<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)
Tane Tyler, Secretary
First Funds
1625 Broadway, Suite 2200
Denver, Colorado 80202
(Name and address of agent for service)
Registrant's telephone number, including area code: 303-623-2577
------------
Date of fiscal year end: June 30
-------
Date of reporting period: December 31, 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>
[GRAPHIC]
LETTER FROM THE CHAIRMAN
DEAR SHAREHOLDERS:
At the end of this six-month period, investors have reason to feel positive, as
both the stock and bond markets posted gains. All of the First Funds Portfolios
posted gains when you exclude sales charges which impact some share class
purchases. Please refer to the individual portfolio manager commentaries and the
performance tables within this report for more detail.
The first three months proved to be a challenging start for equities. From July
through September, fears of rising interest rates, surging oil prices and a
weakening U.S. dollar combined with the uncertainty surrounding the outcome of
the presidential election produced mixed results among stock mutual funds. By
the end of the quarter, every diversified domestic-stock fund category that
Morningstar tracked lost money during the period, while every bond fund category
delivered gains.
In the fall of 2004, the Federal Reserve (the Fed) raised the federal funds rate
two times to 1.75%. Despite rising short-term interest rates, however, bonds
with longer durations (which typically are more sensitive to interest rate
fluctuations) outperformed shorter-term bonds. Morningstar reported the
long-term bond category was up 4% for the July-September quarter, and the
intermediate-term group gained approximately 3%. In contrast, the average
short-term bond fund was up 1.3%.
During the following quarter, the reelection of President George W. Bush to a
second term provided a psychological lift to the stock market. Although equity
returns did not reach the heights of 2003's rebound, the S&P 500 Index was able
to finish the quarter with an 9.22% gain.
Meanwhile, the fixed-income market delivered a repeat performance of the
July-September quarter, providing positive returns across the board. During the
October-December quarter, the Fed raised interest rates two more times to 2.25%.
Like the previous quarter, the long-term bond category was up 6% for the year
through December 30 and the average short-term bond fund gained only 1.5%,
according to Morningstar.
For the six-month period, economic data suggested a strengthening U.S. economy,
which could provide a promising foundation for the second half of First Funds'
fiscal year. According to the Bureau of Economic Analysis, gross domestic
product (GDP) increased at an annual rate of 4.0% during the July-September
quarter of 2004, marking an increase of 3.3% GDP growth during the previous
quarter.
From July through December, the unemployment rate remained steady between 5.4
and 5.5%. In November and December, the nation's unemployment rate stood at
5.4%, which was 0.4% below the average rate experienced during the most recent
20-year period.
Reflecting an improved employment picture, the Conference Board's Consumer
Confidence Index jumped 9.7 points in December. The index, which had been on the
decline since July, stood at 102.3 in December, up from 92.6 in November.
i
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LETTER FROM THE CHAIRMAN [GRAPHIC]
Though improved GDP growth, lower unemployment rates and higher consumer
confidence are good news for a healthier U.S. economy, data also identifies a
potential snag which could affect the financial well-being of many Americans - a
declining personal savings rate.
In October 2004, the personal savings rate dropped to just 0.1 percent of
disposable income, compared with a saving rate of more than 5 percent in 1996.
This troubling trend to spend versus save could prevent many Americans from
retiring comfortably.
At First Funds, we believe in the importance of applying discipline, consistency
and patience to a well-diversified portfolio. This is why First Funds offers an
array of financial products - including stock, bond and money market portfolios
as well as tax-advantaged savings accounts - to help you accomplish your savings
goals.
To serve you better, we recently redesigned our Web site (www.firstfunds.com) to
make it easier to find information regarding First Funds products. On the site,
you can view daily fund prices and quarterly portfolio manager insight into
holdings. Additionally, through the site, you can also order fund literature,
including Coverdell Education Savings Account and individual retirement account
applications.
On the compliance side of our business, new First Funds policies and procedures
were approved and fully implemented in October and we are constantly monitoring
those with the leadership of our chief compliance officer. At First Funds, we
sincerely appreciate the confidence and trust you place in us by investing in
our family of funds. Thank you for the opportunity to continue to provide for
your investing needs.
Sincerely,
/s/ Richard C. Rantzow
Richard C. Rantzow
Chairman, Board of Trustees
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
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[GRAPHIC] FIRST FUNDS CORE EQUITY PORTFOLIO
CORE EQUITY PORTFOLIO MANAGERS
[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 16 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
During the six-month period, the S&P 500 Index gained 7.18% while the Portfolio
underperformed but was positive. Class A shares at NAV gained 3.84% during the
six-month period. (Had the effects of sales charges been included, performance
would have been lower.) The underperformance was attributed to poor performance
in the information technology and healthcare sectors.
Early in the summer, rapid escalation of oil and other commodity prices created
anxiety about the direction of the economy. This coupled with the war in Iraq,
concern about the presidential election, weak job creation numbers, and rising
interest rates contributed to a mid-year economic slowdown. However, easing of
oil and natural gas prices and moderate interest rate hikes contributed to a
stock market rally at year-end 2004.
Individual holdings that contributed positively to Portfolio performance
included Walt Disney Co., which rose 24% in the October-December quarter as the
company benefited from strong ratings for its ABC network shows "Desperate
Housewives" and "Lost." Fidelity National Financial, Inc. also performed well
and gained 20% during the same period, as the title insurance company announced
the sale of a minority interest in its Fidelity National Information Services,
Inc. to Thomas H. Lee Partners L.P. and Texas Pacific Group.
Negatively impacting performance included Flextronics International, Ltd. which
dropped 16% in the July-September quarter after the company announced
disappointing earnings guidance. In healthcare, Pfizer, Inc. fell 11.5% during
the October-December quarter after a study conducted by the National Cancer
Institute showed an increase in the risk of cardiovascular events for patients
using Pfizer, Inc.'s Celebrex.
For the coming months, areas of concern include the decline of the dollar,
potential inflation and rising interest rates. Yet, these are counterbalanced by
data that suggests continued economic strength and an improving employment
picture. Other positives include moderating commodity prices (primarily oil and
natural gas) and the large cash balances enjoyed by large corporations. The cash
can be used to buy stock back, increase dividends or make acquisitions. Our
current holdings sell at a discount to the market but have higher projected
earnings growth for 2005. Also, we believe the economy will expand at a modest
pace, and inflation may remain in check as commodity prices continue to
moderate. The Federal Reserve's economic outlook released with the December
Federal Open Market Committee minutes points to a similar conclusion - moderate
growth with contained inflation.
iii
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INDUSTRY BREAKDOWN AND PERFORMANCE AS OF DECEMBER 31, 2004
Showing Percentage of Total Net Assets
<Table>
Financials 30.6%
Insurance 15.9%
Diversified Financials 11.7%
Banks 3.0%
Consumer Discretionary 19.4%
Information Technology 16.4%
Consumer Staples 9.3%
Healthcare 8.1%
Industrials 7.2%
Telecommunications 5.0%
Energy 2.7%
Money Market Mutual Funds 1.3%
</Table>
<Table>
<Caption>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN* TOTAL RETURN*
SINCE SINCE
INCEPTION 1 YEAR 5 YEAR 10 YEAR INCEPTION
- -------------------------------------------------------------------------------
Class I 270.05% 5.96% (0.34)% 12.60% 12.14%
Class A 240.83% (0.32) (1.75)% 11.67% 11.33%
Class B 228.55% 0.11% (1.71)% 11.43% 10.98%
Class C 229.25% 4.19% (1.30)% 11.46% 11.00%
S&P 500 232.26% 10.86% (2.29)% 12.06% 11.09%
</Table>
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.
[CHART]
CORE EQUITY
<Table>
<Caption>
S&P 500 CORE CLASS I
INCEPTION INV. VALUE INV. VALUE
Jan 95 779,551.88 813,729.97
Feb 95 809,954.41 836,433.04
Mar 95 833,848.06 859,936.80
Apr 95 858,446.58 881,951.19
May 95 892,784.44 908,586.11
Jun 95 913,497.04 933,027.08
Jul 95 943,825.14 966,616.05
Aug 95 946,184.71 966,616.05
Sep 95 986,113.70 981,211.96
Oct 95 982,563.69 964,335.11
Nov 95 1,025,698.24 1,007,344.46
Dec 95 1,045,494.21 1,022,555.36
Jan 96 1,081,041.02 1,063,968.85
Feb 96 1,091,094.70 1,080,247.57
Mar 96 1,101,569.21 1,110,386.48
Apr 96 1,117,762.27 1,121,823.46
May 96 1,146,600.54 1,154,356.34
Jun 96 1,150,957.62 1,152,740.24
Jul 96 1,100,085.30 1,107,898.65
Aug 96 1,123,297.10 1,134,820.58
Sep 96 1,186,538.72 1,187,249.30
Oct 96 1,219,287.19 1,219,186.30
Nov 96 1,311,465.30 1,306,114.29
Dec 96 1,285,498.29 1,287,698.07
Jan 97 1,365,841.93 1,368,436.74
Feb 97 1,376,495.50 1,356,257.66
Mar 97 1,319,921.53 1,328,454.37
Apr 97 1,398,720.85 1,368,440.85
May 97 1,483,902.95 1,451,094.68
Jun 97 1,550,381.80 1,485,050.29
Jul 97 1,673,792.19 1,612,319.10
Aug 97 1,580,059.83 1,557,339.02
Sep 97 1,666,647.11 1,665,729.82
Oct 97 1,610,981.10 1,625,419.16
Nov 97 1,685,569.52 1,711,241.29
Dec 97 1,714,561.32 1,753,166.70
Jan 98 1,733,592.95 1,767,717.98
Feb 98 1,858,585.00 1,872,366.89
Mar 98 1,953,744.55 1,974,410.88
Apr 98 1,973,477.37 1,971,646.71
May 98 1,939,533.56 1,915,060.45
Jun 98 2,018,278.62 1,968,107.62
Jul-98 1,996,683.04 1,929,729.52
Aug-98 1,707,962.67 1,663,812.79
Sep-98 1,817,443.08 1,784,439.22
Oct-98 1,965,201.20 1,926,123.70
Nov-98 2,084,292.40 2,032,253.11
Dec-98 2,204,347.64 2,152,156.05
Jan-99 2,297,150.67 2,223,607.63
Feb-99 2,225,479.57 2,224,497.07
Mar-99 2,314,498.76 2,299,685.07
Apr-99 2,404,069.86 2,365,686.03
May-99 2,347,333.81 2,352,438.19
Jun-99 2,477,610.83 2,473,824.00
Jul-99 2,400,309.38 2,436,964.02
Aug-99 2,388,307.83 2,385,056.69
Sep-99 2,322,868.20 2,380,525.08
Oct-99 2,469,905.75 2,583,583.87
Nov-99 2,520,044.84 2,578,933.42
Dec-99 2,668,475.48 2,633,091.02
Jan-00 2,534,518.01 2,563,438.11
Feb-00 2,486,615.62 2,480,065.69
Mar-00 2,729,806.63 2,710,131.36
Apr-00 2,647,639.45 2,644,674.35
May-00 2,593,362.84 2,699,573.78
Jun-00 2,657,418.90 2,675,293.85
Jul-00 2,615,963.17 2,662,619.73
Aug-00 2,778,414.48 2,809,428.20
Sep-00 2,631,714.20 2,809,421.10
Oct-00 2,620,661.00 2,931,983.28
Nov-00 2,414,152.91 2,827,382.80
Dec-00 2,425,982.26 2,913,721.71
Jan-01 2,512,104.63 2,900,372.71
Feb-01 2,283,000.69 2,762,028.57
Mar-01 2,138,486.74 2,596,995.59
Apr-01 2,304,647.16 2,709,908.44
May-01 2,320,088.30 2,739,047.24
Jun-01 2,263,710.15 2,656,474.13
Jul-01 2,241,525.79 2,632,180.81
Aug-01 2,101,206.28 2,494,923.58
Sep-01 1,931,638.93 2,349,234.87
Oct-01 1,968,533.24 2,382,082.79
Nov-01 2,119,519.74 2,541,456.05
Dec-01 2,138,171.51 2,554,996.19
Jan-02 2,106,954.20 2,459,877.41
Feb-02 2,066,289.99 2,374,006.29
Mar-02 2,143,982.49 2,463,845.67
Apr-02 2,014,057.15 2,305,229.00
May-02 1,999,153.13 2,274,827.47
Jun-02 1,856,813.43 2,084,502.65
Jul-02 1,712,167.66 1,908,477.99
Aug-02 1,723,296.75 1,949,506.29
Sep-02 1,536,146.72 1,713,890.05
Oct-02 1,671,174.02 1,859,696.63
Nov-02 1,769,439.05 1,985,620.50
Dec-02 1,665,572.98 1,870,548.00
Jan-03 1,622,101.53 1,850,648.56
Feb-03 1,597,770.00 1,840,035.52
Mar-03 1,613,268.37 1,851,954.59
Apr-03 1,746,040.36 2,047,106.79
May-03 1,837,882.08 2,150,656.94
Jun-03 1,861,406.97 2,142,021.61
Jul-03 1,894,167.74 2,176,570.34
Aug-03 1,931,104.01 2,181,885.53
Sep-03 1,910,634.30 2,199,136.00
Oct-03 2,018,585.14 2,344,148.60
Nov-03 2,036,348.69 2,360,113.29
Dec-03 2,143,053.36 2,442,862.55
Jan-04 2,182,485.54 2,532,056.98
Feb-04 2,212,822.09 2,546,700.85
Mar-04 2,179,408.48 2,517,413.79
Apr-04 2,145,191.77 2,470,841.63
May-04 2,174,580.89 2,488,137.52
Jun-04 2,216,767.76 2,490,874.47
Jul-04 2,143,392.75 2,369,817.97
Aug-04 2,151,966.32 2,369,817.97
Sep-04 2,175,207.56 2,392,568.23
Oct-04 2,208,488.23 2,429,892.29
Nov-04 2,297,711.16 2,511,050.69
Dec-04 2,375,833.34 2,588,642.16
</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 12/31/2004 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 5.19%
FOR 1 YEAR. THE PORTFOLIO COMMENCED SALES OF CLASS A SHARES ON 12/20/1995, WHICH
INCLUDE A .25% SHAREHOLDER SERVICES FEE. CLASS A PERFORMANCE SHOWN IS BASED ON A
MAXIMUM 5.75% INITIAL SALES CHARGE. PERFORMANCE INFORMATION FOR CLASS A SHARES
PRIOR TO THEIR INCEPTION DATE IS BASED ON THE PERFORMANCE OF CLASS I SHARES AND
DOES NOT REFLECT THE EFFECTS OF THESE FEES WHICH, IF INCLUDED, WOULD LOWER CLASS
A PERFORMANCE. THE PORTFOLIO COMMENCED SALES OF CLASS B SHARES ON 8/3/1999.
THESE SHARES INCLUDE A 1.00% DISTRIBUTION FEE. PERFORMANCE INFORMATION FOR CLASS
B SHARES PRIOR TO THEIR INCEPTION REFLECT APPLICABLE CLASS C AND CLASS I
PERFORMANCE DATA. CLASS B PERFORMANCE SHOWN IS NET OF CDSC. CLASS B SHARES OF
THE PORTFOLIO ARE SUBJECT TO A 5.00% CDSC WHICH DECLINES TO 0.00% FOR SHARES
HELD UP TO SIX YEARS.
iv
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[GRAPHIC] FIRST FUNDS CAPITAL APPRECIATION PORTFOLIO
CAPITAL APPRECIATION PORTFOLIO MANAGERS
PORTFOLIO MANAGEMENT TEAM
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
Stocks closed the second half of 2004 on an up note despite inflation fears and
higher energy prices during the beginning of the six-month period. From October
to December, an easing in energy prices and a definitive conclusion to the
presidential election delivered a strong year-end rally. During the two
quarters, smaller capitalization stocks outperformed relative to large
capitalization names and value stocks outpaced growth stocks.
Our small-capitalization fund also performed well for the period, but relative
performance trailed that of the benchmark Russell 2000 Growth Index. Within the
Portfolio, poor stock selection in the technology, financial and healthcare
sectors as well as having no holdings in the energy sector, and a relative
underweighting in the capital goods sector affected performance. Align
Technology, Inc. was the biggest negative contributor to performance as the
stock declined more than 40% after reducing its earnings and sales guidance.
O2Micro International, Ltd. was also down significantly during the period due to
disappointing earnings and sales growth.
Among individual names, Urban Outfitters, Inc. was the biggest positive
contributor to performance as it rose almost 50% during the period and continued
to deliver strong earnings and sales growth. Tessera Technologies, Inc. was the
best overall performing stock in the Portfolio as it increased more than 100%
largely due to strong earnings growth and the settling of a patent dispute.
After two strong years, we doubt there will be any universal positive catalysts
that may lead to exorbitant returns for all stocks. The potential for negative
surprises exists, however, as interest rates, energy prices and geopolitical
concerns have the potential to dampen stock prices. As always, we will continue
to seek out and hold onto those companies with established market leadership,
which we feel may be able to post superior earnings and sales growth.
v
<Page>
INDUSTRY BREAKDOWN AND PERFORMANCE
Showing Percentage of Total Net Assets AS OF DECEMBER 31, 2004
<Table>
Healthcare 24.0%
Technology 15.2%
Business Services 14.1%
Financials 13.7%
Consumer Services 12.5%
Consumer Non-Durables 12.3%
U.S. Government & Agency Obligations 2.9%
Transportation 2.6%
Materials 1.4%
Capital Goods 1.3%
Money Market Mutual Funds 0.0%**
</Table>
** LESS THAN 0.05% OF NET ASSETS.
<Table>
<Caption>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN* TOTAL RETURN*
SINCE SINCE
INCEPTION 1 YEAR 5 YEAR INCEPTION
- ------------------------------------------------------------------------------
Class I 59.27% 10.16% 4.37% 6.55%
Class A 39.61% 3.72% 2.82% 4.71%
Class B 41.23% 4.05% 3.01% 4.88%
Class C 39.84% 8.05% 3.27% 4.73%
Russell 2000 18.08% 13.82% (3.84)% 2.29%
Growth Index
</Table>
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.
[CHART]
CAPITAL APPRECIATION
<Table>
<Caption>
Russell Cap Ap Class I
Inv. Values Inv. Value
Sep 97 809,850.00 788,250.00
Oct 97 761,259.00 728,973.60
Nov 97 743,141.04 720,007.22
Dec 97 743,586.92 742,543.45
Jan 98 733,697.21 745,513.62
Feb 98 798,482.68 816,784.73
Mar 98 832,018.95 861,789.57
Apr 98 837,094.27 863,254.61
May 98 776,237.51 808,524.27
Jun 98 784,155.14 805,532.73
Jul-98 718,678.18 750,031.52
Aug-98 552,807.26 597,025.09
Sep-98 608,861.91 611,293.99
Oct-98 640,644.51 657,813.46
Nov-98 690,358.52 694,585.24
Dec-98 752,835.97 754,389.02
Jan-99 786,713.58 728,211.73
Feb-99 714,729.29 670,537.36
Mar-99 740,173.65 691,324.01
Apr-99 805,530.99 722,087.93
May-99 806,819.84 750,538.20
Jun-99 849,339.24 789,791.35
Jul-99 823,094.66 772,100.02
Aug-99 792,310.92 748,242.13
Sep-99 807,602.52 745,922.58
Oct-99 828,277.14 762,855.02
Nov-99 915,826.04 831,283.12
Dec-99 1,077,286.17 964,288.42
Jan-00 1,067,267.41 947,371.07
Feb-00 1,315,620.53 1,184,213.84
Mar-00 1,177,348.82 1,224,200.28
Apr-00 1,058,436.59 1,116,544.48
May-00 965,717.54 1,008,888.68
Jun-00 1,090,488.25 1,112,699.63
Jul-00 997,033.40 1,114,237.57
Aug-00 1,101,921.32 1,189,596.63
Sep-00 1,047,155.83 1,181,137.96
Oct-00 962,126.78 1,122,696.24
Nov-00 787,404.55 971,978.12
Dec-00 835,593.71 1,059,562.05
Jan-01 903,193.24 1,055,589.94
Feb-01 779,365.45 925,503.13
Mar-01 708,521.13 831,165.36
Apr-01 795,244.12 897,698.31
May-01 813,693.78 963,238.23
Jun-01 836,884.05 991,043.05
Jul-01 765,497.84 879,823.79
Aug-01 717,654.23 832,158.39
Sep-01 601,824.84 723,918.22
Oct-01 659,720.38 794,423.28
Nov-01 714,807.04 842,088.68
Dec-01 759,339.51 921,531.01
Jan-02 732,307.03 883,795.90
Feb-02 684,926.76 831,165.36
Mar-02 744,446.90 889,754.08
Apr-02 728,366.85 879,823.79
May-02 685,757.39 847,053.83
Jun-02 627,605.16 797,402.37
Jul-02 530,640.16 697,106.43
Aug-02 530,056.46 702,071.58
Sep-02 491,309.33 662,350.41
Oct-02 515,874.80 697,106.43
Nov-02 566,688.46 762,646.35
Dec-02 527,246.95 734,841.54
Jan-03 512,642.21 716,967.01
Feb-03 498,647.08 698,099.46
Mar-03 505,678.00 724,911.25
Apr-03 553,262.30 797,402.37
May-03 615,227.68 887,768.02
Jun-03 626,547.87 907,628.60
Jul-03 673,726.92 953,307.94
Aug-03 709,636.56 991,043.05
Sep-03 691,327.94 960,259.14
Oct-03 750,851.28 1,029,771.18
Nov-03 775,028.69 1,085,380.81
Dec-03 778,051.30 1,084,387.78
Jan-04 818,743.38 1,137,018.32
Feb-04 817,187.77 1,128,081.06
Mar-04 820,619.96 1,156,847.13
Apr-04 779,260.71 1,072,397.29
May-04 794,456.30 1,105,212.65
Jun-04 820,514.46 1,123,117.09
Jul-04 746,668.16 1,013,837.80
Aug-04 730,316.13 986,058.64
Sep-04 770,337.45 1,043,644.47
Oct-04 788,902.59 1,069,422.49
Nov-04 855,328.18 1,139,897.43
Dec-04 885,606.80 1,194,498.51
</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 12/31/2004 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 9.05% FOR 1 YEAR. THE PORTFOLIO
COMMENCED SALES OF CLASS B SHARES ON 8/3/1999. THESE SHARES INCLUDE A 1.00%
DISTRIBUTION FEE. CLASS B SHARES OF CAPITAL APPRECIATION PRIOR TO THEIR
INCEPTION REFLECT APPLICABLE CLASS C PERFORMANCE DATA. CLASS B PERFORMANCE SHOWN
IS NET OF CDSC. CLASS B SHARES OF THE PORTFOLIO ARE SUBJECT TO A 5.00% CDSC
WHICH DECLINES TO 0.00% FOR SHARES HELD UP TO SIX YEARS.
vi
<Page>
[GRAPHIC] FIRST FUNDS INTERMEDIATE BOND PORTFOLIO
INTERMEDIATE BOND PORTFOLIO MANAGERS
[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 18-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 July through December reporting period, the Intermediate Bond
Portfolio benefited from general price gains in its longer-term securities. With
the Federal Reserve Bank (Fed) raising interest rates by 0.25% on four
occasions, short-term securities (less than 5 years to maturity) showed modest
price declines. However, long-term securities (greater than 5 years to maturity)
enjoyed a price rally as the Fed's commitment to fighting inflation was at least
temporarily applauded. The Portfolio's performance also benefited from a
continued contraction in corporate spreads. The rally in the stock market as
well as improving corporate balance sheets improved investor's confidence in
corporate America's ability to service its debt payments.
In the July-September quarter, long-term securities gained more in value than
short-term securities, credit spreads tightened and lower quality bonds
outperformed higher quality bonds of similar maturity. During these three
months, the Portfolio had a target duration of 85% of the Lehman Brothers
Intermediate Government/Credit Index. As rates declined during the quarter, we
decreased the target duration on two occasions and closed the period with a
target of 81% of the benchmark.
In the October-December quarter, the interest rate curve continued a flattening
trend from the previous quarter and short-term rates increased faster than
long-term rates, in line with Federal Reserve policy tightening. As rates moved
higher throughout most of the interest rate curve, bond prices declined.
However, the drop in prices was offset by coupon income, resulting in positive
returns across major sectors of the fixed-income market. Treasuries posted the
lowest return of the major sectors. In the investment-grade credit market,
BBB-rated issuers outpaced AAA-rated issuers.
From October through December, we maintained the Portfolio's target duration at
81% of the benchmark index, given our sense of the elevated risk of rising
inflation rates and the historically low level of real rates.
Going into 2005, the Portfolio is overweighted in the agency and the corporate
sectors relative to the benchmark. Additionally, we have limited the Portfolio's
allocation to Treasuries. We continue to maintain a shorter than benchmark
average duration because we believe increasing the Portfolio allocation to these
sectors (corporate and agency) may allow the Portfolio to make up for some of
the current yield disadvantage resulting from its focus on shorter-term issues.
vii
<Page>
INDUSTRY BREAKDOWN AND PERFORMANCE
Showing Percentage of Total Net Assets AS OF DECEMBER 31, 2004
<Table>
U.S. Government & Agency Obligations 41.7%
Financials 31.8%
Banks 12.8%
Broker/Dealers 11.3%
Insurance 3.9%
Financial Services 3.2%
Leasing Company 0.6%
Industrials 22.7%
Utilities 2.3%
Money Market Mutual Funds 0.2%
Mortgage-Backed Obligations 0.0%**
</Table>
** LESS THAN 0.05% OF NET ASSETS.
***Other Assets in Excess of Liabilities - 1.3%
<Table>
<Caption>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN* TOTAL RETURN*
SINCE SINCE
INCEPTION 1 YEAR 5 YEAR INCEPTION
Class I 48.33% 2.12% 6.78% 5.93%
Class A 40.66% (1.68)% 5.76% 5.13%
Class B 39.20% (2.59)% 5.66% 5.12%
Class C 39.13% 0.35% 5.96% 5.11%
Lehman Bros. 52.27% 3.04% 7.20% 6.34%
Intermediate
Gov't/Credit Index
</Table>
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.
[CHART]
INTERMEDIATE BOND
<Table>
<Caption>
LEHMAN INT INT. BOND CLASS I
INCEPTION INV. VALUE INV. VALUE
Mar 98 752,400.00 752,100.00
Apr 98 756,162.00 755,785.29
May 98 761,681.98 761,831.57
Jun 98 766,556.75 766,250.20
Jul-98 769,239.70 768,472.32
Aug-98 781,316.76 779,922.56
Sep-98 800,927.81 795,131.05
Oct-98 800,126.88 794,892.51
Nov-98 800,046.87 795,528.42
Dec-98 803,247.06 798,869.64
Jan-99 807,664.92 802,784.10
Feb-99 795,792.24 794,435.15
Mar-99 801,760.68 799,201.76
Apr-99 804,246.14 800,640.32
May-99 798,053.45 794,875.71
Jun-99 798,612.08 793,842.37
Jul-99 797,893.33 792,889.76
Aug-99 798,531.65 793,603.36
Sep-99 805,957.99 801,698.12
Oct-99 808,053.48 803,141.18
Nov-99 809,103.95 804,506.52
Dec-99 806,433.91 801,047.14
Jan-00 803,450.10 798,241.05
Feb-00 810,038.39 803,616.40
Mar-00 818,462.79 811,795.73
Apr-00 816,580.33 811,438.36
May-00 817,886.86 812,061.00
Jun-00 832,281.67 825,425.83
Jul-00 838,607.01 831,177.55
Aug-00 848,502.57 842,154.72
Sep-00 856,223.94 850,465.46
Oct-00 860,162.57 855,416.48
Nov-00 871,860.78 868,196.82
Dec-00 887,903.02 886,416.03
Jan-01 902,464.63 898,475.36
Feb-01 911,038.05 906,745.94
Mar-01 918,053.04 913,454.25
Apr-01 915,666.10 911,215.19
May-01 920,793.83 915,319.53
Jun-01 924,200.77 918,508.95
Jul-01 943,424.14 936,281.94
Aug-01 952,858.39 944,953.57
Sep-01 966,770.12 963,715.67
Oct-01 982,818.50 977,959.78
Nov-01 972,990.32 968,117.82
Dec-01 967,638.87 963,606.96
Jan-02 972,670.59 968,635.16
Feb-02 980,354.69 974,521.18
Mar-02 965,453.30 958,654.29
Apr-02 981,383.28 974,096.51
May-02 991,197.11 987,639.49
Jun-02 999,721.41 997,444.60
Jul-02 1,011,518.12 1,013,902.27
Aug-02 1,026,589.74 1,024,567.91
Sep-02 1,044,965.70 1,039,145.69
Oct-02 1,040,890.33 1,038,151.67
Nov-02 1,039,953.53 1,037,101.85
Dec-02 1,062,624.51 1,055,867.11
Jan-03 1,062,518.25 1,053,813.48
Feb-03 1,077,499.76 1,068,619.17
Mar-03 1,078,577.26 1,067,402.21
Apr-03 1,086,774.45 1,074,177.93
May-03 1,108,618.61 1,091,967.18
Jun-03 1,107,842.58 1,090,659.00
Jul-03 1,077,709.26 1,062,663.13
Aug-03 1,080,295.76 1,064,005.58
Sep-03 1,107,627.25 1,089,708.87
Oct-03 1,097,215.55 1,079,709.84
Nov-03 1,098,751.65 1,079,947.64
Dec-03 1,108,310.79 1,089,483.68
Jan-04 1,115,625.64 1,094,877.14
Feb-04 1,127,005.02 1,104,388.87
Mar-04 1,135,795.66 1,111,788.27
Apr-04 1,108,877.31 1,088,885.44
May-04 1,103,887.36 1,083,767.67
Jun-04 1,107,199.02 1,086,043.59
Jul-04 1,116,499.49 1,093,537.29
Aug-04 1,135,145.03 1,108,409.39
Sep-04 1,137,074.78 1,110,626.21
Oct-04 1,144,693.18 1,116,068.28
Nov-04 1,134,276.47 1,106,581.70
Dec-04 1,141,989.55 1,112,557.24
</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 12/31/2004 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 1.35% FOR 1 YEAR. THE PORTFOLIO
COMMENCED SALES OF CLASS B SHARES ON 10/28/2002. THESE SHARES INCLUDE A 0.70%
DISTRIBUTION FEE. CLASS B SHARES PRIOR TO THEIR INCEPTION REFLECT APPLICABLE
CLASS C PERFORMANCE DATA. CLASS B SHARES OF THE INTERMEDIATE BOND PORTFOLIO ARE
SUBJECT TO A 4.00% CDSC WHICH DECLINES TO 0.00% FOR SHARES HELD UP TO SIX YEARS.
TREASURY BONDS ARE GUARANTEED AS TO THE TIMELY PAYMENT OF INTEREST AND REPAYMENT
OF PRINCIPAL IF HELD TO MATURITY.
viii
<Page>
[GRAPHIC] FIRST FUNDS TENNESSEE TAX-FREE PORTFOLIO
TENNESSEE TAX-FREE PORTFOLIO MANAGERS
[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
The Portfolio's performance over the past six months was mostly a function of
duration. Generally, the longer the duration, the better the performance was for
a particular bond or bond fund. As the Federal Reserve raised interest rates,
prices declined on short- and intermediate-term bonds. Because the Portfolio is
an intermediate-term fund, its performance was not as high as longer maturity
funds. Lower quality bonds also performed better than higher quality bonds. This
also adversely affected the Portfolio's relative performance due the Portfolio's
overweight holdings in high quality bonds.
Municipal bonds finished the quarter and calendar year with positive returns.
Ten-year municipal yields ended 2004 at 3.64%, up from 3.60% at year-end 2003.
During the period, municipal indices outperformed comparable-term corporate and
government indices. Higher risk municipal credit sectors were the best
performers, as hospitals, industrial development bonds and tobacco bonds lead
the pack in the tax-free arena.
Nationally, there was $358 billion in new municipal bond issuance in 2004,
marking a decrease from 2003. Tennessee supply was also down from the previous
year with $2.6 billion in 2004 versus $3.3 billion in 2003. Lighter volume may
continue in 2005 due to improved budget conditions and a lack of refundings in a
higher interest rate environment.
Demand for municipal bonds was mixed during the period. As interest rates moved
lower and the yield curve flattened, retail buyers began to purchase 10-year or
less issues. During the July-September quarter we shortened the duration of the
Portfolio from 5 years to 4.9 years. As rates dropped, we felt there was not
enough yield to warrant a longer duration and the higher level of interest rate
risk. During the October-December quarter, we moved the Portfolio duration back
to 5 years. There were no material changes in the Portfolio structure, either
credit or sector, during the last quarter of the period.
In 2005, we believe higher yields may increase demand for municipal issues and
as rates increase, more investors may start buying again. We also believe that
higher demand coupled with a potential decrease in the supply of municipals may
temper volatility in the municipal bond market.
ix
<Page>
INDUSTRY BREAKDOWN AND PERFORMANCE
Showing Percentage of Total Net Assets AS OF DECEMBER 31, 2004
<Table>
General Obligation Bonds 55.7%
Health & Education 22.5%
Utilities 12.7%
Other 3.9%
Housing 2.6%
General Revenue 1.4%
Money Market Mutual Funds 0.0%**
</Table>
** LESS THAN 0.05% OF NET ASSETS.
***Other Assets in Excess of Liabilities - 1.2%
<Table>
<Caption>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN* TOTAL RETURN*
SINCE SINCE
INCEPTION 1 YEAR 5 YEAR INCEPTION
- ---------------------------------------------------------------------------
Class I 56.24% 2.50% 5.51% 5.05%
Class A 47.49% (1.57)% 4.46% 4.41%
Class B 48.78% (2.22)% 4.43% 4.49%
Class C 50.35% 0.89% 4.95% 4.61%
Lehman Bros. 70.23% 4.16% 7.03% 6.05%
10-Year
Municipal Bond Index
</Table>
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.
[CHART]
TENNESSEE
<Table>
<Caption>
LEHMANS CLASS I TTF CLASS I
INCEPTION INVESTMENTS INVESTMENTS
Dec 95 754,575.00 755,175.00
Jan 96 762,196.21 759,706.05
Feb 96 759,071.20 756,895.14
Mar 96 749,658.72 746,752.74
Apr 96 747,034.91 741,898.85
May 96 744,943.22 740,860.19
Jun 96 752,020.18 745,083.09
Jul 96 759,239.57 753,502.53
Aug 96 759,239.57 756,742.59
Sep 96 767,059.74 763,855.97
Oct 96 776,724.69 771,112.61
Nov 96 792,414.53 783,835.96
Dec 96 788,848.66 782,581.83
Jan 97 791,925.17 782,112.28
Feb 97 799,369.27 789,229.50
Mar 97 788,657.72 779,206.29
Apr 97 794,493.79 784,115.28
May 97 805,775.60 796,269.07
Jun 97 814,639.13 806,700.20
Jul 97 837,530.49 828,561.77
Aug 97 829,406.45 819,696.16
Sep 97 839,939.91 830,188.27
Oct 97 844,391.59 834,339.21
Nov 97 848,275.79 838,427.48
Dec 97 861,678.55 850,081.62
Jan 98 871,243.18 858,412.42
Feb 98 871,243.18 859,013.31
Mar 98 870,633.31 861,762.15
Apr 98 865,844.83 860,038.62
May 98 880,564.19 869,327.04
Jun 98 883,822.28 872,630.48
Jul-98 885,236.39 874,288.48
Aug-98 900,639.51 885,304.52
Sep-98 914,059.04 893,714.91
Oct-98 914,424.66 897,021.65
Nov-98 917,167.93 899,443.61
Dec-98 920,011.15 901,962.06
Jan-99 934,087.32 914,048.35
Feb-99 925,680.54 908,381.25
Mar-99 925,217.70 910,107.17
Apr-99 927,715.79 911,654.35
May-99 921,221.78 908,098.90
Jun-99 904,087.05 894,659.04
Jul-99 910,144.43 899,042.87
Aug-99 906,776.90 896,255.83
Sep-99 909,859.94 897,869.09
Oct-99 903,490.92 891,494.22
Nov-99 913,338.97 898,537.03
Dec-99 908,589.61 896,110.98
Jan-00 904,864.39 893,170.19
Feb-00 912,012.82 896,337.02
Mar-00 929,705.87 908,130.45
Apr-00 925,057.34 904,957.14
May-00 919,599.50 899,117.86
Jun-00 944,612.61 919,982.68
Jul-00 957,648.26 930,834.57
Aug-00 972,491.81 942,652.90
Sep-00 968,018.35 939,439.44
Oct-00 977,892.13 947,616.96
Nov-00 983,172.75 952,894.06
Dec-00 1,006,277.31 970,614.61
Jan-01 1,019,258.29 981,737.32
Feb-01 1,020,991.03 984,011.03
Mar-01 1,029,669.45 991,359.34
Apr-01 1,017,004.52 984,279.84
May-01 1,028,089.87 993,639.86
Jun-01 1,034,258.41 998,076.47
Jul-01 1,048,427.75 1,009,414.65
Aug-01 1,066,355.86 1,022,729.00
Sep-01 1,064,862.96 1,024,274.40
Oct-01 1,077,641.32 1,033,779.74
Nov-01 1,063,739.75 1,024,476.81
Dec-01 1,052,464.10 1,017,062.74
Jan-02 1,072,355.68 1,031,519.77
Feb-02 1,087,690.36 1,042,086.42
Mar-02 1,065,283.94 1,025,584.34
Apr-02 1,089,998.53 1,045,139.97
May-02 1,095,121.52 1,049,666.22
Jun-02 1,108,701.03 1,061,320.84
Jul-02 1,123,446.75 1,072,004.71
Aug-02 1,138,051.56 1,081,719.66
Sep-02 1,165,250.99 1,099,618.27
Oct-02 1,144,043.42 1,086,845.49
Nov-02 1,134,662.27 1,082,260.50
Dec-02 1,159,511.37 1,098,367.43
Jan-03 1,153,365.96 1,097,849.49
Feb-03 1,173,319.19 1,110,854.39
Mar-03 1,173,905.85 1,110,275.30
Apr-03 1,182,592.75 1,115,837.78
May-03 1,216,414.91 1,137,228.62
Jun-03 1,210,576.12 1,134,468.77
Jul-03 1,159,731.92 1,102,054.40
Aug-03 1,169,705.61 1,107,762.46
Sep-03 1,209,124.69 1,134,829.40
Oct-03 1,199,935.35 1,127,817.14
Nov-03 1,212,894.65 1,135,727.55
Dec-03 1,225,751.33 1,143,242.94
Jan-04 1,230,899.49 1,145,769.03
Feb-04 1,252,563.32 1,159,184.43
Mar-04 1,245,423.71 1,154,084.02
Apr-04 1,211,050.01 1,131,463.97
May-04 1,211,776.64 1,129,540.48
Jun-04 1,215,775.50 1,132,025.47
Jul-04 1,232,431.63 1,143,345.72
Aug-04 1,259,421.88 1,161,296.25
Sep-04 1,266,096.82 1,163,851.10
Oct-04 1,276,225.59 1,169,670.36
Nov-04 1,261,804.24 1,161,014.80
Dec-04 1,276,693.53 1,171,928.34
</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 12/31/2004 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 1.89% 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>
[GRAPHIC] DEFINITIONS
COMMON TERMS
BASIS POINT
Smallest measure of quoting yields on bonds and notes. One basis point is 0.01%
of yield.
<Table>
<Caption>
MOODY'S INVESTORS STANDARD & POOR'S CORP.
SERVICES, INC. (PLUS (+) OR MINUS (-))
Prime Aaa AAA
Excellent Aa AA
Good A A
Average Baa BBB
Fair Ba BB
Poor B B
Marginal Caa C
</Table>
BOND RATINGS
The quality of bonds can, to some degree, be determined from the ratings of the
two most prominent rating services: Moody's and Standard & Poor's. The ratings
are used by the government and industry regulatory agencies, the investing
public, and portfolio managers as a guide to the relative security and value of
each bond. The ratings are not used as an absolute factor in determining the
strength of the pledge securing a particular issue. However, since Moody's and
Standard & Poor's rate bonds on a fee basis, some issuers choose not to be
rated. Many non-rated (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.
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>
[GRAPHIC] FUND EXPENSES
As a shareholder of the Funds, you incur two potential types of costs. You incur
transaction costs including sales charges, you also incur ongoing costs,
including management fees, 12b-1 fees and other Fund expenses. The following
examples are intended to help you understand your ongoing costs (in dollars) of
investing in the Funds and to compare these costs with the ongoing costs of
investing in other mutual funds. The examples are based on an investment of
$1,000 invested on July 1, 2004 and held until December 31, 2004.
Actual Return. The first line of the table below provides information about
actual account values and actual expenses. You may use the information in this
line, together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiply the result by
the number in the first line under the heading "Expense Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical 5% Return. The second line of the table below provides information
about hypothetical account values and hypothetical expenses based on the Funds'
actual expense ratios and an assumed rate of return of 5% per year before
expenses, which is not the Funds' actual returns. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in a Fund and other mutual funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
The expenses shown in the table are meant to highlight ongoing Fund costs only
and do not reflect transaction fees, such as redemption fees. Therefore, the
second line of the table is useful in comparing ongoing costs only, and may not
help you determine the relative total costs of owning different funds. In
addition, if these transaction fees were included, your costs would have been
higher.
CORE EQUITY PORTFOLIO
<Table>
<Caption>
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSE PAID DURING PERIOD *
7/1/04 12/31/04 (7/1/04-12/31/04)
----------------------- -------------------- ----------------------------
CLASS I Actual Fund Return $ 1,000.00 $ 1,039.20 $ 5.29
Hypothetical Fund Return $ 1,000.00 $ 1,020.01 $ 5.24
CLASS A Actual Fund Return $ 1,000.00 $ 1,038.40 $ 6.58
Hypothetical Fund Return $ 1,000.00 $ 1,018.75 $ 6.51
CLASS B Actual Fund Return $ 1,000.00 $ 1,035.90 $ 10.52
Hypothetical Fund Return $ 1,000.00 $ 1,014.87 $ 10.41
CLASS C Actual Fund Return $ 1,000.00 $ 1,036.40 $ 10.52
Hypothetical Fund Return $ 1,000.00 $ 1,014.87 $ 10.41
</Table>
CAPITAL APPRECIATION PORTFOLIO
<Table>
<Caption>
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSE PAID DURING PERIOD *
7/1/04 12/31/04 (7/1/04-12/31/04)
----------------------- -------------------- ----------------------------
CLASS I Actual Fund Return $ 1,000.00 $ 1,063.70 $ 6.92
Hypothetical Fund Return $ 1,000.00 $ 1,018.50 $ 6.77
CLASS A Actual Fund Return $ 1,000.00 $ 1,062.60 $ 8.27
Hypothetical Fund Return $ 1,000.00 $ 1,017.19 $ 8.08
CLASS B Actual Fund Return $ 1,000.00 $ 1,058.20 $ 12.14
Hypothetical Fund Return $ 1,000.00 $ 1,013.41 $ 11.88
CLASS C Actual Fund Return $ 1,000.00 $ 1,057.90 $ 12.14
Hypothetical Fund Return $ 1,000.00 $ 1,013.41 $ 11.88
</Table>
INTERMEDIATE BOND PORTFOLIO
<Table>
<Caption>
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSE PAID DURING PERIOD *
7/1/04 12/31/04 (7/1/04-12/31/04)
----------------------- -------------------- ----------------------------
CLASS I Actual Fund Return $ 1,000.00 $ 1,024.50 $ 3.37
Hypothetical Fund Return $ 1,000.00 $ 1,021.88 $ 3.36
CLASS A Actual Fund Return $ 1,000.00 $ 1,023.20 $ 4.64
Hypothetical Fund Return $ 1,000.00 $ 1,020.62 $ 4.63
CLASS B Actual Fund Return $ 1,000.00 $ 1,020.80 $ 6.93
Hypothetical Fund Return $ 1,000.00 $ 1,018,35 $ 6.92
CLASS C Actual Fund Return $ 1,000.00 $ 1,020.60 $ 7.18
Hypothetical Fund Return $ 1,000.00 $ 1,018.10 $ 7.17
</Table>
xiii
<Page>
TENNESSEE TAX-FREE PORTFOLIO
<Table>
<Caption>
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSE PAID DURING PERIOD *
7/1/04 12/31/04 (7/1/04-12/31/04)
----------------------- --------------------- ----------------------------
CLASS I Actual Fund Return $ 1,000.00 $ 1,035.10 $ 3.54
Hypothetical Fund Return $ 1,000.00 $ 1,021.73 $ 3.52
CLASS A Actual Fund Return $ 1,000.00 $ 1,033.80 $ 4.82
Hypothetical Fund Return $ 1,000.00 $ 1,020.47 $ 4.79
CLASS B Actual Fund Return $ 1,000.00 $ 1,031.50 $ 7.17
Hypothetical Fund Return $ 1,000.00 $ 1,018.15 $ 7.12
CLASS C Actual Fund Return $ 1,000.00 $ 1,031.50 $ 6.09
Hypothetical Fund Return $ 1,000.00 $ 1,019.21 $ 6.06
</Table>
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
<Table>
<Caption>
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSE PAID DURING PERIOD *
7/1/04 12/31/04 (7/1/04-12/31/04)
----------------------- --------------------- ----------------------------
CLASS I Actual Fund Return $ 1,000.00 $ 1,007.27 $ 1.26
Hypothetical Fund Return $ 1,000.00 $ 1,023.95 $ 1.28
CLASS C Actual Fund Return $ 1,000.00 $ 1,006.00 $ 2.53
Hypothetical Fund Return $ 1,000.00 $ 1,022.68 $ 2.55
</Table>
MUNICIPAL MONEY MARKET PORTFOLIO
<Table>
<Caption>
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSE PAID DURING PERIOD *
7/1/04 12/31/04 (7/1/04-12/31/04)
----------------------- --------------------- ----------------------------
CLASS I Actual Fund Return $ 1,000.00 $ 1,005.86 $ 1.52
Hypothetical Fund Return $ 1,000.00 $ 1,023.69 $ 1.53
CLASS C Actual Fund Return $ 1,000.00 $ 1,004.60 $ 2.78
Hypothetical Fund Return $ 1,000.00 $ 1,022.43 $ 2.80
</Table>
CASH RESERVE PORTFOLIO
<Table>
<Caption>
BEGINNING ACCOUNT VALUE ENDING ACCOUNT VALUE EXPENSE PAID DURING PERIOD *
7/1/04 12/31/04 (7/1/04-12/31/04)
----------------------- --------------------- ----------------------------
CLASS I Actual Fund Return $ 1,000.00 $ 1,007.26 $ 1.52
Hypothetical Fund Return $ 1,000.00 $ 1,023.69 $ 1.53
CLASS B Actual Fund Return $ 1,000.00 $ 1,002.67 $ 6.16
Hypothetical Fund Return $ 1,000.00 $ 1,019.06 $ 6.21
CLASS C Actual Fund Return $ 1,000.00 $ 1,005.99 $ 2.78
Hypothetical Fund Return $ 1,000.00 $ 1,022.43 $ 2.80
</Table>
*Expenses are equal to the Core Equity Portfolio annualized expense ratios of
1.03%, 1.28%, 2.05% and 2.05% for classes I, A, B & C, respectively; Capital
Appreciation Portfolio annualized expense ratios of 1.33%, 1.59%, 2.34% and
2.34% for classes I, A, B & C, respectively; Intermediate Bond Portfolio
annualized expense ratios of 0.66%, 0.91%, 1.36% and 1.41% for classes I, A,
B & C, respectively; Tennessee Tax-Free Portfolio annualized expense ratios
of 0.69%, 0.94%, 1.40% and 1.19% for classes I, A, B & C, respectively; U.S.
Government Money Market Portfolio annualized expense ratio of 0.25% and 0.50%
for classes I & C, respectively; Municipal Money Market Portfolio annualized
expense ratios of 0.30% and 0.55% for classes I & C, respectively and Cash
Reserve Portfolio annualized expense ratios of .30%, 1.22% and 0.55% for
classes I, B & C, respectively, multiplied by the average account value over
the period, multiplied by the number of days in the most recent fiscal
half-year/365 (to reflect the half-year period).
xiv
<Page>
[GRAPHIC] PORTFOLIO OF INVESTMENTS
AS OF DECEMBER 31, 2004 - SHOWING PERCENTAGE OF TOTAL NET ASSETS (UNAUDITED)
CORE EQUITY PORTFOLIO
<Table>
<Caption>
SHARES VALUE
--------- ----------------
COMMON STOCKS - 98.7%
CONSUMER DISCRETIONARY - 19.4%
MEDIA - 13.0%
Comcast Corp., Class A* 590,235 $ 19,383,317
McGraw-Hill Co., Inc. 138,780 12,703,921
Omnicom Group, Inc. 233,715 19,706,849
Walt Disney Co. 558,300 15,520,740
----------------
TOTAL MEDIA 67,314,827
----------------
MOTORCYCLE MANUFACTURERS - 1.6%
Harley Davidson, Inc. 137,450 8,350,087
----------------
RETAILING - 4.8%
Home Depot, Inc. 573,890 24,528,059
----------------
TOTAL CONSUMER DISCRETIONARY 100,192,973
----------------
CONSUMER STAPLES - 9.3%
FOOD, BEVERAGE & TOBACCO - 7.2%
Costco Wholesale Corp. 388,650 18,814,547
Pepsico, Inc. 355,700 18,567,540
----------------
TOTAL FOOD, BEVERAGE & TOBACCO 37,382,087
----------------
HOUSEHOLD & PERSONAL PRODUCTS - 2.1%
Colgate-Palmolive Co. 206,725 10,576,051
----------------
TOTAL CONSUMER STAPLES 47,958,138
----------------
ENERGY - 2.7%
ENERGY - 2.7%
Exxon Mobil Corp. 269,000 13,788,940
----------------
TOTAL ENERGY 13,788,940
----------------
FINANCIALS - 30.6%
BANKS - 3.0%
Wells Fargo & Co. 247,906 15,407,358
----------------
DIVERSIFIED FINANCIALS - 11.7%
Capital One Financial Corp. 300,525 25,307,210
Federal Home Loan Mortgage Corp. 23,550 1,735,635
Federal National Mortgage Association 208,300 14,833,043
J. P. Morgan Chase & Co. 481,000 18,763,810
----------------
TOTAL DIVERSIFIED FINANCIALS 60,639,698
----------------
INSURANCE - 15.9%
AFLAC, Inc. 535,700 21,342,288
American International Group, Inc. 343,170 22,535,975
Fidelity National Financial, Inc. 266,320 12,162,834
Willis Group Holdings, Ltd. 27,240 1,121,471
XL Capital, Ltd., Class A 321,900 24,995,535
----------------
TOTAL INSURANCE 82,158,103
----------------
TOTAL FINANCIALS 158,205,159
----------------
HEALTHCARE - 8.1%
HEALTHCARE EQUIPMENT & SUPPLIES - 2.7%
Medtronic, Inc. 280,150 13,915,050
PHARMACEUTICALS & BIOTECHNOLOGY - 5.4%
Cardinal Health, Inc. 120,715 $ 7,019,577
Pfizer, Inc. 768,415 20,662,679
----------------
TOTAL PHARMACEUTICALS &
BIOTECHNOLOGY 27,682,256
----------------
TOTAL HEALTHCARE 41,597,306
----------------
INDUSTRIALS - 7.2%
CAPITAL GOODS - 3.7%
General Electric Co. 530,900 19,377,850
----------------
INDUSTRIAL MACHINERY - 3.5%
Ingersoll-Rand Co., Ltd. 224,850 18,055,455
----------------
TOTAL INDUSTRIALS 37,433,305
----------------
INFORMATION TECHNOLOGY - 16.4%
SEMICONDUCTORS - 3.9%
Analog Devices, Inc. 63,750 2,353,650
Intel Corp. 749,750 17,536,652
----------------
TOTAL SEMICONDUCTORS 19,890,302
----------------
SOFTWARE - 4.3%
Microsoft Corp. 841,300 22,471,123
----------------
TECHNOLOGY HARDWARE & EQUIPMENT - 8.2%
Flextronics International, Ltd.* 1,154,476 15,954,858
Hewlett-Packard Co. 54,900 1,151,253
Jabil Circuit, Inc.* 508,750 13,013,825
Nokia Corp., ADR 462,800 7,252,076
Texas Instruments, Inc. 195,875 4,822,443
----------------
TOTAL TECHNOLOGY
HARDWARE & EQUIPMENT 42,194,455
----------------
TOTAL INFORMATION TECHNOLOGY 84,555,880
----------------
TELECOMMUNICATIONS - 5.0%
TELECOMMUNICATION SERVICES - 5.0%
Vodafone Group, plc ADR 935,075 25,602,354
----------------
TOTAL TELECOMMUNICATIONS 25,602,354
----------------
TOTAL COMMON STOCKS 509,334,055
----------------
(Cost $433,952,808)
MONEY MARKET MUTUAL FUNDS - 1.3%
SSgA Prime Money Market Fund 3,391,971 3,391,972
SSgA U.S. Treasury Money Market Fund 3,206,202 3,206,202
----------------
TOTAL MONEY MARKET MUTUAL FUNDS 6,598,174
----------------
(Cost $6,598,174)
TOTAL INVESTMENTS 100.0% 515,932,229
(Cost $440,550,982)
Other Assets in Excess
of Liabilities 0.0%** 148,091
---------------- ----------------
NET ASSETS 100.0% $ 516,080,320
================ ================
</Table>
- ----------
* Non-income producing security
**Less than 0.05% of net assets
ADR - American Depositary Receipt
1
<Page>
INCOME TAX INFORMATION:
At December 31, 2004, the net unrealized appreciation based on cost for income
tax purposes of $440,940,690 was as follows:
<Table>
Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost $ 95,990,180
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value (20,998,641)
----------------
Net unrealized appreciation $ 74,991,539
================
</Table>
The difference between book and tax net unrealized appreciation is wash sale
loss deferrals.
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities, for the six
months ended December 31, 2004, aggregated $62,179,225 and $137,436,151,
respectively.
CAPITAL APPRECIATION PORTFOLIO
<Table>
<Caption>
DUE PRINCIPAL
DATE COUPON AMOUNT VALUE
- ----- ------ ---------------- --------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 2.9%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
DISCOUNT NOTES - 2.9%
01/10/05 2.25% $ 160,000 $ 159,930
01/10/05 2.25% 150,000 149,934
01/10/05 2.24% 410,000 409,821
01/10/05 2.24% 2,095,000 2,094,087
01/10/05 2.24% 335,000 334,854
01/10/05 2.22% 300,000 299,871
----------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS 3,448,497
----------------
(Cost $3,448,497)
</Table>
<Table>
<Caption>
SHARES
----------------
COMMON STOCKS - 97.1%
BUSINESS SERVICES - 14.1%
Advisory Board Co.* 56,600 2,087,408
Charles River Associates, Inc.* 47,800 2,235,606
Corillian Corp. * 362,800 1,784,976
Gevity HR, Inc. 52,300 1,075,288
Intersections, Inc.* 75,800 1,307,550
Interwoven, Inc.* 75,600 822,528
iPayment, Inc.* 44,400 2,198,688
Ivillage, Inc.* 214,600 1,326,228
Navigant Consulting, Inc.* 51,700 1,375,220
Resources Connection, Inc.* 37,300 2,025,763
SupportSoft, Inc.* 120,100 799,866
----------------
TOTAL BUSINESS SERVICES 17,039,121
----------------
CAPITAL GOODS - 1.3%
Varian, Inc.* 38,400 1,574,784
----------------
CONSUMER NON-DURABLES - 12.3%
America's Car Mart, Inc.* 28,300 1,075,400
Build-A-Bear-Workshop, Inc.* 51,200 1,799,680
Carter's, Inc.* 23,400 795,366
Coach, Inc.* 43,900 2,475,960
Guitar Center, Inc.* 36,000 1,896,840
Hibbett Sporting Goods, Inc.* 90,787 2,415,842
Tractor Supply Co.* 29,600 1,101,416
Urban Outfitters, Inc.* 73,900 3,281,160
----------------
TOTAL CONSUMER NON-DURABLES 14,841,664
----------------
CONSUMER SERVICES - 12.5%
Advance America Cash Advance Centers, Inc.* 46,400 1,062,560
Ask Jeeves, Inc.* 46,800 1,251,900
Cheesecake Factory, Inc.* 50,700 1,646,229
First Cash Financial Services, Inc.* 79,450 2,122,110
Four Seasons Hotel, Inc. 21,900 1,791,201
InPhonic, Inc.* 13,600 373,728
Lin TV Corp.* 112,000 2,139,200
Mediacom Communications Corp.* 192,300 1,201,875
Rare Hospitality International, Inc.* 45,350 1,444,851
Sonic Corp.* 65,662 2,002,691
----------------
TOTAL CONSUMER SERVICES 15,036,345
----------------
FINANCIALS - 13.7%
Brookline Bancorp, Inc. 75,600 1,233,792
Capital Source, Inc.* 82,000 2,104,940
Delphi Financial Group, Inc. 57,200 2,639,780
Downey Financial Corp. 57,900 3,300,300
Greenhill & Co., Inc. 6,600 189,420
Hub International, Ltd. 29,400 541,254
</Table>
2
<Page>
<Table>
<Caption>
SHARES VALUE
---------------- ----------------
FINANCIALS (CONTINUED)
Primus Guaranty, Ltd.* 20,500 $ 335,995
PXRE Group, Ltd. 12,600 317,646
RAIT Investment Trust 35,200 984,544
Silicon Valley Bancshares* 51,100 2,290,302
Westcorp 48,100 2,209,233
World Acceptance Corp.* 14,100 387,891
----------------
TOTAL FINANCIALS 16,535,097
----------------
HEALTHCARE - 24.0%
Align Technology, Inc. * 133,700 1,437,275
Animas Corp.* 71,142 1,111,949
CV Therapeutics, Inc.* 155,500 3,576,500
Conceptus, Inc.* 65,900 534,778
Conor Medsystems, Inc.* 15,600 216,060
Digene Corp.* 52,500 1,372,875
Dyax Corp.* 131,700 950,874
Immucor, Inc.* 82,050 1,928,996
Inspire Pharmaceuticals, Inc.* 125,900 2,111,343
Isolagen, Inc.* 129,400 1,018,378
Medicis Pharmaceutical Corp. 41,500 1,457,065
MGI PHARMA, Inc.* 62,700 1,756,227
Nektar Therapeutics* 104,800 2,121,152
Pain Therapeutics, Inc.* 161,200 1,162,252
POZEN, Inc.* 114,000 828,780
Protein Design Labs, Inc.* 105,500 2,179,630
Rigel Pharmaceuticals, Inc.* 44,100 1,076,922
Transkaryotic Therapies, Inc.* 72,200 1,833,158
United Therapeutics Corp.* 49,800 2,248,470
----------------
TOTAL HEALTHCARE 28,922,684
----------------
MATERIALS - 1.4%
Engineered Support Systems, Inc. 28,300 1,675,926
----------------
TECHNOLOGY - 15.2%
Agile Software Corp.* 208,400 1,702,628
Akamai Technologies, Inc.* 113,600 1,480,208
Audible, Inc.* 47,400 1,234,770
Cymer, Inc.* 51,400 1,518,356
Identix, Inc.* 59,800 441,324
Manhattan Associates, Inc.* 62,200 1,485,336
MatrixOne, Inc.* 282,500 1,850,375
Merix Corp.* 73,200 843,264
O2Micro International, Ltd.* 169,700 1,941,368
Power Integrations, Inc.* 64,100 1,267,898
Skyworks Solutions, Inc.* 252,700 2,382,961
Tessera Technologies, Inc.* 57,600 2,143,296
----------------
TOTAL TECHNOLOGY 18,291,784
----------------
TRANSPORTATION - 2.6%
Knight Transportation, Inc. 74,350 1,843,880
Old Dominion Freight Line, Inc.* 38,500 1,339,800
----------------
TOAL TRANSPORTATION 3,183,680
----------------
TOTAL COMMON STOCKS 117,101,085
----------------
(Cost $99,652,557)
MONEY MARKET MUTUAL FUNDS - 0.0%**
SSgA Prime Money Market Fund 1,347 $ 1,347
SSgA U.S. Treasury Money Market Fund 1,324 1,324
----------------
TOTAL MONEY MARKET MUTUAL FUNDS 2,671
----------------
(Cost $2,671)
TOTAL INVESTMENTS 100.0% 120,552,253
(Cost $103,103,725)
Liabilities in Excess
of Other Assets 0.0%** (20,349)
--------------------------
NET ASSETS 100.0% $ 120,531,904
==========================
</Table>
- ----------
*Non-income producing security
**Less than 0.05% of net assets
INCOME TAX INFORMATION:
At December 31, 2004, the net unrealized appreciation based on cost for income
tax purposes of $103,262,368 was as follows:
<Table>
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost $ 23,558,346
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value (6,268,461)
----------------
Net unrealized appreciation $ 17,289,885
================
</Table>
The difference between book and tax net unrealized appreciation is wash sale
loss deferrals
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities, for the six
months ended December 31, 2004, aggregated $39,959,053 and $38,412,006,
respectively.
3
<Page>
PORTFOLIO OF INVESTMENTS [GRAPHIC]
AS OF DECEMBER 31, 2004 - SHOWING PERCENTAGE OF TOTAL NET ASSETS (UNAUDITED)
INTERMEDIATE BOND PORTFOLIO
<Table>
<Caption>
DUE PRINCIPAL
DATE COUPON AMOUNT VALUE
- -------- --------------- --------------- ---------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 41.7%
U.S. TREASURY NOTES - 3.8%
08/15/08 3.250% $ 14,000,000 $ 13,934,928
---------------
FEDERAL FARM CREDIT BANK - 4.5%
06/15/07 3.250% 2,500,000 2,493,577
09/17/07 2.625% 11,000,000 10,789,548
07/21/08 3.150% 3,000,000 2,950,599
---------------
TOTAL FEDERAL FARM CREDIT BANK 16,233,724
---------------
FEDERAL HOME LOAN BANK - 9.5%
05/15/06 3.000% 20,000,000 19,971,460
11/15/06 4.875% 14,000,000 14,412,958
---------------
TOTAL FEDERAL HOME LOAN BANK 34,384,418
---------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 13.8%
01/15/06 5.250% 6,500,000 6,639,237
06/16/06 2.910% 14,500,000 14,455,238
01/05/07 6.700% 5,000,000 5,330,640
01/19/07 3.050% 2,500,000 2,489,408
09/15/07 3.500% 1,950,000 1,955,571
01/23/08 3.650% 10,540,000 10,573,928
04/15/08 5.750% 1,750,000 1,868,736
03/15/09 5.750% 4,510,000 4,859,814
07/15/12 5.125% 1,810,000 1,902,896
---------------
TOTAL FEDERAL HOME LOAN
MORTGAGE CORPORATION 50,075,468
---------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 7.3%
06/15/05 5.750% 2,000,000 2,027,962
02/15/08 5.750% 2,850,000 3,035,797
02/01/11 6.250% 5,000,000 5,481,575
02/28/12 5.625% 11,000,000 11,369,908
08/01/12 5.250% 4,500,000 4,669,335
---------------
TOTAL FEDERAL NATIONAL
MORTGAGE ASSOCIATION 26,584,577
---------------
OTHER - 2.8%
Private Export Funding Corp.
03/15/06 5.340% 10,000,000 10,264,290
---------------
TOTAL U S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $150,319,876) 151,477,405
---------------
CORPORATE BONDS & NOTES - 56.8%
FINANCIALS - 31.8%
BANKS - 12.8%
AmSouth Bank*
02/01/08 6.450% 5,100,000 5,456,602
Bank of America Corp.
01/15/13 4.875% 4,940,000 5,025,832
Bank of New York Co., Inc.
09/01/07 3.900% 2,415,000 2,434,303
Bank One Corp.
08/01/06 6.875% 2,000,000 2,110,476
05/01/07 7.600% 725,000 788,712
First Union National Bank
02/15/10 7.875% 5,000,000 5,829,065
Key Bank
07/17/07 5.000% 5,500,000 5,707,394
National City Corp.
05/15/05 7.200% 2,000,000 2,030,650
Regions Bank
12/15/06 2.900% $ 2,530,000 $ 2,506,140
Regions Financial Corp.
03/01/11 7.000% 4,500,000 5,135,153
Synovus Financial Corp.
02/15/13 4.875% 1,775,000 1,771,675
US Bank
02/04/14 6.300% 7,000,000 7,762,412
---------------
TOTAL BANKS 46,558,414
---------------
BROKER/DEALERS - 11.3%
Bear Stearns Co.
01/15/07 5.700% 6,330,000 6,590,935
Donaldson, Lufkin & Jenrette, Inc.
11/01/05 6.875% 1,000,000 1,030,160
Goldman Sachs Group, Inc.
08/17/05 7.625% 3,800,000 3,911,910
01/15/11 6.875% 3,500,000 3,948,623
J.P. Morgan Chase & Co.
03/01/07 5.350% 2,730,000 2,833,762
05/30/07 5.250% 4,065,000 4,225,950
Lehman Brothers, Inc.
01/18/12 6.625% 4,500,000 5,031,846
Merrill Lynch & Co., Inc.
01/30/06 2.940% 5,400,000 5,382,644
01/15/07 7.000% 2,580,000 2,750,755
Morgan Stanley Group, Inc.
03/01/07 6.875% 5,000,000 5,357,045
---------------
TOTAL BROKER/DEALERS 41,063,630
---------------
FINANCIAL SERVICES - 3.2%
General Electric Corp.
11/21/11 4.375% 6,710,000 6,670,169
Washington Mutual Bank
01/15/15 5.125% 5,000,000 4,966,030
---------------
TOTAL FINANCIAL SERVICES 11,636,199
---------------
INSURANCE - 3.9%
AIG Sunamerica Global Financing*
08/01/08 5.850% 5,000,000 5,326,400
Allstate Financial Global Funding II*
04/15/07 2.625% 7,665,000 7,511,501
Cigna Corp.
01/15/06 6.375% 1,350,000 1,384,540
---------------
TOTAL INSURANCE 14,222,441
---------------
LEASING COMPANY - 0.6%
International Lease Finance Corp.
01/17/06 4.000% 1,950,000 1,962,644
---------------
TOTAL FINANCIALS 115,443,328
---------------
INDUSTRIALS - 22.7%
CAPITAL GOODS - 4.1%
Boeing Capital Corp.
05/15/06 5.650% 1,125,000 1,160,056
Dover Corp.
11/15/05 6.450% 3,525,000 3,615,642
John Deere Capital
03/15/12 7.000% 7,000,000 8,070,741
01/15/13 5.100% 2,000,000 2,056,650
---------------
TOTAL CAPITAL GOODS 14,903,089
---------------
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
<Page>
<Table>
<Caption>
DUE PRINCIPAL
DATE COUPON AMOUNT VALUE
- -------- --------------- --------------- ---------------
INDUSTRIALS (CONTINUED)
CONSUMER CYCLICALS - 6.0%
DaimlerChrysler AG
01/18/11 7.750% $ 7,000,000 $ 8,071,770
Ford Motor Credit Co.
01/25/07 6.500% 7,000,000 7,278,929
General Motors Acceptance Corp.
08/28/12 6.875% 6,500,000 6,636,370
---------------
TOTAL CONSUMER CYCLICALS 21,987,069
---------------
CONSUMER STAPLES - 1.0%
Price/Costco, Inc.
06/15/05 7.125% 3,700,000 3,765,727
---------------
HEALTHCARE - 3.1%
Abbott Laboratories
07/01/06 5.625% 3,500,000 3,618,556
Bristol-Meyers Squibb Co.
10/01/11 5.750% 7,000,000 7,496,839
---------------
TOTAL HEALTHCARE 11,115,395
---------------
MEDIA PUBLISHING & CABLE - 1.4%
Continental Cablevision, Inc.
09/15/05 8.875% 4,876,000 5,066,457
---------------
TECHNOLOGY - 1.4%
Pitney Bowes, Inc.
02/01/05 5.950% 5,000,000 5,009,760
---------------
TELECOMMUNICATIONS - 5.7%
BellSouth Corp.
10/15/11 6.000% 7,000,000 7,629,587
GTE Corp.
04/15/06 6.360% 4,400,000 4,564,366
11/01/08 6.900% 5,000,000 5,424,520
Verizon Communications, Inc.
12/15/06 5.375% 3,000,000 3,107,415
---------------
TOTAL TELECOMMUNICATIONS 20,725,888
---------------
TOTAL INDUSTRIALS 82,573,385
---------------
UTILITIES - 2.3%
GAS - 2 3%
Consolidated Natural Gas Co.
12/01/14 5.000% 5,385,000 5,390,164
ONEOK, Inc.
08/15/06 7.750% 2,900,000 3,089,846
---------------
TOTAL GAS 8,480,010
---------------
TOTAL UTILITIES 8,480,010
---------------
TOTAL CORPORATE BONDS & NOTES
(Cost $201,475,035) 206,496,723
---------------
MORTGAGE-BACKED OBLIGATIONS - 0.0%**
Government National Mortgage Association
Pool #26825
09/15/08 9.000% $ 16,506 $ 17,753
---------------
TOTAL MORTGAGE-BACKED OBLIGATIONS
(Cost $15,922) 17,753
---------------
<Caption>
SHARES
---------------
MONEY MARKET MUTUAL FUNDS - 0.2%
SSgA Prime Money Market Fund 828,761 828,761
SSgA Treasury Money Market Fund 3,095 3,095
---------------
TOTAL MONEY MARKET MUTUAL FUNDS
(Cost $831,856) 831,856
---------------
TOTAL INVESTMENTS
(Cost $352,642,689) 98.7% 358,823,737
Other Assets in Excess of
Liabilities 1.3% 4,661,771
--------------- ---------------
NET ASSETS 100.0% $ 363,485,508
=============== ===============
</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 Decemeber 31, 2004, these
securities amounted to a value of $18,294,503 or 5.03% of net assets.
** Less than 0.05% of net assets
INCOME TAX INFORMATION:
At December 31, 2004, the net unrealized appreciation based on cost for income
tax purposes of $352,642,689 was as follows:
<Table>
Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost $ 7,761,384
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value (1,580,336)
---------------
Net unrealized appreciation $ 6,181,048
===============
</Table>
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities, for the six
months ended December 31, 2004, aggregated $117,016,180 and $141,696,571,
respectively. Purchases and sales of U.S. government and agency securities,
other than short-term securities, for the six months ended December 31, 2004,
aggregated $86,787,600 and $102,477,762, respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
<Page>
PORTFOLIO OF INVESTMENTS [GRAPHIC]
AS OF DECEMBER 31, 2004 - SHOWING PERCENTAGE OF TOTAL NET ASSETS (UNAUDITED)
TENNESSEE TAX-FREE PORTFOLIO
<Table>
<Caption>
DUE BOND RATING PRINCIPAL
DATE COUPON MOODY/S&P AMOUNT VALUE
- -------- --------------- --------------- --------------- ---------------
TENNESSEE MUNICIPAL OBLIGATIONS - 98.8%
GENERAL OBLIGATION BONDS - 55.7%
Bradley County
03/01/10 4.250%, FGIC Aaa/AAA $ 1,000,000 $ 1,044,600
Cocke County
06/01/15 5.000%, MBIA Aaa/NR 1,195,000 1,312,863
Collierville
Water & Sewer Systems
11/01/16 5.500%, MBIA Aaa/AAA 1,000,000 1,059,330
Crockett County
04/01/11 5.000%, AMBAC Aaa/NR 500,000 525,805
Dickson County
06/01/16 5.000%, FGIC Aaa/NR 1,535,000 1,669,880
Franklin
Special School District
06/01/12 5.100% Aa2/NR 2,500,000 2,786,500
Franklin
Water & Sewer
04/01/15 4.500% Aaa/NR 1,700,000 1,800,691
Franklin County
03/01/13 5.250%, MBIA Aaa/AAA 750,000 761,468
Grundy County
05/01/06 5.350%, FGIC Aaa/AAA 300,000 312,240
Hamilton County
11/01/09 5.000% Aa1/NR 3,100,000 3,382,782
11/01/15 5.300% Aa1/NR 3,535,000 3,841,873
Jackson
03/01/14 5.125%, MBIA Aaa/NR 3,100,000 3,176,105
Johnson City
05/01/14 5.550%, FGIC Aaa/AAA 2,250,000 2,396,453
La Vergne
Water & Sewer
03/01/14 5.400% A1/NR 500,000 507,720
Lawrenceburg
Water & Sewer
07/01/15 5.500%, FSA Aaa/AAA 1,330,000 1,483,216
Lincoln County
04/01/14 5.250%, FGIC Aaa/NR 1,315,000 1,486,384
Madison County
04/01/15 5.000% Aa3/NR 2,425,000 2,696,673
Maury County
04/01/14 5.000% Aaa 1,140,000 1,260,772
McNairy County
03/01/15 4.000%, MBIA Aaa/NR 1,750,000 1,787,835
Memphis
11/01/10 5.200% Aa2/AA 1,000,000 1,052,900
10/01/11 5.125% Aa2/AA 1,000,000 1,058,700
04/01/13 5.250% Aa2/AA 4,000,000 4,345,600
11/01/13 5.250% Aa2/AA 1,000,000 1,048,840
10/01/18 5.000% Aa2/AA 2,000,000 2,180,120
Metropolitan Nashville & Davidson County
Energy Production
07/01/13 5.250% Aa2/AA 1,000,000 1,125,990
Monroe County
05/01/06 5.250%, FSA Aaa/NR 1,500,000 1,559,250
Montgomery County
05/01/16 4.750% Aaa/NR 1,000,000 1,089,590
Roane County
05/01/14 4.000%, MBIA Aaa/NR 500,000 516,500
Rockwood
Water & Sewer
06/01/16 3.650%, MBIA NR/AAA 1,280,000 1,265,830
Rutherford County
04/01/09 5.250% Aa2/AA 500,000 519,205
04/01/14 5.000% Aa2/AA 5,000,000 5,408,100
Shelby County
06/01/09 5.625% Aa2/AA+ $ 1,000,000 $ 1,048,690
11/01/09 5.300% Aa2/AA+ 3,000,000 3,167,340
03/01/10 5.500% Aa2/AA+ 2,000,000 2,242,180
05/01/14 4.700% Aa2/AA+ 2,000,000 2,088,060
Sullivan County
05/01/15 5.000%, AMBAC Aa3/NR 1,605,000 1,782,593
Tennessee State
05/01/11 5.000% Aa2/AA 4,160,000 4,597,882
05/01/13 5.300% Aa2/AA 750,000 810,173
Tipton County
04/01/12 5.250%, AMBAC Aaa/NR 500,000 529,400
Warren County
06/01/12 5.000%, MBIA Aaa/NR 1,845,000 2,046,972
Weakley County
05/01/09 5.000%, FGIC Aaa/AAA 350,000 353,423
Williamson County
03/01/11 6.000% Aa1/NR 1,000,000 1,151,030
04/01/12 5.000% Aa1/NR 2,500,000 2,774,950
03/01/13 5.000% Aa1/NR 2,500,000 2,708,825
03/01/14 5.000% Aa1/NR 2,000,000 2,157,860
03/01/15 5.150% Aa1/NR 1,500,000 1,665,795
---------------
TOTAL GENERAL OBLIGATION BONDS 83,588,988
---------------
REVENUE BONDS - 43.1%
FACILITIES - 1.5%
Metropolitan Nashville & Davidson County
Sports Authority
07/01/19 5.000% Aaa/AAA 2,140,000 2,309,338
---------------
HEALTH & EDUCATION - 22.5%
Blount County
07/01/09 5.250% Baa1/NR 2,765,000 2,875,572
Franklin County
09/01/09 4.750% NR/A+ 1,880,000 2,000,470
Jackson
04/01/10 5.500%, AMBAC Aaa/AAA 400,000 410,916
Johnson City
07/01/09 5.125%, MBIA Aaa/AAA 5,705,000 6,291,246
Knox County
Baptist Health
04/15/11 5.500%, CONLEE NR/AAA 3,000,000 3,201,930
Knox County
Children's Hospital
07/01/16 5.000% Baa1/BBB+ 3,810,000 3,935,006
Knox County
Covenant Health
01/01/12 4.200% NR/NR* 3,400,000 3,487,312
01/01/14 5.750%, MBIA Aaa/AAA 1,000,000 1,157,200
01/01/18 5.500% Aaa/AAA 2,000,000 2,189,100
Metropolitan Nashville & Davidson County
Vanderbilt University
07/01/14 5.375% Aa2/AA 1,000,000 1,072,820
05/01/16 5.600% Aa2/AA 2,600,000 2,850,406
Shelby County
08/01/12 5.500%, MBIA Aaa/AAA 650,000 674,154
Tennessee State School
Board Authority
05/01/11 5.500% Aa3/AA- 500,000 528,725
05/01/14 4.500%, FSA Aaa/AAA 3,000,000 3,191,400
---------------
TOTAL HEALTH & EDUCATION 33,866,257
---------------
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
<Page>
<Table>
<Caption>
DUE BOND RATING PRINCIPAL
DATE COUPON MOODY/S&P AMOUNT VALUE
- -------- --------------- --------------- --------------- ---------------
REVENUE BONDS (CONTINUED)
HOUSING - 2.6%
Metropolitan Nashville & Davidson
County
Multi-Family Housing
02/01/21 5.200% NR/AAA $ 1,000,000 $ 1,020,250
Tennessee Housing
Development Agency
01/01/11 5.800% Aa2/AA 400,000 416,660
07/01/13 5.800% Aa2/AA 330,000 331,455
07/01/16 4.900% Aa2/AA 2,000,000 2,082,120
---------------
TOTAL HOUSING 3,850,485
---------------
INDUSTRIAL DEVELOPMENT - 2.4%
Chattanooga
10/01/16 5.400%, AMBAC Aaa/AAA 3,210,000 3,534,467
STATE AUTHORITY - 1.4%
Tennessee State
Local Development Authority
03/01/14 5.125%, MBIA Aaa/AAA 2,000,000 2,080,900
UTILITIES - 12.7%
Clarksville
Water, Sewer & Gas
02/01/10 5.300%, MBIA Aaa/NR 900,000 972,441
Dickson
Electric
09/01/11 5.625%, MBIA Aaa/AAA 1,000,000 1,130,900
Harpeth Valley
Utilities District
09/01/17 5.000%, MBIA Aa3/NR 1,100,000 1,199,297
Johnson City
Electric
05/01/10 5.400%, MBIA Aaa/AAA 500,000 519,190
05/01/12 5.100%, MBIA Aaa/AAA 1,500,000 1,595,940
Knoxville
Electric
07/01/13 5.000% Aa3/AA 1,000,000 1,076,900
La Follette
Electric
06/01/11 5.800%, AMBAC Aaa/AAA 430,000 445,213
03/01/15 5.250%, AMBAC Aaa/NR 1,000,000 1,055,810
Lawrenceburg
Electric
07/01/06 5.200%, MBIA Aaa/AAA 345,000 359,973
Lenoir City
Electric
06/01/07 5.000%, AMBAC Aaa/NR 2,000,000 2,122,720
Madison
Utility District
02/01/10 5.600%, MBIA Aaa/AAA 500,000 542,620
Metropolitan Nashville & Davidson
County
Electric
05/15/15 5.125% Aa3/AA 1,000,000 1,077,150
Metropolitan Nashville & Davidson
County
Water & Sewer
01/01/08 5.000%, FGIC Aaa/AAA 3,000,000 3,218,280
01/01/13 5.200%, FGIC Aaa/AAA 1,500,000 1,673,055
Rutherford County
Utilities District
02/01/11 5.100%, FGIC Aaa/NR 500,000 534,225
Sevier County
Gas
05/01/11 5.400%, AMBAC Aaa/NR 1,000,000 1,061,730
Sevier County
Solid Waste
09/01/10 5.400%, AMBAC Aaa/AAA $ 500,000 $ 507,505
---------------
TOTAL UTILITIES 19,092,949
---------------
TOTAL REVENUE BONDS 64,734,396
---------------
TOTAL TENNESSEE MUNICIPAL OBLIGATIONS
(Cost $141,442,583) 148,323,384
---------------
<Caption>
SHARES
---------------
MONEY MARKET MUTUAL FUNDS - 0.0%**
Federated Tax Free Fund 715 715
SSgA Tax Free Fund 231 231
---------------
TOTAL MONEY MARKET MUTUAL FUNDS
(Cost $946) 946
---------------
TOTAL INVESTMENTS 98.8% 148,324,330
(Cost $141,443,529)
Other Assets in Excess of
Liabilities 1.2% 1,868,106
--------------- ---------------
NET ASSETS 100.0% $ 150,192,436
=============== ===============
</Table>
* At December 31, 2004, this security was rated A by Fitch
** Less than 0.05% of net assets
The Portfolio had the following insurance concentration of 10% or greater at
December 31, 2004:
MBIA 18.9%
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, Inc.
MBIA Municipal Bond Insurance Association
INCOME TAX INFORMATION:
At December 31, 2004, the net unrealized appreciation based on cost for income
tax purposes of $141,443,529 was as follows:
<Table>
Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost $ 6,970,787
---------------
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value (89,986)
---------------
Net unrealized appreciation $ 6,880,801
===============
</Table>
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities, for the six
months ended December 31, 2004, aggregated $8,605,164 and $22,846,423,
respectively.
RATINGS:
The Moody's and S&P ratings are believed to be the most recent ratingsat
December 31, 2004.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
7
<Page>
PORTFOLIO OF INVESTMENTS [GRAPHIC]
AS OF DECEMBER 31, 2004 - SHOWING PERCENTAGE OF TOTAL NET ASSETS (UNAUDITED)
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 - 11.6%
01/20/05** 2.297% $ 600,000 $ 599,349
03/08/05* 2.315% 10,000,000 9,996,214
03/12/05* 2.345% 5,000,000 4,997,908
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 19,093,471
---------------
FEDERAL HOME LOAN MORTGAGE CORP. - 35.6%
01/07/05* 2.000% 5,000,000 5,000,000
01/10/05** 2.250% 500,000 499,781
01/18/05** 2.250% 6,800,000 6,793,625
01/18/05** 2.306% 1,800,000 1,798,270
01/25/05** 2.251% 300,000 299,587
01/25/05** 2.303% 2,400,000 2,396,622
01/26/05** 2.280% 12,486,000 12,467,812
01/28/05** 2.250% 300,000 299,521
01/28/05** 2.306% 1,500,000 1,497,608
01/31/05** 2.280% 10,000,000 9,982,267
02/01/05** 2.290% 3,611,000 3,604,339
02/07/05* 2.165% 10,000,000 10,001,512
03/01/05 1.420% 2,000,000 2,000,000
03/23/05 1.290% 1,000,000 1,000,000
09/15/05 2.875% 1,000,000 1,003,067
---------------
TOTAL FEDERAL HOME LOAN
MORTGAGE CORPORATION 58,644,011
---------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 52.8%
01/03/05** 1.650% 17,947,000 17,947,000
01/03/05* 1.900% 10,000,000 10,000,000
01/13/05** 2.306% 1,925,000 1,923,767
01/14/05** 2.260% 600,000 599,586
01/14/05** 2.280% 800,000 799,443
01/19/05** 2.270% 8,162,000 8,153,765
01/26/05** 2.280% 3,051,000 3,046,556
02/01/05** 2.150% 4,792,000 4,783,700
02/02/05** 2.170% 1,400,000 1,397,397
02/02/05** 2.240% 1,900,000 1,896,468
02/02/05** 2.255% 4,700,000 4,691,262
02/02/05** 2.270% 700,000 698,699
02/04/05** 2.240% 1,000,000 997,983
02/04/05** 2.250% 300,000 299,395
02/04/05** 2.290% 1,625,000 1,621,723
02/18/05* 2.230% 5,000,000 4,999,842
03/06/05* 2.308% 10,000,000 9,995,950
03/23/05** 2.455% 10,000,000 9,946,069
03/23/05** 2.470% 2,100,000 2,088,675
03/24/05* 2.460% 1,000,000 999,977
---------------
TOTAL FEDERAL NATIONAL
MORTGAGE ASSOCIATION 86,887,257
---------------
TOTAL U S. GOVERNMENT &
AGENCY OBLIGATIONS 164,624,739
---------------
TOTAL INVESTMENTS 100.0% 164,624,739
Other Assets in Excess of
Liabilities 0.0%*** 13,309
--------------- ---------------
NET ASSETS 100.0% $ 164,638,048
=============== ===============
</Table>
* Floating or variable rate security rate disclosed as of December 31, 2004.
Maturity date represents the next interest rate reset date.
** Discount Note
*** Less than 0.05% of net assets
INCOME TAX INFORMATION:
The cost for Federal income tax purposes - $164,624,739.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
<Page>
[GRAPHIC] PORTFOLIO OF INVESTMENTS
AS OF DECEMBER 31, 2004 - SHOWING PERCENTAGE OF TOTAL NET ASSETS (UNAUDITED)
MUNICIPAL MONEY MARKET PORTFOLIO
<Table>
<Caption>
DUE DISCOUNT RATE OR PRINCIPAL
DATE COUPON RATE AMOUNT VALUE
- --------- ---------------- --------------- ---------------
MUNICIPAL BONDS & NOTES - 98.6%
CALIFORNIA - 2.6%
Affordable Housing Agency
01/06/05* 2.050%, MER $ 2,320,000 $ 2,320,000
---------------
COLORADO - 1.1%
Denver Urban Renewal
01/06/05* 2.080%, MER; LLOYDS 1,000,000 1,000,000
---------------
DELAWARE - 4.5%
Delaware State Economic Development
01/06/05* 2.100%, AIB 4,000,000 4,000,000
---------------
FLORIDA - 3.6%
01/06/05* 2.090%, RABOBK; FRTR 3,165,000 3,165,000
---------------
GEORGIA - 3.6%
Georgia Local Government
01/06/05* 2.070%, MBI; BAC 3,200,000 3,200,000
---------------
ILLINOIS - 9.2%
Chicago Public Building
02/01/05 5.375%, FGIC 550,000 551,852
Illinois Educational Facilities Authority
01/05/05* 2.050%, FITB 1,600,000 1,600,000
Illinois State
02/01/05 5.000%, FGIC 1,000,000 1,002,413
Regional Transport Authority
01/05/05* 2.060%, MBI; WB 1,000,000 1,000,000
Rockford Industrial Development
01/07/05* 2.100%, MI 4,000,000 4,000,000
---------------
TOTAL ILLINOIS 8,154,265
---------------
INDIANA - 2.5%
Hendricks County
Industrial Redevelopment
01/06/05* 2.100%, HBAN 1,000,000 1,000,000
Indiana Health Facility Financing Authority
01/05/05* 2.090%, WFC 200,000 200,000
Indiana Transport Financial Authority
01/06/05* 2.030%, FGIC; BK 1,000,000 1,000,000
---------------
TOTAL INDIANA 2,200,000
---------------
LOUISIANA - 7.0%
Louisiana Housing Financial Agency
01/06/05* 2.040%, FNMA 1,900,000 1,900,000
Louisiana Public Facilities Authority
01/06/05* 2.050%, HIB 4,300,000 4,300,000
---------------
TOTAL LOUISIANA 6,200,000
---------------
MASSACHUSETTS - 1.1%
Milton
09/23/05 2.750% 1,000,000 1,007,834
---------------
MICHIGAN - 3.7%
Detroit Economic Development
01/06/05* 2.070%, RBS 1,775,000 1,775,000
Detroit Sewage Disposal
01/05/05* 2.060%, FSA; WB 1,465,000 1,465,000
---------------
TOTAL MICHIGAN 3,240,000
---------------
MISSISSIPPI - 4.0%
Mississippi State Development Bank
01/05/05* 2.090%, ABK; BNP $ 3,525,000 $ 3,525,000
---------------
MULTIPLE STATES - 4.0%
Municipal Securities Pool
SG PG-18
01/06/05* 2.140%, FGIC; MBI; ABK;
PSFG FSA; PENN;
USC 3,545,000 3,545,000
---------------
NEW HAMPSHIRE - 1.9%
New Hampshire Health and Education Facilities
07/01/05 5.250%, ABK 1,695,000 1,724,920
---------------
NEW YORK - 4.3%
New York
01/03/05* 2.150%, JPM 3,800,000 3,800,000
---------------
OHIO - 10.1
Akron ABN AMRO Munitops
01/05/05* 2.030%, FGIC; AAB 4,530,000 4,530,000
Fairfield County
04/13/05 2.000% 900,000 902,000
Muskingum County
11/22/05 2.590% 1,838,000 1,844,120
Ohio State Higher Educational Facility
01/06/05* 2.070%, KEY 1,725,000 1,725,000
---------------
TOTAL OHIO 9,001,120
---------------
PENNSYLVANIA - 10.3%
Chester County Development Authority
01/05/05* 2.020%, RBS 3,500,000 3,500,000
Slippery Rock School District
04/01/05 5.250%, FGIC 150,000 151,313
Union County Hospital Authority
02/01/05* 1.220%, ASSET; BAC 1,500,000 1,500,000
York General Authority
01/07/05* 2.070%, MTB 3,950,000 3,950,000
---------------
TOTAL PENNSYLVANIA 9,101,313
---------------
TENNESSEE - 13.3
Memphis
01/05/05* 2.030%, NRWBK 700,000 700,000
Metro. Gov't Nashville Health &
Educational Facilities
01/07/05* 2.040%, WB 1,065,000 1,065,000
01/15/05* 1.050%, VANDU 2,500,000 2,500,000
08/03/05* 1.650%, AH 1,000,000 1,000,000
Shelby County Health, Educational &
Housing Facilities
01/05/05* 2.040%, JPM 4,500,000 4,500,000
Tennergy Corp.
06/01/05 5.000%, MBI 2,000,000 2,028,024
---------------
TOTAL TENNESSEE 11,793,024
---------------
TEXAS - 5.0%
Plano Independent School District
02/15/05 5.000%, PSFG 250,000 251,112
Texas State
08/31/05 3.000% 3,000,000 3,027,388
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
9
<Page>
<Table>
<Caption>
DUE DISCOUNT RATE OR PRINCIPAL
DATE COUPON RATE AMOUNT VALUE
- --------- ---------------- --------------- ---------------
San Antonio Electric & Gas
12/01/05* 2.200%, BNP $ 1,200,000 $ 1,200,000
---------------
TOTAL TEXAS 4,478,500
---------------
VERMONT - 3.8%
Vermont Educational & Health Buildings
01/06/05* 2.050%, ASSET; BAC 3,400,000 3,400,000
---------------
VIRGINIA - 3.0%
University of Virginia
01/05/05* 2.060%, WB 2,685,000 2,685,000
---------------
TOTAL MUNICIPAL BONDS & NOTES 87,540,976
---------------
TOTAL INVESTMENTS 98.6% 87,540,976
Other Assets in Excess
of Liabilities 1.4% 1,259,364
--------------- ---------------
NET ASSETS 100.0% $ 88,800,340
=============== ===============
</Table>
* Floating or variable rate security - rate disclosed as of December 31,
2004. Maturity date represents the next interest rate reset date.
INCOME TAX INFORMATION:
The cost for Federal income tax purposes - $87,540,976.
To simplify the listings of securities, abbreviations are used per the table
below:
AAB ABN AMRO Holding N.V.
ABK AMBAC Financial Group, Inc.
AH Ascension Health
AIB Allied Irish Bank, plc
ASSET Radian Asset Assurance
BAC Bank of America Corp.
BK Bank of New York Co.
BNP BNP Paribas
FGIC Financial Guaranty Insurance Co.
FITB Fifth Third Bancorp
FNMA Federal National Mortgage Association
FRTR Caisse Des Depots Et Consignations
FSA Financial Security Assurance
HBAN Huntington Bancshares, Inc.
HIB Hibernia Corp.
JPM J.P. Morgan Chase & Co.
KEY Keycorp
LLOYDS Lloyds TSB Group, plc
MBI Municipal Bond Insurance Association, Inc.
MER Merrill Lynch & Co., Inc.
MI Marshall & Ilsley Corp.
MTB M&T Bank Corp.
NRWBK Westdeutsche Landesbank
PENN Pennsylvania State University
PSFG Permanent School Fund Guarantee
RABOBK Rabobank Nederland N.V.
RBS Royal Bank of Scotland Group
USC University of Southern California
VANDU Vanderbilt University
WB Wachovia Corp.
WFC Wells Fargo & Co.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
10
<Page>
[GRAPHIC] PORTFOLIO OF INVESTMENTS
AS OF DECEMBER 31, 2004 - SHOWING PERCENTAGE OF TOTAL NET ASSETS (UNAUDITED)
CASH RESERVE PORTFOLIO
<Table>
<Caption>
DUE DISCOUNT RATE OR PRINCIPAL
DATE COUPON RATE AMOUNT VALUE
- --------- ---------------- --------------- ---------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 8.5%
FEDERAL HOME LOAN BANK - 4.3%
03/12/05* 2.345% $ 8,000,000 $ 7,996,652
04/04/05 1.425% 2,500,000 2,500,000
---------------
TOTAL FEDERAL HOME LOAN BANK 10,496,652
---------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 1.0
03/23/05 1.290% 2,500,000 2,500,000
---------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 3.2%
02/18/05* 2.230% 8,000,000 7,999,747
---------------
TOTAL U S. GOVERNMENT &
AGENCY OBLIGATIONS 20,996,399
---------------
CERTIFICATES OF DEPOSIT - 18.4%
DEPOSITORY INSTITUTIONS - 18.4%
Banco Santander
01/14/05 2.365% 11,750,000 11,750,000
Citibank
02/08/05 2.200% 5,280,000 5,280,000
DEPFA Bank, plc
11/01/05 2.490% 2,400,000 2,400,000
Natexis Banques Populaires
02/02/05 2.050% 5,000,000 5,000,000
Societe Generale
05/09/05 1.440% 3,000,000 2,999,682
Swedbank
03/01/05 1.440% 6,000,000 5,999,673
Washington Mutual Bank
02/02/05 2.330% 12,000,000 12,000,000
---------------
TOTAL CERTIFICATES OF DEPOSIT 45,429,355
---------------
COMMERCIAL PAPER - 60.9%
ASSET-BACKED SECURITIES - 35.2
Check Point Charlie, Inc.
01/21/05 2.400% 10,000,000 9,987,984
Delaware Funding, llc
02/01/05 2.300% 12,000,000 11,977,730
Dorada Finance, Inc.
01/05/05 1.990% 11,000,000 10,998,778
Emerald Certificates
01/27/05 2.350% 1,000,000 998,430
Fairway Finance Co., llc
01/03/05 2.230% 9,862,000 9,862,000
Liberty Street Funding Corp.
01/24/05 2.280% 9,000,000 8,988,010
Lockhart Funding, llc
02/03/05 2.240% 9,000,000 8,982,579
Monument Gardens Funding
01/18/05 2.270% 8,423,000 8,415,016
Newcastle Certificates
03/21/05 2.470% 5,000,000 4,973,561
Ranger Funding Co., llc
01/18/05 2.330% 11,750,000 11,738,579
---------------
TOTAL ASSET-BACKED SECURITIES 86,922,667
---------------
BROKER/DEALERS - 4.8%
Morgan Stanley
01/27/05 2.330% 11,800,000 11,781,647
---------------
DEPOSITORY INSTITUTIONS - 16.1%
Eurohypo AG
02/02/05 2.340% $ 11,895,000 $ 11,871,778
RaboBank
01/03/05 2.170% 7,000,000 7,000,000
Skandinaviska Enskilda Banken
02/01/05 2.290% 12,000,000 11,977,815
UBS Finance, Inc.
01/03/05 2.230% 8,857,000 8,857,000
---------------
TOTAL DEPOSITORY INSTITUTIONS 39,706,593
---------------
PERSONAL CREDIT INSTITUTIONS - 4.8
General Electric Capital Corp.
01/26/05 2.290% 12,000,000 11,982,414
---------------
TOTAL COMMERCIAL PAPER 150,393,321
---------------
CORPORATE NOTES - 12.2%
ASSET BACKED SECURITIES - 0.4%
Racers Trust**
01/24/05* 2.413% 1,000,000 1,000,000
---------------
BROKER/DEALERS - 6.9%
Bear Stearns
01/28/05* 2.428% 6,000,000 6,000,000
Merrill Lynch & Co.
01/05/05* 1.978% 11,000,000 11,000,000
---------------
TOTAL BROKER/DEALERS 17,000,000
---------------
DEPOSITORY INSTITUTIONS - 4.9%
HBOS Treasury Services, plc**
03/24/05* 2.550% 10,000,000 10,000,000
Westpac Banking Corp.
03/11/05* 2.450% 2,250,000 2,250,000
---------------
TOTAL DEPOSITORY INSTITUTIONS 12,250,000
---------------
TOTAL CORPORATE NOTES 30,250,000
---------------
TOTAL INVESTMENTS 100.0% 247,069,075
Other Assets in Excess of
Liabilities 0.0%*** 105,024
--------------- ---------------
NET ASSETS 100.0% $ 247,174,099
=============== ===============
</Table>
* Floating or variable rate security - rate disclosed as of December 31,
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 reg-
istration, normally to qualified institutional buyers. At December 31,
2004, these securities amounted to a value of $11,000,000 or 4.45% of net
assets.
*** Less than 0.05% of net assets
INCOME TAX INFORMATION:
The cost for Federal income tax purposes - $247,069,075.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
11
<Page>
STATEMENTS OF ASSETS AND LIABILITIES [GRAPHIC]
DECEMBER 31, 2004(UNAUDITED)
<Table>
<Caption>
CORE EQUIY CAPITAL APPRECIATION
PORTFOLIO PORTFOLIO
------------- --------------------
ASSETS
Investments, at value (cost -see below) $ 515,932,229 $ 120,552,253
Receivable for investments sold 1,956,207 47,359
Receivable for portfolio shares sold 468,318 159,314
Dividends receivable 749,462 2,778
Interest receivable 19,218 32
Other assets 44,650 21,247
------------- --------------------
Total Assets 519,170,084 120,782,983
------------- --------------------
LIABILITIES:
Payable for investments purchased 1,120,783 25,564
Payable for portfolio shares redeemed 1,202,489 40,717
Accrued management fee 337,929 84,986
Accrued administration fee 60,024 11,941
Accrued co-administration fee 44,246 8,916
Accrued distribution fee 50,049 1,444
Accrued shareholder servicing fee 37,300 2,255
Other payables and accrued expenses 236,944 75,256
------------- --------------------
Total Liabilities 3,089,764 251,079
------------- --------------------
NET ASSETS $ 516,080,320 $ 120,531,904
============= ====================
NET ASSETS CONSIST OF:
Paid in capital $ 437,726,807 $ 105,277,599
(Over)/undistributed net investment income 33,983 (551,382)
Accumulated net realized gain/(loss) on investments 2,938,283 (1,642,841)
Net unrealized appreciation in value of investments 75,381,247 17,448,528
------------- --------------------
NET ASSETS $ 516,080,320 $ 120,531,904
============= ====================
COST OF INVESTMENTS $ 440,550,982 $ 103,103,725
============= ====================
NET ASSET VALUE PER SHARE
Net Assets
Class I $ 371,644,552 $ 108,962,483
Class A $ 78,545,773 $ 9,459,504
Class B $ 15,065,277 $ 1,310,073
Class C $ 50,824,718 $ 799,844
------------- --------------------
Shares of beneficial interest outstanding of $.01 par
value, unlimited shares authorized
Class I 20,281,028 9,055,752
Class A 4,294,939 808,124
Class B 855,391 114,383
Class C 2,925,297 72,890
------------- --------------------
Net Asset Value and redemption price per share
Class I $ 18.32 $ 12.03
Class A $ 18.29 $ 11.71
Class B $ 17.61 $ 11.45
Class C $ 17.37 $ 10.97
------------- --------------------
Maximum offering price per share
Class I (no sales charge) $ 18.32 $ 12.03
Class A (net asset value plus maximum
sales charge of 5.75% of offering price) $ 19.41 $ 12.42
Class B (no sales charge) $ 17.61 $ 11.45
Class C (no sales charge) $ 17.37 $ 10.97
------------- --------------------
</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) $ 358,823,737 $ 148,324,330
Cash 0 405,192
Receivable for investments sold 124 0
Receivable for portfolio shares sold 140,116 65,800
Interest receivable 5,661,910 2,028,607
Other assets 46,882 19,851
----------------- ------------------
Total Assets 364,672,769 150,843,780
----------------- ------------------
LIABILITIES:
Payable for portfolio shares redeemed 341,296 40,815
Accrued management fee 92,616 38,184
Accrued administration fee 38,768 16,186
Accrued co-administration fee 28,702 12,050
Dividends payable 497,399 445,794
Accrued distribution fee 2,162 6,330
Accrued shareholder servicing fee 6,060 2,093
Other payables and accrued expenses 180,258 89,892
----------------- ------------------
Total Liabilities 1,187,261 651,344
----------------- ------------------
NET ASSETS $ 363,485,508 $ 150,192,436
================= ==================
NET ASSETS CONSIST OF:
Paid in capital $ 356,837,976 $ 143,085,348
Undistributed net investment income 203,825 9,452
Accumulated net realized gain on investments 262,659 216,835
Net unrealized appreciation in value of investments 6,181,048 6,880,801
----------------- ------------------
NET ASSETS $ 363,485,508 $ 150,192,436
================= ==================
COST OF INVESTMENTS $ 352,642,689 $ 141,443,529
================= ==================
NET ASSET VALUE PER SHARE
Net Assets
Class I $ 341,082,375 $ 132,563,932
Class A $ 19,651,905 $ 8,869,263
Class B $ 561,752 $ 3,467,274
Class C $ 2,189,476 $ 5,291,967
----------------- ------------------
Shares of beneficial interest outstanding of $.01 par
value, unlimited shares authorized
Class I 33,236,142 12,763,744
Class A 1,915,910 852,134
Class B 54,731 333,801
Class C 213,179 509,119
----------------- ------------------
Net Asset Value and redemption price per share
Class I $ 10.26 $ 10.39
Class A $ 10.26 $ 10.41
Class B $ 10.26 $ 10.39
Class C $ 10.27 $ 10.39
----------------- ------------------
Maximum offering price per share
Class I (no sales charge) $ 10.26 $ 10.39
Class A (net asset value plus maximum
sales charge of 3.50% and 3.75%, respectively, $ 10.63 $ 10.82
of offering price)
Class B (no sales charge) $ 10.26 $ 10.39
Class C (no sales charge) $ 10.27 $ 10.39
----------------- ------------------
</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 $ 164,624,739 $ 87,540,976 $ 247,069,075
Cash 137 1,098,055 266
Receivable for portfolio shares sold 30,189 0 0
Interest receivable 204,774 302,259 310,051
Other assets 16,366 10,879 29,027
--------------- ------------ --------------
Total Assets 164,876,205 88,952,169 247,408,419
--------------- ------------ --------------
LIABILITIES:
Dividends payable 177,002 90,273 76,436
Accrued management fee 12,260 8,028 17,799
Accrued administration fee 7,199 4,389 10,701
Accrued co-administration fee 488 2,413 8,248
Accrued distribution fee 2,280 6,375 46,362
Other payables and accrued expenses 38,928 40,351 74,774
--------------- ------------ --------------
Total Liabilities 238,157 151,829 234,320
--------------- ------------ --------------
NET ASSETS $ 164,638,048 $ 88,800,340 $ 247,174,099
=============== ============ ==============
NET ASSETS CONSIST OF:
Paid in capital $ 164,649,807 $ 88,806,991 $ 247,180,331
Undistributed net investment income 282 69 13,215
Accumulated net realized loss on investments (12,041) (6,720) (19,447)
--------------- ------------ --------------
NET ASSETS (1) $ 164,638,048 $ 88,800,340 $ 247,174,099
=============== ============ ==============
NET ASSET VALUE, offering price and redemption
price per share $ 1.00 $ 1.00 $ 1.00
=============== ============ ==============
</Table>
(1)
<Table>
<Caption>
SHARES OF BENEFICIAL INTEREST
NET OUTSTANDING, ($.01 PAR VALUE,
ASSETS UNLIMITED SHARES AUTHORIZED)
-------------- -----------------------------
U.S. Government Money Market
Class I $ 156,135,984 156,148,152
Class C $ 8,502,064 8,501,653
Municipal Money Market
Class I $ 65,268,756 65,277,693
Class C $ 23,531,584 23,532,311
Cash Reserve
Class I $ 34,086,129 34,087,412
Class B $ 162,689 162,689
Class C $ 212,925,281 212,934,904
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
14
<Page>
[GRAPHIC] STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2004 (UNAUDITED)
<Table>
<Caption>
CORE EQUITY CAPITAL APPRECIATION
PORTFOLIO PORTFOLIO
------------- --------------------
INVESTMENT INCOME:
Dividends $ 6,386,618 $ 127,805
Interest 130,160 53,034
------------- --------------------
Total Investment Income 6,516,778 180,839
------------- --------------------
EXPENSES:
Management fee 1,808,179 81,131
Co-management fee - 364,287
Administration fee 319,909 62,200
Co-administration fee 236,454 45,974
Fund accounting fee 56,571 12,491
Custody fee 40,383 26,501
Transfer agent fee 194,547 40,680
Blue sky fee 17,952 13,206
Distribution fee:
Class B 75,865 5,663
Class C 190,365 2,729
Shareholder servicing fee:
Class A 102,741 9,769
Class C 63,455 910
Trustees fee 25,505 5,092
Audit & tax 10,834 28,480
Legal 22,395 6,406
Reports to shareholders 58,490 17,600
Miscellaneous 25,530 9,102
------------- --------------------
Net Expenses 3,249,175 732,221
------------- --------------------
NET INVESTMENT INCOME/(LOSS) 3,267,603 (551,382)
------------- --------------------
Net realized gain on investments 9,541,258 4,994,330
Change in net unrealized appreciation/depreciation 6,016,206 2,900,499
------------- --------------------
Net gain on investments 15,557,464 7,894,829
------------- --------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 18,825,067 $ 7,343,447
============= ====================
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
<Page>
<Table>
<Caption>
INTERMEDIATE BOND TENNESSEE TAX-FREE
PORTFOLIO PORTFOLIO
----------------- ------------------
INTEREST INCOME: $ 8,097,819 $ 3,540,810
----------------- ------------------
EXPENSES:
Management fee 928,035 403,377
Administration fee 220,909 92,777
Co-administration fee 163,280 68,574
Fund accounting fee 45,115 24,319
Custody fee 29,034 12,316
Transfer agent fee 99,326 35,828
Blue sky fee 8,370 1,116
Distribution fee:
Class B 2,066 12,892
Class C 8,457 20,269
Shareholder servicing fee:
Class A 24,715 12,400
Class C 2,819 6,756
Trustees fee 18,392 7,836
Audit & tax 26,970 30,876
Legal 16,740 7,464
Reports to shareholders 22,630 14,460
Miscellaneous 24,924 12,834
----------------- ------------------
Total Expenses Before Waiver 1,641,782 764,094
Waiver of expenses (354,571) (174,863)
----------------- ------------------
Net Expenses 1,287,211 589,231
----------------- ------------------
NET INVESTMENT INCOME 6,810,608 2,951,579
----------------- ------------------
Net realized gain on investments 805,408 297,002
Change in net unrealized appreciation/depreciation 1,721,179 2,268,171
----------------- ------------------
Net gain on investments 2,526,587 2,565,173
----------------- ------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 9,337,195 $ 5,516,752
================= ==================
</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: $ 1,238,790 $ 763,428 $ 2,135,655
--------------- ------------ ------------
EXPENSES:
Management fee 36,177 26,112 61,276
Co-management fee 57,883 41,780 98,042
Administration fee 36,177 26,112 61,276
Co-administration fee 36,177 26,112 61,276
Fund accounting fee 10,130 7,312 17,157
Custody fee 7,235 5,223 12,255
Transfer agent fee 20,584 15,476 45,494
Blue sky fee 2,604 5,208 8,370
Distribution fee:
Class B - - 950
Class C 21,217 81,160 471,588
Trustees fee 7,162 5,476 12,056
Audit & tax 14,370 14,880 21,390
Legal7,626 5,848 10,638
Reports to shareholders 3,254 4,532 19,900
Miscellaneous 13,988 7,324 15,066
--------------- ------------ ------------
Total Expenses Before Waiver 274,584 272,555 916,734
Waiver of expenses Net Expenses
NET INVESTMENT INCOME (81,880) (70,580) (285,724)
--------------- ------------ ------------
192,704 201,975 631,010
--------------- ------------ ------------
1,046,086 561,453 1,504,645
--------------- ------------ ------------
Net realized loss on investments 0 0 (39)
--------------- ------------ ------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,046,086 $ 561,453 $ 1,504,606
=============== ============ ============
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17
<Page>
STATEMENTS OF CHANGES IN NET ASSETS [GRAPHIC]
<Table>
<Caption>
CORE EQUITY CAPITAL APPRECIATION
PORTFOLIO PORTFOLIO
------------------------------------ ------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED JUNE 30, ENDED DECEMBER 31, ENDED JUNE 30,
2004 (UNAUDITED) 2004 2004 (UNAUDITED) 2004
------------------ -------------- ------------------ --------------
OPERATIONS:
Net investment income/(loss) $ 3,267,603 $ 936,519 $ (551,382) $ (524,993)
Net realized gain on investments 9,541,258 31,151,029 4,994,330 7,893,312
Change in net unrealized
appreciation/depreciation 6,016,206 62,665,389 2,900,499 5,935,625
------------------ -------------- ------------------ --------------
Net increase in net assets
from operations 18,825,067 94,752,937 7,343,447 13,303,944
------------------ -------------- ------------------ --------------
DISTRIBUTIONS:
From net investment income:
Class I (2,885,565) (859,812) 0 0
Class A (486,256) (70,095) 0 0
Class B (39,774) 0 0 0
Class C (138,632) 0 0 0
------------------ -------------- ------------------ --------------
From net realized gain:
Class I (20,017,674) 0 0 0
Class A (4,075,437) 0 0 0
Class B (767,495) 0 0 0
Class C (2,568,921) 0 0 0
------------------ -------------- ------------------ --------------
Net decrease in net assets
from distributions (30,979,754) (929,907) 0 0
------------------ -------------- ------------------ --------------
SHARE TRANSACTIONS:
Proceeds from sales of shares 18,148,619 70,177,314 8,352,116 51,995,033
Reinvested dividends 22,708,743 585,914 0 0
Cost of shares redeemed (101,883,201) (192,558,730) (5,727,052) (8,380,487)
------------------ -------------- ------------------ --------------
Net increase/(decrease) in net assets
from share transactions (61,025,839) (121,795,502) 2,625,064 43,614,546
------------------ -------------- ------------------ --------------
Net increase/(decrease)
in net assets (73,180,526) (27,972,472) 9,968,511 56,918,490
NET ASSETS:
Beginning of period 589,260,846 617,233,318 110,563,393 53,644,903
------------------ -------------- ------------------ --------------
End of period* $ 516,080,320 $ 589,260,846 $ 120,531,904 $ 110,563,393
================== ============== ================== ==============
*Includes (over)/undistributed
net investment income of $ 33,983 $ 316,607 $ (551,382) $ 0
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
<Page>
<Table>
<Caption>
INTERMEDIATE BOND TENNESSEE TAX-FREE
PORTFOLIO PORTFOLIO
------------------------------------ ------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED JUNE 30, ENDED DECEMBER 31, ENDED JUNE 30,
2004 (UNAUDITED) 2004 2004 (UNAUDITED) 2004
------------------ -------------- ------------------ --------------
OPERATIONS:
Net investment income $ 6,810,608 $ 16,047,963 $ 2,951,579 $ 6,619,617
Net realized gain on investments 805,408 4,342,162 297,002 612,680
Change in net unrealized
appreciation/depreciation 1,721,179 (22,294,267) 2,268,171 (7,643,284)
------------------ -------------- ------------------ --------------
Net increase/(decrease) in net assets
from operations 9,337,195 (1,904,142) 5,516,752 (410,987)
------------------ -------------- ------------------ --------------
DISTRIBUTIONS:
From net investment income:
Class I (6,439,364) (14,352,937) (2,636,779) (5,902,434)
Class A (327,818) (1,593,527) (171,423) (363,630)
Class B (8,447) (19,968) (55,334) (147,155)
Class C (31,727) (81,531) (86,699) (206,398)
From net realized gain:
Class I (1,474,110) (5,287,699) (452,402) (681,328)
Class A (84,766) (667,416) (29,363) (44,275)
Class B (2,387) (8,965) (11,661) (21,073)
Class C (9,467) (36,636) (17,574) (26,717)
------------------ -------------- ------------------ --------------
Net decrease in net assets
from distributions (8,378,086) (22,048,679) (3,461,235) (7,393,010)
------------------ -------------- ------------------ --------------
SHARE TRANSACTIONS:
Proceeds from sales of shares 18,083,601 100,036,793 7,958,314 20,719,407
Reinvested dividends 5,113,767 13,025,541 437,102 995,411
Cost of shares redeemed (49,529,131) (200,594,110) (22,719,066) (38,832,205)
------------------ -------------- ------------------ --------------
Net decrease in net assets
from share transactions (26,331,763) (87,531,776) (14,323,650) (17,117,387)
------------------ -------------- ------------------ --------------
Net decrease in net assets (25,372,654) (111,484,597) (12,268,133) (24,921,384)
NET ASSETS:
Beginning of period 388,858,162 500,342,759 162,460,569 187,381,953
------------------ -------------- ------------------ --------------
End of period* $ 363,485,508 $ 388,858,162 $ 150,192,436 $ 162,460,569
================== ============== ================== ==============
*Includes undistributed
net investment income of $ 203,825 $ 200,573 $ 9,452 $ 8,108
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
<Page>
<Table>
<Caption>
U.S. GOVERNMENT MONEY
MARKET PORTFOLIO
------------------------------------
FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED JUNE 30,
2004 (UNAUDITED) 2004
------------------ --------------
OPERATIONS:
Net investment income $ 1,046,086 $ 1,018,567
Net realized gain on investments 0 7,142
------------------ --------------
Net increase in net assets from
operations 1,046,086 1,025,709
------------------ --------------
DISTRIBUTIONS:
From net investment income:
Class I (989,158) (963,290)
Class C (56,981) (55,277)
------------------ --------------
Net decrease in net assets from
distributions (1,046,139) (1,018,567)
------------------ --------------
SHARE TRANSACTIONS AT NET ASSET
VALUE OF $1.00 PER SHARE:
Proceeds from sales of shares 104,544,940 163,359,915
Reinvested dividends 352,445 178,626
Cost of shares redeemed (64,463,822) (171,249,531)
------------------ --------------
Net decrease in net assets
from share transactions 40,433,563 (7,710,990)
------------------ --------------
Net increase/(decrease)
in net assets 40,433,510 (7,703,848)
NET ASSETS:
Beginning of period 124,204,538 131,908,386
------------------ --------------
End of period* $ 164,638,048 $ 124,204,538
================== ==============
*Includes undistributed
net investment income of $ 282 $ 335
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
20
<Page>
<Table>
<Caption>
MUNICIPAL MONEY CASH RESERVE
MARKET PORTFOLIO PORTFOLIO
------------------------------------ ------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED JUNE 30, ENDED DECEMBER 31, ENDED JUNE 30,
2004 (UNAUDITED) 2004 2004 (UNAUDITED) 2004
------------------ -------------- ------------------ --------------
OPERATIONS:
Net investment income $ 561,453 $ 666,934 $ 1,504,645 $ 1,595,870
Net realized gain/(loss) on investments 0 2,518 (39) 342
------------------ -------------- ------------------ --------------
Net increase in net assets from
operations 561,453 669,452 1,504,606 1,596,212
------------------ -------------- ------------------ --------------
DISTRIBUTIONS:
From net investment income:
Class I (401,546) (490,288) (256,430) (327,515)
Class B - - (500) (62)
Class C (159,838) (176,646) (1,247,734) (1,268,293)
------------------ -------------- ------------------ --------------
Net decrease in net assets from
distributions (561,384) (666,934) (1,504,664) (1,595,870)
------------------ -------------- ------------------ --------------
SHARE TRANSACTIONS AT NET ASSET
VALUE OF $1.00 PER SHARE:
Proceeds from sales of shares 87,353,037 185,671,128 209,779,483 446,528,883
Reinvested dividends 157,872 176,508 1,239,330 1,283,695
Cost of shares redeemed (92,231,438) (185,621,815) (201,242,662) (466,212,336)
------------------ -------------- ------------------ --------------
Net increase/(decrease) in net
assets from share transactions (4,720,529) 225,821 9,776,151 (18,399,758)
------------------ -------------- ------------------ --------------
Net increase/(decrease)
in net assets (4,720,460) 228,339 9,776,093 (18,399,416)
NET ASSETS:
Beginning of period 93,520,800 93,292,461 237,398,006 255,797,422
------------------ -------------- ------------------ --------------
End of period* $ 88,800,340 $ 93,520,800 $ 247,174,099 $ 237,398,006
================== ============== ================== ==============
*Includes undistributed net
investment income of $ 69 $ 0 $ 13,215 $ 13,234
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
<Page>
FINANCIAL HIGHLIGHTS [GRAPHIC]
CORE EQUITY PORTFOLIO
CLASS I
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u)^ 2004^ 2003^ 2002 2001 2000
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 18.71 $ 16.12 $ 15.74 $ 21.87 $ 25.33 $ 26.26
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12 0.05 0.07 0.08 0.07 0.11
Net realized and unrealized gain/(loss)
on investments 0.59 2.57 0.37 (4.52) 0.06 1.88
----------------------------------------------------------------------------------
Total from investment operations 0.71 2.62 0.44 (4.44) 0.13 1.99
----------------------------------------------------------------------------------
Distributions:
Net investment income (0.14) (0.03) (0.06) (0.08) (0.04) (0.09)
Net realized gain (0.96) - - (1.61) (3.55) (2.83)
----------------------------------------------------------------------------------
Total distributions (1.10) (0.03) (0.06) (1.69) (3.59) (2.92)
----------------------------------------------------------------------------------
Net asset value, end of period $ 18.32 $ 18.71 $ 16.12 $ 15.74 $ 21.87 $ 25.33
==================================================================================
TOTAL RETURN 3.92%# 16.28% 2.82% (21.53)% (0.70)% 8.15%+
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 371,645 $ 436,164 $ 470,855 $ 541,058 $ 716,068 $ 790,050
Ratio of expenses to average daily net
assets 1.03%* 1.01% 0.98% 0.94% 0.97% 0.87%(1)
Ratio of net investment income to average
net assets 1.35%* 0.30% 0.47% 0.44% 0.31% 0.44%
Portfolio turnover rate 12% 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%
</Table>
CLASS A
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u)^ 2004^ 2003^ 2002 2001 2000
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 18.67 $ 16.11 $ 15.73 $ 21.85 $ 25.33 $ 26.30
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.10 0.01 0.03 0.04 0.01 0.03
Net realized and unrealized gain/(loss)
on investments 0.60 2.56 0.37 (4.51) 0.06 1.88
----------------------------------------------------------------------------------
Total from investment operations 0.70 2.57 0.40 (4.47) 0.07 1.91
----------------------------------------------------------------------------------
Distributions:
Net investment income (0.12) (0.01) (0.02) (0.04) - (0.05)
Net realized gain (0.96) - - (1.61) (3.55) (2.83)
Total distributions (1.08) (0.01) (0.02) (1.65) (3.55) (2.88)
----------------------------------------------------------------------------------
Net asset value, end of period $ 18.29 $ 18.67 $ 16.11 $ 15.73 $ 21.85 $ 25.33
----------------------------------------------------------------------------------
TOTAL RETURN** 3.84%# 15.99% 2.58% (21.73)% (0.95)% 7.80%+
==================================================================================
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 78,546 $ 85,250 $ 79,265 $ 105,294 $ 134,604 $ 101,907
Ratio of expenses to average daily net
assets 1.28%* 1.26% 1.24% 1.19% 1.23% 1.18%(1)
Ratio of net investment income to average
net assets 1.10%* 0.05% 0.21% 0.20% 0.05% 0.13%
Portfolio turnover rate 12% 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>
* Annualized.
** Class A total return does not include the one-time front-end sales charge.
+ Total return would have been lower had various fees not been waived during
the period.
^ Per share amounts calculated based on the average shares outstanding during
the period.
# Total returns for periods of less than one year are not annualized.
(u) Unaudited.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
<Page>
CLASS B
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u)^ 2004^ 2003^ 2002 2001 2000**
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 17.99 $ 15.62 $ 15.35 $ 21.49 $ 25.13 $ 25.83
----------------------------------------------------------------------------------
Income from investment operations:
Net investment gain/(loss) 0.03 (0.12) (0.08) (0.05) (0.05) (0.07)
Net realized and unrealized gain/(loss)
on investments 0.60 2.49 0.35 (4.48) (0.04) 2.20
----------------------------------------------------------------------------------
Total from investment operations 0.63 2.37 0.27 (4.53) (0.09) 2.13
----------------------------------------------------------------------------------
Distributions:
Net investment income (0.05) - - - - -
Net realized gain (0.96) - - (1.61) (3.55) (2.83)
----------------------------------------------------------------------------------
Total distributions (1.01) - - (1.61) (3.55) (2.83)
----------------------------------------------------------------------------------
Net asset value, end of period $ 17.61 $ 17.99 $ 15.62 $ 15.35 $ 21.49 $ 25.13
==================================================================================
TOTAL RETURN 3.59%# 15.17% 1.76% (22.39)% (1.65)% 8.72%+#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 15,065 $ 15,432 $ 14,069 $ 15,636 $ 13,849 $ 5,372
Ratio of expenses to average daily net
assets 2.05%* 2.02% 2.01% 1.98% 1.99% 1.91%(1)*
Ratio of net investment loss to average
net assets 0.34%* (0.71)% (0.56)% (0.59)% (0.71)% (0.60)%*
Portfolio turnover rate 12% 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%*
</Table>
CLASS C
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u)^ 2004^ 2003^ 2002 2001 2000
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 17.75 $ 15.41 $ 15.15 $ 21.23 $ 24.87 $ 26.00
----------------------------------------------------------------------------------
Income from investment operations:
Net investment gain/(loss) 0.03 (0.12) (0.08) (0.12) (0.13) (0.13)
Net realized and unrealized gain/(loss)
on investments 0.60 2.46 0.34 (4.35) 0.04 1.83
----------------------------------------------------------------------------------
Total from investment operations 0.63 2.34 0.26 (4.47) (0.09) 1.70
----------------------------------------------------------------------------------
Distributions:
Net investment income (0.05) - - - - -
Net realized gain (0.96) - - (1.61) (3.55) (2.83)
----------------------------------------------------------------------------------
Total distributions (1.01) - - (1.61) (3.55) (2.83)
----------------------------------------------------------------------------------
Net asset value, end of period $ 17.37 $ 17.75 $ 15.41 $ 15.15 $ 21.23 $ 24.87
==================================================================================
TOTAL RETURN 3.64%# 15.18% 1.72% (22.38)% (1.66)% 7.02%+
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 50,825 $ 52,415 $ 53,045 $ 64,105 $ 93,201 $ 101,084
Ratio of expenses to average daily net
assets 2.05%* 2.02% 1.98% 1.95% 1.96% 1.92%(1)
Ratio of net investment loss to average
net assets 0.34%* (0.71)% (0.53)% (0.56)% (0.69)% (0.61)%
Portfolio turnover rate 12% 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.
(u) Unaudited.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
<Page>
FINANCIAL HIGHLIGHTS [GRAPHIC]
CAPITAL APPRECIATION PORTFOLIO
CLASS I
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u) 2004 2003 2002 2001 2000
SELECTED PER-SHARE DATA^
Net asset value,beginning of period $ 11.31 $ 9.14 $ 8.03 $ 9.98 $ 14.47 $ 10.25
------------------------------------------------------------------------------
Income from investment operations:
Net investment gain/(loss) (0.05) (0.07) (0.06) (0.09) (0.05) (0.09)
Net realized and unrealized gain/(loss)
on investments 0.77 2.24 1.17 (1.86) (1.22) 4.31
------------------------------------------------------------------------------
Total from investment operations 0.72 2.17 1.11 (1.95) (1.27) 4.22
------------------------------------------------------------------------------
Distributions:
Net realized gain - - - - (3.22) -
------------------------------------------------------------------------------
Net asset value, end of period $ 12.03 $ 11.31 $ 9.14 $ 8.03 $ 9.98$ 14.47
==============================================================================
TOTAL RETURN 6.37%# 23.74% 13.82% (19.54)% (10.93)% 41.17%+
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 108,962 $ 101,570 $ 49,572 $ 39,175 $ 44,746 $ 46,042
Ratio of expenses to average daily net assets 1.33%* 1.25% 1.26% 1.46% 1.27% 1.19%(1)
Ratio of net investment loss to average net
assets (0.99)%* (0.64)% (0.81)% (1.01)% (0.45)% (0.77)%
Portfolio turnover rate 38% 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%
</Table>
CLASS A
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u) 2004 2003 2002 2001 2000
SELECTED PER-SHARE DATA^
Net asset value, beginning of period $ 11.02 $ 8.93 $ 7.86 $ 9.80 $ 14.31 $ 10.20
------------------------------------------------------------------------------
Income from investment operations:
Net investment gain/(loss) (0.06) (0.09) (0.08) (0.11) (0.09) (0.15)
Net realized and unrealized gain/(loss)
on investments 0.75 2.18 1.15 (1.83) (1.20) 4.26
------------------------------------------------------------------------------
Total from investment operations 0.69 2.09 1.07 (1.94) (1.29) 4.11
------------------------------------------------------------------------------
Distributions:
Net realized gain - - - - (3.22) -
------------------------------------------------------------------------------
Net asset value, end of period $ 11.71 $ 11.02 $ 8.93 $ 7.86 $ 9.80 $ 14.31
==============================================================================
TOTAL RETURN** 6.26%# 23.40% 13.61% (19.80)% (11.21)% 40.29%+
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 9,460 $ 7,073 $ 3,083 $ 3,879 $ 5,150 $ 3,883
Ratio of expenses to average daily net assets 1.59%* 1.50% 1.49% 1.76% 1.62% 1.63%(1)
Ratio of net investment loss to average net
assets (1.25)%* (0.89)% (1.05)% (1.32)% (0.80)% (1.21)%
Portfolio turnover rate 38% 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>
* Annualized.
** Class A total return does not include the one-time front-end sales charge.
+ Total return would have been lower had various fees not been waived during
the period.
^ Per share amounts calculated based on the average shares outstanding during
the period.
# Total returns for periods of less than one year are not annualized.
(u) Unaudited.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
<Page>
CLASS B
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u) 2004 2003 2002 2001 2000**
SELECTED PER-SHARE DATA^
Net asset value, beginning of period $ 10.82 $ 8.84 $ 7.84 $ 9.86 $ 14.49 $ 10.06
------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.10) (0.17) (0.13) (0.18) (0.16) (0.19)
Net realized and unrealized gain/(loss)
on investments 0.73 2.15 1.13 (1.84) (1.25) 4.62
------------------------------------------------------------------------------
Total from investment operations 0.63 1.98 1.00 (2.02) (1.41) 4.43
------------------------------------------------------------------------------
Distributions:
Net realized gain - - - - (3.22) -
------------------------------------------------------------------------------
Net asset value, end of period $ 11.45 $ 10.82 $ 8.84 $ 7.84 $ 9.86 $ 14.49
==============================================================================
TOTAL RETURN 5.82%# 22.40% 12.76% (20.49)% (12.00)% 44.04%+#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $1,310 $ 1,164 $ 508 $ 515 $ 737 $ 175
Ratio of expenses to average daily net assets 2.34%* 2.25% 2.26% 2.62% 2.48% 2.46%(1)*
Ratio of net investment loss to average net
assets (2.01)%* (1.64)% (1.82)% (2.17)% (1.66)% (2.04)%*
Portfolio turnover rate 38% 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%*
</Table>
CLASS C
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u) 2004 2003 2002 2001 2000
SELECTED PER-SHARE DATA^
Net asset value, beginning of period $ 10.37 $ 8.47 $ 7.51 $ 9.43 $ 14.02 $ 10.04
------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.10) (0.16) (0.12) (0.18) (0.19) (0.25)
Net realized and unrealized gain/(loss)
on investments 0.70 2.06 1.08 (1.74) (1.18) 4.23
------------------------------------------------------------------------------
Total from investment operations 0.60 1.90 0.96 (1.92) (1.37) 3.98
------------------------------------------------------------------------------
Distributions:
Net realized gain - - - - (3.22) -
------------------------------------------------------------------------------
Net asset value, end of period $ 10.97 $ 10.37 $ 8.47 $ 7.51 $ 9.43 $ 14.02
==============================================================================
TOTAL RETURN 5.79%# 22.43% 12.78% (20.36)% (12.13)% 39.64%+
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 800 $ 756 $ 482 $ 463 $ 758 $ 634
Ratio of expenses to average daily net assets 2.34%* 2.25% 2.24% 2.63% 2.60% 2.50%(1)
Ratio of net investment loss to average net
assets (2.01)%* (1.64)% (1.80)% (2.18)% (1.78)% (2.09)%
Portfolio turnover rate 38% 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.
(u) Unaudited.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
<Page>
FINANCIAL HIGHLIGHTS [GRAPHIC]
INTERMEDIATE BOND PORTFOLIO
CLASS I
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u) 2004 2003 2002 2001 2000
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.24 $ 10.81 $ 10.39 $ 10.10 $ 9.59 $ 9.78
------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19 0.38 0.45 0.52 0.55 0.56
Net realized and unrealized gain/(loss)
on investments 0.06 (0.43) 0.50 0.33 0.51 (0.19)
------------------------------------------------------------------------------
Total from investment operations 0.25 (0.05) 0.95 0.85 1.06 0.37
------------------------------------------------------------------------------
Distributions:
Net investment income (0.19) (0.38) (0.47) (0.52) (0.55) (0.56)
Net realized gain (0.04) (0.14) (0.06) (0.04) - -
------------------------------------------------------------------------------
Total distributions (0.23) (0.52) (0.53) (0.56) (0.55) (0.56)
------------------------------------------------------------------------------
Net asset value, end of period $ 10.26 $ 10.24 $ 10.81 $ 10.39 $ 10.10 $ 9.59
==============================================================================
TOTAL RETURN+ 2.45%# (0.43)% 9.35% 8.59% 11.28% 3.97%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 341,082 $ 367,269 $ 443,511 $ 188,425 $ 188,381 $ 202,385
Ratio of expenses to average daily net
assets (1) 0.66%* 0.65% 0.62% 0.62% 0.60% 0.46%
Ratio of net investment income to average net
assets 3.60%* 3.65% 4.41% 5.08% 5.52% 5.86%
Portfolio turnover rate 32% 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. 0.84%* 0.83% 0.82% 0.82% 0.80% 0.81%
</Table>
CLASS A
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u) 2004 2003 2002 2001 2000
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.24 $ 10.82 $ 10.40 $ 10.10 $ 9.59 $ 9.78
------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.17 0.36 0.44 0.50 0.52 0.53
Net realized and unrealized gain/(loss)
on investments 0.06 (0.44) 0.48 0.34 0.51 (0.19)
------------------------------------------------------------------------------
Total from investment operations 0.23 (0.08) 0.92 0.84 1.03 0.34
------------------------------------------------------------------------------
Distributions:
Net investment income (0.17) (0.36) (0.44) (0.50) (0.52) (0.53)
Net realized gain (0.04) (0.14) (0.06) (0.04) - -
------------------------------------------------------------------------------
Total distributions (0.21) (0.50) (0.50) (0.54) (0.52) (0.53)
------------------------------------------------------------------------------
Net asset value, end of period $ 10.26 $ 10.24 $ 10.82 $ 10.40 $ 10.10 $ 9.59
==============================================================================
TOTAL RETURN+** 2.32%# (0.75)% 9.08% 8.43% 10.99% 3.66%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 19,652 $ 18,758 $ 52,686 $ 50,032 $ 45,098 $ 7,485
Ratio of expenses to average daily net
assets (1) 0.91%* 0.90% 0.88% 0.87% 0.84% 0.75%
Ratio of net investment income to average net
assets 3.35%* 3.40% 4.15% 4.83% 5.27% 5.57%
Portfolio turnover rate 32% 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. 1.10%* 1.08% 1.08% 1.07% 1.04% 1.11%
</Table>
* Annualized.
** Class A total return does not include the one-time front-end sales charge.
+ Total return would have been lower had various fees not been waived during
the period.
# Total returns for periods of less than one year are not annualized.
(u) Unaudited.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26
<Page>
CLASS B
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u) 2004 2003**
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.24 $ 10.82 $ 10.55
------------------------------------------------
Income from investment operations:
Net investment income 0.15 0.31 0.27
Net realized and unrealized gain/(loss)
on investments 0.06 (0.44) 0.33
------------------------------------------------
Total from investment operations 0.21 (0.13) 0.60
------------------------------------------------
Distributions:
Net investment income (0.15) (0.31) (0.27)
Net realized gain (0.04) (0.14) (0.06)
------------------------------------------------
Total distributions (0.19) (0.45) (0.33)
------------------------------------------------
Net asset value, end of period $ 10.26 $ 10.24 $ 10.82
================================================
TOTAL RETURN+ 2.08%# (1.21)% 5.75%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 562 $ 609 $ 678
Ratio of expenses to average daily net
assets (1) 1.36%* 1.35% 1.31%*
Ratio of net investment income to average net
assets 2.89%* 2.95% 3.72%*
Portfolio turnover rate 32% 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. 1.55%* 1.53% 1.51%*
</Table>
CLASS C
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u) 2004 2003 2002 2001 2000
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.25 $ 10.82 $ 10.40 $ 10.10 $ 9.59 $ 9.77
------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15 0.30 0.38 0.44 0.47 0.48
Net realized and unrealized gain/(loss)
on investments 0.06 (0.43) 0.49 0.34 0.51 (0.18)
------------------------------------------------------------------------------
Total from investment operations 0.21 (0.13) 0.87 0.78 0.98 0.30
------------------------------------------------------------------------------
Distributions:
Net investment income (0.15) (0.30) (0.39) (0.44) (0.47) (0.48)
Net realized gain (0.04) (0.14) (0.06) (0.04) - -
------------------------------------------------------------------------------
Total distributions (0.19) (0.44) (0.45) (0.48) (0.47) (0.48)
------------------------------------------------------------------------------
Net asset value, end of period $ 10.27 $ 10.25 $ 10.82 $ 10.40 $ 10.10 $ 9.59
==============================================================================
TOTAL RETURN+ 2.06%# (1.17)% 8.54% 7.81% 10.38% 3.16%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 2,189 $ 2,221 $ 3,468 $ 1,710 $ 1,333 $ 1,269
Ratio of expenses to average daily net
assets (1) 1.41%* 1.40% 1.37% 1.44% 1.42% 1.35%
Ratio of net investment income to average net
assets 2.84%* 2.90% 3.66% 4.25% 4.70% 4.97%
Portfolio turnover rate 32% 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. 1.85%* 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.
(u) Unaudited.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27
<Page>
FINANCIAL HIGHLIGHTS [GRAPHIC]
TENNESSEE TAX-FREE PORTFOLIO
CLASS I
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u) 2004 2003 2002 2001 2000
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.26 $ 10.73 $ 10.47 $ 10.28 $ 9.89 $ 10.08
------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19 0.40 0.42 0.43 0.44 0.45
Net realized and unrealized gain/(loss)
on investments 0.16 (0.42) 0.29 0.21 0.39 (0.18)
------------------------------------------------------------------------------
Total from investment operations 0.35 (0.02) 0.71 0.64 0.83 0.27
------------------------------------------------------------------------------
Distributions:
Net investment income (0.19) (0.40) (0.42) (0.43) (0.44) (0.45)
Net realized gain (0.03) (0.05) (0.03) (0.02) - (0.01)
------------------------------------------------------------------------------
Total distributions (0.22) (0.45) (0.45) (0.45) (0.44) (0.46)
------------------------------------------------------------------------------
Net asset value,end of period $ 10.39 $ 10.26 $ 10.73 $ 10.47 $ 10.28 $ 9.89
==============================================================================
TOTAL RETURN+ 3.51%# (0.22)% 6.89% 6.34% 8.49% 2.83%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 132,564 $ 143,278 $ 163,440 $ 164,437 $ 168,940 $ 172,620
Ratio of expenses to average daily net
assets (1) 0.69%* 0.65% 0.63% 0.64% 0.62% 0.45%
Ratio of net investment income to average net
assets 3.74%* 3.83% 3.93% 4.14% 4.29% 4.57%
Portfolio turnover rate 6% 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. 0.89%* 0.85% 0.83% 0.84% 0.82% 0.81%
</Table>
CLASS A
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u) 2004 2003 2002 2001 2000
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.28 $ 10.75 $ 10.49 $ 10.31 $ 9.92 $ 10.11
------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18 0.38 0.39 0.40 0.41 0.44
Net realized and unrealized gain/(loss)
on investments 0.16 (0.42) 0.29 0.20 0.39 (0.18)
------------------------------------------------------------------------------
Total from investment operations 0.34 (0.04) 0.68 0.60 0.80 0.26
------------------------------------------------------------------------------
Distributions:
Net investment income (0.18) (0.38) (0.39) (0.40) (0.41) (0.44)
Net realized gain (0.03) (0.05) (0.03) (0.02) - (0.01)
------------------------------------------------------------------------------
Total distributions (0.21) (0.43) (0.42) (0.42) (0.41) (0.45)
------------------------------------------------------------------------------
Net asset value, end of period $ 10.41 $ 10.28 $ 10.75 $ 10.49 $ 10.31 $ 9.92
==============================================================================
TOTAL RETURN+** 3.38%# (0.45)% 6.62% 5.98% 8.20% 2.70%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 8,869 $ 9,935 $ 11,661 $ 9,252 $ 12,836 $ 10,580
Ratio of expenses to average daily net
assets (1) 0.94%* 0.90% 0.87% 0.88% 0.87% 0.58%
Ratio of net investment income to average net
assets 3.49%* 3.58% 3.68% 3.90% 4.04% 4.44%
Portfolio turnover rate 6% 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. 1.14%* 1.10% 1.07% 1.08% 1.08% 1.09%^
</Table>
* Annualized.
** Class A total return does not include the one-time front-end sales charge.
+ Total return would have been lower had various fees not been waived during
the period.
^ This ratio was previously reported net of the shareholder servicing fee
waiver.
# Total returns for periods of less than one year are not annualized.
(u) Unaudited.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28
<Page>
CLASS B
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u) 2004 2003 2002 2001 2000**
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.26 $ 10.73 $ 10.47 $ 10.29 $ 9.90 $ 10.09
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.16 0.33 0.34 0.35 0.36 0.34
Net realized and unrealized gain/(loss)
on investments 0.16 (0.42) 0.29 0.20 0.39 (0.18)
----------------------------------------------------------------------------------
Total from investment operations 0.32 (0.09) 0.63 0.55 0.75 0.16
----------------------------------------------------------------------------------
Distributions:
Net investment income (0.16) (0.33) (0.34) (0.35) (0.36) (0.34)
Net realized gain (0.03) (0.05) (0.03) (0.02) - (0.01)
----------------------------------------------------------------------------------
Total distributions (0.19) (0.38) (0.37) (0.37) (0.36) (0.35)
----------------------------------------------------------------------------------
Net asset value, end of period $ 10.39 $ 10.26 $ 10.73 $ 10.47 $ 10.29 $ 9.90
==================================================================================
TOTAL RETURN+ 3.15%# (0.91)% 6.15% 5.46% 7.72% 1.69%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 3,467 $ 3,856 $ 4,673 $ 1,090 $ 309 $ 200
Ratio of expenses to average daily net
assets (1) 1.40%* 1.35% 1.32% 1.37% 1.33% 1.16%*
Ratio of net investment income to average
net assets 3.03%* 3.12% 3.23% 3.41% 3.58% 3.86%*
Portfolio turnover rate 6% 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 1.60%* 1.55% 1.52% 1.57% 1.53% 1.52%*
</Table>
CLASS C
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u) 2004 2003 2002 2001 2000
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.27 $ 10.74 $ 10.48 $ 10.29 $ 9.90 $ 10.09
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.17 0.35 0.37 0.38 0.38 0.40
Net realized and unrealized gain/(loss)
on investments 0.15 (0.42) 0.29 0.21 0.39 (0.18)
----------------------------------------------------------------------------------
Total from investment operations 0.32 (0.07) 0.66 0.59 0.77 0.22
----------------------------------------------------------------------------------
Distributions:
Net investment income (0.17) (0.35) (0.37) (0.38) (0.38) (0.40)
Net realized gain (0.03) (0.05) (0.03) (0.02) - (0.01)
----------------------------------------------------------------------------------
Total distributions (0.20) (0.40) (0.40) (0.40) (0.38) (0.41)
----------------------------------------------------------------------------------
Net asset value, end of period $ 10.39 $ 10.27 $ 10.74 $ 10.48 $ 10.29 $ 9.90
==================================================================================
TOTAL RETURN+ 3.15%# (0.71)% 6.37% 5.81% 7.89% 2.29%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 5,292 $ 5,391 $ 7,608 $ 6,989 $ 6,426 $ 8,969
Ratio of expenses to average daily net
assets (1) 1.19%* 1.15% 1.12% 1.14% 1.17% 0.96%
Ratio of net investment income to average
net assets 3.24%* 3.32% 3.43% 3.65% 3.74% 4.06%
Portfolio turnover rate 6% 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 1.90%* 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.
(u) Unaudited.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29
<Page>
FINANCIAL HIGHLIGHTS [GRAPHIC]
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
CLASS I
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u) 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 $ 1.00
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.007 0.009 0.013 0.024 0.057 0.053
----------------------------------------------------------------------------------
Distributions:
Net investment income (0.007) (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 $ 1.00
==================================================================================
TOTAL RETURN+ 0.73%# 0.87% 1.34% 2.42% 5.85% 5.48%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 156,136 $ 116,124 $ 124,310 $ 128,530 $ 81,572 $ 81,992
Ratio of expenses to average net
assets (1) 0.25%* 0.25% 0.25% 0.25% 0.23% 0.28%
Ratio of net investment income to average
net assets 1.48%* 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 0.35%* 0.34% 0.34% 0.32% 0.40% 0.45%
</Table>
CLASS C
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u) 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 $ 1.00
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.006 0.006 0.011 0.021 0.055 0.050
----------------------------------------------------------------------------------
Distributions:
Net investment income (0.006) (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 $ 1.00
==================================================================================
TOTAL RETURN+ 0.60%# 0.62% 1.08% 2.17% 5.59% 5.15%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 8,502 $ 8,081 $ 7,598 $ 8,297 $ 2,500 $ 3,435
Ratio of expenses to average net
assets (1) 0.50%* 0.50% 0.50% 0.50% 0.48% 0.59%
Ratio of net investment income to average
net assets 1.23%* 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 0.81%* 0.79% 0.79% 0.77% 0.85% 0.97%^
</Table>
* Annualized.
+ 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.
# Total returns for periods of less than one year are not annualized.
(u) Unaudited.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30
<Page>
[GRAPHIC] FINANCIAL HIGHLIGHTS
MUNICIPAL MONEY MARKET PORTFOLIO
CLASS I
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u) 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 $ 1.00
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.006 0.008 0.011 0.017 0.036 0.035
----------------------------------------------------------------------------------
Distributions:
Net investment income (0.006) (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 $ 1.00
==================================================================================
TOTAL RETURN+ 0.59%# 0.78% 1.10% 1.69% 3.66% 3.56%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 65,269 $ 48,720 $ 67,516 $ 57,482 $ 47,665 $ 44,535
Ratio of expenses to average net
assets (1) 0.30%* 0.30% 0.30% 0.25% 0.28% 0.27%
Ratio of net investment income to average
net assets 1.17%* 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 0.37%* 0.35% 0.33% 0.31% 0.46% 0.45%
</Table>
CLASS C
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u) 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 $ 1.00
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.005 0.005 0.008 0.014 0.033 0.032
----------------------------------------------------------------------------------
Distributions:
Net investment income (0.005) (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 $ 1.00
==================================================================================
TOTAL RETURN+ 0.46%# 0.52% 0.85% 1.44% 3.37% 3.24%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 23,532 $ 44,801 $ 25,777 $ 24,181 $ 22,466 $ 5,527
Ratio of expenses to average net
assets (1) 0.55%* 0.55% 0.55% 0.50% 0.55% 0.58%
Ratio of net investment income to average
net assets 0.92%* 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 0.82%* 0.80% 0.78% 0.76% 0.93% 0.96%^
</Table>
* Annualized.
+ 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.
# Total returns for periods of less than one year are not annualized.
(u) Unaudited.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
31
<Page>
FINANCIAL HIGHLIGHTS [GRAPHIC]
CASH RESERVE PORTFOLIO
CLASS I
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u) 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 $ 1.00
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.007 0.008 0.013 0.024 0.058 0.054
----------------------------------------------------------------------------------
Distributions:
Net investment income (0.007) (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 $ 1.00
==================================================================================
TOTAL RETURN+ 0.73%# 0.85% 1.33% 2.44% 5.92% 5.56%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 34,086 $ 28,827 $ 46,717 $ 47,402 $ 35,453 $ 32,028
Ratio of expenses to average net
assets (1) 0.30%* 0.30% 0.30% 0.25% 0.27% 0.31%
Ratio of net investment income to average
net assets 1.46%* 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%* 0.37% 0.34% 0.31% 0.45% 0.48%
</Table>
CLASS B
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u) 2004 2003**
SELECTED PER - SHARE DATA
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.003 0.002 0.002
----------------------------------------------------------------------------------
Distributions:
Net investment income (0.003) (0.002) (0.002)
----------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
==================================================================================
TOTAL RETURN+ 0.27%# 0.24% 0.21%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 163 $ 194 $ 18
Ratio of expenses to average net
assets (1) 1.22%* 0.91% 1.14%*
Ratio of net investment income to average
net assets 0.54%* 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%* 1.37% 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.
(u) Unaudited.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32
<Page>
CLASS C
<Table>
<Caption>
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
2004(u) 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 $ 1.00
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.006 0.006 0.011 0.022 0.055 0.053
----------------------------------------------------------------------------------
Distributions:
Net investment income (0.006) (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 $ 1.00
==================================================================================
TOTAL RETURN+ 0.60%# 0.60% 1.08% 2.19% 5.65% 5.38%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $ 212,925 $ 208,376 $ 209,062 $ 212,250 $ 231,201 $ 107,154
Ratio of expenses to average net
assets (1) 0.55%* 0.55% 0.55% 0.50% 0.52% 0.55%
Ratio of net investment income to average
net assets 1.20%* 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%* 0.82% 0.79% 0.76% 0.90% 0.93%^
</Table>
* Annualized.
+ 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.
# Total returns for periods of less than one year are not annualized.
(u) Unaudited.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
33
<Page>
NOTES TO FINANCIAL STATEMENTS [GRAPHIC]
AS OF DECEMBER 31, 2004 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING AND OPERATING POLICIES
First Funds (the Trust) is registered under the Investment Company Act of 1940,
as amended (the 1940 Act), as an open-ended management investment company
organized as a Massachusetts business trust by a Declaration of Trust dated
March 6, 1992, as amended and restated on September 4, 1992, as amended and
restated on June 26, 2003.
The Trust currently has seven active investment portfolios (each referred to as
a "Portfolio"). The Trust's financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America. This
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
The U.S. Government Money Market and Municipal Money Market Portfolios may offer
three classes of shares (Classes I, A and C) and the Core Equity, Capital
Appreciation, Intermediate Bond, Tennessee Tax-Free and Cash Reserve Portfolios
may offer four classes of shares (Classes I, A, B and C). As of December 31,
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 which approximates 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 or by number of accounts.
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.
34
<Page>
2. SHARES OF BENEFICIAL INTEREST
<Table>
<Caption>
CORE EQUITY PORTFOLIO CAPITAL APPRECIATION PORTFOLIO
------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED JUNE 30, ENDED DECEMBER 31, ENDED JUNE 30,
2004 (UNAUDITED) 2004 2004 (UNAUDITED) 2004
------------------------------------------------------------------------------
Dollars issued and redeemed:
Class I:
Issued $ 14,192,663 $ 58,106,853 $ 5,837,529 $ 46,798,812
Distributions reinvested 14,946,895 519,998 0 0
Redeemed (84,647,625) (164,999,927) (4,978,481) (7,042,302)
------------------------------------------------------------------------------
Net increase/(decrease) $ (55,508,067) $ (106,373,076) $ 859,048 $ 39,756,510
==============================================================================
Class A:
Issued $ 3,411,069 $ 8,743,200 $ 2,406,982 $ 4,284,543
Distributions reinvested 4,318,616 65,916 0 0
Redeemed (12,705,300) (15,231,025) (715,506) (1,097,749)
------------------------------------------------------------------------------
Net increase/(decrease) $ (4,975,615) $ (6,421,909) $ 1,691,476 $ 3,186,794
==============================================================================
Class B:
Issued $ 262,582 $ 1,436,273 $ 98,895 $ 644,653
Distributions reinvested 783,907 0 0 0
Redeemed (1,107,690) (2,148,516) (24,218) (129,003)
------------------------------------------------------------------------------
Net increase/(decrease) $ (61,201) $ (712,243) $ 74,677 $ 515,650
==============================================================================
Class C:
Issued $ 282,305 $ 1,890,988 $ 8,710 $ 267,025
Distributions reinvested 2,659,325 0 0 0
Redeemed (3,422,586) (10,179,262) (8,847) (111,433)
------------------------------------------------------------------------------
Net increase/(decrease) $ (480,956) $ (8,288,274) $ (137) $ 155,592
==============================================================================
<Caption>
CORE EQUITY PORTFOLIO CAPITAL APPRECIATION PORTFOLIO
------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED JUNE 30, ENDED DECEMBER 31, ENDED JUNE 30,
2004 (UNAUDITED) 2004 2004 (UNAUDITED) 2004
------------------------------------------------------------------------------
Shares issued and redeemed:
Class I:
Issued 782,390 3,258,893 544,974 4,211,101
Distributions reinvested 826,252 30,493 0 0
Redeemed (4,637,079) (9,194,298) (466,518) (655,652)
------------------------------------------------------------------------------
Net increase/(decrease) (3,028,437) (5,904,912) 78,456 3,555,449
==============================================================================
Class A:
Issued 189,604 489,116 233,822 406,862
Distributions reinvested 239,127 3,881 0 0
Redeemed (699,178) (848,373) (67,522) (110,481)
------------------------------------------------------------------------------
Net increase/(decrease) (270,447) (355,376) 166,300 296,381
==============================================================================
Class B:
Issued 15,225 82,081 9,208 62,291
Distributions reinvested 45,052 0 0 0
Redeemed (62,832) (124,819) (2,384) (12,178)
------------------------------------------------------------------------------
Net increase/(decrease) (2,555) (42,738) 6,824 50,113
==============================================================================
Class C:
Issued 16,419 111,312 925 27,704
Distributions reinvested 154,972 0 0 0
Redeemed (199,581) (599,731) (957) (11,681)
------------------------------------------------------------------------------
Net increase/(decrease) (28,190) (488,419) (32) 16,023
==============================================================================
</Table>
35
<Page>
<Table>
<Caption>
INTERMEDIATE BOND PORTFOLIO TENNESSEE TAX-FREE PORTFOLIO
------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED JUNE 30, ENDED DECEMBER 31, ENDED JUNE 30,
2004 (UNAUDITED) 2004 2004 (UNAUDITED) 2004
------------------------------------------------------------------------------
Dollars issued and redeemed:
Class I:
Issued $ 14,550,033 $ 85,110,690 $ 7,543,560 $ 17,389,195
Distributions reinvested 4,790,669 10,866,802 179,549 402,030
Redeemed (46,446,600) (151,380,390) (20,250,176) (31,158,726)
------------------------------------------------------------------------------
Net decrease $ (27,105,898) $ (55,402,898) $ (12,527,067) $ (13,367,501)
==============================================================================
Class A:
Issued $ 3,504,820 $ 14,748,918 $ 383,154 $ 2,493,996
Distributions reinvested 288,495 2,056,528 128,436 283,862
Redeemed (2,933,764) (47,818,461) (1,705,475) (4,005,846)
------------------------------------------------------------------------------
Net increase/(decrease) $ 859,551 $ (31,013,015) $ (1,193,885) $ (1,227,988)
==============================================================================
Class B:
Issued $ 7,224 $ 112,086 $ 26,500 $ 646,218
Distributions reinvested 7,504 17,443 38,018 104,193
Redeemed (63,628) (161,105) (501,507) (1,356,867)
------------------------------------------------------------------------------
Net decrease $ (48,900) $ (31,576) $ (436,989) $ (606,456)
==============================================================================
Class C:
Issued $ 21,524 $ 65,099 $ 5,100 $ 189,998
Distributions reinvested 27,099 84,768 91,099 205,326
Redeemed (85,139) (1,234,154) (261,908) (2,310,766)
------------------------------------------------------------------------------
Net decrease $ (36,516) $ (1,084,287) $ (165,709) $ (1,915,442)
==============================================================================
<Caption>
INTERMEDIATE BOND PORTFOLIO TENNESSEE TAX-FREE PORTFOLIO
------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED JUNE 30, ENDED DECEMBER 31, ENDED JUNE 30,
2004 (UNAUDITED) 2004 2004 (UNAUDITED) 2004
------------------------------------------------------------------------------
Shares issued and redeemed:
Class I:
Issued 1,407,365 8,201,230 724,286 1,656,173
Distributions reinvested 464,100 1,038,146 17,255 38,369
Redeemed (4,493,486) (14,392,057) (1,944,528) (2,962,782)
------------------------------------------------------------------------------
Net decrease (2,622,021) (5,152,681) (1,202,987) (1,268,240)
==============================================================================
Class A:
Issued 339,919 1,419,997 36,738 236,923
Distributions reinvested 27,968 196,021 12,318 27,046
Redeemed (284,379) (4,653,817) (163,333) (382,238)
------------------------------------------------------------------------------
Net increase/(decrease) 83,508 (3,037,799) (114,277) (118,269)
==============================================================================
Class B:
Issued 703 10,812 2,532 61,022
Distributions reinvested 727 1,667 3,653 9,933
Redeemed (6,170) (15,703) (48,248) (130,616)
------------------------------------------------------------------------------
Net decrease (4,740) (3,224) (42,063) (59,661)
==============================================================================
Class C:
Issued 2,091 6,189 490 18,106
Distributions reinvested 2,624 8,088 8,750 19,571
Redeemed (8,243) (117,976) (25,198) (221,205)
------------------------------------------------------------------------------
Net decrease (3,528) (103,699) (15,958) (183,528)
==============================================================================
</Table>
36
<Page>
<Table>
<Caption>
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED JUNE 30,
2004 (UNAUDITED) 2004
------------------------------------------------------------------------------
Shares/Dollars issued and
redeemed:
Class I:
Issued $ 91,830,544 $ 144,820,776
Distributions reinvested 296,579 123,213
Redeemed (52,114,593) (153,137,030)
------------------------------------------------------------------------------
Net increase/(decrease) $ 40,012,530 $ (8,193,041)
==============================================================================
Class C:
Issued $ 12,714,396 $ 18,539,139
Distributions reinvested 55,866 55,413
Redeemed (12,349,229) (18,112,501)
------------------------------------------------------------------------------
Net increase $ 421,033 $ 482,051
==============================================================================
<Caption>
MUNICIPAL MONEY MARKET PORTFOLIO CASH RESERVE PORTFOLIO
------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR FOR THE SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31, ENDED JUNE 30, ENDED DECEMBER 31, ENDED JUNE 30,
2004 (UNAUDITED) 2004 2004 (UNAUDITED) 2004
------------------------------------------------------------------------------
Shares/Dollars issued and
redeemed:
Class I:
Issued $ 60,204,228 $ 77,253,024 $ 46,567,382 $ 93,771,471
Distributions reinvested 0 0 12,579 17,547
Redeemed (43,655,846) (96,049,925) (41,321,295) (111,678,581)
------------------------------------------------------------------------------
Net increase/(decrease) $ 16,548,382 $ (18,796,901) $ 5,258,666 $ (17,889,563)
==============================================================================
Class B:
Issued $ - $ - $ 30,438 $ 193,863
Distributions reinvested - - 483 61
Redeemed - - (62,311) (18,316)
------------------------------------------------------------------------------
Net increase/(decrease) $ - $ - $ (31,390) $ 175,608
==============================================================================
Class C:
Issued $ 27,148,809 $ 108,418,104 $ 163,181,663 $ 352,563,549
Distributions reinvested 157,872 176,508 1,226,268 1,266,087
Redeemed (48,575,592) (89,571,890) (159,859,056) (354,515,439)
------------------------------------------------------------------------------
Net increase/(decrease) $ (21,268,911) $ 19,022,722 $ 4,548,875 $ (685,803)
==============================================================================
</Table>
37
<Page>
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.
4. ADMINISTRATOR, CO-ADMINISTRATOR AND DISTRIBUTOR
ALPS Mutual Funds Services, Inc. ("ALPS") and ALPS Distributors, Inc. ("ADI")
serve as Administrator and Distributor, respectively, for the Trust under
separate Administration and General Distribution Agreements. ALPS' duties
include providing office space and various legal and accounting services in
connection with the regulatory requirements applicable to each Portfolio. ALPS
is entitled to receive administration fees from each of the Money Market
Portfolios at the annual rate of .050% of the first $500 million of average net
assets and .025% on average net assets in excess of $500 million and from the
Core Equity, Capital Appreciation, Intermediate Bond and Tennessee Tax-Free
Portfolios, at the annual rate of .115% of average net assets.
First Tennessee serves as the Co-Administrator for each Portfolio. As the
Co-Administrator, First Tennessee assists in each Portfolio's operation,
including but not limited to, providing non-investment related research and
statistical data and various operational and administrative services. First
Tennessee is entitled to receive co-administration fees from each of the Money
Market Portfolios, at the annual rate of .050% of average net assets and from
the Core Equity, Capital Appreciation, Intermediate Bond and Tennessee Tax-Free
Portfolios, at the annual rate of .085% of average net assets.
The Trustees have adopted Distribution Plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, on behalf of Classes B and C of the
Trust. Each Plan provides for payments to ADI at the annual rates up to the
amounts listed below. The Trustees have also adopted Shareholder Servicing Plans
on behalf of Classes A, B and C of the Portfolios indicated below, under which
brokers/dealers, advisers or other financial institutions are paid at the annual
rates up to the amounts shown in the table.
<Table>
<Caption>
CLASS A CLASS B CLASS C
------- ------- -------
SHAREHOLDER SHAREHOLDER
SERVICING FEE 12b-1FEE 12b-1 FEE SERVICING FEE
- ---------------------------------------------------------------------------------------
Core Equity 0.25% 1.00% 0.75% 0.25%
Capital Appreciation 0.25% 1.00% 0.75% 0.25%
Intermediate Bond 0.25% 0.70% 0.75% 0.25%
Tennessee Tax-Free 0.25% 0.70% 0.75% 0.25%
U.S. Government Money Market - - 0.45% -
Municipal Money Market - - 0.45% -
Cash Reserve - 1.00% 0.45% -
</Table>
38
<Page>
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 out 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 six months ended December 31, 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 six months ended December 31, 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 six months ended December 31, 2004, fees
waived for the Portfolios were as follows: As of December 31, 2004 (Unaudited)
<Table>
<Caption>
INTERMEDIATE BOND TENNESSEE TAX-FREE
--------------------------------------------------------------------------------
Management fees waived $ 351,752 $ 161,351
12b-1 fees waived 2,819 6,756
Shareholder servicing fees waived - 6,756
</Table>
MONEY MARKET PORTFOLIOS:
For the six months ended December 31, 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 six months ended December 31, 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 .60% of average net assets
from July 1 to July 6, 2004, .75% of average net assets from July 7 to August 2,
2004, .90% of average net assets from August 3, 2004 to October 19, 2004, and
1.00% of average net assets effective October 20, 2004.
Pursuant to these waivers, for the six months ended December 31, 2004, fees were
waived for the Money Market Portfolios as follows:
<Table>
<Caption>
MANAGEMENT FEE CO-ADMINISTRATION FEE CLASS B 12b-1FEE CLASS C 12b-1 FEE
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Government Money Market $ 36,177 $ 36,177 $ - $ 9,526
Municipal Money Market 25,416 9,093 - 36,071
Cash Reserve 61,276 14,667 89 209,692
</Table>
39
<Page>
OTHER IMPORTANT INFORMATION [GRAPHIC]
AS OF DECEMBER 31, 2004 (UNAUDITED)
PORTFOLIO PROXY VOTING POLICIES & PROCEDURES
Portfolio policies and procedures used in determining how to vote proxies
relating to portfolio securities and a summary of proxies voted by the
Portfolios for the period ended June 30, 2004, are available without a charge,
upon request, by contacting First Funds at 800.442.1941 or on the commission's
website at http://www.sec.gov.
PORTFOLIO HOLDINGS
The Portfolios file their complete schedule of portfolio holdings with the
Commission for the first and third quarters of each fiscal year on Form N-Q
within 60 days after the end of the period. Copies of the Portfolios' Forms N-Q
are available without a charge, upon request, by contacting the Portfolio at
800.442.1941 and on the Commission's website at http://www.sec.gov. You may also
review and copy Form N-Q at the Commission's Public Reference Room in
Washington, D.C. For more information about the operation of the Public
Reference Room, please call the Commission at 800.SEC.0330.
MISCELLANEOUS
As of December 31, 2004, one shareholder (a related party) owned 19% of the Core
Equity Portfolio, 63% of the Capital Appreciation Portfolio and 30% of the
Intermediate Bond Portfolio. Additionally, as of December 31, 2004, two separate
shareholders owned 16% and 18% of the Municipal Money Market Portfolio, whereas
one shareholder owned 13% of the U.S. Government Money Market Portfolio and 69%
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>
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<Page>
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<Page>
Item 2. CODE OF ETHICS.
Not applicable to semi-annual report.
Item 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to semi-annual report.
Item 4. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Not applicable to semi-annual report.
Item 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to semi-annual report.
Item 6. SCHEDULE OF INVESTMENTS.
Schedule of Investments is 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.
Item 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable.
Item 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANIES.
Not applicable.
Item 10. 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 11. 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, as amended) within 90
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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 (as defined in Rule 30a-3(d) under the Investment Company Act
of 1940, as amended) during the second fiscal quarter of the period
covered by this report that has materially affected, or is reasonably
likely to materially affect, the Registrant's internal control over
financial reporting.
Item 12. EXHIBITS.
(a)(1) Not applicable to semi-annual report.
(a)(2) Separate certifications for the Registrant's Principal Executive
Officer and Principal Financial Officer, as required by Rule 30a-2(a) of
the Investment Company Act of 1940, as amended, and Section 302 of the
Sarbanes-Oxley Act of 2002 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) of the Investment
Company Act of 1940, as amended, and Section 906 of the Sarbanes-Oxley Act
of 2002 are attached hereto 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.
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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/Principal Executive Officer
Date: March 2, 2005
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.
FIRST FUNDS
By: /s/ George Lewis
----------------
George Lewis
President/Principal Executive Officer
Date: March 2, 2005
By: /s/ Jeremy O. May
-----------------
Jeremy O. May
Treasurer/Principal Financial Officer
Date: March 2, 2005