<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)
Erin E. Douglas
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: June 30, 2004
-------------
<Page>
ITEM 1 - REPORTS TO STOCKHOLDERS
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>
[FIRST FUNDS(SM) LOGO]
ANNUAL REPORT - JUNE 30, 2004
[GRAPHIC]
<Page>
FIRSTFUNDS
1625 BROADWAY 800.442.1941
SUITE 2200 www.FirstFunds.com
DENVER, CO 80202
[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
CORPORATION - 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
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
DELOITTE & TOUCHE LLP -
Denver, Colorado
OFFICERS
GEORGE P. LEWIS, President
JEREMY O. MAY, Treasurer
TRUSTEES
CHARLES G. BURKETT
JOHN A. DECELL
KEN W. EDMUNDSON
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.
[FIRST TENNESSEE LOGO]
<Page>
LETTER FROM THE CHAIRMAN
DEAR SHAREHOLDERS:
In contrast to prior years, many economic indicators during the past 12 months
pointed in a positive direction. Strong corporate profits, higher consumer
confidence and sustained consumer spending provided good news throughout the
period. Yet, year-end declines in gross domestic product growth, job creation
and manufacturing orders suggested a slowdown may be on the horizon.
On the upside, U.S. corporations delivered year-over-year profit expansion above
20% for three consecutive quarters. From July through September 2003, corporate
profits increased $101.4 billion, then rose $81.4 billion during the following
quarter. In the first three months of 2004, profits grew $20.9 billion.
This past June, consumer confidence hit a two-year high, easing fears that
household spending might decline as the effects of tax cuts fade and interest
rates begin to rise. The Conference Board, a New York business research
organization, said its consumer-confidence index, based on a survey of 5,000
households, jumped to 102.8 in June. The index stood at 76.6 in July 2003.
Additionally, the Commerce Department reported that personal spending was up
1.0% in May, posting one of the biggest advances since a 2.9% rise in October
2001. Although inflation accounted for more than half the gain, the overall
picture was one of consumers making a solid contribution to U.S. growth.
On the opposite side of the spectrum, other data implied a less robust economic
expansion. During the period, GDP went from 8.2% for the July to September 2003
quarter, then dropped to 4.1% for the next three months. The first three months
of 2004 delivered GDP growth of 3.9%, a lower pace than many expected.
Another point of contention is the labor market and the dip in the creation of
new jobs. In June 2004, U.S. employers added 112,000 workers to payrolls,
compared to the three previous months that added an average of more than 315,000
jobs. For some, this decline raised new misgivings about the strength and
endurance of the recovering employment market.
Likewise, a drop in manufacturing orders also hinted at a softening of economic
activity. The Commerce Department said new orders at U.S. factories decreased
0.3% in May, the second consecutive decline. Orders in April fell 1.1% after a
March increase of 5%.
In the equity and fixed-income markets, the first six months brought positive
returns for both asset classes. However, two concerns emerged for investors in
the new calendar year: interest rates and inflation. In June 2004, the Federal
Reserve lifted interest rates for the first time in four years by a quarter
point to 1.25%, kicking off what could likely be a long tightening cycle. At
fiscal year-end, a rise in commodity prices occurred as well.
Inflation and interest rates typically move in the same direction, and increases
for both present challenges for bonds and bond mutual funds. During the 12-month
period, the fixed-income market reflected these changing conditions. After
taxable bond funds posted annual returns of 8.50% in 2003, the majority of bond
funds failed to deliver positive returns for the three months ended June 30,
2004.
Meanwhile, escalating inflation and interest rates also pose potential problems
for the equity market.
i
<Page>
During times of significant acceleration, inflation and interest rates can hurt
the economy, corporate earnings and, in turn, stock prices. Both factors erode
the value of future earnings and dividends, the foundations on which analysts
base stock valuations and prices.
At the end of calendar year 2003, Lipper reported that U.S. diversified equity
funds climbed 34.72%, the group's best performance since 1991. But as concerns
about interest rates and inflation loomed, domestic equity funds posted
significantly reduced gains for the three months ended June 30, 2004.
Ever-present geopolitical risks, which culminated in record-high oil prices,
also were deterrents to sustained growth.
In light of these economic developments and market adjustments, First Funds
remains committed to the same investment philosophy of DISCIPLINE, CONSISTENCY
AND PATIENCE(R) when selecting securities for our Portfolios. Through this
approach, our mission is to offer a core family of funds that operates with the
best interests of fund shareholders in mind.
In keeping with this mission, the First Funds Board of Trustees approved Deborah
McDonald as chief compliance officer in May 2004. As mentioned in the
semi-annual report, new Securities and Exchange Commission rules require fund
families to hire a compliance officer by October 2004. The officer's role is to
advise on policies and procedures and monitor fund activities to ensure that
investors receive the best performance possible.
Ms. McDonald is a senior vice-president at First Tennessee Bank with a
background in retirement services. She has experience in a variety of financial
services areas, and brings a wealth of knowledge about investment product
selection and compliance issues. We are confident that she will do an
outstanding job.
For the previous 12 months, we thank you for the opportunity to be your
investment partner. As we enter into a new fiscal year, we look forward to
continuing to provide products and services that may help you achieve your
financial goals.
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>
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 a M.B.A 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 B.A. 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
The stock market produced strong gains for the past 12 months, led by improved
corporate earnings. The previous three quarters generated earnings gains for the
S&P 500 Index of more than 20%. The index delivered positive returns for all
four quarters.
Throughout the fiscal year, the Portfolio remained over-weighted in the
financial and consumer discretionary sectors. Financial stocks tend to
under-perform during periods of rising interest rates. However, the Federal
Reserve increase of the federal funds rate by .25% to 1.25% in June was widely
anticipated for more than a year. As a result, we believe that most financial
companies adjusted their business models to mitigate the impact of higher rates.
In recent months, we also increased the Portfolio's weighting in information
technology due to a belief that strong corporate earnings may translate into
higher technology spending as companies invest to grow and improve productivity.
During the 12-month period, some of the top-performing stocks in the Portfolio
included Capital One, which posted gains as its earnings estimates increased
while credit quality remained strong. Harley Davidson also provided positive
returns due to retail sales of motorcycles that exceeded expectations.
Information technology and telecommunications holdings were some of the weakest
performers. Nokia fell 28% in the final quarter of the period as the company
lost market share to rivals due to insufficient product offerings of mid-range
camera phones. Texas Instruments also declined during the same period due to
worries about slowing handset sales in 2004.
While company earnings remained strong, rising interest rates and more
widespread commodity inflation could affect the market going forward. There also
continue to be concerns about the war in Iraq and the possibility of a terrorist
attack against the United States. Though these issues are unpredictable, they
could keep a short-term cloud over stock market performance.
iii
<Page>
INDUSTRY BREAKDOWN AND PERFORMANCE
AS OF JUNE 30, 2004
<Table>
Financials 29.3%
Insurance 14.0%
Diversified Financials 11.1%
Banks 4.2%
Information Technology 17.1%
Consumer Discretionary 14.4%
Healthcare 13.0%
Consumer Staples 10.5%
Telecommunications 4.2%
Industrials 4.1%
Energy 3.9%
Money Market Mutual Funds 3.5%
</Table>
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS.
<Table>
<Caption>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN* TOTAL RETURN*
SINCE SINCE
INCEPTION 1 YEAR 5 YEAR 10 YEAR INCEPTION
------------------------------------------------------------------
Class I 256.09% 16.28% 0.14% 12.72% 12.34%
Class A 228.21% 9.34% (1.28)% 11.81% 11.50%
Class B 217.17% 10.17% (1.30)% 11.51% 11.15%
Class C 217.67% 14.18% (0.87)% 11.53% 11.17%
S&P 500 210.01% 19.09% (2.20)% 11.82% 10.92%
</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>
S&P 500 CORE CLASS I
INV. VALUE INV. VALUE
Inception
Dec 93 $ 750,000 $ 750,000
Jan 94 $ 775,500 $ 783,225
Feb 94 $ 754,484 $ 769,049
Mar 94 $ 721,588 $ 743,439
Apr 94 $ 730,825 $ 755,557
May 94 $ 742,810 $ 767,646
Jun 94 $ 724,611 $ 751,295
Jul 94 $ 748,379 $ 774,135
Aug 94 $ 779,062 $ 813,461
Sep 94 $ 759,975 $ 797,029
Oct 94 $ 777,075 $ 808,984
Nov 94 $ 748,789 $ 779,052
Dec 94 $ 759,871 $ 789,569
Jan 95 $ 779,552 $ 813,730
Feb 95 $ 809,954 $ 836,433
Mar 95 $ 833,848 $ 859,937
Apr 95 $ 858,447 $ 881,951
May 95 $ 892,784 $ 908,586
Jun 95 $ 913,497 $ 933,027
Jul 95 $ 943,825 $ 966,616
Aug 95 $ 946,185 $ 966,616
Sep 95 $ 986,114 $ 981,212
Oct 95 $ 982,564 $ 964,335
Nov 95 $ 1,025,698 $ 1,007,344
Dec 95 $ 1,045,494 $ 1,022,555
Jan 96 $ 1,081,041 $ 1,063,969
Feb 96 $ 1,091,095 $ 1,080,248
Mar 96 $ 1,101,569 $ 1,110,386
Apr 96 $ 1,117,762 $ 1,121,823
May 96 $ 1,146,601 $ 1,154,356
Jun 96 $ 1,150,958 $ 1,152,740
Jul 96 $ 1,100,085 $ 1,107,899
Aug 96 $ 1,123,297 $ 1,134,821
Sep 96 $ 1,186,539 $ 1,187,249
Oct 96 $ 1,219,287 $ 1,219,186
Nov 96 $ 1,311,465 $ 1,306,114
Dec 96 $ 1,285,498 $ 1,287,698
Jan 97 $ 1,365,842 $ 1,368,437
Feb 97 $ 1,376,495 $ 1,356,258
Mar 97 $ 1,319,922 $ 1,328,454
Apr 97 $ 1,398,721 $ 1,368,441
May 97 $ 1,483,903 $ 1,451,095
Jun 97 $ 1,550,382 $ 1,485,050
Jul 97 $ 1,673,792 $ 1,612,319
Aug 97 $ 1,580,060 $ 1,557,339
Sep 97 $ 1,666,647 $ 1,665,730
Oct 97 $ 1,610,981 $ 1,625,419
Nov 97 $ 1,685,570 $ 1,711,241
Dec 97 $ 1,714,561 $ 1,753,167
Jan 98 $ 1,733,593 $ 1,767,718
Feb 98 $ 1,858,585 $ 1,872,367
Mar 98 $ 1,953,745 $ 1,974,411
Apr 98 $ 1,973,477 $ 1,971,647
May 98 $ 1,939,534 $ 1,915,060
Jun 98 $ 2,018,279 $ 1,968,108
Jul 98 $ 1,996,683 $ 1,929,730
Aug 98 $ 1,707,963 $ 1,663,813
Sep 98 $ 1,817,443 $ 1,784,439
Oct 98 $ 1,965,201 $ 1,926,124
Nov 98 $ 2,084,292 $ 2,032,253
Dec 98 $ 2,204,348 $ 2,152,156
Jan 99 $ 2,297,151 $ 2,223,608
Feb 99 $ 2,225,480 $ 2,224,497
Mar 99 $ 2,314,499 $ 2,299,685
Apr 99 $ 2,404,070 $ 2,365,686
May 99 $ 2,347,334 $ 2,352,438
Jun 99 $ 2,477,611 $ 2,473,824
Jul 99 $ 2,400,309 $ 2,436,964
Aug 99 $ 2,388,308 $ 2,385,057
Sep 99 $ 2,322,868 $ 2,380,525
Oct 99 $ 2,469,906 $ 2,583,584
Nov 99 $ 2,520,045 $ 2,578,933
Dec 99 $ 2,668,475 $ 2,633,091
Jan 00 $ 2,534,518 $ 2,563,438
Feb 00 $ 2,486,616 $ 2,480,066
Mar 00 $ 2,729,807 $ 2,710,131
Apr 00 $ 2,647,639 $ 2,644,674
May 00 $ 2,593,363 $ 2,699,574
Jun 00 $ 2,657,419 $ 2,675,294
Jul 00 $ 2,615,963 $ 2,662,620
Aug 00 $ 2,778,414 $ 2,809,428
Sep 00 $ 2,631,714 $ 2,809,421
Oct 00 $ 2,620,661 $ 2,931,983
Nov 00 $ 2,414,153 $ 2,827,383
Dec 00 $ 2,425,982 $ 2,913,722
Jan 01 $ 2,512,105 $ 2,900,373
Feb 01 $ 2,283,001 $ 2,762,029
Mar 01 $ 2,138,487 $ 2,596,996
Apr 01 $ 2,304,647 $ 2,709,908
May 01 $ 2,320,088 $ 2,739,047
Jun 01 $ 2,263,710 $ 2,656,474
Jul 01 $ 2,241,526 $ 2,632,181
Aug 01 $ 2,101,206 $ 2,494,924
Sep 01 $ 1,931,639 $ 2,349,235
Oct 01 $ 1,968,533 $ 2,382,083
Nov 01 $ 2,119,520 $ 2,541,456
Dec 01 $ 2,138,172 $ 2,554,996
Jan 02 $ 2,106,954 $ 2,459,877
Feb 02 $ 2,066,290 $ 2,374,006
Mar 02 $ 2,143,982 $ 2,463,846
Apr 02 $ 2,014,057 $ 2,305,229
May 02 $ 1,999,153 $ 2,274,827
Jun 02 $ 1,856,813 $ 2,084,503
Jul 02 $ 1,712,168 $ 1,908,478
Aug 02 $ 1,723,297 $ 1,949,506
Sep 02 $ 1,536,147 $ 1,713,890
Oct 02 $ 1,671,174 $ 1,859,697
Nov 02 $ 1,769,439 $ 1,985,620
Dec 02 $ 1,665,573 $ 1,870,548
Jan 03 $ 1,622,102 $ 1,850,649
Feb 03 $ 1,597,770 $ 1,840,036
Mar 03 $ 1,613,268 $ 1,851,955
Apr 03 $ 1,746,040 $ 2,047,107
May 03 $ 1,837,882 $ 2,150,657
Jun 03 $ 1,861,407 $ 2,142,022
Jul 03 $ 1,894,168 $ 2,176,570
Aug 03 $ 1,931,104 $ 2,181,886
Sep 03 $ 1,910,634 $ 2,199,136
Oct 03 $ 2,018,585 $ 2,344,149
Nov 03 $ 2,036,349 $ 2,360,113
Dec 03 $ 2,143,053 $ 2,442,863
Jan 04 $ 2,182,486 $ 2,532,057
Feb 04 $ 2,212,822 $ 2,546,701
Mar 04 $ 2,179,408 $ 2,517,414
Apr 04 $ 2,145,192 $ 2,470,842
May 04 $ 2,174,581 $ 2,488,138
Jun 04 $ 2,216,768 $ 2,490,874
</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.
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. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST
PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE
LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. CALL FIRST FUNDS AT 800.442.1941 TO
OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH END.
*TOTAL RETURNS ARE FOR THE PERIOD ENDED 06/30/2004 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
15.18% 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
<Page>
FIRST FUNDS CAPITAL APPRECIATION PORTFOLIO
CAPITAL APPRECIATION PORTFOLIO MANAGERS
PORTFOLIO MANAGEMENT TEAM
[PHOTO]
A team of portfolio managers is responsible for the day-to-day operations of the
Portfolio. The team is lead by GERALD S. FREY, managing director/chief
investment officer, growth equities of Delaware Investments, who has 24 years of
professional experience.
OTHER TEAM MEMBERS
MARSHALL T. BASSETT, Senior Vice President/Portfolio Manager, Consumer & Retail
Sector Specialty
JOHN A. HEFFERN, Senior Vice President/Portfolio Manager, Business & Financial
Services Sector Specialty
MATTHEW TODOROW, 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
LORI P. WACHS, Vice President/Portfolio Manager, Consumer & Retail Sector
Specialty
FISCAL YEAR REVIEW
MARKET REVIEW AND PORTFOLIO UPDATE
Improved sentiment regarding an overall economic rebound drove stocks higher
during the past year. Size was a factor in overall returns, as the
small-capitalization Russell 2000 Growth Index outperformed indices of
larger-capitalization companies. During the early part of the period, stocks
typically characterized as lower in quality performed the best. Toward the end
of the period, the equity market cooled as inflation fears prompted concerns
about a possible end to the Federal Reserve's accommodative interest rate
policy.
Within the Portfolio, the best performing stocks were not concentrated in any
one sector, as companies that delivered positive results were generally
rewarded. Urban Outfitters, Inc. was the fund's biggest contributor to
performance as it rose more than 220% thanks to strong sales and earnings
growth. Several healthcare-related stocks also posted significant gains during
the year due to positive results regarding drugs in development. Nektar
Therapeutics and Neurochem were each up more than 90% for the 12-month period.
Few stocks in the fund experienced significant declines during the past year. CV
Therapeutics was the fund's worst performing stock as it declined due to
negative results regarding its developmental drug for angina. We exited from CV
Therapeutics as a result of this news but have subsequently reentered into the
stock because of favorable FDA approval for this drug. Asyst Technology was also
down considerably during the year as its reported earnings and sales did not
live up to expectations. We exited from Asyst as a result of this adverse
development.
Looking forward, we are concerned that inflationary pressures may dampen
the ensuing economic rebound. However, we believe opportunities remain for
individual companies to post strong returns. It also is our feeling that gains
may be spread across the leaders in various sectors of the market, rather than
concentrated in any one sector. As always, we remain committed to finding and
holding those companies that we believe may have solid competitive advantages to
thrive in the current environment.
v
<Page>
INDUSTRY BREAKDOWN AND PERFORMANCE
AS OF JUNE 30, 2004
<Table>
Healthcare 23.6%
Financials 17.0%
Technology 16.4%
Consumer Non-Durables 13.7%
Consumer Services 9.7%
Business Services 8.8%
U.S. Government & Agency Obligations 3.0%
Consumer Durables 2.4%
Transportation 2.0%
Materials 2.0%
Capital Goods 1.4%
Money Market Mutual Funds 0.0%**
</Table>
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS.
** LESS THAN 0.05% OF TOTAL VALUE OF INVESTMENTS.
<Table>
<Caption>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN* TOTAL RETURN*
SINCE SINCE
INCEPTION 1 YEAR 5 YEAR INCEPTION
------------------------------------------------------------------
Class I 49.74% 23.74% 7.29% 6.09%
Class A 31.38% 16.49% 5.67% 4.13%
Class B 33.46% 17.54% 6.01% 4.37%
Class C 32.19% 21.58% 6.13% 4.22%
Russell 2000
Growth Index 9.40% 30.96% (0.69)% 1.32%
</Table>
[CHART]
COMPARISON OF SINCE INCEPTION 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>
RUSSELL CAP AP CLASS I
INV. VALUES INV. VALUE
Sep 97 $ 809,850 $ 788,250
Oct 97 $ 761,259 $ 728,974
Nov 97 $ 743,141 $ 720,007
Dec 97 $ 743,587 $ 742,543
Jan 98 $ 733,697 $ 745,514
Feb 98 $ 798,483 $ 816,785
Mar 98 $ 832,019 $ 861,790
Apr 98 $ 837,094 $ 863,255
May 98 $ 776,238 $ 808,524
Jun 98 $ 784,155 $ 805,533
Jul 98 $ 718,678 $ 750,032
Aug 98 $ 552,807 $ 597,025
Sep 98 $ 608,862 $ 611,294
Oct 98 $ 640,645 $ 657,813
Nov 98 $ 690,359 $ 694,585
Dec 98 $ 752,836 $ 754,389
Jan 99 $ 786,714 $ 728,212
Feb 99 $ 714,729 $ 670,537
Mar 99 $ 740,174 $ 691,324
Apr 99 $ 805,531 $ 722,088
May 99 $ 806,820 $ 750,538
Jun 99 $ 849,339 $ 789,791
Jul 99 $ 823,095 $ 772,100
Aug 99 $ 792,311 $ 748,242
Sep 99 $ 807,603 $ 745,923
Oct 99 $ 828,277 $ 762,855
Nov 99 $ 915,826 $ 831,283
Dec 99 $ 1,077,286 $ 964,288
Jan 00 $ 1,067,267 $ 947,371
Feb 00 $ 1,315,621 $ 1,184,214
Mar 00 $ 1,177,349 $ 1,224,200
Apr 00 $ 1,058,437 $ 1,116,544
May 00 $ 965,718 $ 1,008,889
Jun 00 $ 1,090,488 $ 1,112,700
Jul 00 $ 997,033 $ 1,114,238
Aug 00 $ 1,101,921 $ 1,189,597
Sep 00 $ 1,047,156 $ 1,181,138
Oct 00 $ 962,127 $ 1,122,696
Nov 00 $ 787,405 $ 971,978
Dec 00 $ 835,594 $ 1,059,562
Jan 01 $ 903,193 $ 1,055,590
Feb 01 $ 779,365 $ 925,503
Mar 01 $ 708,521 $ 831,165
Apr 01 $ 795,244 $ 897,698
May 01 $ 813,694 $ 963,238
Jun 01 $ 836,884 $ 991,043
Jul 01 $ 765,498 $ 879,824
Aug 01 $ 717,654 $ 832,158
Sep 01 $ 601,825 $ 723,918
Oct 01 $ 659,720 $ 794,423
Nov 01 $ 714,807 $ 842,089
Dec 01 $ 759,340 $ 921,531
Jan 02 $ 732,307 $ 883,796
Feb 02 $ 684,927 $ 831,165
Mar 02 $ 744,447 $ 889,754
Apr 02 $ 728,367 $ 879,824
May 02 $ 685,757 $ 847,054
Jun 02 $ 627,605 $ 797,402
Jul 02 $ 530,640 $ 697,106
Aug 02 $ 530,056 $ 702,072
Sep 02 $ 491,309 $ 662,350
Oct 02 $ 515,875 $ 697,106
Nov 02 $ 566,688 $ 762,646
Dec 02 $ 527,247 $ 734,842
Jan 03 $ 512,642 $ 716,967
Feb 03 $ 498,647 $ 698,099
Mar 03 $ 505,678 $ 724,911
Apr 03 $ 553,262 $ 797,402
May 03 $ 615,228 $ 887,768
Jun 03 $ 626,548 $ 907,629
Jul 03 $ 673,727 $ 953,308
Aug 03 $ 709,637 $ 991,043
Sep 03 $ 691,328 $ 960,259
Oct 03 $ 750,851 $ 1,029,771
Nov 03 $ 775,029 $ 1,085,381
Dec 03 $ 778,051 $ 1,084,388
Jan 04 $ 818,743 $ 1,137,018
Feb 04 $ 817,188 $ 1,128,081
Mar 04 $ 820,620 $ 1,156,847
Apr 04 $ 779,261 $ 1,072,397
May 04 $ 794,456 $ 1,105,213
Jun 04 $ 820,514 $ 1,123,117
</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.
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. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST
PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE
LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. CALL FIRST FUNDS AT 800.442.1941 TO
OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH END.
*TOTAL RETURNS ARE FOR THE PERIOD ENDED 06/30/2004 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 22.58% 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>
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 which merged with First Tennessee Bank in 1991. Mr. Herbert
joined Martin & Company in 1998 when the firm became a subsidiary of First
Horizon 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 24-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 a M.B.A. 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 includes being a fixed income portfolio manager with Third National Bank
(now SunTrust) and a fixed income account representative with Morgan Keegan &
Company.
FISCAL YEAR REVIEW
MARKET REVIEW AND PORTFOLIO UPDATE
During the first nine months of the period, the performance of various indices
showed that issues with greater sensitivity to credit quality improvements
delivered better performance. As the economy continued on an expansionary path,
the Federal Reserve (the Fed) left the federal funds rate at 1% and then in
June, the Fed raised the rate by .25% as concerns about inflation heightened.
At the beginning of the 12-month period, we responded to a rapid rise in
interest rates by extending the targeted duration of the Portfolio to 90% of the
Lehman Brothers Intermediate Government/ Credit Index. During the last three
months of 2003, we reduced the Portfolio's duration to 85% of the index and
concentrated Portfolio assets in corporate and agency bonds, which performed
better than Treasury securities of comparable duration.
When rates declined in early 2004, we reduced the Portfolio's targeted duration
to 82% of the index. We then added to the Portfolio's position in short-term
corporate bonds and funded purchases with sales from short-term agency
securities or with accumulated cash. We invested the corporate sector of the
Portfolio primarily in issues rated A or higher.
During the final quarter, interest rates moved higher as the bond market
interpreted stronger economic data and collectively estimated how the Fed would
manage monetary policy. As a result, bonds posted their weakest quarterly
performance since the third quarter of 1980. When interest rates climbed higher
in April and May, we added duration to the Portfolio. As rates rallied at
quarter-end, we cut the targeted duration to approximately 3.2 years.
Going forward, we believe that inflation remains a concern. In response, we have
defensively positioned the Portfolio with a duration target that may help
preserve principal value in a rising rate environment.
vii
<Page>
INDUSTRY BREAKDOWN AND PERFORMANCE
AS OF JUNE 30, 2004
<Table>
U.S. Government & Agency Obligations 46.2%
Financials 29.4%
Banks 11.4%
Broker/Dealers 11.4%
Insurance 3.7%
Financial Services 2.4%
Leasing Company 0.5%
Industrials 23.2%
Utilities 0.8%
Money Market Mutual Funds 0.4%
Mortgage-Backed Obligations 0.0%**
</Table>
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS.
** LESS THAN 0.05% OF TOTAL VALUE OF INVESTMENTS.
<Table>
<Caption>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN* TOTAL RETURN*
SINCE SINCE
INCEPTION 1 YEAR 5 YEAR INCEPTION
-----------------------------------------------------------------
Class I 44.78% (0.43)% 6.46% 6.02%
Class A 37.47% (4.20)% 5.44% 5.17%
Class B 36.36% (5.16)% 5.34% 5.20%
Class C 36.32% (2.16)% 5.65% 5.19%
Lehman Bros.
Intermediate
Gov't/Credit Index 47.63% (0.06)% 6.74% 6.34%
</Table>
[CHART]
COMPARISON OF SINCE INCEPTION 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>
LEHMAN INT INT. BOND CLASS I
INV. VALUE INV. VALUE
Inception
Mar 98 $ 752,400 $ 752,100
Apr 98 $ 756,162 $ 755,785
May 98 $ 761,682 $ 761,832
Jun 98 $ 766,557 $ 766,250
Jul 98 $ 769,240 $ 768,472
Aug 98 $ 781,317 $ 779,923
Sep 98 $ 800,928 $ 795,131
Oct 98 $ 800,127 $ 794,893
Nov 98 $ 800,047 $ 795,528
Dec 98 $ 803,247 $ 798,870
Jan 99 $ 807,665 $ 802,784
Feb 99 $ 795,792 $ 794,435
Mar 99 $ 801,761 $ 799,202
Apr 99 $ 804,246 $ 800,640
May 99 $ 798,053 $ 794,876
Jun 99 $ 798,612 $ 793,842
Jul 99 $ 797,893 $ 792,890
Aug 99 $ 798,532 $ 793,603
Sep 99 $ 805,958 $ 801,698
Oct 99 $ 808,053 $ 803,141
Nov 99 $ 809,104 $ 804,507
Dec 99 $ 806,434 $ 801,047
Jan 00 $ 803,450 $ 798,241
Feb 00 $ 810,038 $ 803,616
Mar 00 $ 818,463 $ 811,796
Apr 00 $ 816,580 $ 811,438
May 00 $ 817,887 $ 812,061
Jun 00 $ 832,282 $ 825,426
Jul 00 $ 838,607 $ 831,178
Aug 00 $ 848,503 $ 842,155
Sep 00 $ 856,224 $ 850,465
Oct 00 $ 860,163 $ 855,416
Nov 00 $ 871,861 $ 868,197
Dec 00 $ 887,903 $ 886,416
Jan 01 $ 902,465 $ 898,475
Feb 01 $ 911,038 $ 906,746
Mar 01 $ 918,053 $ 913,454
Apr 01 $ 915,666 $ 911,215
May 01 $ 920,794 $ 915,320
Jun 01 $ 924,201 $ 918,509
Jul 01 $ 943,424 $ 936,282
Aug 01 $ 952,858 $ 944,954
Sep 01 $ 966,770 $ 963,716
Oct 01 $ 982,819 $ 977,960
Nov 01 $ 972,990 $ 968,118
Dec 01 $ 967,639 $ 963,607
Jan 02 $ 972,671 $ 968,635
Feb 02 $ 980,355 $ 974,521
Mar 02 $ 965,453 $ 958,654
Apr 02 $ 981,383 $ 974,097
May 02 $ 991,197 $ 987,639
Jun 02 $ 999,721 $ 997,445
Jul 02 $ 1,011,518 $ 1,013,902
Aug 02 $ 1,026,590 $ 1,024,568
Sep 02 $ 1,044,966 $ 1,039,146
Oct 02 $ 1,040,890 $ 1,038,152
Nov 02 $ 1,039,954 $ 1,037,102
Dec 02 $ 1,062,625 $ 1,055,867
Jan 03 $ 1,062,518 $ 1,053,813
Feb 03 $ 1,077,500 $ 1,068,619
Mar 03 $ 1,078,577 $ 1,067,402
Apr 03 $ 1,086,774 $ 1,074,178
May 03 $ 1,108,619 $ 1,091,967
Jun 03 $ 1,107,843 $ 1,090,659
Jul 03 $ 1,077,709 $ 1,062,663
Aug 03 $ 1,080,296 $ 1,064,006
Sep 03 $ 1,107,627 $ 1,089,709
Oct 03 $ 1,097,216 $ 1,079,710
Nov 03 $ 1,098,752 $ 1,079,948
Dec 03 $ 1,108,311 $ 1,089,484
Jan 04 $ 1,115,626 $ 1,094,877
Feb 04 $ 1,127,005 $ 1,104,389
Mar 04 $ 1,135,796 $ 1,111,788
Apr 04 $ 1,108,877 $ 1,088,885
May 04 $ 1,103,887 $ 1,083,768
Jun 04 $ 1,107,199 $ 1,086,044
</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.
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. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST
PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE
LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. CALL FIRST FUNDS AT 800.442.1941 TO
OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH END.
*TOTAL RETURNS ARE FOR THE PERIOD ENDED 06/30/2004 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 (1.17)% 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>
FIRST FUNDS TENNESSEE TAX-FREE PORTFOLIO
TENNESSEE 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 which merged with First Tennessee Bank in 1991. Mr. Herbert
joined Martin & Company in 1998 when the firm became a subsidiary of First
Horizon 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 24-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
During the first quarter of the period, eight- to 12-year municipals were the
only sub-sector of intermediate bonds that posted negative returns. From October
through December, a municipal yield curve flattening resulted in moderate
returns in the longer end of the yield curve and meager returns in the short
end. Overall, intermediate-term municipals finished 2003 with positive returns.
The first three months of 2004 saw heavy new issuance in the municipal market.
Tennessee had nearly $860 million in new issues this quarter. Meanwhile, March
new issuance alone was almost $40 billion nationwide. From April through June,
interest rates climbed in anticipation of a change in the Federal Reserve
monetary policy. Except for long-term municipal bonds, the six- to 12-year
sector of the municipal yield curve was the worst performing sector of the
municipal market. While new issue volume was moderately heavy nationwide, it was
down nearly 10% from the prior year. Tennessee new issuance also was down almost
30% for the quarter from a year ago.
Early in the 12-month period, we extended the duration of the Portfolio from 5.1
years to 5.3 years as real returns increased to a level that we felt comfortable
with taking greater interest rate risk. During the last three months of 2003, we
allowed the duration to shorten from 5.3 years to 5.0 years as interest rates
fell almost 0.50%. In February 2004, we extended the average maturity from 7.8
to 8.3 years and held this duration into April. We then allowed the Portfolio to
shorten to eight years because relative values decreased and interest rates
started to drop at fiscal year-end.
If interest rates start to rise again, the number of new issues could be reduced
even further. However, mid-year calls, maturities and coupon payments are larger
now than at other times of the year and may help support the municipal market,
especially if new issues remain sparse.
ix
<Page>
INDUSTRY BREAKDOWN AND PERFORMANCE
AS OF JUNE 30, 2004
<Table>
General Obligation Bonds 56.1%
Health & Education 24.8%
Utilities 12.3%
Housing 3.0%
Other 2.1%
General Revenue 1.3%
Money Market Mutual Funds 0.4%
</Table>
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS.
<Table>
<Caption>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN* TOTAL RETURN*
SINCE SINCE
INCEPTION 1 YEAR 5 YEAR INCEPTION
----------------------------------------------------------------
Class I 50.94% (0.22)% 4.81% 4.93%
Class A 42.67% (4.20)% 3.77% 4.26%
Class B 44.24% (4.88)% 3.72% 4.38%
Class C 45.76% (1.71)% 4.28% 4.51%
Lehman Bros.
10-Year
Municipal
Bond Index 62.10% 0.43% 6.10% 5.81%
</Table>
[CHART]
COMPARISON OF SINCE INCEPTION 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>
LEHMANS CLASS I TTF CLASS I
INVESTMENTS INVESTMENTS
Inception
Dec 95 $ 754,575 $ 755,175
Jan 96 $ 762,196 $ 759,706
Feb 96 $ 759,071 $ 756,895
Mar 96 $ 749,659 $ 746,753
Apr 96 $ 747,035 $ 741,899
May 96 $ 744,943 $ 740,860
Jun 96 $ 752,020 $ 745,083
Jul 96 $ 759,240 $ 753,503
Aug 96 $ 759,240 $ 756,743
Sep 96 $ 767,060 $ 763,856
Oct 96 $ 776,725 $ 771,113
Nov 96 $ 792,415 $ 783,836
Dec 96 $ 788,849 $ 782,582
Jan 97 $ 791,925 $ 782,112
Feb 97 $ 799,369 $ 789,229
Mar 97 $ 788,658 $ 779,206
Apr 97 $ 794,494 $ 784,115
May 97 $ 805,776 $ 796,269
Jun 97 $ 814,639 $ 806,700
Jul 97 $ 837,530 $ 828,562
Aug 97 $ 829,406 $ 819,696
Sep 97 $ 839,940 $ 830,188
Oct 97 $ 844,392 $ 834,339
Nov 97 $ 848,276 $ 838,427
Dec 97 $ 861,679 $ 850,082
Jan 98 $ 871,243 $ 858,412
Feb 98 $ 871,243 $ 859,013
Mar 98 $ 870,633 $ 861,762
Apr 98 $ 865,845 $ 860,039
May 98 $ 880,564 $ 869,327
Jun 98 $ 883,822 $ 872,630
Jul 98 $ 885,236 $ 874,288
Aug 98 $ 900,640 $ 885,305
Sep 98 $ 914,059 $ 893,715
Oct 98 $ 914,425 $ 897,022
Nov 98 $ 917,168 $ 899,444
Dec 98 $ 920,011 $ 901,962
Jan 99 $ 934,087 $ 914,048
Feb 99 $ 925,681 $ 908,381
Mar 99 $ 925,218 $ 910,107
Apr 99 $ 927,716 $ 911,654
May 99 $ 921,222 $ 908,099
Jun 99 $ 904,087 $ 894,659
Jul 99 $ 910,144 $ 899,043
Aug 99 $ 906,777 $ 896,256
Sep 99 $ 909,860 $ 897,869
Oct 99 $ 903,491 $ 891,494
Nov 99 $ 913,339 $ 898,537
Dec 99 $ 908,590 $ 896,111
Jan 00 $ 904,864 $ 893,170
Feb 00 $ 912,013 $ 896,337
Mar 00 $ 929,706 $ 908,130
Apr 00 $ 925,057 $ 904,957
May 00 $ 919,600 $ 899,118
Jun 00 $ 944,613 $ 919,983
Jul 00 $ 957,648 $ 930,835
Aug 00 $ 972,492 $ 942,653
Sep 00 $ 968,018 $ 939,439
Oct 00 $ 977,892 $ 947,617
Nov 00 $ 983,173 $ 952,894
Dec 00 $ 1,006,277 $ 970,615
Jan 01 $ 1,019,258 $ 981,737
Feb 01 $ 1,020,991 $ 984,011
Mar 01 $ 1,029,669 $ 991,359
Apr 01 $ 1,017,005 $ 984,280
May 01 $ 1,028,090 $ 993,640
Jun 01 $ 1,034,258 $ 998,076
Jul 01 $ 1,048,428 $ 1,009,415
Aug 01 $ 1,066,356 $ 1,022,729
Sep 01 $ 1,064,863 $ 1,024,274
Oct 01 $ 1,077,641 $ 1,033,780
Nov 01 $ 1,063,740 $ 1,024,477
Dec 01 $ 1,052,464 $ 1,017,063
Jan 02 $ 1,072,356 $ 1,031,520
Feb 02 $ 1,087,690 $ 1,042,086
Mar 02 $ 1,065,284 $ 1,025,584
Apr 02 $ 1,089,999 $ 1,045,140
May 02 $ 1,095,122 $ 1,049,666
Jun 02 $ 1,108,701 $ 1,061,321
Jul 02 $ 1,123,447 $ 1,072,005
Aug 02 $ 1,138,052 $ 1,081,720
Sep 02 $ 1,165,251 $ 1,099,618
Oct 02 $ 1,144,043 $ 1,086,845
Nov 02 $ 1,134,662 $ 1,082,261
Dec 02 $ 1,159,511 $ 1,098,367
Jan 03 $ 1,153,366 $ 1,097,849
Feb 03 $ 1,173,319 $ 1,110,854
Mar 03 $ 1,173,906 $ 1,110,275
Apr 03 $ 1,182,593 $ 1,115,838
May 03 $ 1,216,415 $ 1,137,229
Jun 03 $ 1,210,576 $ 1,134,469
Jul 03 $ 1,159,732 $ 1,102,054
Aug 03 $ 1,169,706 $ 1,107,762
Sep 03 $ 1,209,125 $ 1,134,829
Oct 03 $ 1,199,935 $ 1,127,817
Nov 03 $ 1,212,895 $ 1,135,728
Dec 03 $ 1,225,751 $ 1,143,243
Jan 04 $ 1,230,899 $ 1,145,769
Feb 04 $ 1,252,563 $ 1,159,184
Mar 04 $ 1,245,424 $ 1,154,084
Apr 04 $ 1,211,050 $ 1,131,464
May 04 $ 1,211,777 $ 1,129,540
Jun 04 $ 1,215,776 $ 1,132,025
</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.
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. THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST
PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE
LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. CALL FIRST FUNDS AT 800.442.1941 TO
OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH END.
*TOTAL RETURNS ARE FOR THE PERIOD ENDED 06/30/2004 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 (0.71)% FOR 1 YEAR. THE PORTFOLIO COMMENCED SALES OF
CLASS B SHARES ON 8/3/1999.THESE SHARES INCLUDE A 0.70% DISTRIBUTION FEE. CLASS
B SHARES PRIOR TO THEIR INCEPTION REFLECT APPLICABLE CLASS C PERFORMANCE DATA.
CLASS B PERFORMANCE SHOWN IS NET OF CDSC. CLASS B SHARES OF THE TENNESSEE
TAX-FREE PORTFOLIO ARE SUBJECT TO A 4.00% CDSC WHICH DECLINES TO 0.00% FOR
SHARES HELD UP TO SIX YEARS.
x
<Page>
DEFINITIONS
COMMON TERMS
BASIS POINT
Smallest measure of quoting yields on bonds and notes. One basis point is 0.01%
of yield.
BOND RATINGS
The quality of bonds can, to some degree, be determined from the ratings of the
two most prominent rating services: Moody's and Standard & Poor's. The ratings
are used by the government and industry regulatory agencies, the investing
public, and portfolio managers as a guide to the relative security and value of
each bond. The ratings are not used as an absolute factor in determining the
strength of the pledge securing a particular issue. However, since Moody's and
Standard & Poor's rate bonds on a fee basis, some issuers choose not to be
rated. Many non-rated (NR) issues are sound investments. The rating symbols of
the two services are shown in the accompanying table. Moody's ratings may be
modified by the addition of 1, 2 and 3 to show relative standing within the
major rating categories in which 1 indicates a ranking in the higher end of the
category, 2 in a mid-range and 3 in the lower end of the category. Standard &
Poor's ratings may be modified by the addition of a plus or minus to show
relative standing within the major rating categories.
<Table>
<Caption>
MOODY'S INVESTORS STANDARD & POOR'S CORP.
SERVICES, INC. (PLUS (+) OR MINUS (-))
- -------------------------------------------------------------------------
Prime Aaa AAA
Excellent Aa AA
Good A A
Average Baa BBB
Fair Ba BB
Poor B B
Marginal Caa C
</Table>
DIVIDEND
Net income distributed to shareholders generated by securities in a portfolio.
The Intermediate Bond, Tennessee Tax-Free, and all the Money Market Portfolios
pay dividends monthly. The Core Equity Portfolio and the Capital Appreciation
Portfolios pay 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 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.
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>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRST FUNDS
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of First Funds (comprising the Core Equity,
Capital Appreciation, Intermediate Bond, Tennessee Tax-Free, U.S. Government
Money Market, Municipal Money Market and Cash Reserve Portfolios, (collectively
the "Trust")), as of June 30, 2004, and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of June 30, 2004, by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the portfolios constituting First Funds as of June 30, 2004, the results of
their operations for the year then ended, the changes in their net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods indicated, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche L.L.P.
Deloitte & Touche L.L.P.
Denver, Colorado
August 4, 2004
<Page>
THIS PAGE INTENTIONALLY LEFT BLANK
<Page>
PORTFOLIO OF INVESTMENTS
(AS OF JUNE 30, 2004 - SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS)
CORE EQUITY PORTFOLIO
<Table>
<Caption>
SHARES VALUE
------ -----
COMMON STOCKS - 96.5%
CONSUMER DISCRETIONARY - 14.4%
MEDIA - 9.1%
Comcast Corp., Class A* 810,835 $ 22,387,154
McGraw-Hill Co., Inc. 172,980 13,245,079
Omnicom Group, Inc. 235,415 17,865,644
--------------
TOTAL MEDIA 53,497,877
--------------
MOTORCYCLE MANUFACTURERS - 1.4%
Harley Davidson, Inc. 140,250 8,687,085
--------------
RETAILING - 3.9%
Home Depot, Inc. 649,590 22,865,568
--------------
TOTAL CONSUMER DISCRETIONARY 85,050,530
--------------
CONSUMER STAPLES - 10.5%
FOOD, BEVERAGE & TOBACCO - 8.4%
Costco Wholesale Corp. 659,000 27,065,130
Pepsico, Inc. 419,800 22,618,824
--------------
TOTAL FOOD, BEVERAGE & TOBACCO 49,683,954
--------------
HOUSEHOLD & PERSONAL PRODUCTS - 2.1%
Colgate-Palmolive Co. 214,825 12,556,521
--------------
TOTAL CONSUMER STAPLES 62,240,475
--------------
ENERGY - 3.9%
ENERGY - 3.9%
Exxon Mobil Corp. 523,300 23,239,753
--------------
TOTAL ENERGY 23,239,753
--------------
FINANCIALS - 29.3%
BANKS - 4.2%
Wells Fargo & Co. 437,506 25,038,468
--------------
DIVERSIFIED FINANCIALS - 11.1%
Capital One Financial Corp. 407,300 27,851,174
Federal Home Loan Mortgage Corp. 52,175 3,302,677
Federal National Mortgage Association 163,800 11,688,768
J. P. Morgan Chase & Co. 576,300 22,343,151
--------------
TOTAL DIVERSIFIED FINANCIALS 65,185,770
--------------
INSURANCE - 14.0%
AFLAC, Inc. 549,500 22,425,095
American International Group, Inc. 345,670 24,639,358
Fidelity National Financial, Inc. 269,420 10,060,143
XL Capital Ltd., Class A 337,400 25,460,204
--------------
TOTAL INSURANCE 82,584,800
--------------
TOTAL FINANCIALS 172,809,038
--------------
HEALTHCARE - 13.0%
HEALTHCARE EQUIPMENT & SUPPLIES - 3.7%
Medtronic, Inc. 448,450 21,848,484
--------------
PHARMACEUTICALS & BIOTECHNOLOGY - 9.3%
Cardinal Health, Inc. 371,690 26,036,885
Pfizer, Inc. 830,115 28,456,342
--------------
TOTAL PHARMACEUTICALS & BIOTECH. 54,493,227
--------------
TOTAL HEALTHCARE 76,341,711
--------------
INDUSTRIALS - 4.1%
CAPITAL GOODS - 4.1%
General Electric Co. 744,200 $ 24,112,080
--------------
TOTAL INDUSTRIALS 24,112,080
--------------
INFORMATION TECHNOLOGY - 17.1%
SOFTWARE - 4.1%
Microsoft Corp. 847,100 24,193,176
--------------
TECHNOLOGY HARDWARE & EQUIPMENT - 13.0%
Flextronics International, Ltd.* 1,162,676 18,544,682
Hewlett-Packard Co. 857,250 18,087,975
Intel Corp. 697,600 19,253,760
Nokia Corp., ADR 549,900 7,995,546
Texas Instruments, Inc. 522,375 12,631,028
--------------
TOTAL TECHNOLOGY HARDWARE
& EQUIPMENT 76,512,991
--------------
TOTAL INFORMATION TECHNOLOGY 100,706,167
--------------
TELECOMMUNICATIONS - 4.2%
TELECOMMUNICATION SERVICES - 4.2%
Vodafone Group, plc ADR 1,110,125 24,533,763
--------------
TOTAL TELECOMMUNICATIONS 24,533,763
--------------
TOTAL COMMON STOCKS 569,033,517
(Cost $499,668,476) --------------
MONEY MARKET MUTUAL FUNDS - 3.5%
SSgA Prime Money Market Fund 10,425,619 10,425,619
SSgA U.S.Treasury Money Market Fund 10,244,221 10,244,221
--------------
TOTAL MONEY MARKET MUTUAL FUNDS 20,669,840
(Cost $20,669,840) --------------
TOTAL INVESTMENTS - 100.0% $ 589,703,357
(Cost $520,338,316) ==============
</Table>
*Non-income producing security
ADR - American Depositary Receipt
INCOME TAX INFORMATION:
At June 30, 2004, the net unrealized appreciation based on cost for income tax
purposes of $520,728,024 was as follows:
<Table>
Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost $ 91,949,333
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value (22,974,000)
--------------
Net unrealized appreciation $ 68,975,333
==============
</Table>
The primary difference between book and tax net unrealized appreciation is wash
sale loss deferrals.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
1
<Page>
During the year ended June 30, 2004, the Core Equity Portfolio used capital loss
carryovers of $4,747,501.
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities, for the
year ended June 30, 2004, aggregated $109,208,297 and $230,502,982,
respectively.
CAPITAL APPRECIATION PORTFOLIO
<Table>
<Caption>
DUE PRINCIPAL
DATE COUPON AMOUNT VALUE
- ---- ------ --------- -----
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 3.0%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
DISCOUNT NOTES - 3.0%
07/01/04 1.20% $ 440,000 $ 440,000
07/01/04 1.15% 175,000 175,000
07/01/04 1.10% 280,000 280,000
07/07/04 1.10% 430,000 429,911
07/07/04 1.08% 1,050,000 1,049,784
07/14/04 1.14% 320,000 319,868
07/14/04 1.13% 640,000 639,739
--------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $3,334,340) 3,334,302
--------------
<Caption>
SHARES
------
COMMON STOCKS - 97.0%
BUSINESS SERVICES - 8.8%
Advisory Board Co.* 76,200 2,712,720
Charles River Associates, Inc.* 28,100 869,695
Corillian Corp. * 271,300 1,367,352
eSpeed, Inc.* 97,900 1,727,935
Gevity HR, Inc. 49,800 1,304,262
Ivillage, Inc.* 172,700 1,096,645
Portfolio Recovery Associates, Inc.* 24,900 686,493
--------------
TOTAL BUSINESS SERVICES 9,765,102
--------------
CAPITAL GOODS - 1.4%
Varian, Inc.* 36,600 1,542,690
--------------
CONSUMER DURABLES - 2.4%
Gentex Corp. 24,500 972,160
WCI Communities, Inc.* 12,300 274,413
Winnebago Industries, Inc. 38,200 1,424,096
--------------
TOTAL CONSUMER DURABLES 2,670,669
--------------
CONSUMER NON-DURABLES - 13.7%
America's Car Mart, Inc.* 25,600 768,768
Cabela's, Inc.* 8,300 223,685
Coach, Inc.* 43,900 1,983,841
Cost Plus, Inc.* 31,100 1,009,195
Guitar Centers, Inc.* 37,500 1,667,625
Hibbett Sporting Goods, Inc.* 103,287 2,824,900
PC Mall, Inc.* 33,600 634,368
Tractor Supply Co.* 39,000 1,630,980
Urban Outfitters, Inc.* 72,800 4,434,248
--------------
TOTAL CONSUMER NON-DURABLES 15,177,610
--------------
CONSUMER SERVICES - 9.7%
Ask Jeeves, Inc.* 40,200 1,569,006
Cheesecake Factory, Inc.* 33,800 1,344,902
First Cash Financial Services, Inc.* 70,450 1,499,176
Four Seasons Hotel, Inc. 21,900 1,318,599
Lin TV Corp.* 43,800 928,560
Mediacom Communications Corp.* 201,300 1,574,166
Rare Hospitality Int'l, Inc.* 37,850 942,465
Sonic Corp.* 68,762 1,564,336
--------------
TOTAL CONSUMER SERVICES 10,741,210
--------------
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
2
<Page>
<Table>
<Caption>
SHARES VALUE
------ -----
FINANCIALS - 17.0%
Brookline Bancorp, Inc. 72,000 $ 1,056,240
Capital Source, Inc.* 77,900 1,904,655
Delphi Financial Group, Inc. 56,700 2,523,150
Downey Financial Corp. 56,700 3,019,275
R&G Financial Corp., Class B 79,700 2,634,882
RAIT Investment Trust 46,700 1,151,155
Redwood Trust, Inc. 31,000 1,726,080
Silicon Valley Bancshares* 37,100 1,471,015
Westamerica Bancorp. 23,000 1,206,350
Westcorp 48,100 2,186,145
--------------
TOTAL FINANCIALS 18,878,947
--------------
HEALTHCARE - 23.6%
Abgenix, Inc.* 93,300 1,093,476
Adolor Corp.* 26,000 329,680
Align Technology, Inc. * 135,600 2,576,400
Axonyx, Inc.* 188,100 985,644
CV Therapeutics, Inc.* 67,800 1,136,328
Conceptus, Inc.* 78,000 877,500
Digene Corp.* 44,900 1,640,197
Immucor, Inc.* 47,300 1,539,615
Isolagen, Inc.* 109,400 1,124,632
MGI PHARMA, Inc.* 35,700 964,257
Medicis Pharmaceutical Corp. 37,000 1,478,150
Nektar Therapeutics* 188,100 3,754,476
Neurochem, Inc.* 102,700 2,142,322
North American Scientific, Inc.* 127,600 1,071,840
Pain Therapeutics, Inc.* 173,300 1,396,798
POZEN, Inc.* 108,600 742,824
Protein Design Labs, Inc.* 53,100 1,015,803
United Therapeutics Corp.* 47,500 1,218,375
Wilson Greatbatch Technologies, Inc.* 40,500 1,131,975
--------------
TOTAL HEALTHCARE 26,220,292
--------------
MATERIALS - 2.0%
Engineered Support Systems, Inc. 23,200 1,357,432
Rofin-Sinar Technologies, Inc.* 35,900 911,501
--------------
TOTAL MATERIALS 2,268,933
--------------
TECHNOLOGY - 16.4%
Agile Software Corp.* 198,600 1,737,750
Akamai Technologies, Inc.* 78,500 1,409,075
Cymer, Inc.* 49,000 1,834,560
Intergrated Silicone Soulutions, Inc.* 45,600 556,776
Manhattan Associates, Inc.* 41,900 1,293,872
MatrixOne, Inc.* 241,200 1,666,692
Netegrity, Inc.* 143,500 1,214,010
O2Micro International, Ltd.* 151,300 2,576,639
Power Integrations, Inc.* 44,500 1,108,050
Skyworks Solutions, Inc.* 240,800 2,102,184
Tessera Technologies, Inc.* 64,300 1,158,686
Varian Semiconductor Equipment
Assiciates, Inc.* 39,300 1,515,408
--------------
TOTAL TECHNOLOGY 18,173,702
--------------
TRANSPORTATION - 2.0%
Knight Transportation, Inc.* 58,300 1,674,959
Republic Airways Holdings, Inc.* 38,800 552,900
--------------
TOTAL TRANSPORTATION 2,227,859
--------------
TOTAL COMMON STOCKS 107,667,014
(Cost $93,118,947) --------------
MONEY MARKET MUTUAL FUNDS - 0.0%**
SSgA Prime Money Market Fund 4,124 $ 4,124
SSgA U.S.Treasury Money Market Fund 4,105 4,105
--------------
TOTAL MONEY MARKET MUTUAL FUNDS 8,229
(Cost $8,229) --------------
TOTAL INVESTMENTS - 100.0% $ 111,009,545
(Cost $96,461,516) ==============
</Table>
*Non-income producing security
** Less than 0.05% of total value of investments
INCOME TAX INFORMATION:
At June 30, 2004, the net unrealized appreciation based on cost for income tax
purposes of $96,573,607 was as follows:
<Table>
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost $ 19,476,036
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value (5,040,098)
--------------
Net unrealized appreciation $ 14,435,938
==============
</Table>
The primary difference between book and tax net unrealized appreciation is
wash sale loss deferrals
At June 30, 2004, the Capital Appreciation Portfolio had capital loss carryovers
of $4,292,881 and $2,232,199 available to offset capital gains to the extent
provided in regulations, which will expire on June 30, 2010, and 2011,
respectively. During the year ended June 30, 2004, the Capital Appreciation
Portfolio used capital loss carryovers of $6,772,585.
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities, for the
year ended June 30, 2004, aggregated $95,390,468 and $53,030,931, respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
<Page>
INTERMEDIATE BOND PORTFOLIO
<Table>
<Caption>
DUE PRINCIPAL
DATE COUPON AMOUNT VALUE
- ---- ------ --------- -----
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 46.2%
U.S.TREASURY NOTES - 6.0%
05/15/08 2.625% $ 14,000,000 $ 13,560,862
02/15/14 4.000% 10,000,000 9,530,470
--------------
TOTAL U.S.TREASURY NOTES 23,091,332
--------------
FEDERAL FARM CREDIT BANK - 0.8%
07/21/08 3.150% 3,000,000 2,912,652
--------------
FEDERAL HOME LOAN BANK - 7.2%
03/06/06 5.125% 20,000,000 20,760,300
09/16/13 4.500% 7,000,000 6,700,785
--------------
TOTAL FEDERAL HOME LOAN BANK 27,461,085
--------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 9.3%
01/15/06 5.250% 6,500,000 6,742,690
01/05/07 6.700% 5,000,000 5,410,535
01/19/07 3.050% 2,500,000 2,485,530
09/15/07 3.500% 1,950,000 1,944,452
01/23/08 3.650% 10,540,000 10,512,912
04/15/08 5.750% 1,750,000 1,867,547
03/15/09 5.750% 4,510,000 4,810,794
07/15/12 5.125% 1,810,000 1,828,875
--------------
TOTAL FEDERAL HOME LOAN MRTG. CORP. 35,603,335
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 17.6%
06/15/05 5.750% 2,000,000 2,068,488
02/15/06 5.500% 14,500,000 15,127,778
05/02/06 5.500% 14,000,000 14,616,812
01/15/07 5.000% 11,000,000 11,434,896
02/15/08 5.750% 2,850,000 3,036,931
02/01/11 6.250% 5,000,000 5,368,205
02/28/12 5.625% 11,000,000 11,250,701
08/01/12 5.250% 4,500,000 4,496,702
--------------
TOTAL FEDERAL NAT'L MORTGAGE ASSOC. 67,400,513
--------------
OTHER - 5.3%
Private Export Funding Corp.
03/15/06 5.340% 10,000,000 10,417,940
Tennessee Valley Authority
07/15/04 4.750% 10,000,000 10,008,370
--------------
TOTAL OTHER 20,426,310
--------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS 176,895,227
(Cost $176,656,158) --------------
CORPORATE BONDS & NOTES - 53.4%
FINANCIALS - 29.4%
BANKS - 11.4%
AmSouth Bank*
02/01/08 6.450% 5,100,000 5,433,188
Bank of America Corp.
01/15/13 4.875% 4,940,000 4,800,722
Bank of New York Co., Inc.
09/01/07 3.900% 2,415,000 2,437,416
Bank One Corp.
08/01/06 6.875% 2,000,000 2,139,642
05/01/07 7.600% 725,000 800,184
First Union National Bank
02/15/10 7.875% 5,000,000 5,774,505
National City Corp.
05/15/05 7.200% $ 2,000,000 $ 2,081,890
Regions Bank
12/15/06 2.900% 2,530,000 2,502,699
Regions Financial Corp.
03/01/11 7.000% 4,500,000 5,044,162
Synovus Financial Corp.
02/15/13 4.875% 1,775,000 1,721,796
Union Planters Corp.
11/01/05 6.750% 2,000,000 2,104,288
06/15/07 5.125% 1,500,000 1,572,715
US Bank
02/04/14 6.300% 7,000,000 7,449,806
--------------
TOTAL BANKS 43,863,013
--------------
BROKER/DEALERS - 11.4%
Bear Stearns Co.
01/15/07 5.700% 6,330,000 6,658,445
Donaldson, Lufkin & Jenrette, Inc.
11/01/05 6.875% 1,000,000 1,054,541
Goldman Sachs Group, Inc.
08/17/05 7.625% 3,800,000 3,993,739
01/15/11 6.875% 3,500,000 3,842,198
J.P. Morgan Chase & Co.
03/01/07 5.350% 2,730,000 2,861,228
05/30/07 5.250% 4,065,000 4,242,535
Lehman Brothers, Inc.
01/18/12 6.625% 4,500,000 4,886,280
Merrill Lynch & Co., Inc.
01/30/06 2.940% 5,400,000 5,426,390
01/15/07 7.000% 2,580,000 2,778,376
Morgan Stanley Group, Inc.
03/01/07 6.875% 5,000,000 5,425,420
05/15/10 4.250% 2,500,000 2,453,242
--------------
TOTAL BROKER/DEALERS 43,622,394
--------------
FINANCIAL SERVICES - 2.4%
Countrywide Funding Corp.
10/22/04 6.840% 2,500,000 2,536,160
General Electric Corp.
12/05/07 3.500% 6,710,000 6,647,255
--------------
TOTAL FINANCIAL SERVICES 9,183,415
--------------
INSURANCE - 3.7%
AIG Sunamerica Global Financing*
08/01/08 5.850% 5,000,000 5,316,220
Allstate Financial Global Funding II*
04/15/07 2.625% 7,665,000 7,466,936
Cigna Corp.
01/15/06 6.375% 1,350,000 1,409,989
--------------
TOTAL INSURANCE 14,193,145
--------------
LEASING COMPANY - 0.5%
International Lease Finance Corp.
01/17/06 4.000% 1,950,000 1,985,383
--------------
TOTAL LEASING COMPANY 1,985,383
--------------
TOTAL FINANCIALS 112,847,350
--------------
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
<Page>
<Table>
<Caption>
DUE PRINCIPAL
DATE COUPON AMOUNT VALUE
- ---- ------ --------- -----
INDUSTRIALS - 23.2%
CAPITAL GOODS - 5.0%
Boeing Capital Corp.
09/27/05 7.100% $ 3,000,000 $ 3,167,973
05/15/06 5.650% 2,250,000 2,364,190
Dover Corp.
11/15/05 6.450% 3,525,000 3,696,742
John Deere Capital
03/15/12 7.000% 7,000,000 7,833,777
01/15/13 5.100% 2,000,000 1,986,092
--------------
TOTAL CAPITAL GOODS 19,048,774
--------------
CONSUMER CYCLICALS - 5.7%
DaimlerChrysler AG
01/18/11 7.750% 7,000,000 7,823,200
Ford Motor Credit Co.
08/01/05 7.600% 7,000,000 7,328,048
General Motors Acceptance Corp.
08/28/12 6.875% 6,500,000 6,612,177
--------------
TOTAL COMSUMER CYCLICALS 21,763,425
--------------
CONSUMER STAPLES - 1.0%
Price/Costco, Inc.
06/15/05 7.125% 3,700,000 3,850,609
--------------
HEALTHCARE - 2.9%
Abbott Laboratories
07/01/06 5.625% 3,500,000 3,673,733
Bristol-Meyers Squibb Co.
10/01/11 5.750% 7,000,000 7,293,916
--------------
TOTAL HEALTHCARE 10,967,649
--------------
MEDIA PUBLISHING & CABLE - 1.4%
Continental Cablevision, Inc.
09/15/05 8.875% 4,876,000 5,212,088
--------------
TECHNOLOGY - 1.3%
Pitney Bowes, Inc.
02/01/05 5.950% 5,000,000 5,091,450
--------------
TELECOMMUNICATIONS - 5.9%
BellSouth Corp.
10/15/11 6.000% 7,000,000 7,357,882
GTE Corp.
04/15/06 6.360% 4,400,000 4,628,598
11/01/08 6.900% 7,000,000 7,649,663
Verizon Communications, Inc.
12/15/06 5.375% 3,000,000 3,127,617
--------------
TOTAL TELECOMMUNICATIONS 22,763,760
--------------
TOTAL INDUSTRIALS 88,697,755
--------------
UTILITIES - 0.8%
GAS - 0.8%
ONEOK, Inc.
08/15/06 7.750% 2,900,000 3,160,925
--------------
TOTAL UTILITIES 3,160,925
--------------
TOTAL CORPORATE BONDS & NOTES 204,706,030
(Cost $200,487,965) --------------
MORTGAGE-BACKED OBLIGATIONS - 0.0%**
Government National Mortgage Association
Pool #26825
09/15/08 9.000% $ 22,710 $ 24,556
--------------
TOTAL MORTGAGE-BACKED OBLIGATIONS 24,556
(Cost $21,821) --------------
<Caption>
SHARES
------
MONEY MARKET MUTUAL FUNDS - 0.4%
SSgA Prime Money Market Fund 1,369,243 1,369,243
SSgA Treasury Money Market Fund 89 89
--------------
TOTAL MONEY MARKET MUTUAL FUNDS 1,369,332
(Cost $1,369,332) --------------
TOTAL INVESTMENTS - 100.0% $ 382,995,145
(Cost $378,535,276) ==============
</Table>
* Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At June 30, 2004, these securities
amounted to a value of $18,216,344 or 4.68% of net assets.
** Less than 0.05% of total value of investments
INCOME TAX INFORMATION:
At June 30, 2004, the net unrealized appreciation based on cost for income tax
purposes of $378,481,623 was as follows:
<Table>
Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost $ 8,815,142
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value (4,301,620)
--------------
Net unrealized appreciation $ 4,513,522
==============
</Table>
The primary difference between book and tax net unrealized appreciation is
amortized premium.
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities, for the
year ended June 30, 2004, aggregated $118,944,466 and $197,387,013,
respectively. Purchases and sales of U.S. government and agency securities,
other than short-term securities, for the year ended June 30, 2004, aggregated
$36,827,081 and $136,922,041,respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
<Page>
PORTFOLIO OF INVESTMENTS
(AS OF JUNE 30, 2004 - SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS)
TENNESSEE TAX-FREE PORTFOLIO
<Table>
<Caption>
DUE BOND RATING PRINCIPAL
DATE COUPON MOODY/S&P AMOUNT VALUE
- ---- ------ ----------- --------- -----
TENNESSEE MUNICIPAL OBLIGATIONS - 99.6%
GENERAL OBLIGATION BONDS - 56.1%
Bradley County
03/01/10 4.250%, FGIC Aaa/AAA $ 1,000,000 $ 1,033,340
Cocke County
06/01/15 5.000%, MBIA Aaa/NR 1,195,000 1,266,138
Collierville
Water & Sewer Systems
11/01/16 5.500%, MBIA Aaa/AAA 1,000,000 1,076,310
Crockett County
04/01/11 5.000%, AMBAC Aaa/NR 500,000 524,850
Dickson County
06/01/16 5.000%, FGIC Aaa/NR 1,535,000 1,614,129
Franklin City
Special School District
06/01/12 5.100% Aa2/NR 2,500,000 2,707,975
Franklin County
03/01/13 5.250%, MBIA Aaa/AAA 750,000 776,617
04/01/15 4.500% Aaa/NR 1,700,000 1,747,294
Grundy County
05/01/06 5.350%, FGIC Aaa/AAA 300,000 317,196
Hamilton County
11/01/09 5.000% Aa1/NR 3,100,000 3,336,034
11/01/15 5.300% Aa1/NR 3,535,000 3,790,298
Jackson
03/01/14 5.125%, MBIA Aaa/NR 3,100,000 3,228,836
Johnson City
05/01/14 5.550%, FGIC Aaa/AAA 2,250,000 2,407,680
La Vergne
Water & Sewer
03/01/14 5.400% A1/NR 500,000 518,065
Lawrenceburg
Water & Sewer
07/01/15 5.500%, FSA Aaa/AAA 1,330,000 1,438,767
Lincoln County
04/01/14 5.250%, FGIC Aaa/NR 1,315,000 1,436,979
Madison County
04/01/15 5.000% Aa3/NR 4,425,000 4,644,967
Maury County
04/01/14 5.000% Aaa 1,140,000 1,223,026
McNairy County
03/01/15 4.000%, MBIA Aaa/NR 1,750,000 1,716,452
Memphis
11/01/10 5.200% Aa2/AA 1,000,000 1,060,670
10/01/11 5.125% Aa2/AA 1,000,000 1,063,460
04/01/13 5.250% Aa2/AA 4,000,000 4,267,920
11/01/13 5.250% Aa2/AA 1,000,000 1,059,700
10/01/16 4.750% Aa2/AA 2,000,000 2,055,840
Metropolitan Nashville & Davidson
Energy Production
07/01/13 5.250% Aa2/AA 1,000,000 1,097,070
Monroe County
05/01/06 5.250%, FSA Aaa/NR 1,500,000 1,583,310
Roane County
05/01/14 4.000%, MBIA Aaa/NR 500,000 496,540
Rockwood
Water & Sewer
06/01/16 3.650%, MBIA NR/AAA 1,280,000 1,203,763
Rutherford County
04/01/09 5.250% Aa2/AA 500,000 527,490
04/01/14 5.000% Aa2/AA 5,000,000 5,298,250
Shelby County
04/01/09 5.500% Aa2/AA 1,125,000 1,166,794
06/01/09 5.625% Aa2/AA+ 1,000,000 1,067,130
11/01/09 5.300% Aa2/AA+ 3,000,000 3,215,430
03/01/10 5.500% Aa2/AA+ 2,000,000 2,206,340
04/01/14 5.625% NR/AA+ 500,000 520,735
04/01/14 5.625% Aa2/AA+ $ 1,500,000 $ 1,556,520
05/01/14 4.700% Aa2/AA+ 2,000,000 2,052,020
Tennessee State
05/01/11 5.000% Aa2/AA 4,160,000 4,501,370
05/01/13 5.300% Aa2/AA 750,000 805,980
05/01/15 5.000% Aa2/AA 3,290,000 3,389,424
Tipton County
04/01/12 5.250%, AMBAC Aaa/NR 500,000 531,755
Warren County
06/01/12 5.000%, MBIA Aaa/NR 1,845,000 1,991,235
Weakley County
05/01/09 5.000%, FGIC Aaa/AAA 350,000 359,786
Williamson County
03/01/11 6.000% Aa1/NR 1,000,000 1,134,290
04/01/12 5.000% Aa1/NR 2,500,000 2,687,500
03/01/13 5.000% Aa1/NR 2,500,000 2,647,500
03/01/14 5.000% Aa1/NR 2,000,000 2,108,420
03/01/15 5.150% Aa1/NR 1,500,000 1,636,320
Wilson County
04/01/11 5.000%, FGIC Aaa/NR 1,000,000 1,083,650
05/01/13 3.600%, MBIA Aaa/NR 1,010,000 975,509
--------------
TOTAL GENERAL OBLIGATION BONDS 90,156,674
--------------
REVENUE BONDS - 43.5%
HEALTH & EDUCATION - 24.8%
Blount County
07/01/09 5.250% Baa1/NR 2,765,000 2,820,687
Franklin County
09/01/09 4.750% NR/A+ 1,880,000 1,977,967
Jackson
04/01/07 5.300% A1/A+ 2,000,000 2,066,460
04/01/10 5.500%, AMBAC Aaa/AAA 400,000 417,928
Johnson City
07/01/09 5.125%, MBIA Aaa/AAA 5,705,000 6,196,429
Knox County
Baptist Health
04/15/11 5.500%, CONLEE NR/AAA 3,000,000 3,219,660
Knox County
Ft. Sanders
01/01/14 5.750%, MBIA Aaa/AAA 1,000,000 1,121,490
Knox County
Health Education
01/01/12 4.200% NR/NR* 3,400,000 3,378,954
07/01/16 5.000% Baa1/BBB+ 3,810,000 3,753,155
01/01/18 5.500% Aaa/AAA 2,000,000 2,125,660
Metropolitan Nashville & Davidson
Vanderbilt University
07/01/14 5.375% Aa2/AA 1,000,000 1,076,500
05/01/16 5.600% Aa2/AA 2,600,000 2,829,892
Shelby County
08/01/12 5.500%, MBIA Aaa/AAA 650,000 685,165
08/01/12 5.500%, MBIA Aaa/AAA 1,350,000 1,489,199
Tennessee State School
Board Authority
05/01/11 5.500% Aa3/AA- 500,000 532,370
05/01/14 4.500%, FSA Aaa/AAA 4,440,000 4,569,337
Wilson County
03/30/07 5.000%, FSA Aaa/AAA 1,540,000 1,636,435
--------------
TOTAL HEALTH & EDUCATION 39,897,288
--------------
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
<Page>
<Table>
<Caption>
DUE BOND RATING PRINCIPAL
DATE COUPON MOODY/S&P AMOUNT VALUE
- ---- ------ ----------- ------ -----
HOUSING - 3.0%
Metropolitan Nashville & Davidson
Multi-Family Housing
02/01/21 5.200% NR/AAA $ 1,000,000 $ 1,031,280
Tennessee Housing
Development Agency
01/01/11 5.800% Aa2/AA 400,000 416,940
07/01/13 5.800% Aa2/AA 330,000 334,122
07/01/16 4.900% Aa2/AA 3,120,000 3,103,214
--------------
TOTAL HOUSING 4,885,556
--------------
INDUSTRIAL DEVELOPMENT - 2.1%
Chattanooga
10/01/16 5.400%, AMBAC Aaa/AAA 3,210,000 3,449,819
--------------
STATE AUTHORITY - 1.3%
Tennessee State Local
Development Authority
03/01/14 5.125%, MBIA Aaa/AAA 2,000,000 2,105,620
--------------
UTILITIES - 12.3%
Clarksville
Water, Sewer & Gas
02/01/10 5.300%, MBIA Aaa/NR 900,000 981,333
Dickson
Electric
09/01/11 5.625%, MBIA Aaa/AAA 1,000,000 1,123,180
Johnson City
Electric
05/01/10 5.400%, MBIA Aaa/AAA 500,000 525,800
05/01/12 5.100%, MBIA Aaa/AAA 1,500,000 1,588,230
Knoxville
Electric
07/01/13 5.000% Aa3/AA 1,000,000 1,058,610
La Follette
Electric
06/01/11 5.800%, AMBAC Aaa/AAA 430,000 454,794
03/01/15 5.250%, AMBAC Aaa/NR 1,000,000 1,062,180
Lawrenceburg
Electric
07/01/06 5.200%, MBIA Aaa/AAA 345,000 364,796
Lenoir City
Electric
06/01/07 5.000%, AMBAC Aaa/NR 2,000,000 2,129,860
Madison
Utility District
02/01/10 5.600%, MBIA Aaa/AAA 500,000 540,515
Metropolitan Nashville & Davidson
Electric
05/15/15 5.125% Aa3/AA 1,000,000 1,055,490
Metropolitan Nashville & Davidson
Water & Sewer
01/01/08 5.000%, FGIC Aaa/AAA 4,000,000 4,269,760
01/01/13 5.200%, FGIC Aaa/AAA 1,500,000 1,634,460
Rutherford County
Utilities District
02/01/11 5.100%, FGIC Aaa/NR 500,000 531,100
Sevier County
Gas
05/01/11 5.400%, AMBAC Aaa/NR 1,000,000 1,066,050
Sevier County
Solid Waste
09/01/06 5.500%, AMBAC Aaa/AAA $ 775,000 $ 799,722
09/01/10 5.400%, AMBAC Aaa/AAA 500,000 516,725
--------------
TOTAL UTILITIES 19,702,605
--------------
TOTAL REVENUE BONDS 70,040,888
--------------
TOTAL TENNESSEE MUNICIPAL OBLIGATIONS 160,197,562
(Cost $155,584,932) --------------
<Caption>
SHARES
------
MONEY MARKET MUTUAL FUNDS - 0.4%
Federated Tax Free Fund 712 712
SSgA Tax Free Fund 600,762 600,762
--------------
TOTAL MONEY MARKET MUTUAL FUNDS 601,474
(Cost $601,474 ) --------------
TOTAL INVESTMENTS - 100.0% $ 160,799,036
(Cost $156,186,406) ==============
</Table>
* At June 30, 2004, this security was rated A by Fitch.
The Portfolio had the following insurance concentration of 10% or greater at
June 30, 2004 (as a percentage of net assets):
MBIA 18.1%
To simplify the listings of securities, abbreviations are used per the table
below:
AMBAC AMBAC Financial Group, Inc.
CONLEE Connie Lee Insurance Co.
FGIC Financial Guaranty Insurance Co.
FSA Financial Security Assurance
MBIA Municipal Bond Insurance Association
INCOME TAX INFORMATION:
At June 30, 2004, the net unrealized appreciation based on cost for income tax
purposes of $156,186,406 was as follows:
<Table>
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost $ 5,760,644
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value (1,148,014)
--------------
Net unrealized appreciation $ 4,612,630
==============
</Table>
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities, for the
year ended June 30, 2004, aggregated $14,923,355 and $29,592,778, respectively.
RATINGS:
The Moody's and S&P ratings are believed to be the most recent ratings at June
30, 2004. Ratings are not covered by the Report of Independent Registered Public
Accounting Firm.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
7
<Page>
PORTFOLIO OF INVESTMENTS
(AS OF JUNE 30, 2004 - SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENTS)
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
<Table>
<Caption>
DUE DISCOUNT RATE OR PRINCIPAL
DATE COUPON RATE AMOUNT VALUE
- ---- ----------- --------- -----
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 100.0%
FEDERAL HOME LOAN BANK - 43.8%
07/01/04** 1.050% $ 18,498,000 $ 18,498,000
07/06/04* 0.970% 5,000,000 4,999,983
07/16/04** 1.320% 5,100,000 5,097,195
07/28/04** 1.270% 7,000,000 6,993,333
07/28/04** 1.230% 480,000 479,557
09/08/04* 1.249% 10,000,000 9,993,425
09/12/04* 1.344% 5,000,000 4,996,386
03/28/05 1.380% 2,000,000 2,000,000
04/04/05 1.425% 1,500,000 1,500,000
--------------
TOTAL FEDERAL HOME LOAN BANK 54,557,879
--------------
FEDERAL HOME LOAN MORTGAGE CORP. - 19.8%
07/07/04* 1.100% 5,000,000 5,000,000
07/27/04** 1.300% 100,000 99,906
08/04/04** 1.290% 2,000,000 1,997,563
08/07/04* 1.135% 10,000,000 10,002,369
08/09/04** 1.230% 4,600,000 4,593,871
03/01/05 1.420% 2,000,000 2,000,000
03/23/05 1.290% 1,000,000 1,000,000
--------------
TOTAL FEDERAL HOME LOAN MRTG. CORP. 24,693,709
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 36.4%
07/01/04** 1.000% 3,900,000 3,900,000
07/02/04** 1.432% 2,680,000 2,679,893
07/03/04* 0.990% 10,000,000 9,998,728
07/15/04** 1.270% 6,608,000 6,604,736
07/21/04** 1.190% 5,000,000 4,996,694
07/23/04** 1.300% 129,000 128,898
08/04/04** 1.055% 1,000,000 998,782
08/18/04* 1.180% 5,000,000 4,999,211
09/06/04* 1.230% 10,000,000 9,992,942
09/24/04* 1.489% 1,000,000 999,920
--------------
TOTAL FEDERAL NAT'L MORTGAGE ASSOC. 45,299,804
--------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS 124,551,392
--------------
TOTAL INVESTMENTS - 100.0% $ 124,551,392
==============
</Table>
* Floating or variable rate security rate disclosed as of June 30, 2004.
Maturity date represents the next interest rate reset date.
**Discount Note.
INCOME TAX INFORMATION:
Total cost for Federal income tax purposes - $124,551,392.
As of June 30, 2004, the U.S. Government Money Market Portfolio had capital loss
carryovers of $791, $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, 2006,
2008, 2009, 2010 and 2011, respectively. During the year ended June 30, 2004,
the U.S. Government Money Market Portfolio used capital loss carryovers of
$7,142.
MUNICIPAL MONEY MARKET PORTFOLIO
<Table>
<Caption>
DUE DISCOUNT RATE OR PRINCIPAL
DATE COUPON RATE AMOUNT VALUE
- ---- ----------- --------- -----
MUNICIPAL BONDS & NOTES - 100.0%
ARIZONA - 0.6%
Pinal County School District
07/01/04 6.000%, ABK $ 565,000 $ 565,000
--------------
ARKANSAS - 0.5%
Arkansas Hospital Equipment
Financial Authority
07/01/04* 1.130%, MBIA; JPM 500,000 500,000
--------------
CALIFORNIA - 7.6%
Affordable Housing Agency
07/01/04* 1.160%, MER 3,940,000 3,940,000
California State Department of Water
07/01/04* 1.060%, HESLAN 700,000 700,000
Eastern Municipal Water District
07/01/04* 1.060%, FGIC; JPM 2,400,000 2,400,000
--------------
TOTAL CALIFORNIA 7,040,000
--------------
GEORGIA - 5.0%
Atlanta Water & Waste
07/01/04* 1.080%, FSA; DEXGRP 20,000 20,000
07/01/04* 1.060%, FSA; DEXGRP 1,400,000 1,400,000
Georgia Local Government
07/01/04* 1.160%, MBIA; BAC 3,200,000 3,200,000
--------------
TOTAL GEORGIA 4,620,000
--------------
HAWAII - 1.5%
Hawaii Pacific Health
07/07/04* 1.130%, ASSET; BNS 1,400,000 1,400,000
--------------
IDAHO - 1.1%
Blaine County School District
07/30/04 2.000% 1,000,000 1,000,773
--------------
ILLINOIS - 14.0%
Chicago Public Building
02/01/05 5.375%, FGIC 550,000 563,713
Illinois Development Financial Authority
08/16/04 4.200%, ONE 500,000 501,781
Illinois Educational Facilities Authority
07/07/04* 1.100%, FITB 1,600,000 1,600,000
Illinois Financial Authority
07/01/04* 1.030%, UBS 1,000,000 1,000,000
Illinois Housing Development Authority
07/07/04* 1.050%, FHLMC 2,400,000 2,400,000
Illinois State
07/07/04* 1.120%, MBIA;WB 1,990,000 1,990,000
Regional Transport Authority
07/07/04* 1.120%, MBIA;WB 1,000,000 1,000,000
Rockford Industrial Development
07/01/04* 1.200%, MI 4,000,000 4,000,000
--------------
TOTAL ILLINOIS 13,055,494
--------------
INDIANA - 2.1%
Hendricks County
Industrial Redevelopment
07/01/04* 1.150%, HBAN 1,000,000 1,000,000
Indiana Transport Financial Authority
07/01/04* 1.160%, FGIC; BK 1,000,000 1,000,000
--------------
TOTAL INDIANA 2,000,000
--------------
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
<Page>
<Table>
<Caption>
DUE DISCOUNT RATE OR PRINCIPAL
DATE COUPON RATE AMOUNT VALUE
- ---- ----------- --------- -----
IOWA - 2.1%
Des Moines
Commercial Development
07/01/04* 1.230%, PFG $ 2,000,000 $ 2,000,000
--------------
KANSAS - 0.9%
Topeka
08/15/04 3.000%, MBIA 860,000 862,115
--------------
KENTUCKY - 0.7%
Lexington Center Corp.
10/01/04 2.000% 645,000 646,289
--------------
MICHIGAN - 6.2%
Detroit Economic Development
07/01/04* 1.200%, CF 1,775,000 1,775,000
Sewage Disposal
07/01/04* 1.060%, FSA; DEXGRP 2,500,000 2,500,000
07/07/04* 1.120%, FSA;WB 1,465,000 1,465,000
--------------
TOTAL MICHIGAN 5,740,000
--------------
MINNESOTA - 3.4%
Minneapolis Convention Center
07/01/04* 0.950%, DEXGRP 3,200,000 3,200,000
--------------
MISSISSIPPI - 3.8%
Mississippi State Development Bank
07/07/04* 1.150%, ABK; BNP 3,525,000 3,525,000
--------------
MISSOURI - 0.7%
Kansas City
09/01/04 6.875%, FSA 675,000 688,407
--------------
NEBRASKA - 0.3%
Public Power District
07/01/04 4.750% 275,000 277,750
--------------
NEW YORK - 3.7%
New York
07/01/04* 1.040%, JPM 3,300,000 3,300,000
Rochester
10/01/04 5.125%, MBIA 180,000 181,811
--------------
TOTAL NEW YORK 3,481,811
--------------
NORTH CAROLINA - 0.5%
Charlotte Convention Facility
07/01/04* 1.130%, WB 485,000 485,000
--------------
OHIO - 10.5%
Akron ABN AMRO Munitops
08/25/04* 1.090%, FGIC; AAB 500,000 500,000
American Municipal Power
07/22/04 1.200% 500,000 500,000
Canton
12/01/04 4.500%, ABK 400,000 405,635
Fairfield County
04/13/05 2.000% 900,000 905,691
Franklin County
07/07/04* 1.130%, ABK; BSC 4,100,000 4,100,000
Garfield Heights
12/15/04 2.000%, FSA 485,000 486,978
Licking County
12/01/04 2.000%, MBIA 500,000 501,851
Ohio State Higher Educational Facility
07/01/04* 1.150%, KEY 1,800,000 1,800,000
Olmstead Falls
12/15/04 6.850%, FGIC 550,000 575,426
--------------
TOTAL OHIO 9,775,581
--------------
PENNSYLVANIA - 13.4%
Berks County
11/15/04 5.400%, ABK $ 550,000 $ 558,786
Chester County Development Authority
07/07/04* 1.110%, RBS 3,500,000 3,500,000
South Central General Authority
07/01/04* 1.130%, ABK; RY 3,000,000 3,000,000
Union County Hospital Authority
02/01/05* 1.220%, ASSET; BAC 1,500,000 1,500,000
York General Authority
07/01/04* 1.180%, MTB 3,950,000 3,950,000
--------------
TOTAL PENNSYLVANIA 12,508,786
--------------
PUERTO RICO - 1.5%
Puerto Rico Commonwealth
07/30/04 2.000% 1,415,000 1,416,189
--------------
TENNESSEE - 10.3%
Chattanooga-Hamilton County
Hospital Authority
10/01/04 5.375%, FSA 2,000,000 2,020,919
Memphis
07/07/04* 1.080%, WESTLB 900,000 900,000
Metro. Gov't Nashville Health &
Educational Facilities
07/01/04* 1.130%, SOTR 1,165,000 1,165,000
01/15/05* 1.050%, VANDU 2,500,000 2,500,000
Shelby County Health, Education &
Housing Facilities
07/07/04* 1.100%, CRDSUI 3,000,000 3,000,000
--------------
TOTAL TENNESSEE 9,585,919
--------------
TEXAS - 3.2%
Harris County
07/01/04* 1.140%, FSA; C 675,000 675,000
Plano Independent School District
02/15/05 5.000%, PSFG 250,000 255,917
Texas Housing Agency
07/01/04* 1.130%, FHLMC; MER 500,000 500,000
Texas State
08/31/04 2.000% 1,500,000 1,502,088
--------------
TOTAL TEXAS 2,933,005
--------------
VIRGINIA - 3.1%
University of Virginia
07/07/04* 1.120%, WB 2,690,000 2,690,000
Virginia Commowealth Transportation
07/01/04* 1.120%, SOCGEN 155,000 155,000
--------------
TOTAL VIRGINIA 2,845,000
--------------
WASHINGTON - 3.3%
Washington State
07/01/04* 1.120%, BNP 3,060,000 3,060,000
--------------
TOTAL MUNICIPAL BONDS & NOTES 93,212,119
--------------
TOTAL INVESTMENTS - 100.0% $ 93,212,119
==============
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
9
<Page>
*Floating or variable rate security - rate disclosed as of June 30, 2004.
Maturity date represents the next interest rate reset date.
To simplify the listings of securities, abbreviations are used per the table
below:
AAB ABN AMRO Holding N.V.
ABK AMBAC Financial Group, Inc.
ASSET Radian Asset Assurance
BAC Bank of America Corp.
BK Bank of New York Co.
BNP BNP Paribas
BNS Bank of Nova Scotia
BSC Bear Stearns Co.
C Citigroup, Inc.
CF Charter One Financial, Inc.
CRDSUI Credit Suisse Group
DEXGRP Dexia Bank
FGIC Financial Guaranty Insurance Co.
FHLMC Federal Home Loan Mortgage Corp.
FITB Fifth Third Bancorp
FSA Financial Security Assurance, Inc.
HBAN Huntington Bancshares, Inc.
HESLAN Landesbank Hessen - Thuringen Girozentrale
JPM J.P. Morgan Chase & Co.
KEY Keycorp
MBIA Municipal Bond Insurance Association
MER Merrill Lynch & Co., Inc.
MI Marshall & Ilsley Corp.
MTB M&T Bank Corp.
ONE Bank One
PFG Principal Financial Corp.
PSFG Permanent School Fund
RBS Royal Bank of Scotland Group
RY Royal Bank of Canada
SOCGEN Societe Generale
SOTR Southtrust Corp.
UBS UBS AG Corp.
VANDU Vanderbilt University
WB Wachovia Corp.
WESTLB WestLB AG
INCOME TAX INFORMATION:
Total cost for federal income tax purposes - $93,212,119.
As of June 30, 2004, the Municipal Money Market Portfolio had capital loss
carryovers of $3,272, $1,764 and $1,684 available to offset capital gains to the
extent provided in regulations, which will expire on June 30, 2009, 2010, and
2011, respectively. During the year ended June 30, 2004, the Municipal Money
Market Portfolio used capital loss carryovers of $1,017.
CASH RESERVE PORTFOLIO
<Table>
<Caption>
DUE DISCOUNT RATE OR PRINCIPAL
DATE COUPON RATE AMOUNT VALUE
- ---- ----------- --------- -----
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 10.1%
FEDERAL HOME LOAN BANK - 4.4%
09/12/04* 1.344% $ 8,000,000 $ 7,994,218
04/04/05 1.425% 2,500,000 2,500,000
--------------
TOTAL FEDERAL HOME LOAN BANK 10,494,218
--------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 1.1%
03/23/05 1.290% 2,500,000 2,500,000
--------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 4.6%
08/18/04* 1.180% 8,000,000 7,998,737
12/08/04 1.545% 3,000,000 3,000,000
--------------
TOTAL FEDERAL NAT'L MORTGAGE ASSOC. 10,998,737
--------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS 23,992,955
--------------
CERTIFICATES OF DEPOSIT - 13.5%
DEPOSITORY INSTITUTIONS - 13.5%
Societe Generale
05/09/05 1.440% 3,000,000 2,999,497
Swedbank
03/01/05 1.440% 6,000,000 5,999,049
Washington Mutual Bank
07/19/04 1.220% 11,000,000 11,000,000
Westdeutsche Landesbank
08/05/04 1.400% 12,000,000 12,000,000
--------------
TOTAL CERTIFICATES OF DEPOSIT 31,998,546
--------------
COMMERCIAL PAPER - 62.8%
ASSET-BACKED SECURITIES - 40.9%
Amsterdam Funding Corp.
07/20/04 1.260% 12,000,000 11,992,017
Atomium Funding Corp.
07/16/04 1.230% 11,935,000 11,928,880
Cancara Asset Securitisation
07/22/04 1.280% 8,072,000 8,065,971
Concord Minutemen Capital
07/20/04 1.280% 12,205,000 12,196,753
Crown Point Capital
08/16/04 1.350% 11,162,000 11,142,735
Dakota Notes Program
08/03/04 1.280% 12,000,000 11,985,915
Emerald Certificates
07/28/04 1.125% 4,705,000 4,701,023
Liberty Lighthouse Funding
07/19/04 1.240% 5,000,000 4,996,899
Regency Markets, llc
07/21/04 1.300% 12,130,000 12,121,238
Victory Receivables Corp.
07/09/04 1.180% 8,000,000 7,997,901
--------------
TOTAL ASSET-BACKED SECURITIES 97,129,332
--------------
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
10
<Page>
<Table>
<Caption>
DUE DISCOUNT RATE OR PRINCIPAL
DATE COUPON RATE AMOUNT VALUE
- ---- ----------- ------ -----
DEPOSITORY INSTITUTIONS - 15.0%
Banco Santander
07/27/04 1.260% $ 12,000,000 $ 11,989,077
GE Capital International Funding
07/09/04 1.170% 11,935,000 11,931,896
National Rural Utilities Corp.
07/23/04 1.220% 11,750,000 11,741,236
--------------
TOTAL DEPOSITORY INSTITUTIONS 35,662,209
--------------
FINANCIAL SERVICES - 6.9%
Rabo Bank
07/01/04 1.400% 10,000,000 10,000,000
UBS Finance
07/01/04 1.420% 6,242,000 6,242,000
--------------
TOTAL FINANCIAL SERVICES 16,242,000
--------------
TOTAL COMMERCIAL PAPER 149,033,541
--------------
CORPORATE NOTES - 13.6%
ASSET BACKED SECURITIES - 0.4%
Racers Trust**
07/22/04* 1.280% 1,000,000 1,000,000
--------------
BROKER/DEALER - 4.6%
Merrill Lynch & Co.
07/06/04* 1.060% 11,000,000 11,000,000
--------------
DEPOSITORY INSTITUTIONS - 5.2%
HBOS Treasury Services, plc**
09/24/04* 1.579% 10,000,000 10,000,000
Westpac Banking Corp.
09/13/04* 1.408% 2,250,000 2,250,000
--------------
TOTAL DEPOSITORY INSTITUTIONS 12,250,000
--------------
INSURANCE - 3.4%
John Hancock Global Funding II**
07/01/04* 1.478% 8,000,000 8,000,000
--------------
TOTAL CORPORATE NOTES 32,250,000
--------------
TOTAL INVESTMENTS - 100.0% $ 237,275,042
==============
</Table>
* Floating or variable rate security - rate disclosed as of June 30, 2004.
Maturity date represents the next interest rate reset date.
**Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At June 30, 2004, these securities
amounted to a value of $19,000,000 or 8.00% of net assets.
INCOME TAX INFORMATION:
Total cost for federal income tax purposes - $237,275,042.
As of June 30, 2004, the Cash Reserve Portfolio had a capital loss carryover of
$19,408 available to offset capital gains to the extent provided in regulations,
which will expire on June 30, 2011. During the year ended June 30, 2004, the
Cash Reserve Portfolio used capital loss carryovers of $342.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2004
<Table>
<Caption>
CORE EQUITY CAPITAL APPRECIATION
PORTFOLIO PORTFOLIO
-------------------------------------------
ASSETS:
Investments, at value (cost -see below) $ 589,703,357 $ 111,009,545
Receivable for investments sold 0 303,397
Receivable for portfolio shares sold 73,675 234,690
Dividends receivable 535,682 50,870
Interest receivable 16,197 26
Other assets 20,580 17,728
-------------------------------------------
Total assets 590,349,491 111,616,256
-------------------------------------------
LIABILITIES:
Payable for investments purchased 0 881,111
Payable for portfolio shares redeemed 328,808 45,581
Accrued management fee 335,469 70,929
Accrued administration fee 59,589 9,948
Accrued co-administration fee 43,925 7,443
Accrued distribution fee 45,540 1,157
Accrued shareholder servicing fee 34,742 1,537
Other payables and accrued expenses 240,572 35,157
-------------------------------------------
Total Liabilities 1,088,645 1,052,863
-------------------------------------------
NET ASSETS $ 589,260,846 $ 110,563,393
===========================================
NET ASSETS CONSIST OF:
Paid in capital $ 498,752,646 $ 102,652,535
Undistributed net investment income 316,607 0
Accumulated net realized gain/(loss) on investments 20,826,552 (6,637,171)
Net unrealized appreciation
in value of investments 69,365,041 14,548,029
-------------------------------------------
NET ASSETS $ 589,260,846 $ 110,563,393
===========================================
COST OF INVESTMENTS $ 520,338,316 $ 96,461,516
===========================================
NET ASSET VALUE PER SHARE
Net Assets
Class I $ 436,163,951 $ 101,569,588
Class A $ 85,249,912 $ 7,073,281
Class B $ 15,432,304 $ 1,164,274
Class C $ 52,414,679 $ 756,250
-------------------------------------------
Shares of beneficial interest outstanding of $.01
par value, unlimited shares authorized
Class I 23,309,465 8,977,296
Class A 4,565,386 641,824
Class B 857,946 107,559
Class C 2,953,487 72,922
-------------------------------------------
Net Asset Value and redemption price per share
Class I $ 18.71 $ 11.31
Class A $ 18.67 $ 11.02
Class B $ 17.99 $ 10.82
Class C $ 17.75 $ 10.37
-------------------------------------------
Maximum offering price per share
Class I (no sales charge) $ 18.71 $ 11.31
Class A (net asset value plus maximum
sales charge of 5.75% of offering price) $ 19.81 $ 11.69
Class B (no sales charge) $ 17.99 $ 10.82
Class C (no sales charge) $ 17.75 $ 10.37
-------------------------------------------
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
12
<Page>
<Table>
<Caption>
INTERMEDIATE BOND TENNESSEE TAX-FREE
PORTFOLIO PORTFOLIO
-------------------------------------------
ASSETS:
Investments, at value (cost -see below) $ 382,995,145 $ 160,799,036
Receivable for portfolio shares sold 157,322 44,550
Interest receivable 6,614,287 2,238,463
Other assets 30,462 10,781
-------------------------------------------
Total assets 389,797,216 163,092,830
-------------------------------------------
LIABILITIES:
Payable for portfolio shares redeemed 148,817 46,115
Accrued management fee 90,137 36,916
Accrued administration fee 37,818 15,699
Accrued co-administration fee 28,000 11,691
Dividends payable 489,406 444,678
Accrued distribution fee 2,134 6,151
Accrued shareholder servicing fee 5,429 2,091
Other payables and accrued expenses 137,313 68,920
-------------------------------------------
Total Liabilities 939,054 632,261
-------------------------------------------
NET ASSETS $ 388,858,162 $ 162,460,569
===========================================
NET ASSETS CONSIST OF:
Paid in capital $ 383,169,739 $ 157,408,998
Undistributed net investment income 200,573 8,108
Accumulated net realized gain on investments 1,027,981 430,833
Net unrealized appreciation
in value of investments 4,459,869 4,612,630
-------------------------------------------
NET ASSETS $ 388,858,162 $ 162,460,569
===========================================
COST OF INVESTMENTS $ 378,535,276 $ 156,186,406
===========================================
NET ASSET VALUE PER SHARE
Net Assets
Class I $ 367,269,200 $ 143,278,436
Class A $ 18,758,375 $ 9,934,950
Class B $ 609,227 $ 3,856,315
Class C $ 2,221,360 $ 5,390,868
-------------------------------------------
Shares of beneficial interest outstanding of $.01
par value, unlimited shares authorized
Class I 35,858,163 13,966,731
Class A 1,832,402 966,411
Class B 59,471 375,864
Class C 216,707 525,077
-------------------------------------------
Net Asset Value and redemption price per share
Class I $ 10.24 $ 10.26
Class A $ 10.24 $ 10.28
Class B $ 10.24 $ 10.26
Class C $ 10.25 $ 10.27
-------------------------------------------
Maximum offering price per share
Class I (no sales charge) $ 10.24 $ 10.26
Class A (net asset value plus maximum
sales charge of 3.50% and 3.75%,
respectively, of offering price) $ 10.61 $ 10.68
Class B (no sales charge) $ 10.24 $ 10.26
Class C (no sales charge) $ 10.25 $ 10.27
-------------------------------------------
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
13
<Page>
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL CASH
MONEY MARKET MONEY MARKET RESERVE
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------
ASSETS:
Investments, at value $ 124,551,392 $ 93,212,119 $ 237,275,042
Cash 348 61,154 92
Receivable for portfolio shares sold 9,374 0 0
Interest receivable 125,559 322,645 285,389
Other assets 9,883 9,496 13,174
--------------------------------------------------------------------
Total assets 124,696,556 93,605,414 237,573,697
--------------------------------------------------------------------
LIABILITIES:
Payable for portfolio shares redeemed 408,074 0 0
Dividends payable 39,043 33,603 21,765
Accrued management fee 9,216 6,422 16,508
Accrued administration fee 5,266 3,821 9,833
Accrued co-administration fee 657 1,559 5,255
Accrued distribution fee 1,878 9,035 42,650
Other payables and accrued expenses 27,884 30,174 79,680
--------------------------------------------------------------------
Total Liabilities 492,018 84,614 175,691
--------------------------------------------------------------------
NET ASSETS $ 124,204,538 $ 93,520,800 $ 237,398,006
====================================================================
NET ASSETS CONSIST OF:
Paid in capital $ 124,216,244 $ 93,527,520 $ 237,404,180
Undistributed net investment income 335 0 13,234
Accumulated net realized loss on investments (12,041) (6,720) (19,408)
--------------------------------------------------------------------
NET ASSETS (1) $ 124,204,538 $ 93,520,800 $ 237,398,006
====================================================================
NET ASSET VALUE, offering price and redemption
price per share $ 1.00 $ 1.00 $ 1.00
====================================================================
<Caption>
SHARES OF BENEFICIAL INTEREST
NET OUTSTANDING, ($.01 PAR VALUE,
(1) ASSETS UNLIMITED SHARES AUTHORIZED)
----------------------------------------------------
U.S. Government Money Market
Class I $ 116,123,505 116,135,622
Class C 8,081,033 8,080,620
Municipal Money Market
Class I 48,719,983 48,729,311
Class C 44,800,817 44,801,222
Cash Reserve
Class I 28,827,472 28,828,746
Class B 194,079 194,079
Class C 208,376,455 208,386,029
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
14
<Page>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2004
<Table>
<Caption>
CORE EQUITY CAPITAL APPRECIATION
PORTFOLIO PORTFOLIO
-------------------------------------------
INVESTMENT INCOME:
Dividends $ 7,954,978 $ 434,546
Interest 203,355 34,088
-------------------------------------------
Total investment income 8,158,333 468,634
-------------------------------------------
EXPENSES:
Management fee 4,059,021 116,076
Co-management fee - 528,032
Administration fee 718,134 88,992
Co-administration fee 530,795 65,777
Fund accounting fee 126,723 18,006
Custody fee 85,985 32,001
Transfer agent fee 424,262 43,786
Blue sky fee 42,485 17,852
Distribution fee:
Class B 151,564 9,079
Class C 406,909 4,669
Shareholder servicing fee:
Class A 212,648 10,807
Class C 135,636 1,556
Trustees fee 29,848 3,789
Audit & tax 40,532 26,837
Legal 56,443 5,296
Reports to shareholders 91,390 7,084
Miscellaneous 109,439 13,988
-------------------------------------------
Net expenses 7,221,814 993,627
-------------------------------------------
NET INVESTMENT INCOME/(LOSS) 936,519 (524,993)
-------------------------------------------
Net realized gain on investments 31,151,029 7,893,312
Change in net unrealized appreciation/depreciation 62,665,389 5,935,625
-------------------------------------------
Net gain on investments 93,816,418 13,828,937
-------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 94,752,937 $ 13,303,944
===========================================
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
<Caption>
INTERMEDIATE BOND TENNESSEE TAX-FREE
PORTFOLIO PORTFOLIO
-------------------------------------------
INTEREST INCOME: $ 19,058,218 $ 7,844,216
-------------------------------------------
EXPENSES:
Management fee 2,124,888 878,614
Administration fee 511,038 202,081
Co-administration fee 377,724 149,364
Fund accounting fee 95,814 46,491
Custody fee 62,038 26,425
Transfer agent fee 185,933 77,453
Blue sky fee 28,817 4,057
Distribution fee:
Class B 4,742 33,056
Class C 21,139 46,703
Shareholder servicing fee:
Class A 117,684 25,499
Class C 7,046 15,568
Trustees fee 20,248 8,548
Audit & tax 39,399 30,419
Legal 61,524 11,665
Reports to shareholders 63,409 18,600
Miscellaneous 87,603 32,637
-------------------------------------------
Total expenses before waiver 3,809,046 1,607,180
Waiver of expenses (798,791) (382,581)
-------------------------------------------
Net expenses 3,010,255 1,224,599
-------------------------------------------
NET INVESTMENT INCOME 16,047,963 6,619,617
-------------------------------------------
Net realized gain on investments 4,342,162 612,680
Change in net unrealized appreciation/depreciation (22,294,267) (7,643,284)
-------------------------------------------
Net loss on investments (17,952,105) (7,030,604)
-------------------------------------------
NET DECREASE IN NET ASSETS
FROM OPERATIONS $ (1,904,142) $ (410,987)
===========================================
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
<Page>
<Table>
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET CASH RESERVE
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------
INTEREST INCOME: $ 1,346,289 $ 1,042,106 $ 2,876,199
--------------------------------------------------------------------
EXPENSES:
Management fee 61,038 48,617 125,247
Co-management fee 97,662 77,788 200,395
Administration fee 61,038 48,617 125,247
Co-administration fee 61,038 48,617 125,247
Fund accounting fee 17,091 13,613 35,069
Custody fee 12,208 9,724 25,049
Transfer agent fee 35,517 28,420 96,980
Blue sky fee 4,509 3,968 29,068
Distribution fee:
Class B - - 241
Class C 41,342 150,989 953,439
Trustees fee 5,625 5,068 11,734
Audit & tax 13,796 15,559 41,972
Legal 9,809 9,178 25,383
Reports to shareholders 10,798 11,502 32,101
Miscellaneous 24,010 20,956 46,123
--------------------------------------------------------------------
Total expenses before waiver 455,481 492,616 1,873,295
Waiver of expenses (127,759) (117,444) (592,966)
--------------------------------------------------------------------
Net expenses 327,722 375,172 1,280,329
--------------------------------------------------------------------
NET INVESTMENT INCOME 1,018,567 666,934 1,595,870
--------------------------------------------------------------------
Net realized gain on investments 7,142 2,518 342
--------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 1,025,709 $ 669,452 $ 1,596,212
====================================================================
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
CORE EQUITY CAPITAL APPRECIATION
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR
ENDED JUNE 30, ENDED JUNE 30,
2004 2003 2004 2003
------------------------------------------------------------------------
OPERATIONS:
Net investment income/(loss) $ 936,519 $ 1,961,387 $ (524,993) $ (358,896)
Net realized gain/(loss) on investments 31,151,029 (7,098,825) 7,893,312 (1,985,661)
Change in net unrealized
appreciation/depreciation 62,665,389 9,909,791 5,935,625 9,005,198
------------------------------------------------------------------------
Net increase in net assets
from operations 94,752,937 4,772,353 13,303,944 6,660,641
------------------------------------------------------------------------
DISTRIBUTIONS:
From net investment income:
Class I (859,812) (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 (929,907) (1,898,117) 0 0
------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sales of shares 70,177,314 60,523,606 51,995,033 8,597,749
Reinvested dividends 585,914 1,143,196 0 0
Cost of shares redeemed (192,558,730) (173,401,093) (8,380,487) (5,646,983)
------------------------------------------------------------------------
Net increase/(decrease) in net assets
from share transactions (121,795,502) (111,734,291) 43,614,546 2,950,766
------------------------------------------------------------------------
Net increase/(decrease)
in net assets (27,972,472) (108,860,055) 56,918,490 9,611,407
NET ASSETS:
Beginning of period 617,233,318 726,093,373 53,644,903 44,033,496
------------------------------------------------------------------------
End of period* $ 589,260,846 $ 617,233,318 $ 110,563,393 $ 53,644,903
========================================================================
*Includes undistributed
net investment income of $ 316,607 $ 309,995 $ 0 $ 0
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
<Page>
<Table>
<Caption>
INTERMEDIATE BOND TENNESSEE TAX-FREE
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR
ENDED JUNE 30, ENDED JUNE 30,
2004 2003 2004 2003
------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 16,047,963 $ 10,869,046 $ 6,619,617 $ 7,119,254
Net realized gain on investments 4,342,162 2,931,688 612,680 673,317
Change in net unrealized
appreciation/depreciation (22,294,267) 18,718,131 (7,643,284) 4,345,890
------------------------------------------------------------------------
Net increase/(decrease) in net assets
from operations (1,904,142) 32,518,865 (410,987) 12,138,461
------------------------------------------------------------------------
DISTRIBUTIONS:
From net investment income:
Class I (14,352,937) (8,646,237) (5,902,434) (6,427,078)
Class A (1,593,527) (2,139,216) (363,630) (359,541)
Class B (19,968) (9,586) (147,155) (92,243)
Class C (81,531) (74,007) (206,398) (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 (22,048,679) (12,294,575) (7,393,010) (7,649,793)
------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sales of shares 100,036,793 296,607,692 20,719,407 25,222,559
Reinvested dividends 13,025,541 5,218,307 995,411 979,815
Cost of shares redeemed (200,594,110) (61,873,921) (38,832,205) (25,076,713)
------------------------------------------------------------------------
Net increase/(decrease) in net assets
from share transactions (87,531,776) 239,952,078 (17,117,387) 1,125,661
------------------------------------------------------------------------
Net increase/(decrease)
in net assets (111,484,597) 260,176,368 (24,921,384) 5,614,329
NET ASSETS:
Beginning of period 500,342,759 240,166,391 187,381,953 181,767,624
------------------------------------------------------------------------
End of period* $ 388,858,162 $ 500,342,759 $ 162,460,569 $ 187,381,953
========================================================================
*Includes undistributed
net investment income of $ 200,573 $ 835,399 $ 8,108 $ 8,179
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
<Page>
<Table>
<Caption>
U.S. GOVERNMENT MONEY
MARKET PORTFOLIO
----------------------------------
FOR THE YEAR
ENDED JUNE 30,
2004 2003
----------------------------------
OPERATIONS:
Net investment income $ 1,018,567 $ 1,791,073
Net realized gain on investments 7,142 0
----------------------------------
Net increase in net assets from
operations 1,025,709 1,791,073
----------------------------------
DISTRIBUTIONS:
From net investment income
Class I (963,290) (1,705,994)
Class C (55,277) (85,079)
----------------------------------
Net decrease in net assets from
distributions (1,018,567) (1,791,073)
----------------------------------
SHARE TRANSACTIONS AT NET ASSET VALUE
OF $1.00 PER SHARE:
Proceeds from sales of shares 163,359,915 131,192,918
Reinvested dividends 178,626 82,129
Cost of shares redeemed (171,249,531) (136,193,759)
----------------------------------
Net decrease in net assets
from share transactions (7,710,990) (4,918,712)
----------------------------------
Net decrease
in net assets (7,703,848) (4,918,712)
NET ASSETS:
Beginning of period 131,908,386 136,827,098
----------------------------------
End of period* $ 124,204,538 $ 131,908,386
==================================
*Includes undistributed
net investment income of $ 335 $ 335
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
<Page>
<Table>
<Caption>
MUNICIPAL MONEY CASH RESERVE
MARKET PORTFOLIO PORTFOLIO
------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR
ENDED JUNE 30, ENDED JUNE 30,
2004 2003 2004 2003
------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 666,934 $ 900,941 $ 1,595,870 $ 3,086,078
Net realized gain/(loss) on
investments 2,518 (2,609) 342 1,440
------------------------------------------------------------------------
Net increase in net assets from
operations 669,452 898,332 1,596,212 3,087,518
------------------------------------------------------------------------
DISTRIBUTIONS:
From net investment income
Class I (490,288) (690,247) (327,515) (778,658)
Class B - - (62) (102)
Class C (176,646) (210,694) (1,268,293) (2,307,318)
------------------------------------------------------------------------
Net decrease in net assets from
distributions (666,934) (900,941) (1,595,870) (3,086,078)
------------------------------------------------------------------------
SHARE TRANSACTIONS AT NET ASSET VALUE
OF $1.00 PER SHARE:
Proceeds from sales of shares 185,671,128 143,234,292 446,528,883 511,935,377
Reinvested dividends 176,508 209,725 1,283,695 2,333,771
Cost of shares redeemed (185,621,815) (131,811,740) (466,212,336) (518,125,424)
------------------------------------------------------------------------
Net increase/(decrease) in net
assets from share transactions 225,821 11,632,277 (18,399,758) (3,856,276)
------------------------------------------------------------------------
Net increase/(decrease)
in net assets 228,339 11,629,668 (18,399,416) (3,854,836)
NET ASSETS:
Beginning of period 93,292,461 81,662,793 255,797,422 259,652,258
------------------------------------------------------------------------
End of period* $ 93,520,800 $ 93,292,461 $ 237,398,006 $ 255,797,422
========================================================================
*Includes undistributed net
investment income of $ 0 $ 0 $ 13,234 $ 13,234
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS
CORE EQUITY PORTFOLIO
<Table>
<Caption>
CLASS I
FOR THE YEAR ENDED JUNE 30,
2004^ 2003^ 2002 2001 2000
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 16.12 $ 15.74 $ 21.87 $ 25.33 $ 26.26
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05 0.07 0.08 0.07 0.11
Net realized and unrealized gain/(loss)
on investments 2.57 0.37 (4.52) 0.06 1.88
---------------------------------------------------------------------------
Total from investment operations 2.62 0.44 (4.44) 0.13 1.99
---------------------------------------------------------------------------
Distributions:
Net investment income (0.03) (0.06) (0.08) (0.04) (0.09)
Net realized gain - - (1.61) (3.55) (2.83)
---------------------------------------------------------------------------
Total distributions (0.03) (0.06) (1.69) (3.59) (2.92)
---------------------------------------------------------------------------
Net asset value, end of period $ 18.71 $ 16.12 $ 15.74 $ 21.87 $ 25.33
===========================================================================
TOTAL RETURN 16.28% 2.82% (21.53)% (0.70)% 8.15%+
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 436,164 $ 470,855 $ 541,058 $ 716,068 $ 790,050
Ratio of expenses to average daily net assets 1.01% 0.98% 0.94% 0.97% 0.87%(1)
Ratio of net investment income to average
net assets 0.30% 0.47% 0.44% 0.31% 0.44%
Portfolio turnover rate 18% 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. - - - - 0.95%
<Caption>
CLASS A
FOR THE YEAR ENDED JUNE 30,
2004^ 2003^ 2002 2001 2000
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 16.11 $ 15.73 $ 21.85 $ 25.33 $ 26.30
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.01 0.03 0.04 0.01 0.03
Net realized and unrealized gain/(loss)
on investments 2.56 0.37 (4.51) 0.06 1.88
---------------------------------------------------------------------------
Total from investment operations 2.57 0.40 (4.47) 0.07 1.91
---------------------------------------------------------------------------
Distributions:
Net investment income (0.01) (0.02) (0.04) - (0.05)
Net realized gain - - (1.61) (3.55) (2.83)
---------------------------------------------------------------------------
Total distributions (0.01) (0.02) (1.65) (3.55) (2.88)
---------------------------------------------------------------------------
Net asset value, end of period $ 18.67 $ 16.11 $ 15.73 $ 21.85 $ 25.33
===========================================================================
TOTAL RETURN* 15.99% 2.58% (21.73)% (0.95)% 7.80%+
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 85,250 $ 79,265 $ 105,294 $ 134,604 $ 101,907
Ratio of expenses to average daily net assets 1.26% 1.24% 1.19% 1.23% 1.18%(1)
Ratio of net investment income to average net
assets 0.05% 0.21% 0.20% 0.05% 0.13%
Portfolio turnover rate 18% 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. - - - - 1.25%
</Table>
* Class A total return does not include the one-time front-end sales charge.
+ Total return would have been lower had various fees not been waived during
the period.
^ Per share amounts calculated based on the average shares outstanding during
the period.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
<Page>
<Table>
<Caption>
CLASS B
FOR THE YEAR ENDED JUNE 30,
2004^ 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 (0.12) (0.08) (0.05) (0.05) (0.07)
Net realized and unrealized gain/(loss)
on investments 2.49 0.35 (4.48) (0.04) 2.20
---------------------------------------------------------------------------
Total from investment operations 2.37 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 $ 17.99 $ 15.62 $ 15.35 $ 21.49 $ 25.13
===========================================================================
TOTAL RETURN 15.17% 1.76% (22.39)% (1.65)% 8.72%+#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 15,432 $ 14,069 $ 15,636 $ 13,849 $ 5,372
Ratio of expenses to average daily net assets 2.02% 2.01% 1.98% 1.99% 1.91%(1)*
Ratio of net investment loss to average net
assets (0.71)% (0.56)% (0.59)% (0.71)% (0.60)%*
Portfolio turnover rate 18% 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. - - - - 1.98%*
<Caption>
CLASS C
FOR THE YEAR ENDED JUNE 30,
2004^ 2003^ 2002 2001 2000
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.41 $ 15.15 $ 21.23 $ 24.87 $ 26.00
---------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.12) (0.08) (0.12) (0.13) (0.13)
Net realized and unrealized gain/(loss)
on investments 2.46 0.34 (4.35) 0.04 1.83
---------------------------------------------------------------------------
Total from investment operations 2.34 0.26 (4.47) (0.09) 1.70
---------------------------------------------------------------------------
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 $ 17.75 $ 15.41 $ 15.15 $ 21.23 $ 24.87
===========================================================================
TOTAL RETURN 15.18% 1.72% (22.38)% (1.66)% 7.02%+
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 52,415 $ 53,045 $ 64,105 $ 93,201 $ 101,084
Ratio of expenses to average daily net assets 2.02% 1.98% 1.95% 1.96% 1.92%(1)
Ratio of net investment loss to average net
assets (0.71)% (0.53)% (0.56)% (0.69)% (0.61)%
Portfolio turnover rate 18% 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. - - - - 2.00%
</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.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
<Page>
CAPITAL APPRECIATION PORTFOLIO
<Table>
<Caption>
CLASS I
FOR THE YEAR ENDED JUNE 30,
2004 2003 2002 2001 2000
SELECTED PER-SHARE DATA^
Net asset value, beginning of period $ 9.14 $ 8.03 $ 9.98 $ 14.47 $ 10.25
---------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.07) (0.06) (0.09) (0.05) (0.09)
Net realized and unrealized gain/(loss)
on investments 2.24 1.17 (1.86) (1.22) 4.31
---------------------------------------------------------------------------
Total from investment operations 2.17 1.11 (1.95) (1.27) 4.22
---------------------------------------------------------------------------
Distributions:
Net realized gain - - - (3.22) -
---------------------------------------------------------------------------
Net asset value, end of period $ 11.31 $ 9.14 $ 8.03 $ 9.98 $ 14.47
===========================================================================
TOTAL RETURN 23.74% 13.82% (19.54)% (10.93)% 41.17%+
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 101,570 $ 49,572 $ 39,175 $ 44,746 $ 46,042
Ratio of expenses to average daily net assets 1.25% 1.26% 1.46% 1.27% 1.19%(1)
Ratio of net investment loss to average net
assets (0.64)% (0.81)% (1.01)% (0.45)% (0.77)%
Portfolio turnover rate 71% 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. - - - - 1.26%
<Caption>
CLASS A
FOR THE YEAR ENDED JUNE 30,
2004 2003 2002 2001 2000
SELECTED PER-SHARE DATA^
Net asset value, beginning of period $ 8.93 $ 7.86 $ 9.80 $ 14.31 $ 10.20
---------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.09) (0.08) (0.11) (0.09) (0.15)
Net realized and unrealized gain/(loss)
on investments 2.18 1.15 (1.83) (1.20) 4.26
---------------------------------------------------------------------------
Total from investment operations 2.09 1.07 (1.94) (1.29) 4.11
---------------------------------------------------------------------------
Distributions:
Net realized gain - - - (3.22) -
---------------------------------------------------------------------------
Net asset value, end of period $ 11.02 $ 8.93 $ 7.86 $ 9.80 $ 14.31
===========================================================================
TOTAL RETURN* 23.40% 13.61% (19.80)% (11.21)% 40.29%+
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 7,073 $ 3,083 $ 3,879 $ 5,150 $ 3,883
Ratio of expenses to average daily net assets 1.50% 1.49% 1.76% 1.62% 1.63%(1)
Ratio of net investment loss to average net
assets (0.89)% (1.05)% (1.32)% (0.80)% (1.21)%
Portfolio turnover rate 71% 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. - - - - 1.70%
</Table>
* Class A total return does not include the one-time front-end sales charge.
+ Total return would have been lower had various fees not been waived during
the period.
^ Per share amounts calculated based on the average shares outstanding during
the period.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
<Page>
<Table>
<Caption>
CLASS B
FOR THE YEAR ENDED JUNE 30,
2004 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 (0.17) (0.13) (0.18) (0.16) (0.19)
Net realized and unrealized gain/(loss)
on investments 2.15 1.13 (1.84) (1.25) 4.62
---------------------------------------------------------------------------
Total from investment operations 1.98 1.00 (2.02) (1.41) 4.43
---------------------------------------------------------------------------
Distributions:
Net realized gain - - - (3.22) -
---------------------------------------------------------------------------
Net asset value, end of period $ 10.82 $ 8.84 $ 7.84 $ 9.86 $ 14.49
===========================================================================
TOTAL RETURN 22.40% 12.76% (20.49)% (12.00)% 44.04%+#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 1,164 $ 508 $ 515 $ 737 $ 175
Ratio of expenses to average daily net assets 2.25% 2.26% 2.62% 2.48% 2.46%(1)*
Ratio of net investment loss to average net
assets (1.64)% (1.82)% (2.17)% (1.66)% (2.04)%*
Portfolio turnover rate 71% 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. - - - - 2.52%*
<Caption>
CLASS C
FOR THE YEAR ENDED JUNE 30,
2004 2003 2002 2001 2000
SELECTED PER-SHARE DATA^
Net asset value, beginning of period $ 8.47 $ 7.51 $ 9.43 $ 14.02 $ 10.04
---------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.16) (0.12) (0.18) (0.19) (0.25)
Net realized and unrealized gain/(loss)
on investments 2.06 1.08 (1.74) (1.18) 4.23
---------------------------------------------------------------------------
Total from investment operations 1.90 0.96 (1.92) (1.37) 3.98
---------------------------------------------------------------------------
Distributions:
Net realized gain - - - (3.22) -
---------------------------------------------------------------------------
Net asset value, end of period $ 10.37 $ 8.47 $ 7.51 $ 9.43 $ 14.02
===========================================================================
TOTAL RETURN 22.43% 12.78% (20.36)% (12.13)% 39.64%+
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 756 $ 482 $ 463 $ 758 $ 634
Ratio of expenses to average daily net assets 2.25% 2.24% 2.63% 2.60% 2.50%(1)
Ratio of net investment loss to average net
assets (1.64)% (1.80)% (2.18)% (1.78)% (2.09)%
Portfolio turnover rate 71% 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. - - - - 2.57%
</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.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
<Page>
INTERMEDIATE BOND PORTFOLIO
<Table>
<Caption>
CLASS I
FOR THE YEAR ENDED JUNE 30,
2004 2003 2002 2001 2000
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.81 $ 10.39 $ 10.10 $ 9.59 $ 9.78
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.38 0.45 0.52 0.55 0.56
Net realized and unrealized gain/(loss)
on investments (0.43) 0.50 0.33 0.50 (0.19)
---------------------------------------------------------------------------
Total from investment operations (0.05) 0.95 0.85 1.05 0.37
---------------------------------------------------------------------------
Distributions:
Net investment income (0.38) (0.47) (0.52) (0.55) (0.56)
Net realized gain (0.14) (0.06) (0.04) - -
---------------------------------------------------------------------------
Total distributions (0.52) (0.53) (0.56) (0.55) (0.56)
---------------------------------------------------------------------------
Net asset value, end of period $ 10.24 $ 10.81 $ 10.39 $ 10.10 $ 9.59
===========================================================================
TOTAL RETURN+ (0.43)% 9.35% 8.59% 11.28% 3.97%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 367,269 $ 443,511 $ 188,425 $ 188,381 $ 202,385
Ratio of expenses to average daily net
assets (1) 0.65% 0.62% 0.62% 0.60% 0.46%
Ratio of net investment income to average net
assets 3.65% 4.41% 5.08% 5.52% 5.86%
Portfolio turnover rate 27% 36% 61% 59% 22%
(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% 0.82% 0.82% 0.80% 0.81%
<Caption>
CLASS A
FOR THE YEAR ENDED JUNE 30,
2004 2003 2002 2001 2000
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.82 $ 10.40 $ 10.10 $ 9.59 $ 9.78
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.36 0.44 0.50 0.52 0.53
Net realized and unrealized gain/(loss)
on investments (0.44) 0.48 0.34 0.51 (0.19)
---------------------------------------------------------------------------
Total from investment operations (0.08) 0.92 0.84 1.03 0.34
---------------------------------------------------------------------------
Distributions:
Net investment income (0.36) (0.44) (0.50) (0.52) (0.53)
Net realized gain (0.14) (0.06) (0.04) - -
---------------------------------------------------------------------------
Total distributions (0.50) (0.50) (0.54) (0.52) (0.53)
---------------------------------------------------------------------------
Net asset value, end of period $ 10.24 $ 10.82 $ 10.40 $ 10.10 $ 9.59
===========================================================================
TOTAL RETURN+* (0.75)% 9.08% 8.43% 10.99% 3.66%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 18,758 $ 52,686 $ 50,032 $ 45,098 $ 7,485
Ratio of expenses to average daily net
assets (1) 0.90% 0.88% 0.87% 0.84% 0.75%
Ratio of net investment income to average net
assets 3.40% 4.15% 4.83% 5.27% 5.57%
Portfolio turnover rate 27% 36% 61% 59% 22%
(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% 1.08% 1.07% 1.04% 1.11%
</Table>
* Class A total return does not include the one-time front-end sales charge.
+ Total return would have been lower had various fees not been waived during
the period.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26
<Page>
<Table>
<Caption>
CLASS B
FOR THE YEAR ENDED JUNE 30,
2004 2003**
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.82 $ 10.55
---------------------------
Income from investment operations:
Net investment income 0.31 0.27
Net realized and unrealized gain/(loss)
on investments (0.44) 0.33
---------------------------
Total from investment operations (0.13) 0.60
---------------------------
Distributions:
Net investment income (0.31) (0.27)
Net realized gain (0.14) (0.06)
---------------------------
Total distributions (0.45) (0.33)
---------------------------
Net asset value, end of period $ 10.24 $ 10.82
===========================
TOTAL RETURN+ (1.21)% 5.75%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 609 $ 678
Ratio of expenses to average daily net
assets (1) 1.35% 1.31%*
Ratio of net investment income to average net
assets 2.95% 3.72%*
Portfolio turnover rate 27% 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. 1.53% 1.51%*
<Caption>
CLASS C
FOR THE YEAR ENDED JUNE 30,
2004 2003 2002 2001 2000
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.82 $ 10.40 $ 10.10 $ 9.59 $ 9.77
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.30 0.38 0.44 0.47 0.48
Net realized and unrealized gain/(loss)
on investments (0.43) 0.49 0.34 0.51 (0.18)
---------------------------------------------------------------------------
Total from investment operations (0.13) 0.87 0.78 0.98 0.30
---------------------------------------------------------------------------
Distributions:
Net investment income (0.30) (0.39) (0.44) (0.47) (0.48)
Net realized gain (0.14) (0.06) (0.04) - -
---------------------------------------------------------------------------
Total distributions (0.44) (0.45) (0.48) (0.47) (0.48)
---------------------------------------------------------------------------
Net asset value, end of period $ 10.25 $ 10.82 $ 10.40 $ 10.10 $ 9.59
===========================================================================
TOTAL RETURN+ (1.17)% 8.54% 7.81% 10.38% 3.16%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 2,221 $ 3,468 $ 1,710 $ 1,333 $ 1,269
Ratio of expenses to average daily net
assets (1) 1.40% 1.37% 1.44% 1.42% 1.35%
Ratio of net investment income to average net
assets 2.90% 3.66% 4.25% 4.70% 4.97%
Portfolio turnover rate 27% 36% 61% 59% 22%
(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% 1.89% 1.86% 1.95%
</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.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27
<Page>
TENNESSEE TAX-FREE PORTFOLIO
<Table>
<Caption>
CLASS I
FOR THE YEAR ENDED JUNE 30,
2004 2003 2002 2001 2000
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.73 $ 10.47 $ 10.28 $ 9.89 $ 10.08
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.40 0.42 0.43 0.44 0.45
Net realized and unrealized gain/(loss)
on investments (0.42) 0.29 0.21 0.39 (0.18)
---------------------------------------------------------------------------
Total from investment operations (0.02) 0.71 0.64 0.83 0.27
---------------------------------------------------------------------------
Distributions:
Net investment income (0.40) (0.42) (0.43) (0.44) (0.45)
Net realized gain (0.05) (0.03) (0.02) - (0.01)
---------------------------------------------------------------------------
Total distributions (0.45) (0.45) (0.45) (0.44) (0.46)
---------------------------------------------------------------------------
Net asset value, end of period $ 10.26 $ 10.73 $ 10.47 $ 10.28 $ 9.89
===========================================================================
TOTAL RETURN+ (0.22)% 6.89% 6.34% 8.49% 2.83%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 143,278 $ 163,440 $ 164,437 $ 168,940 $ 172,620
Ratio of expenses to average daily net
assets (1) 0.65% 0.63% 0.64% 0.62% 0.45%
Ratio of net investment income to average net
assets 3.83% 3.93% 4.14% 4.29% 4.57%
Portfolio turnover rate 9% 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. 0.85% 0.83% 0.84% 0.82% 0.81%
<Caption>
CLASS A
FOR THE YEAR ENDED JUNE 30,
2004 2003 2002 2001 2000
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.75 $ 10.49 $ 10.31 $ 9.92 $ 10.11
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.38 0.39 0.40 0.41 0.44
Net realized and unrealized gain/(loss)
on investments (0.42) 0.29 0.20 0.39 (0.18)
---------------------------------------------------------------------------
Total from investment operations (0.04) 0.68 0.60 0.80 0.26
---------------------------------------------------------------------------
Distributions:
Net investment income (0.38) (0.39) (0.40) (0.41) (0.44)
Net realized gain (0.05) (0.03) (0.02) - (0.01)
---------------------------------------------------------------------------
Total distributions (0.43) (0.42) (0.42) (0.41) (0.45)
---------------------------------------------------------------------------
Net asset value, end of period $ 10.28 $ 10.75 $ 10.49 $ 10.31 $ 9.92
===========================================================================
TOTAL RETURN+* (0.45)% 6.62% 5.98% 8.20% 2.70%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 9,935 $ 11,661 $ 9,252 $ 12,836 $ 10,580
Ratio of expenses to average daily net
assets (1) 0.90% 0.87% 0.88% 0.87% 0.58%
Ratio of net investment income to average net
assets 3.58% 3.68% 3.90% 4.04% 4.44%
Portfolio turnover rate 9% 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. 1.10% 1.07% 1.08% 1.08% 1.09%^
</Table>
* Class A total return does not include the one-time front-end sales charge.
+ Total return would have been lower had various fees not been waived during
the period.
^ This ratio was previously reported net of the shareholder servicing fee
waiver.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28
<Page>
<Table>
<Caption>
CLASS B
FOR THE YEAR ENDED JUNE 30,
2004 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 0.33 0.34 0.35 0.36 0.34
Net realized and unrealized gain/(loss)
on investments (0.42) 0.29 0.20 0.39 (0.18)
---------------------------------------------------------------------------
Total from investment operations (0.09) 0.63 0.55 0.75 0.16
---------------------------------------------------------------------------
Distributions:
Net investment income (0.33) (0.34) (0.35) (0.36) (0.34)
Net realized gain (0.05) (0.03) (0.02) - (0.01)
---------------------------------------------------------------------------
Total distributions (0.38) (0.37) (0.37) (0.36) (0.35)
---------------------------------------------------------------------------
Net asset value, end of period $ 10.26 $ 10.73 $ 10.47 $ 10.29 $ 9.90
===========================================================================
TOTAL RETURN+ (0.91)% 6.15% 5.46% 7.72% 1.69%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 3,856 $ 4,673 $ 1,090 $ 309 $ 200
Ratio of expenses to average daily net
assets (1) 1.35% 1.32% 1.37% 1.33% 1.16%*
Ratio of net investment income to average net
assets 3.12% 3.23% 3.41% 3.58% 3.86%*
Portfolio turnover rate 9% 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. 1.55% 1.52% 1.57% 1.53% 1.52%*
<Caption>
CLASS C
FOR THE YEAR ENDED JUNE 30,
2004 2003 2002 2001 2000
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.74 $ 10.48 $ 10.29 $ 9.90 $ 10.09
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.35 0.37 0.38 0.38 0.40
Net realized and unrealized gain/(loss)
on investments (0.42) 0.29 0.21 0.39 (0.18)
---------------------------------------------------------------------------
Total from investment operations (0.07) 0.66 0.59 0.77 0.22
---------------------------------------------------------------------------
Distributions:
Net investment income (0.35) (0.37) (0.38) (0.38) (0.40)
Net realized gain (0.05) (0.03) (0.02) - (0.01)
---------------------------------------------------------------------------
Total distributions (0.40) (0.40) (0.40) (0.38) (0.41)
---------------------------------------------------------------------------
Net asset value, end of period $ 10.27 $ 10.74 $ 10.48 $ 10.29 $ 9.90
===========================================================================
TOTAL RETURN+ (0.71)% 6.37% 5.81% 7.89% 2.29%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 5,391 $ 7,608 $ 6,989 $ 6,426 $ 8,969
Ratio of expenses to average daily net
assets (1) 1.15% 1.12% 1.14% 1.17% 0.96%
Ratio of net investment income to average net
assets 3.32% 3.43% 3.65% 3.74% 4.06%
Portfolio turnover rate 9% 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. 1.85% 1.82% 1.84% 1.87% 1.84%^
</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.
^ This ratio was previously reported net of the shareholder servicing fee
waiver.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29
<Page>
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
<Table>
<Caption>
CLASS I
FOR THE YEAR ENDED JUNE 30,
2004 2003 2002 2001 2000
SELECTED PER - SHARE DATA
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.009 0.013 0.024 0.057 0.053
---------------------------------------------------------------------------
Distributions:
Net investment income (0.009) (0.013) (0.024) (0.057) (0.053)
---------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===========================================================================
TOTAL RETURN+ 0.87% 1.34% 2.42% 5.85% 5.48%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 116,124 $ 124,310 $ 128,530 $ 81,572 $ 81,992
Ratio of expenses to average net assets (1) 0.25% 0.25% 0.25% 0.23% 0.28%
Ratio of net investment income to average net
assets 0.85% 1.33% 2.27% 5.74% 5.35%
(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%
<Caption>
CLASS C
FOR THE YEAR ENDED JUNE 30,
2004 2003 2002 2001 2000
SELECTED PER - SHARE DATA
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.006 0.011 0.021 0.055 0.050
---------------------------------------------------------------------------
Distributions:
Net investment income (0.006) (0.011) (0.021) (0.055) (0.050)
---------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===========================================================================
TOTAL RETURN+ 0.62% 1.08% 2.17% 5.59% 5.15%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 8,081 $ 7,598 $ 8,297 $ 2,500 $ 3,435
Ratio of expenses to average net assets (1) 0.50% 0.50% 0.50% 0.48% 0.59%
Ratio of net investment income to average net
assets 0.60% 1.08% 2.02% 5.49% 5.04%
(1) During the period, various fees were
waived. The ratio of expenses to average
net assets had such waivers not occurred
is as follows. 0.79% 0.79% 0.77% 0.85% 0.97%^
</Table>
+ Total return would have been lower had various fees not been waived during
the period.
^ This ratio was previously reported net of the 12b-1 waiver.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30
<Page>
MUNICIPAL MONEY MARKET PORTFOLIO
<Table>
<Caption>
CLASS I
FOR THE YEAR ENDED JUNE 30,
2004 2003 2002 2001 2000
SELECTED PER - SHARE DATA
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.008 0.011 0.017 0.036 0.035
---------------------------------------------------------------------------
Distributions:
Net investment income (0.008) (0.011) (0.017) (0.036) (0.035)
---------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===========================================================================
TOTAL RETURN+ 0.78% 1.10% 1.69% 3.66% 3.56%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 48,720 $ 67,516 $ 57,482 $ 47,665 $ 44,535
Ratio of expenses to average net assets (1) 0.30% 0.30% 0.25% 0.28% 0.27%
Ratio of net investment income to average net
assets 0.77% 1.09% 1.65% 3.53% 3.48%
(1) During the period, various fees were
waived. The ratio of expenses to average
net assets had such waivers not occurred
is as follows. 0.35% 0.33% 0.31% 0.46% 0.45%
<Caption>
CLASS C
FOR THE YEAR ENDED JUNE 30,
2004 2003 2002 2001 2000
SELECTED PER - SHARE DATA
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.005 0.008 0.014 0.033 0.032
---------------------------------------------------------------------------
Distributions:
Net investment income (0.005) (0.008) (0.014) (0.033) (0.032)
---------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===========================================================================
TOTAL RETURN+ 0.52% 0.85% 1.44% 3.37% 3.24%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 44,801 $ 25,777 $ 24,181 $ 22,466 $ 5,527
Ratio of expenses to average net assets (1) 0.55% 0.55% 0.50% 0.55% 0.58%
Ratio of net investment income to average net
assets 0.52% 0.84% 1.40% 3.26% 3.17%
(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% 0.78% 0.76% 0.93% 0.96%^
</Table>
+ Total return would have been lower had various fees not been waived during
the period.
^ This ratio was previously reported net of the 12b-1 waiver.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
31
<Page>
CASH RESERVE PORTFOLIO
<Table>
<Caption>
CLASS I
FOR THE YEAR ENDED JUNE 30,
2004 2003 2002 2001 2000
SELECTED PER - SHARE DATA
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.008 0.013 0.024 0.058 0.054
---------------------------------------------------------------------------
Distributions:
Net investment income (0.008) (0.013) (0.024) (0.058) (0.054)
---------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===========================================================================
TOTAL RETURN+ 0.85% 1.33% 2.44% 5.92% 5.56%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 28,827 $ 46,717 $ 47,402 $ 35,453 $ 32,028
Ratio of expenses to average net assets (1) 0.30% 0.30% 0.25% 0.27% 0.31%
Ratio of net investment income to average net
assets 0.85% 1.34% 2.36% 5.51% 5.55%
(1) During the period, various fees were
waived. The ratio of expenses to average
net assets had such waivers not occurred
is as follows. 0.37% 0.34% 0.31% 0.45% 0.48%
<Caption>
CLASS B
FOR THE YEAR ENDED JUNE 30,
2004 2003**
SELECTED PER - SHARE DATA
Net asset value, beginning of period $ 1.00 $ 1.00
---------------------------
Income from investment operations:
Net investment income 0.002 0.002
---------------------------
Distributions:
Net investment income (0.002) (0.002)
---------------------------
Net asset value, end of period $ 1.00 $ 1.00
===========================
TOTAL RETURN+ 0.24% 0.21%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 194 $ 18
Ratio of expenses to average net assets (1) 0.91% 1.14%*
Ratio of net investment income to average net
assets 0.24% 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.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32
<Page>
<Table>
<Caption>
CLASS C
FOR THE YEAR ENDED JUNE 30,
2004 2003 2002 2001 2000
SELECTED PER - SHARE DATA
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.006 0.011 0.022 0.055 0.053
---------------------------------------------------------------------------
Distributions:
Net investment income (0.006) (0.011) (0.022) (0.055) (0.053)
---------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===========================================================================
TOTAL RETURN+ 0.60% 1.08% 2.19% 5.65% 5.38%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 208,376 $ 209,062 $ 212,250 $ 231,201 $ 107,154
Ratio of expenses to average net assets (1) 0.55% 0.55% 0.50% 0.52% 0.55%
Ratio of net investment income to average net
assets 0.60% 1.09% 2.11% 5.26% 5.30%
(1) During the period, various fees were
waived. The ratio of expenses to average
net assets had such waivers not occurred
is as follows. 0.82% 0.79% 0.76% 0.90% 0.93%^
</Table>
+ Total return would have been lower had various fees not been waived during
the period.
^ This ratio was previously reported net of the 12b-1 waiver.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
33
<Page>
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING AND OPERATING POLICIES
First Funds (the Trust) is registered under the Investment Company Act of 1940,
as amended (the 1940 Act), as an open-ended management investment company
organized as a Massachusetts business trust by a Declaration of Trust dated
March 6, 1992, as amended and restated on September 4, 1992, as amended and
restated on June 26, 2003.
The Trust currently has seven active investment portfolios (each referred to as
a "Portfolio"). The Trust's financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America. This
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
The U.S. Government Money Market and Municipal Money Market Portfolios may offer
three classes of shares (Classes I, A and C) and the Core Equity, Capital
Appreciation, Intermediate Bond, Tennessee Tax-Free and Cash Reserve Portfolios
may offer four classes of shares (Classes I, A, B and C). As of June 30, 2004,
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, if any, for
the Core Equity and Capital Appreciation Portfolios are declared and paid
annually. Any net capital gains earned by each Portfolio are distributed at
least annually to the extent necessary to avoid federal income and excise taxes.
Income and capital gains to be distributed are determined in accordance with
income tax regulations which may differ from income and gains reported under
accounting principles generally accepted in the United States of America.
Accordingly, for the fiscal year ended June 30, 2004, the effects of certain
differences were reclassified. The Capital Appreciation Portfolio decreased paid
in capital by $525,781, decreased accumulated net investment loss by $524,993
and decreased accumulated net realized loss by $788. The Intermediate Bond
Portfolio increased paid in capital by $228,276, decreased undistributed net
investment income by $634,826 and increased accumulated net realized gain on
investments by $406,550. The Tennessee Tax-Free Portfolio increased paid in
capital by $237, decreased undistributed net investment income by $71, and
decreased accumulated net realized gain on investments by $166. Net assets of
the portfolios were unaffected by the reclassifications and the calculation of
net investment income per share in the Financial Highlights excludes these
adjustments.
34
<Page>
The tax character of the distributions paid by the Portfolios during the last
two fiscal years ended June 30, 2004 and 2003, respectively, were as follows:
<Table>
<Caption>
CORE EQUITY CAPITAL APPRECIATION
2004 2003 2004 2003
---------------------------------------------------------
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 929,907 $ 1,898,117 - -
Tax-Exempt Income - - - -
Short-Term Capital Gain - - - -
Long-Term Capital Gain - - - -
---------------------------------------------------------
TOTAL $ 929,907 $ 1,898,117 $ - $ -
=========================================================
<Caption>
INTERMEDIATE BOND TENNESSEE TAX-FREE
2004 2003 2004 2003
---------------------------------------------------------
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 16,685,823 $ 10,869,046 7,645 $ 27,017
Tax-Exempt Income - - $ 6,611,972 7,092,237
Short-Term Capital Gain 455,007 774,870 - -
Long-Term Capital Gain 4,907,849 650,659 773,393 530,539
---------------------------------------------------------
TOTAL $ 22,048,679 $ 12,294,575 $ 7,393,010 $ 7,649,793
=========================================================
<Caption>
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET CASH RESERVE
2004 2003 2004 2003 2004 2003
---------------------------------------------------------------------------------------
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 1,018,567 $ 1,791,073 - - $ 1,595,870 $ 3,086,078
Tax-Exempt Income - - $ 666,934 $ 900,941 - -
Short-Term Capital Gain - - - - - -
Long-Term Capital Gain - - - - - -
---------------------------------------------------------------------------------------
TOTAL $ 1,018,567 $ 1,791,073 $ 666,934 $ 900,941 $ 1,595,870 $ 3,086,078
=======================================================================================
</Table>
As of June 30, 2004, the components of distributable earnings on a tax basis
were as follows:
<Table>
<Caption>
CORE CAPITAL INTERMEDIATE TENNESSEE
EQUITY APPRECIATION BOND TAX-FREE
-----------------------------------------------------------
Undistributed ordinary income $ 4,502,276 - $ 279,341 $ 19,793
Accumulated net realized gain/(loss) 17,030,591 $ (6,525,080) 974,328 430,833
Net unrealized appreciation 68,975,333 14,435,938 4,513,522 4,612,630
Effect of other timing differences - - (78,768) (11,685)
-----------------------------------------------------------
TOTAL $ 90,508,200 $ 7,910,858 $ 5,688,423 $ 5,051,571
===========================================================
<Caption>
U.S. GOV'T MUNICIPAL
MONEY MONEY CASH
MARKET MARKET RESERVE
-------------------------------------------
Undistributed ordinary income $ 335 - $ 13,234
Accumulated net realized gain/(loss) (12,041) $ (6,720) (19,408)
Net unrealized appreciation - - -
Effect of other timing differences - - -
-------------------------------------------
TOTAL $ (11,706) $ (6,720) $ (6,174)
===========================================
</Table>
The effect of other timing differences primarily includes differences in book
and tax treatment of market discount.
OTHER: Investment security transactions are accounted for as of trade date.
Realized gains and losses from securities transactions are determined using the
identified cost basis for both financial reporting and income tax purposes.
2. SHARES OF BENEFICIAL INTEREST
<Table>
<Caption>
CORE EQUITY PORTFOLIO CAPITAL APPRECIATION PORTFOLIO
------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
------------------------------------------------------------------------
Dollars issued and redeemed:
Class I:
Issued $ 58,106,853 $ 34,207,345 $ 46,798,812 $ 7,802,772
Distributions reinvested 519,998 1,025,408 0 0
Redeemed (164,999,927) (109,427,157) (7,042,302) (3,789,733)
------------------------------------------------------------------------
Net increase/(decrease) $ (106,373,076) $ (74,194,404) $ 39,756,510 $ 4,013,039
========================================================================
Class A:
Issued $ 8,743,200 $ 23,168,197 $ 4,284,543 $ 472,397
Distributions reinvested 65,916 117,788 0 0
Redeemed (15,231,025) (48,504,956) (1,097,749) (1,447,464)
------------------------------------------------------------------------
Net increase/(decrease) $ (6,421,909) $ (25,218,971) $ 3,186,794 $ (975,067)
========================================================================
Class B:
Issued $ 1,436,273 $ 1,262,043 $ 644,653 $ 181,637
Distributions reinvested 0 0 0 0
Redeemed (2,148,516) (2,839,038) (129,003) (234,023)
------------------------------------------------------------------------
Net increase/(decrease) $ (712,243) $ (1,576,995) $ 515,650 $ (52,386)
========================================================================
Class C:
Issued $ 1,890,988 $ 1,886,021 $ 267,025 $ 140,943
Distributions reinvested 0 0 0 0
Redeemed (10,179,262) (12,629,942) (111,433) (175,763)
------------------------------------------------------------------------
Net increase/(decrease) $ (8,288,274) $ (10,743,921) $ 155,592 $ (34,820)
========================================================================
</Table>
35
<Page>
<Table>
<Caption>
CORE EQUITY PORTFOLIO CAPITAL APPRECIATION PORTFOLIO
------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
------------------------------------------------------------------------
Shares issued and redeemed:
Class I:
Issued 3,258,893 2,337,674 4,211,101 1,043,941
Distributions reinvested 30,493 72,097 0 0
Redeemed (9,194,298) (7,560,640) (655,652) (502,413)
------------------------------------------------------------------------
Net increase/(decrease) (5,904,912) (5,150,869) 3,555,449 541,528
========================================================================
Class A:
Issued 489,116 1,586,563 406,862 61,877
Distributions reinvested 3,881 8,293 0 0
Redeemed (848,373) (3,369,544) (110,481) (210,298)
------------------------------------------------------------------------
Net increase/(decrease) (355,376) (1,774,688) 296,381 (148,421)
========================================================================
Class B:
Issued 82,081 87,722 62,291 22,902
Distributions reinvested 0 0 0 0
Redeemed (124,819) (205,561) (12,178) (31,225)
------------------------------------------------------------------------
Net increase/(decrease) (42,738) (117,839) 50,113 (8,323)
========================================================================
Class C:
Issued 111,312 131,005 27,704 21,015
Distributions reinvested 0 0 0 0
Redeemed (599,731) (920,792) (11,681) (25,861)
------------------------------------------------------------------------
Net increase/(decrease) (488,419) (789,787) 16,023 (4,846)
========================================================================
<Caption>
INTERMEDIATE BOND PORTFOLIO TENNESSEE TAX-FREE PORTFOLIO
------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
------------------------------------------------------------------------
Dollars issued and redeemed:
Class I:
Issued $ 85,110,690 $ 275,535,719 $ 17,389,195 $ 16,154,032
Distributions reinvested 10,866,802 2,893,703 402,030 372,520
Redeemed (151,380,390) (41,295,158) (31,158,726) (21,549,890)
------------------------------------------------------------------------
Net increase/(decrease) $ (55,402,898) $ 237,134,264 $ (13,367,501) $ (5,023,338)
========================================================================
Class A:
Issued $ 14,748,918 $ 18,228,314 $ 2,493,996 $ 3,596,629
Distributions reinvested 2,056,528 2,260,031 283,862 299,804
Redeemed (47,818,461) (19,960,929) (4,005,846) (1,721,902)
------------------------------------------------------------------------
Net increase/(decrease) $ (31,013,015) $ 527,416 $ (1,227,988) $ 2,174,531
========================================================================
Class B:
Issued $ 112,086 713,214 $ 646,218 $ 3,666,891
Distributions reinvested 17,443 8,130 104,193 64,500
Redeemed (161,105) (51,690) (1,356,867) (202,212)
------------------------------------------------------------------------
Net increase/(decrease) $ (31,576) 669,654 $ (606,456) $ 3,529,179
========================================================================
Class C:
Issued $ 65,099 $ 2,130,445 $ 189,998 $ 1,805,007
Distributions reinvested 84,768 56,443 205,326 242,991
Redeemed (1,234,154) (566,144) (2,310,766) (1,602,709)
------------------------------------------------------------------------
Net increase/(decrease) $ (1,084,287) $ 1,620,744 $ (1,915,442) $ 445,289
========================================================================
</Table>
36
<Page>
<Table>
<Caption>
INTERMEDIATE BOND PORTFOLIO TENNESSEE TAX-FREE PORTFOLIO
------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
------------------------------------------------------------------------
Shares issued and redeemed:
Class I:
Issued 8,201,230 26,482,764 1,656,173 1,520,946
Distributions reinvested 1,038,146 271,229 38,369 35,092
Redeemed (14,392,057) (3,870,263) (2,962,782) (2,027,020)
------------------------------------------------------------------------
Net increase/(decrease) (5,152,681) 22,883,730 (1,268,240) (470,982)
========================================================================
Class A:
Issued 1,419,997 1,729,079 236,923 336,302
Distributions reinvested 196,021 211,748 27,046 28,184
Redeemed (4,653,817) (1,882,778) (382,238) (161,721)
------------------------------------------------------------------------
Net increase/(decrease) (3,037,799) 58,049 (118,269) 202,765
========================================================================
Class B:
Issued 10,812 66,772 61,022 344,246
Distributions reinvested 1,667 758 9,933 6,070
Redeemed (15,703) (4,835) (130,616) (18,917)
------------------------------------------------------------------------
Net increase/(decrease) (3,224) 62,695 (59,661) 331,399
========================================================================
Class C:
Issued 6,189 204,103 18,106 169,673
Distributions reinvested 8,088 5,290 19,571 22,873
Redeemed (117,976) (53,402) (221,205) (150,911)
------------------------------------------------------------------------
Net increase/(decrease) (103,699) 155,991 (183,528) 41,635
========================================================================
<Caption>
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
--------------------------------------
FOR THE YEAR ENDED
JUNE 30,
2004 2003
--------------------------------------
Shares/Dollars issued and redeemed:
Class I:
Issued $ 144,820,776 $ 108,063,608
Distributions reinvested 123,213 3
Redeemed (153,137,030) (112,283,640)
--------------------------------------
Net decrease $ (8,193,041) $ (4,220,029)
======================================
Class C:
Issued $ 18,539,139 $ 23,129,310
Distributions reinvested 55,413 82,126
Redeemed (18,112,501) (23,910,119)
--------------------------------------
Net increase/(decrease) $ 482,051 $ (698,683)
======================================
</Table>
37
<Page>
<Table>
<Caption>
MUNICIPAL MONEY MARKET PORTFOLIO CASH RESERVE PORTFOLIO
------------------------------------------------------------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
------------------------------------------------------------------------
Shares/Dollars issued and redeemed:
Class I:
Issued $ 77,253,024 $ 77,678,265 $ 93,771,471 $ 146,955,464
Distributions reinvested 0 1 17,547 32,425
Redeemed (96,049,925) (67,642,285) (111,678,581) (147,673,655)
------------------------------------------------------------------------
Net increase/(decrease) $ (18,796,901) $ 10,035,981 $ (17,889,563) $ (685,766)
========================================================================
Class B:
Issued $ - $ - $ 193,863 $ 161,608
Distributions reinvested - - 61 71
Redeemed - - (18,316) (143,208)
------------------------------------------------------------------------
Net increase/(decrease) $ - $ - $ 175,608 $ 18,471
========================================================================
Class C:
Issued $ 108,418,104 $ 65,556,027 $ 352,563,549 $ 364,818,305
Distributions reinvested 176,508 209,724 1,266,087 2,301,275
Redeemed (89,571,890) (64,169,455) (354,515,439) (370,308,561)
------------------------------------------------------------------------
Net increase/(decrease) $ 19,022,722 $ 1,596,296 $ (685,803) $ (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 May 17, 2000.
First Tennessee and BlackRock Institutional Management Corporation ("BIMC")
serve as Co-advisers to the U.S. Government Money Market Portfolio, Municipal
Money Market Portfolio, and the Cash Reserve Portfolio.
At a special meeting on June 1, 2001, shareholders of each of the Money Market
Portfolios approved an Investment Advisory and Management Agreement between the
Trust and First Tennessee, as co-adviser to the Money Market Portfolios, and a
new Investment Advisory and Management Agreement between the Trust and BIMC, as
investment adviser to the Money Market Portfolios effective July 1, 2001.
Each Money Market Portfolio is obligated to pay First Tennessee monthly
management fees at the annual rate of .05% of its average net assets. Each Money
Market Portfolio is also obligated to pay BIMC monthly management fees at the
annual rate of .08% of aggregate average monthly net assets of each portfolio up
to $500 million, .06% of the next $500 million, and .05% on amounts greater than
$1 billion.
For the Core Equity Portfolio, Highland Capital Management Corporation
("Highland") serves as the sub-adviser pursuant to the authority granted to it
under its Sub-Advisory Agreement with First Tennessee. Highland is an affiliate
of First Tennessee and is a wholly-owned subsidiary of First Horizon 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 Horizon 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.
38
<Page>
4. ADMINISTRATOR, CO-ADMINISTRATOR AND DISTRIBUTOR
ALPS Mutual Funds Services, Inc. ("ALPS") and ALPS Distributors, Inc. ("ADI")
serve as Administrator and Distributor, respectively, for the Trust under
separate Administration and General Distribution Agreements. ALPS' duties
include providing office space and various legal and accounting services in
connection with the regulatory requirements applicable to each Portfolio. ALPS
is entitled to receive administration fees from each of the Money Market
Portfolios at the annual rate of .050% of 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-1 FEE 12b-1 FEE SERVICING FEE
- --------------------------------------------------------------------------------------------------------------------------
Core Equity 0.25% 1.00% 0.75% 0.25%
Capital Appreciation 0.25% 1.00% 0.75% 0.25%
Intermediate Bond 0.25% 0.70% 0.75% 0.25%
Tennessee Tax-Free 0.25% 0.70% 0.75% 0.25%
U.S. Government Money Market - - 0.45% -
Municipal Money Market - - 0.45% -
Cash Reserve - 1.00% 0.45% -
</Table>
In addition, certain Portfolios or classes have adopted a Defensive 12b-1 Plan,
which provides that various service providers, such as a Portfolio's
administrator, investment adviser, sub-adviser, or co-adviser, may make payments
for distribution related expenses our of their own resources, including past
profits or payments received from a Portfolio for other purposes such as
management fees, and that the Portfolio's distributor may, from time-to-time,
use its own resources for distribution related services, in addition to the fees
paid under the Distribution Plan.
5. WAIVER OF EXPENSES
INTERMEDIATE BOND AND TENNESSEE TAX-FREE PORTFOLIOS:
For the year ended June 30, 2004, First Tennessee contractually agreed to waive
its management fee for the Intermediate Bond and Tennessee Tax-Free Portfolios
to .30% of each portfolio's average net assets.
For the year ended June 30, 2004, 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 waivers, for the year ended June 30, 2004, fees waived for the
Portfolios were as follows:
<Table>
<Caption>
INTERMEDIATE BOND TENNESSEE TAX-FREE
--------------------------------------------------------------------------------
Management fees waived $ 791,745 $ 351,445
12b-1 fees waived 7,046 15,568
Shareholder servicing fees waived - 15,568
</Table>
MONEY MARKET PORTFOLIOS:
For the year ended, June 30, 2004, First Tennessee, as co-adviser and
co-administrator, contractually agreed to waive its co-advisory and
co-administration fees, to the extent necessary for Class I of the U.S.
Government Money Market Portfolio to maintain a total expense ratio of no more
than .25% of its average net assets, and Class I of the Municipal Money Market
and Cash Reserve Portfolios to maintain a total expense ratio of no more than
..30% of their average net assets, respectively.
For the year ended, June 30, 2004, 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 15, 2003, .60%
of average net assets from November 16, 2003 to March 4, 2004, and .75% of
average net assets effective March 5, 2004.
Pursuant to these waivers, for the year ended, June 30, 2004, fees were waived
for the Money Market Portfolios as follows:
<Table>
<Caption>
MANAGEMENT FEE CO-ADMINISTRATION FEE CLASS B 12b-1 FEE CLASS C 12b-1 FEE
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Government Money Market $ 60,953 $ 48,432 $ - $ 18,374
Municipal Money Market 37,543 12,795 - 67,106
Cash Reserve 125,089 44,033 93 423,751
</Table>
39
<Page>
PORTFOLIO PROXY VOTING POLICIES & PROCEDURES (UNAUDITED)
Portfolio 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 and on the commission's website at
http://www.sec.gov.
OTHER (UNAUDITED)
For the year ended June 30, 2004, 100% of the Core Equity Portfolio's dividends
from investment income qualify for the corporate dividends received deduction.
In addition, 100% of the Core Equity Portfolio's ordinary income distributions
for the period ended June 30, 2004 will meet the requirements for qualifying
dividend income.
During the year ended June 30, 2004, 99.89% and 100% of the income dividends
paid by the Tennessee Tax-Free and Municipal Money Market Portfolios,
respectively, should be treated as tax-exempt dividends.
As of June 30, 2004, one shareholder (a related party) owned 19% of the Core
Equity Portfolio, 66% of the Capital Appreciation Portfolio and 28% of the
Intermediate Bond Portfolio. Additionally, as of June 30, 2004, one shareholder
owned 36% of the Municipal Money Market Portfolio, and 70% of the Cash Reserve
Portfolio.
Effective May 24, 2004, the Trustees of the Trust receive an annual fee of
$12,000. Each Trustee also receives an additional fee for each Trustees' meeting
attended.
40
<Page>
TRUSTEES (UNAUDITED)
<Table>
<Caption>
TERM OF OFFICE, LENGTH
OF TIME SERVED AND PRINCIPAL OCCUPATION DURING THE PAST 5
POSITION(S) HELD NUMBER OF PORTFOLIOS YEARS** AND OTHER DIRECTORSHIPS HELD BY
NAME, ADDRESS & AGE WITH TRUST OVERSEEN TRUSTEE
- ----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
JOHN A. DECELL (68) Trustee John A. DeCell has been a Mr. DeCell is the proprietor of DeCell &
Trustee since 1992 and Company (real estate and business
1625 Broadway, Suite 2200 oversees 7 portfolios. consulting), and President of Capital
Denver, Colorado 80202 Advisers, Inc. (real estate consulting and
asset management).
KEN W. EDMUNDSON (53) Trustee Ken W. Edmundson has been Mr. Edmundson is Member/President of
a Trustee since April 2004 Sparks-Edmundson Business Investment Group
1625 Broadway, Suite 2200 and oversees 7 portfolios. (investments) and CEO/Founder of Edmundson
Denver, Colorado 80202 Northstar Companies (CEO/sales/management
training). Mr. Edmundson was Chairman (until
2002) of the Financial Resource Management
Group, a financial planning and insurance
money management firm. Mr. Edmundson also
was a member of Ascent Capital Partners and
Ark Fund, a hedge fund, from 2002-2003.
LARRY W. PAPASAN (63) Trustee Larry W. Papasan has been Mr. Papasan is the former President and CEO
a Trustee since 1992 and and current Director of Smith & Nephew, Inc.
1625 Broadway, Suite 2200 oversees 7 portfolios. (orthopedic division). Mr. Papasan is a
Denver, Colorado 80202 former Director of First American National
Bank of Memphis and The West Tennessee Board
of First American National Bank (1988 -
1991) and was President of Memphis Light Gas
and Water Division of the City of Memphis
(1984 - 1991). Mr. Papasan is also a member
of the Board of the Plough Foundation, a
non-profit trust.
RICHARD C. RANTZOW (65) Chairman & Richard C. Rantzow has Mr. Rantzow was Vice President/Director, Ron
Trustee been Chairman and Trustee Miller Associates, Inc. (manufacturer).
1625 Broadway, Suite 2200 since 1992 and oversees 7 Mr. Rantzow was Managing Partner (until 1990)
Denver, Colorado 80202 portfolios. of the Memphis office of Ernst & Young.
INTERESTED TRUSTEES
*GEORGE P. LEWIS (65) President & George P. Lewis has been a Mr. Lewis is currently a director of
Trustee Trustee since 1999 and Methodist Home Care and Methodist Extended
1625 Broadway, Suite 2200 oversees 7 portfolios. Care Hospital, a non-profit health care
Denver, Colorado 80202 company. From 1976 until October 1999,
Mr. Lewis was Executive Vice President and
Manager of Money Management Group of First
Tennessee Bank. During that time he was also
a director of certain First Tennessee
affiliates including Hickory Venture Capital
Corporation, a venture capital company, and
First Tennessee Brokerage, a broker/dealer.
He was also a director for Martin & Company
and Highland Capital Management Corp., both
investment advisers and affiliates of First
Tennessee.
*CHARLES G. BURKETT (53) Trustee Charles Burkett has been a Mr. Burkett is currently the President,
Trustee since June 2003 and Memphis Financial Services, of First
1625 Broadway, Suite 2200 oversees 7 portfolios. Tennessee Bank. Mr. Burkett served as an
Denver, Colorado 80202 Executive Vice President, Manager Affluent
Markets, First Tennessee Bank, from 1997 to
2001. Mr. Burkett is a director of certain
First Tennessee affiliates, including First
Tennessee Brokerage, a broker/dealer and
Highland Capital Management Corp. and Martin
& Company, both investment advisers and
affiliates of First Tennessee.
</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>
THIS PAGE INTENTIONALLY LEFT BLANK
<Page>
ITEM 2 - CODE OF ETHICS
(a) The Registrant, as of the end of the period covered by this report,
has adopted a code of ethics that applies to the Registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller or any persons performing similar
functions on behalf of the Registrant.
(b) Not applicable.
(c) During the period covered by this report, no amendments were made to
the provisions of the code of ethics adopted in 2(a) above.
(d) During the period covered by this report, no implicit or explicit
waivers to the provisions of this code of ethics adopted in 2(a)
above were granted.
(e) Not applicable.
(f) The Registrant's Code of Ethics is attached as an Exhibit hereto
under Item 11(a)(1) of this Form N-CSR.
ITEM 3 - AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Trustees of the Registrant has determined that the
Registrant has at least one "audit committee financial expert" serving on its
committee. The Board of Trustees has designated Richard C. Rantzow as the
Registrant's "audit committee financial expert". Richard C. Rantzow is
"independent" as defined in paragraph (a)(2) to Item 3 of Form N-CSR.
ITEM 4 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) Audit Fees: For the Registrant's fiscal years ended June 30, 2004 and
June, 2003, the aggregate fees billed for professional services
rendered by the principal accountant for the audit of the
Registrant's annual financial statements were $136,500 for the fiscal
year ended June 30, 2004 and $130,000 for the fiscal year ended June
30, 2003.
(b) Audit-Related Fees: In Registrant's fiscal years ended June 30, 2004
and June, 2003, the aggregate fees billed for assurance and related
services by the principal accountant that are reasonably related to
the performance of the audit of the Registrant's financial statements
and are not reported under paragraph (a) of this Item were $0 for the
fiscal year ended
<Page>
June 30, 2004 and $2,849 for the fiscal year ended June 30, 2003 for
out of pocket expenses related to the audit of the financial
statements.
(c) Tax Fees: For the Registrant's fiscal years ended June 30, 2004 and
June, 2003, aggregate fees of $2,650 and $35,750 respectively, were
billed for professional services rendered by the principal accountant
for tax compliance, tax advice, and tax planning.
(d) All other Fees: In Registrant's fiscal years ended June 30, 2004 and
June, 2003, the aggregate fees billed to Registrant by the principal
accountant for services other than the services reported in paragraph
(a) through (c) were $8,300 for the fiscal year ended June 30, 2004
and $34,968 for the fiscal year ended June 30, 2003 for services
related to the review of the semi-annual financial statements, an
anti-money laundering audit, and for professional services rendered
in connection with an N-14.
(e)(1) Audit Committee Pre-Approval Policies and Procedures: The
Registrant's Audit Committee has not adopted pre-approval policies and
procedures. Instead, the Audit Committee approves on a case-by-case basis
each audit or non-audit service before the engagement.
(e)(2) No services described in paragraphs (b) through (d) above were
approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation
S-X.
(f) Not applicable
(g) Not applicable
(h) Not applicable
ITEM 5 - AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6 - SCHEDULE OF INVESTMENTS
Schedule of Investments in included as part of the report to shareholders
filed under item 1 of this form.
ITEM 7 - DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not applicable.
<Page>
ITEM 8 - PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
Not applicable.
ITEM 9 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Board of Trustees has not yet adopted procedures by which
shareholders may recommend nominees to the Board of Trustees.
ITEM 10 - CONTROLS AND PROCEDURES
(a) The Registrant's Principal Executive Officer and Principal
Financial Officer have evaluated the Registrant's disclosure
controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940) within 90 days of this filing and
have concluded that the Registrant's disclosure controls and
procedures were effective, as of that date.
(b) There was no change in the Registrant's internal control over
financial reporting during Registrant's second fiscal half-year
that has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control over
financial reporting.
ITEM 11 - EXHIBITS
(a)(1) The code of ethics that applies to the Registrant's principal
executive officer and principal financial officer is attached
hereto as Ex.11.A.1.
(a)(2) Separate certifications for the Registrant's Principal Executive
Officer and Principal Financial Officer, as required by Section
302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the
Investment Company Act of 1940, are attached as Ex99.CERT.
(a)(3) Not applicable.
(b) A certification for the Registrant's Principal Executive Officer
and Principal Financial Officer, as required by Rule 30a-2(b)
under the Investment Company Act of 1940, is attached as
Ex99.906CERT. The certification furnished pursuant to this
paragraph is not deemed to be "filed" for purposes of Section 18
of the Securities Exchange Act of 1934, or otherwise subject to
the liability of that section. Such certification is not deemed
to be incorporated by reference into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934,
except to the extent that the Registrant specifically
incorporates it by reference.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
FIRST FUNDS
By: /s/ George Lewis
----------------
George Lewis
President
Date: September 7, 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: September 7, 2004
By: /s/ Jeremy O. May
-----------------
Jeremy O. May
Treasurer
Date: September 7, 2004