04 1.260%*** 5,000,000 4,990,301
11/15/04 1.375% 5,000,000 5,000,000
11/29/04 1.470% 5,000,000 5,000,000
---------------
TOTAL FEDERAL HOME LOAN MORTGAGE
CORPORATION 14,990,301
---------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 7.6%
12/03/04 1.500% 3,000,000 3,000,000
12/08/04 1.545% 3,000,000 3,000,000
01/02/04 0.800%*** 410,000 410,000
02/13/04 5.125% 5,000,000 5,021,470
02/18/04 1.091%* 8,000,000 7,997,759
---------------
TOTAL FEDERAL NATIONAL
MORTGAGE ASSOCIATION 19,429,229
---------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS 40,480,581
---------------
CERTIFICATES OF DEPOSIT - 20.7%
DEPOSITORY INSTITUTIONS - 20.7%
BNP Paribas New York Branch
01/02/04 1.030%* 13,000,000 12,998,801
Canadian Imperial Bank
01/02/04 1.058%* 5,000,000 4,999,930
National City Bank of Indiana
01/02/04 1.040%* 13,000,000 12,998,801
U.S. Bank National Association
01/02/04 1.050%* 10,000,000 9,999,934
Westdeutsche Landesbank
08/05/04 1.400% 12,000,000 12,000,000
---------------
TOTAL CERTIFICATES OF DEPOSIT 52,997,466
---------------
COMMERCIAL PAPER - 38.5%
ASSET-BACKED SECURITIES - 23.5%
Atomium Funding Corp.
01/20/04 1.110% 12,000,000 11,993,336
Dakota Notes Program
01/07/04 1.130% 5,300,000 5,299,168
Emerald Corp.
03/18/04 1.100% 12,000,000 11,972,121
Regency Markets, llc
01/14/04 1.110% 12,000,000 11,995,558
Scaldis Capital, llc
01/08/04 1.100% 6,856,000 6,854,740
Silver Tower Funding, llc
03/16/04 1.120% 12,045,000 12,017,252
---------------
60,132,175
---------------
</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)
- ------------ ---------------- --------------- ---------------
DESPOSITORY INSTITUTIONS - 4.7%
Depfa Bank Europe
01/15/04 1.090% $ 12,000,000 $ 11,995,263
---------------
FINANCIAL SERVICES - 10.3%
Countrywide Home Loans, Inc.
01/16/04 1.080% 10,000,000 9,995,800
General Electric Capital Corp.
03/01/04 1.100% 4,375,000 4,367,108
UBS Finance
01/02/04 0.950% 11,850,000 11,850,000
---------------
26,212,908
---------------
TOTAL COMMERCIAL PAPER 98,340,346
---------------
CORPORATE NOTES - 25.0%
BROKER/DEALER - 12.3%
Citigroup Global Markets
03/25/04 1.110% 8,000,000 8,000,000
Goldman Sachs Group, Inc.
05/18/04 1.230% 12,455,000 12,455,000
Merrill Lynch & Co.
01/05/04 1.102%* 11,000,000 11,000,000
---------------
31,455,000
---------------
DEPOSITORY INSTITUTIONS - 9.0%
HBOS Treasury Services, plc 144A**
03/24/04 1.220%* 10,000,000 10,000,000
Wells Fargo Bank
01/02/04 1.040%* 13,000,000 13,000,000
---------------
23,000,000
---------------
FINANCIAL SERVICES - 0.6%
General Electric Capital Corp.
04/23/04 5.375% 1,440,000 1,458,753
---------------
INSURANCE - 3.1%
John Hancock Global Funding, 144A**
03/11/04 1.220% 8,000,000 8,005,087
---------------
TOTAL CORPORATE NOTES 63,918,840
---------------
TOTAL INVESTMENTS - 100.0% $ 255,737,233
===============
</Table>
* Floating or variable rate security - rate disclosed as of December 31, 2003.
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 December 31, 2003, these
securities amounted to a value of $18,005,087 or 7.35% of net assets.
***Discount Notes.
INCOME TAX INFORMATION:
Total cost for federal income tax purposes - $255,737,233.
As of June 30, 2003, 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.
11
<Page>
[GRAPHIC]
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2003 (UNAUDITED)
<Table>
<Caption>
CORE EQUITY CAPITAL APPRECIATION
PORTFOLIO PORTFOLIO
--------------------------------------------
ASSETS:
Investments, at value (cost -see below)(Note 1) $ 643,668,408 $ 74,881,622
Receivable for investments sold 0 185,748
Receivable for portfolio shares sold 126,549 58,205
Dividends receivable 703,002 19,686
Interest receivable 8,396 11
Other assets 46,308 23,679
--------------------------------------------
Total assets 644,552,663 75,168,951
--------------------------------------------
LIABILITIES:
Payable for investments purchased 778,005 982,382
Payable for portfolio shares redeemed 607,926 18,268
Accrued management fee 374,635 52,248
Accrued administration fee 66,518 7,243
Accrued co-administration fee 49,046 5,444
Accrued distribution fee 49,081 1,014
Accrued shareholder servicing fee 36,655 1,060
Other payables and accrued expenses 196,506 17,052
--------------------------------------------
Total Liabilities 2,158,372 1,084,711
--------------------------------------------
NET ASSETS $ 642,394,291 $ 74,084,240
============================================
NET ASSETS CONSIST OF:
Paid in capital $ 564,882,363 $ 69,016,795
Overdistributed net investment income (12,870) (149,487)
Accumulated net realized loss on investments (236,014) (10,468,764)
Net unrealized appreciation
in value of investments 77,760,812 15,685,696
--------------------------------------------
NET ASSETS $ 642,394,291 $ 74,084,240
============================================
COST OF INVESTMENTS $ 565,907,596 $ 59,195,926
============================================
NET ASSET VALUE PER SHARE
Net Assets
Class I $ 484,297,545 $ 68,553,485
Class A $ 87,396,291 $ 3,945,927
Class B $ 15,315,942 $ 931,041
Class C $ 55,384,513 $ 653,787
--------------------------------------------
Shares of beneficial interest outstanding of $.01 par value,
unlimited shares authorized
Class I 26,393,953 6,279,711
Class A 4,766,998 370,717
Class B 864,030 88,695
Class C 3,166,816 65,010
--------------------------------------------
Net Asset Value and redemption price per share
Class I $ 18.35 $ 10.92
Class A $ 18.33 $ 10.64
Class B $ 17.73 $ 10.50
Class C $ 17.49 $ 10.06
--------------------------------------------
Maximum offering price per share
Class I (no sales charge) $ 18.35 $ 10.92
Class A (net asset value plus maximum
sales charge of 5.75% of offering price) $ 19.45 $ 11.29
Class B (no sales charge) $ 17.73 $ 10.50
Class C (no sales charge) $ 17.49 $ 10.06
--------------------------------------------
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
12
<Page>
<Table>
<Caption>
INTERMEDIATE BOND TENNESSEE TAX-FREE
PORTFOLIO PORTFOLIO
--------------------------------------------
ASSETS:
Investments, at value (cost -see below)(Note 1) $ 443,521,121 $ 175,485,452
Receivable for portfolio shares sold 307,491 35,321
Interest receivable 7,208,311 2,431,256
Other assets 42,041 14,130
--------------------------------------------
Total assets 451,078,964 177,966,159
--------------------------------------------
LIABILITIES:
Payable for portfolio shares redeemed 320,720 5,868
Dividends payable 592,460 500,647
Accrued management fee 111,791 43,199
Accrued administration fee 46,118 18,108
Accrued co-administration fee 34,135 13,471
Accrued distribution fee 2,411 7,304
Accrued shareholder servicing fee 11,889 2,266
Other payables and accrued expenses 107,865 46,214
--------------------------------------------
Total Liabilities 1,227,389 637,077
--------------------------------------------
NET ASSETS $ 449,851,575 $ 177,329,082
============================================
NET ASSETS CONSIST OF:
Paid in capital $ 435,882,686 $ 167,444,475
Undistributed net investment income 835,399 8,179
Accumulated net realized gain/(loss) on investments (271,086) 53,104
Net unrealized appreciation
in value of investment 13,404,576 9,823,324
--------------------------------------------
NET ASSETS $ 449,851,575 $ 177,329,082
============================================
COST OF INVESTMENTS $ 430,116,545 $ 165,662,128
============================================
NET ASSET VALUE PER SHARE
Net Assets
Class I $ 395,534,194 $ 156,433,580
Class A $ 50,889,333 $ 9,841,899
Class B $ 688,078 $ 4,891,754
Class C $ 2,739,970 $ 6,161,849
--------------------------------------------
Shares of beneficial interest outstanding of $.01 par value,
unlimited shares authorized
Class I 37,814,306 14,815,557
Class A 4,863,547 930,151
Class B 65,771 463,203
Class C 261,733 583,115
--------------------------------------------
Net Asset Value and redemption price per share
Class I $ 10.46 $ 10.56
Class A $ 10.46 $ 10.58
Class B $ 10.46 $ 10.56
Class C $ 10.47 $ 10.57
--------------------------------------------
Maximum offering price per share
Class I (no sales charge) $ 10.46 $ 10.56
Class A (net asset value plus maximum
sales charge of 3.50% and 3.75%, respectively, $ 10.84 $ 10.99
of offering price)
Class B (no sales charge) $ 10.46 $ 10.56
Class C (no sales charge) $ 10.47 $ 10.57
--------------------------------------------
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
13
<Page>
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL CASH
MONEY MARKET MONEY MARKET RESERVE
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------
ASSETS:
Investments, at value (Note 1) $ 100,363,113 $ 96,084,049 $ 255,737,233
Cash 72 12,178 1,062
Receivable for portfolio shares sold 0 0 11,000
Interest receivable 673,762 388,352 366,311
Other assets 8,847 7,985 15,433
-----------------------------------------------------
Total assets 101,045,794 96,492,564 256,131,039
-----------------------------------------------------
LIABILITIES:
Payable for investments purchased 0 0 11,000,000
Dividends payable 83,928 51,197 31,477
Accrued management fee 8,545 7,068 17,767
Accrued administration fee 4,847 4,226 10,620
Accrued co-administration fee 1,201 3,779 4,204
Accrued distribution fee 2,178 6,117 44,411
Other payables and accrued expenses 18,359 11,713 46,494
-----------------------------------------------------
Total Liabilities 119,058 84,100 11,154,973
-----------------------------------------------------
NET ASSETS $ 100,926,736 $ 96,408,464 $ 244,976,066
=====================================================
NET ASSETS CONSIST OF:
Paid in capital $ 100,959,539 $ 96,417,702 $ 244,982,399
(Over)/Undistributed net investment income (13,665) 0 13,234
Accumulated net realized loss on investments (19,138) (9,238) (19,567)
-----------------------------------------------------
NET ASSETS $ 100,926,736 $ 96,408,464 $ 244,976,066
=====================================================
NET ASSET VALUE, offering price and redemption
price per share (1) $ 1.00 $ 1.00 $ 1.00
=====================================================
</Table>
(1)
<Table>
<Caption>
SHARES OF BENEFICIAL INTEREST
NET OUTSTANDING, ($.01 PAR VALUE,
ASSETS UNLIMITED SHARES AUTHORIZED)
-----------------------------------------------------
U.S. Government Money Market
Class I $ 91,582,215 91,613,474
Class C 9,344,521 9,346,063
Municipal Money Market
Class I 67,362,724 67,373,090
Class C 29,045,740 29,047,625
Cash Reserve
Class I 43,253,189 43,254,485
Class B 13,940 13,939
Class C 201,708,937 201,718,649
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
14
<Page>
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2003 (UNAUDITED)
<Table>
<Caption>
CORE EQUITY CAPITAL APPRECIATION
PORTFOLIO PORTFOLIO
--------------------------------------------
INVESTMENT INCOME:
Dividends $ 4,128,126 $ 241,011
Interest 98,742 15,070
--------------------------------------------
Total investment income 4,226,868 256,081
--------------------------------------------
EXPENSES:
Management fee (Note 3) 2,053,804 48,304
Co-management fee (Note 3) 0 221,989
Administration fee (Note 4) 363,365 37,033
Co-administration fee (Note 4) 268,574 27,372
Fund accounting fee 64,119 7,370
Custody fee 41,815 9,824
Transfer agent fee 227,602 20,006
Blue sky fee 18,500 3,700
Distribution fee:
Class B 73,901 3,630
Class C 203,814 2,165
Shareholder servicing fee:
Class A 104,417 4,464
Class C 67,938 721
Trustees fee 11,285 1,110
Audit & tax 17,961 8,270
Legal 23,653 1,244
Reports to shareholders 24,900 1,996
Miscellaneous 54,175 6,370
--------------------------------------------
Net expenses 3,619,823 405,568
--------------------------------------------
NET INVESTMENT INCOME/(LOSS) 607,045 (149,487)
--------------------------------------------
Net realized gain on investments 10,088,463 4,062,507
Change in net unrealized appreciation/depreciation 71,061,160 7,073,292
--------------------------------------------
Net gain on investments 81,149,623 11,135,799
--------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 81,756,668 $ 10,986,312
============================================
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
15
<Page>
<Table>
<Caption>
INTERMEDIATE BOND TENNESSEE TAX-FREE
PORTFOLIO PORTFOLIO
--------------------------------------------
INTEREST INCOME: $ 10,143,648 $ 4,072,647
--------------------------------------------
EXPENSES:
Management fee (Note 3) 1,128,885 457,120
Administration fee (Note 4) 272,302 105,138
Co-administration fee (Note 4) 201,267 77,710
Fund accounting fee 49,573 22,564
Custody fee 32,625 12,499
Transfer agent fee 94,816 36,268
Blue sky fee 12,950 630
Distribution fee:
Class B 2,390 17,293
Class C 11,539 24,768
Shareholder servicing fee:
Class A 64,153 13,184
Class C 3,846 8,256
Trustees fee 8,434 3,101
Audit & tax 13,391 11,604
Legal 18,411 3,401
Reports to shareholders 19,456 6,555
Miscellaneous 42,300 16,900
--------------------------------------------
Total expenses before waiver 1,976,338 816,991
Waiver of expenses (Note 5) (422,379) (199,360)
--------------------------------------------
Net expenses 1,553,959 617,631
--------------------------------------------
NET INVESTMENT INCOME 8,589,689 3,455,016
--------------------------------------------
Net realized gain on investments 3,449,645 234,785
Change in net unrealized appreciation/depreciation (13,349,560) (2,432,590)
--------------------------------------------
Net loss on investments (9,899,915) (2,197,805)
--------------------------------------------
NET INCREASE/(DECREASE) IN NET
ASSETS FROM OPERATIONS $ (1,310,226) $ 1,257,211
============================================
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
16
<Page>
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET CASH RESERVE
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------
INTEREST INCOME: $ 691,171 $ 536,091 $ 1,466,444
-----------------------------------------------------
EXPENSES:
Management fee (Note 3) 30,918 25,213 63,682
Co-management fee (Note 3) 49,469 40,340 101,892
Administration fee (Note 4) 30,918 25,213 63,682
Co-administration fee (Note 4) 30,918 25,213 63,682
Fund accounting fee 8,657 7,059 17,831
Custody fee 6,184 5,042 12,736
Transfer agent fee 17,988 14,430 50,999
Blue sky fee 3,515 2,405 21,275
Distribution fee:
Class B 0 0 79
Class C 20,999 63,546 476,463
Trustees fee 1,876 1,724 4,505
Audit & tax 6,686 5,692 17,623
Legal 3,837 3,039 9,904
Reports to shareholders 4,360 3,622 10,023
Miscellaneous 11,600 7,590 22,213
-----------------------------------------------------
Total expenses before waiver 227,925 230,128 936,589
Waiver of expenses (Note 5) (62,097) (43,951) (290,721)
-----------------------------------------------------
Net expenses 165,828 186,177 645,868
-----------------------------------------------------
NET INVESTMENT INCOME 525,343 349,914 820,576
-----------------------------------------------------
Net realized gain on investments 45 0 183
-----------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 525,388 $ 349,914 $ 820,759
=====================================================
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
CORE EQUITY CAPITAL APPRECIATION
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED JUNE 30, ENDED DECEMBER 31, ENDED JUNE 30,
2003 (UNAUDITED) 2003 2003 (UNAUDITED) 2003
------------------------------------------------------------------------------------
OPERATIONS:
Net investment income/(loss) $ 607,045 $ 1,961,387 $ (149,487) $ (358,896)
Net realized gain/(loss) on investments 10,088,463 (7,098,825) 4,062,507 (1,985,661)
Change in net unrealized
appreciation/depreciation 71,061,160 9,909,791 7,073,292 9,005,198
------------------------------------------------------------------------------------
Net increase in net assets
from operations 81,756,668 4,772,353 10,986,312 6,660,641
------------------------------------------------------------------------------------
DISTRIBUTIONS:
From net investment income:
Class I (859,815) (1,775,265) 0 0
Class A (70,095) (122,852) 0 0
Class B 0 0 0 0
Class C 0 0 0 0
------------------------------------------------------------------------------------
Net decrease in net assets
from distributions (929,910) (1,898,117) 0 0
------------------------------------------------------------------------------------
SHARE TRANSACTIONS (NOTE 2):
Proceeds from sales of shares 37,046,763 60,523,606 12,722,161 8,597,749
Reinvested dividends 585,914 1,143,196 0 0
Cost of shares redeemed (93,298,462) (173,401,093) (3,269,136) (5,646,983)
------------------------------------------------------------------------------------
Net increase/(decrease) in net assets
from share transactions (55,665,785) (111,734,291) 9,453,025 2,950,766
------------------------------------------------------------------------------------
Net increase/(decrease)
in net assets 25,160,973 (108,860,055) 20,439,337 9,611,407
NET ASSETS:
Beginning of period 617,233,318 726,093,373 53,644,903 44,033,496
------------------------------------------------------------------------------------
End of period* $ 642,394,291 $ 617,233,318 $ 74,084,240 $ 53,644,903
====================================================================================
*Includes (over)/undistributed
net investment income of $ (12,870) $ 309,995 $ (149,487) $ 0
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
18
<Page>
<Table>
<Caption>
INTERMEDIATE BOND TENNESSEE TAX-FREE
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED JUNE 30, ENDED DECEMBER 31, ENDED JUNE 30,
2003 (UNAUDITED) 2003 2003 (UNAUDITED) 2003
------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 8,589,689 $ 10,869,046 $ 3,455,016 $ 7,119,254
Net realized gain on investments 3,449,645 2,931,688 234,785 673,317
Change in net unrealized
appreciation/depreciation (13,349,560) 18,718,131 (2,432,590) 4,345,890
------------------------------------------------------------------------------------
Net increase/(decrease) in net assets
from operations (1,310,226) 32,518,865 1,257,211 12,138,461
------------------------------------------------------------------------------------
DISTRIBUTIONS:
From net investment income:
Class I (7,659,189) (8,646,237) (3,079,380) (6,427,078)
Class A (875,603) (2,139,216) (188,456) (359,541)
Class B (10,126) (9,586) (77,405) (92,243)
Class C (44,771) (74,007) (109,775) (240,392)
From net realized gain:
Class I (5,287,699) (1,120,347) (681,328) (474,243)
Class A (667,416) (292,851) (44,275) (27,212)
Class B (8,965) (1,207) (21,073) (8,267)
Class C (36,636) (11,124) (26,717) (20,817)
------------------------------------------------------------------------------------
Net decrease in net assets
from distributions (14,590,405) (12,294,575) (4,228,409) (7,649,793)
------------------------------------------------------------------------------------
SHARE TRANSACTIONS (NOTE 2):
Proceeds from sales of shares 31,229,646 296,607,692 11,339,448 25,222,559
Reinvested dividends 8,571,389 5,218,307 555,440 979,815
Cost of shares redeemed (74,391,588) (61,873,921) (18,976,561) (25,076,713)
------------------------------------------------------------------------------------
Net increase/(decrease) in net assets
from share transactions (34,590,553) 239,952,078 (7,081,673) 1,125,661
------------------------------------------------------------------------------------
Net increase/(decrease)
in net assets (50,491,184) 260,176,368 (10,052,871) 5,614,329
NET ASSETS:
Beginning of period 500,342,759 240,166,391 187,381,953 181,767,624
------------------------------------------------------------------------------------
End of period* $ 449,851,575 $ 500,342,759 $ 177,329,082 $ 187,381,953
====================================================================================
*Includes undistributed
net investment income of $ 835,399 $ 835,399 $ 8,179 $ 8,179
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
19
<Page>
<Table>
<Caption>
U.S. GOVERNMENT MONEY
MARKET PORTFOLIO
----------------------------------------
FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED JUNE 30,
2003 (UNAUDITED) 2003
----------------------------------------
OPERATIONS:
Net investment income $ 525,343 $ 1,791,073
Net realized gain on investments 45 0
----------------------------------------
Net increase in net assets from
operations 525,388 1,791,073
----------------------------------------
DISTRIBUTIONS:
From net investment income
Class I (509,455) (1,705,994)
Class C (29,888) (85,079)
----------------------------------------
Net decrease in net assets from
distributions (539,343) (1,791,073)
----------------------------------------
SHARE TRANSACTIONS AT NET ASSET VALUE OF $1.00 PER SHARE (NOTE 2):
Proceeds from sales of shares 65,540,563 131,192,918
Reinvested dividends 29,059 82,129
Cost of shares redeemed (96,537,317) (136,193,759)
----------------------------------------
Net decrease in net assets
from share transactions (30,967,695) (4,918,712)
----------------------------------------
Net decrease
in net assets (30,981,650) (4,918,712)
NET ASSETS:
Beginning of period 131,908,386 136,827,098
----------------------------------------
End of period* $ 100,926,736 $ 131,908,386
========================================
*Includes (over)/undistributed
net investment income of $ (13,665) $ 335
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
20
<Page>
<Table>
<Caption>
MUNICIPAL MONEY CASH RESERVE
MARKET PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED JUNE 30, ENDED DECEMBER 31, ENDED JUNE 30,
2003 (UNAUDITED) 2003 2003 (UNAUDITED) 2003
------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 349,914 $ 900,941 $ 820,576 $ 3,086,078
Net realized gain/(loss) on
investments 0 (2,609) 183 1,440
------------------------------------------------------------------------------------
Net increase in net assets from
operations 349,914 898,332 820,759 3,087,518
------------------------------------------------------------------------------------
DISTRIBUTIONS:
From net investment income
Class I (277,180) (690,247) (183,076) (778,658)
Class B - - (16) (102)
Class C (72,734) (210,694) (637,484) (2,307,318)
------------------------------------------------------------------------------------
Net decrease in net assets from
distributions (349,914) (900,941) (820,576) (3,086,078)
------------------------------------------------------------------------------------
SHARE TRANSACTIONS AT NET ASSET VALUE
OF $1.00 PER SHARE (NOTE 2):
Proceeds from sales of shares 88,257,761 143,234,292 197,835,139 511,935,377
Reinvested dividends 72,140 209,725 641,834 2,333,771
Cost of shares redeemed (85,213,898) (131,811,740) (209,298,512) (518,125,424)
------------------------------------------------------------------------------------
Net increase/(decrease) in net
assets from share transactions 3,116,003 11,632,277 (10,821,539) (3,856,276)
------------------------------------------------------------------------------------
Net increase/(decrease)
in net assets 3,116,003 11,629,668 (10,821,356) (3,854,836)
NET ASSETS:
Beginning of period 93,292,461 81,662,793 255,797,422 259,652,258
------------------------------------------------------------------------------------
End of period* $ 96,408,464 $ 93,292,461 $ 244,976,066 $ 255,797,422
====================================================================================
*Includes undistributed net
investment income of $ 0 $ 0 $ 13,234 $ 13,234
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
21
<Page>
[GRAPHIC]
FINANCIAL HIGHLIGHTS
CORE EQUITY PORTFOLIO
CLASS I
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30
2003@^ 2003^ 2002 2001 2000 1999
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 16.12 $ 15.74 $ 21.87 $ 25.33 $ 26.26 $ 21.56
--------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.07 0.08 0.07 0.11 0.13
Net realized and unrealized gain/(loss)
on investments 2.23 0.37 (4.52) 0.06 1.88 5.30
--------------------------------------------------------------------------
Total from investment operations 2.26 0.44 (4.44) 0.13 1.99 5.43
--------------------------------------------------------------------------
Distributions:
Net investment income (0.03) (0.06) (0.08) (0.04) (0.09) (0.12)
Net realized gain - - (1.61) (3.55) (2.83) (0.61)
--------------------------------------------------------------------------
Total distributions (0.03) (0.06) (1.69) (3.59) (2.92) (0.73)
--------------------------------------------------------------------------
Net asset value, end of period $ 18.35 $ 16.12 $ 15.74 $ 21.87 $ 25.33 $ 26.26
==========================================================================
TOTAL RETURN+ 14.04%# 2.82% (21.53)% (0.70)% 8.15% 25.69%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 484,298 $470,855 $541,058 $716,068 $790,050 $790,985
Ratio of expenses to average daily net assets (1) 1.01%* 0.98% 0.94% 0.97% 0.87% 0.80%
Ratio of net investment income to average net assets 0.33%* 0.47% 0.44% 0.31% 0.44% 0.57%
Portfolio turnover rate 13% 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. 1.01%* 0.98% 0.94% 0.97% 0.95% 0.95%
</Table>
CLASS A
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@^ 2003^ 2002 2001 2000 1999
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 16.11 $ 15.73 $ 21.85 $ 25.33 $ 26.30 $ 21.58
----------------------------------------------------------------------
Income from investment operations:
Net investment income 0.01 0.03 0.04 0.01 0.03 0.06
Net realized and unrealized gain/(loss)
on investments 2.22 0.37 (4.51) 0.06 1.88 5.31
----------------------------------------------------------------------
Total from investment operations 2.23 0.40 (4.47) 0.07 1.91 5.37
----------------------------------------------------------------------
Distributions:
Net investment income (0.01) (0.02) (0.04) - (0.05) (0.04)
Net realized gain - - (1.61) (3.55) (2.83) (0.61)
----------------------------------------------------------------------
Total distributions (0.01) (0.02) (1.65) (3.55) (2.88) (0.65)
----------------------------------------------------------------------
Net asset value, end of period $ 18.33 $ 16.11 $ 15.73 $ 21.85 $ 25.33 $ 26.30
======================================================================
TOTAL RETURN+** 13.88%# 2.58% (21.73)% (0.95)% 7.80% 25.33%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 87,396 $79,265 $105,294 $134,604 $101,907 $82,896
Ratio of expenses to average daily net assets (1) 1.26%* 1.24% 1.19% 1.23% 1.18% 1.10%
Ratio of net investment income to average net assets 0.08%* 0.21% 0.20% 0.05% 0.13% 0.28%
Portfolio turnover rate 13% 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. 1.26%* 1.24% 1.19% 1.23% 1.25% 1.25%
</Table>
* Annualized
** 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.
# 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.
@ Unaudited
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
22
<Page>
CLASS B
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@^ 2003^ 2002 2001 2000**
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.62 $ 15.35 $ 21.49 $ 25.13 $ 25.83
-----------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.05) (0.08) (0.05) (0.05) (0.07)
Net realized and unrealized gain/(loss)
on investments 2.16 0.35 (4.48) (0.04) 2.20
-----------------------------------------------------------------------
Total from investment operations 2.11 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 $ 17.73 $ 15.62 $ 15.35 $ 21.49 $ 25.13
=======================================================================
TOTAL RETURN+ 13.51%# 1.76% (22.39)% (1.65)% 8.72%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 15,316 $ 14,069 $ 15,636 $ 13,849 $ 5,372
Ratio of expenses to average daily net assets (1) 2.01%* 2.01% 1.98% 1.99% 1.91%*
Ratio of net investment loss to average net assets (0.67)%* (0.56)% (0.59)% (0.71)% (0.60)%*
Portfolio turnover rate 13% 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%* 2.01% 1.98% 1.99% 1.98%*
</Table>
CLASS C
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@^ 2003^ 2002 2001 2000 1999
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.41 $ 15.15 $ 21.23 $ 24.87 $ 26.00 $ 21.47
-----------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.05) (0.08) (0.12) (0.13) (0.13) (0.11)
Net realized and unrealized gain/(loss)
on investments 2.13 0.34 (4.35) 0.04 1.83 5.25
-----------------------------------------------------------------------
Total from investment operations 2.08 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 $ 17.49 $ 15.41 $ 15.15 $ 21.23 $ 24.87 $ 26.00
=======================================================================
TOTAL RETURN+ 13.50%# 1.72% (22.38)% (1.66)% 7.02% 24.35%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 55,385 $53,045 $64,105 $93,201 $101,084 $95,528
Ratio of expenses to average daily net assets (1) 2.01%* 1.98% 1.95% 1.96% 1.92% 1.88%
Ratio of net investment loss to average
net assets (0.67)%* (0.53)% (0.56)% (0.69)% (0.61)% (0.50)%
Portfolio turnover rate 13% 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. 2.01%* 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.
@ Unaudited
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS
CAPITAL APPRECIATION PORTFOLIO
CLASS I
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@^ 2003^ 2002^ 2001^ 2000^ 1999^
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.14 $ 8.03 $ 9.98 $ 14.47 $ 10.25 $ 10.74
-------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.02) (0.06) (0.09) (0.05) (0.09) (0.09)
Net realized and unrealized gain/(loss) on
investments 1.80 1.17 (1.86) (1.22) 4.31 (0.16)
-------------------------------------------------------------------------
Total from investment operations 1.78 1.11 (1.95) (1.27) 4.22 (0.25)
-------------------------------------------------------------------------
Distributions:
Net realized gain - - - (3.22) - (0.24)
-------------------------------------------------------------------------
Net asset value, end of period $ 10.92 $ 9.14 $ 8.03 $ 9.98 $ 14.47 $ 10.25
=========================================================================
TOTAL RETURN+ 19.47%# 13.82% (19.54)% (10.93)% 41.17% (2.16)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 68,553 $49,572 $39,175 $44,746 $46,042 $33,803
Ratio of expenses to average daily net assets (1) 1.23%* 1.26% 1.46% 1.27% 1.19% 1.29%
Ratio of net investment loss to average net assets (0.43)%* (0.81)% (1.01)% (0.45)% (0.77)% (1.00)%
Portfolio turnover rate 41% 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. 1.23%* 1.26% 1.46% 1.27% 1.26% 1.44%
</Table>
CLASS A
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@^ 2003^ 2002^ 2001^ 2000^ 1999^
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 8.93 $ 7.86 $ 9.80 $ 14.31 $10.20 $10.71
-------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04) (0.08) (0.11) (0.09) (0.15) (0.13)
Net realized and unrealized gain/(loss) on
investments 1.75 1.15 (1.83) (1.20) 4.26 (0.14)
-------------------------------------------------------------------
Total from investment operations 1.71 1.07 (1.94) (1.29) 4.11 (0.27)
-------------------------------------------------------------------
Distributions:
Net realized gain - - - (3.22) - (0.24)
-------------------------------------------------------------------
Net asset value, end of period $ 10.64 $ 8.93 $ 7.86 $ 9.80 $14.31 $10.20
===================================================================
TOTAL RETURN+** 19.15%# 13.61% (19.80)% (11.21)% 40.29% (2.35)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 3,946 $3,083 $ 3,879 $ 5,150 $3,883 $2,051
Ratio of expenses to average daily net assets (1) 1.48%* 1.49% 1.76% 1.62% 1.63% 1.66%
Ratio of net investment loss to average net assets (0.68)%* (1.05)% (1.32)% (0.80)% (1.21)% (1.37)%
Portfolio turnover rate 41% 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. 1.48%* 1.49% 1.76% 1.62% 1.70% 1.81%
</Table>
* Annualized
** 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.
# 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.
@ Unaudited
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
24
<Page>
CLASS B
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@^ 2003^ 2002^ 2001^ 2000**
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 8.84 $ 7.84 $ 9.86 $ 14.49 $ 10.06
-----------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.07) (0.13) (0.18) (0.16) (0.19)
Net realized and unrealized gain/(loss)
on investments 1.73 1.13 (1.84) (1.25) 4.62
-----------------------------------------------------------------------
Total from investment operations 1.66 1.00 (2.02) (1.41) 4.43
-----------------------------------------------------------------------
Distributions:
Net realized gain - - - (3.22) -
-----------------------------------------------------------------------
Net asset value, end of period $ 10.50 $ 8.84 $ 7.84 $ 9.86 $ 14.49
=======================================================================
TOTAL RETURN+ 18.78%# 12.76% (20.49)% (12.00)% 44.04%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 931 $ 508 $ 515 $ 737 $ 175
Ratio of expenses to average daily net assets (1) 2.23%* 2.26% 2.62% 2.48% 2.46%*
Ratio of net investment loss to average net assets (1.43)%* (1.82)% (2.17)% (1.66)% (2.04)%*
Portfolio turnover rate 41% 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. 2.23%* 2.26% 2.62% 2.48% 2.52%*
</Table>
CLASS C
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@^ 2003^ 2002^ 2001^ 2000^ 1999^
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 8.47 $ 7.51 $ 9.43 $ 14.02 $10.04 $10.64
-------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.07) (0.12) (0.18) (0.19) (0.25) (0.19)
Net realized and unrealized gain/(loss) on
investments 1.66 1.08 (1.74) (1.18) 4.23 (0.17)
-------------------------------------------------------------------
Total from investment operations 1.59 0.96 (1.92) (1.37) 3.98 (0.36)
-------------------------------------------------------------------
Distributions:
Net realized gain - - - (3.22) - (0.24)
-------------------------------------------------------------------
Net asset value, end of period $ 10.06 $ 8.47 $ 7.51 $ 9.43 $14.02 $10.04
===================================================================
TOTAL RETURN+ 18.77%# 12.78% (20.36)% (12.13)% 39.64% (3.22)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 654 $ 482 $ 463 $ 758 $ 634 $ 392
Ratio of expenses to average daily net assets (1) 2.23%* 2.24% 2.63% 2.60% 2.50% 2.44%
Ratio of net investment loss to average net assets (1.43)%* (1.80)% (2.18)% (1.78)% (2.09)% (2.15)%
Portfolio turnover rate 41% 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. 2.23%* 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.
@ Unaudited
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
25
<Page>
FINANCIAL HIGHLIGHTS
INTERMEDIATE BOND PORTFOLIO
CLASS I
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@ 2003 2002 2001 2000 1999
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.81 $ 10.39 $ 10.10 $ 9.59 $ 9.78 $ 10.02
-------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.20 0.45 0.52 0.55 0.56 0.58
Net realized and unrealized gain/(loss)
on investments (0.21) 0.50 0.33 0.50 (0.19) (0.22)
-------------------------------------------------------------------------
Total from investment operations (0.01) 0.95 0.85 1.05 0.37 0.36
-------------------------------------------------------------------------
Distributions:
Net investment income (0.20) (0.47) (0.52) (0.55) (0.56) (0.58)
Net realized gain (0.14) (0.06) (0.04) - - (0.02)
-------------------------------------------------------------------------
Total distributions (0.34) (0.53) (0.56) (0.55) (0.56) (0.60)
-------------------------------------------------------------------------
Net asset value, end of period $ 10.46 $ 10.81 $ 10.39 $ 10.10 $ 9.59 $ 9.78
=========================================================================
TOTAL RETURN+ (0.11)%# 9.35% 8.59% 11.28% 3.97% 3.60%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 395,534 $443,511 $188,425 $188,381 $202,385 $219,298
Ratio of expenses to average daily net assets (1) 0.63%* 0.62% 0.62% 0.60% 0.46% 0.36%
Ratio of net investment income to average net assets 3.67%* 4.41% 5.08% 5.52% 5.86% 5.76%
Portfolio turnover rate 17% 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. 0.80%* 0.82% 0.82% 0.80% 0.81% 0.86%
</Table>
CLASS A
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@ 2003 2002 2001 2000 1999
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.82 $ 10.40 $ 10.10 $ 9.59 $ 9.78 $10.02
-----------------------------------------------------------------
Income from investment operations:
Net investment income 0.18 0.44 0.50 0.52 0.53 0.55
Net realized and unrealized gain/(loss)
on investments (0.22) 0.48 0.34 0.51 (0.19) (0.22)
-----------------------------------------------------------------
Total from investment operations (0.04) 0.92 0.84 1.03 0.34 0.33
-----------------------------------------------------------------
Distributions:
Net investment income (0.18) (0.44) (0.50) (0.52) (0.53) (0.55)
Net realized gain (0.14) (0.06) (0.04) - - (0.02)
-----------------------------------------------------------------
Total distributions (0.32) (0.50) (0.54) (0.52) (0.53) (0.57)
-----------------------------------------------------------------
Net asset value, end of period $ 10.46 $ 10.82 $ 10.40 $ 10.10 $ 9.59 $ 9.78
=================================================================
TOTAL RETURN+** (0.33)%# 9.08% 8.43% 10.99% 3.66% 3.32%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 50,889 $52,686 $50,032 $45,098 $7,485 $3,057
Ratio of expenses to average daily net assets (1) 0.88%* 0.88% 0.87% 0.84% 0.75% 0.68%
Ratio of net investment income to average net assets 3.42%* 4.15% 4.83% 5.27% 5.57% 5.43%
Portfolio turnover rate 17% 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. 1.05%* 1.08% 1.07% 1.04% 1.11% 1.19%
</Table>
* Annualized
** 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.
# Total returns for periods of less than one year are not annualized.
@ Unaudited
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
26
<Page>
CLASS B
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@ 2003**
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.82 $ 10.55
------------------------------------------------------
Income from investment operations:
Net investment income 0.16 0.27
Net realized and unrealized gain
on investments (0.22) 0.33
------------------------------------------------------
Total from investment operations (0.06) 0.60
------------------------------------------------------
Distributions:
Net investment income (0.16) (0.27)
Net realized gain (0.14) (0.06)
------------------------------------------------------
Total distributions (0.30) (0.33)
------------------------------------------------------
Net asset value, end of period $ 10.46 $ 10.82
=====================================================
TOTAL RETURN+ (0.55)%# 5.75%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 688 $ 678
Ratio of expenses to average daily net assets (1) 1.33%* 1.31%*
Ratio of net investment income to average net assets 2.97%* 3.72%*
Portfolio turnover rate 17% 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. 1.50%* 1.51%*
</Table>
CLASS C
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@ 2003 2002 2001 2000 1999
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.82 $10.40 $10.10 $ 9.59 $ 9.77 $10.02
--------------------------------------------------------------
Income from investment operations:
Net investment income 0.16 0.38 0.44 0.47 0.48 0.49
Net realized and unrealized gain/(loss)
on investments (0.21) 0.49 0.34 0.51 (0.18) (0.23)
--------------------------------------------------------------
Total from investment operations (0.05) 0.87 0.78 0.98 0.30 0.26
--------------------------------------------------------------
Distributions:
Net investment income (0.16) (0.39) (0.44) (0.47) (0.48) (0.49)
Net realized gain (0.14) (0.06) (0.04) - - (0.02)
--------------------------------------------------------------
Total distributions (0.30) (0.45) (0.48) (0.47) (0.48) (0.51)
--------------------------------------------------------------
Net asset value, end of period $ 10.47 $10.82 $10.40 $10.10 $ 9.59 $ 9.77
==============================================================
TOTAL RETURN+ (0.48)%# 8.54% 7.81% 10.38% 3.16% 2.58%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 2,740 $3,468 $1,710 $1,333 $1,269 $1,097
Ratio of expenses to average daily net assets (1) 1.38%* 1.37% 1.44% 1.42% 1.35% 1.22%
Ratio of net investment income to average net assets 2.92%* 3.66% 4.25% 4.70% 4.97% 4.90%
Portfolio turnover rate 17% 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. 1.80%* 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.
@ Unaudited
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
27
<Page>
FINANCIAL HIGHLIGHTS
TENNESSEE TAX-FREE PORTFOLIO
CLASS I
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@ 2003 2002 2001 2000 1999
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.73 $ 10.47 $ 10.28 $ 9.89 $ 10.08 $ 10.31
----------------------------------------------------------------------
Income from investment operations:
Net investment income 0.20 0.42 0.43 0.44 0.45 0.46
Net realized and unrealized gain/(loss) on
investments (0.12) 0.29 0.21 0.39 (0.18) (0.20)
----------------------------------------------------------------------
Total from investment operations 0.08 0.71 0.64 0.83 0.27 0.26
----------------------------------------------------------------------
Distributions:
Net investment income (0.20) (0.42) (0.43) (0.44) (0.45) (0.46)
Net realized gain (0.05) (0.03) (0.02) - (0.01) (0.03)
----------------------------------------------------------------------
Total distributions (0.25) (0.45) (0.45) (0.44) (0.46) (0.49)
----------------------------------------------------------------------
Net asset value, end of period $ 10.56 $ 10.73 $ 10.47 $ 10.28 $ 9.89 $ 10.08
======================================================================
8.49% 2.83% 2.54%
TOTAL RETURN+ 0.77%# 6.89% 6.34%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 156,434 $163,440 $164,437 $168,940 $172,620 $185,445
Ratio of expenses to average daily net assets (1) 0.63%* 0.63% 0.64% 0.62% 0.45% 0.36%
Ratio of net investment income to average net assets 3.84%* 3.93% 4.14% 4.29% 4.57% 4.49%
Portfolio turnover rate 4% 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%* 0.83% 0.84% 0.82% 0.81% 0.86%
</Table>
CLASS A
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@ 2003 2002 2001 2000 1999
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.75 $ 10.49 $10.31 $ 9.92 $ 10.11 $ 10.34
----------------------------------------------------------------
Income from investment operations:
Net investment income 0.19 0.39 0.40 0.41 0.44 0.46
Net realized and unrealized gain/(loss) on
investments (0.12) 0.29 0.20 0.39 (0.18) (0.20)
----------------------------------------------------------------
Total from investment operations 0.07 0.68 0.60 0.80 0.26 0.26
----------------------------------------------------------------
Distributions:
Net investment income (0.19) (0.39) (0.40) (0.41) (0.44) (0.46)
Net realized gain (0.05) (0.03) (0.02) - (0.01) (0.03)
----------------------------------------------------------------
Total distributions (0.24) (0.42) (0.42) (0.41) (0.45) (0.49)
----------------------------------------------------------------
Net asset value, end of period $ 10.58 $ 10.75 $10.49 $ 10.31 $ 9.92 $ 10.11
================================================================
Total Return+** 0.65%# 6.62% 5.98% 8.20% 2.70% 2.46%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 9,842 $11,661 $9,252 $12,836 $10,580 $13,227
Ratio of expenses to average daily net assets (1) 0.88%* 0.87% 0.88% 0.87% 0.58% 0.44%
Ratio of net investment income to average net assets 3.59%* 3.68% 3.90% 4.04% 4.44% 4.41%
Portfolio turnover rate 4% 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. 1.08%* 1.07% 1.08% 1.08% 1.09%^ 1.13%^
</Table>
* Annualized
** 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.
# Total returns for periods of less than one year are not annualized.
^ These rates were previously reported net of the shareholder servicing fee
waiver.
@ Unaudited
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
28
<Page>
CLASS B
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@ 2003 2002 2001 2000**
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.73 $ 10.47 $ 10.29 $ 9.90 $ 10.09
-----------------------------------------------------------------------
Income from investment operations:
Net investment income 0.17 0.34 0.35 0.36 0.34
Net realized and unrealized gain/(loss)
on investments (0.12) 0.29 0.20 0.39 (0.18)
-----------------------------------------------------------------------
Total from investment operations 0.05 0.63 0.55 0.75 0.16
-----------------------------------------------------------------------
Distributions:
Net investment income (0.17) (0.34) (0.35) (0.36) (0.34)
Net realized gain (0.05) (0.03) (0.02) - (0.01)
-----------------------------------------------------------------------
Total distributions (0.22) (0.37) (0.37) (0.36) (0.35)
-----------------------------------------------------------------------
Net asset value, end of period $ 10.56 $ 10.73 $ 10.47 $ 10.29 $ 9.90
=======================================================================
TOTAL RETURN+ 0.42%# 6.15% 5.46% 7.72% 1.69%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 4,892 $ 4,673 $ 1,090 $ 309 $ 200
Ratio of expenses to average daily net assets (1) 1.33%* 1.32% 1.37% 1.33% 1.16%*
Ratio of net investment income to average net assets 3.14%* 3.23% 3.41% 3.58% 3.86%*
Portfolio turnover rate 4% 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. 1.53%* 1.52% 1.57% 1.53% 1.52%*
</Table>
CLASS C
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@ 2003 2002 2001 2000 1999
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.74 $10.48 $10.29 $ 9.90 $10.09 $ 10.32
------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18 0.37 0.38 0.38 0.40 0.42
Net realized and unrealized gain/(loss) on
investments (0.12) 0.29 0.21 0.39 (0.18) (0.20)
------------------------------------------------------------------
Total from investment operations 0.06 0.66 0.59 0.77 0.22 0.22
------------------------------------------------------------------
Distributions:
Net investment income (0.18) (0.37) (0.38) (0.38) (0.40) (0.42)
Net realized gain (0.05) (0.03) (0.02) - (0.01) (0.03)
------------------------------------------------------------------
Total distributions (0.23) (0.40) (0.40) (0.38) (0.41) (0.45)
------------------------------------------------------------------
Net asset value, end of period $ 10.57 $10.74 $10.48 $10.29 $ 9.90 $ 10.09
==================================================================
Total Return+ 0.52%# 6.37% 5.81% 7.89% 2.29% 2.13%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 6,162 $7,608 $6,989 $6,426 $8,969 $17,378
Ratio of expenses to average daily net assets (1) 1.13%* 1.12% 1.14% 1.17% 0.96% 0.75%
Ratio of net investment income to average net assets 3.34%* 3.43% 3.65% 3.74% 4.06% 4.10%
Portfolio turnover rate 4% 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. 1.83%* 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.
@ Unaudited
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
29
<Page>
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
CLASS I
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@ 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 $ 1.00
------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.005 0.013 0.024 0.057 0.053 0.047
------------------------------------------------------------------------
Distributions:
Net investment income (0.005) (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 $ 1.00
========================================================================
TOTAL RETURN+ 0.45%# 1.34% 2.42% 5.85% 5.48% 4.81%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 91,582 $124,310 $128,530 $81,572 $81,992 $94,079
Ratio of expenses to average net assets (1) 0.25%* 0.25% 0.25% 0.23% 0.28% 0.39%
Ratio of net investment income to average net assets 0.87%* 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%* 0.34% 0.32% 0.40% 0.45% 0.56%
</Table>
CLASS C
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@ 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 $ 1.00
----------------------------------------------------------------------
Income from investment operations:
Net investment income 0.003 0.011 0.021 0.055 0.050 0.043
----------------------------------------------------------------------
Distributions:
Net investment income (0.003) (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 $ 1.00
======================================================================
TOTAL RETURN+ 0.32%# 1.08% 2.17% 5.59% 5.15% 4.42%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 9,345 $ 7,598 $ 8,297 $ 2,500 $ 3,435 $ 1,674
Ratio of expenses to average net assets (1) 0.50%* 0.50% 0.50% 0.48% 0.59% 0.73%
Ratio of net investment income to average net assets 0.62%* 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%* 0.79% 0.77% 0.85% 0.97%^ 1.10%^
</Table>
* Annualized
+ 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 12b-1 waiver.
@ Unaudited
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
30
<Page>
MUNICIPAL MONEY MARKET PORTFOLIO
CLASS I
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@ 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 $ 1.00
------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.004 0.011 0.017 0.036 0.035 0.029
------------------------------------------------------------------------
Distributions:
Net investment income (0.004) (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 $ 1.00
========================================================================
TOTAL RETURN+ 0.39%# 1.10% 1.69% 3.66% 3.56% 2.92%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 67,363 $ 67,516 $ 57,482 $ 47,665 $ 44,535 $ 56,438
Ratio of expenses to average net assets (1) 0.30%* 0.30% 0.25% 0.28% 0.27% 0.33%
Ratio of net investment income to average net assets 0.77%* 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%* 0.33% 0.31% 0.46% 0.45% 0.50%
</Table>
CLASS C
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@ 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 $ 1.00
------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.003 0.008 0.014 0.033 0.032 0.025
------------------------------------------------------------------------
Distributions:
Net investment income (0.003) (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 $ 1.00
========================================================================
TOTAL RETURN+ 0.26%# 0.85% 1.44% 3.37% 3.24% 2.56%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 29,046 $ 25,777 $ 24,181 $ 22,466 $ 5,527 $ 5,333
Ratio of expenses to average net assets (1) 0.55%* 0.55% 0.50% 0.55% 0.58% 0.68%
Ratio of net investment income to average net assets 0.52%* 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%* 0.78% 0.76% 0.93% 0.96%^ 1.06%^
</Table>
* Annualized
+ 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 12b-1 waiver.
@ Unaudited
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
31
<Page>
CASH RESERVE PORTFOLIO
CLASS I
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@ 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 $ 1.00
------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.004 0.013 0.024 0.058 0.054 0.048
------------------------------------------------------------------------
Distributions:
Net investment income (0.004) (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 $ 1.00
========================================================================
TOTAL RETURN+ 0.43%# 1.33% 2.44% 5.92% 5.56% 4.94%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 43,253 $ 46,717 $ 47,402 $ 35,453 $ 32,028 $ 29,351
Ratio of expenses to average net assets (1) 0.30%* 0.30% 0.25% 0.27% 0.31% 0.39%
Ratio of net investment income to average net assets 0.85%* 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. 0.36%* 0.34% 0.31% 0.45% 0.48% 0.56%
</Table>
CLASS B
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@ 2003**
SELECTED PER - SHARE DATA
Net asset value, beginning of period $ 1.00 $ 1.00
------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.001 0.002
------------------------------------------------------------------------
Distributions:
Net investment income (0.001) (0.002)
------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00
========================================================================
TOTAL RETURN+ 0.10%# 0.21%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 14 $ 18
Ratio of expenses to average net assets (1) 0.95%* 1.14%*
Ratio of net investment income to average net assets 0.20%* 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. 1.37%* 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 of less than one year are not annualized.
@ Unaudited
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
32
<Page>
CLASS C
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2003@ 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 $ 1.00
-------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.003 0.011 0.022 0.055 0.053 0.046
-------------------------------------------------------------------------
Distributions:
Net investment income (0.003) (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 $ 1.00
=========================================================================
TOTAL RETURN+ 0.30%# 1.08% 2.19% 5.65% 5.38% 4.67%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 201,709 $ 209,062 $ 212,250 $ 231,201 $ 107,154 $ 62,961
Ratio of expenses to average net assets (1) 0.55%* 0.55% 0.50% 0.52% 0.55% 0.66%
Ratio of net investment income to average net assets 0.60%* 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. 0.81%* 0.79% 0.76% 0.90% 0.93%^ 1.03%^
</Table>
* Annualized
+ 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 12b-1 waiver.
@ Unaudited
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
33
<Page>
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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 December 31,
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.
34
<Page>
2. SHARES OF BENEFICIAL INTEREST
<Table>
<Caption>
CORE EQUITY PORTFOLIO CAPITAL APPRECIATION PORTFOLIO
------------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED JUNE 30, ENDED DECEMBER 31, ENDED JUNE 30,
2003 2003 (AUDITED) 2003 2003 (AUDITED)
------------------------------------------------------------------------------------
Dollars issued and redeemed:
Class I:
Issued $ 31,131,968 $ 34,207,345 $ 11,239,713 $ 7,802,772
Distributions reinvested 519,998 1,025,408 0 0
Redeemed (79,628,000) (109,427,157) (2,430,109) (3,789,733)
------------------------------------------------------------------------------------
Net increase/(decrease) $ (47,976,034) $ (74,194,404) $ 8,809,604 $ 4,013,039
====================================================================================
Class A:
Issued $ 4,297,368 $ 23,168,197 $ 1,000,657 $ 472,397
Distributions reinvested 65,916 117,788 0 0
Redeemed (6,993,974) (48,504,956) (740,715) (1,447,464)
------------------------------------------------------------------------------------
Net increase/(decrease) $ (2,630,690) $ (25,218,971) $ 259,942 $ (975,067)
====================================================================================
Class B:
Issued $ 518,904 $ 1,262,043 $ 328,538 $ 181,637
Distributions reinvested 0 0 0 0
Redeemed (1,124,298) (2,839,038) (21,312) (234,023)
------------------------------------------------------------------------------------
Net increase/(decrease) $ (605,394) $ (1,576,995) $ 307,226 $ (52,386)
====================================================================================
Class C:
Issued $ 1,098,523 $ 1,886,021 $ 153,253 $ 140,943
Distributions reinvested 0 0 0 0
Redeemed (5,552,190) (12,629,942) (77,000) (175,763)
------------------------------------------------------------------------------------
Net increase/(decrease) $ (4,453,667) $ (10,743,921) $ 76,253 $ (34,820)
====================================================================================
Shares issued and redeemed:
Class I:
Issued 1,825,671 2,337,674 1,101,337 1,043,941
Distributions reinvested 30,493 72,097 0 0
Redeemed (4,676,588) (7,560,640) (243,473) (502,413)
------------------------------------------------------------------------------------
Net increase/(decrease) (2,820,424) (5,150,869) 857,864 541,528
====================================================================================
Class A:
Issued 253,361 1,586,563 103,431 61,877
Distributions reinvested 3,881 8,293 0 0
Redeemed (411,006) (3,369,544) (78,157) (210,298)
------------------------------------------------------------------------------------
Net increase/(decrease) (153,764) (1,774,688) 25,274 (148,421)
====================================================================================
Class B:
Issued 31,643 87,722 33,418 22,902
Distributions reinvested 0 0 0 0
Redeemed (68,297) (205,561) (2,169) (31,225)
------------------------------------------------------------------------------------
Net increase/(decrease) (36,654) (117,839) 31,249 (8,323)
====================================================================================
Class C:
Issued 67,229 131,005 16,468 21,015
Distributions reinvested 0 0 0 0
Redeemed (342,319) (920,792) (8,357) (25,861)
------------------------------------------------------------------------------------
Net increase/(decrease) (275,090) (789,787) 8,111 (4,846)
====================================================================================
</Table>
35
<Page>
<Table>
<Caption>
INTERMEDIATE BOND PORTFOLIO TENNESSEE TAX-FREE PORTFOLIO
------------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED JUNE 30, ENDED DECEMBER 31, ENDED JUNE 30,
2003 2003 (AUDITED) 2003 2003 (AUDITED)
------------------------------------------------------------------------------------
Dollars issued and redeemed:
Class I:
Issued $ 27,197,439 $ 275,535,719 $ 9,969,271 $ 16,154,032
Distributions reinvested 7,054,876 2,893,703 215,798 372,520
Redeemed (68,167,295) (41,295,158) (14,623,423) (21,549,890)
------------------------------------------------------------------------------------
Net increase/(decrease) $ (33,914,980) $ 237,134,264 $ (4,438,354) $ (5,023,338)
====================================================================================
Class A:
Issued $ 3,977,909 $ 18,228,314 $ 708,621 $ 3,596,629
Distributions reinvested 1,445,958 2,260,031 159,127 299,804
Redeemed (5,513,716) (19,960,929) (2,490,933) (1,721,902)
------------------------------------------------------------------------------------
Net increase/(decrease) $ (89,849) $ 527,416 $ (1,623,185) $ 2,174,531
====================================================================================
Class B:
Issued $ 23,106 713,214 $ 578,306 $ 3,666,891
Distributions reinvested 11,296 8,130 61,132 64,500
Redeemed (2,019) (51,690) (344,458) (202,212)
------------------------------------------------------------------------------------
Net increase $ 32,383 669,654 $ 294,980 $ 3,529,179
====================================================================================
Class C:
Issued $ 31,192 $ 2,130,445 $ 83,250 $ 1,805,007
Distributions reinvested 59,259 56,443 119,383 242,991
Redeemed (708,558) (566,144) (1,517,747) (1,602,709)
------------------------------------------------------------------------------------
Net increase/(decrease) $ (618,107) $ 1,620,744 $ (1,315,114) $ 445,289
====================================================================================
Shares issued and redeemed:
Class I:
Issued 2,569,192 26,482,764 949,273 1,520,946
Distributions reinvested 671,693 271,229 20,519 35,092
Redeemed (6,437,423) (3,870,263) (1,389,206) (2,027,020)
------------------------------------------------------------------------------------
Net increase/(decrease) (3,196,538) 22,883,730 (419,414) (470,982)
====================================================================================
Class A:
Issued 377,250 1,729,079 67,450 336,302
Distributions reinvested 137,614 211,748 15,105 28,184
Redeemed (521,518) (1,882,778) (237,084) (161,721)
------------------------------------------------------------------------------------
Net increase/(decrease) (6,654) 58,049 (154,529) 202,765
====================================================================================
Class B:
Issued 2,191 66,772 54,565 344,246
Distributions reinvested 1,075 758 5,811 6,070
Redeemed (190) (4,835) (32,698) (18,917)
------------------------------------------------------------------------------------
Net increase 3,076 62,695 27,678 331,399
====================================================================================
Class C:
Issued 2,954 204,103 7,811 169,673
Distributions reinvested 5,639 5,290 11,345 22,873
Redeemed (67,266) (53,402) (144,646) (150,911)
------------------------------------------------------------------------------------
Net increase/(decrease) (58,673) 155,991 (125,490) 41,635
====================================================================================
</Table>
36
<Page>
<Table>
<Caption>
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
----------------------------------------
FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED JUNE30,
2003 2003 (AUDITED)
----------------------------------------
Shares/Dollars issued and
redeemed:
Class I:
Issued $ 56,372,521 $ 108,063,608
Distributions reinvested 0 3
Redeemed (89,087,710) (112,283,640)
----------------------------------------
Net decrease $ (32,715,189) $ (4,220,029)
========================================
Class C:
Issued $ 9,168,042 $ 23,129,310
Distributions reinvested 29,059 82,126
Redeemed (7,449,607) (23,910,119)
----------------------------------------
Net increase/(decrease) $ 1,747,494 $ (698,683)
========================================
</Table>
<Table>
<Caption>
MUNICIPAL MONEY MARKET PORTFOLIO CASH RESERVE PORTFOLIO
-----------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED JUNE 30, ENDED DECEMBER 31, ENDED JUNE 30,
2003 2003 (AUDITED) 2003 2003 (AUDITED)
-----------------------------------------------------------------------------
Shares/Dollars issued and
redeemed:
Class I:
Issued $ 52,873,583 $ 77,678,265 $ 37,180,975 $ 146,955,464
Distributions reinvested 0 1 9,004 32,425
Redeemed (53,026,705) (67,642,285) (40,653,803) (147,673,655)
-------------------------------------------------------------------------------
Net increase/(decrease) $ (153,122) $ 10,035,981 $ (3,463,824) $ (685,766)
===============================================================================
Class B:
Issued $ - $ - $ 160,654,164 $ 161,608
Distributions reinvested - - 632,815 71
Redeemed - - (168,640,162) (143,208)
-------------------------------------------------------------------------------
Net increase/(decrease) $ - $ - $ (7,353,183) $ 18,471
===============================================================================
Class C:
Issued $ 35,384,178 $ 65,556,027 $ 0 $ 364,818,305
Distributions reinvested 72,140 209,724 15 2,301,275
Redeemed (32,187,193) (64,169,455) (4,547) (370,308,561)
-------------------------------------------------------------------------------
Net increase/(decrease) $ 3,269,125 $ 1,596,296 $ (4,532) $ (3,188,981)
===============================================================================
</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 May17, 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.
37
<Page>
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.
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 the first $500 million of average net
assets and .025% on average net assets in excess of $500 million and from the
Core Equity, Capital Appreciation, Intermediate Bond and Tennessee Tax-Free
Portfolios, at the annual rate of .115% 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 .085% 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-1FEE 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>
38
<Page>
5. WAIVER OF EXPENSES
INTERMEDIATE BOND AND TENNESSEE TAX-FREE PORTFOLIOS:
For the six months ended December 31, 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 six months ended December 31, 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 six months ended December 31, 2003,
fees waived for the Portfolios were as follows:
<Table>
<Caption>
INTERMEDIATE BOND TENNESSEE TAX-FREE
Management fees waived $ 418,533 $ 182,848
12b-1 fees waived 3,846 8,256
Shareholder servicing fees waived - 8,256
</Table>
MONEY MARKET PORTFOLIOS:
For the six months ended, December 31, 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 six months ended, December 31, 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. The 12b-1 fee charged by
Class B of the Cash Reserve Portfolio was limited to .75% of average net assets
from July 1 to July 7, 2003, .65% of average net assets from July 8 to
November 5, 2003, and .60% of net assets effective November 16, 2003.
Pursuant to these voluntary waivers, for the six months ended, December 31,
2003, fees were waived for the Money Market Portfolios as follows:
<Table>
<Caption>
MANAGEMENT FEE CO-ADMINISTRATION FEE CLASS B 12b-1FEE CLASS C 12b-1 FEE
U.S. Government Money Market $ 30,834 $ 21,930 $ - $ 9,333
Municipal Money Market $ 14,141 $ 1,567 $ - $ 28,243
Cash Reserve $ 63,524 $ 15,408 $ 28 $ 211,761
</Table>
6. PROXY VOTING
Fund policies and procedures used in determining how to vote proxies relating to
portfolio securities is available without a charge, upon request, by contacting
First Funds at 800.442.1941 or www.firstfunds.com and on the Commission's
website at http://www.sec.gov.
7. OTHER
As of December 31, 2003, one shareholder (a related party) owned 20% of the Core
Equity Portfolio, 57% of the Capital Appreciation Portfolio and 29% of the
Intermediate Bond Portfolio. Additionally, as of December 31, 2003, one
shareholder owned 17% of the Municipal Money Market Portfolio, and 63% of the
Cash Reserve Portfolio.
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.
A SPECIAL MEETING OF FIRST FUNDS SHAREHOLDERS WAS HELD ON AUGUST 1, 2003, FOR
THE PURPOSES OF:
1. To vote on an amendment to the Distribution Plans for Class B of the Core
Equity and Capital Appreciation Portfolios, and for Class C of the Core
Equity and Cash Reserve Portfolios that allows for a defensive Rule 12b-1
plan; and
2. To vote on a Distribution Plan for Class A of the Core Equity, Capital
Appreciation, Bond, Intermediate Bond, and Tennessee Tax-Free Portfolios
that allows for a defensive Rule 12b-1 plan.
39
<Page>
Proposals passed by the required majority of shareholders are described in the
table below. Proposals that were not passed by the required majority of
shareholders were adjourned as noted in the table.
<Table>
<Caption>
SHARES VOTED SHARES VOTED SHARES ABSTAINED
PROPOSAL FOR PROPOSAL AGAINST PROPOSAL FROM VOTING
1. 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 --------------------------------
b. Core Equity Portfolio - Class B --------------------------- Adjourned --------------------------------
c. Cash Reserve Portfolio - Class C 93,514,497.205 4,994,669.440 4,981,229.990
d. Core Equity Portfolio - Class C ------------------- Adjourned to August 15,2003 ----------------------
2. TO APPROVE DISTRIBUTION PLANS FOR CLASS I AND
CLASS A OF EACH PORTFOLIO:
a. Capital Appreciation Portfolio - Class A 161,974.664 8,473.823 433.814
b. Core Equity Portfolio - Class A --------------------------- Adjourned --------------------------------
c. Bond Portfolio - Class A --------------------------- Adjourned --------------------------------
d. Intermediate Bond Portfolio - Class A --------------------------- Adjourned --------------------------------
</Table>
A SPECIAL METTING OF FIRST FUNDS CORE EQUITY CLASS C SHAREHOLDERS WAS HELD ON
AUGUST 15, 2003, FOR THE PURPOSE OF:
1. To vote on an amendment to the Distribution Plan for Class C of the Core
Equity Portolio that allows for a defensive Rule 12b-1 plan.
Proposals passed by the required majority of shareholders are described in the
table below.
<Table>
<Caption>
SHARES VOTED SHARES VOTED SHARES ABSTAINED
PROPOSAL FOR PROPOSAL AGAINST PROPOSAL FROM VOTING
- -------------------------------------------------------------------------------------------------------
1. TO APPROVE AN AMENDMENT TO THE DISTRIBUTION
PLANS FOR EACH CLASS OF A PORTFOLIO WHICH HAS A
DISTRIBUTION PLAN:
a. Core Equity Portfolio - Class C 1,554,641.644 127,520.923 71,402.902
</Table>
40
<Page>
8. TRUSTEES
INDEPENDENT TRUSTEES
<Table>
<Caption>
TERM OF OFFICE, LENGTH
OF TIME SERVED AND
POSITION(S) HELD NUMBER OF PORTFOLIOS PRINCIPAL OCCUPATION DURING THE PAST 5 YEARS**
NAME, ADDRESS & AGE WITH TRUST OVERSEEN AND OTHER DIRECTORSHIPS HELD BY
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 consulting),
1625 Broadway, Suite 2200 oversees 7 portfolios. and President of Capital Advisers, Inc. (real
Denver, Colorado 8020 estate consulting and asset management).
LARRY W. PAPASAN (62) Trustee Larry W.Papasan has been a Mr. Papasan is Director of Smith & Nephew,
Trustee since 1992 and Inc. (orthopedic division). Mr. Papasan is a
1625 Broadway, Suite 2200 oversees 7 portfolios. former Director of First American National
Denver, Colorado 80202 Bank of Memphis and The West Tennessee Board of
First American National Bank (1988 - 1991) and was
President of Memphis Light Gas and Water Division
of the City of Memphis (1984 - 1991). Mr. Papasan
is also a member of the Board of the Plough
Foundation, a non-profit trust.
RICHARD C. RANTZOW (64) Chairman & Trustee Richard C. Rantzow has been Mr. Rantzow was Vice President/Director, Ron Miller
Chairman and Trustee since Associates, Inc. (manufacturer). Mr. Rantzow
1625 Broadway, Suite 2200 1992 and oversees 7 was Managing Partner (until 1990) of the Memphis
Denver, Colorado 80202 portfolios. office of Ernst & Young.
INTERESTED TRUSTEES Trustee George P. Lewis has been a Mr. Lewis is currently a director of Methodist
Trustee since 1999 and Home Care and Methodist Extended Care
*GEORGE P. LEWIS (64) oversees 7 portfolios. Hospital, a non-profit health care company.
From 1976 until October 1999, Mr. Lewis was
1625 Broadway, Suite 2200 Executive Vice President and Manager of Money
Denver, Colorado 80202 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 G.BURKETT (52) Trustee Charles Burkett has been a Mr. Burkett is currently the President,
Trustee since June 2003 and Memphis Financial Services, of First Tennessee
1625 Broadway,Suite 2200 oversees 7 portfolios. Bank. Mr. Burkett served as an Executive Vice
Denver,Colorado 80202 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.
41
<Page>
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<Page>
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<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
GEORGE P. LEWIS, President
JEREMY O. MAY, Treasurer
TRACI A. THELEN, Secretary
TRUSTEES
CHARLES G. BURKETT
JOHN A. DECELL
GEORGE P. LEWIS
LARRY W. PAPASAN
RICHARD C. RANTZOW
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.
N/A
Item 6. [RESERVED]
Item 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
N/A
Item 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
N/A
Item 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
N/A
Item 10. CONTROLS AND PROCEDURES
(a) The Registrant's principal executive officer and principal financial
officer have concluded that the Registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act
of 1940, as amended) are effective based on their evaluation of these
controls and procedures as of a date within 90 days of the filing date of
this document.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act
of 1940, as amended) that occurred during the registrant's last
fiscal half-year (the Registrant's second fiscal half-year in the case
of an annual report) that have materially affected, or are reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
<Page>
Item 11. EXHIBITS
(a)(1) Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
(a)(2) 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: March 5, 2004
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: March 5, 2004
By: /s/Jeremy O. May
----------------
Jeremy O. May
Treasurer
Date: March 5, 2004