<PAGE>
[ARTWORK APPEARS HERE]
Mercantile Mutual Funds
Semi-Annual Report
May 31, 1999
Money Market Portfolios
Treasury Money Market Portfolio
Money Market Portfolio
Tax-Exempt Money Market Portfolio
Taxable Bond Portfolios
U.S. Government Securities Portfolio
Intermediate Corporate Bond Portfolio
Bond Index Portfolio
Government & Corporate Bond Portfolio
Tax-Exempt Bond Portfolios
Short-Intermediate Municipal Portfolio
Missouri Tax-Exempt Bond Portfolio
National Municipal Bond Portfolio
Stock Portfolios
Balanced Portfolio
Equity Income Portfolio
Equity Index Portfolio
Growth & Income Equity Portfolio
Growth Equity Portfolio
Small Cap Equity Portfolio
Small Cap Equity Index Portfolio
International Equity Portfolio
[LOGO OF MERCANTILE APPEARS HERE]
<PAGE>
Contents
- --------------------------------------------------------------------------------
Mercantile Mutual Funds, Inc. May 31, 1999
<TABLE>
<S> <C>
Message From Your Chairman.................................................. 2
Message From Your Investment Advisor........................................ 3
Money Market Portfolios
Treasury Money Market Portfolio........................................... 4
Money Market Portfolio.................................................... 10
Tax-Exempt Money Market Portfolio......................................... 18
Taxable Bond Portfolios
U.S. Government Securities Portfolio...................................... 26
Intermediate Corporate Bond Portfolio..................................... 36
Bond Index Portfolio...................................................... 46
Government & Corporate Bond Portfolio..................................... 56
Tax-Exempt Bond Portfolios
Short-Intermediate Municipal Portfolio.................................... 66
Missouri Tax-Exempt Bond Portfolio........................................ 74
National Municipal Bond Portfolio......................................... 84
Stock Portfolios
Balanced Portfolio........................................................ 94
Equity Income Portfolio................................................... 104
Equity Index Portfolio.................................................... 114
Growth & Income Equity Portfolio.......................................... 128
Growth Equity Portfolio................................................... 138
Small Cap Equity Portfolio................................................ 148
Small Cap Equity Index Portfolio.......................................... 158
International Equity Portfolio............................................ 172
Notes to Financial Statements............................................... 182
</TABLE>
1
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Message From Your Chairman
Dear Shareholders,
We are pleased to present this report for the Mercantile Mutual Funds, Inc.
for the six months ended May 31, 1999. During the period, the net assets in the
Mercantile family of funds increased to more than $4.3 billion.
The financial markets once again delivered strong returns during the period.
But the gains were accompanied by significant fluctuations, reminding investors
that the financial markets carry risks as well as potential rewards. The best
returns generally come to investors who are patient and disciplined, and who
take a long-term approach to investing.
If you are a customer of the Mercantile Mutual Funds, you know that we
introduced a new portfolio at the beginning of this year: the Mercantile Small
Cap Equity Index Portfolio (commenced operations on December 30, 1998), which
attempts to mirror the investment results of the S&P SmallCap 600 Index/1/
before deducting Portfolio operating expenses. This new portfolio complements
the current index funds that we offer.
You will find discussions of the Mercantile Mutual Funds in the following
pages. These discussions will help you understand your investments, their
recent performance and current prospects. If you would like additional
information about any of the Portfolios, please call your investment
representative or the Mercantile Mutual Funds Shareholder Servicing Center
at 1-800-452-2724.
- -----
/1/The S&P SmallCap 600 Index consists of 600 domestic stocks, chosen for
market size, liquidity and industry group representation. It is a market-
value weighted index, with each stock's weight in the index proportionate to
its market value.
Mercantile Mutual Funds, Inc. are NOT INSURED BY THE FDIC or any other
governmental agency, are not deposits or obligations of, or endorsed or
guaranteed by, any bank, the distributor or any of their affiliates, and
involves investment risks, including the possible loss of the principal
amount invested.
2
<PAGE>
Message From Your Investment Advisor
Mississippi Valley Advisors Inc.
The U.S. economy continued to experience strong growth during the recent
period. That growth led to higher interest rates amid some concern about the
potential for higher inflation. Those factors contributed to significant
fluctuations in the financial markets.
There also were significant turnarounds in some markets and market sectors.
At the beginning of the period, large-company growth stocks led the U.S. stock
market's gains. But the market's strength broadened significantly to include
shares of cyclical companies as well as other value stocks, which have lagged
growth stocks in recent years.
European stock markets disappointed investors, in part due to the poor
performance of Europe's new common currency, the euro. Two of the top markets
from last year, Germany and Italy, experienced declines. Meanwhile, the
Japanese market performed exceptionally well due to corporate restructurings
and signs of improvement in the economy. Other Asian markets also experienced
better results as their besieged economies showed signs of improvement.
U.S. bond prices fluctuated during the period as investors worried that the
Federal Reserve Board would raise the federal funds rate to forestall
inflation. Municipal bonds held up better than taxable issues, because of a
shortage of new issues in the municipal market.
Looking Ahead
We estimate that the economy will grow at an annual rate of 2.5% going
forward, as opposed to the recent growth rate of 4.9%. We base that forecast on
expectations for lower growth in consumer sales, capital spending and exports.
Commodities and many manufactured goods face strong worldwide competition,
which should help keep inflation low. The combination of continued economic
growth and moderate inflation should favor U.S. financial markets over the long
term. At the same time, economic problems in Russia and South America should
continue to slow world economic growth, although Asia may be moving toward a
recovery by the year 2000.
Recent shifts in the financial markets have been dramatic. Relatively strong
performances by out-of-favor sectors and markets--from U.S. value stocks to
Japanese issues--have accompanied stumbles in popular sectors, such as European
markets and U.S. technology shares.
Such turnarounds offer an important lesson to investors caught up in recent
market trends. Regardless of which stocks are in favor in the months ahead--and
that is very difficult to predict--investors should build well-diversified
portfolios. Such portfolios should include exposure to a mix of financial
assets and markets. That kind of variety offers the best available protection
when one or more sectors of the financial markets performs poorly, which will
certainly happen from time to time.
3
<PAGE>
Mercantile Treasury Money Market Portfolio+
Q. What is the objective of this Portfolio?
A. The Mercantile Treasury Money Market Portfolio seeks a high level of
current income exempt from state income tax, consistent with liquidity and
security of principal. The net assets of the Portfolio as of May 31, 1999, were
approximately $327 million.
Q. What were the conditions in the money markets during the six months ended
May 31, 1999?
A. Interest rates moved higher throughout the period, because investors
anticipated that the Federal Reserve Board (the Fed) would adopt a restrictive
monetary policy, raising rates to forestall inflation. The Fed did not do so,
but those fears caused the general level of interest rates to move higher
throughout the period.
Q. What was your strategy during the period?
A. We decreased the average maturity of the Portfolio at the beginning of the
period, and then extended it to pick up the higher yields that became
available. The Portfolio began the period with an average maturity of 46 days.
In March we brought the average maturity to as low as 40 days, because the
yields on longer issues were not high enough to compensate for their additional
risk. We subsequently extended the Portfolio's average maturity, as the yield
curve steepened and we found opportunities to lock in higher yield. The
Portfolio's average maturity finished the period at 54 days.
Q. How were the Portfolio's assets allocated among various types of Treasury
securities?
A. Treasury bills constituted 84.7% of the Portfolio as of May 31, 1999, with
Treasury notes comprising the remaining 15.3%. Greater liquidity volumes make
Treasury bills more attractive investments for the Portfolio.*
Q. How will you manage the Portfolio going forward?
A. We will continue to use a laddered approach to provide liquidity to the
Portfolio. The average maturity of the Portfolio must stay less than 60 days to
keep its AAA mg credit rating from Standard & Poor's. We will target an average
maturity between 50 and 60 days.
- -----
+ An investment in the Mercantile Treasury Money Market Portfolio is not
insured or guaranteed by the FDIC or any other government agency. Although
the Fund seeks to preserve the value of your investment at $1.00 per share,
it is possible to lose money by investing in the Fund.
* Portfolio composition is subject to change.
4
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Treasury Money Market Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
U.S. Treasury Bills (84.7%)
Security Principal Amortized
Description Amount Cost
----------- ---------- ------------
<S> <C> <C>
6/3/99................................................ $3,674,000 $ 3,673,079
6/10/99............................................... 10,293,000 10,281,720
6/17/99............................................... 18,282,000 18,245,675
6/24/99............................................... 16,721,000 16,674,753
7/1/99................................................ 20,000,000 19,930,500
7/22/99............................................... 77,873,000 77,401,506
7/29/99............................................... 31,647,000 31,422,351
8/5/99................................................ 24,918,000 24,716,763
8/12/99............................................... 7,697,000 7,628,327
8/19/99............................................... 37,820,000 37,446,148
8/26/99............................................... 30,000,000 29,676,067
------------
TOTAL U.S. TREASURY BILLS 277,096,889
------------
U.S. Treasury Notes (15.3%)
6.00%, 6/30/99........................................ 33,714,000 33,755,285
5.88%, 8/31/99........................................ 16,326,000 16,376,238
------------
TOTAL U.S. TREASURY NOTES 50,131,523
------------
TOTAL INVESTMENTS
(Amortized Cost $327,228,412) (a) (100.0%)...................... 327,228,412
Liabilities in excess of other assets (0.0%)..................... (160,949)
------------
TOTAL NET ASSETS (100.0%)........................................ $327,067,463
============
</TABLE>
- -----
(a) Cost for federal income tax and financial reporting purposes are the same.
See notes to financial statements
5
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Treasury Money Market Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
May 31, 1999
(Unaudited)
<S> <C> <C>
Assets:
Investments, at value (cost $327,228,412)............ $327,228,412
Cash................................................. 95
Interest and dividends receivable.................... 1,091,764
Prepaid expenses and other assets.................... 15,777
------------
Total Assets........................................ 328,336,048
Liabilities:
Dividends payable.................................... $1,064,779
Accrued expenses and other payables:
Investment advisory fees............................ 100,060
Administration fees................................. 5,256
Distribution and administrative services fees....... 48,591
Custodian fees...................................... 5,833
Other liabilities................................... 44,066
----------
Total Liabilities................................... 1,268,585
------------
Net Assets:
Capital.............................................. 327,072,947
Undistributed net investment income.................. 6,076
Accumulated net realized losses from investment
transactions........................................ (11,560)
------------
Net Assets........................................... $327,067,463
============
Investor A Shares
Net Assets.......................................... $ 21,719,386
Shares.............................................. 21,721,240
Offering and redemption price per share............. $1.00
=====
Trust Shares
Net Assets.......................................... $196,516,834
Shares.............................................. 196,513,360
Offering and redemption price per share............. $1.00
=====
Institutional Shares
Net Assets.......................................... $ 164,681
Shares.............................................. 164,692
Offering and redemption price per share............. $1.00
=====
Trust II Shares
Net Assets.......................................... $108,666,562
Shares.............................................. 108,676,069
Offering and redemption price per share............. $1.00
=====
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the period ended May 31, 1999
(Unaudited)
<S> <C> <C>
Investment Income:
Interest income............................................ $7,571,115
----------
Total Income.............................................. 7,571,115
Expenses:
Investment advisory fees................................... $670,183
Administration fees........................................ 335,095
Distribution and services fees, Investor A Shares.......... 28,629
Administrative services fees, Trust Shares................. 269,253
Administrative services fees, Institutional Shares......... 240
Accounting fees............................................ 525
Custodian fees............................................. 30,172
Transfer agent fees........................................ 49,526
Other...................................................... 79,520
--------
Total expenses before voluntary fee reductions............. 1,463,143
Expenses voluntarily reduced............................... (235,592)
----------
Net Expenses............................................... 1,227,551
----------
Net investment income...................................... 6,343,564
----------
Realized Losses from Investments:
Net realized losses from investment transactions........... (11,638)
----------
Change in net assets resulting from operations............. $6,331,926
==========
</TABLE>
See notes to financial statements
6
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Treasury Money Market Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended
1999 November 30,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 6,343,564 $ 12,465,170
Net realized gains (losses) from investment
transactions..................................... (11,638) 8,302
------------ ------------
Change in net assets resulting from operations..... 6,331,926 12,473,472
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (425,385) (647,741)
From net realized gains from investment
transactions..................................... (637) (432)
Distributions to Trust Shareholders:
From net investment income........................ (4,003,522) (11,660,049)
From net realized gains from investment
transactions..................................... (5,803) (13,834)
Distributions to Institutional Shareholders:
From net investment income........................ (3,563) (10,082)
From net realized gains from investment
transactions..................................... (6) (12)
Distributions to Trust II Shareholders:
From net investment income........................ (1,911,094) (147,298)
From net realized gains from investment
transactions..................................... (1,890) --
------------ ------------
Change in net assets from shareholder
distributions..................................... (6,351,900) (12,479,448)
------------ ------------
Change in net assets from capital transactions..... (21,766,891) 56,565,560
------------ ------------
Change in net assets............................... (21,786,865) 56,559,584
Net Assets:
Beginning of period............................... 348,854,328 292,294,744
------------ ------------
End of period..................................... $327,067,463 $348,854,328
============ ============
</TABLE>
See notes to financial statements
7
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Treasury Money Market Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 ------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994 (a)
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Investment Activities
Net investment income.. 0.019 0.043 0.044 0.044 0.048 0.031
Net realized losses
from investments...... -- (d) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total from Investment
Activities............ 0.019 0.043 0.044 0.044 0.048 0.031
-------- -------- -------- -------- -------- --------
Distributions
Net investment income.. (0.019) (0.043) (0.044) (0.044) (0.048) (0.031)
Net realized gains..... -- (d) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions.... (0.019) (0.043) (0.044) (0.044) (0.048) (0.031)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total Return............ 1.87%(b) 4.40% 4.53% 4.46% 4.93% 3.16%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 21,719 $ 25,665 $ 8,409 $ 7,667 $ 2,776 $ 1,713
Ratio of expenses to
average net assets..... 0.80%(c) 0.81% 0.77% 0.81% 0.78% 0.71%
Ratio of net investment
income to average net
assets................. 3.71%(c) 4.22% 4.43% 4.35% 4.84% 3.14%
Ratio of expenses to
average net assets*.... 0.94%(c) 0.96% 0.92% 0.96% 0.93% 0.94%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
(a) On September 27, 1994, the Portfolio redesignated the Investor Shares as
"Investor A" Shares. (b) Not annualized. (c) Annualized. (d) Net realized
lossed and distribution per share was less than $0.005.
Financial Highlights, Trust Shares
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 ------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Investment Activities
Net investment income.. 0.019 0.045 0.046 0.045 0.050 0.033
Net realized losses
from investments...... -- (c) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total from Investment
Activities............ 0.019 0.045 0.046 0.045 0.050 0.033
-------- -------- -------- -------- -------- --------
Distributions
Net investment income.. (0.019) (0.045) (0.046) (0.045) (0.050) (0.033)
Net realized gains..... -- (c) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions.... (0.019) (0.045) (0.046) (0.045) (0.050) (0.033)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total Return............ 1.87%(a) 4.56% 4.70% 4.64% 5.12% 3.38%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $196,517 $245,959 $283,653 $131,322 $252,780 $242,099
Ratio of expenses to
average net assets..... 0.80%(b) 0.65% 0.61% 0.61% 0.60% 0.49%
Ratio of net investment
income to average net
assets................. 3.72%(b) 4.45% 4.60% 4.55% 5.01% 3.26%
Ratio of expenses to
average net assets*.... 0.94%(b) 0.96% 0.92% 0.76% 0.75% 0.94%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
(a) Not annualized. (b) Annualized. (c) Net realized losses and distribution
per share was less than $0.005.
8
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Treasury Money Market Portfolio
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
For the
period ended For the years ended January 26, 1995
May 31, November 30, to
1999 ------------------------- November 30,
(Unaudited) 1998 1997 1996 1995 (a)
------------ ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------- ------- ------- --------
Investment Activities
Net investment income.. 0.019 0.043 0.044 0.044 0.042
Net realized losses
from investments...... -- (e) -- -- -- --
------ ------- ------- ------- --------
Total from Investment
Activities............ 0.019 0.043 0.044 0.044 0.042
------ ------- ------- ------- --------
Distributions
Net investment income.. (0.019) (0.043) (0.044) (0.044) (0.042)
Net realized gains..... -- (e) -- -- -- --
------ ------- ------- ------- --------
Total Distributions.... (0.019) (0.043) (0.044) (0.044) (0.042)
------ ------- ------- ------- --------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ======= ======= ======= ========
Total Return............ 1.87%(d) 4.40% 4.53% 4.46% 4.94%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 165 $ 236 $ 233 $ 299 $ 28
Ratio of expenses to
average net assets..... 0.80%(c) 0.81% 0.77% 0.79% 0.92%(c)
Ratio of net investment
income to average net
assets................. 3.72%(c) 4.30% 4.44% 4.39% 5.76%(c)
Ratio of expenses to
average net assets*.... 0.94%(c) 0.96% 0.92% 0.94% 1.07%(c)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
(a) Period from commencement of operations. (b) Represents total return for
the Investor A Shares from December 1, 1994 to January 25, 1995 plus the total
return for the Institutional Shares from January 26, 1995 to November 30,
1995. (c) Annualized. (d) Not Annualized. (e) Net realized losses and
distribution per share was less than $0.005.
Financial Highlights, Trust II Shares
<TABLE>
<CAPTION>
For the
period ended November 13, 1998
May 31, to
1999 November 30,
(Unaudited) 1998 (a)
------------ -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period........ $ 1.00 $ 1.00
-------- -------
Investment Activities
Net investment income....................... 0.020 0.002
Net realized losses from investments....... -- (d) --
-------- -------
Total from Investment Activities........... 0.020 0.002
-------- -------
Distributions
Net investment income...................... (0.020) (0.002)
Net realized gains......................... -- (d) --
-------- -------
Total Distributions........................ (0.020) (0.002)
-------- -------
Net Asset Value, End of Period.............. $ 1.00 $ 1.00
======== =======
Total Return................................ 1.99%(b) 0.20%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)........... $108,667 $76,995
Ratio of expenses to average net assets..... 0.56%(c) 0.55%(c)
Ratio of net investment income to average
net assets................................. 3.96%(c) 4.09%(c)
Ratio of expenses to average net assets*.... 0.69%(c) 0.70%(c)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized. (c)
Annualized.(d) Net realized losses and distribution per share was less than
$0.005.
9
<PAGE>
Mercantile Money Market Portfolio+
Q. What is the objective of this Portfolio?
A. The Mercantile Money Market Portfolio seeks current income with liquidity
and stability of principal. The net assets of the Portfolio on May 31, 1999
were approximately $1.5 billion.
Q. What were the conditions in the money markets during the six months ended
May 31, 1999?
A. Interest rates rose as investors anticipated that the strong economy would
force the Federal Reserve Board (the Fed) to raise short-term interest rates to
forestall inflation. However, the federal funds rate remained stable at 4.75%.
Q. How did you manage the Portfolio in that environment?
A. The Portfolio began the period with an average maturity of 53 days. During
January and February we decreased the average maturity to the 30-day range,
because the yield curve had flattened out and longer-term issues were not
offering enough extra yield to make them attractive. Toward the end of March,
however, the yield curve steepened, and we found opportunities to lock in
higher yield by purchasing longer-term securities. As a result, the Portfolio's
average maturity ended the period at 56 days.
Q. What types of securities constituted the largest holdings of the Portfolio
during the period?
A. The Portfolio began the period with 72.1% of assets in commercial paper
and ended the period with 75.5% in commercial paper. The Portfolio also held
U.S. Government agency issues, floating rate notes and bank certificates of
deposit.*
Q. How will you manage the Portfolio going forward?
A. We believe that the market already has priced in a 25 basis-point rate
increase by the Fed. In the short term, we may see rates move somewhat higher,
but over the longer term we think rates will stabilize. The Portfolio currently
has an average maturity of 54 days; we will target an average maturity of 40 to
50 days over the next several months. Going forward, we will continue to seek
out opportunities to lock in extra yield for shareholders.
- -----
+ An investment in the Mercantile Money Market Portfolio is not insured or
guaranteed by the FDIC or any other government agency. Although the Fund
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Fund.
* Portfolio composition is subject to change.
10
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Money Market Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Certificates of Deposit (11.8%)
Security Principal Amortized
Description Amount Cost
----------- ----------- --------------
<S> <C> <C>
LaSalle National Bank, 4.82%, 6/28/99............... $30,000,000 $ 30,000,000
RABOBANK, 5.11%, 12/3/99............................ 38,000,000 38,001,880
UBS AG, 5.08%, 1/13/00.............................. 25,000,000 24,999,254
Wachovia Corp., 5.04%, 11/29/99..................... 40,000,000 40,005,606
Westdeutsche Landesbank, 4.87%, 6/30/99............. 30,000,000 30,000,000
Wilmington Trust, 4.87%, 8/10/99.................... 25,000,000 25,000,000
--------------
TOTAL CERTIFICATES OF DEPOSIT 188,006,740
--------------
Commercial Paper (75.5%)
Aerospace/Defense (0.6%):
Martin Marietta, 4.93%, 6/21/99..................... 10,000,000 9,973,000
--------------
Aircraft Engines & Engine Parts (2.4%):
AlliedSignal, Inc., 4.90%, 6/30/99.................. 39,000,000 38,848,258
--------------
Automotive (3.1%):
Cooper Industries, Inc., 5.02%, 6/1/99.............. 50,000,000 50,000,000
--------------
Banking (1.9%):
Wells Fargo & Co., 4.87%, 6/30/99................... 30,000,000 29,884,000
--------------
Chemicals (2.0%):
E.I. duPont de Nemours & Co., 4.87%, 12/7/99........ 33,250,000 32,412,100
--------------
Diversified Operations (2.1%):
Harsco Corp., 4.92%, 6/18/99........................ 33,000,000 32,924,421
--------------
Electrical & Electronic (7.9%):
CSC Enterprises, 4.91%, 6/10/99..................... 23,000,000 22,972,170
CSC Enterprises, 4.90%, 7/20/99..................... 25,000,000 24,835,646
Hubbell, Inc., 5.00%, 6/1/99........................ 78,000,000 78,000,000
--------------
125,807,816
--------------
Entertainment (3.1%):
The Walt Disney Co., 4.94%, 11/17/99................ 50,000,000 48,856,903
--------------
Financial Services (28.6%):
American Express, 4.88%, 6/23/99.................... 35,000,000 34,897,119
American General Finance, 4.89%, 6/17/99............ 40,000,000 39,914,311
Associates First Capital Corp., 4.88%, 6/15/99...... 40,000,000 39,925,178
Block Financial Corp., 4.90%, 6/29/99............... 45,000,000 44,830,950
Block Financial Corp., 4.89%, 6/30/99............... 30,000,000 29,883,517
General Electric Capital Corp., 4.87%, 8/27/99...... 30,000,000 29,652,000
General Electric Capital Corp., 4.99%, 11/17/99..... 10,000,000 9,769,033
Goldman Sachs, 4.88%, 9/15/99....................... 50,000,000 49,291,861
Metlife Funding, 4.90%, 6/21/99..................... 30,000,000 29,919,500
</TABLE>
<TABLE>
<CAPTION>
Commercial Paper, continued
Security Principal Amortized
Description Amount Cost
----------- ----------- --------------
<S> <C> <C>
Financial Services, continued
Morgan Stanley Dean Witter, 4.89%, 6/9/99........... $35,000,000 $ 34,962,472
Morgan Stanley Dean Witter, 4.89%, 6/15/99.......... 29,750,000 29,694,177
New Center Asset Trust, 4.88%, 6/15/99.............. 30,000,000 29,943,883
New Center Asset Trust, 4.87%, 6/15/99.............. 50,000,000 49,906,667
--------------
452,590,668
--------------
Food Products & Services (3.4%):
Campbell Soup Co., 4.87%, 9/10/99................... 30,000,000 29,596,000
Campbell Soup Co., 4.89%, 11/10/99.................. 25,000,000 24,457,750
--------------
54,053,750
--------------
Oil & Exploration, Production & Services (4.0%):
Petrofina, 4.87%, 6/28/99........................... 14,500,000 14,447,800
Petrofina, 4.87%, 7/26/99........................... 25,000,000 24,816,666
Petrofina, 4.92%, 8/20/99........................... 25,000,000 24,730,556
--------------
63,995,022
--------------
Oil Companies--Integrated (5.0%):
BP America, 4.99%, 6/1/99........................... 80,000,000 80,000,000
--------------
Pharmaceuticals (2.1%):
Abbott Laboratories, 4.87%, 6/22/99................. 33,000,000 32,907,600
--------------
Utilities--Gas & Electric (6.2%):
Colonial Pipeline, 4.89%, 6/8/99.................... 19,000,000 18,982,193
Colonial Pipeline, 4.87%, 6/10/99................... 25,200,000 25,169,760
National Rural Utilities, 4.92%, 8/20/99............ 30,000,000 29,676,667
Virginia Electric Power, 4.91%, 7/14/99............. 25,000,000 24,855,472
--------------
98,684,092
--------------
Utilities--Telephone (3.1%):
AT&T Corp., 4.87%, 6/28/99.......................... 50,000,000 49,820,000
--------------
TOTAL COMMERCIAL PAPER.............................. 1,200,757,630
--------------
Corporate Bonds (5.7%)
Banking (1.9%):
Northern Trust Co., 4.79%*, 9/8/99.................. 30,000,000 29,995,118
--------------
Financial Services (3.8%):
Bear Stearns Co., Inc., 4.95%*, 2/2/00, MTN......... 30,000,000 30,000,000
Merrill Lynch & Co., 4.97%*, 9/24/99, MTN........... 30,000,000 30,000,000
--------------
60,000,000
--------------
TOTAL CORPORATE BONDS 89,995,118
--------------
</TABLE>
Continued
11
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Money Market Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
U.S. Government Agencies (5.9%)
Shares
or
Security Principal Amortized
Description Amount Cost
----------- ----------- --------------
<S> <C> <C>
Federal Farm Credit Bank (1.6%):
4.83%, 10/1/99...................................... $25,000,000 $ 25,000,000
--------------
Federal Home Loan Bank (4.3%):
6.44%, 9/9/99....................................... 15,100,000 15,149,262
4.87%*, 11/10/99.................................... 30,000,000 29,992,104
4.95%, 2/17/00...................................... 24,000,000 23,991,730
--------------
69,133,096
--------------
TOTAL U.S. GOVERNMENT AGENCIES 94,133,096
--------------
Investment Companies (1.3%)
Financial Square Premium Money Market............... 20,725,002 20,725,002
--------------
TOTAL INVESTMENT COMPANIES 20,725,002
--------------
TOTAL INVESTMENTS
(Amortized Cost $1,593,617,586)(a)--100.2%..................... 1,593,617,586
Liabilities in excess of other assets--(0.2)%................... (3,632,342)
--------------
TOTAL NET ASSETS--100.0%........................................ $1,589,985,244
==============
</TABLE>
- -----
* Variable rate investments. The rate presented on the Schedule of Portfolio
Investments is the rate in effect at May 31, 1999. The date presented
reflects the next rate change date.
(a) Cost for federal income tax and financial reporting purposes are the same.
MTN Medium Term Note
See notes to financial statements
12
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Money Market Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
May 31, 1999
(Unaudited)
<S> <C> <C>
Assets:
Investments, at value (cost $1,593,617,586)........ $1,593,617,586
Cash............................................... 673
Interest and dividends receivable.................. 3,144,912
Prepaid expenses and other assets.................. 48,641
--------------
Total Assets...................................... 1,596,811,812
Liabilities:
Dividends payable.................................. $5,797,887
Accrued expenses and other payables:
Investment advisory fees.......................... 480,803
Administration fees............................... 24,013
Distribution and administrative services fees..... 208,727
Custodian fees.................................... 27,472
Other liabilities................................. 287,666
----------
Total Liabilities................................. 6,826,568
--------------
Net Assets:
Capital............................................ 1,589,982,885
Undistributed net investment income................ 7,235
Accumulated net realized losses from investment
transactions...................................... (4,876)
--------------
Net Assets......................................... $1,589,985,244
==============
Investor A Shares
Net Assets........................................ $ 272,342,306
Shares............................................ 272,342,115
Offering and redemption price per share........... $1.00
=====
Investor B Shares
Net Assets........................................ $ 66,488
Shares............................................ 66,488
Offering price per share*......................... $1.00
=====
Trust Shares
Net Assets........................................ $ 655,060,249
Shares............................................ 655,058,146
Offering and redemption price per share........... $1.00
=====
Institutional Shares
Net Assets........................................ $ 35,414,268
Shares............................................ 35,414,205
Offering and redemption price per share........... $1.00
=====
Trust II Shares
Net Assets........................................ $ 627,101,933
Shares............................................ 627,101,933
Offering and redemption price per share........... $1.00
=====
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
<TABLE>
<CAPTION>
Statement of Operations
For the period ended May 31, 1999
(Unaudited)
<S> <C> <C>
Investment Income:
Interest income........................................ $39,289,044
Dividend income........................................ 862,719
-----------
Total Income.......................................... 40,151,763
Expenses:
Investment advisory fees............................... $3,153,851
Administration fees.................................... 1,588,538
Distribution and services fees,
Investor A Shares..................................... 292,145
Distribution and services fees,
Investor B Shares..................................... 372
Administrative services fees, Trust Shares............. 876,573
Administrative services fees, Institutional Shares..... 51,651
Accounting fees........................................ 1,035
Custodian fees......................................... 147,272
Transfer agent fees.................................... 248,997
Other.................................................. 327,263
----------
Total expenses before voluntary fee reductions........ 6,687,697
Expenses voluntarily reduced.......................... (1,092,572)
-----------
Net Expenses.......................................... 5,595,125
-----------
Net investment income.................................. 34,556,638
-----------
Change in net assets resulting from operations......... $34,556,638
===========
</TABLE>
See notes to financial statements
13
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Money Market Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended
1999 November 30,
(Unaudited) 1998
-------------- --------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income........................ $ 34,556,638 $ 68,317,384
Net realized gains from investment
transactions................................ -- 31
-------------- --------------
Change in net assets resulting from
operations................................... 34,556,638 68,317,415
-------------- --------------
Distributions to Investor A Shareholders:
From net investment income................... (4,965,941) (8,260,115)
Distributions to Investor B Shareholders:
From net investment income................... (1,309) (2,995)
Distributions to Trust Shareholders:
From net investment income................... (14,941,103) (57,503,882)
Distributions to Institutional Shareholders:
From net investment income................... (879,447) (1,329,331)
Distributions to Trust II Shareholders:
From net investment income................... (13,768,838) (1,221,277)
-------------- --------------
Change in net assets from shareholder
distributions................................ (34,556,638) (68,317,600)
-------------- --------------
Change in net assets from capital
transactions................................. 46,839,825 314,122,425
-------------- --------------
Change in net assets.......................... 46,839,825 314,122,240
Net Assets:
Beginning of period.......................... 1,543,145,419 1,229,023,179
-------------- --------------
End of period................................ $1,589,985,244 $1,543,145,419
============== ==============
</TABLE>
See notes to financial statements
14
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Money Market Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 -------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994 (a)
------------ -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- ------- -------
Investment Activities
Net investment income.. 0.021 0.048 0.048 0.047 0.052 0.033
Net realized gains from
investments........... -- -- (d) -- -- -- --
-------- -------- -------- ------- ------- -------
Total from Investment
Activities............ 0.021 0.048 0.048 0.047 0.052 0.033
-------- -------- -------- ------- ------- -------
Distributions
Net investment income.. (0.021) (0.048) (0.048) (0.047) (0.052) (0.033)
-------- -------- -------- ------- ------- -------
Total Distributions.... (0.021) (0.048) (0.048) (0.047) (0.052) (0.033)
-------- -------- -------- ------- ------- -------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= ======= =======
Total Return............ 2.14%(b) 4.95% 4.93% 4.81% 5.33% 3.37%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $272,342 $203,583 $164,777 $91,166 $64,865 $48,384
Ratio of expenses to
average net assets..... 0.80%(c) 0.78% 0.77% 0.78% 0.77% 0.78%
Ratio of net investment
income to average net
assets................. 4.25%(c) 4.83% 4.84% 4.70% 5.20% 3.35%
Ratio of expenses to
average net assets*.... 0.94%(c) 0.93% 0.92% 0.93% 0.92% 0.93%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
(a) On September 27, 1994, the Portfolio redesignated the Investor Shares as
"Investor A" Shares. (b) Not annualized. (c) Annualized. (d) Net realized
gains per share were less than $0.005.
Financial Highlights, Investor B Shares
<TABLE>
<CAPTION>
For the For the years
period ended ended November January 26, 1996
May 31, 30, to
1999 ------------------- November 30,
(Unaudited) 1998 1997 1996 (a)
------------ ------- ------- ----------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
Investment Activities
Net investment income... 0.017 0.041 0.041 0.033
Net realized gains from
investments............ -- -- (d) -- --
------- ------- ------- -------
Total from Investment
Activities............. 0.017 0.041 0.041 0.033
Distributions
------- ------- ------- -------
Net investment income... (0.017) (0.041) (0.041) (0.033)
------- ------- ------- -------
Total Distributions..... (0.017) (0.041) (0.041) (0.033)
------- ------- ------- -------
Net Asset Value, End of
Period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total Return (excludes
redemption charge)...... 1.76%(b) 4.17% 4.15% 3.35%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)............ $ 66 $ 84 $ 73 $ 41
Ratio of expenses to
average net assets...... 1.55%(c) 1.53% 1.52% 1.47%(c)
Ratio of net investment
income to average net
assets.................. 3.52%(c) 4.09% 4.10% 3.73%(c)
Ratio of expenses to
average net assets*..... 1.66%(c) 1.68% 1.67% 1.68%(c)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized. (c)
Annualized. (d) Net realized gains per share were less than $0.005.
15
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Money Market Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 -----------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
------------ -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ---------- -------- -------- --------
Investment Activities
Net investment income.. 0.021 0.050 0.050 0.049 0.054 0.035
Net realized gains from
investments........... -- -- (c) -- -- -- --
-------- -------- ---------- -------- -------- --------
Total from Investment
Activities............ 0.021 0.050 0.050 0.049 0.054 0.035
-------- -------- ---------- -------- -------- --------
Distributions
Net investment income.. (0.021) (0.050) (0.050) (0.049) (0.054) (0.035)
-------- -------- ---------- -------- -------- --------
Total Distributions.... (0.021) (0.050) (0.050) (0.049) (0.054) (0.035)
-------- -------- ---------- -------- -------- --------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ========== ======== ======== ========
Total Return............ 2.14%(a) 5.08% 5.06% 4.99% 5.52% 3.55%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $655,060 $820,923 $1,042,151 $717,265 $698,131 $544,952
Ratio of expenses to
average net assets..... 0.80%(b) 0.66% 0.64% 0.61% 0.59% 0.61%
Ratio of net investment
income to average net
assets................. 4.26%(b) 4.97% 4.96% 4.88% 5.38% 3.45%
Ratio of expenses to
average net assets*.... 0.94%(b) 0.93% 0.92% 0.76% 0.74% 0.93%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
(a) Not annualized. (b) Annualized. (c) Net realized gains per share were less
than $0.005.
Financial Highlights, Institutional Shares
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 -----------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994 (a)
------------ -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ---------- -------- -------- --------
Investment Activities
Net investment income.. 0.021 0.048 0.048 0.047 0.052 0.033
Net realized gains from
investments........... -- -- (d) -- -- -- --
-------- -------- ---------- -------- -------- --------
Total from Investment
Activities............ 0.021 0.048 0.048 0.047 0.052 0.033
-------- -------- ---------- -------- -------- --------
Distributions
Net investment income.. (0.021) (0.048) (0.048) (0.047) (0.052) (0.033)
-------- -------- ---------- -------- -------- --------
Total Distributions.... (0.021) (0.048) (0.048) (0.047) (0.052) (0.033)
-------- -------- ---------- -------- -------- --------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ========== ======== ======== ========
Total Return............ 2.14%(b) 4.95% 4.93% 4.81% 5.33% 3.34%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 35,414 $ 28,536 $ 22,022 $ 15,921 $ 13,340 $ 10,295
Ratio of expenses to
average net assets..... 0.80%(c) 0.78% 0.77% 0.78% 0.77% 0.78%
Ratio of net investment
income to average net
assets................. 4.26%(c) 4.84% 4.83% 4.70% 5.20% 3.48%
Ratio of expenses to
average net assets*.... 0.94%(c) 0.93% 0.92% 0.93% 0.92% 0.95%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
(a) On January 3, 1994, the Portfolio issued a new series of shares which were
designated as "Institutional" Shares. The financial highlights presented for
the period prior to January 3, 1994 represent financial highlights applicable
to the Investor A Shares. (b) Not annualized. (c) Annualized. (d) Net realized
gains per share were less than $0.005.
16
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Money Market Portfolio
Financial Highlights, Trust II Shares
<TABLE>
<CAPTION>
For the
period ended November 10, 1998
May 31, to
1999 November 30,
(Unaudited) 1998(a)
------------ -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period......... $ 1.00 $ 1.00
-------- --------
Investment Activities
Net investment income....................... 0.022 0.003
-------- --------
Total from Investment Activities............ 0.022 0.003
-------- --------
Distributions
Net investment income....................... (0.022) (0.003)
-------- --------
Total Distributions......................... (0.022) (0.003)
-------- --------
Net Asset Value, End of Period............... $ 1.00 $ 1.00
======== ========
Total Return................................. 2.27%(b) 0.27%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)............ $627,102 $490,020
Ratio of expenses to average net assets...... 0.55%(c) 0.56%(c)
Ratio of net investment income to average net
assets...................................... 4.50%(c) 4.76%(c)
Ratio of expenses to average net assets*..... 0.69%(c) 0.71%(c)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized. (c)
Annualized.
17
<PAGE>
Mercantile Tax-Exempt Money Market Portfolio+,++
Q. How did the tax-exempt money markets perform during the six months ended
May 31, 1999?
A. Taxable money market securities have offered more attractive yields than
tax-exempt money market securities for several years. That trend continued
during the recent period.
Seasonal factors affected the money markets during the period. Taxes are due
in the first part of the year, so demand for cash investments is relatively
high because investors want to stay liquid. At the same time, there are always
lots of coupon reinvestments. Therefore, yields on short-term issues fell
because of strong market demand for short-term securities.
Q. How did you manage the Portfolio during the period?
A. The Portfolio seeks a high level of current interest income exempt from
federal income tax, while protecting shareholders' liquidity and stability of
principal. In attempting to achieve those goals, the Portfolio observes strict
credit quality standards and maintains a relatively short average maturity. The
Portfolio's average maturity stayed fairly consistent during the period, at
around 20 to 25 days. We attempted to maintain and slightly extend the
Portfolio's average maturity to capture higher yields in an environment where
such yields were hard to obtain. We also continued to favor daily and weekly
securities and short-term notes.
Q. How will you position the Portfolio in the coming months?
A. We believe the economy will likely continue to grow at a steady pace, and
taxable bonds should remain attractive relative to tax-exempt issues. We will
look for opportunities to increase the Portfolio's yield by taking advantage of
seasonal factors and extending the average maturity. May issues typically
mature in June, causing rates to fall that month. We will need to extend the
Portfolio's average maturity to maintain an attractive yield, and we will look
for opportunities to do so without taking on significant risk.
- -----
+ An investment in the Mercantile Tax-Exempt Money Market Portfolio is not
insured or guaranteed by the FDIC or any other government agency. Although
the Fund seeks to preserve the value of your investment at $1.00 per share,
it is possible to lose money by investing in the Fund.
++ The Portfolio's income may be subject to certain state and local taxes and,
depending on your tax status, the federal alternative minimum tax.
18
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Tax-Exempt Money Market Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Commercial Paper (4.8%):
Security Principal Amortized
Description Amount Cost
----------- ---------- ------------
<S> <C> <C>
Texas (2.0%):
Houston, 3.10%, 9/14/99............................... $3,600,000 $ 3,600,000
------------
Washington (2.8%):
King County, 2.85%, 8/18/99........................... 5,000,000 5,000,000
------------
TOTAL COMMERCIAL PAPER 8,600,000
------------
Municipal Bonds (94.1%):
Alabama (1.1%):
Gadsden, Alabama Industrial Development Board
Pollution Control Revenue, Power Co. Project, 3.40%*,
6/1/99............................................... 2,000,000 2,000,000
------------
Alaska (0.8%):
Anchorage, 4.00%, 12/1/99 (FGIC Insured).............. 1,410,000 1,417,272
------------
Arizona (1.8%):
Chandler Industrial Development Authority, Multifamily
Housing Revenue, Southpark Apartments Project,
3.25%*, 6/2/99 (LOC-CitiBank N.A.)................... 2,400,000 2,400,000
Maricopa County, Pollution Control Revenue, Arizona
Public Service, Co., Series F, 3.35%*, 6/1/99 (LOC-
Bank of America Northern Trust & Savings
Association)......................................... 880,000 880,000
------------
3,280,000
------------
Delaware (3.9%):
Delaware State Economic Development Authority, Solid
Waste Disposal & Sewage Facilities, Series A, 3.45%*,
6/1/99, AMT.......................................... 7,000,000 7,000,000
------------
Florida (1.1%):
Tallahassee Construction Utility System Revenue,
Series B, 6.90%, Prerefunded 10/1/99 @ 102........... 1,900,000 1,961,825
------------
Georgia (7.3%):
Burke County Development Authority, Pollution Control
Revenue, Georgia Power Co. Plant Vogtle Project,
3.40%*, 6/1/99....................................... 6,000,000 6,000,000
Putnam County Development Authority, Pollution Control
Revenue, Power Pollution Project, Series 2, 3.40%*,
6/1/99 .............................................. 7,000,000 7,000,000
------------
13,000,000
------------
Idaho (2.8%):
Idaho State, Tax Anticipation Notes, G.O., 4.50%,
6/30/99.............................................. 5,000,000 5,003,450
------------
Illinois (4.5%):
Chicago, O'Hare International Airport Revenue,
American Airlines, Inc., 3.40%*, 6/1/99 (LOC-Royal
Bank of Canada)...................................... 7,000,000 7,000,000
Cook County, 7.38%, Prerefunded 11/1/99 @ 102 (MBIA
Insured)............................................. 1,000,000 1,037,975
------------
8,037,975
------------
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Amortized
Description Amount Cost
----------- ---------- ------------
<S> <C> <C>
Iowa (4.4%):
Iowa Finance Authority, Solid Waste Disposal Revenue,
Cedar River Paper Co., 3.40%*, 6/1/99, AMT (LOC-Union
Bank of Switzerland)................................. $ 500,000 $ 500,000
Iowa Finance Authority, Solid Waste Disposal Revenue,
Cedar River Paper Co., Series A, 3.40%*, 6/1/99, AMT
(LOC-Union Bank of Switzerland)...................... 4,300,000 4,300,000
Iowa Finance Authority, Solid Waste Disposal Revenue,
Cedar River Paper Co., Series A, 3.40%*, 6/1/99, AMT
(LOC-Union Bank of Switzerland)...................... 3,000,000 3,000,000
------------
7,800,000
------------
Kentucky (7.7%):
Daviess County, Solid Waste Disposal Facilities
Revenue, Scott Paper Co., Series A, 3.45%*, 6/1/99,
AMT (LOC-Kimberly Clark Corp.)....................... 1,850,000 1,850,000
Daviess County, Solid Waste Disposal Facilities
Revenue, Scott Paper Co., Series B, 3.45%*, 6/1/99,
AMT (LOC-Kimberly Clark Corp.)....................... 4,800,000 4,800,000
Daviess County, Solid Waste Disposal Facilities
Revenue, Scott Paper Co., Series B, 3.45*, 6/1/99,
AMT (LOC-Kimberly Clark Corp.)....................... 800,000 800,000
Lexington-Fayette Urban County Airport, Series A,
3.50%*, 6/1/99, AMT (MBIA Insured)................... 6,000,000 6,000,000
------------
13,450,000
------------
Louisiana (5.0%):
Ascension Parish Pollution Control Revenue, Shell Oil
Co. Project, 3.20%*, 6/1/99.......................... 3,000,000 3,000,000
St. Charles Parish Pollution Control Revenue, Shell
Oil Co. Project, 3.40%*, 6/1/99...................... 5,800,000 5,800,000
------------
8,800,000
------------
Massachusetts (2.4%):
Massachusetts State Water Authority, 7.00%,
Prerefunded 4/1/00 @ 102............................. 4,000,000 4,206,348
------------
Minnesota (3.6%):
Becker, Pollution Control Revenue, Northern States
Power Co., Series A, 2.85%, 8/19/99**................ 4,000,000 4,000,000
Minneapolis Community Development Agency, Pollution
Control Revenue, Northern States Power Co. Project,
3.35%*, 6/2/99....................................... 2,450,000 2,450,000
------------
6,450,000
------------
Missouri (8.9%):
Missouri State Environmental Improvement and Energy
Resource Authority, Pollution Control Revenue,
Monsanto Co. Project, 4.10%*, 6/2/99................. 1,000,000 1,000,000
</TABLE>
Continued
19
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Tax-Exempt Money Market Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Amortized
Description Amount Cost
----------- ---------- ------------
<S> <C> <C>
Missouri, continued:
Missouri State Health & Educational Facilities
Authority, Educational Facilities Revenue, St. Louis
University, 3.40%*, 6/1/99 (FGIC Insured)............ $1,000,000 $ 1,000,000
Missouri State Health & Educational Facilities
Authority, Educational Facilities Revenue, Washington
University Project, Series A, 3.25%*, 6/2/99 (SPA-
Morgan Guaranty Trust)............................... 4,800,000 4,800,000
Missouri State Health & Educational Facilities
Authority, Educational Facilities Revenue, Washington
University Project, Series B, 3.25%*, 6/2/99 (SPA-
Morgan Guaranty Trust)............................... 1,000,000 1,000,000
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, Barnes Hospital
Project, 3.25%*, 6/2/99 (SPA-Morgan Guaranty Trust).. 4,800,000 4,799,999
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, St. Anthony
Medical Center, Series B, 3.20%*, 6/2/99 (SPA-ABN
AMRO Bank and RABOBANK Nederland Bank)............... 3,000,000 3,000,000
------------
15,599,999
------------
Ohio (0.7%):
Montgomery County Revenue, Miami Valley Hospital,
Series A, 3.35%*, 6/1/99 (SPA-National City Bank).... 1,200,000 1,200,000
------------
Oklahoma (6.8%):
Oklahoma State Industrial Authority Revenue, Flexible-
Baptist Medical Center, Series B, 3.30%*, 6/2/99
(SPA-Credit Suisse First Boston)..................... 7,000,000 7,000,000
Tulsa Industrial Authority Revenue, University of
Tulsa, Series B, 3.30%*, 6/2/99 (MBIA Insured)....... 5,000,000 5,000,000
------------
12,000,000
------------
Oregon (2.5%):
Oregon State, Series 73 G, G.O., 3.25%*, 6/2/99 (SPA-
Morgan Guaranty Trust)............................... 4,500,000 4,500,000
------------
Pennsylvania (5.1%):
Bethel Park School District, 6.90%, Prerefunded 2/1/00
@ 100 (MBIA Insured)................................. 1,000,000 1,024,049
Elizabeth Forward School District, 7.25%, Prerefunded
1/15/00 @ 100 (AMBAC Insured)........................ 2,000,000 2,051,763
Pennsylvania State Higher Education Facilities
Authority, College & University Revenue, Carnegie
Mellon University, Series C, 3.35%*, 6/1/99 (SPA-
Union Bank of Switzerland and Morgan Guaranty
Trust)............................................... 6,000,000 6,000,000
------------
9,075,812
------------
Tennessee (2.8%):
Memphis, Series A, G.O., 3.35%*, 6/2/99 (SPA-
Westdeutshe Landesbank).............................. $5,000,000 $ 5,000,000
------------
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds, continued
Shares
or
Security Principal Amortized
Description Amount Cost
----------- ---------- ------------
<S> <C> <C>
Texas (17.0%):
Harris County, Health Facilities Development Corp.,
Health, Hospital & Nursing Home Revenue, Methodist
Hospital, 3.40%*, 6/1/99 (SPA-Morgan Guaranty
Trust).............................................. $5,000,000 $ 5,000,000
North Central Texas Health Facilities Development
Corp., Health, Hospital & Nursing Home Revenue,
Methodist Hospital of Dallas, Series B, 3.40%*,
6/1/99 (MBIA Insured)............................... 3,800,000 3,800,000
Port Corpus Christi, Port, Airport & Marina Revenue,
Reynolds Metals Co., 3.45%*, 6/2/99 (LOC-
Westdeutsche Landesbank)............................ 2,200,000 2,200,000
Sabine River Authority, Pollution Control Revenue,
Texas Utilities Electric Co., Series C, 3.55%*,
6/1/99, AMT (LOC-Union Bank of Switzerland)......... 6,000,000 6,000,000
Texas State Tax & Revenue Anticipation Notes, 4.50%,
8/31/99............................................. 5,000,000 5,013,013
Texas State, Multi-Modal-Water Development Board,
Series A, 3.40%*, 6/1/99 (SPA-Canadian Imperial
Bank)............................................... 8,000,000 7,999,999
------------
30,013,012
------------
Utah (3.9%):
Salt Lake County, Pollution Control Revenue, SVC
Station Holdings Project, British Petroleum Co.,
Series B, 3.40%*, 6/1/99............................ 7,000,000 7,000,000
------------
TOTAL MUNICIPAL BONDS 166,795,693
------------
Investment Companies (0.8%):
Federated Tax-Free Fund.............................. 1,427,000 1,427,000
Nuveen Tax Exempt Fund............................... 1,000 1,000
------------
TOTAL INVESTMENT COMPANIES 1,428,000
------------
TOTAL INVESTMENTS
(Amortized Cost $176,823,693)(a)--99.7%........................ 176,823,693
Other assets in excess of liabilities--0.3%..................... 505,966
------------
TOTAL NET ASSETS--100.0%........................................ $177,329,659
============
</TABLE>
- -----
* Variable rate investments. The rate presented on the Schedule of Portfolio
Investments is the rate in effect at May 31, 1999. The date presented
reflects the next rate change date.
** Put and demand features exist allowing the fund to require the repurchase
of the investment within variable time periods ranging from daily, weekly,
monthly or semi-annually. Maturity date reflects the next put date.
(a) Cost for federal income tax and financial reporting purposes are the same.
AMBAC AMBAC Indemnity Corp.
AMT Alternative Minimum Tax
FGIC Financial Guaranty Insurance Corp.
G.O. General Obligation
LOC Letter of Credit
MBIA Municipal Bond Insurance Association
SPA Standby Purchase Agreement
See notes to financial statements
20
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Tax-Exempt Money Market Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
May 31, 1999
(Unaudited)
<S> <C> <C>
Assets:
Investments, at value (cost $176,823,693)................ $176,823,693
Cash..................................................... 736
Interest and dividends receivable........................ 1,023,486
Prepaid expenses and other assets........................ 11,446
------------
Total Assets............................................ 177,859,361
Liabilities:
Dividends payable........................................ $426,642
Accrued expenses and other payables:
Investment advisory fees................................ 53,112
Administration fees..................................... 2,429
Distribution and administrative services fees........... 10,121
Custodian fees.......................................... 3,035
Other liabilities....................................... 34,363
--------
Total Liabilities....................................... 529,702
------------
Net Assets:
Capital.................................................. 177,317,499
Undistributed net investment income...................... 12,160
------------
Net Assets............................................... $177,329,659
============
Investor A Shares
Net Assets.............................................. $ 13,560,867
Shares.................................................. 13,560,830
Offering and redemption price per share................. $1.00
=====
Trust Shares
Net Assets.............................................. $ 35,814,791
Shares.................................................. 35,814,757
Offering and redemption price per share................. $1.00
=====
Trust II Shares
Net Assets.............................................. $127,954,001
Shares.................................................. 127,954,001
Offering and redemption price per share................. $1.00
=====
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the period ended May 31, 1999
(Unaudited)
<S> <C> <C>
Investment Income:
Interest income........................................... $2,827,273
Dividend income........................................... 51,189
----------
Total Income............................................. 2,878,462
Expenses:
Investment advisory fees.................................. $371,657
Administration fees....................................... 92,916
Distribution and services fees,
Investor A Shares........................................ 16,094
Administrative services fees, Trust Shares................ 40,298
Accounting fees........................................... 994
Custodian fees............................................ 16,944
Transfer agent fees....................................... 29,212
Other..................................................... 37,655
--------
Total expenses before voluntary fee reductions........... 605,770
Expenses voluntarily reduced............................. (46,458)
----------
Net Expenses............................................. 559,312
----------
Net investment income..................................... 2,319,150
----------
Change in net assets resulting from operations............ $2,319,150
==========
</TABLE>
See notes to financial statements
21
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Tax-Exempt Money Market Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended
1999 November 30,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................ $ 2,319,150 $ 4,858,270
------------ ------------
Change in net assets resulting from operations.... 2,319,150 4,858,270
------------ ------------
Distributions to Investor A Shareholders:
From net investment income....................... (148,981) (365,876)
Distributions to Trust Shareholders:
From net investment income....................... (375,212) (4,357,878)
Distributions to Trust II Shareholders:
From net investment income....................... (1,794,957) (134,516)
------------ ------------
Change in net assets from shareholder
distributions.................................... (2,319,150) (4,858,270)
------------ ------------
Change in net assets from capital transactions.... 3,698,021 14,325,565
------------ ------------
Change in net assets.............................. 3,698,021 14,325,565
Net Assets:
Beginning of period.............................. 173,631,638 159,306,073
------------ ------------
End of period.................................... $177,329,659 $173,631,638
============ ============
</TABLE>
See notes to financial statements
22
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Tax-Exempt Money Market Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
period ended Six Months Years Ended
May 31, Years Ended November 30, Ended May 31,
1999 -------------------------- November 30, ------------------
(Unaudited) 1998 1997 1996 1995 (d) 1995 (a) 1994
------------ ------- -------- ------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- -------- ------- ------- ------- --------
Investment Activities
Net investment income.. 0.012 0.027 0.028 0.028 0.014 0.027 0.017
------- ------- -------- ------- ------- ------- --------
Total from Investment
Activities............ 0.012 0.027 0.028 0.028 0.014 0.027 0.017
------- ------- -------- ------- ------- ------- --------
Distributions
Net investment income.. (0.012) (0.027) (0.028) (0.028) (0.014) (0.027) (0.017)
------- ------- -------- ------- ------- ------- --------
Total Distributions.... (0.012) (0.027) (0.028) (0.028) (0.014) (0.027) (0.017)
------- ------- -------- ------- ------- ------- --------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======== ======= ======= ======= ========
Total Return............ 1.16%(b) 2.72% 2.88% 2.83% 1.45%(b) 2.70% 1.73%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $13,561 $13,980 $ 15,789 $17,984 $ 5,403 $ 5,138 $ 8,631
Ratio of expenses to
average net assets..... 0.79%(c) 0.79% 0.77% 0.75% 0.94%(c) 0.84% 0.76%
Ratio of net investment
income to average net
assets................. 2.31%(c) 2.68% 2.82% 2.78% 2.87%(c) 2.63% 1.72%
Ratio of expenses to
average net assets*.... 0.84%(c) 0.84% 0.82% 0.80% 0.99%(c) 0.93% 0.86%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
(a) On September 27, 1994, the Portfolio redesignated the Investor Shares as
"Investor A" Shares. (b) Not annualized. (c) Annualized. (d) Upon reorganizing
as a portfolio of Mercantile Mutual Funds, Inc., the Tax-Exempt Money Market
Portfolio changed its fiscal year end from May 31 to November 30.
Financial Highlights, Trust Shares
<CAPTION>
For the
period ended Six Months Years Ended
May 31, Years Ended November 30, Ended May 31,
1999 -------------------------- November 30, ------------------
(Unaudited) 1998 1997 1996 1995 (c) 1995 1994
------------ ------- -------- ------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- -------- ------- ------- ------- --------
Investment Activities
Net investment income.. 0.012 0.029 0.030 0.030 0.016 0.029 0.020
------- ------- -------- ------- ------- ------- --------
Total from Investment
Activities............ 0.012 0.029 0.030 0.030 0.016 0.029 0.020
------- ------- -------- ------- ------- ------- --------
Distributions
Net investment income.. (0.012) (0.029) (0.030) (0.030) (0.016) (0.029) (0.020)
------- ------- -------- ------- ------- ------- --------
Total Distributions.... (0.012) (0.029) (0.030) (0.030) (0.016) (0.029) (0.020)
------- ------- -------- ------- ------- ------- --------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======== ======= ======= ======= ========
Total Return............ 1.16%(a) 2.92% 3.08% 3.06% 1.57%(a) 2.93% 1.97%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $35,815 $37,541 $143,517 $95,726 $78,031 $85,324 $112,594
Ratio of expenses to
average net assets..... 0.79%(b) 0.59% 0.58% 0.53% 0.70%(b) 0.61% 0.52%
Ratio of net investment
income to average net
assets................. 2.33%(b) 2.88% 3.04% 3.01% 3.10%(b) 2.87% 1.95%
Ratio of expenses to
average net assets*.... 0.84%(b) 0.84% 0.83% 0.58% 0.75%(b) 0.70% 0.86%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
(a) Not annualized. (b) Annualized. (c) Upon reorganizing as a Portfolio of
Mercantile Mutual Funds, Inc., the Tax-Exempt Money Market Portfolio changed
its fiscal year end from May 31 to November 30.
23
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Tax-Exempt Money Market Portfolio
Financial Highlights, Trust II Shares
<TABLE>
<CAPTION>
For the
period ended November 16, 1998
May 31, to
1999 November 30,
(Unaudited) 1998 (a)
------------ -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period......... $ 1.00 $ 1.00
-------- --------
Investment Activities
Net investment income....................... 0.013 0.001
-------- --------
Total from Investment Activities............ 0.013 0.001
-------- --------
Distributions
Net investment income....................... (0.013) (0.001)
-------- --------
Total Distributions......................... (0.013) (0.001)
-------- --------
Net Asset Value, End of Period............... $ 1.00 $ 1.00
======== ========
Total Return................................. 1.28%(b) 0.11%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)............ $127,954 $122,110
Ratio of expenses to average net assets...... 0.54%(c) 0.57%(c)
Ratio of net investment income to average net
assets...................................... 2.55%(c) 2.69%(c)
Ratio of expenses to average net assets*..... 0.59%(c) 0.62%(c)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
(a) Period from commencement of operations. (b) Not annualized. (c)
Annualized.
24
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
25
<PAGE>
Mercantile U.S. Government Securities Portfolio
Q. What were the conditions in the Treasury market during the recent six-
month period ended May 31, 1999?
A. Interest rates on Treasury securities increased dramatically during the
period. Investors feared that a strong economy would force the Federal Reserve
Board (the Fed) to raise the federal funds rate to forestall inflation. Those
fears stemmed from annualized fourth-quarter economic growth of 6%, which
followed the Fed's decision to lower short-term interest rates three times last
fall. The yield on the two-year Treasury rose from 4.52% on December 1 to 5.40%
on May 31. Likewise, the yield on the five-year Treasury rose from 4.48% to
5.58% during the period.
Q. How did you manage the Portfolio in that environment?
A. We kept the duration and average maturity of the Portfolio short relative
to its benchmark index during the period, although they rose slightly due to a
slow-down in mortgage prepayments. The Portfolio's average maturity and
duration began the period at 5.98 years and 2.59 years, respectively, and
finished the period at 5.95 years and 2.93 years, respectively.
We used cash during the period to buy mortgage-backed securities and keep the
Portfolio's exposure to that sector constant. At the end of the period,
mortgage-backed securities offered significantly higher yields than Treasuries,
with a yield advantage of 75 basis points for 15-year securities and 95 basis
points for 30-year securities.
Q. What is your outlook for the Treasury market during the next several
months?
A. The market appears already to have discounted an interest rate increase by
the Fed. As a result, the bond market might respond favorably if the Fed does
raise interest rates, since higher interest rates would mitigate inflationary
pressures. We will continue to keep the Portfolio's average maturity and
duration shorter than those of its benchmark to reduce shareholders' risk in
this uncertain environment, and we will continue to use extra cash to take
advantage of the yield offered by mortgage-backed securities.
26
<PAGE>
Mercantile U.S. Government Securities Portfolio
[CHART OF US GOVERNMENT SECURITIES APPEARS HERE]
Value of a $10,000 Investment
Lehman Brothers
Investor A Investor A Investor B Intermediate
Date (No Load) (Load) (No CDSC) Government Bond Index
---- --------- ------ --------- ---------------------
5/89 10,000 9,750 10,000 10,000
5/90 10,796 10,527 10,796 10,936
5/91 12,102 11,800 12,102 12,306
5/92 13,398 13,063 13,398 13,838
5/93 14,672 14,306 14,672 15,404
5/94 14,753 14,384 14,753 15,511
5/95 16,291 15,884 16,090 17,293
5/96 16,860 16,439 16,538 18,049
5/97 17,908 17,460 17,444 19,551
5/98 19,176 18,697 18,551 21,685
5/99 19,908 19,411 19,161 22,626
Average Annual Total Returns as of 5/31/99
1 Year 5 Year 10 Year
------ ------ -------
Investor A (No Load) 3.82% 6.18% 7.13%
Investor A* 1.25% 5.63% 6.85%
Investor B (No CDSC) 3.29% 5.37% 6.72%
Investor B (CDSC)** -1.65% 5.20% 6.72%
* Reflects 2.50% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[CHART OF US GOVERNMENT SECURITIES TRUST APPEARS HERE]
Value of a $10,000 Investment
Lehman Brother
Intermediate
Date Trust Institutional Government Bond Index
---- ----- ------------- ---------------------
5/89 10,000 10,000 10,000
5/90 10,796 10,796 10,904
5/91 12,111 12,102 12,201
5/92 13,448 13,398 13,585
5/93 14,770 14,672 14,447
5/94 14,895 14,753 15,133
5/95 16,497 16,241 16,508
5/96 17,125 16,805 17,257
5/97 18,243 17,832 18,484
5/98 19,593 19,096 20,070
5/99 20,402 19,843 21,069
Average Annual Total Returns as of 5/31/99
1 Year 5 Year 10 Year
------ ------ -------
Trust 4.13% 6.49% 7.39%
Institutional 3.91% 6.11% 7.09%
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile U.S. Government Securities Portfolio is
measured against the unmanaged Lehman Brothers Intermediate Government Bond
Index, which is generally representative of the total return of intermediate-
term U.S. Government securities. Investors are unable to invest in the index
directly, although they can invest in the underlying securities. The
performance of the index does not reflect the deduction of expenses associated
with a mutual fund, such as investment management and fund accounting fees. By
contrast, the performance of the Portfolio shown on the graph reflects the
deduction of these value-added services, as well as the deduction of a 2.50%
sales charge on Investor A Shares.
Investor B Shares were initially offered on March 1, 1995. The performance
figures for Investor B Shares for periods prior to such date represent the
performance for Investor A Shares of the Portfolio, which has been restated to
reflect the contingent deferred sales charges payable by holders of Investor B
Shares who redeem within six years of the date of purchase. Investor B Shares
are also subject to distribution and service fees at a maximum annual rate of
1.00%. Had these distribution and service fees been reflected, performance
would have been reduced.
Investor B Shares (CDSC) are not included in the above graph, since the
performance is for more than six years and the CDSC would no longer apply.
After six years, the performance for the Investor B Shares (CDSC) mirrors the
Investor B Shares (No CDSC) performance.
Institutional Shares were initially offered on June 7, 1994. The performance
figures for Institutional Shares for periods prior to such date represent the
performance for Investor A Shares of the Portfolio.
27
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
U.S. Government Securities Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
U.S. Government Agencies (81.2%):
Security Principal Market
Description Amount Value
----------- ---------- -----------
<S> <C> <C>
Federal Home Loan Bank (13.2%):
5.52%, 4/9/01, Series 3101.............................. $5,000,000 $ 4,987,850
5.75%, 4/30/01, Series 4901............................. 3,000,000 3,005,190
5.13%, 9/15/03.......................................... 5,000,000 4,832,550
5.67%, 9/11/08, Series KS08............................. 2,000,000 1,914,280
-----------
14,739,870
-----------
Federal Home Loan Mortgage Corp. (28.4%):
5.00%, 2/15/01(b)....................................... 3,000,000 2,969,880
9.50%, 9/1/04, Pool #380053............................. 8,574 9,043
8.50%, 3/1/06, Gold Pool #E00022........................ 139,736 145,413
7.50%, 4/1/08, Gold Pool #E45929........................ 169,774 174,496
6.00%, 2/1/11, Gold Pool #E62600........................ 361,597 353,346
6.50%, 2/1/11, Gold Pool #E00419........................ 572,102 570,672
7.00%, 7/1/11, Gold Pool #E20252........................ 516,286 524,511
7.00%, 11/1/11, Gold Pool #E65619....................... 308,922 313,843
6.50%, 1/1/12, Gold Pool #E00465........................ 716,372 714,581
6.00%, 2/1/12, Gold Pool #E66284........................ 1,084,953 1,060,194
6.50%, 2/1/12, Gold Pool #E66272........................ 653,555 651,921
6.50%, 2/1/12, Gold Pool #E66172........................ 448,157 447,037
6.00%, 3/1/12, Gold Pool #E66474........................ 846,982 827,654
7.50%, 9/1/12, Gold Pool #G10735........................ 2,691,114 2,765,954
5.50%, 12/1/12, Gold Pool #E68353....................... 6,478,045 6,196,637
6.00%, 3/1/13, Gold Pool #E69338........................ 911,474 890,674
6.00%, 4/1/13, Pool #E00543............................. 1,818,302 1,776,808
6.00%, 4/1/13, Gold Pool #E70028........................ 895,933 875,488
5.50%, 5/1/13, Gold Pool #G10814........................ 1,848,808 1,768,496
6.00%, 5/1/13, Gold Pool #E00549........................ 4,617,361 4,511,991
6.50%, 10/1/13, Gold Pool #E00574....................... 922,397 920,091
5.50%, 3/1/14, Gold Pool #E00633........................ 1,484,121 1,419,651
6.00%, 3/1/28, Gold Pool #D87129........................ 981,267 934,657
6.00%, 1/1/29, Gold Pool #C00702........................ 991,524 944,426
-----------
31,767,464
-----------
Federal National Mortgage Assoc. (32.0%):
6.11%, 9/20/00(b)....................................... 4,000,000 4,034,880
6.00%, 11/1/00, Pool #190070............................ 336,847 333,900
5.36%, 2/16/01.......................................... 5,000,000 4,977,800
6.40%, 5/2/01(b)........................................ 5,000,000 5,067,001
6.00%, 3/1/11, Pool #340503............................. 766,187 747,745
6.50%, 5/1/11, Pool #335713............................. 784,785 781,591
6.50%, 5/1/11, Pool #346276............................. 513,081 510,993
6.50%, 7/1/11, Pool #250613............................. 1,357,550 1,352,025
6.50%, 7/1/11, Pool #351761............................. 598,633 596,196
7.00%, 11/1/11, Pool #349630............................ 229,944 233,393
7.00%, 11/1/11, Pool #250738............................ 231,246 234,715
7.00%, 11/1/11, Pool #351122............................ 173,157 175,754
6.50%, 12/1/11, Pool #250781............................ 1,380,011 1,374,394
6.50%, 12/1/11, Pool #368127............................ 843,438 840,005
6.50%, 12/1/11, Pool #367868............................ 802,886 799,618
5.50%, 3/1/13, Pool #420158............................. 1,695,869 1,620,606
6.00%, 4/1/13, Pool #425550............................. 2,910,139 2,840,092
6.00%, 4/1/13, Pool #251656............................. 894,252 872,728
6.50%, 8/1/13, Pool #251901............................. 2,276,530 2,267,265
6.00%, 11/1/13, Pool #323379............................ 941,060 918,409
5.50%, 1/1/14, Pool #482515............................. 979,242 935,783
6.50%, 4/1/14, Pool #492264............................. 996,647 992,591
8.00%, 7/1/24, Pool #190264............................. 679,769 705,893
6.50%, 10/1/27, Pool #400141............................ 2,651,476 2,593,461
-----------
35,806,838
-----------
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Agencies, continued
Shares
or
Security Principal Market
Description Amount Value
----------- --------- -----------
<S> <C> <C>
Government National Mortgage (7.6%):
8.00%, 1/15/07, Pool #315126............................. $ 70,134 $ 73,004
6.50%, 5/15/08, Pool #340791............................. 43,204 43,204
9.00%, 7/15/09, Pool #390782............................. 176,873 185,605
9.00%, 11/15/09, Pool #359559............................ 216,591 227,285
8.00%, 10/15/10, Pool #414750............................ 269,298 280,320
6.50%, 11/15/10, Pool #414786............................ 92,414 92,414
6.50%, 2/15/11, Pool #373569............................. 270,781 270,781
6.50%, 3/15/11, Pool #344973............................. 276,400 276,400
6.50%, 3/15/11, Pool #408253............................. 317,023 317,023
6.50%, 3/15/11, Pool #416179............................. 42,147 42,147
6.50%, 3/15/11, Pool #410935............................. 494,105 494,105
6.50%, 3/15/11, Pool #406466............................. 318,633 318,633
6.50%, 4/15/11, Pool #416060............................. 575,812 575,812
6.50%, 4/15/11, Pool #422652............................. 340,983 340,983
6.50%, 5/15/11, Pool #433036............................. 116,537 116,537
6.50%, 5/15/11, Pool #422814............................. 46,902 46,902
6.50%, 5/15/11, Pool #408304............................. 273,291 273,291
6.50%, 6/15/11, Pool #421731............................. 200,515 200,515
6.50%, 6/15/11, Pool #432993............................. 102,850 102,850
6.50%, 7/15/11, Pool #433088............................. 676,482 676,483
6.50%, 7/15/11, Pool #424521............................. 250,038 250,038
8.50%, 5/15/17, Pool #219152............................. 84,591 89,349
8.50%, 6/15/21, Pool #307921............................. 107,782 113,844
7.50%, 12/15/22, Pool #347332............................ 909,530 930,842
8.00%, 5/15/23, Pool #352469............................. 276,562 287,536
9.50%, 1/15/25, Pool #384421............................. 44,844 48,347
9.50%, 2/15/25, Pool #401796............................. 67,388 72,652
9.50%, 2/15/25, Pool #392967............................. 2,261 2,438
9.50%, 2/15/25, Pool #365292............................. 318,680 343,575
9.50%, 3/15/25, Pool #407257............................. 97,887 105,534
9.50%, 4/15/25, Pool #386741............................. 91,926 99,108
7.00%, 9/15/27, Pool #455304............................. 271,799 272,223
7.00%, 8/15/28, Pool #482697............................. 958,675 960,172
-----------
8,529,952
-----------
TOTAL U.S. GOVERNMENT AGENCIES 90,844,124
-----------
U.S. Treasury Notes (16.1%):
5.75%, 9/30/99(b)........................................ 1,000,000 1,003,130
7.75%, 11/30/99(b)....................................... 3,150,000 3,194,320
7.75%, 12/31/99(b)....................................... 1,250,000 1,269,900
5.38%, 7/31/00........................................... 1,000,000 1,001,870
6.13%, 7/31/00........................................... 275,000 277,846
6.25%, 8/31/00........................................... 2,000,000 2,023,640
5.63%, 2/28/01........................................... 2,500,000 2,510,675
6.25%, 1/31/02........................................... 1,500,000 1,526,280
6.25%, 2/28/02(b)........................................ 1,250,000 1,271,563
5.75%, 8/15/03(b)........................................ 400,000 400,844
7.25%, 5/15/04(b)........................................ 350,000 372,803
6.63%, 5/15/07(b)........................................ 2,960,000 3,111,789
-----------
TOTAL U.S. TREASURY NOTES 17,964,660
-----------
Investment Companies (2.3%):
Federated Trust for U.S. Treasury Obligations............ 2,585,300 2,585,300
-----------
TOTAL INVESTMENT COMPANIES 2,585,300
-----------
</TABLE>
Continued
28
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
U.S. Government Securities Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Short-Term Securities Held as Collateral (7.1%)
Security Principal Market
Description Amount Value
----------- --------- ------------
<S> <C> <C>
Repurchase Agreements (7.1%)
Greenwich Capital, 4.96%, 6/1/99 (Purchased on
5/28/99, proceeds at maturity $4,205,341,
collateralized by $14,349,460 various U.S. Government
Agency Mortgages, 0.00%-8.00%, 5/15/06-5/15/29,
market value $4,288,857)............................. 4,204,762 $ 4,204,762
Salomon Smith Barney, Inc., 4.93%, 6/1/99 (Purchased
on 5/28/99, proceeds at maturity $3,783,316,
collateralized by $6,213,265 various GNMA, 0.50%-
10.00%, 11/15/00-5/20/29, market value $3,858,454)... 3,782,798 3,782,798
------------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL 7,987,560
------------
TOTAL INVESTMENTS
(Cost $119,956,648)(a)--106.8%....................... 119,381,644
Liabilities in excess of other assets--(6.8%)......... (7,550,180)
------------
TOTAL NET ASSETS--100.0%.............................. $111,831,464
============
</TABLE>
- -----
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation... $ 501,332
Unrealized depreciation... (1,076,336)
----------
Net unrealized deprecia-
tion..................... $ (575,004)
==========
</TABLE>
(b) A portion of this security was loaned as of May 31, 1999.
MTN Medium Term Note.
See notes to financial statements
29
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
U.S. Government Securities Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
May 31, 1999
(Unaudited)
<S> <C> <C>
Assets:
Investments, at value (cost $111,969,088).............. $111,394,084
Repurchase agreements, at value (cost $7,987,560)...... 7,987,560
------------
Total investments..................................... 119,381,644
Interest and dividends receivable...................... 988,382
Receivable for capital shares issued................... 16,837
Receivable for investments sold........................ 1,299
Prepaid expenses and other assets...................... 6,825
------------
Total Assets.......................................... 120,394,987
Liabilities:
Dividends payable...................................... $ 506,834
Payable to custodian for overdraft..................... 6
Payable for capital shares redeemed.................... 369
Payable for return of collateral received.............. 7,987,560
Accrued expenses and other payables:
Investment advisory fees.............................. 43,020
Administration fees................................... 1,533
Distribution and administrative services fees......... 2,925
Custodian fees........................................ 3,824
Other liabilities..................................... 17,452
---------
Total Liabilities..................................... 8,563,523
------------
Net Assets:
Capital................................................ 112,760,796
Undistributed net investment income.................... 331,917
Accumulated net realized losses from investment
transactions.......................................... (686,245)
Net unrealized depreciation from investments........... (575,004)
------------
Net Assets............................................. $111,831,464
============
Investor A Shares
Net Assets............................................ $ 5,208,547
Shares................................................ 496,405
Redemption price per share............................ $10.49
======
Maximum Sales Charge--Investor A Shares................ 2.50%
Maximum Offering Price
(100%/(100%--Maximum Sales
Charge) of net asset value adjusted to the nearest
cent) per share...................................... $10.76
======
Investor B Shares
Net Assets............................................ $ 270,536
Shares................................................ 25,776
Offering price per share*............................. $10.50
======
Trust Shares
Net Assets............................................ $101,037,787
Shares................................................ 9,628,712
Offering and redemption price per share............... $10.49
======
Institutional Shares
Net Assets............................................ $ 5,314,594
Shares................................................ 508,263
Offering and redemption price per share............... $10.46
======
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
<TABLE>
<CAPTION>
Statement of Operations
For the period ended May 31, 1999
(Unaudited)
<S> <C> <C>
Investment Income:
Interest income.......................................... $ 3,311,496
Dividend income.......................................... 36,313
Income from securities lending........................... 11,176
-----------
Total Income............................................ 3,358,985
Expenses:
Investment advisory fees................................. $249,473
Administration fees...................................... 110,878
Distribution and services fees,
Investor A Shares....................................... 7,282
Distribution and services fees,
Investor B Shares....................................... 1,024
Administrative services fees,
Trust Shares............................................ 150,119
Administrative services fees,
Institutional Shares.................................... 8,607
Accounting fees.......................................... 7,755
Custodian fees........................................... 24,478
Transfer agent fees...................................... 13,400
Other.................................................... 21,623
--------
Total expenses before voluntary fee reductions........... 594,639
Expenses voluntarily reduced............................. (209,214)
-----------
Net Expenses............................................ 385,425
-----------
Net investment income.................................... 2,973,560
-----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains from investment transactions.......... 7,947
Net change in unrealized depreciation from investments... (2,425,938)
-----------
Net realized/unrealized losses from investments.......... (2,417,991)
-----------
Change in net assets resulting from operations........... $ 555,569
===========
</TABLE>
See notes to financial statements
30
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
U.S. Government Securities Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended
1999 November 30,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 2,973,560 $ 5,727,743
Net realized gains (losses) from investment trans-
actions.......................................... 7,947 (15,513)
Net change in unrealized depreciation from invest-
ments............................................ (2,425,938) 1,182,911
------------ ------------
Change in net assets resulting from operations..... 555,569 6,895,141
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (123,726) (259,301)
Distributions to Investor B Shareholders:
From net investment income........................ (4,515) (18,379)
Distributions to Trust Shareholders:
From net investment income........................ (2,699,298) (5,105,111)
Distributions to Institutional Shareholders:
From net investment income........................ (146,021) (344,952)
------------ ------------
Change in net assets from shareholder distribu-
tions............................................. (2,973,560) (5,727,743)
------------ ------------
Change in net assets from capital transactions..... 9,614,011 18,019,409
------------ ------------
Change in net assets............................... 7,196,020 19,186,807
Net Assets:
Beginning of period............................... 104,635,444 85,448,637
------------ ------------
End of period..................................... $111,831,464 $104,635,444
============ ============
</TABLE>
See notes to financial statements
31
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
U.S. Government Securities Portfolio
Statements of Cash Flows
<TABLE>
<CAPTION>
For the
period ended
May 31,
1999
(Unaudited)
------------
<S> <C>
Cash Flows from Operating Activities:
Net investment income........................................... $ 2,973,560
Adjustments to reconcile net investment income to net cash used
in operating activities:
Cost of investment securities purchased........................ (35,090,375)
Proceeds from disposition of investment securities............. 25,741,060
Increase in investments purchased with cash collateral from se-
curities lending.............................................. (2,595,414)
Increase in dividends and interest receivable.................. (273,725)
Increase in payable for return of collateral received from se-
curities lending.............................................. 2,595,414
Increase in accrued expenses................................... 2,282
Increase in prepaid expenses................................... (6,238)
------------
Net cash used in operating activities........................... (6,653,436)
------------
Cash Flows from Financing Activities:
Proceeds from shares issued..................................... 21,637,112
Cost of shares redeemed......................................... (12,049,749)
Cash distributions paid......................................... (2,934,721)
------------
Net cash provided by financing activities....................... 6,652,642
------------
Decrease in cash................................................. (794)
Cash:
Beginning balance............................................... 788
------------
Ending balance.................................................. $ (6)
============
</TABLE>
Non-cash financing activities not included herein consist of reinvestment of
dividends from net investment income and distributions of net realized capital
gains of $1,192,603.
See notes to financial statements
32
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
U.S. Government Securities Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 ----------------------------------------
(Unaudited) 1998 1997 1996 1995 1994 (a)
------------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.74 $10.62 $10.67 $10.85 $10.05 $11.20
------ ------ ------ ------ ------ ------
Investment Activities
Net investment income.. 0.27 0.57 0.60 0.62 0.64 0.63
Net realized and
unrealized gains
(losses) from
investments........... (0.25) 0.12 (0.07) (0.15) 0.80 (0.97)
------ ------ ------ ------ ------ ------
Total from Investment
Activities............. 0.02 0.69 0.53 0.47 1.44 (0.34)
------ ------ ------ ------ ------ ------
Distributions
Net investment income.. (0.27) (0.57) (0.58) (0.62) (0.64) (0.63)
In excess of net
realized gains........ -- -- -- (0.03) -- (0.18)
------ ------ ------ ------ ------ ------
Total Distributions.... (0.27) (0.57) (0.58) (0.65) (0.64) (0.81)
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $10.49 $10.74 $10.62 $10.67 $10.85 $10.05
====== ====== ====== ====== ====== ======
Total Return (excludes
sales charge).......... 0.19%(b) 6.66% 5.20% 4.57% 14.66% (3.14)%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $5,209 $4,664 $5,181 $7,153 $8,179 $9,631
Ratio of expenses to
average net assets..... 0.97%(c) 0.97% 0.97% 0.97% 0.97% 0.96%
Ratio of net investment
income to average net
assets................. 5.10%(c) 5.35% 5.56% 5.82% 6.05% 5.98%
Ratio of expenses to
average net assets*.... 1.07%(c) 1.07% 1.07% 1.07% 1.07% 1.06%
Portfolio turnover**.... 9.76% 54.57% 100.33% 53.76% 93.76% 50.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) On
September 27, 1994, the Portfolio redesignated the Investor Shares as
"Investor A" Shares, and authorized the issuance of a series of shares
designated as "Investor B" Shares. (b) Not annualized. (c) Annualized.
Financial Highlights, Investor B Shares
<TABLE>
<CAPTION>
For the
period ended For the years ended March 1, 1995
May 31, November 30, to
1999 ---------------------- November 30,
(Unaudited) 1998 1997 1996 1995 (a)
------------ ------ ------ ------ ------------- ---
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.74 $10.61 $10.66 $10.84 $10.34
------ ------ ------ ------ ------
Investment Activities
Net investment income.. 0.18 0.50(d) 0.51 0.55 0.31
Net realized and
unrealized gains
(losses) from
investments........... (0.19) 0.13 (0.05) (0.15) 0.50
------ ------ ------ ------ ------
Total from Investment
Activities............ (0.01) 0.63 0.46 0.40 0.81
------ ------ ------ ------ ------
Distributions
Net investment income.. (0.23) (0.50) (0.51) (0.55) (0.31)
In excess of net
realized gains........ -- -- -- (0.03) --
------ ------ ------ ------ ------
Total Distributions.... (0.23) (0.50) (0.51) (0.58) (0.31)
------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $10.50 $10.74 $10.61 $10.66 $10.84
====== ====== ====== ====== ======
Total Return (excludes
redemption charge)..... (0.07)%(e) 6.02% 4.47% 3.85% 12.85%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 271 $ 149 $ 466 $ 359 $ 41
Ratio of expenses to
average net assets..... 1.67% (c) 1.67% 1.67% 1.66% 1.68%(c)
Ratio of net investment
income to average net
assets................. 4.41% (c) 4.67% 4.84% 5.06% 5.37%(c)
Ratio of expenses to
average net assets*.... 1.77% (c) 1.77% 1.77% 1.76% 1.78%(c)
Portfolio turnover**.... 9.76% 54.57% 100.33% 53.76% 93.76%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Represents total return for the Investor A
Shares from December 1, 1994 to February 28, 1995 plus the total return for
the Investor B Shares from March 1, 1995 to November 30, 1995. (c) Annualized.
(d) Per share net investment income has been calculated using the daily
average share method. (e) Not annualized.
33
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
U.S. Government Securities Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 -------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of Period......... $ 10.74 $ 10.62 $ 10.67 $ 10.85 $ 10.05 $ 11.20
-------- ------- ------- ------- ------- -------
Investment Activities
Net investment income.. 0.28 0.60 0.61 0.66 0.67 0.66
Net realized and
unrealized gains
(losses) from invest-
ments................. (0.24) 0.12 (0.05) (0.15) 0.80 (0.97)
-------- ------- ------- ------- ------- -------
Total from Investment
Activities............ 0.04 0.72 0.56 0.51 1.47 (0.31)
-------- ------- ------- ------- ------- -------
Distributions
Net investment income.. (0.29) (0.60) (0.61) (0.66) (0.67) (0.66)
In excess of net real-
ized gains............ -- -- -- (0.03) -- (0.18)
-------- ------- ------- ------- ------- -------
Total Distributions.... (0.29) (0.60) (0.61) (0.69) (0.67) (0.84)
-------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 10.49 $ 10.74 $ 10.62 $ 10.67 $ 10.85 $ 10.05
======== ======= ======= ======= ======= =======
Total Return............ 0.33%(a) 6.98% 5.51% 4.88% 15.00% (2.85%)
Ratios/Supplementary Da-
ta:
Net Assets at end of pe-
riod (000)............. $101,038 $93,683 $72,753 $60,079 $45,513 $33,166
Ratio of expenses to av-
erage net assets....... 0.66%(b) 0.67% 0.67% 0.67% 0.67% 0.66%
Ratio of net investment
income to average net
assets................. 5.39%(b) 5.64% 5.84% 6.10% 6.36% 6.25%
Ratio of expenses to av-
erage net assets*...... 1.07%(b) 1.07% 1.07% 0.77% 0.77% 1.06%
Portfolio turnover**.... 9.76% 54.57% 100.33% 53.76% 93.76% 50.00%
*During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued. (a) Not annualized. (b)
Annualized.
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 -------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994(a)
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of Period......... $ 10.70 $ 10.58 $ 10.64 $ 10.82 $ 10.02 $ 11.20
-------- ------- ------- ------- ------- -------
Investment Activities
Net investment income.. 0.28 0.57 0.56 0.62 0.63 0.61
Net realized and
unrealized gains
(losses) from invest-
ments................. (0.25) 0.12 (0.04) (0.15) 0.80 (1.00)
-------- ------- ------- ------- ------- -------
Total from Investment
Activities............ 0.03 0.69 0.52 0.47 1.43 (0.39)
-------- ------- ------- ------- ------- -------
Distributions
Net investment income.. (0.27) (0.57) (0.58) (0.62) (0.63) (0.61)
In excess of net in-
vestment income....... -- -- -- -- -- (0.18)
In excess of net real-
ized gains............ -- -- -- (0.03) -- --
-------- ------- ------- ------- ------- -------
Total Distributions.... (0.27) (0.57) (0.58) (0.65) (0.63) (0.79)
-------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 10.46 $ 10.70 $ 10.58 $ 10.64 $ 10.82 $ 10.02
======== ======= ======= ======= ======= =======
Total Return............ 0.27%(b) 6.67% 5.10% 4.55% 14.69% (3.46%)
Ratios/Supplementary Da-
ta:
Net Assets at end of pe-
riod (000)............. $ 5,315 $ 6,140 $ 7,049 $ 2,232 $ 667 $ 51
Ratio of expenses to av-
erage net assets....... 0.96%(c) 0.97% 0.97% 0.96% 0.97% 0.95%
Ratio of net investment
income to average net
assets................. 5.09%(c) 5.34% 5.52% 5.75% 5.91% 6.54%
Ratio of expenses to av-
erage net assets*...... 1.07%(c) 1.07% 1.07% 1.06% 1.07% 1.16%
Portfolio turnover**.... 9.76% 54.57% 100.33% 53.76% 93.76% 50.00%
</TABLE>
Financial Highlights, Institutional Shares
*During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
**Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued. (a) On June 7, 1994, the
Portfolio issued a new series of shares designated as "Institutional" Shares.
The financial highlights presented for the period prior to June 7, 1994
represent financial highlights applicable to the Investor Shares. (b) Not
annualized. (c) Annualized.
34
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
35
<PAGE>
Mercantile Intermediate Corporate Bond Portfolio
Q. What were the conditions in the bond market during the six-month period
ended May 31, 1999?
A. Interest rates increased substantially during the period. Investors
worried that the strong economy would ignite inflation and cause the Federal
Reserve Board (the Fed) to raise the federal funds rate. Those fears were
fueled by a 6% annualized economic growth rate in the fourth quarter, which
resulted in part from the Fed's decision to lower interest rates three times
last fall. Intermediate-term bonds were especially hard hit by rising rates.
For example, the five-year Treasury rose 110 basis points, 35 basis points more
than the yield on the 30-year Treasury bond.
Q. How did you manage the Portfolio in that environment?
A. We took advantage of the higher yields available in five-year bonds. The
Portfolio began the period with 10% of its assets in bonds with durations of
three to four years, and we almost doubled that weighting. Because such issues
had similar maturities to the average maturity of the Portfolio, the
Portfolio's average maturity stayed relatively constant. It began the period at
5.8 years and ended the period at 5.7 years.
Q. How did you manage the Portfolio's credit quality?
A. The overall credit rating of the Portfolio remained unchanged, at AA3. We
increased the Portfolio's weighting in BAA-rated bonds from 1.7% as of December
1 to 11.8% at the end of the period. That change reflected our belief that BAA-
rated bonds provided some of the market's most attractive opportunities. Such
issues had been hurt by problems in foreign markets last year, and thus offered
relatively high yields.*
Q. What is your outlook for the corporate bond market and the Portfolio going
forward?
A. We think the corporate market will continue to offer a strong income
advantage over Treasuries. But we expect the gap to narrow over time, so
shareholders should benefit from our strategy of locking in those higher
corporate yields. In particular, we will continue to purchase five-year bonds
to take advantage of their high yields. We think any rate hike by the Fed
already has been priced into the market. We will continue to focus on providing
high levels of income to shareholders, and will not make large duration bets.
- -----
* Portfolio composition is subject to change.
36
<PAGE>
Mercantile Intermediate Corporate Bond Portfolio
[CHART INTERMEDIATE CORPORATE BOND APPEARS HERE]
Value of a $10,000 Investment
Lehman Brothers
Investor A Investor A Intermediate
Date (No Load) (Load) Trust Institutional Corporate Bond Index
---- --------- ------ ----- ------------- --------------------
2/10/97 10,000 9,551 10,000 10,000 10,000
11/30/97 10,648 10,170 10,665 10,660 10,711
11/30/98 11,639 11,117 11,682 11,653 11,636
5/31/99 11,441 10,896 11,511 11,465 12,128
Average Annual Total Returns as of 5/31/99
1 Year Since Inception (2/10/97)
------ -------------------------
Investor A (No Load) 3.42% 6.02%
Investor A* -1.47% 3.80%
Trust 3.73% 6.30%
Institutional 3.42% 6.12%
* Reflects 4.75% sales charge.
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Intermediate Corporate Bond Portfolio is
measured against the Lehman Brothers Intermediate Corporate Bond Index, an
unmanaged index comprised of the Lehman Brothers Intermediate Index, including
intermediate and long-term components, and sub-indices covering AAA corporate
bonds, AA corporate bonds, A corporate bonds and BAA corporate bonds, each of
which also includes intermediate and long-term components. Investors are
unable to invest in the index directly, although they can invest in the
underlying securities. The performance of the index does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management and fund accounting fees. By contrast, the performance of the
Portfolio shown on the graph reflects the deduction of these value-added
services, as well as the deduction of a 4.75% sales charge on Investor A
Shares.
37
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Intermediate Corporate Bond Portfolio May 31, 1999 (Unaudited)
Corporate Bonds (80.4%):
<TABLE>
<CAPTION>
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Aerospace/Defense (1.5%):
Raytheon Co., 6.15%, 11/1/08.......................... $1,000,000 $ 956,250
------------
Automotive (2.8%):
Ford Motor Credit, 7.50%, 1/15/03..................... 800,000 829,000
General Motors Acceptance Corp., 8.50%, 2/4/02, MTN... 500,000 528,125
General Motors Acceptance Corp., Global Bond, 6.75%,
2/7/02............................................... 500,000 506,875
------------
1,864,000
------------
Automotive Parts (2.6%):
Dana Corp, 6.25%, 3/1/04.............................. 1,700,000 1,680,875
------------
Banking (6.8%):
Banc One Dayton, N.A., 6.63%, 4/15/03................. 50,000 50,313
BankAmerica Corp., 8.13%, 2/1/02...................... 200,000 209,250
Bankers Trust New York, 7.25%, 1/15/03................ 500,000 506,250
Chase Manhattan Corp., 7.13%, 3/1/05.................. 500,000 512,500
National Westminster Bank-NY, 9.45%, 5/1/01........... 145,000 152,069
NationsBank Corp., 8.63%, 11/15/03.................... 400,000 437,000
NationsBank Corp., 7.75%, 8/15/04..................... 500,000 523,750
NationsBank Corp., 6.88%, 2/15/05..................... 600,000 609,749
Norwest Corp., 6.25%, 3/15/01, MTN.................... 85,000 85,319
Toronto-Dominion Bank-NY, 7.88%, 8/15/04.............. 750,000 753,749
United Postal Savings, 9.00%, 7/26/99................. 300,000 301,606
Wells Fargo & Co., 8.38%, 5/15/02..................... 300,000 315,000
------------
4,456,555
------------
Beverages (4.9%):
Anheuser-Busch Cos., Inc., 8.75%, 12/1/99............. 200,000 203,250
Anheuser-Busch Cos., Inc., 6.75%, 8/1/03.............. 1,000,000 1,017,500
Brown-Forman, Corp., 7.38%, 5/10/05, MTN.............. 1,000,000 1,043,750
PepsiCo, Inc., 5.75%, 1/15/08(c)...................... 1,000,000 950,000
------------
3,214,500
------------
Chemicals (3.0%):
Lubrizol Corp., 5.875%, 12/1/08....................... 1,000,000 928,750
Praxair, Inc., 6.90%, 11/1/06......................... 1,000,000 1,007,500
------------
1,936,250
------------
Commercial Services (1.4%):
Cendant Corp., 7.75%, 12/1/03......................... 880,000 897,600
------------
Computer Software (1.9%):
Computer Associates, 6.25%, 4/15/03................... 275,000 266,750
Dell Computer Corp., 6.55%, 4/15/08................... 1,000,000 982,500
------------
1,249,250
------------
Construction (2.9%):
Armstrong World, 6.35%, 8/15/03....................... 1,950,000 1,913,438
------------
</TABLE>
Corporate Bonds, continued:
<TABLE>
<CAPTION>
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Consumer Goods & Services (0.2%):
Clorox Co., 8.80%, 7/15/01............................ $ 100,000 $ 105,375
Procter & Gamble, Inc., 8.00%, 11/15/03............... 50,000 53,438
------------
158,813
------------
Electrical & Electronic (1.5%):
Applied Materials, 7.00%, 9/6/05, MTN................. 1,000,000 997,500
------------
Entertainment (1.5%):
Walt Disney Co., Global Bond, Series B, 6.75%,
3/30/06.............................................. 1,000,000 1,016,250
------------
Financial Services (14.1%):
Ameritech Capital Funding, 6.15%, 1/15/08(c).......... 2,000,000 1,957,499
Associates Corp., N.A., 6.88%, 2/1/03................. 50,000 50,816
Associates Corp., N.A., 7.23%, 5/17/06, MTN........... 1,000,000 1,030,000
Bear Stearns Co., Inc., 8.25%, 2/1/02................. 500,000 522,500
CIT Group Holdings, 6.80%, 4/17/00, MTN............... 1,000,000 1,011,940
General Electric Capital Corp., 7.66%, 8/2/04, MTN.... 1,000,000 1,055,000
General Electric Capital Corp., 8.30%, 9/20/09........ 745,000 830,675
General Motors Acceptance Corp., 5.75%, 11/10/03...... 1,000,000 973,750
Merrill Lynch & Co., 8.00%, 6/1/07.................... 500,000 538,125
Norwest Financial, Inc., 6.13%, 8/1/03................ 50,000 49,563
Pitney Bowes Credit, 8.63%, 2/15/08................... 1,000,000 1,137,499
St. Paul Companies, Inc., 7.49%, 11/6/02, MTN......... 25,000 25,886
St. Paul Companies, Inc., 7.50%, 12/20/02, MTN........ 50,000 51,500
------------
9,234,753
------------
Food Products (3.7%):
Campbell Soup Co., 6.90%, 10/15/06.................... 1,000,000 1,031,250
General Mills, 8.90%, 3/15/06, MTN.................... 1,000,000 1,130,000
Quaker Oats Co., 9.00%, 12/7/01, MTN.................. 150,000 159,144
Quaker Oats Co., 9.00%, 12/10/01, MTN................. 125,000 132,656
------------
2,453,050
------------
Food Service (0.8%):
McDonald's Corp., 6.50%, 8/1/07, MTN.................. 500,000 505,000
------------
Industrial Goods & Services (2.0%):
E.I. duPont de Nemours & Co., 8.50%, 2/15/03.......... 200,000 208,000
E.I. duPont de Nemours & Co., 8.13%, 3/15/04.......... 1,000,000 1,075,000
------------
1,283,000
------------
Insurance (1.5%):
St Paul Companies, 6.55%, 3/18/03..................... 1,000,000 998,750
------------
</TABLE>
Continued
38
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Intermediate Corporate Bond Portfolio May 31, 1999 (Unaudited)
Corporate Bonds, continued:
<TABLE>
<CAPTION>
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Oil & Exploration, Production & Services (2.3%):
BP America, Inc., 9.38%, 11/1/00....................... $ 150,000 $ 157,313
BP America, Inc., 8.50%, 4/15/01....................... 200,000 209,250
Exxon Capital Corp., 6.63%, 8/15/02.................... 100,000 101,250
Texaco Capital, 7.09%, 2/1/07(c)....................... 1,000,000 1,036,250
------------
1,504,063
------------
Paper & Related (2.1%):
International Paper Co., 7.00%, 6/1/01................. 1,000,000 1,007,500
Kimberly-Clark, 8.63%, 5/1/01.......................... 350,000 367,063
------------
1,374,563
------------
Pharmaceuticals (3.5%):
Eli Lilly & Co., 6.75%, 11/15/99....................... 150,000 150,938
Eli Lilly & Co., 8.38%, 12/1/06........................ 1,000,000 1,115,000
SmithKline Beecham Corp., 6.63%, 10/1/01, MTN.......... 1,000,000 1,016,250
------------
2,282,188
------------
Printing & Publishing (0.5%):
Gannett Co., 5.85%, 5/1/00............................. 300,000 300,375
------------
Retail Stores (4.4%):
Dillards, Inc., 5.79%, 11/15/01........................ 450,000 438,750
J. C. Penney, Inc., 7.60%, 4/1/07...................... 1,000,000 1,030,000
Wal-Mart Stores, Inc., 8.63%, 4/1/01................... 650,000 680,875
Wal-Mart Stores, Inc., 6.50%, 6/1/03................... 100,000 101,125
Wal-Mart Stores, Inc., 7.50%, 5/15/04.................. 600,000 636,000
------------
2,886,750
------------
Technology (1.6%):
Motorola, Inc., 7.60%, 1/1/07.......................... 1,000,000 1,063,750
------------
Telecommunications (8.3%):
AT&T Corp., 7.13%, 1/15/02............................. 50,000 51,125
AT&T Corp., 6.75%, 4/1/04.............................. 1,150,000 1,170,124
AT&T Corp., 7.00%, 5/15/05............................. 100,000 102,000
GTE California, 6.70%, 9/1/09.......................... 1,000,000 1,006,250
Lucent Technologies, Inc., 7.25%, 7/15/06.............. 1,000,000 1,045,000
SBC Communications, Inc., 7.25%, 7/1/02................ 1,065,000 1,095,619
Southwestern Bell Telephone, 6.56%, 11/15/05, MTN...... 1,000,000 1,003,750
------------
5,473,868
------------
Transportation & Shipping (0.3%):
Union Pacific Co., 7.88%, 2/15/02...................... 200,000 206,250
------------
Utilities (4.3%):
Laclede Gas Co., 7.50%, 11/1/07........................ 1,500,000 1,595,624
National Rural Utilities, 6.45%, 4/1/01................ 100,000 101,000
National Rural Utilities, 6.65%, 10/1/05............... 100,000 101,000
Pacific Gas & Electric, 6.25%, 8/1/03.................. 50,000 49,875
Southern California Edison, 6.75%, 1/15/00............. 170,000 171,063
Wisconsin Power & Light, 7.00%, 6/15/07................ 810,000 833,288
------------
2,851,850
------------
TOTAL CORPORATE BONDS 52,759,491
------------
</TABLE>
U.S. Government Agencies (12.2%):
<TABLE>
<CAPTION>
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Federal Farm Credit Bank (0.9%):
8.95%, 6/1/06........................................ $ 500,000 $ 577,745
------------
Federal Home Loan Mortgage Corp. (3.3%):
6.00%, 2/1/11, Gold Pool #E62600..................... 361,597 353,346
6.50%, 1/1/12, Gold Pool #E00465..................... 1,418,558 1,415,011
6.50%, 6/1/12, Pool #E67059.......................... 389,808 388,833
------------
2,157,190
------------
Federal National Mortgage Assoc. (3.9%):
7.00%, 11/1/10, Pool #328614......................... 564,186 572,649
7.00%, 6/1/11, Pool #349980.......................... 678,495 688,672
6.50%, 3/1/12, Pool #372705.......................... 606,331 603,864
6.50%, 3/1/12, Pool #372719.......................... 683,826 681,043
------------
2,546,228
------------
Government National Mortgage Assoc. (4.1%):
6.00%, 4/15/26, Pool #345610......................... 861,384 817,505
6.50%, 1/15/27, Pool #439817......................... 912,782 891,387
7.00%, 1/15/27, Pool #442297......................... 722,894 724,022
7.00%, 9/15/27, Pool #455304......................... 271,799 272,223
------------
2,705,137
------------
TOTAL U.S. GOVERNMENT AGENCIES 7,986,300
------------
------------
U.S. Treasury Notes (5.3%):
6.00%, 7/31/02(c).................................... 1,000,000 1,011,650
5.75%, 8/15/03....................................... 50,000 50,106
5.88%, 11/15/05(c)................................... 725,000 728,640
6.63%, 5/15/07....................................... 1,600,000 1,682,047
------------
TOTAL U.S. TREASURY NOTES 3,472,443
------------
------------
Investment Companies (1.1%):
Federated Money Market Trust......................... 736,674 736,674
------------
TOTAL INVESTMENT COMPANIES 736,674
------------
Short-Term Securities Held as Collateral (2.7%):
Repurchase agreements (2.7%):
Greenwich Capital, 4.96%, 6/1/99 (Purchased on
5/28/99, proceeds at maturity $927,285,
collateralized by $3,164,079 various U.S. Government
Agency Mortgages, 0.00%-8.00%, 5/15/06-5/15/29,
market value $945,700).............................. 927,157 927,157
Salomon Smith Barney, Inc., 4.93%, 6/1/99, (Purchased
on 5/28/99, proceeds at maturity $834,227,
collateralized by $$1,370,035 various GNMA, 0.50%-
10.00%, 11/15/00-5/20/29, market value $850,795) ... 834,113 834,113
------------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL 1,761,270
------------
Total Investments
(Cost $66,771,322)(a)--101.7%.................................. 66,716,178
Other assets in excess of liabilities--(1.7%)................... (1,123,460
------------
TOTAL NET ASSETS--100.0%............................. $ 65,592,718
============
</TABLE>
- -----
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.... $ 700,854
Unrealized depreciation.... (755,998)
---------
Net unrealized deprecia-
tion...................... $ (55,144)
=========
</TABLE>
(b) A portion of this security was loaned as of May 31, 1999.
MTN Medium Term Note
See notes to financial statements
39
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Intermediate Corporate Bond Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
May 31, 1999
(Unaudited)
<S> <C> <C>
Assets:
Investments, at value (cost $65,010,052)............... $64,954,908
Repurchase agreements, at value (cost $1,761,270)...... 1,761,270
-----------
Total investments..................................... 66,716,178
Interest and dividends receivable...................... 1,012,328
Deferred organization costs............................ 12,985
Prepaid expenses and other assets...................... 3,257
-----------
Total Assets.......................................... 67,744,748
Liabilities:
Dividends payable...................................... $ 329,514
Payable to custodian for overdraft..................... 67
Payable for return of collateral received.............. 1,761,270
Accrued expenses and other payables:
Investment advisory fees.............................. 30,254
Administration fees................................... 900
Distribution and administrative services fees......... 379
Custodian fees........................................ 2,750
Other liabilities..................................... 26,896
----------
Total Liabilities...................................... 2,152,030
-----------
Net Assets:
Capital................................................ 65,620,746
Undistributed net investment income.................... 16,968
Accumulated net realized gains from investment
transactions.......................................... 10,148
Net unrealized depreciation from investments........... (55,144)
-----------
Net Assets............................................. $65,592,718
===========
Investor A Shares
Net Assets............................................ $ 428,567
Shares................................................ 43,619
Redemption price per share............................ $9.83
=====
Maximum Sales Charge--Investor A Shares................ 4.75%
Maximum Offering Price
(100%/(100%--Maximum Sales Charge) of net asset value
adjusted to the nearest cent) per share.............. $10.32
======
Trust Shares
Net Assets............................................ $64,114,818
Shares................................................ 6,525,707
Offering and redemption price per share............... $9.82
=====
Institutional Shares
Net Assets............................................ $ 1,049,333
Shares................................................ 106,785
Offering and redemption price per share............... $9.83
=====
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the period ended May 31, 1999
(Unaudited)
<S> <C> <C>
Investment Income:
Interest income.......................................... $ 1,973,491
Dividend income.......................................... 30,207
Income from securities lending........................... 4,272
-----------
Total Income............................................ 2,007,970
Expenses:
Investment advisory fees................................. $163,664
Administration fees...................................... 59,515
Distribution and services fees, Investor A Shares........ 610
Administrative services fees, Trust Shares............... 87,029
Administrative services fees, Institutional Shares....... 1,633
Accounting fees.......................................... 5,831
Custodian fees........................................... 13,204
Transfer agent fees...................................... 6,675
Other.................................................... 12,245
--------
Total expenses before voluntary fee reductions........... 350,406
Expenses voluntarily reduced............................. (116,786)
-----------
Net Expenses............................................. 233,620
-----------
Net investment income.................................... 1,774,350
-----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains from investment transactions.......... 10,142
Net change in unrealized depreciation from investments... (2,786,917)
-----------
Net realized/unrealized losses from investments.......... (2,776,775)
-----------
Change in net assets resulting from operations........... $(1,002,425)
===========
</TABLE>
See notes to financial statements
40
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Intermediate Corporate Bond Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
year ended For the
May 31, period ended
1999 November 30,
(Unaudited) 1998
----------- ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................... $ 1,774,350 $3,328,333
Net realized gains from investment transactions..... 10,142 78,258
Net change in unrealized depreciation from invest-
ments.............................................. (2,786,917) 1,517,181
----------- -----------
Change in net assets resulting from operations....... (1,002,425) 4,923,772
----------- -----------
Distributions to Investor A Shareholders:
From net investment income.......................... (11,550) (15,794)
From net realized gains from investment transac-
tions.............................................. (344) (3,101)
Distributions to Trust Shareholders:
From net investment income.......................... (1,731,989) (3,276,426)
From net realized gains from investment transac-
tions.............................................. (66,984) (497,257)
Distributions to Institutional Shareholders:
From net investment income.......................... (30,813) (36,113)
From net realized gains from investment transac-
tions.............................................. (1,354) (309)
----------- -----------
Change in net assets from shareholder distributions.. (1,843,034) (3,829,000)
----------- -----------
Change in net assets from capital transactions....... 11,692,554 10,903,630
----------- -----------
Change in net assets................................. 8,847,095 11,998,402
Net Assets:
Beginning of period................................. 56,745,623 44,747,221
----------- -----------
End of period....................................... $65,592,718 $56,745,623
=========== ===========
</TABLE>
See notes to financial statements
41
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Intermediate Corporate Bond Portfolio
Statement of Cash Flows
<TABLE>
<CAPTION>
For the
period ended
May 31,
1999
(Unaudited)
------------
<S> <C>
Cash Flows from Operating Activities:
Net investment income........................................... $ 1,774,350
Adjustments to reconcile net investment income to net cash used
in operating activities:
Cost of investment securities purchased......................... (27,586,749)
Proceeds from disposition of investment securities.............. 16,119,310
Decrease in investments purchased with cash collateral from
securities lending............................................. 4,647,860
Increase in dividends and interest receivable................... (177,990)
Decrease in payable for return of collateral received from
securities lending............................................. (4,647,860)
Decrease in accrued expenses.................................... (229)
Amortization expense on organizational costs.................... 2,336
Increase in prepaid expenses.................................... (3,257)
Net amortization/accretion from investments..................... (19,950)
-----------
Net cash used in operating activities........................... (9,892,179)
-----------
Cash Flows from Financing Activities:
Proceeds from shares issued..................................... 15,077,863
Cost of shares redeemed......................................... (3,397,430)
Cash distributions paid......................................... (1,789,222)
-----------
Net cash provided by financing activities....................... 9,891,211
-----------
Decrease in cash................................................. (968)
Cash:
Beginning balance............................................... 901
-----------
Ending balance.................................................. $ (67)
===========
</TABLE>
Non-cash financing activities not included herein consist of reinvestment of
dividends from net investment income and distributions of net realized capital
gains of $195,488.
See notes to financial statements
42
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Intermediate Corporate Bond Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended February 10, 1997 to
1999 November 30, November 30,
(Unaudited) 1998 1997 (a)
------------ ------------ --------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $10.30 $10.11 $10.00
------ ------ ------
Investment Activities
Net investment income....... 0.28 0.60 0.52
Net realized and unrealized
gains from investments..... (0.45) 0.30 0.11
------ ------ ------
Total from Investment Activ-
ities...................... (0.17) 0.90 0.63
------ ------ ------
Distributions
Net investment income....... (0.29) (0.60) (0.52)
Net realized gains.......... (0.01) (0.11) --
------ ------ ------
Total Distributions......... (0.30) (0.71) (0.52)
------ ------ ------
Net Asset Value, End of Peri-
od.......................... $ 9.83 $10.30 $10.11
====== ====== ======
Total Return (excludes sales
charge)..................... (1.71)%(b) 9.32% 6.48%(b)
Ratios/Supplementary Data:
Net Assets at end of period
(000)....................... $ 429 $ 284 $ 277
Ratio of expenses to average
net assets.................. 1.08%(c) 0.89% 0.58%(c)
Ratio of net investment in-
come to average net assets.. 5.68%(c) 5.92% 6.52%(c)
Ratio of expenses to average
net assets*................. 1.18%(c) 1.19% 1.31%(c)
Portfolio turnover**......... 3.09% 9.65% 61.98%
</TABLE>
*During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
**Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended February 10, 1997 to
1999 November 30, November 30,
(Unaudited) 1998 1997 (a)
------------ ------------ --------------------
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 10.29 $ 10.11 $ 10.00
------- ------- -------
Investment Activities
Net investment income...... 0.30 0.63 0.53
Net realized and unrealized
gains from investments.... (0.46) 0.29 0.11
------- ------- -------
Total from Investment Ac-
tivities.................. (0.16) 0.92 0.64
------- ------- -------
Distributions
Net investment income...... (0.30) (0.63) (0.53)
Net realized gains......... (0.01) (0.11) --
------- ------- -------
Total Distributions........ (0.31) (0.74) (0.53)
------- ------- -------
Net Asset Value, End of Pe-
riod....................... $ 9.82 $ 10.29 $ 10.11
======= ======= =======
Total Return................ (1.46)%(b) 9.53% 6.65%(b)
Ratios/Supplementary Data:
Net Assets at end of period
(000)...................... $64,115 $55,337 $44,443
Ratio of expenses to average
net assets................. 0.78%(c) 0.60% 0.29%(c)
Ratio of net investment in-
come to average net as-
sets....................... 5.97%(c) 6.23% 6.90%(c)
Ratio of expenses to average
net assets*................ 1.18%(c) 1.19% 1.32%(c)
Portfolio turnover**........ 3.09% 9.65% 61.98%
</TABLE>
*During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
**Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
43
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Intermediate Corporate Bond Portfolio
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended February 10, 1997 to
1999 November 30, November 30,
(Unaudited) 1998 1997 (a)
------------ ------------ --------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $10.29 $10.11 $10.00
------ ------ ------
Investment Activities
Net investment income....... 0.29 0.61 0.53
Net realized and unrealized
gains from investments..... (0.45) 0.29 0.11
------ ------ ------
Total from Investment
Activities................. (0.16) 0.90 0.64
------ ------ ------
Distributions
Net investment income....... (0.29) (0.61) (0.53)
Net realized gains.......... (0.01) (0.11) --
------ ------ ------
Total Distributions......... (0.30) (0.72) (0.53)
------ ------ ------
Net Asset Value, End of Peri-
od.......................... $ 9.83 $10.29 $10.11
====== ====== ======
Total Return................. (1.61)%(b) 9.32% 6.60%(b)
Ratios/Supplementary Data:
Net Assets at end of period
(000)....................... $1,049 $1,124 $ 27
Ratio of expenses to average
net assets.................. 1.08%(c) 1.07% 0.29%(c)
Ratio of net investment in-
come to average net assets.. 5.66%(c) 5.72% 7.06%(c)
Ratio of expenses to average
net assets*................. 1.18%(c) 1.18% 1.31%(c)
Portfolio turnover**......... 3.09% 9.65% 61.98%
</TABLE>
*During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
**Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
44
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
45
<PAGE>
Mercantile Bond Index Portfolio
Q. What were the conditions in the bond market during the six months ended
May 31, 1999?
A. Interest rates rose steadily during the period. Investors feared that a
strong economy would force the Federal Reserve Board (the Fed) to raise
interest rates to hold off inflation. Those fears were fueled by a 6%
annualized economic growth rate in the fourth quarter, which stemmed in part
from the Fed's decision to lower interest rates three times last fall.
Yields on short-to-intermediate-term bonds rose dramatically. For example,
yields on two-year Treasury notes rose from 4.52% to 5.40% and yields on five-
year Treasuries rose from 4.48% to 5.58%.
Q. How did the Portfolio perform during the period?
A. The Portfolio slightly lagged its benchmark, the Lehman Brothers Aggregate
Bond Index, after outperforming it during the previous six-month period. The
benchmark includes 7,524 securities, including some bonds that are not
available in the market. For example, the benchmark includes high-coupon
mortgage-backed securities, which performed very well during the period and
were not available for purchase. In general, the benchmark outperforms the
Portfolio in periods of rising interest rates, because of its inclusion of
issues that perform well in such environments, such as high-coupon mortgage-
backed securities and callable corporate bonds. Such short-term disparities
between the Portfolio and its benchmark tend to even out over the long term.
Q. What is your outlook for the bond market and the Portfolio going forward?
A. We believe the market already has discounted an increase in the federal
funds rate. A more restrictive monetary policy could actually lead to a rally
in the bond market, since such a rate increase would lessen the likelihood of
inflation. Regardless of short-term moves, we will continue to track any
changes in the benchmark to meet the Portfolio's long-term objective.
46
<PAGE>
Mercantile Bond Index Portfolio
[CHART OF BOND INDEX APPEARS HERE]
Value of a $10,000 Investment
Lehman Brothers
Investor A Investor A Aggregate
Date (No Load) (Load)* Trust Institutional Bond Index
---- --------- ------ ----- ------------- --------------------
2/10/97 10,000 9,747 10,000 10,000 10,000
11/30/97 10,693 10,422 10,715 10,720 10,823
11/30/98 11,695 11,398 11,754 11,733 11,846
5/31/99 11,551 11,001 11,626 11,588 12,360
Average Annual Total Returns as of 5/31/99
1 Year Since Inception (2/10/97)
------ -------------------------
Investor A (No Load) 3.97% 6.46%
Investor A* -0.97% 4.23%
Trust 4.28% 6.77%
Institutional 3.97% 6.61%
* Reflects 4.75% sales charge.
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Bond Index Portfolio is measured against
the Lehman Brothers Aggregate Bond Index, an unmanaged index comprised of the
Lehman Brothers Government/Corporate Bond Index and two Lehman Brothers asset-
backed securities indices. Investors are unable to invest in the index
directly, although they can invest in the underlying securities. The
performance of the index does not reflect the deduction of expenses associated
with a mutual fund, such as investment management and fund accounting fees. By
contrast, the performance of the Portfolio shown on the graph reflects the
deduction of these value-added services, as well as the deduction of a 4.75%
sales charge on Investor A Shares.
47
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Bond Index Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Corporate Bonds (26.3%)
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Aerospace/Defense (1.2%):
Raytheon Co., 6.45%, 8/15/02.......................... $2,595,000 $ 2,601,488
------------
Automotive (2.5%):
Ford Motor Credit Co., 7.75%, 11/15/02................ 1,000,000 1,045,000
Ford Motor Credit Corp., Global Bond, 7.00%, 9/25/01.. 2,000,000 2,042,500
General Motors Corp., 8.88%, 5/15/03.................. 2,000,000 2,152,500
------------
5,240,000
------------
Automotive Parts (0.9%):
Dana Corp, 6.25%, 3/1/04.............................. 2,000,000 1,977,500
------------
Beverages (1.5%):
PepsiCo, Inc., 6.80%, 5/15/00, MTN.................... 3,000,000 3,026,250
------------
Commercial Services (1.0%):
Cendant Corp., 7.75%, 12/1/03......................... 2,000,000 2,040,000
------------
Computer Software (0.9%):
Computer Associates, 6.25%, 4/15/03................... 1,000,000 970,000
Dell Computer Corp., 6.55%, 4/15/08................... 1,000,000 982,500
------------
1,952,500
------------
Construction (0.5%):
Armstrong World, 6.35%, 8/15/03....................... 1,000,000 981,250
------------
Consumer Goods & Services (0.4%):
Motorola, Inc., 6.50%, 11/15/28....................... 1,000,000 922,500
------------
Entertainment (1.0%):
Walt Disney Co., Global Bond, Series A, 6.38%,
3/30/01.............................................. 1,000,000 1,008,750
Walt Disney Co., Global Bond, Series B, 6.75%,
3/30/06.............................................. 1,000,000 1,016,250
------------
2,025,000
------------
Financial Services (7.1%):
American Express Credit, 6.50%, 8/1/00 (b)............ 1,800,000 1,815,570
CIT Group Holdings, 5.85%, 4/9/01, MTN................ 3,000,000 2,988,750
Morgan Stanley Dean Witter, 6.75%, 8/15/00............ 1,500,000 1,518,015
General Electric Capital Corp., 8.85%, 4/1/05......... 2,000,000 2,217,500
Household Finance Corp., 7.45%, 4/1/00, Guaranteed by
Household International.............................. 1,000,000 1,012,620
Household Finance Corp., 8.38%, 11/15/01.............. 1,000,000 1,047,500
Household Finance Corp., 6.88%, 3/1/07................ 1,000,000 1,001,250
Merrill Lynch & Co., 6.70%, 8/1/00.................... 2,000,000 2,023,960
Merrill Lynch & Co., 8.00%, 2/1/02.................... 1,000,000 1,042,500
------------
14,667,665
------------
Food Products (2.4%):
Campbell Soup Co., 6.90%, 10/15/06.................... 1,000,000 1,031,250
Sara Lee, 5.75%, 7/14/00, MTN......................... 4,000,000 4,000,000
------------
5,031,250
------------
</TABLE>
<TABLE>
<CAPTION>
Corporate Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Industrial Goods & Services (0.5%):
E.I. duPont de Nemours & Co., 6.75%, 9/1/07.......... $1,000,000 $ 1,021,250
------------
Paper & Related (1.0%):
International Paper Co., 7.00%, 6/1/01............... 2,000,000 2,015,000
------------
Retail Stores (2.4%):
Dillards, Inc., 5.79%, 11/15/01...................... 3,000,000 2,925,000
Wal-Mart Stores, Inc., 9.10%, 7/15/00................ 2,000,000 2,075,000
------------
5,000,000
------------
Telecommunications (3.0%):
Bell Telephone Co. of Pennsylvania, 8.75%, 8/15/31... 1,000,000 1,203,750
Lucent Technologies, Inc., 6.90%, 7/15/01............ 3,000,000 3,060,000
Northern Telecom Ltd., 6.88%, 10/1/02................ 1,000,000 1,020,000
SBC Communications, Inc., 7.25%, 7/1/02 (b).......... 1,000,000 1,028,750
------------
6,312,500
------------
TOTAL CORPORATE BONDS 54,814,153
------------
<CAPTION>
U.S. Government Agencies (37.9%):
<S> <C> <C>
Federal Home Loan Bank (7.2%):
5.52%, 4/9/01, Series 3101........................... 4,000,000 3,990,280
5.75%, 4/30/01, Series 4901.......................... 1,000,000 1,001,730
6.67%, 1/8/07, Series I-07........................... 1,000,000 1,024,720
5.67%, 9/11/08, Series KS08.......................... 3,000,000 2,871,420
5.50%, 11/1/13....................................... 2,416,743 2,311,760
5.50%, 12/1/13, Pool #E00598......................... 1,970,888 1,885,272
6.00%, 3/1/29........................................ 1,993,874 1,899,165
------------
14,984,347
------------
Federal Home Loan Mortgage Corp. (12.8%):
8.50%, 10/1/01, Pool #200055......................... 19,492 20,095
9.00%, 3/1/03, Pool #380019.......................... 83,836 86,980
9.00%, 5/1/03, Pool #380021.......................... 28,788 29,867
7.50%, 11/1/09, Gold Pool #M30082.................... 1,489,241 1,530,657
7.00%, 11/1/10, Gold Pool #E62010.................... 256,559 260,646
7.00%, 11/1/10, Gold Pool #E20202.................... 228,061 231,694
6.00%, 2/1/11, Gold Pool #E62600..................... 361,597 353,346
6.00%, 3/1/11, Gold Pool #E63503..................... 771,171 753,573
6.00%, 4/1/11, Gold Pool #E63515..................... 682,496 666,921
6.00%, 6/1/11, Gold Pool #E00439..................... 749,028 731,935
7.00%, 7/1/11, Gold Pool #E20252..................... 708,393 719,678
6.00%, 3/1/12, Gold Pool #E66538..................... 1,139,421 1,113,419
7.50%, 9/1/12, Gold Pool #G10735..................... 1,505,720 1,547,594
6.00%, 3/1/13, Pool #E69425.......................... 858,939 839,338
6.00%, 3/1/13, Gold Pool #E69338..................... 911,474 890,674
6.00%, 4/1/13, Gold Pool #E70028..................... 895,933 875,488
6.00%, 4/1/13, Pool #E00543.......................... 1,818,302 1,776,808
6.50%, 10/1/13, Gold Pool #E00574.................... 1,844,795 1,840,182
5.50%, 11/1/13, Gold Pool #E73355.................... 958,356 916,725
5.50%, 11/1/13, Gold Pool #E72928.................... 978,471 935,966
5.50%, 12/1/13, Gold Pool #E73342.................... 967,212 925,196
6.00%, 2/1/26, Gold Pool #D68286..................... 197,933 188,531
6.00%, 3/1/26, Gold Pool #C80393..................... 1,994,784 1,900,033
</TABLE>
Continued
48
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Bond Index Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
U.S. Government Agencies, continued
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Federal Home Loan Mortgage Corp., continued
6.00%, 4/1/26, Gold Pool #C80395..................... $ 101,249 $ 96,440
6.00%, 4/1/26, Gold Pool #D70405..................... 296,805 282,707
6.00%, 4/1/26, Gold Pool #D70772..................... 369,439 351,890
8.00%, 11/1/26, Gold Pool #D76134.................... 207,411 215,448
6.00%, 12/1/26, Gold Pool #C80465.................... 785,141 747,847
6.00%, 12/1/26, Gold Pool #D76870.................... 23,162 22,062
8.00%, 12/1/26, Gold Pool #D76906.................... 246,693 256,253
8.00%, 12/1/26, Gold Pool #D76530.................... 358,945 372,854
7.00%, 1/1/27, Gold Pool #D77720..................... 1,475,654 1,479,801
7.00%, 1/1/27, Gold Pool #D77743..................... 606,953 608,658
8.00%, 1/1/27, Gold Pool #C00490..................... 410,957 426,882
6.00%, 1/1/29, Gold Pool #C00702..................... 2,974,571 2,833,278
------------
26,829,466
------------
Federal National Mortgage Assoc. (12.1%):
6.00%, 11/1/00, Pool #190070......................... 336,847 333,900
7.50%, 2/11/02....................................... 4,970,000 5,171,038
6.00%, 5/1/11, Pool #337194.......................... 729,252 711,699
6.00%, 2/1/12, Pool #250917.......................... 813,942 794,350
6.00%, 3/1/12, Pool #373131.......................... 820,032 800,294
6.00%, 3/1/12, Pool #374638.......................... 723,763 706,342
6.00%, 3/1/12, Pool #359504.......................... 842,939 822,649
7.50%, 3/1/12, Pool #250858.......................... 1,465,721 1,506,028
6.00%, 4/1/13, Pool #414671.......................... 943,695 920,980
5.50%, 11/1/13, Pool #449032......................... 974,729 931,471
6.00%, 11/1/13, Pool #323379......................... 941,060 918,409
5.50%, 1/1/14, Pool #482515.......................... 1,958,484 1,871,567
6.50%, 03/1/14, Pool # 252346a....................... 1,965,508 1,957,509
6.00%, 10/1/26, Pool #368935......................... 1,300,116 1,237,139
9.00%, 10/1/26, Pool #358137......................... 86,101 91,348
9.00%, 10/1/26, Pool #361800......................... 128,057 135,859
9.00%, 10/1/26, Pool #353671......................... 164,202 174,206
9.00%, 11/1/26, Pool #364453......................... 273,819 290,502
9.00%, 11/1/26, Pool #358703......................... 100,526 106,651
9.00%, 12/1/26, Pool #368686......................... 152,413 161,699
6.00%, 1/1/28, Pool #398195.......................... 968,620 921,700
6.00%, 1/1/28, Pool #402874.......................... 889,014 845,950
6.00%, 12/1/28....................................... 1,970,607 1,875,150
6.00%, 1/1/29, Pool 481539a.......................... 1,969,618 1,874,210
------------
25,160,650
------------
Government National Mortgage Assoc. (5.8%):
7.50%, 4/15/02, Pool #210173......................... 78,191 80,781
7.50%, 7/15/02, Pool #216193......................... 12,598 13,015
7.50%, 7/15/08, Pool #349404......................... 268,292 277,178
7.50%, 8/15/10, Pool #413412......................... 89,907 92,884
7.50%, 9/15/10, Pool #413117......................... 74,697 77,170
7.50%, 11/15/10, Pool #415775........................ 237,341 245,202
6.00%, 3/15/11, Pool #425964......................... 43,787 42,787
6.50%, 3/15/11, Pool #419123......................... 20,056 20,056
6.00%, 4/15/11, Pool #393849......................... 391,973 383,028
6.00%, 4/15/11, Pool #429397......................... 432,903 423,024
6.00%, 4/15/11, Pool #421800......................... 45,382 44,346
6.00%, 5/15/11, Pool #421871......................... 539,757 527,440
6.00%, 5/15/11, Pool #432659......................... 419,551 409,977
6.00%, 5/15/11, Pool #345647......................... 45,095 44,066
6.50%, 5/15/11, Pool #412598......................... 460,450 460,450
6.50%, 5/15/11, Pool #432640......................... 284,235 284,235
6.00%, 6/15/11, Pool #423828......................... 254,212 248,411
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Agencies, continued
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Government National Mortgage Assoc., continued
6.00%, 6/15/11, Pool #406582........................... $ 243,376 $ 237,823
6.50%, 6/15/11, Pool #426173........................... 418,676 418,676
6.50%, 8/15/11, Pool #421746........................... 290,422 290,422
6.50%, 2/15/12, Pool #393334........................... 358,385 358,385
6.50%, 3/15/12, Pool #399161........................... 357,927 357,927
7.50%, 7/15/12, Pool #447382........................... 664,302 686,303
8.50%, 11/15/21, Pool #297863.......................... 129,086 136,348
8.00%, 5/15/23, Pool #350495........................... 220,610 229,364
9.00%, 5/15/25, Pool #386743........................... 309,831 330,549
9.00%, 5/15/25, Pool #401372........................... 129,787 138,466
9.50%, 8/15/25, Pool #414557........................... 109,119 117,644
7.50%, 10/15/25, Pool #366152.......................... 327,966 335,650
7.50%, 10/15/25, Pool #366154.......................... 386,905 395,971
6.50%, 3/15/26, Pool #419578........................... 59,675 58,276
6.50%, 4/15/26, Pool #422656........................... 847,721 827,850
6.50%, 5/15/26, Pool #428852........................... 75,406 73,638
6.50%, 6/15/26, Pool #423801........................... 698,696 682,319
7.00%, 8/20/26, Pool #2266............................. 443,848 442,597
9.50%, 9/15/26, Pool #438724........................... 193,553 208,673
9.50%, 10/15/26, Pool #436991.......................... 55,912 60,280
9.50%, 10/15/26, Pool #438728.......................... 132,913 143,296
9.50%, 11/15/26, Pool #436994.......................... 113,488 122,354
9.50%, 11/15/26, Pool #438731.......................... 231,414 249,492
7.00%, 9/15/27, Pool #455304........................... 452,999 453,705
7.00%, 8/15/28, Pool #482697........................... 958,675 960,170
------------
11,990,228
------------
TOTAL U.S. GOVERNMENT AGENCIES 78,964,691
------------
<CAPTION>
U.S. Treasury Bonds (16.9%):
<S> <C> <C>
12.00%, 8/15/13, Callable on 8/15/08 @ 100 (b)......... 2,055,000 2,918,963
7.50%, 11/15/16........................................ 1,250,000 1,431,913
8.75%, 5/15/17 (b)..................................... 1,500,000 1,924,185
8.13%, 8/15/19 (b)..................................... 6,000,000 7,375,320
8.75%, 8/15/20 (b)..................................... 2,000,000 2,616,920
7.63%, 11/15/22 (b).................................... 4,600,000 5,462,316
6.25%, 8/15/23 (b)..................................... 3,000,000 3,060,000
6.00%, 2/15/26 (b)..................................... 10,500,000 10,429,650
------------
TOTAL U.S. TREASURY BONDS 35,219,267
------------
<CAPTION>
U.S. Treasury Notes (17.1%):
<S> <C> <C>
5.75%, 10/31/00 (b).................................... 700,000 704,291
5.50%, 12/31/00 (b).................................... 8,000,000 8,017,520
6.38%, 9/30/01 (b)..................................... 4,000,000 4,077,800
5.875%, 11/30/01 (b)................................... 3,000,000 3,026,580
6.00%, 7/31/02 (b)..................................... 4,000,000 4,046,600
5.88%, 9/30/02 (b)..................................... 2,100,000 2,115,855
5.75%, 8/15/03 (b)..................................... 2,930,000 2,936,182
7.25%, 5/15/04 (b)..................................... 2,190,000 2,332,679
6.63%, 5/15/07......................................... 2,750,000 2,891,020
6.13%, 8/15/07 (b)..................................... 3,000,000 3,060,660
5.63%, 5/15/08 (b)..................................... 2,500,000 2,476,550
------------
TOTAL U.S. TREASURY NOTES 35,685,737
------------
</TABLE>
Continued
49
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Bond Index Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Investment Companies (1.1%):
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Federated Money Market Trust........................ $2,238,841 $ 2,238,841
------------
TOTAL INVESTMENT COMPANIES 2,238,841
------------
<CAPTION>
Short-Term Securities Held as Collateral (5.5%):
<S> <C> <C>
Repurchase agreements (5.5%):
Greenwich Capital, 4.96%, 6/1/99 (Purchased on
5/28/99, proceeds at maturity $5,980,888,
collateralized by $20,407,976 various U.S.
Government Agency Mortgages, 0.00%-8.00%, 5/15/06-
5/15/29, market value $6,099,665)................. 5,980,064 5,980,064
Salomon Smith Barney, Inc., 4.93%, 6/1/99 Purchased
on 5/28/99, proceeds at maturity $5,380,678,
collateralized by $8,836,581 various GNMA, 0.50%-
10.00%, 11/15/00-5/20/99, market value
$5,487,540)....................................... 5,379,941 5,379,941
------------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL 11,360,005
------------
TOTAL INVESTMENTS
(Cost $217,858,236)(a)--104.8%................................ 218,282,694
Liabilities in excess of other assets--(4.8%).................. (9,936,628)
------------
TOTAL NET ASSETS -- 100.0%..................................... $208,346,066
============
</TABLE>
- -----
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation............................................ $ 2,984,830
Unrealized depreciation............................................ (2,560,372)
-----------
Net unrealized appreciation........................................ $ 424,458
===========
</TABLE>
(b) A portion of this security was loaned as of May 31, 1999.
MTN Medium Term Note
See notes to financial statements
50
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Bond Index Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
May 31, 1999
(Unaudited)
<S> <C> <C>
Assets:
Investments, at value (cost $206,498,231)............ $206,922,689
Repurchase agreements, at value (cost $11,360,005)... 11,360,005
------------
Total Investments................................... 218,282,694
Cash................................................. 379
Interest and dividends receivable.................... 2,524,289
Receivable for investments sold...................... 8,389
Deferred organization costs.......................... 7,783
Prepaid expenses and other assets.................... 8,144
------------
Total Assets........................................ 220,831,678
Liabilities:
Dividends payable.................................... $ 1,023,428
Payable for return of collateral received............ 11,360,005
Accrued expenses and other payables:
Investment advisory fees............................ 52,566
Administration fees................................. 2,851
Distribution and administrative services fees....... 5,920
Custodian fees...................................... 8,761
Other liabilities................................... 32,081
-----------
Total Liabilities................................... 12,485,612
------------
Net Assets:
Capital.............................................. 207,821,651
Distributions in excess of net investment income..... (67)
Accumulated net realized gains from investment
transactions........................................ 100,024
Net unrealized appreciation from investments......... 424,458
------------
Net Assets........................................... $208,346,066
============
Investor A Shares
Net Assets.......................................... $ 1,480,244
Shares.............................................. 148,223
Redemption price per share.......................... $9.99
=====
Maximum Sales Charge--Investor A Shares.............. 4.75%
Maximum Offering Price (100%/(100%--Maximum Sales
Charge) of net asset value adjusted to the nearest
cent) per share.................................... $10.49
======
Trust Shares
Net Assets.......................................... $185,037,650
Shares.............................................. 18,546,328
Offering and redemption price per share............. $9.98
=====
Institutional Shares
Net Assets.......................................... $ 21,828,172
Shares.............................................. 2,185,863
Offering and redemption price per share............. $9.99
=====
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the period ended May 31, 1999
(Unaudited)
<S> <C> <C>
Investment Income:
Interest income.......................................... $ 6,039,488
Dividend income.......................................... 62,685
Income from securities lending........................... 24,896
-----------
Total Income............................................ 6,127,069
Expenses:
Investment advisory fees................................. $287,715
Administration fees...................................... 191,811
Distribution and services fees, Investor A Shares........ 1,635
Administrative services fees, Trust Shares............... 259,749
Administrative services fees, Institutional Shares....... 26,332
Accounting fees.......................................... 11,761
Custodian fees........................................... 42,538
Transfer agent fees...................................... 23,880
Other.................................................... 34,763
--------
Total expenses before voluntary fee reductions.......... 880,184
Expenses voluntarily reduced............................ (355,652)
-----------
Net Expenses............................................ 524,532
-----------
Net investment income.................................... 5,602,537
===========
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains from investment transactions.......... 99,992
Net change in unrealized appreciation from investments... (8,050,184)
-----------
Net realized/unrealized losses from investments.......... (7,950,192)
-----------
Change in net assets resulting from operations........... $(2,347,655)
===========
</TABLE>
See notes to financial statements
51
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Bond Index Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended
1999 November 30,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income........................... $ 5,602,537 $ 9,741,081
Net realized gains (losses) from investment
transactions................................... 99,992 1,044,169
Net change in unrealized appreciation from
investments.................................... (8,050,184) 3,948,766
------------ ------------
Change in net assets resulting from operations... (2,347,655) 14,734,016
------------ ------------
Distributions to Investor A Shareholders:
From net investment income...................... (30,549) (10,279)
From net realized gains from investment
transactions................................... (1,719) (187)
Distributions to Trust Shareholders:
From net investment income...................... (5,080,319) (9,482,085)
From net realized gains from investment
transactions.................................... (827,000) (472,456)
Distributions to Institutional Shareholders:
From net investment income....................... (491,736) (248,717)
From net realized gains from investment
transactions.................................... (30,702) (94)
------------ ------------
Change in net assets from shareholder
distributions................................... (6,462,025) (10,213,818)
------------ ------------
Change in net assets from capital transactions... 40,369,439 33,865,038
------------ ------------
Change in net assets............................. 31,559,759 38,385,236
Net Assets:
Beginning of period.............................. 176,786,307 138,401,071
------------ ------------
End of period.................................... $208,346,066 $176,786,307
============ ============
</TABLE>
See notes to financial statements
52
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Bond Index Portfolio
Statement of Cash Flows
<TABLE>
<CAPTION>
For the
period ended
May 31,
1999
(Unaudited)
------------
<S> <C>
Cash Flows from Operating Activities:
Net investment income........................................... $ 5,602,537
Adjustments to reconcile net investment income to net cash used
in operating activities:
Cost of investment securities purchased......................... (88,444,721)
Proceeds from disposition of investment securities.............. 49,236,232
Decrease in investments purchased with cash collateral from
securities lending............................................. 11,183,850
Increase in dividends and interest receivable................... (486,805)
Decrease in payable for return of collateral received from
securities lending............................................. (11,183,850)
Increase in accrued expenses.................................... 16,324
Amortization expense on organizational costs.................... 1,494
Increase in prepaid expenses.................................... (8,144)
Net amortization/accretion from investments..................... (36,871)
------------
Net cash used in operating activities........................... (34,119,954)
------------
Cash Flows from Financing Activities:
Proceeds from shares issued..................................... 50,708,718
Cost of shares redeemed......................................... (10,339,713)
Cash distributions paid......................................... (6,279,321)
------------
Net cash provided by financing activities....................... 34,089,684
------------
Decrease in cash................................................. (30,270)
Cash:
Beginning balance............................................... 30,649
------------
Ending balance.................................................. $ 379
============
</TABLE>
Non-cash financing activities not included herein consist of reinvestment of
dividends from net investment income and distributions of net realized capital
gains of $653,226.
See notes to financial statements
53
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Bond Index Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended February 10, 1997 to
1999 November 30, November 30,
(Unaudited) 1998 1997 (a)
------------ ------------ --------------------
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 10.45 $ 10.17 $ 10.00
-------- -------- --------
Investment Activities
Net investment income...... 0.28 0.61 0.50
Net realized and unrealized
gains from investments.... (0.41) 0.31 0.17
-------- -------- --------
Total from Investment
Activities................ (0.13) 0.92 0.67
-------- -------- --------
Distributions
Net investment income...... (0.28) (0.61) (0.50)
Net realized gains......... (0.05) (0.03) --
-------- -------- --------
Total Distributions........ (0.33) (0.64) (0.50)
-------- -------- --------
Net Asset Value, End of
Period..................... $ 9.99 $ 10.45 $ 10.17
======== ======== ========
Total Return (excludes sales
charge).................... (1.23)%(b) 9.36% 6.93%(b)
Ratios/Supplementary Data:
Net Assets at end of period
(000)...................... $ 1,480 $ 364 $ 55
Ratio of expenses to average
net assets................. 0.82%(c) 0.77% 0.54%(c)
Ratio of net investment
income to average net
assets..................... 5.61%(c) 5.81% 6.71%(c)
Ratio of expenses to average
net assets*................ 0.92%(c) 0.93% 0.95%(c)
Portfolio turnover**........ 6.45% 33.37% 46.16%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
Financial Highlights, Trust Shares
<CAPTION>
For the
period ended For the
May 31, year ended February 10, 1997 to
1999 November 30, November 30,
(Unaudited) 1998 1997 (a)
------------ ------------ --------------------
<S> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 10.44 $ 10.16 $ 10.00
-------- -------- --------
Investment Activities
Net investment income...... 0.30 0.65 0.53
Net realized and unrealized
gains from investments.... (0.41) 0.30 0.16
-------- -------- --------
Total from Investment
Activities................ (0.11) 0.95 0.69
-------- -------- --------
Distributions
Net investment income...... (0.30) (0.64) (0.53)
Net realized gains......... (0.05) (0.03) --
-------- -------- --------
Total Distributions........ (0.35) (0.67) (0.53)
-------- -------- --------
Net Asset Value, End of
Period..................... $ 9.98 $ 10.44 $ 10.16
======== ======== ========
Total Return................ (1.09)%(b) 9.69% 7.15%(b)
Ratios/Supplementary Data:
Net Assets at end of period
(000)...................... $185,038 $169,388 $138,319
Ratio of expenses to average
net assets................. 0.52%(c) 0.42% 0.23%(c)
Ratio of net investment
income to average net
assets..................... 5.87%(c) 6.20% 6.92%(c)
Ratio of expenses to average
net assets*................ 0.92%(c) 0.93% 0.94%(c)
Portfolio turnover**........ 6.45% 33.37% 46.16%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
54
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Bond Index Portfolio
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
For the
period ended For the February 10,
May 31, year ended 1997 to
1999 November 30, November 30,
(Unaudited) 1998 1997 (a)
------------ ------------ ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $ 10.45 $10.17 $10.00
------- ------ ------
Investment Activities
Net investment income............. 0.28 0.62 0.53
Net realized and unrealized gains
from investments................. (0.41) 0.31 0.17
------- ------ ------
Total from Investment Activities.. (0.13) 0.93 0.70
------- ------ ------
Distributions
Net investment income............. (0.28) (0.62) (0.53)
Net realized gains................ (0.05) (0.03) --
------- ------ ------
Total Distributions............... (0.33) (0.65) (0.53)
------- ------ ------
Net Asset Value, End of Period..... $ 9.99 $10.45 $10.17
======= ====== ======
Total Return....................... (1.23)%(b) 9.47% 7.20%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000).. $21,828 $7,034 $ 27
Ratio of expenses to average net
assets............................ 0.82%(c) 0.79% 0.24%(c)
Ratio of net investment income to
average net assets................ 5.60%(c) 5.77% 7.09%(c)
Ratio of expenses to average net
assets*........................... 0.92%(c) 0.91% 0.95%(c)
Portfolio turnover**............... 6.45% 33.37% 46.16%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
55
<PAGE>
Mercantile Government & Corporate Bond Portfolio
Q. What were the conditions in the economy and the bond market during the
six-month period ended May 31, 1999?
A. Yields on Treasury bonds began the period near their all-time lows. Those
low rates came as a result of the decision by the Federal Reserve Board (the
Fed) to lower the federal funds rate three times last fall, bringing it down
from 5.5% to 4.75%. That monetary policy led to rapid fourth quarter annualized
economic growth of 6%./1/
Interest rates increased throughout the period. The yield on the 30-year
Treasury bond increased from 5.1% on December 1, 1998 to 5.8% on May 31, 1999.
Meanwhile, investors feared that such strong economic growth would force the
Fed to raise short-term interest rates to ward off inflation.
Q. How did you manage the Portfolio's average maturity and sector exposure in
that environment?
A. We shortened the duration and average maturity of the Portfolio while
keeping the Portfolio somewhat longer than its benchmark index to maintain
attractive yields for shareholders. The duration of the Portfolio began the
period at 4.9 years and ended the period at 4.5 years, while the average
maturity decreased from 10.7 years to 9.5 years.
At the beginning of the period, we found opportunities in mortgage pass-
through securities and corporate issues, both of which carried high yields
relative to Treasuries. We continued to buy select corporate bonds throughout
the period, as their yields increased relative to Treasuries. The Portfolio
ended the period with 25.3% of assets in Treasuries, 36.2% in mortgage pass-
through securities and 37.1% in corporate bonds.*
Q. How did you manage the Portfolio's credit quality?
A. We increased the Portfolio's exposure to corporate bonds with lower credit
quality, especially bonds rated BBB. Such issues were among the worst
performers of 1998, and therefore offered a strong yield advantage over higher-
quality bonds going into the recent period. As a result, the Portfolio's
average credit quality moved from AAA to AA1, still a very high rating.
Q. What is your outlook for the bond market and the Portfolio?
A. Our outlook is guardedly positive. We believe that the market is
overreacting to the possibility of a Fed interest rate hike. For example, since
the last rate cut in November 1998, yields on five-year Treasuries have risen
almost 2 full percentage points. Even if the Fed is forced to raise interest
rates to hold off inflation, bond yields should not climb much further.
We have positioned the Portfolio for a stable interest rate environment, in
which overall corporate creditworthiness should improve. We will not make
significant changes to the Portfolio's overall strategy going forward. As
always, we will seek out opportunities to lock in additional yield for the
Portfolio's shareholders.
- -----
* The Fund's portfolio composition is subject to change.
/1/Source: WWW.cnn.com
56
<PAGE>
Mercantile Government & Corporate Bond Portfolio
[CHART OF GOVERNMENT & CORPORATE BOND APPEARS HERE]
Value of a $10,000 Investment
Lehman Brothers
Investor A Investor A Investor B Aggregate
Date (No Load) (Load)* (No CDSC) Bond Index
---- --------- ------ --------- ---------------------
5/89 10,000 9,525 10,000 10,000
5/90 10,629 10,124 10,629 10,936
5/91 11,798 11,238 11,798 12,306
5/92 13,060 12,439 13,060 13,838
5/93 14,369 13,667 14,369 15,404
5/94 14,454 13,768 14,454 15,511
5/95 15,947 15,947 18,889 17,293
5/96 16,379 16,379 16,224 18,049
5/97 17,486 17,485 17,216 19,551
5/98 19,216 19,218 18,807 21,865
5/99 19,988 19,988 19,428 22,626
Average Annual Total Returns as of 5/31/99
1 Year 5 Year 10 Year
------ ------ -------
Investor A (No Load) 4.02% 6.70% 7.17%
Investor A* -0.91% 5.66% 6.87%
Investor B (No CDSC) 3.30% 6.09% 6.87%
Investor B (CDSC)** -1.53% 5.93% 6.87%
* Reflects 4.75% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[CHART OF GOVERNMENT & CORPORATE BOND TRUST APPEARS HERE]
Value of a $10,000 Investment
Lehman Brother
Aggregate
Date Trust Institutional Bond Index
---- ----- ------------- ---------------------
5/89 10,000 10,000 10,000
5/90 10,629 10,629 10,936
5/91 11,807 11,798 12,306
5/92 13,108 13,060 13,838
5/93 14,465 14,369 15,404
5/94 14,594 14,454 15,511
5/95 16,149 15,947 17,293
5/96 16,633 16,380 18,049
5/97 17,809 17,485 19,551
5/98 19,650 19,254 21,685
5/99 20,521 20,028 22,626
Average Annual Total Returns as of 5/31/99
1 Year 5 Year 10 Year
------ ------ -------
Trust 4.43% 7.05% 7.45%
Institutional 4.02% 6.74% 7.19%
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Government & Corporate Bond Portfolio is
measured against the Lehman Brothers Aggregate Bond Index, an unmanaged index
comprised of the Lehman Brothers Government/Corporate Bond Index and two
Lehman Brothers asset-backed securities indices. Investors are unable to
invest in the index directly, although they can invest in the underlying
securities. The performance of the index does not reflect the deduction of
expenses associated with a mutual fund, such as investment management and fund
accounting fees. By contrast, the performance of the Portfolio shown on the
graph reflects the deduction of these value-added services, as well as the
deduction of a 4.75% sales charge on Investor A Shares.
Investor B Shares were initially offered on March 1, 1995. The performance
figures for Investor B Shares for periods prior to such date represent the
performance for Investor A Shares of the Portfolio, which has been restated to
reflect the contingent deferred sales charge payable by holders of Investor B
Shares who redeem within six years of the date of purchase. Investor B Shares
are also subject to distribution and service fees at a maximum annual rate of
1.00%. Had these distribution and service fees been reflected, performance
would have been reduced.
Investor B shares (CDSC) are not included in the above graph, since the
performance is for more than six years and the CDSC would no longer apply.
After six years, the performance for the Investor B Shares (CDSC) mirrors
Investor B Shares (No CDSC) performance.
Institutional Shares were initially offered on January 3, 1994. The
performance figures for Institutional Shares for periods prior to such date
represent the performance for Investor A Shares of the Portfolio.
57
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Government & Corporate Bond Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Corporate Bonds (37.2%):
Security Principal Market
Description Amount Value
----------- ---------- ----------
<S> <C> <C>
Automotive (4.4%):
Ford Motor Credit Corp., 6.80%, 4/23/01, MTN.......... $1,850,000 $1,877,750
Ford Motor Credit Corp., Global Bond, 7.00%, 9/25/01.. 750,000 765,938
Ford Motor Credit Corp., Global Bond, 6.50%,
2/28/02(b)........................................... 3,194,000 3,217,955
General Motors Acceptance Corp., 6.85%, 4/17/01, MTN.. 1,000,000 1,015,000
General Motors Acceptance Corp., 6.70%, 4/30/01, MTN.. 1,400,000 1,417,500
----------
8,294,143
----------
Commercial Services (2.4%):
Cendant Corp., 7.75%, 12/1/03......................... 4,300,000 4,386,000
----------
Computer Software (3.8%):
Computer Associates, 6.25%, 4/15/03................... 2,000,000 1,940,000
Dell Computer Corp., 7.10%, 4/15/28................... 2,000,000 1,965,000
IBM Corp., 6.45%, 8/1/07(b)........................... 3,000,000 3,003,750
----------
6,908,750
----------
Financial Services (14.0%):
Associates Corp., 5.80%, 4/20/04,..................... 2,000,000 1,950,000
BankAmerica Corp., 7.50%, 10/15/02.................... 500,000 518,125
Citigroup, Inc., 6.63%, 1/15/28....................... 2,000,000 1,820,000
General Electric Capital Corp., 8.75%, 3/14/03, MTN... 1,000,000 1,086,250
General Electric Capital Corp., 8.13%, 5/15/12........ 2,050,000 2,293,438
Household Finance Corp., 8.38%, 11/15/01.............. 5,000,000 5,237,499
Merrill Lynch & Co., Series B, 6.38%, 10/1/01, MTN.... 5,000,000 5,031,250
Salomon Smith Barney Holdings, Inc., Series D, 7.00%,
3/4/02, MTN.......................................... 1,000,000 1,017,500
St. Paul Companies, Inc., 6.38%, 12/15/08, MTN........ 1,850,000 1,766,750
Traveler's Group, Inc., 7.30%, 5/15/02................ 2,000,000 2,052,500
Traveler's Group, Inc., 7.50%, 2/1/03................. 3,000,000 3,101,250
----------
25,874,562
----------
Government Bond (0.3%):
Province of Ontario, Global Bond, 7.38%, 1/27/03...... 500,000 519,375
----------
Industrial Goods & Services (3.9%):
E.I. duPont de Nemours & Co., 6.75%, 9/1/07........... 1,300,000 1,327,625
E.I. duPont de Nemours & Co., 6.50%, 1/15/28.......... 2,000,000 1,895,000
Raytheon Co, 5.95%, 3/15/01........................... 2,500,000 2,493,750
Rockwell International Corp., 6.75%, 9/15/02(b) ...... 500,000 508,750
WMX Technologies, Inc., 7.13%, 6/15/01................ 1,000,000 1,018,750
----------
7,243,875
----------
</TABLE>
<TABLE>
<CAPTION>
Corporate Bonds, continued:
Security Principal Market
Description Amount Value
----------- ---------- ----------
<S> <C> <C>
Insurance (1.0%):
General Electric Global Insurance Holdings, 6.45%,
3/1/19................................................. $2,000,000 $1,907,500
----------
Manufacturing--Consumer Goods (1.1%):
Texaco Capital, 6.95%, 10/15/01, MTN.................... 2,000,000 2,040,000
----------
Retail Stores (1.1%):
Dillards, Inc., 7.13%, 8/1/18........................... 2,000,000 1,947,500
----------
Telecommunications (4.2%):
Lucent Technologies, 6.45%, 3/15/29..................... 1,985,000 1,865,900
Southern New England Telecommunications Corp., Series 2,
6.50%, 2/15/02, MTN(b)................................. 5,250,000 5,295,938
United Telephone--Florida, 7.25%, 12/15/04.............. 500,000 514,375
----------
7,676,213
----------
Utilities (0.9%):
Laclede Gas Co., 7.50%, 11/1/07......................... 1,500,000 1,595,625
----------
TOTAL CORPORATE BONDS................................... 68,393,543
----------
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Agencies (36.2%):
<S> <C> <C> <C>
Federal Home Loan Bank (1.6%):
5.79%, 4/27/09......................................... 3,100,000 2,986,788
----------
Federal Home Loan Mortgage Corp. (6.2%):
8.50%, 5/1/01, Pool #200034............................ 17,867 18,487
8.50%, 11/1/01, Pool #200058........................... 41,866 43,161
8.00%, 3/1/02, Pool #215507............................ 34,230 35,117
7.50%, 4/1/02, Pool #200070............................ 50,817 51,817
8.00%, 5/1/02, Pool #216910............................ 16,960 17,400
8.00%, 6/1/02, Pool #218101............................ 106,332 109,089
8.00%, 6/1/02, Pool #218582............................ 32,053 32,884
8.00%, 6/1/02, Pool #219187............................ 6,215 6,376
8.00%, 7/1/02, Pool #217891............................ 18,477 18,956
8.00%, 7/1/02, Pool #501214............................ 74,503 76,435
8.50%, 3/1/05, Pool #380084............................ 47,758 49,235
8.50%, 4/1/05, Pool #380085............................ 4,902 5,053
8.50%, 9/1/05, Pool #503592............................ 11,734 12,097
8.50%, 4/1/06, Gold Pool #E00025....................... 18,195 18,935
6.00%, 2/1/11, Gold Pool #E62600....................... 421,863 412,237
7.00%, 7/1/11, Gold Pool #E20252....................... 777,431 789,816
6.50%, 1/1/12, Gold Pool #E00465....................... 709,279 707,506
6.00%, 2/1/12, Gold Pool #E00472....................... 2,220,938 2,170,256
8.00%, 1/1/23, Gold Pool #C00225....................... 1,127,015 1,170,687
8.00%, 1/1/23, Gold Pool #D29451....................... 147,901 153,632
6.00%, 12/1/25, Gold Pool #G00427...................... 2,987,592 2,845,681
6.00%, 9/1/27, Gold Pool #C00565....................... 2,854,832 2,719,227
----------
11,464,084
----------
Federal National Mortgage Assoc. (14.7%):
6.00%, 11/1/00, Pool #190070........................... 673,695 667,800
7.00%, 7/1/11, Pool #351021............................ 2,425,314 2,461,693
6.50%, 12/1/11, Pool #367838........................... 2,281,374 2,272,089
6.50%, 7/1/12, Pool #393667............................ 809,644 806,348
6.50%, 7/1/12, Pool #370716............................ 457,508 455,646
6.50%, 8/1/12, Pool #251165............................ 722,053 719,115
6.00% 1/1/13, Pool #251501............................. 5,209,054 5,083,672
</TABLE>
Continued
58
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Government & Corporate Bond Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
U.S. Government Agencies, continued:
Security Principal Market
Description Amount Value
----------- ----------- -----------
<S> <C> <C>
Federal National Mortgage Assoc., continued
5.50%, 4/1/13, Pool #424880......................... $ 233,654 $ 223,284
5.50%, 9/1/13, Pool #251980......................... 604,899 578,053
5.50%, 9/1/13, Pool #436276......................... 689,695 659,087
5.50%, 9/1/13, Pool #440221......................... 373,354 356,784
5.50%, 10/1/13, Pool #447342........................ 311,268 297,454
5.50%, 10/1/13, Pool #443232........................ 665,438 635,906
5.50%, 12/1/13, Pool #445857........................ 2,905,746 2,776,789
6.00%, 2/1/26, Pool #336918......................... 2,477,059 2,357,070
6.00%, 10/1/26, Pool #368935........................ 1,300,116 1,237,139
6.50%, 8/1/27, Pool #397372......................... 1,692,574 1,655,540
6.50%, 8/1/27, Pool #395219......................... 1,876,813 1,835,749
6.50%, 9/1/27, Pool #399040......................... 1,885,355 1,844,103
-----------
26,923,321
-----------
Government National Mortgage Assoc. (13.7%):
9.50%, 2/15/01, Pool #149206........................ 5,832 6,127
9.50%, 9/15/01, Pool #290435........................ 27,471 28,861
8.00%, 1/15/02, Pool #188653........................ 56,026 58,319
8.00%, 3/15/02, Pool #199167........................ 9,016 9,385
8.00%, 4/15/02, Pool #180980........................ 44,475 46,295
8.00%, 7/15/02, Pool #209779........................ 70,335 73,214
9.50%, 10/15/02, Pool #232514....................... 25,227 26,504
6.50%, 9/15/03, Pool #2549.......................... 155,345 151,703
9.50%, 1/15/06, Pool #298829........................ 50,370 52,920
8.00%, 5/15/06, Pool #303851........................ 81,800 85,148
9.50%, 7/15/07, Pool #331878........................ 59,635 62,654
8.00%, 11/15/07, Pool #339329....................... 271,753 282,876
8.00%, 12/15/07, Pool #338551....................... 173,252 180,343
9.50%, 8/15/09, Pool #400219........................ 387,866 407,500
9.50%, 9/15/09, Pool #377317........................ 135,888 142,767
9.50%, 2/15/10, Pool #392932........................ 341,971 359,281
8.00%, 5/15/10, Pool #398424........................ 25,272 26,306
6.50%, 8/15/10, Pool #387094........................ 145,561 145,561
8.00%, 11/15/10, Pool #410294....................... 736,224 766,357
8.00%, 11/15/10, Pool #414827....................... 217,034 225,917
8.00%, 11/15/10, Pool #405524....................... 156,168 162,560
6.50%, 3/15/11, Pool #408253........................ 85,472 85,472
6.50%, 4/15/11, Pool #402546........................ 290,569 290,569
6.50%, 4/15/11, Pool #418274........................ 75,852 75,852
6.50%, 4/15/11, Pool #421831........................ 331,698 331,698
6.50%, 5/15/11, Pool #408304........................ 471,075 471,075
6.50%, 5/15/11, Pool #430822........................ 59,384 59,384
6.50%, 6/15/11, Pool #430820........................ 599,238 599,238
6.50%, 6/15/11, Pool #345631........................ 525,861 525,861
6.50%, 6/15/11, Pool #423833........................ 260,492 260,492
6.50%, 6/15/11, Pool #421731........................ 85,153 85,153
6.50%, 7/15/11, Pool #345749........................ 279,410 279,410
6.50%, 8/15/11, Pool #426911........................ 294,875 294,875
8.50%, 4/15/17, Pool #212112........................ 1,227,676 1,296,733
8.00%, 4/15/22, Pool #320818........................ 856,763 890,760
7.50%, 1/15/23, Pool #331839........................ 2,271,265 2,324,481
8.00%, 1/15/23, Pool #331841........................ 1,159,369 1,205,373
7.50%, 4/15/23, Pool #343195........................ 644,925 660,035
9.00%, 3/15/25, Pool #404067........................ 609,177 649,913
6.50%, 4/15/26, Pool #415721........................ 866,063 845,763
6.50%, 4/15/26, Pool #422323........................ 834,968 815,396
6.50%, 5/15/26, Pool #417388........................ 828,378 808,961
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Agencies, continued:
Security Principal Market
Description Amount Value
----------- ------------ -----------
<S> <C> <C>
Government National Mortgage Assoc., continued
6.50%, 6/15/26, Pool #423801................ $ 4,153,907 $ 4,056,541
7.00%, 9/15/27, Pool #455304................ 362,399 362,964
6.50%, 10/15/28, Pool #482771............... 4,011,735 3,917,700
6.50%, 10/15/28, Pool #434031............... 691,267 675,063
-----------
25,169,360
-----------
TOTAL U.S. GOVERNMENT AGENCIES.............. 66,543,553
-----------
<CAPTION>
U.S. Treasury Bonds (9.7%):
<S> <C> <C>
8.88%, 8/15/17(c)........................... 2,865,000 3,720,117
8.88%, 2/15/19(c)........................... 4,150,000 5,442,269
8.75%, 8/15/20(c)........................... 2,183,000 2,856,368
8.00%, 11/15/21(c).......................... 4,700,000 5,763,938
-----------
TOTAL U.S. TREASURY BONDS................... 17,782,692
-----------
<CAPTION>
U.S. Treasury Notes (15.6%):
<S> <C> <C>
5.75%, 9/30/99(c)........................... 8,210,000 8,235,698
5.00%, 2/28/01(c)........................... 3,800,000 3,777,124
6.50%, 5/31/01(c)........................... 3,200,000 3,265,792
6.25%, 8/31/02(c)........................... 3,995,000 4,068,308
5.25%, 8/15/03(c)........................... 4,650,000 4,577,367
5.63%, 5/15/08(c)........................... 4,765,000 4,720,304
-----------
TOTAL U.S. TREASURY NOTES................... 28,644,593
-----------
<CAPTION>
Investment Companies (2.0%):
<S> <C> <C>
Federated Money Market Trust................ 3,717,976 3,717,976
-----------
TOTAL INVESTMENT COMPANIES.................. 3,717,976
-----------
<CAPTION>
Short-Term Securities Held as Collateral (15.3%):
<S> <C> <C>
Repurchase agreements (15.3%):
Greenwich Capital, 4.96%, 6/1/99 (Purchased
on 5/28/99, proceeds at maturity
$14,783,162, collateralized by $50,443,084
various U.S. Government Agency Mortgages,
0.00%-8.00%, 5/15/06-5/15/29, market value
$15,076,748)............................... 14,781,126 14,781,126
Salomon Smith Barney, Inc., 4.93%, 6/1/99
(Purchased on 5/28/99, proceeds at maturity
$13,299,604, collateralized by $21,841,674
various GNMA, 0.50%-10.00%, 11/15/00-
5/20/29, market value $13,563,738)......... 13,297,783 13,297,783
-----------
TOTAL SHORT-TERM SECURITIES HELD AS
COLLATERAL................................. 28,078,909
-----------
</TABLE>
Continued
59
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Government & Corporate Bond Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Short-Term Securities Held as Collateral, continued:
Security Principal Market
Description Amount Value
----------- --------- ------------
<S> <C> <C>
Total Investments (Cost $214,139,112)(a)--115.9%........ $213,161,266
Liabilities in excess of other assets--(15.9)%.......... (29,263,383)
------------
TOTAL NET ASSETS--100.0%................................ $183,897,883
============
</TABLE>
- -----
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation... $2,435,132
Unrealized depreciation... (3,412,979)
----------
Net unrealized
depreciation............. $ (977,847)
==========
</TABLE>
(b) A portion of this security was loaned as of May 31, 1999.
MTN Medium Term Note
See notes to financial statements
60
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Government & Corporate Bond Portfolio
Statement of Assets and Liabilities
May 31, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $186,060,204)........... $185,082,357
Repurchase agreements, at value (cost $28,078,908).. 28,078,909
------------
Total investments.................................. 213,161,266
Cash................................................ 155,962
Interest and dividends receivable................... 1,976,766
Receivable for capital shares issued................ 233
Receivable for investments sold..................... 25,375
Prepaid expenses and other assets................... 9,314
------------
Total Assets....................................... 215,328,916
Liabilities:
Dividends payable................................... $ 900,013
Payable for investments purchased................... 2,330,686
Payable for return of collateral received........... 28,078,909
Accrued expenses and other payables:
Investment advisory fees........................... 70,583
Administration fees................................ 2,520
Distribution and administrative services fees...... 3,675
Custodian fees..................................... 6,274
Other liabilities.................................. 38,373
-----------
Total Liabilities.................................. 31,431,033
------------
Net Assets:
Capital............................................. 183,916,647
Undistributed net investment income................. 273,867
Accumulated net realized gains from investment
transactions....................................... 685,216
Net unrealized depreciation from investments........ (977,847)
------------
Net Assets.......................................... $183,897,883
============
Investor A Shares
Net Assets......................................... $ 4,206,827
Shares............................................. 416,083
Redemption price per share......................... $10.11
======
Maximum Sales Charge--Investor A Shares............. 4.75%
Maximum Offering Price
(100%/(100%--Maximum Sales Charge) of net asset
value adjusted to the nearest cent) per share...... $10.61
======
Investor B Shares
Net Assets......................................... $ 847,188
Shares............................................. 83,605
Offering price per share*.......................... $10.13
======
Trust Shares
Net Assets......................................... $171,527,699
Shares............................................. 16,938,081
Offering and redemption price per share............ $10.13
======
Institutional Shares
Net Assets......................................... $ 7,316,169
Shares............................................. 722,319
Offering and redemption price per share............ $10.13
======
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
Statement of Operations
For the period ended May 31, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income.......................................... $ 5,939,841
Dividend income.......................................... 97,836
Income from securities lending........................... 23,390
-----------
Total Income............................................ 6,061,067
Expenses:
Investment advisory fees................................. $427,429
Administration fees...................................... 189,970
Distribution and services fees, Investor A Shares........ 6,569
Distribution and services fees, Investor B Shares........ 3,642
Administrative services fees,
Trust Shares............................................ 262,115
Administrative services fees, Institutional Shares....... 15,176
Accounting fees.......................................... 10,589
Custodian fees........................................... 41,583
Transfer agent fees...................................... 24,095
Other.................................................... 33,220
--------
Accrued expenses and other payables:
Total expenses before voluntary fee reductions.......... 1,014,388
Expenses voluntarily reduced............................ (363,246)
-----------
Net Expenses............................................ 651,142
-----------
Net investment income.................................... 5,409,925
-----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains from investment transactions.......... 959,038
Net change in unrealized depreciation from investments... (8,474,654)
-----------
Net realized/unrealized losses from investments.......... (7,515,616)
-----------
Change in net assets resulting from operations........... $(2,105,691)
===========
</TABLE>
See notes to financial statements
61
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Government & Corporate Bond Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended
1999 November 30,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 5,409,925 $ 11,519,697
Net realized gains from investment transactions... 959,038 5,187,984
Net change in unrealized depreciation from
investments...................................... (8,474,654) 1,941,908
------------ ------------
Change in net assets resulting from operations..... (2,105,691) 18,649,589
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (118,698) (256,880)
From net realized gains from investment
transactions..................................... (92,239) --
Distributions to Investor B Shareholders:
From net investment income........................ (17,260) (27,341)
From net realized gains from investment
transactions..................................... (12,347) --
Distributions to Trust Shareholders:
From net investment income........................ (5,002,891) (10,184,841)
From net realized gains from investment
transactions..................................... (3,338,654) --
Distributions to Institutional Shareholders:
From net investment income........................ (271,056) (1,050,635)
From net realized gains from investment
transactions..................................... (372,389) --
------------ ------------
Change in net assets from shareholder
distributions..................................... (9,225,534) (11,519,697)
------------ ------------
Change in net assets from capital transactions..... (10,062,591) 3,251,931
------------ ------------
Change in net assets............................... (21,393,816) 10,381,823
Net Assets:
Beginning of period............................... 205,291,699 194,909,876
------------ ------------
End of period..................................... $183,897,883 $205,291,699
============ ============
</TABLE>
See notes to financial statements
62
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Government & Corporate Bond Portfolio
Statement of Cash Flows
<TABLE>
<CAPTION>
For the
period ended
May 31,
1999
(Unaudited)
------------
<S> <C>
Cash Flows from Operating Activities:
Net investment income........................................... $ 5,409,925
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Cost of investment securities purchased......................... (77,281,537)
Proceeds from disposition of investment securities.............. 91,439,935
Increase in investments purchased with cash collateral from
securities lending............................................. (6,565,828)
Increase in dividends and interest receivable................... (82,119)
Increase in payable for return of collateral received from
securities lending............................................. 6,565,828
Decrease in accrued expenses.................................... (1,178)
Increase in prepaid expenses.................................... (7,584)
Net amortization/accretion from investments..................... (508)
-----------
Net cash provided by operating activities....................... 19,476,934
-----------
Cash Flows from Financing Activities:
Proceeds from shares issued..................................... 16,226,387
Cost of shares redeemed......................................... (26,278,078)
Cash distributions paid......................................... (9,269,252)
-----------
Net cash used in financing activities........................... (19,320,943)
-----------
Increase in cash................................................. 155,991
Cash:
Beginning balance............................................... (29)
-----------
Ending balance.................................................. $ 155,962
===========
</TABLE>
Non-cash financing activities not included herein consist of reinvestment of
dividends from net investment income and distributions of net realized capital
gains of $4,430,091.
See notes to financial statements
63
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Government & Corporate Bond Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 ---------------------------------------
(Unaudited) 1998 1997 1996 1995 1994(a)
------------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.72 $10.35 $10.34 $10.53 $ 9.64 $10.65
------ ------ ------ ------ ------ ------
Investment Activities
Net investment income.. 0.28 0.57 0.56 0.64 0.61 0.60
Net realized and
unrealized gains
(losses) from
investments........... (0.41) 0.37 0.01 (0.19) 0.89 (0.94)
------ ------ ------ ------ ------ ------
Total from Investment
Activities............ (0.13) 0.94 0.57 0.45 1.50 (0.34)
------ ------ ------ ------ ------ ------
Distributions
Net investment income.. (0.28) (0.57) (0.56) (0.64) (0.61) (0.60)
Net realized gains..... (0.20) -- -- -- -- (0.07)
------ ------ ------ ------ ------ ------
Total Distributions.... (0.48) (0.57) (0.56) (0.64) (0.61) (0.67)
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $10.11 $10.72 $10.35 $10.34 $10.53 $ 9.64
------ ------ ------ ------ ------ ------
Total Return (excludes
sales charge).......... (1.27)%(b) 9.31% 5.78% 4.51% 15.98% (3.32)%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $4,207 $4,927 $4,774 $4,915 $5,496 $5,167
Ratio of expenses to
average net assets..... 0.96%(c) 0.96% 0.95% 0.95% 0.95% 0.95%
Ratio of net investment
income to average net
assets................. 5.42%(c) 5.41% 5.46% 6.06% 6.03% 6.00%
Ratio of expenses to
average net assets*.... 1.07%(c) 1.06% 1.05% 1.05% 1.05% 1.05%
Portfolio turnover**.... 26.98% 91.14% 140.72% 149.20% 59.32% 50.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) On September
27, 1994, the Portfolio redesignated the Investor Shares as "Investor A"
Shares, and authorized the issuance of a series of shares designated as
"Investor B" Shares. (b) Not annualized. (c) Annualized.
Financial Highlights, Investor B Shares
<TABLE>
<CAPTION>
For the
period ended For the years ended March 1, 1995
May 31, November 30, to
1999 ---------------------- November 30,
(Unaudited) 1998 1997 1996 1995(a)
------------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................ $10.75 $10.37 $10.34 $10.53 $ 9.92
------ ------ ------ ------ ------
Investment Activities
Net investment income.... 0.24 0.50 0.49 0.57 0.38
Net realized and
unrealized gains
(losses) from
investments............. (0.41) 0.38 0.03 (0.19) 0.61
------ ------ ------ ------ ------
Total from Investment
Activities.............. (0.17) 0.88 0.52 0.38 0.99
------ ------ ------ ------ ------
Distributions
Net investment income.... (0.25) (0.50) (0.49) (0.57) (0.38)
Net realized gains....... (0.20) -- -- -- --
------ ------ ------ ------ ------
Total Distributions...... (0.45) (0.50) (0.49) (0.57) (0.38)
------ ------ ------ ------ ------
Net Asset Value, End of
Period................... $10.13 $10.75 $10.37 $10.34 $10.53
====== ====== ====== ====== ======
Total Return (excludes
redemption charge)....... (1.69)%(d) 8.65% 5.26% 3.79% 15.27%(b)
Ratios/Supplementary Data:
Net Assets at end of
period (000)............. $ 847 $ 662 $ 545 $ 511 $ 106
Ratio of expenses to
average net assets....... 1.66%(c) 1.66% 1.65% 1.65% 1.65%(c)
Ratio of net investment
income to average net
assets................... 4.74%(c) 4.70% 4.84% 5.37% 5.19%(c)
Ratio of expenses to
average net assets*...... 1.77%(c) 1.76% 1.75% 1.75% 1.75%(c)
Portfolio turnover**...... 26.98% 91.14% 140.72% 149.20% 59.32%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Represents total return for the Investor A
Shares from December 1, 1994 to February 28, 1995 plus the total return for
the Investor B Shares from March 1, 1995 to November 30, 1995. (c) Annualized.
(d) Not annualized.
64
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Government & Corporate Bond Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 ------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 10.74 $ 10.37 $ 10.34 $ 10.53 $ 9.64 $ 10.65
-------- -------- -------- -------- -------- --------
Investment Activities
Net investment income.. 0.30 0.60 0.59 0.67 0.64 0.63
Net realized and
unrealized gains
(losses) from
investments........... (0.41) 0.37 0.03 (0.19) 0.89 (0.94)
-------- -------- -------- -------- -------- --------
Total from Investment
Activities............ (0.11) 0.97 0.62 0.48 1.53 (0.31)
-------- -------- -------- -------- -------- --------
Distributions
Net investment income.. (0.30) (0.60) (0.59) (0.67) (0.64) (0.63)
Net realized gains..... (0.20) -- -- -- -- --
In excess of net
realized gains........ -- -- -- -- -- (0.07)
-------- -------- -------- -------- -------- --------
Total Distributions.... (0.50) (0.60) (0.59) (0.67) (0.64) (0.70)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 10.13 $ 10.74 $ 10.37 $ 10.34 $ 10.53 $ 9.64
======== ======== ======== ======== ======== ========
Total Return............ (1.11)%(b) 9.63% 6.32% 4.82% 16.31% (3.03)%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $171,528 $178,868 $172,637 $141,440 $127,741 $132,577
Ratio of expenses to
average net assets..... 0.66%(c) 0.66% 0.65% 0.65% 0.65% 0.65%
Ratio of net investment
income to average net
assets................. 5.73%(c) 5.71% 5.85% 6.36% 6.32% 6.25%
Ratio of expenses to
average net assets*.... 1.07%(c) 1.06% 1.05% 0.75% 0.75% 1.05%
Portfolio turnover**.... 26.98% 91.14% 140.72% 149.20% 59.32% 50.00%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (b) Not
annualized. (c) Annualized.
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 ------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994 (a)
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 10.74 $ 10.37 $ 10.34 $ 10.53 $ 9.64 $ 10.65
-------- -------- -------- -------- -------- --------
Investment Activities
Net investment income.. 0.30 0.57 0.56 0.64 0.61 0.60
Net realized and
unrealized gains
(losses) from
investments........... (0.43) 0.37 0.03 (0.19) 0.89 (0.94)
-------- -------- -------- -------- -------- --------
Total from Investment
Activities............ (0.13) 0.94 0.59 0.45 1.50 (0.34)
-------- -------- -------- -------- -------- --------
Distributions
Net investment income.. (0.28) (0.57) (0.56) (0.64) (0.61) (0.60)
Net realized gains..... (0.20) -- -- -- -- --
In excess of net
realized gains........ -- -- -- -- -- (0.07)
-------- -------- -------- -------- -------- --------
Total Distributions.... (0.48) (0.57) (0.56) (0.64) (0.61) (0.67)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 10.13 $ 10.74 $ 10.37 $ 10.34 $ 10.53 $ 9.64
======== ======== ======== ======== ======== ========
Total Return............ (1.26)%(b) 9.30% 6.00% 4.51% 15.98% (3.32)%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 7,316 $ 20,835 $ 16,954 $ 14,875 $ 9,413 $ 5,965
Ratio of expenses to
average net assets..... 0.96%(c) 0.96% 0.95% 0.95% 0.95% 0.96%
Ratio of net investment
income to average net
assets................. 5.36%(c) 5.41% 5.55% 6.06% 6.01% 6.03%
Ratio of expenses to
average net assets*.... 1.06%(c) 1.06% 1.05% 1.05% 1.05% 1.07%
Portfolio turnover**.... 26.98% 91.14% 140.72% 149.20% 59.32% 50.00%
Financial Highlights, Institutional Shares
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) On January 3,
1994, the Portfolio issued a new series of shares which were designated as
"Institutional" Shares. The financial highlights presented for the period
prior to January 3, 1994 represent financial highlights applicable to the
Investor Shares. (b) Not annualized. (c) Annualized.
65
<PAGE>
Mercantile Short-Intermediate Municipal Portfolio+
Q. What were the conditions in the economy during the six months ended May
31, 1999?
A. Throughout the period, investors worried that the strength of U.S.
economic growth would cause the Federal Reserve (the Fed) to tighten monetary
policy to head off a rise in inflation. Those fears were somewhat countered by
signals that showed the economy was not growing too fast. As a result, there
was considerable uncertainty about inflation and the strength of the economy.
Q. How did the municipal bond market perform in that environment?
A. The uncertain economic and inflationary outlook, combined with rising
interest rates, caused investors to favor short-term issues. Municipal
securities with relatively short maturities outperformed longer-term municipal
bonds.
At the same time, rising interest rates led to a reduction in the supply of
new municipal bonds. The tight supply of municipal bonds helped their
performance relative to Treasury bonds. Since there were relatively few new
issues, investors who wanted muni bonds had to pay higher prices.
Q. How did you manage the Portfolio in that environment?
A. We maintained the Portfolio's average maturity between four and five years
during the period. In general, we try to position the Portfolio's average
maturity between four and five years, and we do not trade often. That approach
dampened the Portfolio's performance, since shorter-term bonds outperformed
longer-term issues.
Q. What was the average credit rating of the Portfolio's holdings?
A. We kept the Portfolio's credit quality very high, at AA1, in keeping with
our belief that a high-quality approach offers the best combination of risk and
return. That strategy benefited the Portfolio during the period, as investors
continued to favor bonds with strong credit quality.
Q. Did you favor certain types or sectors of municipal bonds during the
period?
A. Early in the period, we found opportunities in healthcare bonds, which
offered attractive yields relative to their risk. We reduced those holdings
later in the period.
Q. What is your outlook going forward?
A. It is likely that the economy will continue to grow at a moderate pace and
inflation will remain low. However, there is a great deal of uncertainty about
the direction of inflation. The Fed may act to increase short-term interest
rates if it sees signs of rising inflation.
That uncertainty may continue to hurt the municipal bond market during the
next few months. The overall bond market will probably trade within a narrow
range, with long-term yields between 5.75% and 6.25%. But supply should remain
tight in the second half of the year, which should benefit muni bond prices.
Q. How will you position the Portfolio in that environment?
A. We will maintain the Portfolio's relatively long average maturity of
between four and five years, in keeping with the Portfolio's long-term
objectives. We will continue to favor municipal bonds with very high credit
quality because yields on lower-rated issues are not high enough to justify
their additional credit risk.
- -----
+ The Portfolio's income may be subject to certain state and local taxes and,
depending on your tax status, the federal alternative minimum tax.
66
<PAGE>
Mercantile Short-Intermediate Municipal Portfolio
[CHART OF SHORT-INTERMEDIATE MUNICIPAL APPEARS HERE]
Value of a $10,000 Investment
Lehman Brothers
Investor A Investor A 3 year Municipal
Date (No Load) (Load)* Bond Index
---- --------- ------ --------------------
7/95 10,000 9,747 10,000
11/95 10,080 9,825 10,220
11/96 10,485 10,220 10,713
11/97 10,918 10,641 11,229
5/98 11,171 10,888 11,512
11/98 11,481 11,191 11,836
5/99 11,556 11,263 12,384
Average Annual Total Returns as of 5/31/99
1 Year Since Inception (7/10/97)
------ -------------------------
Investor A (No Load) 3.45% 3.79%
Investor A* 0.87% 3.11%
* Reflects 2.50% sales charge.
[CHART OF SHORT-INTERMEDIATE MUNICIPAL TRUST APPEARS HERE]
Value of a $10,000 Investment
Lehman Brothers
3 year Municipal
Date Trust Bond Index
---- ----- --------------------
7/95 10,000 10,000
11/95 10,213 10,220
11/96 10,636 10,713
11/97 11,103 11,229
5/98 11,375 11,512
11/98 11,697 11,836
5/99 11,801 12,384
Average Annual Total Returns as of 5/31/99
1 Year Since Inception (2/10/97)
------ -------------------------
Trust 3.74% 4.35%
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Short-Intermediate Municipal Portfolio is
measured against the Lehman Brothers 3 year Municipal Bond Index, an unmanaged
index representative of the total return of municipal bonds with maturities of
three years or less. Investors are unable to invest in the index directly,
although they can invest in the underlying securities. The performance of the
index does not reflect the deduction of expenses associated with a mutual
fund, such as investment management and fund accounting fees. By contrast, the
performance of the Portfolio shown on the graph reflects the deduction of
these value-added services, as well as the deduction of a 2.50% sales charge
on Investor A Shares.
67
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Short-Intermediate Municipal Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds (95.7%):
Security Principal Market
Description Amount Value
----------- ---------- -----------
<S> <C> <C>
Alabama (2.5%):
Alabama State Public School & College Authority, 4.40%,
12/1/00............................................... $1,000,000 $ 1,013,750
-----------
Colorado (4.3%):
El Paso County School District No. 020, G.O., 5.15%,
12/15/99.............................................. 720,000 728,006
Jefferson County School District No. R-001, Series A,
G.O., 5.25%, 12/15/11, Callable on 12/15/08 @101 (FGIC
Insured).............................................. 1,000,000 1,040,000
-----------
1,768,006
-----------
Hawaii (3.9%):
Hawaii State Highway Revenue, 4.80%, 7/1/03............ 600,000 617,250
Hawaii State, Series CI, G.O., 4.10%, 11/1/01.......... 1,000,000 1,006,250
-----------
1,623,500
-----------
Illinois (8.9%):
Chicago Metropolitan Water Reclamation District, G.O.,
4.70%, 12/1/99........................................ 500,000 503,945
Chicago, G.O., 5.50%, 1/1/13 (FSA Insured)............. 1,000,000 1,056,250
Du Page County, Forest Preservation District, G.O.,
5.90%, 11/1/01........................................ 500,000 526,250
Illinois State Toll Highway Authority, Toll Highway
Priority Revenue, Series A, 4.75%, 1/1/02............. 750,000 763,125
Illinois State, G.O., 5.60%, 10/1/99................... 400,000 403,232
Illinois State, G.O., 5.25%, 4/1/01.................... 400,000 410,500
-----------
3,663,302
-----------
Indiana (3.6%):
Muncie School Building Corp., 4.95%, 1/15/02 (MBIA).... 500,000 512,500
St. Joseph County Hospital Authority, Memorial Health
System, 4.75%, 8/15/12, Callable on 2/15/08 @ 101
(MBIA Insured)........................................ 1,000,000 977,500
-----------
1,490,000
-----------
Iowa (1.1%):
Ottumwa Community School District, G.O., 5.10%, 6/1/01
(FSA Insured)......................................... 425,000 435,625
-----------
Kansas (2.6%):
Kansas State Department of Transportation, Highway
Revenue, 5.50%, 9/1/10................................ 1,000,000 1,075,000
-----------
Maine (2.0%):
Maine Municipal Bond Bank, Series A, 4.90%, 11/1/02.... 800,000 827,000
-----------
Maryland (2.2%):
Maryland State, Department of Transportation, 2nd
Issue, 4.10%, 12/15/00................................ 400,000 404,500
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds, continued:
Security Principal Market
Description Amount Value
----------- --------- ---------
<S> <C> <C>
Maryland, continued:
Washington Suburban Sanitation District, Sewer Disposal
Revenue, G.O., 5.00%, 6/1/00.............................. $ 500,000 $ 508,840
---------
913,340
---------
Massachusetts (5.1%):
Massachusetts State Health & Educational Facilities,
Harvard Pilgrim Health Care, Hospital & Nursing Home
Revenue, Series A, 4.13%, 7/1/02 (FSA Insured)............ 1,000,000 1,006,250
Massachusetts State Port Authority Revenue, Series A,
5.75%, 7/1/12............................................. 1,000,000 1,095,000
---------
2,101,250
---------
Michigan (6.7%):
Chelsea School District, G.O., 5.25%, 5/1/01 (FGIC Q-SBLF
Insured).................................................. 400,000 411,000
Eaton Rapids Public Schools, G.O., 5.38%, 5/1/07, Callable
on 5/1/04 @ 101 (MBIA Q-SBLF Insured)..................... 1,000,000 1,063,750
Kent County Building Authority, G.O., 4.50%, 12/1/01....... 800,000 816,000
Oakland County Building Authority, 4.75%, 4/1/00, Callable
on 4/1/99 @ 101.5......................................... 450,000 455,706
---------
2,746,456
---------
Minnesota (3.3%):
Duluth, Series A, G.O., 4.65%, 2/1/02 (FSA Insured)........ 365,000 372,300
Faribault Independent School District, G.O., 4.63%, 6/1/10,
Callable on 6/1/08 @ 100 (FSA Insured).................... 1,000,000 995,000
---------
1,367,300
---------
Mississippi (1.2%):
Mississippi State, Capital Improvement, Series B, G.O.,
5.00%, 8/1/99............................................. 500,000 501,495
---------
Missouri (0.8%):
Jefferson County School District, G.O., 4.70%, 3/1/01 (MBIA
Insured).................................................. 320,000 325,600
---------
Nevada (3.5%):
Sparks, G.O., 4.80%, 3/1/04, Callable on 3/1/01 @ 101
(AMBAC Insured)........................................... 900,000 915,750
Washoe County School District, G.O., 5.30%, 8/1/00 (MBIA
Insured).................................................. 500,000 511,250
---------
1,427,000
---------
New Mexico (2.6%):
Albuquerque, Water & Sewer Revenue, 4.40%, 7/1/00.......... 345,000 349,233
New Mexico State, Capital Projects, G.O., 4.60%, 8/1/00.... 700,000 708,260
---------
1,057,493
---------
New York (2.5%):
New York State, Environmental Facilities Revenue, 5.05%,
1/15/13, Callable on 7/15/08 @ 102........................ 1,000,000 1,011,250
---------
</TABLE>
Continued
68
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Short-Intermediate Municipal Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds, continued:
Security Principal Market
Description Amount Value
----------- ---------- ----------
<S> <C> <C>
North Carolina (2.4%):
North Carolina Medical Care Community, Pitt County
Memorial Hospital, Hospital & Nursing Home Revenue,
Series A, 4.00%, 12/1/01............................... $1,000,000 $1,008,750
----------
Ohio (2.3%):
Ohio State Building Authority, 4.75%, 10/1/17, Callable
on 10/1/08 @ 101....................................... 1,000,000 951,250
----------
Oklahoma (2.4%):
Oklahoma State Capital Improvement Authority, Highway
Improvement Revenue, 4.00%, 12/1/01 (MBIA Insured)..... 1,000,000 1,010,000
----------
Pennsylvania (1.0%):
Delaware County, G.O., 4.35%, 10/1/00 (Municipal
Government Guaranteed)................................. 400,000 405,000
----------
Rhode Island (2.2%):
Rhode Island State, Series A, G.O., 4.60%, 11/1/03,
Callable on 11/1/02 @ 102.............................. 900,000 922,500
----------
South Carolina (1.0%):
Charleston County School District, Series B, G.O.,
4.50%, 2/1/00 (SCSDE Insured).......................... 400,000 403,412
----------
South Dakota (1.6%):
South Dakota State Building Authority, Building Revenue,
Series A, 5.00%, 9/1/02 (FSA Insured).................. 640,000 661,600
----------
Texas (9.9%):
Dallas Water Works & Sewer System Revenue, 4.60%,....... 450,000 457,313
Houston, Series C, G.O., 5.50%, 4/1/01.................. 800,000 825,000
Plano Independent School District, G.O., 4.70%, 2/15/13
Callable on
2/15/08 @ 100 (PSF Guaranteed)......................... 1,000,000 969,999
San Antonio, G.O., 4.88%, 8/1/99........................ 400,000 401,120
Tarrant County Water Control and Improvement District
No. 001, Water Revenue, 5.60%, 3/1/00.................. 450,000 457,493
University of Texas Permanent University Fund, College &
University Revenue, 5.00%, 7/1/14, Callable on 7/1/08 @
100 (PUFG Guaranteed).................................. 1,000,000 1,006,249
----------
4,117,174
----------
Utah (3.1%):
Box Elder County School District, G.O., 4.80%, 6/15/01
(AMBAC Insured)........................................ 675,000 689,344
North Davis County Sewer District, G.O., 5.70%, 3/1/02
(FGIC Insured)......................................... 560,000 587,300
----------
1,276,644
----------
Vermont (0.7%):
Vermont Municipal Bond Bank, Series 2, 4.50%, 12/1/01
(AMBAC Insured)........................................ 270,000 275,063
----------
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds, continued:
Shares
or
Security Principal Market
Description Amount Value
----------- ---------- ----------
<S> <C> <C>
Virginia (3.5%)
Loudoun County, Series A, G.O., 5.00%, 12/1/02........... $1,000,000 $1,040,000
Virginia State Public Building Authority, Building
Revenue, Series A, 5.70%, 8/1/00........................ 400,000 410,500
----------
1,450,500
----------
Washington (7.1%):
Clark County Public Utilities District No. 001, Electric
Revenue, 4.60%, 1/1/01 (FGIC Insured)................... 500,000 506,250
Grant County Public Utilities District No. 002, Electric
Revenue, Series F, 4.80%, 1/1/04 (MBIA Insured)......... 500,000 514,375
King County School District No. 414, G.O., 5.00%,
12/1/08................................................. 1,000,000 1,038,750
Seattle Municipal Light & Power Revenue, 4.80%, 5/1/02... 600,000 615,750
Washington State, Series R-92C, G.O., 5.75%, 9/1/02...... 250,000 264,063
----------
2,939,188
----------
Wisconsin (1.7%):
Brown County, Series A, G.O., 4.80%, 11/1/01, Callable on
11/1/00 @ 100........................................... 325,000 329,469
Milwaukee County, Series A, G.O., 5.25%, 9/1/00.......... 380,000 388,550
----------
718,019
----------
TOTAL MUNICIPAL BONDS.................................... 39,486,467
----------
</TABLE>
<TABLE>
<CAPTION>
Investment Companies (3.1%):
<S> <C> <C>
Federated Tax-Free Fund.................................. 1,297,000 1,297,000
Nuveen Tax Exempt Fund................................... 1,000 1,000
-----------
TOTAL INVESTMENT COMPANIES............................... 1,298,000
-----------
TOTAL INVESTMENTS (Cost $40,351,270)(a)--98.8%........... 40,784,467
Other assets in excess of liabilities--1.2%.............. 474,512
-----------
TOTAL NET ASSETS--100.0%................................. $41,258,979
===========
</TABLE>
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................................... $462,521
Unrealized depreciation......................................... (29,324)
--------
Net unrealized appreciation..................................... $433,197
========
</TABLE>
AMBAC AMBAC Indemnity Corp.
FGIC Financial Guaranty Insurance Corp.
FSA Financial Securities Assurance, Inc.
G.O. General Obligation
MBIA Municipal Bond Insurance Association
PSF Permanent School Fund
PUFG Permanent University Fund Guarantee
Q-SBLF Qualified-School Bond Loan Fund
SCSDE South Carolina School District Enhancement
See notes to financial statements
69
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Short-Intermediate Municipal Portfolio
Statement of Assets and Liabilities
May 31, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost
$40,351,270)........................................... $40,784,467
Interest and dividends receivable....................... 639,855
Prepaid expenses and other assets....................... 2,951
-----------
Total Assets........................................... 41,427,273
Liabilities:
Dividends payable....................................... $128,612
Payable to custodian for overdraft...................... 110
Payable for capital shares redeemed..................... 247
Accrued expenses and other payables:
Investment advisory fees............................... 19,308
Administration fees.................................... 566
Distribution and administrative services fees.......... 3
Custodian fees......................................... 1,755
Other liabilities...................................... 17,693
--------
Total Liabilities...................................... 168,294
-----------
Net Assets:
Capital................................................. 40,825,777
Accumulated net realized gains from investment
transactions........................................... 5
Net unrealized appreciation from investments............ 433,197
-----------
Net Assets.............................................. $41,258,979
===========
Investor A Shares
Net Assets............................................. $ 13,919
Shares................................................. 1,370
Redemption price per share............................. $10.16
======
Maximum Sales Charge--Investor A Shares................. 2.50%
Maximum Offering Price
(100%/(100%--Maximum Sales Charge) of net asset value
adjusted to the nearest cent) per share................ $10.42
======
Trust Shares
Net Assets............................................. $41,245,060
Shares................................................. 4,063,957
Offering and redemption price per share................ $10.15
======
</TABLE>
Statement of Operations
For the period ended May 31, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income............................................. $903,409
Dividend income............................................. 9,487
--------
Total Income............................................... 912,896
Expenses:
Investment advisory fees.................................... $113,805
Administration fees......................................... 41,384
Distribution and services fees,
Investor A Shares.......................................... 30
Administrative services fees,
Trust Shares............................................... 62,045
Accounting fees............................................. 4,248
Custodian fees.............................................. 9,118
Transfer agent fees......................................... 5,011
Other fees.................................................. 3,580
--------
Total expenses before voluntary fee reductions............. 239,221
Expenses voluntarily reduced............................... (82,742)
--------
Net Expenses............................................... 156,479
--------
Net investment income....................................... 756,417
--------
Unrealized Losses from Investments:
Net change in unrealized appreciation from investments...... (395,702)
--------
Unrealized losses from investments.......................... (395,702)
--------
Change in net assets resulting from operations.............. $360,715
========
</TABLE>
See notes to financial statements
70
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Short-Intermediate Municipal Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended
1999 November 30,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................... $ 756,417 $ 1,470,513
Net realized gains from investment transactions..... -- 16,005
Net change in unrealized appreciation from
investments......................................... (395,702) 556,532
----------- -----------
Change in net assets resulting from operations....... 360,715 2,043,050
----------- -----------
Distributions to Investor A Shareholders:
From net investment income.......................... (345) (559)
From net realized gains from investment
transactions........................................ (12) --
Distributions to Trust Shareholders:
From net investment income.......................... (756,072) (1,469,954)
From net realized gains from investment
transactions........................................ (15,988) --
----------- -----------
Change in net assets from shareholder distributions.. (772,417) (1,470,513)
----------- -----------
Change in net assets from capital transactions....... (1,222,690) 11,850,687
----------- -----------
Change in net assets................................. (1,634,392) 12,423,224
Net Assets:
Beginning of period................................. 42,893,371 30,470,147
----------- -----------
End of period....................................... $41,258,979 $42,893,371
=========== ===========
</TABLE>
See notes to financial statements
71
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Short-Intermediate Municipal Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
period ended For the years ended
May 31, November 30, July 10, 1995 to
1999 ---------------------- November 30,
(Unaudited) 1998 1997 1996 1995 (a)
------------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.26 $10.11 $10.08 $10.08 $10.00
------ ------ ------ ------ ------
Investment Activities
Net investment income.. 0.17 0.35 0.37 0.40 --
Net realized and
unrealized gains from
investments........... (0.10) 0.15 0.03 -- 0.08
------ ------ ------ ------ ------
Total from Investment
Activities............ 0.07 0.50 0.40 0.40 0.08
------ ------ ------ ------ ------
Distributions
Net investment income.. (0.17) (0.35) (0.37) (0.40) --
------ ------ ------ ------ ------
Total Distributions.... (0.17) (0.35) (0.37) (0.40) --
------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $10.16 $10.26 $10.11 $10.08 $10.08
====== ====== ====== ====== ======
Total Return (excludes
sales charge).......... 0.66%(b) 5.16% 4.12% 4.02% 0.80%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 14 $ 32 $ 16 $ 51 $ -- (c)
Ratio of expenses to
average net assets..... 1.00%(d) 0.89% 0.62% 0.56% 0.00%(d)
Ratio of net investment
income to average net
assets................. 3.38%(d) 3.54% 3.78% 3.83% 0.00%(d)
Ratio of expenses to
average net assets*.... 1.19%(d) 1.21% 1.32% 1.26% 0.00%(d)
Portfolio turnover**.... 0.00% 18.58% 0.00% 0.00% 0.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Only one Investor A Share,
worth $10.08, was outstanding as of November 30, 1995. (d) Annualized.
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the
period ended For the years ended
May 31, November 30, July 10, 1995 to
1999 ------------------------- November 30,
(Unaudited) 1998 1997 1996 1995 (a)
------------ ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 10.25 $ 10.10 $ 10.07 $ 10.07 $ 10.00
------- ------- ------- ------- -------
Investment Activities
Net investment income.. 0.19 0.38 0.40 0.41 0.14
Net realized and
unrealized gains from
investments........... (0.10) 0.15 0.03 -- 0.07
------- ------- ------- ------- -------
Total from Investment
Activities............ 0.09 0.53 0.43 0.41 0.21
------- ------- ------- ------- -------
Distributions
Net investment income.. (0.19) (0.38) (0.40) (0.41) (0.14)
------- ------- ------- ------- -------
Total Distributions.... (0.19) (0.38) (0.40) (0.41) (0.14)
------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 10.15 $ 10.25 $ 10.10 $ 10.07 $ 10.07
======= ======= ======= ======= =======
Total Return............ 0.88%(b) 5.36% 4.39% 4.15% 2.15%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $41,245 $42,862 $30,454 $29,472 $23,754
Ratio of expenses to
average net assets..... 0.76%(c) 0.64% 0.38% 0.31% 0.47%(c)
Ratio of net investment
income to average net
assets................. 3.66%(c) 3.75% 4.00% 4.07% 3.81%(c)
Ratio of expenses to
average net assets*.... 1.16%(c) 1.20% 1.33% 0.96% 1.12%(c)
Portfolio turnover**.... 0.00% 18.58% 0.00% 0.00% 0.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
72
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
73
<PAGE>
Mercantile Missouri Tax-Exempt Bond Portfolio+
Q. What were conditions in the Missouri municipal bond market during the six
months ended May 31, 1999?
A. As always, the Missouri municipal market took its cues from the conditions
in the overall bond market. Interest rates during the period rose due to signs
of stronger-than-expected economic growth, which caused investors to worry that
the Federal Reserve Board (the Fed) would raise short-term interest rates. But
those inflationary concerns were at times countered by signs of more moderate
economic growth.
That environment of rising rates and uncertainty caused investors to favor
short-term municipal bonds over long-term issues. Meanwhile, supply in the muni
market was very tight because municipalities issued relatively few new bonds in
the rising rate environment. That scarce supply helped muni bonds outperform
taxable bonds during the period. The supply of new issues in Missouri was
especially limited, causing Missouri muni bonds to perform quite well.
Q. How did you position the Portfolio in that environment?
A. We kept the Portfolio around its target average maturity of approximately
nine years. We prefer to keep the Portfolio's average maturity near the upper
end of its range in order to capture attractive yields for shareholders. It
remains difficult to find attractive opportunities in the Missouri market due
to its tight supply.
Q. What was the average credit rating of the Portfolio's holdings?
A. We maintained the Portfolio's high average credit rating at AA1. Investors
continued to favor high-quality
issues due to general economic uncertainty. Moreover, the additional extra
yield available on lower-rated securities was not enough to compensate for the
additional credit risk associated with those issues.*
Q. Did any sectors of the Missouri market offer especially attractive
opportunities during the period?
A. We found opportunities to increase the Portfolio's yield by investing in
select, high-quality healthcare issues.
Q. What is your outlook for the U.S. economy and for the Missouri municipal
bond market going forward?
A. The U.S. economy will likely grow at a moderate pace, and inflation should
remain low. However, there is considerable uncertainty about the direction of
inflation and whether the Fed will raise short-term interest rates. That
uncertainty may put a damper on the municipal bond market during the next few
months. Yields on long-term Treasuries will probably trade in a range of
between 5.75% to 6.25%, and munis will trade in a relatively narrow range, as
well. But supply should remain tight in the second half of the year, which will
help support muni bond prices.
Q. How will you manage the Portfolio in that environment?
A. We will invest new cash in longer-term bonds in order to capture yield for
shareholders. We will also continue to favor bonds with strong credit quality.
- -----
+ The Portfolio's income may be subject to certain state and local taxes and,
depending on your tax status, the federal alternative minimum tax.
* Portfolio composition is subject to change. Regional investing may involve
additional risk since investments are limited to one geographical area.
74
<PAGE>
Mercantile Missouri Tax-Exempt Bond Portfolio
[CHART OF MISSOURI TAX-EXEMPT BOND APPEARS HERE]
Value of a $10,000 Investment
Lehman Brothers
Investor A Investor A Investor B Municipal
Date (No Load) (Load)* (No CDSC) Bond Index
---- --------- ------ --------- ---------------------
5/89 10,000 9,525 10,000 10,000
5/90 10,549 10,048 10,549 10,733
5/91 11,464 10,919 11,446 11,814
5/92 12,635 12,034 12,640 12,976
5/93 14,080 13,412 14,090 14,529
5/94 14,294 13,615 14,305 14,888
5/95 15,563 14,824 15,537 16,243
5/96 16,046 15,284 15,890 16,986
5/97 17,196 16,379 16,877 18,395
5/98 18,570 17,688 18,097 20,121
5/99 19,242 18,275 18,604 21,062
Average Annual Total Returns as of 5/31/99
1 Year 5 Year 10 Year
------ ------ -------
Investor A (No Load) 3.62% 6.12% 6.76%
Investor A* -1.33% 5.09% 6.24%
Investor B (No CDSC) 2.80% 5.40% 6.40%
Investor B (CDSC)** -2.16% 5.23% 6.40%
* Reflects 4.75% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[CHART OF MISSOURI TAX-EXEMPT BOND TRUST APPEARS HERE]
Value of a $10,000 Investment
Lehman Brothers
Municipal
Date Trust Bond Index
---- ----- --------------------
5/89 10,000 10,000
5/90 10,549 10,733
5/91 11,502 11,814
5/92 12,691 12,976
5/93 14,172 14,529
5/94 14,416 14,888
5/95 15,726 16,243
5/96 16,245 16,986
5/97 17,444 18,395
5/98 18,890 20,121
5/99 19,613 21,062
Average Annual Total Returns as of 5/31/99
1 Year 5 Year 10 Year
------ ------ -------
Trust 3.83% 6.35% 6.97%
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Missouri Tax-Exempt Bond Portfolio is
measured against the Lehman Brothers Municipal Bond Index, an unmanaged index
generally representative of the total return of municipal bonds. Investors are
unable to invest in the index directly, although they can invest in the
underlying securities. The performance of the index does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management and fund accounting fees. By contrast, the performance of the
Portfolio shown on the graph reflects the deduction of these value-added
services, as well as the deduction of a 4.75% sales charge on Investor A
Shares.
The Portfolio commenced operations on July 5, 1988 as a separate investment
portfolio (the "Predecessor Portfolio") of The Arch Tax-Exempt Trust. On
October 2, 1995, the Predecessor Portfolio was reorganized as a new portfolio
of Mercantile Mutual Funds, Inc. Prior to the reorganization, the Predecessor
Portfolio offered and sold shares that were similar to the Portfolio's Investor
A, Investor B and Trust Shares. Total returns for periods prior to October 2,
1995 reflect the performance of the Predecessor Portfolio.
Investor B Shares were initially offered on March 1, 1995. The performance
figures for Investor B Shares for periods prior to such date represent the
performance for Investor A Shares of the Portfolio, which has been restated to
reflect the contingent deferred sales charge payable by holders of Investor B
Shares who redeem within six years of the date of purchase. Investor B Shares
are also subject to distribution and service fees at a maximum annual rate of
1.00%. Had these distribution and service fees been reflected, performance
would have been reduced.
Investor B Shares (CDSC) are not included in the above graph, since the
performance is for more than six years and the CDSC would no longer apply.
After six years, the performance for Investor B Shares (CDSC) mirrors the
Investor B Shares (No CDSC) performance.
75
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Missouri Tax-Exempt Bond Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds (92.8%):
Security Principal
Description Amount Market Value
----------- ---------- ------------
<S> <C> <C>
Missouri (87.1%):
Clayton School District, G.O., 5.00%, 3/1/17, Callable
on 3/1/07 @ 101...................................... $3,325,000 $ 3,283,438
Columbia, G.O., 5.50%, 10/1/03........................ 1,255,000 1,338,144
Columbia, Water & Electrical Revenue, Series A,
6.13%,10/1/12, Prerefunded on 10/1/02 @ 102.......... 1,000,000 1,086,250
Franklin County Reorganized School District, No. R-
XI,G.O., 5.75%, 3/1/13, Callable 3/1/03 @ 100 (FGIC
Insured)............................................. 110,000 115,088
Franklin County Reorganized School District, No. R-
XI,G.O., 5.75%, 3/1/13, Prerefunded on 3/1/03 @ 100
(FGIC Insured)....................................... 640,000 674,400
Hazelwood School District, G.O., 5.85%, 3/1/09,
Callable on 3/1/04 @ 100............................. 1,000,000 1,066,250
Jackson County School District, G.O., 4.85%, 3/1/13,
Callable 3/1/08 @ 100................................ 2,000,000 2,002,500
Jefferson City School District, Series A, 6.70%,
3/1/11............................................... 1,000,000 1,166,250
Kansas City School District Building, Capital
Improvement Project, 5.00%, 2/1/14, Callable on
2/1/04 @ 102 (FGIC Insured).......................... 2,230,000 2,238,363
Kansas City School District Building, Capital
Improvement Project, 5.15%, 2/1/08, Callable on
2/1/04 @ 102 (FGIC Insured).......................... 2,415,000 2,511,600
Kansas City School District Building, Elementary
School Project, Series D, 5.00%, 2/1/14, Callable on
2/1/04 @ 102 (FGIC Insured).......................... 1,000,000 1,003,750
Kansas City School District Building, Series C, 5.38%,
7/1/05, Callable on 7/1/03 @ 101 (FGIC Insured)...... 1,000,000 1,051,250
Kansas City Sewer Revenue, 5.75%, 3/1/01.............. 1,000,000 1,033,750
Kansas City Water Revenue, Series A, 5.00%, 12/1/11,
Callable 12/1/08 @ 101............................... 4,390,000 4,455,849
Kansas City Water Revenue, Series B, 5.00%, 12/1/16,
Callable on 12/1/06 @ 101............................ 2,200,000 2,172,500
Kansas City, Series A, G.O., 5.25%, 9/1/12, Callable
on 3/1/08 @ 101...................................... 3,980,000 4,144,174
Lincoln County Industrial Development Authority,
Industrial Development Revenue, Monsanto Co. Project,
7.50%, 5/1/05, Callable on 7/1/99 @ 102.............. 700,000 715,561
Mehlville School District No. 09, G.O., 6.00%,
2/15/13, Callable on 2/15/03 @ 102 (MBIA Insured).... 1,500,000 1,629,375
Missouri Health & Educational Facilities Authority,
Health Facilities Revenue, Nurshome Hospital, 5.00%,
5/15/28, Callable on 5/15/08 @ 101................... 3,105,000 2,934,225
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds. continued:
Security Principal
Description Amount Market Value
----------- ---------- ------------
<S> <C> <C>
Missouri, continued:
Missouri Southern State College Revenue, 5.25%,
12/1/12, Prerefunded on 12/1/02 @ 100
(MBIA Insured)....................................... $ 750,000 $ 783,750
Missouri State Board of Public Buildings, 6.40%,
12/1/09, Callable on 12/1/01 @ 100................... 1,500,000 1,571,250
Missouri State Enviromental Improvement & Energy
Resources Authority, Water Pollution Control Revenue,
Series A, 5.00%, 1/1/19, Callable 7/1/08 @ 101....... 2,200,000 2,142,250
Missouri State Environmental Improvement & Energy
Resources Authority, Water Pollution Control Revenue,
Series A, 6.88%, 6/1/14, Callable on 12/1/01 @ 102... 1,100,000 1,193,500
Missouri State Environmental Improvement & Energy
Resources Authority, Water Pollution Control Revenue,
Series A, 6.45%, 7/1/08, Callable on 7/1/02 @ 102.... 1,000,000 1,087,500
Missouri State Environmental Improvement & Energy
Resources Authority, Water Pollution Control Revenue,
Series A, 6.55%, 7/1/14, Callable on 7/1/02 @ 102.... 500,000 542,500
Missouri State Environmental Improvement & Energy
Resources Authority, Water Pollution Control Revenue,
Series D, 5.88%, 1/1/15, Callable on 1/1/06 @ 101.... 1,000,000 1,063,750
Missouri State Environmental Improvement & Energy
Resources Authority, Water Pollution Control Revenue,
Series E, 5.63%, 7/1/16, Callable on 7/1/06 @ 101.... 1,250,000 1,303,125
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, Barnes
Hospital, 7.13%,12/15/12, Prerefunded 12/15/00 @
102.................................................. 500,000 536,875
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, Barnes-Jewish,
Inc., Series A, 5.25%, 5/15/21, Callable on 5/15/03
@ 102................................................ 2,500,000 2,496,875
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, Bethesda Eye
Institute, 6.63%, 11/1/09, Prerefunded on 11/1/01 @
102 (LOC-Credit Local de France)..................... 600,000 650,250
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, BJC Health
Systems, Series A, 6.75%, 5/15/12.................... 1,000,000 1,181,250
</TABLE>
Continued
76
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Missouri Tax-Exempt Bond Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds. continued:
Security Principal
Description Amount Market Value
----------- ---------- ------------
<S> <C> <C>
Missouri, continued:
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, Children's
Mercy Hospital Projects, 5.63%, 5/15/12, Callable on
5/15/03 @ 101 (MBIA Insured)......................... $1,200,000 $ 1,248,000
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, Freeman
Hospital Project, Series A, 5.38%, 2/15/14, Callable
on 2/15/04 @ 102 (FSA Insured)....................... 1,000,000 1,023,750
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, Sisters of
Mercy Health System, Series A, 6.25%, 6/1/15,
Callable on 6/1/02 @ 102 (MBIA Insured).............. 750,000 796,875
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, SSM Health Care
System, Series A, 5.00%, 6/1/18, Callable 6/1/08 @
101 (MBIA Insured)................................... 3,895,000 3,802,494
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, SSM Health Care
System, Series AA, 6.25%, 6/1/16, Prerefunded on
6/1/02 @ 102 (MBIA Insured).......................... 390,000 423,150
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, SSM Health Care
System, Series AA, 6.25%, 6/1/16, Callable 6/1/02 @
102 (MBIA Insured)................................... 1,610,000 1,730,750
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, St. Luke's
Health System, 5.10%, 11/15/13, Callable on 11/15/03
@ 102 (MBIA Insured)................................. 2,000,000 2,020,000
Missouri State Higher Education Loan Authority,
Student Loan Revenue, Series A, 5.75%, 2/15/02....... 1,000,000 1,035,000
Missouri State Housing Development Revenue, 6.60%,
7/1/24, Callable on 1/1/03 @ 100 (FHA Insured)....... 835,000 868,400
Missouri State Housing Development Revenue, Series B,
7.00%, 9/1/10, Callable on 9/1/01 @ 102 (FHA
Insured)............................................. 455,000 478,888
Missouri State Housing Development Revenue, Series C,
6.90%, 7/1/18, Callable on 1/1/02 @102............... 415,000 434,713
Missouri State Water Pollution Control Revenue, Series
A, G.O., 5.75%, 8/1/12, Callable on 8/1/02 @ 100..... 1,000,000 1,050,000
Missouri State Water Pollution Control Revenue, Series
A, G.O., 5.75%, 8/1/18, Callable on 8/1/06 @ 100..... 2,085,000 2,246,588
Missouri State, Fourth Street Building, Series A,
G.O., 5.40%, 8/1/09, Callable on 8/1/06 @ 100........ 2,000,000 2,120,000
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds. continued:
Security Principal
Description Amount Market Value
----------- ---------- ------------
<S> <C> <C>
Missouri, continued:
Missouri State, Third Street Building, Series A, G.O.,
5.25%, 8/1/08, Callable on 8/1/02 @ 100.............. $1,000,000 $ 1,026,250
Missouri Western State College Revenue, 5.40%,
10/1/16, Callable on 10/1/03 @ 102 (MBIA Insured).... 1,000,000 1,018,750
Missouri, Series A, G.O., 5.13%, 8/1/09, Callable on
8/1/02 @ 100......................................... 1,000,000 1,020,000
North Kansas City Hospital Revenue, 5.00%, 11/15/28,
Callable on 11/15/08 @ 101 (AMBAC Insured)........... 3,000,000 2,865,000
O'Fallon, G.O., 5.75%, 3/1/10, Callable on 3/1/01 @
100 (MBIA Insured)................................... 570,000 580,688
Phelps County Hospital Revenue, Phelps County Regional
Medical Center, 8.20%, 3/1/05, Prerefunded on 3/1/00
@ 102................................................ 600,000 633,432
Sikeston Electric Revenue, 5.00%, 6/1/22, Callable on
6/1/06 @ 101 (MBIA Insured).......................... 1,000,000 972,500
Sikeston Electric Revenue, 6.25%, 6/1/22, Prerefunded
on 6/1/02 @ 102 (MBIA Insured)....................... 1,000,000 1,082,500
Southeast Missouri Correctional Facilities Revenue,
5.75%, 10/15/08, Callable on 10/15/00 @ 102.......... 500,000 516,250
Southeast Missouri Correctional Facilities Revenue,
5.75%, 10/15/16, Callable on 10/15/02 @ 100.......... 500,000 512,500
Springfield School District No. R-12, Series A, G.O.,
5.25%, 3/1/11, Callable on 3/1/03 @ 100 (MBIA
Insured)............................................. 2,000,000 2,035,000
Springfield Water Works Revenue, Series A, 5.60%,
5/1/23, Callable on 5/1/03 @ 102..................... 2,000,000 2,137,500
St. Charles County Community College, G.O., 6.00%,
2/15/09, Callable on 2/15/01 @ 102 (AMBAC Insured)... 1,000,000 1,047,500
St. Charles County Public Facilities Authority,
Leasehold Revenue, 6.38%, 3/15/07, Callable on
3/15/02 @ 102 (FGIC Insured)......................... 500,000 535,000
St. Louis County Industrial Development Authority,
Health Facility Revenue, Lutheran Health Care
Association, Series A, 7.38%, 2/1/14, Prerefunded on
2/1/02 @ 102......................................... 800,000 883,000
St. Louis County Industrial Development Authority,
Pollution Control Revenue, Anheuser-Busch Co.
Project, 6.65%, 5/1/16............................... 400,000 465,500
St. Louis County, Pattonville R-3 School District,
G.O., 6.25%, 2/1/10, Prerefunded on 2/1/02 @ 100
(FGIC Insured)....................................... 750,000 793,125
St. Louis County, Rockwood School District No. R-6,
G.O., 5.00%, 2/1/04, Callable on 2/1/02 @ 101........ 1,000,000 1,033,750
</TABLE>
Continued
77
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Missouri Tax-Exempt Bond Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds. continued:
Security Principal
Description Amount Market Value
----------- ---------- ------------
<S> <C> <C>
Missouri, continued:
St. Louis County, Series B, G.O., 5.50%, 2/1/13,
Callable on 2/1/03 @ 100............................. $2,500,000 $ 2,612,500
St. Louis Water Revenue, 6.00%, 7/1/14, Prerefunded on
7/1/04 @ 102 (FGIC Insured).......................... 500,000 551,250
St. Peters, G.O., 5.80%, 1/1/09, Prerefunded on 1/1/02
@ 102................................................ 1,740,000 1,853,100
St. Peters, G.O., 5.85%, 1/1/13, Prerefunded on 1/1/02
@ 102................................................ 1,065,000 1,135,556
University City Industrial Development Authority,
Multifamily Housing Revenue, Series A, 5.95%,
12/20/25, Callable on 12/20/05 @ 102................. 1,400,000 1,463,000
University Health Facilities Revenue, University of
Missouri Health System, Series A, 5.60%, 11/1/26,
Callable on 11/1/06 @ 102 (AMBAC Insured)............ 3,000,000 3,105,000
University Of Missouri Health Systems, Series A,
5.13%, 11/1/28, Callable on 11/1/08 @ 100 (AMBAC
Insured)............................................. 4,000,000 3,894,999
University of Missouri, University Revenue, 5.50%,
11/1/23, Callable on 11/1/03 @ 101................... 2,000,000 2,062,500
University of Missouri, University Revenue, 5.80%,
11/1/27, Callable on 11/1/07 @ 101................... 3,000,000 3,150,000
University of Missouri, University Revenue, 5.50%,
11/1/21, Callable on 11/1/07 @ 101................... 3,000,000 3,082,500
University of Missouri, University Revenue, Series A,
6.50%, 11/1/11, Prerefunded on 11/1/00 @ 102 (AMBAC
Insured)............................................. 925,000 981,656
Wentzville School District No. R-4, G.O., 5.10%,
3/1/18, Callable on 3/1/08 @ 100 (FSA Insured)....... 3,000,000 2,955,000
------------
114,459,506
------------
Puerto Rico (5.7%):
Puerto Rico Commonwealth, G.O., 6.45%, 7/1/17,
Prerefunded on 7/1/04 @ 101.5........................ 500,000 561,875
Puerto Rico Commonwealth, Series A, G.O., 6.00%,
7/1/06, Callable on 7/1/02 @ 101.5................... 1,000,000 1,067,500
Puerto Rico Public Buildings Authority, Public
Education and Health Facilities Revenue, Series B,
5.00%, 7/1/27, Callable on 7/1/07 @ 101.5 (AMBAC
Insured)............................................. 4,000,000 3,875,000
Puerto Rico Public Buildings Authority, Public
Education and Health Facilities Revenue, Series M,
5.50%, 7/1/21, Callable on 7/1/03 @ 101.5............ 2,000,000 2,052,500
------------
7,556,875
------------
TOTAL MUNICIPAL BONDS................................. 122,016,381
------------
</TABLE>
<TABLE>
<CAPTION>
Investment Companies (6.2%):
Security
Description Shares Market Value
----------- --------- ------------
<S> <C> <C>
Federated Tax-Free Fund................................. 6,523,000 $ 6,523,000
Nuveen Tax Exempt Fund.................................. 1,669,000 1,669,000
------------
TOTAL INVESTMENT COMPANIES.............................. 8,192,000
------------
TOTAL INVESTMENTS (Cost $126,341,188)(a)-99.0%.......... 130,208,381
Other assets in excess of liabilities 1.0%.............. 1,338,487
------------
TOTAL NET ASSETS-100.0%................................. $131,546,868
============
</TABLE>
- -----
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.... $4,377,321
Unrealized depreciation.... (510,128)
----------
Net unrealized apprecia-
tion...................... $3,867,193
==========
</TABLE>
AMBAC AMBAC Indemnity Corp.
FGIC Financial Guaranty Insurance Corp.
FHA Federal Housing Administration
FSA Financial Securities Assurance, Inc.
G.O. General Obligation
LOC Letter of Credit
MBIA Municipal Bond Insurance Association
See notes to financial statements
78
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Missouri Tax-Exempt Bond Portfolio
Statement of Assets and Liabilities
May 31, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value
(cost $126,341,188).................................... $130,208,381
Cash.................................................... 287
Interest and dividends receivable....................... 1,874,718
Receivable for capital shares issued.................... 28,604
Prepaid expenses and other assets....................... 6,619
------------
Total Assets........................................... 132,118,609
Liabilities:
Dividends payable....................................... $488,946
Accrued expenses and other payables:
Investment advisory fees............................... 50,381
Administration fees.................................... 1,802
Distribution and administrative services fees.......... 7,158
Custodian fees......................................... 4,478
Other liabilities...................................... 18,976
--------
Total Liabilities...................................... 571,741
------------
Net Assets:
Capital................................................. 127,679,801
Accumulated net realized losses from investment
transactions........................................... (126)
Net unrealized appreciation from investments............ 3,867,193
------------
Net Assets.............................................. $131,546,868
============
Investor A Shares
Net Assets............................................. $ 23,639,668
Shares................................................. 1,991,010
Redemption price per share............................. $11.87
======
Maximum Sales Charge--Investor A Shares................. 4.75%
Maximum Offering Price (100%/(100% -- Maximum Sales
Charge) of net asset value adjusted to the nearest
cent) per share....................................... $12.46
======
Investor B Shares
Net Assets............................................. $ 3,690,847
Shares................................................. 311,040
Offering price per share*.............................. $11.87
======
Trust Shares
Net Assets............................................. $104,216,353
Shares................................................. 8,775,022
Offering and redemption price per share................ $11.88
======
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
Statement of Operations
For the period ended May 31, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income........................................... $3,087,961
Dividend income........................................... 133,228
----------
Total Income............................................. 3,221,189
Expenses:
Investment advisory fees.................................. $284,485
Administration fees....................................... 126,439
Distribution and services fees,
Investor A Shares........................................ 35,421
Distribution and services fees,
Investor B Shares........................................ 15,619
Administrative services fees,
Trust Shares............................................. 149,550
Accounting fees........................................... 4,984
Custodian fees............................................ 28,009
Transfer agent fees....................................... 14,946
Other fees................................................ 24,158
--------
Total expenses before voluntary fee reductions........... 683,611
Expenses voluntarily reduced............................. (228,823)
----------
Net Expenses............................................. 454,788
----------
Net investment income..................................... 2,766,401
----------
Realized/Unrealized Losses from Investments:
Net realized losses from investment transactions.......... (129)
Net change in unrealized appreciation from investments.... (2,031,616)
----------
Net realized/unrealized losses from investments........... (2,031,745)
----------
Change in net assets resulting from operations............ $ 734,656
==========
</TABLE>
See notes to financial statements
79
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Missouri Tax-Exempt Bond Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
year ended For the
May 31, year ended
1999 November 30,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 2,766,401 $ 4,850,391
Net realized gains (losses) from investment trans-
actions.......................................... (129) 281,600
Net change in unrealized appreciation from invest-
ments............................................ (2,031,616) 1,598,199
------------ ------------
Change in net assets resulting from operations..... 734,656 6,730,190
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (500,194) (1,054,885)
From net realized gains........................... (31,904) --
Distributions to Investor B Shareholders:
From net investment income........................ (53,788) (70,214)
From net realized gains........................... (3,590) --
Distributions to Trust Shareholders:
From net investment income........................ (2,212,419) (3,725,292)
From net realized gains........................... (127,535) --
------------ ------------
Change in net assets from shareholder distribu-
tions............................................. (2,929,430) (4,850,391)
------------ ------------
Change in net assets from capital transactions..... 13,232,738 18,078,730
------------ ------------
Change in net assets............................... 11,037,964 19,958,529
Net Assets:
Beginning of period............................... 120,508,904 100,550,375
------------ ------------
End of period..................................... $131,546,868 $120,508,904
============ ============
</TABLE>
See notes to financial statements
80
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Missouri Tax-Exempt Bond Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the For the
period ended For the years ended Six Months For the years
May 31, November 30, Ended ended May 31,
1999 ------------------------- November 30, -----------------
(Unaudited) 1998 1997 1996 1995 (d) 1995 (a) 1994
------------ ------- ------- ------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 12.08 $ 11.87 $ 11.69 $ 11.74 $ 11.52 $ 11.13 $ 11.54
------- ------- ------- ------- ------- ------- -------
Investment Activities
Net investment income.. 0.24 0.52 0.53 0.55 0.27 0.55 0.55
Net realized and
unrealized gains
(losses) from
investments........... (0.18) 0.21 0.18 (0.05) 0.22 0.40 (0.37)
------- ------- ------- ------- ------- ------- -------
Total from Investment
Activities............ 0.06 0.73 0.71 0.50 0.49 0.95 0.18
------- ------- ------- ------- ------- ------- -------
Distributions
Net investment income.. (0.25) (0.52) (0.53) (0.55) (0.27) (0.55) (0.55)
Net realized gains..... (0.02) -- -- -- -- (0.01) (0.04)
------- ------- ------- ------- ------- ------- -------
Total Distributions.... (0.27) (0.52) (0.53) (0.55) (0.27) (0.56) (0.59)
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 11.87 $ 12.08 $ 11.87 $ 11.69 $ 11.74 $ 11.52 $ 11.13
======= ======= ======= ======= ======= ======= =======
Total Return (excludes
sales charge).......... 0.49%(b) 6.31% 6.27% 4.41% 4.32%(b) 8.91% 1.53%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $23,640 $23,611 $23,722 $25,144 $24,726 $24,318 $27,919
Ratio of expenses to
average net assets..... 0.86%(c) 0.86% 0.86% 0.85% 0.95%(c) 0.84% 0.65%
Ratio of net investment
income to average net
assets................. 4.24%(c) 4.38% 4.57% 4.75% 4.64%(c) 5.02% 4.75%
Ratio of expenses to
average net assets*.... 1.07%(c) 1.06% 1.06% 1.05% 1.18%(c) 1.18% 1.12%
Portfolio turnover**.... 0.14% 6.14% 3.50% 3.66% 1.55% 0.00% 20.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) On September
27, 1994, the Portfolio redesignated the Investor Shares as "Investor A"
Shares, and authorized the issuance of a series of shares designated as
"Investor B" Shares. (b) Not annualized. (c) Annualized. (d) Upon reorganizing
as a Portfolio of Mercantile Mutual Funds, Inc., the Missouri Tax-Exempt Bond
Portfolio changed its fiscal year end from May 31 to November 30.
Financial Highlights, Investor B Shares
<TABLE>
<CAPTION>
For the For the
period ended For the years ended Six Months March 1,
May 31, November 30, Ended 1995 to
1999 ---------------------- November 30, May 31,
(Unaudited) 1998 1997 1996 1995 (e) 1995 (a)
------------ ------ ------ ------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $12.07 $11.86 $11.68 $11.74 $11.52 $11.19
------ ------ ------ ------ ------ ------
Investment Activities
Net investment income.. 0.21 0.43 0.44 0.45 0.22 0.11
Net realized and
unrealized gains
(losses) from
investments........... (0.18) 0.21 0.18 (0.06) 0.22 0.33
------ ------ ------ ------ ------ ------
Total from Investment
Activities............ 0.03 0.64 0.62 0.39 0.44 0.44
------ ------ ------ ------ ------ ------
Distributions
Net investment income.. (0.21) (0.43) (0.44) (0.45) (0.22) (0.11)
Net realized gains..... (0.02) -- -- -- -- --
------ ------ ------ ------ ------ ------
Total Distributions.... (0.23) (0.43) (0.44) (0.45) (0.22) (0.11)
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $11.87 $12.07 $11.86 $11.68 $11.74 $11.52
====== ====== ====== ====== ====== ======
Total Return (excludes
redemption charge)..... 0.18%(b) 5.47% 5.43% 3.48% 3.88%(b) 8.61%(c)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $3,691 $2,496 $1,398 $ 675 $ 433 $ 94
Ratio of expenses to
average net assets..... 1.66%(d) 1.66% 1.66% 1.65% 1.77%(d) 1.76%(d)
Ratio of net investment
income to average net
assets................. 3.44%(d) 3.57% 3.76% 3.96% 3.82%(d) 4.00%(d)
Ratio of expenses to
average net assets*.... 1.76%(d) 1.76% 1.76% 1.75% 1.87%(d) 1.88%(d)
Portfolio turnover**.... 0.14% 6.14% 3.50% 3.66% 1.55% 0.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) On September
27, 1994, the Portfolio redesignated Investor shares as "Investor A" shares
and authorized the issuance of a third series of shares designated as
"Investor B" shares. These financial highlights of Investor B shares cover the
period from March 1, 1995 (commencement of operations) through May 31, 1995.
(b) Not annualized. (c) Represents total return for the Investor A Shares from
June 1, 1994 to February 28, 1995, plus the total return for the Investor B
Shares for the period from March 1, 1995 to May 31, 1995. (d) Annualized. (e)
Upon reorganizing as a Portfolio of Mercantile Mutual Funds, Inc., the
Missouri Tax-Exempt Bond Portfolio changed its fiscal year end from May 31 to
November 30.
81
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Missouri Tax-Exempt Bond Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the For the
period ended For the years ended Six Months For the years
May 31, November 30, Ended ended May 31,
1999 ------------------------- November 30, ----------------
(Unaudited) 1998 1997 1996 1995 (c) 1995 1994
------------ ------- ------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 12.08 $ 11.87 $ 11.69 $ 11.74 $ 11.52 $ 11.13 $ 11.54
-------- ------- ------- ------- ------- ------- -------
Investment Activities
Net investment income.. 0.27 0.55 0.56 0.57 0.28 0.57 0.58
Net realized and
unrealized gains
(losses) from
investments........... (0.18) 0.21 0.18 (0.05) 0.22 0.40 (0.37)
-------- ------- ------- ------- ------- ------- -------
Total from Investment
Activities............ 0.09 0.76 0.74 0.52 0.50 0.97 0.21
-------- ------- ------- ------- ------- ------- -------
Distributions
Net investment income.. (0.27) (0.55) (0.56) (0.57) (0.28) (0.57) (0.58)
Net realized gains..... (0.02) -- -- -- -- (0.01) (0.04)
-------- ------- ------- ------- ------- ------- -------
Total Distributions.... (0.29) (0.55) (0.56) (0.57) (0.28) (0.58) (0.62)
-------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 11.88 $ 12.08 $ 11.87 $ 11.69 $ 11.74 $ 11.52 $ 11.13
======== ======= ======= ======= ======= ======= =======
Total Return............ 0.68%(a) 6.52% 6.48% 4.62% 4.41%(a) 9.12% 1.73%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $104,216 $94,402 $75,431 $55,905 $47,773 $44,336 $47,743
Ratio of expenses to
average net assets..... 0.66%(b) 0.66% 0.66% 0.65% 0.78%(b) 0.64% 0.45%
Ratio of net investment
income to average net
assets................. 4.44%(b) 4.57% 4.76% 4.95% 4.83%(b) 5.22% 4.96%
Ratio of expenses to
average net assets*.... 1.06%(b) 1.06% 1.06% 0.75% 0.88%(b) 1.16% 1.13%
Portfolio turnover**.... 0.14% 6.14% 3.50% 3.66% 1.55% -- 20.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Not
annualized. (b) Annualized. (c) Upon reorganizing as a Portfolio of Mercantile
Mutual Funds, Inc., the Missouri Tax-Exempt Bond Portfolio changed its fiscal
year end from May 31 to November 30.
82
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
83
<PAGE>
Mercantile National Municipal Bond Portfolio+
Q. What were the conditions in the economy and the municipal bond market
during the six months ended May 31, 1999?
A. The economy at times appeared to be growing rapidly, causing investors to
worry that the Federal Reserve (the Fed) would increase interest rates to head
off inflation. At other times, however, the economy appeared to be growing at a
moderate pace, and inflation fears receded. That uncertainty caused interest
rates to rise during the period, dampening the performance of municipal bonds
and the overall bond market. In that environment, short-term municipal bonds
outperformed longer-term securities, as investors became increasingly
conservative. Municipal bonds outperformed taxable bonds, however. The rise in
rates led to fewer new muni issuances. The tight supply in the muni market
benefited munis relative to Treasury bonds.
Q. How did you position the Portfolio in that environment?
A. In keeping with the Portfolio's strategy, we maintained an average
maturity of around 10 years. That approach helped the Portfolio capture
additional yield for shareholders. But, short-term bonds outperformed longer-
term issues, especially ten-year bonds, hurting the Portfolio's performance.
Q. What was the average credit rating of the Portfolio's holdings?
A. We maintained the Portfolio's high average credit rating of AA1. That
strategy benefited the Portfolio during the period, as investors continued to
favor high-quality issues. We believe that the slight additional yield
available from lower-quality municipal bonds is not attractive enough to
justify those securities' additional credit risk.*
Q. What sectors of the municipal market did you favor during the period?
A. The Mercantile Portfolios do not make large sector bets. However, we were
able to find attractive opportunities to capture additional yield early in the
period by purchasing select healthcare issues. We limited purchases of those
holdings as the yield advantage on those securities diminished later in the
period.
Q. What is your outlook going forward?
A. We expect the economy to grow at a moderate pace and inflation to remain
low in the long term. There are some indications that inflation could
temporarily rise in the coming months and cause the Fed to raise short-term
interest rates. That uncertainty over the economic outlook may continue to hurt
the municipal bond market during the next few months. Yields on long-term bonds
will probably fluctuate between 5.75% to 6.25%, and munis also should trade in
a relatively narrow range. But the supply of new municipal bonds should remain
tight in the second half of the year, which could help the municipal bond
market relative to the taxable bond market.
Q. How will you manage the Portfolio going forward?
A. We prefer to own longer-term issues and collect their higher yield while
waiting for their prices to rise. For that reason, we will maintain the
Portfolio's current position, looking for opportunities to increase the
Portfolio's yield for shareholders. We will also continue to hold bonds with
very strong credit quality, as lower rated issues do not offer enough extra
yield to make up for their additional risk.
- -----
+ The Portfolio's income may be subject to certain state and local taxes and,
depending on your tax status, the federal alternative minimum tax.
* Portfolio composition is subject to change
84
<PAGE>
Mercantile National Municipal Bond Portfolio
[CHART OF NATIONAL MUNICIPAL BOND APPEARS HERE]
Value of a $10,000 Investment
Lehman Brothers
Investor A Investor A Investor B Investor B 10 Year Municipal
Date (No Load) (Load)* (No CDSC) (CDSC) Bond Index
---- --------- ------- --------- ------ ----------
11/18/96 10,000 9,551 10,000 9,500 10,000
11/30/96 10,073 9,620 10,070 9,570 10,566
11/30/97 10,839 10,352 10,775 10,275 11,311
11/30/98 11,658 11,135 11,496 11,196 12,192
5/31/99 11,658 11,102 11,450 11,152 12,755
Average Annual Total Returns as of 5/31/99
1 Year Since Inception (11/18/96)
------ --------------------------
Investor A (No Load) 3.56% 6.25%
Investor A* -1.34% 4.22%
Investor B (No CDSC) 2.74% 5.50%
Investor B (CDSC) -2.18% 4.40%
* Reflects 4.75% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[CHART OF NATIONAL MUNICIPAL BOND TRUST APPEARS HERE]
Value of a $10,000 Investment
Lehman Brothers
10 year Municipal
Date Trust Bond Index
---- ----- --------------------
11/18/96 10,000 10,000
11/30/96 10,074 10,566
11/30/97 10,876 11,311
11/30/98 11,720 12,192
5/31/99 11,732 12,755
Average Annual Total Returns as of 5/31/99
1 Year Since Inception (11/18/96)
------ --------------------------
Trust 3.77% 6.51%
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile National Municipal Bond Portfolio is
measured against the Lehman Brothers 10 year Municipal Bond Index, an unmanaged
index representative of the total return of municipal bonds with remaining
maturities of 10 years or less. Investors are unable to invest in the index
directly, although they can invest in the underlying securities. The
performance of the index does not reflect the deduction of expenses associated
with a mutual fund, such as investment management and fund accounting fees. By
contrast, the performance of the Portfolio shown on the graph reflects the
deduction of these value-added services, as well as the deduction of a 4.75%
sales charge on Investor A Shares and the applicable contingent deferred sales
charge (CDSC) on Investor B Shares.
85
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
National Municipal Bond Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds (98.1%):
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Alaska (0.3%):
Alaska State, Housing Finance Corp., Series A, 5.70%,
12/1/11, Callable on 12/1/05 @ 102 (MBIA Insured)..... $1,000,000 $ 1,041,250
------------
California (5.7%):
Sacramento Municipal Utility District, Electric Power &
Light Revenue, Series L, 5.10%, 7/1/13, Callable on
7/1/07 @ 102 (AMBAC Insured).......................... 9,000,000 9,180,000
San Francisco Bay Area Rapid Transit Tax Revenue, 5.25%
7/1/17, Callable on 7/1/08 @ 101...................... 5,000,000 5,075,000
Southern California Public Power Authority, Electric
Power & Light Revenue, Palo Verde, Series A, 5.00%,
7/1/15,Callable on 7/1/03 @ 102 (AMBAC-TCRS Insured).. 7,000,000 6,912,500
------------
21,167,500
------------
Colorado (5.7%):
Adams County School District No. 012, G.O., 5.40%,
12/15/13, Callable on 12/15/07 @ 101 (FGIC Insured)... 6,655,000 6,887,925
Colorado Springs, Utilities Revenue, System
Improvement, Series A, 5.25%, 11/15/22, Callable on
11/15/07 @ 100........................................ 6,160,000 6,152,300
Jefferson County School District No. R-001, G.O.,
5.00%, 12/15/12, Callable on 12/15/07 @ 101........... 8,000,000 8,120,000
------------
21,160,225
------------
Connecticut (3.6%):
Connecticut State, Clean Water Foundation Revenue,
5.25%, 3/1/20, Callable on 3/1/08 @ 101............... 4,360,000 4,392,700
Connecticut State, Series A, G.O., 5.25%, 3/1/13,
Callable on 3/1/07 @ 101.............................. 8,785,000 9,059,531
------------
13,452,231
------------
District of Columbia (1.4%):
District of Columbia Water & Sewer Authority Revenue,
5.50%, 10/1/18, Callable on 4/1/09 @ 160 (FSA
Insured).............................................. 5,000,000 5,275,000
------------
Florida (5.1%):
Florida State Department of Environmental Preservation
2000, General Services Revenue, Series A, 5.50%,
7/1/13, Callable on 7/1/06 @ 101 (MBIA Insured)....... 5,000,000 5,268,750
Florida State Department of Transportation, G.O.,
5.25%, 7/1/17, Callable on 7/1/06 @ 101............... 5,525,000 5,587,156
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Florida, continued:
Palm Beach County, Park & Recreational Facilities
Revenue, 5.25%, 11/1/16, Callable on 11/1/06 @ 102
(FSA Insured)......................................... $5,000,000 $ 5,050,000
Palm Beach County, Solid Waste Authority Revenue,
Series B, 5.38%, 10/1/11, Callable on 10/1/06 @ 101
(AMBAC Insured)....................................... 3,000,000 3,120,000
------------
19,025,906
------------
Hawaii (5.3%):
Hawaii State, Series CN, G.O., 5.50%, 3/1/14, Callable
on 3/1/07 @ 102 (FGIC Insured)........................ 8,000,000 8,320,000
Hawaii State, Series CR, G.O., 5.00%, 4/1/16, Callable
on 4/1/08 @ 101 (MBIA Insured)........................ 5,000,000 4,918,750
Honolulu City & County, Series A, G.O., 6.00%, 1/1/09.. 970,000 1,074,275
Honolulu City & County, Unrefunded Balance, Series A,
G.O., 6.00%, 1/1/09................................... 4,845,000 5,359,781
------------
19,672,806
------------
Illinois (9.9%):
Chicago Metropolitan Water Reclamation District, G.O.,
5.10%, 7/15/12, Callable on 7/15/08 @ 101............. 5,000,000 5,093,750
Cook County, Series A, G.O., 6.25%, 11/15/12 (MBIA
Insured).............................................. 9,090,000 10,317,150
Cook County, Series B, G.O., 5.13%, 11/15/16, Callable
on 11/15/07 @ 101 (MBIA Insured)...................... 6,000,000 5,962,500
Illinois Health Facility Authority Revenue, Loyola
University Health System, Series A, 5.38%, 7/1/17,
Callable on 7/1/07 @ 101 (MBIA Insured)............... 7,000,000 7,070,000
Illinois State, G.O., 5.25%, 2/1/13, Callable on 2/1/07
@ 101 (FGIC Insured).................................. 8,400,000 8,589,000
------------
37,032,400
------------
Indiana (1.0%):
Indiana Transportation Finance Authority, Highway
Revenue, Series A, 5.75%, 6/1/12 (AMBAC Insured)...... 3,500,000 3,771,250
------------
Maryland (2.0%):
Maryland State and Local Facilities, 2nd Series, G.O.,
5.00%, 8/1/08, Callable on 8/1/07 @ 101............... 7,000,000 7,315,000
------------
Massachusetts (5.2%):
Massachusetts Bay Transportation Authority, Series A,
5.00%, 3/1/12, Callable on 3/1/07 @ 101 (FGIC
Insured).............................................. 5,795,000 5,881,925
</TABLE>
Continued
86
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
National Municipal Bond Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Massachusetts, continued:
Massachusetts Bay Transportation Authority, Series A,
5.13%, 3/1/17, Callable on 3/1/07 @ 101 (FGIC
Insured)............................................. $6,165,000 $ 6,141,881
Massachusetts State Water Pollution Abatement Trust,
Series 3, 5.63%, 2/1/15, Callable on 2/1/07 @ 101.... 7,115,000 7,497,432
------------
19,521,238
------------
Minnesota (4.4%):
Minnesota State, G.O., 4.90%, 8/1/14, Callable on
8/1/07 @ 100......................................... 5,000,000 4,981,250
Monticello Independent School District No. 882, G.O.,
5.40%, 2/1/15, Callable on 2/1/06 @ 100.............. 6,000,000 6,337,500
Rochester Health Care Facilities, Mayo Foundation,
Series A, 5.38%, 11/15/18, Callable on 5/15/08 @101.. 5,000,000 5,118,750
------------
16,437,500
------------
Mississippi (1.8%):
Mississippi State, Series A, G.O., 5.13%, 7/1/14,
Callable on 7/1/07 @ 100............................. 6,835,000 6,903,350
------------
Nevada (6.3%):
Clark County Flood Control, Series F, G.O., 5.00%,
11/1/12, Callable on 11/1/08 @ 101 (FGIC Insured).... 6,460,000 6,508,450
Clark County School District, Series B, G.O., 5.50%,
6/15/11, Callable on 6/15/07 @ 101 (FGIC Insured).... 5,000,000 5,225,000
Nevada State, 5.00%, 5/15/15, Callable on 5/15/08 @
100.................................................. 6,745,000 6,711,275
Nevada State, Series A, G.O., 5.13%, 9/1/11, Callable
on 3/1/07 @ 101...................................... 5,000,000 5,112,500
------------
23,557,225
------------
New Jersey (5.8%):
Camden County, Municipal Utilities Authority Sewer
Revenue, Series C, G.O., 5.25%, 12/1/14, Callable on
12/1/08 @ 102........................................ 5,000,000 5,118,750
New Jersey State Transportation System, Series A,
5.00%, 6/15/14, Callable on 6/15/08 @100............. 7,500,000 7,509,375
New Jersey State, Series E, G.O., 6.00%, 7/15/09...... 8,000,000 8,930,000
------------
21,558,125
------------
New York (1.4%):
New York State Thruway Authority, Series A, 5.25%,
4/1/14, Callable on 4/1/07 @ 102 (AMBAC Insured)..... 5,000,000 5,112,500
------------
North Carolina (2.2%):
North Carolina State, Series A, G.O., 5.20%, 3/1/13,
Callable on 3/1/07 @ 102............................. 8,000,000 8,300,000
------------
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
North Dakota (1.4%):
Fargo Water Revenue, 5.13%, 1/1/17, Callable on 1/1/08
@ 100 (MBIA Insured).................................. $5,250,000 $ 5,190,938
------------
Ohio (2.0%):
Ohio State Building Authority, 4.75%, 10/1/17, Callable
on 10/1/08 @ 101...................................... 8,000,000 7,610,000
------------
Oregon (1.8%):
Washington County, Unified Sewer Agency, Sewer Revenue,
Series 1, 5.75%, 10/1/10 (FGIC Insured)............... 6,110,000 6,698,088
------------
Pennsylvania (2.5%):
Pennsylvania State, G.O., 5.13%, 9/15/11, Callable on
3/15/07 @ 101.5 (AMBAC Insured)....................... 9,000,000 9,258,750
------------
Rhode Island (1.4%):
Rhode Island State, Series A, G.O., 5.13%, 8/1/12,
Callable on 8/1/07 @ 101 (MBIA Insured)............... 5,055,000 5,175,056
------------
Texas (10.9%):
Harris County Health Facilities Development Revenue,
Memorial Hospital Systems Project, Series A, 5.50%,
6/1/17, Callable on 6/1/07 @ 102 (MBIA Insured)....... 8,000,000 8,269,999
San Antonio Independent School District, G.O., 5.13%,
8/15/14, Callable on 8/15/08 @ 100 (PSF Guaranteed)... 6,000,000 6,037,500
San Antonio, Series A, G.O., 5.00%, 8/1/11, Callable on
8/1/06 @ 100.......................................... 5,000,000 5,062,500
Texas State, G.O., 5.40%, 8/1/21, Callable on 8/1/06 @
100................................................... 6,750,000 6,842,813
University of Texas Permanent University Fund, College
& University Revenue, 5.00%, 7/1/14, Callable on
7/1/08 @ 100 (PUFG Guaranteed)........................ 7,060,000 7,104,125
University of Texas, College & University Revenue,
Series B, 5.10%, 8/15/13, Callable on 8/15/06 @ 102... 7,500,000 7,593,750
------------
40,910,687
------------
Utah (1.7%):
Utah State, Series F, G.O., 5.00%, 7/1/09, Callable on
7/1/07 @ 100.......................................... 6,200,000 6,409,250
------------
Virginia (1.3%):
Virginia State Transportation Board, Transportation
Contract Revenue, U.S. Route 58 Corridor, Series B,
5.13%, 5/15/12, Callable on 5/15/06 @ 101............. 4,920,000 5,006,100
------------
Washington (5.8%):
King County School District No. 415, G.O., 5.35%,
12/1/16, Callable on 12/1/07 @ 100 (MBIA Insured)..... 4,050,000 4,120,875
</TABLE>
Continued
87
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
National Municipal Bond Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds, continued
Shares or
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Washington, continued:
King County, Series F, G.O., 5.13%, 12/1/14, Callable
on 12/1/07 @ 100..................................... $5,000,000 $ 5,050,000
Washington State Motor Vehicle Fuel Tax, Series D,
G.O., 5.38%, 1/1/22, Callable on 1/1/07 @ 100 (FGIC
Insured)............................................. 8,000,000 8,040,000
Washington State, Series C, G.O., 5.50%, 1/1/17,
Callable on 1/1/07 @ 100............................. 4,190,000 4,305,225
------------
21,516,100
------------
West Virginia (2.2%):
West Virginia School Building Authority Revenue,
5.40%, 7/1/10, Callable on 7/1/07 @ 102 (AMBAC
Insured)............................................. 7,940,000 8,396,550
------------
TOTAL MUNICIPAL BONDS 366,475,025
------------
Investment Companies (0.8%):
<CAPTION>
Federated Tax-Free Fund............................... 3,094,000 3,094,000
<S> <C> <C>
Nuveen Tax Exempt Fund................................ 1,000 1,000
------------
TOTAL INVESTMENT COMPANIES 3,095,000
------------
TOTAL INVESTMENTS
(Cost $357,995,873)(a)--98.9%................................... 369,570,025
Other assets in excess of liabilities--1.1%...................... 4,207,512
------------
TOTAL NET ASSETS--100.0% $373,777,537
============
</TABLE>
- -----
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation... $11,846,906
Unrealized depreciation... (272,754)
-----------
Net unrealized apprecia-
tion..................... $11,574,152
===========
</TABLE>
AMBAC AMBAC Indemnity Corp.
FGIC Financial Guaranty Insurance Corp.
FSA Financial Securities Assurance, Inc.
G.O. General Obligation
MBIA Municipal Bond Insurance Association
PSF Permanent School Fund
PUFG Permanent University Fund Guarantee
TCRS Transferrable Custodial Receipts
See notes to financial statements
88
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
National Municipal Bond Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
May 31, 1999
(Unaudited)
<S> <C> <C>
Assets:
Investments, at value (cost $357,995,873)............. $369,570,025
Interest and dividends receivable..................... 5,827,521
Receivable for capital shares issued.................. 1,786
Deferred organizational costs......................... 17,911
Prepaid expenses and other assets..................... 14,516
------------
Total Assets......................................... 375,431,759
Liabilities:
Dividends payable..................................... $1,390,659
Payable to custodian for overdraft.................... 153
Payable for capital shares redeemed................... 6,830
Accrued expenses and other payables:
Investment advisory fees............................. 175,754
Administration fees.................................. 5,126
Distribution and administrative services fees........ 1,008
Custodian fees....................................... 12,782
Other liabilities.................................... 61,910
----------
Total Liabilities.................................... 1,654,222
------------
Net Assets:
Capital............................................... 362,130,816
Accumulated net realized gains from investment
transactions......................................... 72,569
Net unrealized appreciation from investments.......... 11,574,152
------------
Net Assets............................................ $373,777,537
============
Investor A Shares
Net Assets........................................... $ 1,884,249
Shares............................................... 189,910
Redemption price per share........................... $9.92
=====
Maximum Sales Charge -- Investor A Shares............. 4.75%
Maximum Offering Price (100%/(100% -- Maximum Sales
Charge) of net asset value adjusted to the nearest
cent) per share..................................... $10.41
======
Investor B Shares
Net Assets........................................... $ 870,317
Shares............................................... 87,569
Offering price per share*............................ $9.94
=====
Trust Shares
Net Assets........................................... $371,022,971
Shares............................................... 37,356,258
Offering and redemption price per share.............. $9.93
=====
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
<TABLE>
<CAPTION>
Statement of Operations
For the period ended May 31, 1999
(Unaudited)
<S> <C> <C>
Investment Income:
Interest income....................................... $ 9,532,798
Dividend income....................................... 59,955
-----------
Total Income......................................... 9,592,753
Expenses:
Investment advisory fees.............................. $1,046,439
Administration fees................................... 380,526
Distribution and services fees,
Investor A Shares.................................... 2,407
Distribution and services fees,
Investor B Shares.................................... 3,395
Administrative services fees, Trust Shares............ 567,361
Accounting fees....................................... 3,650
Custodian fees........................................ 70,970
Transfer agent fees................................... 46,458
Other................................................. 67,632
----------
Total expenses before voluntary fee reductions....... 2,188,838
Expenses voluntarily reduced......................... (764,745)
-----------
Net Expenses......................................... 1,424,093
-----------
Net investment income................................. 8,168,660
-----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains from investment transactions....... 72,535
Net change in unrealized appreciation from
investments.......................................... (7,900,320)
-----------
Net realized/unrealized losses from investments....... (7,827,785)
-----------
Change in net assets resulting from operations........ $ 340,875
===========
</TABLE>
See notes to financial statements
89
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
National Municipal Bond Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended
1999 November 30,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 8,168,660 $ 16,839,148
Net realized gains from investment transactions... 72,535 3,596,137
Net change in unrealized appreciation from
investments...................................... (7,900,320) 7,680,490
------------ ------------
Change in net assets resulting from operations..... 340,875 28,115,775
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (33,009) (68,990)
From net realized gains from investment
transactions..................................... (10,672) (24,447)
Distributions to Investor B Shareholders:
From net investment income........................ (11,250) (14,432)
From net realized gains from investment
transactions..................................... (4,689) (13,927)
Distributions to Trust Shareholders:
From net investment income........................ (8,124,401) (16,755,726)
From net realized gains from investment
transactions..................................... (3,580,775) (12,517,074)
------------ ------------
Change in net assets from shareholder
distributions..................................... (11,764,796) (29,394,596)
------------ ------------
Change in net assets from capital transactions..... (980,875) 19,447,068
------------ ------------
Change in net assets............................... (12,404,796) 18,168,247
Net Assets:
Beginning of period............................... 386,182,333 368,014,086
------------ ------------
End of period..................................... $373,777,537 $386,182,333
============ ============
</TABLE>
See notes to financial statements
90
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
National Municipal Bond Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
period ended For the years
May 31, ended November 30, November 18, 1996
1999 -------------------- to
(Unaudited) 1998 1997 November 30, 1996 (a)
------------- --------- --------- ---------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.22 $ 10.27 $ 10.05 $10.00
------ --------- --------- ------
Investment Activities
Net investment income.. 0.21 0.44 0.52 0.02
Net realized and
unrealized gains from
investments........... (0.20) 0.30 0.22 0.05
------ --------- --------- ------
Total from Investment
Activities............ 0.01 0.74 0.74 0.07
------ --------- --------- ------
Distributions
Net investment income.. (0.21) (0.44) (0.52) (0.02)
Net realized gains..... (0.10) (0.35) -- --
------ --------- --------- ------
Total Distributions.... (0.31) (0.79) (0.52) (0.02)
------ --------- --------- ------
Net Asset Value, End of
Period................. $ 9.92 $ 10.22 $ 10.27 $10.05
====== ========= ========= ======
Total Return (excludes
sales charge).......... (0.01)%(b) 7.56% 7.61% 0.73%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $1,884 $ 1,162 $ 717 $ 1
Ratio of expenses to
average net assets..... 0.95%(c) 0.85% 0.35% 0.37%(c)
Ratio of net investment
income to average net
assets................. 4.11%(c) 4.18% 4.71% 9.08%(c)
Ratio of expenses to
average net assets*.... 1.15%(c) 1.16% 1.17% 1.07%(c)
Portfolio turnover**.... 0.00% 18.30% 83.94% 0.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
Financial Highlights, Investor B Shares
<TABLE>
<CAPTION>
For the
period ended For the years
May 31, ended November 30, November 18, 1996
1999 -------------------- to
(Unaudited) 1998 1997 November 30, 1996 (a)
------------- --------- --------- ---------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.24 $ 10.29 $ 10.05 $10.00
------ --------- --------- ------
Investment Activities
Net investment income.. 0.17 0.36 0.44 0.02
Net realized and
unrealized gains from
investments........... (0.20) 0.30 0.24 0.05
------ --------- --------- ------
Total from Investment
Activities............ (0.03) 0.66 0.68 0.07
------ --------- --------- ------
Distributions
Net investment income.. (0.17) (0.36) (0.44) (0.02)
Net realized gains..... (0.10) (0.35) -- --
------ --------- --------- ------
Total Distributions.... (0.27) (0.71) (0.44) (0.02)
------ --------- --------- ------
Net Asset Value, End of
Period................. $ 9.94 $ 10.24 $ 10.29 $10.05
====== ========= ========= ======
Total Return (excludes
redemption charge)..... (0.40)%(b) 6.69% 7.01% 0.70%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 870 $ 503 $ 408 $ 1
Ratio of expenses to
average net assets..... 1.75%(c) 1.56% 1.17% 1.10%(c)
Ratio of net investment
income to average net
assets................. 3.31%(c) 3.51% 4.08% 8.35%(c)
Ratio of expenses to
average net assets*.... 1.85%(c) 1.86% 1.89% 1.80%(c)
Portfolio turnover**.... 0.00% 18.30% 83.94% 0.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
91
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
National Municipal Bond Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the For the years
period ended ended November
May 31, 30, November 18, 1996
1999 ------------------ to November 30,
(Unaudited) 1998 1997 1996 (a)
------------ -------- -------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $ 10.23 $ 10.28 $ 10.05 $ 10.00
-------- -------- -------- --------
Investment Activities
Net investment income... 0.22 0.46 0.54 0.02
Net realized and
unrealized gains from
investments............ (0.20) 0.30 0.23 0.05
-------- -------- -------- --------
Total from Investment
Activities............. 0.02 0.76 0.77 0.07
-------- -------- -------- --------
Distributions
Net investment income... (0.22) (0.46) (0.54) (0.02)
Net realized gains...... (0.10) (0.35) -- --
-------- -------- -------- --------
Total Distributions..... (0.32) (0.81) (0.54) (0.02)
-------- -------- -------- --------
Net Asset Value, End of
Period.................. $ 9.93 $ 10.23 $ 10.28 $ 10.05
-------- -------- -------- --------
Total Return............. 0.10%(b) 7.76% 7.97% 0.74%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)............ $371,023 $384,518 $366,889 $310,413
Ratio of expenses to
average net assets...... 0.75%(c) 0.56% 0.14% 0.12%(c)
Ratio of net investment
income to average net
assets.................. 4.30%(c) 4.52% 5.38% 5.77%(c)
Ratio of expenses to
average net assets*..... 1.15%(c) 1.16% 1.17% 0.82%(c)
Portfolio turnover**..... 0.00% 18.30% 83.94% 0.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
92
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
93
<PAGE>
Mercantile Balanced Portfolio
Q. What were the conditions in the financial markets during the six months
ended May 31, 1999?
A. During the first part of the period, the stock market closely resembled
last year's narrow, growth-dominated market. But with valuations of large-cap
growth and technology stocks at extremely high levels, investors began to look
for opportunities among cyclical and other value stocks. And toward the end of
the period, inflationary concerns provided investors with yet another reason to
invest in value-oriented stocks.
Meanwhile, the bond market, especially longer-term bonds, performed poorly.
Investor concerns that rapid economic growth would spark a rise in inflation
caused interest rates to rise. For example, the yield on the 30-year Treasury
bond rose from 5.1% at the start of the period to 5.8% by the end. And while
the two-year Treasury issue posted a positive return for the period, other
Treasury securities posted negative returns.
Q. How did you divide the Portfolio's assets among stocks, bonds and cash
during the period?
A. Typically, the Portfolio invests 50% to 60% of its assets in equities,
with the remainder in fixed-income investments. The allocation during the
period stayed consistent, with 60.5% in stocks, 34.6% in bonds and the
remaining 4.7% in cash equivalents.*
Q. What types of stocks did you favor?
A. We attempt to identify stocks with attractive valuations and strong
fundamentals, regardless of market themes or trends. At the start of the
period, we purchased cyclical stocks, which helped the Portfolio when those
stocks performed well later in the period. We took advantage of the technology
stock correction to purchase shares of companies such as Applied Materials
(1.5% of the portfolio) and Altera (1.3%). We also added to our Tandy (1.3%)
and Intel (0.9%) holdings.*
Q. What types of bonds did you favor?
A. The Portfolio fixed income components consisted of a mix of high-quality
Treasury and mortgage-backed securities as well as select corporate bonds.
Mortgage-backed bonds helped the Portfolio. Such issues typically perform
well when interest rates rise. We also increased our holdings in corporate
issues due to their attractive yields relative to Treasury bonds.
Q. How will you manage the Portfolio in the months ahead?
A. We will continue to invest in neglected stocks of solid companies with
attractive valuations and good growth prospects. We believe there are still
opportunities among cyclical and other value-oriented stocks, particularly
selected energy stocks such as Halliburton. We believe value stocks will
continue to outpace growth stocks, and the Portfolio will benefit from that
trend. We are carefully investing in the financial sector, where higher
interest rates could hurt some financial companies more than others.
Meanwhile, we will continue to invest in fixed-income securities that offer
attractive yields for the risk they carry. In particular, we will look for
opportunities among select, high-quality corporate issues. And, we will
continue to monitor the financial markets closely to determine if we need to
make any changes to the Portfolio's allocation among stocks, bonds and cash.
- -----
* Portfolio composition is subject to change.
94
<PAGE>
Mercantile Balanced Portfolio
[CHART OF BALANCED APPEARS HERE]
Value of a $10,000 Investment
Lehman Brothers
Investor A Investor A Investor B Aggregate
Date (No Load) (Load)* (No CDSC) S&P 500 Index Bond Index
---- --------- ------- --------- ------------- ----------
4/1/93 $10,000 $ 9,551 $10,000 $10,000 $10,000
11/93 10,385 9,920 10,385 10,421 10,529
11/94 10,188 9,730 10,168 10,536 10,207
11/95 12,719 12,148 12,622 14,433 12,007
11/96 14,639 13,983 14,434 18,477 12,736
11/97 16,895 16,134 16,537 23,745 13,698
5/98 18,149 17,334 17,706 27,323 14,258
11/98 18,483 17,653 17,963 28,874 14,992
5/99 19,678 18,598 19,061 33,089 15,643
Average Annual Total Returns as of 5/31/99
1 Year 5 Year Since Inception (4/1/93)
------ ------ ------------------------
Investor A (No Load) 8.42% 13.86% 11.61%
Investor A* 2.46% 12.58% 10.59%
Investor B (No CDSC) 7.66% 13.14% 11.03%
Investor B (CDSC)** 2.74% 13.02% 11.03%
* Reflects 5.50% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[CHART OF BALANCED TRUST APPEARS HERE]
Value of a $10,000 Investment
Lehman Brother
Aggregate
Date Trust Institutional S&P 500 Index Bond Index
---- ----- ------------- ------------- ----------
4/1/93 10,000 10,000 10,000 10,000
11/93 10,387 10,386 10,421 10,529
11/94 10,199 10,179 10,536 10,207
11/95 12,744 12,690 14,433 12,007
11/96 14,727 14,601 18,477 12,736
11/97 17,054 16,868 23,745 13,698
5/98 18,348 18,128 27,323 14,258
11/98 18,714 18,448 28,874 14,992
5/99 10,952 19,645 33,069 15,643
Average Annual Total Returns as of 5/31/99
1 Year 5 Year Since Inception (4/1/93)
------ ------ ------------------------
Trust 8.74% 14.17% 11.86%
Institutional 8.36% 13.82% 11.58%
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Balanced Portfolio is measured against the
Standard & Poor's 500 Index, an unmanaged index generally representative of the
U.S. stock market as a whole, and the Lehman Brothers Aggregate Bond Index, an
unmanaged Index comprised of the Lehman Brothers Government/Corporate Bond
Index and two Lehman Brothers asset-backed securities indices. Investors are
unable to invest in the indices directly, although they can invest in the
underlying securities. The performance of the indices does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management and fund accounting fees. By contrast, the performance of the
Portfolio shown on the graph reflects the deduction of these value-added
services, as well as the deduction of a 5.50% sales charge on Investor A Shares
and the applicable contingent deferred sales charge (CDSC) on Investor B
Shares.
Investor B Shares were initially offered on March 1, 1995. The performance
figures for Investor B Shares for periods prior to such date represent the
performance for Investor A Shares of the Portfolio, which has been restated to
reflect the contingent deferred sales charge payable by holders of Investor B
Shares who redeem within six years of the date of purchase. Investor B Shares
are also subject to distribution and service fees at a maximum annual rate of
1.00%. Had these distribution and service fees been reflected, performance
would have been reduced.
Investor B Shares (CDSC) are not included in the above graph, since the
performance is for more than six years and the CDSC would no longer apply.
After six years, the performance for Investor B Shares (CDSC) mirrors the
Investor B Shares (No CDSC) performance.
Institutional Shares were initially offered on January 3, 1994. The
performance figures for Institutional Shares for periods prior to such date
represent the performance for Investor A Shares of the Portfolio.
95
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Balanced Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Commercial Paper (4.3%):
Shares
or
Security Principal Market
Description Amount Value
----------- --------- ------------
<S> <C> <C>
Financial Services (4.3%):
Harsco, 4.95%, 6/1/99.................................. $5,404,000 $ 5,404,000
------------
TOTAL COMMERCIAL PAPER 5,404,000
------------
<CAPTION>
Common Stocks (60.5%):
<S> <C> <C>
Aerospace/Defense (1.3%):
Raytheon Co., Class A.................................. 25,000 1,660,938
------------
Banking (3.3%):
Bank One Corp. ........................................ 26,213 1,482,673
Chase Manhattan Corp. ................................. 22,000 1,595,000
First Union Corp. ..................................... 22,524 1,037,512
------------
4,115,185
------------
Beverages (1.0%):
PepsiCo, Inc. ......................................... 36,200 1,296,413
------------
Building Products (1.2%):
Masco Corp. ........................................... 51,000 1,456,688
------------
Business Services (1.9%):
First Data Corp. ...................................... 51,200 2,300,800
------------
Chemicals (2.6%):
Avery Dennison Corp. .................................. 31,152 1,865,226
Solutia, Inc.(b)....................................... 63,000 1,413,563
------------
3,278,789
------------
Computer Software (1.6%):
Adaptec, Inc.(b)....................................... 32,500 1,003,438
Microsoft Corp.(b)..................................... 11,600 935,975
------------
1,939,413
------------
Computers (1.8%):
Compaq Computer Corp. ................................. 16,000 379,000
Hewlett-Packard Co. ................................... 20,200 1,905,113
------------
2,284,113
------------
Containers & Packaging (2.0%):
Crown Cork & Seal Co., Inc. ........................... 22,100 693,388
Sealed Air Corp.(b)(c)................................. 29,500 1,832,687
------------
2,526,075
------------
Cosmetics & Toiletries (1.3%):
Estee Lauder Cos., Class A(c).......................... 10,000 912,500
Gillette Co. .......................................... 13,500 688,500
------------
1,601,000
------------
Electrical & Electronic (5.3%):
General Electric Co. .................................. 14,880 1,513,110
Millipore Corp. ....................................... 50,300 1,678,762
Tandy Corp. ........................................... 19,500 1,608,750
W.W. Grainger, Inc. ................................... 34,600 1,835,962
------------
6,636,584
------------
Entertainment (0.5%):
Time Warner, Inc. ..................................... 10,000 680,625
------------
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued:
Shares
or
Security Principal Market
Description Amount Value
----------- --------- ----------
<S> <C> <C>
Financial Services (2.9%):
Heller Financial, Inc. ................................... $ 25,000 $ 743,750
MBNA Corp. ............................................... 57,650 1,592,581
SLM Holding Corp. ........................................ 30,111 1,249,607
----------
3,585,938
----------
Health Care (0.6%):
C.R. Bard, Inc. .......................................... 15,400 703,588
----------
Manufacturing (0.6%):
Illinois Tool Works, Inc. ................................ 9,700 744,475
----------
Manufacturing--Consumer Goods (1.1%):
Newell Rubbermaid, Inc. .................................. 35,000 1,417,500
----------
Medical Equipment & Supplies (1.0%):
Baxter International, Inc. ............................... 20,000 1,291,250
----------
Oil & Exploration, Production & Services (4.3%):
Halliburton Co. .......................................... 38,000 1,572,250
Murphy Oil Corp. ......................................... 34,500 1,692,655
Ocean Energy, Inc.(b)..................................... 138,000 1,362,750
Vastar Resources, Inc. ................................... 13,200 726,000
----------
5,353,655
----------
Oil Companies--Integrated (2.6%):
Atlantic Richfield Co. ................................... 20,700 1,732,331
USX-Marathon Group, Inc. ................................. 49,000 1,466,938
----------
3,199,269
----------
Paper & Related (0.7%):
Mead Corp. ............................................... 23,500 878,313
----------
Pharmaceuticals (5.0%):
Allergan, Inc. ........................................... 12,000 1,116,000
Bristol-Myers Squibb Co. ................................. 23,880 1,638,764
Eli Lilly & Co. .......................................... 15,350 1,096,566
Merck & Co., Inc. ........................................ 19,000 1,282,499
Schering-Plough Corp. .................................... 25,288 1,139,541
----------
6,273,370
----------
Printing & Publishing (0.7%):
Tribune Co. .............................................. 10,600 836,738
----------
Restaurants (0.7%):
Tricon Global Restaurants, Inc.(b)........................ 14,205 827,441
----------
Retail Stores (5.4%):
Consolidated Stores Corp.(b).............................. 63,650 2,187,968
Dillards, Inc., Class A................................... 46,800 1,643,850
Office Depot, Inc.(b)..................................... 64,500 1,346,438
Wal-Mart Stores, Inc. .................................... 36,386 1,550,953
----------
6,729,209
----------
Semiconductors (5.7%):
Altera Corp.(b)........................................... 47,400 1,650,113
Applied Materials, Inc.(b)................................ 33,100 1,818,430
Intel Corp. .............................................. 20,000 1,081,250
KLA-Tencor Corp.(b)....................................... 33,700 1,533,350
</TABLE>
Continued
96
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Balanced Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Common Stocks, continued:
Shares
or
Security Principal Market
Description Amount Value
----------- --------- ----------
<S> <C> <C>
Semiconductors, continued:
Maxim Integrated Products(b)............................. $ 15,500 $ 828,281
----------
6,911,424
----------
Tobacco (0.8%):
Philip Morris Companies, Inc............................. 25,800 994,913
----------
Utilities--Gas & Electric (1.4%):
CINergy Corp............................................. 26,423 901,684
Duke Energy Corp. ....................................... 13,000 784,063
----------
1,685,747
----------
Utilities--Telephone (2.0%):
GTE Corp. ............................................... 21,000 1,324,313
US West, Inc. ........................................... 22,500 1,216,406
----------
2,540,719
----------
Wholesale Distribution (1.2%):
Sysco Corp............................................... 50,338 1,494,409
----------
TOTAL COMMON STOCKS 75,244,581
----------
<CAPTION>
Corporate Bonds (3.2%):
<S> <C> <C>
Automotive (1.5%):
General Motors Acceptance Corp., 6.60%, 1/17/01, MTN..... 1,000,000 1,011,250
General Motors Acceptance Corp., 6.85%, 4/17/01, MTN..... 890,000 903,350
----------
1,914,600
----------
Brokerage Services (0.9%):
Merrill Lynch & Co., Inc., Series B, 7.15%, 7/30/12, MTN,
Callable on 7/30/02 @ 100............................... 1,100,000 1,112,375
----------
Entertainment (0.8%):
Walt Disney Co., 5.25%, 11/10/03(c)...................... 1,000,000 961,250
----------
TOTAL CORPORATE BONDS 3,988,225
----------
<CAPTION>
U.S. Government Agencies (15.5%):
<S> <C> <C>
Federal Home Loan Bank (1.6%):
5.35%, 2/7/01, MTN....................................... 2,000,000 1,990,940
----------
Federal Home Loan Mortgage Corp. (6.2%):
4.90%, 6/1/99............................................ 1,000,000 999,869
6.50%, 4/1/08, Gold Pool #E00225......................... 331,818 330,988
7.00%, 4/1/08, Gold Pool #E46076......................... 85,981 87,351
7.00%, 4/1/08, Gold Pool #E46044......................... 178,828 181,676
6.50%, 1/1/09, Gold Pool #E55696......................... 476,015 474,825
6.50%, 1/1/18, Gold Pool #G30098......................... 2,562,226 2,508,573
6.00%, 4/1/18, Gold Pool #C90214......................... 3,331,525 3,173,277
----------
7,756,559
----------
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Agencies, continued:
Shares
or
Security Principal Market
Description Amount Value
----------- --------- ----------
<S> <C> <C>
Federal National Mortgage Assoc. (1.0%):
6.00%, 3/1/13, Pool #418297............................ $ 512,765 $ 500,423
6.00%, 5/1/13, Pool #425391............................ 370,154 361,245
6.00%, 6/1/13, Pool #251760............................ 227,545 222,068
7.00%, 2/1/16, Pool #303725............................ 197,872 198,120
----------
1,281,856
----------
Government National Mortgage Assoc. (6.7%):
7.00%, 7/15/09, Pool #364246........................... 194,636 198,589
6.50%, 10/20/10, Pool #2108............................ 366,114 363,368
6.50%, 7/15/11, Pool #436630........................... 1,529,350 1,529,350
8.50%, 6/15/17, Pool #217380........................... 7,073 7,471
8.00%, 7/15/22, Pool #328848........................... 243,114 252,761
7.00%, 11/15/22, Pool #337961.......................... 188,015 188,308
7.00%, 11/15/22, Pool #341287.......................... 242,454 242,832
7.50%, 3/15/23, Pool #331533........................... 396,603 405,895
8.50%, 3/15/23, Pool #350083........................... 6,405 6,766
7.50%, 4/15/23, Pool #343195........................... 214,975 220,012
8.50%, 8/15/24, Pool #365113........................... 305,254 322,425
8.50%, 9/15/24, Pool #353354........................... 250,307 264,386
8.50%, 9/15/24, Pool #375056........................... 76,523 80,828
8.50%, 1/15/25, Pool #400165........................... 71,683 75,716
8.50%, 2/15/25, Pool #406286........................... 38,639 40,813
8.50%, 3/15/25, Pool #384593........................... 183,438 193,756
8.50%, 4/15/25, Pool #346295........................... 37,878 40,008
8.00%, 8/15/25, Pool #389312........................... 208,496 216,769
7.50%, 9/15/25, Pool #394485........................... 16,162 16,541
7.50%, 9/15/25, Pool #384783........................... 14,723 15,068
7.50%, 10/15/25, Pool #400096.......................... 21,158 21,653
7.50%, 10/15/25, Pool #409725.......................... 696,501 712,820
7.50%, 10/15/25, Pool #416975.......................... 13,623 13,942
7.50%, 10/15/25, Pool #246633.......................... 681,188 697,148
6.50%, 1/15/26, Pool #417525........................... 655,668 640,299
6.50%, 1/15/26, Pool #385123........................... 140,827 137,526
6.50%, 3/15/26, Pool #417294........................... 20,778 20,291
6.50%, 4/15/26, Pool #421399........................... 427,691 417,666
6.50%, 4/15/26, Pool #422323........................... 391,464 382,288
6.50%, 4/15/26, Pool #408279........................... 382,842 373,868
6.50%, 5/15/26, Pool #430798........................... 156,192 152,531
----------
8,251,694
----------
TOTAL U.S. GOVERNMENT AGENCIES 19,281,049
----------
<CAPTION>
U.S. Treasury Bonds (7.9%):
<S> <C> <C>
10.75%, 8/15/05........................................ 300,000 376,077
12.00%, 8/15/13, Callable on 8/15/08 @ 100(c).......... 2,750,000 3,906,155
8.13%, 5/15/21(c)...................................... 1,000,000 1,240,340
8.13%, 8/15/21(c)...................................... 1,000,000 1,241,560
8.00%, 11/15/21(c)..................................... 1,200,000 1,471,644
6.25%, 8/15/23(c)...................................... 1,500,000 1,530,000
----------
TOTAL U.S. TREASURY BONDS 9,765,776
----------
</TABLE>
Continued
97
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Balanced Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
U.S. Treasury Notes (8.0%):
Shares
or
Security Principal Market
Description Amount Value
----------- --------- ------------
<S> <C> <C>
7.50%, 5/15/02(c).................................... $3,000,000 $ 3,154,740
6.38%, 8/15/02(c).................................... 3,000,000 3,065,310
6.25%, 2/15/03(c).................................... 1,000,000 1,019,370
7.00%, 7/15/06(c).................................... 2,500,000 2,671,250
------------
TOTAL U.S. TREASURY NOTES 9,910,670
------------
<CAPTION>
Investment Companies (0.4%):
<S> <C> <C>
Cash Assets Trust Money Market Fund.................. 500,000 500,000
------------
TOTAL INVESTMENT COMPANIES 500,000
------------
<CAPTION>
Short-Term Securities Held as Collateral (3.8%)
<S> <C> <C>
Repurchase Agreements (3.8%):
Greenwich Capital, 4.96%, 6/1/99 (Purchased on
5/28/99, proceeds at maturity $2,505,067,
collateralized by $8,547,785 various U.S. Government
Agency Mortgages, 0.00%-8.00%, 5/16/06-5/15/29,
market value $2,554,816)............................ 2,504,722 2,504,722
Salomon Smith Barney, Inc., 4.93%, 6/1/99 (Purchased
on 5/28/99, proceeds at maturity, $2,253,672,
collateralized by $3,701,160 various GNMA, 0.50%-
10.00%, 11/15/00-5/20/29, market value $2,298,431).. 2,253,363 2,253,363
------------
TOTAL SHORT-TERM SECURITIES
HELD AS COLLATERAL 4,758,085
------------
TOTAL INVESTMENTS
(Cost $110,053,442) (a)--103.6% 128,852,386
Liabilities in excess of other assets--(3.6%) (4,537,840)
------------
TOTAL NET ASSETS--100.0% $124,314,546
------------
</TABLE>
- -----
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation... $21,301,530
Unrealized depreciation... (2,502,587)
-----------
Net unrealized apprecia-
tion..................... $18,798,943
===========
</TABLE>
(b) Represents non-income producing securities.
(c) A portion of this security was loaned as of May 31, 1999.
MTNMedium Term Note
See notes to financial statements
98
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Balanced Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
May 31, 1999
(Unaudited)
<S> <C> <C>
Assets:
Investments, at value
(cost $105,295,358).................................... $124,094,301
Repurchase agreements, at value
(cost $4,758,085)...................................... 4,758,085
------------
Total investments...................................... 128,852,386
Cash.................................................... 119
Interest and dividends receivable....................... 595,832
Receivable for capital shares issued.................... 7,978
Prepaid expenses and other assets....................... 7,302
------------
Total Assets........................................... 129,463,617
Liabilities:
Dividends payable....................................... $ 254,546
Payable for capital shares redeemed..................... 4,693
Payable for return of collateral received............... 4,758,085
Accrued expenses and other payables:
Investment advisory fees............................... 80,987
Administration fees.................................... 1,701
Distribution and administrative services fees.......... 22,742
Custodian fees......................................... 5,399
Other liabilities...................................... 20,918
---------
Total Liabilities...................................... 5,149,071
------------
Net Assets:
Capital................................................. 99,679,176
Undistributed net investment income..................... 32,580
Accumulated net realized gains from investment
transactions........................................... 5,803,847
Net unrealized appreciation from investments............ 18,798,943
------------
Net Assets.............................................. $124,314,546
============
Investor A Shares
Net Assets............................................. $ 11,427,360
Shares................................................. 923,630
Redemption price per share............................. $12.37
======
Maximum Sales Charge -- Investor A Shares............... 5.50%
Maximum Offering Price (100%/(100% -- Maximum Sales
Charge) of net asset value adjusted to the nearest
cent) per share....................................... $13.09
======
Investor B Shares
Net Assets............................................. $ 2,295,254
Shares................................................. 187,633
Offering price per share*.............................. $12.23
======
Trust Shares
Net Assets............................................. $ 42,516,840
Shares................................................. 3,434,609
Offering and redemption price per share................ $12.38
======
Institutional Shares
Net Assets............................................. $ 68,075,092
Shares................................................. 5,520,894
Offering and redemption price per share................ $12.33
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the period ended May 31, 1999
(Unaudited)
<S> <C> <C>
Investment Income:
Interest income........................................... $1,559,684
Dividend income........................................... 533,942
Income from securities lending............................ 7,998
----------
Total Income............................................. 2,101,624
Expenses:
Investment advisory fees.................................. $460,608
Administration fees....................................... 122,830
Distribution and services fees,
Investor A Shares........................................ 16,491
Distribution and services fees,
Investor B Shares........................................ 8,956
Administrative services fees,
Trust Shares............................................. 62,444
Administrative services fees,
Institutional Shares..................................... 102,622
Accounting fees........................................... 5,859
Custodian fees............................................ 27,915
Transfer agent fees....................................... 14,367
Other..................................................... 22,586
--------
Total expenses before voluntary fee reductions........... 844,678
Expenses voluntarily reduced............................. (123,858)
----------
Net Expenses............................................. 720,820
----------
Net investment income..................................... 1,380,804
----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains from investment transactions........... 6,642,035
Net change in unrealized appreciation from investments.... (159,239)
----------
Net realized/unrealized gains from investments............ 6,482,796
----------
Change in net assets resulting from operations............ $7,863,600
==========
</TABLE>
See notes to financial statements
99
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Balanced Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended
1999 November 30,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 1,380,804 $ 2,947,999
Net realized gains from investment transactions... 6,642,035 8,092,471
Net change in unrealized appreciation from invest-
ments............................................ (159,239) 429,152
------------ ------------
Change in net assets resulting from operations..... 7,863,600 11,469,622
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (118,837) (239,659)
From net realized gains from investment transac-
tions............................................ (744,138) (1,098,018)
Distributions to Investor B Shareholders:
From net investment income........................ (14,360) (14,866)
From net realized gains from investment transac-
tions............................................ (90,071) (58,233)
Distributions to Trust Shareholders:
From net investment income........................ (510,294) (1,205,632)
From net realized gains from investment transac-
tions............................................ (3,042,833) (5,997,694)
Distributions to Institutional Shareholders:
From net investment income........................ (732,913) (1,551,106)
From net realized gains from investment transac-
tions............................................ (4,971,558) (6,839,335)
------------ ------------
Change in net assets from shareholder distribu-
tions............................................. (10,225,004) (17,004,543)
------------ ------------
Change in net assets from capital transactions..... (6,028) 5,817,522
------------ ------------
Change in net assets............................... (2,367,432) 282,601
Net Assets:
Beginning of period............................... 126,681,978 126,399,377
------------ ------------
End of period..................................... $124,314,546 $126,681,978
============ ============
</TABLE>
See notes to financial statements
100
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Balanced Portfolio
Statement of Cash Flows
<TABLE>
<CAPTION>
For the
period ended
May 31,
1999
(Unaudited)
-------------
<S> <C>
Cash Flows from Operating Activities:
Net investment income.......................................... $ 1,380,804
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Cost of investment securities purchased........................ (611,693,796)
Proceeds from disposition of investment securities............. 620,662,986
Decrease in investments purchased with cash collateral from
securities lending............................................ 253,375
Increase in dividends and interest receivable.................. (1,379)
Decrease in payable for return of collateral received from
securities lending............................................ (253,375)
Increase in accrued expenses................................... 3,472
Increase in prepaid expenses................................... (6,141)
Net amortization/accretion from investments.................... (118,207)
-------------
Net cash provided by operating activities....................... 10,227,739
-------------
Cash Flows from Financing Activities:
Proceeds from shares issued.................................... 25,679,163
Cost of shares redeemed........................................ (25,688,799)
Cash distributions paid........................................ (10,218,860)
-------------
Net cash used in financing activities.......................... (10,228,496)
-------------
Decrease in cash................................................ (757)
Cash:
Beginning balance.............................................. 876
-------------
Ending balance................................................. $ 119
=============
</TABLE>
Non-cash financing activities not included herein consist of reinvestment of
dividends from net investment income and distributions of net realized capital
gains of $9,718,334.
See notes to financial statements
101
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Balanced Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 -----------------------------------------
(Unaudited) 1998 1997 1996 1995 1994 (a)
------------ ------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 12.63 $ 13.26 $12.58 $11.65 $ 9.61 $10.22
------- ------- ------ ------ ------ ------
Investment Activities
Net investment income.. 0.13 0.28 0.32 0.32 0.32 0.28
Net realized and
unrealized gains
(losses) from
investments........... 0.62 0.84 1.47 1.34 2.02 (0.47)
------- ------- ------ ------ ------ ------
Total from Investment
Activities............ 0.75 1.12 1.79 1.66 2.34 (0.19)
------- ------- ------ ------ ------ ------
Distributions
Net investment income.. (0.13) (0.28) (0.40) (0.31) (0.30) (0.29)
Net realized gains..... (0.88) (1.47) (0.71) (0.42) --
In excess of net
realized gains........ -- -- -- -- -- (0.13)
------- ------- ------ ------ ------ ------
Total Distributions.... (1.01) (1.75) (1.11) (0.73) (0.30) (0.42)
------- ------- ------ ------ ------ ------
Net Asset Value, End of
Period................ $ 12.37 $ 12.63 $13.26 $12.58 $11.65 $ 9.61
======= ======= ====== ====== ====== ======
Total Return (excludes
sales charge).......... 6.46%(b) 9.43% 15.38% 15.10% 24.85% (1.91)%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $11,427 $10,659 $9,923 $9,328 $8,348 $7,321
Ratio of expenses to
average net assets..... 1.27%(c) 1.26% 1.27% 1.27% 1.27% 1.27%
Ratio of net investment
income to average net
assets................. 2.16%(c) 2.23% 2.57% 2.79% 2.98% 2.77%
Ratio of expenses to
average net assets*.... 1.37%(c) 1.36% 1.37% 1.37% 1.37% 1.39%
Portfolio turnover**.... 19.97% 47.79% 43.60% 85.16% 58.16% 49.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) On September
27, 1994, the Portfolio redesignated the Investor Shares as "Investor A"
Shares, and authorized the issuance of a series of shares designated as
"Investor B" Shares. (b) Not annualized. (c) Annualized.
Financial Highlights, Investor B Shares
<TABLE>
<CAPTION>
For the
period ended For the years ended March 1,
May 31, November 30, 1995 to
1999 ---------------------- November 30,
(Unaudited) 1998 1997 1996 1995 (a)
------------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................ $12.50 $13.15 $12.49 $11.59 $10.13
------ ------ ------ ------ ------
Investment Activities
Net investment income.... 0.09 0.21 0.25 0.25 0.22
Net realized and
unrealized gains from
investments............. 0.61 0.81 1.43 1.33 1.44
------ ------ ------ ------ ------
Total from Investment
Activities.............. 0.70 1.02 1.68 1.58 1.66
------ ------ ------ ------ ------
Distributions
Net investment income.... (0.09) (0.20) (0.26) (0.26) (0.20)
In excess of net
investment income....... -- -- (0.05) -- --
Net realized gains....... (0.88) (1.47) (0.71) (0.42) --
------ ------ ------ ------ ------
Total Distributions...... (0.97) (1.67) (1.02) (0.68) (0.20)
------ ------ ------ ------ ------
Net Asset Value, End of
Period................... $12.23 $12.50 $13.15 $12.49 $11.59
====== ====== ====== ====== ======
Total Return (excludes
redemption charge)....... 6.11%(d) 8.63% 14.57% 14.35% 23.92%(b)
Ratios/Supplementary Data:
Net Assets at end of
period (000)............. $2,295 $1,285 $ 522 $ 321 $ 36
Ratio of expenses to
average net assets....... 1.97%(c) 1.96% 1.96% 1.96% 1.93%(c)
Ratio of net investment
income to average net
assets................... 1.46%(c) 1.57% 1.85% 2.09% 2.28%(c)
Ratio of expenses to
average net assets*...... 2.07%(c) 2.06% 2.06% 2.06% 2.03%(c)
Portfolio turnover**...... 19.97% 47.79% 43.60% 85.16% 58.16%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Represents total return for the Investor A
Shares from December 1, 1994 to February 28, 1995 plus the total return for
the Investor B Shares from March 1, 1995 to November 30, 1995. (c) Annualized.
(d) Not annualized.
102
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Balanced Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 -------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 12.64 $ 13.27 $ 12.58 $ 11.64 $ 9.62 $ 10.22
------- ------- ------- ------- ------- -------
Investment Activities
Net investment income.. 0.15 0.32 0.38 0.37 0.34 0.29
Net realized and
unrealized gains
(losses) from
investments........... 0.62 0.84 1.45 1.34 2.02 (0.47)
------- ------- ------- ------- ------- -------
Total from Investment
Activities............ 0.77 1.16 1.83 1.71 2.36 (0.18)
------- ------- ------- ------- ------- -------
Distributions
Net investment income.. (0.15) (0.32) (0.43) (0.35) (0.34) (0.29)
Net realized gains..... (0.88) (1.47) (0.71) (0.42) -- --
In excess of net
realized gains........ -- -- -- -- -- (0.13)
------- ------- ------- ------- ------- -------
Total Distributions.... (1.03) (1.79) (1.14) (0.77) (0.34) (0.42)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 12.38 $ 12.64 $ 13.27 $ 12.58 $ 11.64 $ 9.62
======= ======= ======= ======= ======= =======
Total Return............ 6.62%(a) 9.75% 15.81% 15.56% 24.97% (1.81)%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $42,517 $43,776 $54,299 $61,821 $72,669 $65,288
Ratio of expenses to
average net assets..... 0.97%(b) 0.96% 0.97% 0.97% 0.98% 0.97%
Ratio of net investment
income to average net
assets................. 2.46%(b) 2.53% 2.87% 3.08% 3.29% 3.04%
Ratio of expenses to
average net assets*.... 1.37%(b) 1.36% 1.37% 1.07% 1.08% 1.39%
Portfolio turnover**.... 19.97% 47.79% 43.60% 85.16% 58.16% 49.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Not
annualized. (b) Annualized.
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 --------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994 (a)
------------ ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 12.59 $ 13.23 $ 12.54 $ 11.62 $ 9.60 $ 10.22
------- ------- ------- ------- ------- -------
Investment Activities
Net investment income.. 0.13 0.28 0.31 0.32 0.31 0.28
Net realized and
unrealized gains
(losses) from
investments........... 0.62 0.83 1.49 1.34 2.02 (0.48)
------- ------- ------- ------- ------- -------
Total from Investment
Activities............ 0.75 1.11 1.80 1.66 2.33 (0.20)
------- ------- ------- ------- ------- -------
Distributions
Net investment income.. (0.13) (0.28) (0.37) (0.32) (0.31) (0.29)
In excess of net
investment income..... -- -- (0.03) -- -- --
Net realized gains..... (0.88) (1.47) (0.71) (0.42) -- --
In excess of net
realized gains........ -- -- -- -- -- (0.13)
------- ------- ------- ------- ------- -------
Total Distributions.... (1.01) (1.75) (1.11) (0.74) (0.31) (0.42)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 12.33 $ 12.59 $ 13.23 $ 12.54 $ 11.62 $ 9.60
======= ======= ======= ======= ======= =======
Total Return............ 6.48%(b) 9.38% 15.52% 15.08% 24.67% (2.00)%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $68,075 $70,962 $61,655 $54,731 $36,827 $22,723
Ratio of expenses to
average net assets..... 1.26%(c) 1.26% 1.27% 1.27% 1.27% 1.27%
Ratio of net investment
income to average net
assets................. 2.16%(c) 2.23% 2.56% 2.78% 2.97% 2.77%
Ratio of expenses to
average net assets*.... 1.37%(c) 1.36% 1.37% 1.37% 1.37% 1.40%
Portfolio turnover**.... 19.97% 47.79% 43.60% 85.16% 58.16% 49.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. On January 3, 1994, the Portfolio issued a new
series of shares designated as "Institutional" Shares. The financial
highlights presented for periods prior to January 3, 1994 represent financial
highlights applicable to the Investor Shares. (b) Not annualized. (c)
Annualized.
103
<PAGE>
Mercantile Equity Income Portfolio
Q. How did the overall stock market environment affect the Portfolio's
returns during the six-month period ended May 31, 1999?
A. The market was predominantly strong, as the economy continued to grow
during the period. Throughout the spring, the market alternately reached new
highs and experienced moderate corrections-especially in the technology sector.
Most important, from our perspective, was the market's shift from growth stocks
to value stocks.
This shift was related to a substantial valuation gap between growth and
value stocks and a resurgence of inflationary fears. As investors began to look
for opportunities among neglected stocks with attractive valuations, cyclicals
and other value stocks outperformed large-capitalization growth stocks. The
Portfolio's value-oriented approach greatly benefited from this trend.
Q. What was your strategy in that environment? In what kinds of stocks or
sectors did you find opportunities during the period?
A. Late last year, we overweighted cyclical stocks. This proved to be a
prudent move, as cyclicals led the market for much of the period. In
particular, we invested in paper companies Mead Corp. (1.6% of the Portfolio)
and Temple Inland (1.7%) and clothing retailer Dayton Hudson (0.8%). Once the
cyclical stocks in the Portfolio reached our price targets, we reduced our
exposure to a market weight.
Similarly, we were overweighted in oil stocks at the beginning of the period.
When oil stock prices moved sharply, we reduced our positions in Atlantic
Richfield (2.5%), Murphy Oil (2.1%) and Vastar Resources (1.8%), another move
that helped the Portfolio.*
Q. What other moves did you make to help boost the Portfolio's returns?
A. As always, we identified and purchased shares of neglected but strong
companies selling at relative discounts. We purchased shares of Raytheon (2.3%)
early in the period despite the unpopularity of the defense sector, which
rallied later in the period.*
We purchased undervalued shares of Masco (2.2%), a home-improvement and
building supplier. Though this company did not fit neatly into any investment
theme, the company is strong, and their share price was attractive. The
Portfolio benefited from these purchases when the companies posted strong
performances for the period.*
Q. What is your outlook for the stock market going forward? How will you
manage the Portfolio with that in mind?
A. While value-oriented investing is attracting more attention than it has
for a few years, there is still a lot of value in the market. We are optimistic
that the shift toward value-oriented investing will be a long-term trend. The
Portfolio is well-positioned for strong performance in such an environment. In
any case, we will continue to look for relatively inexpensive shares of strong
companies.*
- -----
* Portfolio composition is subject to change.
104
<PAGE>
Mercantile Equity Income Portfolio
[CHART OF EQUITY INCOME APPEARS HERE]
Value of a $10,000 Investment
Investor A Investor A Investor B Investor B Russell 1000
Date (No Load) (Load)* (No CDSC) (CDSC) Value Index
---- --------- ------- --------- ------ -----------
2/27/97 10,000 9,551 10,000 10,000 10,000
11/30/97 11,742 11,215 11,675 11,175 12,013
11/30/98 13,114 12,526 12,956 12,556 13,826
11/99 14,069 13,297 13,856 13,602 16,152
Average Annual Total Returns as of 5/31/99
1 Year Since Inception (11/18/96)
------ --------------------------
Investor A (No Load) 5.79% 16.35%
Investor A* -0.04% 13.47%
Investor B (No CDSC) 5.14% 15.56%
Investor B (CDSC)** 1.08% 14.62%
* Reflects 5.50% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[CHART OF EQUITY INCOME APPEARS HERE]
Value of a $10,000 Investment
Date Trust Institutional Russell 1000 Value Index
---- ----- ------------- ------------------------
2/27/97 10,000 10,000 10,000
11/30/97 11,764 11,764 12,013
11/30/98 13,174 13,154 13,826
11/99 14,167 14,129 16,162
Average Annual Total Returns as of 5/31/99
1 Year Since Inception (2/27/97)
------ -------------------------
Trust 6.09% 16.70%
Institutional 5.96% 16.57%
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Equity Income Portfolio is measured against
the Russell 1000 Value Index, an unmanaged index is generally representative of
those securities in the Russell 1000 Index with certain valuation and
historical growth characteristics indicative of value-based stocks. Companies
in this Index generally have low price-to-book and price-to-earnings ratios,
higher dividend yields and lower forecasted growth values. Investors are unable
to invest in the index directly, although they can invest in the underlying
securities. The performance of the index does not reflect the deduction of
expenses associated with a mutual fund, such as investment management and fund
accounting fees. By contrast, the performance of the Portfolio shown on the
graph reflects the deduction of these value-added services, as well as the
deduction of a 5.50% sales charge on Investor A Shares and the applicable
contingent deferred sales charge (CDSC) on Investor B Shares.
105
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Equity Income Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Commercial Paper (1.5%):
Shares
or
Security Principal Market
Description Amount Value
----------- --------- ----------
<S> <C> <C>
Finance (1.5%):
Harsco, 4.95%, 6/1/99..................................... 1,705,000 $1,705,000
----------
TOTAL COMMERCIAL PAPER 1,705,000
----------
<CAPTION>
Common Stocks (93.3%):
<S> <C> <C>
Aerospace/Defense (2.3%):
Raytheon Co., Class A..................................... 40,000 2,657,500
----------
Banking (16.1%):
Bank One Corp............................................. 43,617 2,467,087
Chase Manhattan Corp. .................................... 25,300 1,834,250
Comerica, Inc. ........................................... 31,500 1,903,781
First Union Corp.......................................... 46,500 2,141,906
Mellon Bank Corp. ........................................ 70,000 2,498,124
National City Corp........................................ 26,000 1,720,875
PNC Bank Corp............................................. 39,500 2,261,375
Union Planters Corp.(c)................................... 37,500 1,549,219
Wachovia Corp............................................. 27,600 2,435,700
----------
18,812,317
----------
Beverages (1.9%):
PepsiCo, Inc. ............................................ 62,000 2,220,375
----------
Building Products (3.5%):
Masco Corp................................................ 90,000 2,570,625
Sherwin-Williams Co....................................... 50,000 1,540,625
----------
4,111,250
----------
Business Services (2.3%):
First Data Corp........................................... 60,000 2,696,250
----------
Chemicals (0.9%):
Union Carbide Corp. ...................................... 20,000 1,026,250
----------
Computers (3.4%):
Hewlett-Packard Co........................................ 29,000 2,735,063
IBM Corp. ................................................ 10,000 1,163,125
----------
3,898,188
----------
Containers & Packaging (1.9%):
Crown Cork & Seal Co., Inc................................ 70,000 2,196,250
----------
Electrical & Electronic (2.3%):
W.W. Grainger, Inc........................................ 50,140 2,660,554
----------
Financial Services (8.4%):
Fannie Mae................................................ 40,000 2,719,999
Heller Financial, Inc..................................... 88,000 2,618,000
MBNA Corp................................................. 75,393 2,082,732
SLM Holding Corp.......................................... 55,000 2,282,500
----------
9,703,231
----------
Food Products & Services (0.9%):
Ralston Purina Group...................................... 37,900 1,032,775
----------
Health Care (1.6%):
C.R. Bard, Inc............................................ 40,000 1,827,500
----------
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued:
Shares
or
Security Principal Market
Description Amount Value
----------- --------- -----------
<S> <C> <C>
Oil & Exploration, Production & Services (6.1%):
Halliburton Co. ......................................... 63,100 $ 2,610,763
Murphy Oil Corp.......................................... 50,000 2,453,125
Vastar Resources, Inc.................................... 37,000 2,035,000
-----------
7,098,888
-----------
Oil Companies--Integrated (7.2%):
Atlantic Richfield Co.................................... 35,000 2,929,062
Phillips Petroleum Co. .................................. 55,000 2,884,062
USX-Marathon Group, Inc.................................. 85,000 2,544,688
-----------
8,357,812
-----------
Paper & Related (3.3%):
Mead Corp................................................ 50,000 1,868,750
Temple-Inland, Inc....................................... 30,000 2,010,000
-----------
3,878,750
-----------
Pharmaceuticals (3.9%):
Abbott Laboratories...................................... 50,000 2,259,375
Pharmacia & UpJohn, Inc.................................. 40,000 2,217,500
-----------
4,476,875
-----------
Printing & Publishing (2.0%):
Tribune Co............................................... 30,000 2,368,125
-----------
Retail Stores (4.6%):
Dayton Hudson Corp....................................... 15,000 945,000
J.C. Penney, Inc.(c)..................................... 48,000 2,481,000
May Department Stores Co.(c)............................. 45,000 1,949,063
-----------
5,375,063
-----------
Steel (1.7%):
USX-U.S. Steel Group..................................... 75,000 2,020,313
-----------
Tobacco (2.5%):
Philip Morris Companies, Inc............................. 74,000 2,853,625
-----------
Transportation & Shipping (1.3%):
Burlington Northern Santa Fe............................. 49,000 1,519,000
-----------
Utilities--Gas & Electric (8.9%):
Ameren Corp.(c).......................................... 50,000 2,046,875
CINergy Corp............................................. 60,000 2,047,500
Constellation Energy Group, Inc.......................... 70,000 2,183,125
Duke Energy Corp......................................... 30,000 1,809,375
SCANA Corp.(c)........................................... 85,000 2,268,437
-----------
10,355,312
-----------
Utilities--Telephone (4.1%):
Bell Atlantic Corp. ..................................... 7,872 430,992
BellSouth Corp. ......................................... 7,000 330,313
GTE Corp................................................. 29,500 1,860,344
US West, Inc............................................. 40,000 2,162,499
-----------
4,784,148
-----------
Wholesale Distribution (2.2%):
Sysco Corp............................................... 85,000 2,523,438
-----------
TOTAL COMMON STOCKS 108,453,789
-----------
</TABLE>
Continued
106
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Equity Income Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Real Estate Investment Trusts (5.2%):
Shares
or
Security Principal Market
Description Amount Value
----------- --------- ------------
<S> <C> <C>
Apartments (1.2%):
Archstone Communities Trust........................... 62,000 $ 1,395,000
------------
Hotels & Lodging (1.8%):
Felcor Lodging Trust, Inc.(c)......................... 90,000 2,041,875
------------
Office Property (2.2%):
Prentiss Properties Trust............................. 110,000 2,598,750
------------
TOTAL REAL ESTATE INVESTMENT TRUSTS 6,035,625
------------
Short-Term Securities Held as Collateral (2.7%):
Repurchase agreements (2.7%):
Greenwich Capital, 4.96%, 6/1/99 (Purchased on
5/28/98, proceeds at maturity $1,622,894,
collateralized by $5,537,637 various U.S. Government
Agency mortgages, 0.00%-8.00%, 5/15/06-5/15/29,
market value $1,655,124)............................. 1,622,671 1,622,671
Salomon Smith Barney, Inc., 4.93%, 6/1/99 (Purchased
on 5/28/98, proceeds at maturity $1,460,029,
collateralized by $2,397,777 various GNMA, 0.50%-
10.00%, 11/15/00-5/20/29, market value $1,489,026)... 1,459,829 1,459,829
------------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL 3,082,500
------------
TOTAL INVESTMENTS
(Cost $91,775,082) (a)--102.7% $119,276,914
Liabilities in excess of other assets--(2.7%) (3,090,253)
------------
TOTAL NET ASSETS--100.0% $116,186,661
============
</TABLE>
- -----
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation... $28,383,565
Unrealized depreciation... (881,733)
-----------
Net unrealized apprecia-
tion..................... $27,501,832
===========
</TABLE>
(b) Represents non-income producing securities.
(c) A portion of this security was loaned as of May 31, 1999.
See notes to financial statements
107
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Equity Income Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
May 31, 1999
(Unaudited)
<S> <C> <C>
Assets
Investments, at value (cost $88,692,582)............. $116,194,414
Repurchase agreements, at value (cost $3,082,500).... 3,082,500
------------
Total investments................................... 119,276,914
Cash................................................. 572
Interest and dividends receivable.................... 244,445
Receivable for capital shares issued................. 2,000
Receivable for investments sold...................... 55,366
Deferred organization costs.......................... 21,537
Prepaid expenses and other assets.................... 6,915
------------
Total Assets........................................ 119,607,749
Liabilities:
Dividends payable.................................... $ 234,254
Payable for capital shares redeemed.................. 1,370
Payable for return of collateral received............ 3,082,500
Accrued expenses and other payables:
Investment advisory fees............................ 75,599
Administration fees................................. 1,593
Distribution and administrative services fees....... 1,194
Custodian fees...................................... 5,040
Other liabilities................................... 19,538
----------
Total Liabilities................................... 3,421,088
------------
Net Assets:
Capital.............................................. 74,211,507
Undistributed net investment income.................. 5,046
Accumulated net realized gains from investment
transactions........................................ 14,468,276
Net unrealized appreciation from investments......... 27,501,832
------------
Net Assets........................................... $116,186,661
============
Investor A Shares
Net Assets.......................................... $ 1,792,056
Shares.............................................. 211,083
Redemption price per share.......................... $8.49
=====
Maximum Sales Charge--Investor A Shares.............. 5.50%
Maximum Offering Price
(100%/(100%--Maximum Sales Charge) of net asset
value adjusted to the nearest cent) per share....... $8.98
=====
Investor B Shares
Net Assets.......................................... $ 825,324
Shares.............................................. 97,343
Offering price per share*........................... $8.48
=====
Trust Shares
Net Assets.......................................... $113,459,858
Shares.............................................. 13,342,165
Offering and redemption price per share............. $8.50
=====
Institutional Shares
Net Assets.......................................... $ 109,423
Shares.............................................. 12,880
Offering and redemption price per share............. $8.50
=====
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
<TABLE>
<CAPTION>
Statement of Operations
For the period ended May 31, 1999
(Unaudited)
<S> <C> <C>
Investment Income:
Interest income.......................................... $ 140,581
Dividend income.......................................... 1,479,005
Income from securities lending........................... 1,587
-----------
Total Income............................................ 1,621,173
Expenses:
Investment advisory fees................................. $409,295
Administration fees...................................... 109,146
Distribution and services fees, Investor A Shares........ 2,497
Distribution and services fees, Investor B Shares........ 3,598
Administrative services fees,
Trust Shares............................................ 160,013
Administrative services fees, Institutional Shares....... 130
Accounting fees.......................................... 1,556
Custodian fees........................................... 24,992
Transfer agent fees...................................... 13,569
Other.................................................... 24,492
--------
Total expenses before voluntary fee reductions........... 749,288
Expenses voluntarily reduced............................ (214,585)
-----------
Net Expenses............................................ 534,703
-----------
Net investment income.................................... 1,086,470
-----------
Realized/Unrealized Gains from Investments:
Net realized gains from investment transactions.......... 14,573,041
Net change in unrealized appreciation from investments... 14,439
-----------
Net realized/unrealized gains from investments........... 14,587,480
-----------
Change in net assets resulting from operations........... $15,673,950
===========
</TABLE>
See notes to financial statements
108
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Equity Income Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended
1999 November 30,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 1,086,470 $ 2,213,589
Net realized gains from investment transactions... 14,573,041 24,493,831
Net change in unrealized appreciation from invest-
ments............................................ 14,439 (13,549,445)
------------ ------------
Change in net assets resulting from operations..... 15,673,950 13,157,975
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (14,368) (16,781)
From net realized gains from investment transac-
tions............................................ (379,613) (34,436)
Distributions to Investor B Shareholders:
From net investment income........................ (3,928) (2,683)
From net realized gains from investment transac-
tions............................................ (123,129) (26,125)
Distributions to Trust Shareholders:
From net investment income........................ (1,073,344) (2,270,617)
From net realized gains from investment transac-
tions............................................ (24,087,882) (26,111,109)
Distributions to Institutional Shareholders:
From net investment income........................ (749) (164)
From net realized gains from investment transac-
tions............................................ (7,982) --
In excess of net realized gains from investment
transactions..................................... -- (233)
------------ ------------
Change in net assets from shareholder distribu-
tions............................................. (25,690,995) (28,462,148)
------------ ------------
Change in net assets from capital transactions..... 12,073,979 (2,790,787)
------------ ------------
Change in net assets............................... 2,056,934 (18,094,960)
Net Assets:
Beginning of period............................... 114,129,727 132,224,687
------------ ------------
End of period..................................... $116,186,661 $114,129,727
============ ============
</TABLE>
See notes to financial statements
109
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Equity Income Portfolio
Statement of Cash Flows
<TABLE>
<CAPTION>
For the
period ended
May 31,
1999
(Unaudited)
-------------
<S> <C>
Cash Flows from Operating Activities:
Net investment income.......................................... $ 1,086,470
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Cost of investment securities purchased........................ (784,178,857)
Proceeds from disposition of investment securities............. 796,840,581
Decrease in investments purchased with cash collateral from
securities lending............................................ 503,800
Increase in dividends and interest receivable.................. (38,618)
Decrease in payable for return of collateral received from
securities lending............................................ (503,800)
Increase in accrued expenses................................... 4,684
Amortization expense on organizational costs................... 3,807
Increase in prepaid expenses................................... (4,820)
Net amortization/accretion from investments.................... (140,581)
-------------
Net cash provided by operating activities...................... 13,572,666
-------------
Cash Flows from Financing Activities:
Proceeds from shares issued.................................... 34,950,507
Cost of shares redeemed........................................ (22,888,981)
Cash distributions paid........................................ (25,634,374)
-------------
Net cash used in financing activities.......................... (13,572,848)
-------------
Decrease in cash................................................ (182)
Cash:
Beginning balance.............................................. 754
-------------
Ending balance................................................. $ 572
=============
</TABLE>
Non-cash financing activities not included herein consist of reinvestment of
dividends from net investment income and distributions of net realized capital
gains of $8,457,688.
See notes to financial statements
110
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Equity Income Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
period ended For the February 27,
May 31, year ended 1997 to
1999 November 30, November 30,
(Unaudited) 1998 1997 (a)
------------ ------------ ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $10.24 $11.56 $10.00
------ ------ ------
Investment Activities
Net investment income............... 0.07 0.17 0.16
Net realized and unrealized gains
from investments................... 0.46 0.98 1.57
------ ------ ------
Total from Investment Activities.... 0.53 1.15 1.73
------ ------ ------
Distributions
Net investment income............... (0.07) (0.18) (0.16)
In excess of net investment income.. -- -- (0.01)
Net realized gains.................. (2.21) (2.29) --
------ ------ ------
Total Distributions................. (2.28) (2.47) (0.17)
------ ------ ------
Net Asset Value, End of Period....... $ 8.49 $10.24 $11.56
====== ====== ======
Total Return (excludes sales
charge)............................. 7.28%(b) 11.69% 17.42%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000).... $1,792 $1,709 $ 173
Ratio of expenses to average net
assets.............................. 1.27%(c) 1.15% 0.45%(c)
Ratio of net investment income to
average net assets.................. 1.71%(c) 1.51% 2.29%(c)
Ratio of expenses to average net
assets*............................. 1.37%(c) 1.38% 1.38%(c)
Portfolio turnover**................. 64.19% 98.32% 48.33%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
Financial Highlights, Investor B Shares
<TABLE>
<CAPTION>
For the
period ended For the February 27,
May 31, year ended 1997 to
1999 November 30, November 30,
(Unaudited) 1998 1997 (a)
------------ ------------ ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $10.23 $11.55 $10.00
------ ------ ------
Investment Activities
Net investment income.............. 0.05 0.11 (d) 0.10
Net realized and unrealized gains
from investments.................. 0.45 0.97 1.57
------ ------ ------
Total from Investment Activities... 0.50 1.08 1.67
------ ------ ------
Distributions
Net investment income.............. (0.04) (0.11) (0.10)
In excess of net investment
income............................ -- -- (0.02)
Net realized gains................. (2.21) (2.29) --
------ ------ ------
Total Distributions................ (2.25) (2.40) (0.12)
------ ------ ------
Net Asset Value, End of Period...... $ 8.48 $10.23 $11.55
====== ====== ======
Total Return (excludes redemption
charge)............................ 6.94%(b) 10.98% 16.75%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)... $ 825 $ 520 $ 131
Ratio of expenses to average net
assets............................. 1.97%(c) 1.84% 1.14%(c)
Ratio of net investment income to
average net assets................. 1.01%(c) 0.83% 1.53%(c)
Ratio of expenses to average net
assets*............................ 2.07%(c) 2.08% 2.07%(c)
Portfolio turnover**................ 64.19% 98.32% 48.33%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized. (d) Per share
net investment income has been calculated using the daily average share
method.
111
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Equity Income Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the
period ended For the February 27,
May 31, year ended 1997 to
1999 November 30, November 30,
(Unaudited) 1998 1997 (a)
------------ ------------ ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $ 10.24 $ 11.56 $ 10.00
-------- -------- --------
Investment Activities
Net investment income............. 0.08 0.19 0.20
Net realized and unrealized gains
from investments................. 0.47 0.98 1.55
-------- -------- --------
Total from Investment Activities.. 0.55 1.17 1.75
-------- -------- --------
Distributions
Net investment income............. (0.08) (0.20) (0.19)
Net realized gains................ (2.21) (2.29) --
-------- -------- --------
Total Distributions............... (2.29) (2.49) (0.19)
-------- -------- --------
Net Asset Value, End of Period..... $ 8.50 $ 10.24 $ 11.56
======== ======== ========
Total Return....................... 7.53%(b) 12.00% 17.64%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000).. $113,460 $111,866 $131,919
Ratio of expenses to average net
assets............................ 0.97%(c) 0.71% 0.15%(c)
Ratio of net investment income to
average net assets................ 2.00%(c) 1.94% 2.51%(c)
Ratio of expenses to average net
assets*........................... 1.37%(c) 1.37% 1.38%(c)
Portfolio turnover**............... 64.19% 98.32% 48.33%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
For the
period ended For the February 27,
May 31, year ended 1997 to
1999 November 30, November 30,
(Unaudited) 1998 1997 (a)
------------ ------------ ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $10.24 $11.56 $10.00
------ ------ ------
Investment Activities
Net investment income............... 0.08 0.18 0.19
Net realized and unrealized gains
from investments................... 0.46 0.98 1.56
------ ------ ------
Total from Investment Activities.... 0.54 1.16 1.75
------ ------ ------
Distributions
Net investment income............... (0.07) (0.19) (0.19)
Net realized gains.................. (2.21) (2.29) --
------ ------ ------
Total Distributions................. (2.28) (2.48) (0.19)
------ ------ ------
Net Asset Value, End of Period....... $ 8.50 $10.24 $11.56
====== ====== ======
Total Return......................... 7.41%(b) 11.82% 17.64%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000).... $ 109 $ 35 $ 1
Ratio of expenses to average net
assets.............................. 1.27%(c) 1.23% 0.37%(c)
Ratio of net investment income to
average net assets.................. 1.66%(c) 1.40% 2.34%(c)
Ratio of expenses to average net
assets*............................. 1.37%(c) 1.32% 1.60%(c)
Portfolio turnover**................. 64.19% 98.32% 48.33%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
112
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
113
<PAGE>
Mercantile Equity Index Portfolio
Q. What is the role of an index fund such as this one in an investor's
portfolio?
A. Index funds attempt to mimic the performance of a particular market index,
or benchmark. For example, the Mercantile Equity Index Portfolio attempts to
duplicate the performance of the Standard & Poor's 500 Index, the domestic
stock market's most popular benchmark, before deducting the Portfolio's
operating expenses. The Index tracks the performance of 500 large company
stocks in various economic and industry sectors.
Q. Why would an investor choose such a fund?
A. Investors who put their money to work in the Mercantile Equity Index
Portfolio avoid some of the uncertainty of investing in an actively managed
fund. They can be reasonably sure that their investment will come close to
matching the performance of the S&P 500 Index and the large company stocks of
which it is composed. Managers of actively managed portfolios attempt to choose
specific securities and market sectors that will perform well. The portfolios'
performance thus depends upon how well their managers choose among various
investment options. Thus, the portfolios' returns may be considerably higher or
lower than the returns of the Index.
Q. Discuss the Portfolio's performance during the six months ended May 31,
1999.
A. During the recent period, the Portfolio's return of 12.01% (Investor A
Shares no load) was in line with that of its benchmark, the S&P 500 Index,
which produced a 12.60% return for the period.
Q. What accounts for the difference between the Portfolio's return and the
return of the Index?
A. Index funds usually trail their benchmarks by a small margin, reflecting
the funds' operating expenses. Moreover, index funds tend to hold small amounts
of cash, usually 0.5% to 1.0% of the fund, unless they rebalance their
portfolios every day. When the stock market is rising, that cash holding can
hamper performance. But, when the market is falling, a small cash holding can
help performance. Thus, the timing of cash flows into the Mercantile Equity
Index Portfolio can result in modest performance gaps between the Portfolio and
its benchmark. Over the long term, however, the Portfolio's performance should
continue to be very close to that of the S&P 500.
114
<PAGE>
Mercantile Equity Index Portfolio
[CHART OF EQUITY INDEX APPEARS HERE]
Value of a $10,000 Investment
Investor A Investor A S&P 500
Date (No Load) (Load)* Trust Institutional Index
---- --------- ------- ----- ------------- -----
5/1/97 10,000 9,747 10,000 10,000 10,000
11/30/97 12,014 11,710 12,040 12,040 11,964
5/31/98 13,782 13,433 13,831 13,815 13,767
11/98 14,778 14,404 14,851 14,812 14,797
5/99 16,554 15,647 16,657 16,602 16,662
Average Annual Total Returns as of 5/31/99
1 Year Since Inception (5/1/97)
------ ------------------------
Investor A (No Load) 20.11% 27.39%
Investor A* 13.52% 23.99%
Trust 20.43% 27.77%
Institutional 20.17% 27.57%
* Reflects 5.50% sales charge.
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Equity Index Portfolio is measured against
the Standard & Poor's 500 Index, an unmanaged index generally representative of
the U.S. stock market as a whole. Investors are unable to invest in the Index
directly, although they can invest in the underlying securities. The
performance of the Index does not reflect the deduction of expenses associated
with a mutual fund, such as investment management and fund accounting fees. By
contrast, the performance of the Portfolio shown on the graph reflects the
deduction of these value-added services, as well as the deduction of a 5.50%
sales charge on Investor A Shares.
115
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Equity Index Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Commercial Paper (0.8%):
Shares
or
Security Principal Market
Description Amount Value
----------- --------- -----------
<S> <C> <C>
Financial Services (0.8%):
Harsco, 4.95%, 6/1/99.................................... 779,000 $ 779,000
-----------
TOTAL COMMERCIAL PAPER 779,000
-----------
Common Stocks (96.3%):
Advertising (0.2%):
Interpublic Group Cos., Inc. ............................ 1,221 92,491
Omnicom Group, Inc. ..................................... 1,516 106,120
-----------
198,611
-----------
Aerospace/Defense (1.1%):
Boeing Co. .............................................. 8,126 343,323
General Dynamics Corp. .................................. 1,116 73,377
Lockheed Martin Corp. ................................... 3,424 138,458
Northrop Grumman Corp. .................................. 561 37,868
Raytheon Co., Class B.................................... 2,889 196,633
TRW, Inc. ............................................... 1,069 53,517
United Technologies Corp. ............................... 3,888 241,298
-----------
1,084,474
-----------
Aircraft Engines & Engine Parts (0.3%):
AlliedSignal, Inc. ...................................... 4,810 279,281
-----------
Airlines (0.3%):
AMR Corp.(b)............................................. 1,544 100,456
Delta Air Lines, Inc. ................................... 1,198 68,735
Southwest Airlines Co. .................................. 2,925 93,783
US Airways Group, Inc.(b)................................ 737 35,791
-----------
298,765
-----------
Apparel/Shoes (0.6%):
Gap, Inc. ............................................... 4,927 308,246
Liz Claiborne, Inc. ..................................... 592 21,312
Nike, Inc. .............................................. 2,428 147,956
Reebok International Ltd.(b)............................. 502 9,977
Russell Corp. ........................................... 306 7,172
VF Corp. ................................................ 995 45,770
-----------
540,433
-----------
Automotive (1.4%):
Cooper Industries, Inc. ................................. 791 39,204
Cummins Engine Co. ...................................... 411 20,807
Dana Corp. .............................................. 1,472 75,992
Delphi Automotive Systems(b)............................. 4,974 97,620
Ford Motor Co. .......................................... 10,567 602,980
General Motors Corp. .................................... 5,712 394,128
Genuine Parts Co. ....................................... 1,613 54,338
Navistar International Corp.(b).......................... 600 29,625
PACCAR, Inc. ............................................ 718 40,432
-----------
1,355,126
-----------
Banking (6.1%):
Amsouth Bancorp.......................................... 1,550 43,981
Bank of America Corp. ................................... 15,123 978,270
Bank of New York, Inc. .................................. 6,604 236,093
Bank One Corp. .......................................... 10,241 579,257
BankBoston Corp. ........................................ 2,550 120,806
Bankers Trust New York Corp. ............................ 834 77,197
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Banking, continued:
BB & T Corp. .............................................. 2,724 $ 99,426
Chase Manhattan Corp. ..................................... 7,334 531,715
Comerica, Inc. ............................................ 1,396 84,371
Fifth Third Bancorp........................................ 2,297 156,627
First Union Corp. ......................................... 8,658 398,809
Firstar Corp. ............................................. 6,027 173,653
Huntington BancShares, Inc. ............................... 1,791 62,013
KeyCorp.................................................... 3,917 136,116
Mellon Bank Corp. ......................................... 4,516 161,165
Mercantile Bancorporation, Inc. ........................... 1,411 82,455
National City Corp. ....................................... 2,812 186,119
Northern Trust Corp. ...................................... 943 85,224
PNC Bank Corp. ............................................ 2,595 148,564
Republic New York Corp. ................................... 902 61,280
Southtrust Corp. .......................................... 1,466 57,082
State Street Corp. ........................................ 1,408 107,360
Summit Bancorp............................................. 1,561 63,903
SunTrust Banks, Inc. ...................................... 2,786 188,055
Synovus Financial Corp. ................................... 2,323 46,750
U.S. Bancorp............................................... 6,392 207,740
Union Planters Corp. ...................................... 1,230 50,814
Wachovia Corp. ............................................ 1,725 152,231
Wells Fargo & Co. ......................................... 14,304 572,160
-----------
5,849,236
-----------
Beverages (2.7%):
Adolph Coors Co. .......................................... 330 15,675
Anheuser-Busch Co. ........................................ 4,139 302,406
Brown-Forman Corp. ........................................ 607 40,479
Coca-Cola Co. ............................................. 21,437 1,464,415
Coca-Cola Enterprises, Inc.(c)............................. 3,657 132,566
PepsiCo, Inc. ............................................. 12,795 458,221
Seagram Co. Ltd. .......................................... 3,464 179,912
-----------
2,593,674
-----------
Broadcasting & Publishing (0.9%):
CBS Corp.(b)............................................... 6,142 256,429
Clear Channel Communications, Inc.(b)...................... 2,830 186,957
Mediaone Group, Inc.(b).................................... 5,251 387,917
-----------
831,303
-----------
Building Products (0.2%):
Masco Corp. ............................................... 2,960 84,545
Owens Corning.............................................. 488 19,215
Sherwin-Williams Co. ...................................... 1,526 47,020
-----------
150,780
-----------
Business Services (0.6%):
Automatic Data Processing, Inc. ........................... 5,336 219,777
Ceridian Corp.(b).......................................... 1,214 40,062
Computer Science Corp.(b).................................. 1,349 87,263
Equifax, Inc. ............................................. 1,313 47,268
First Data Corp. .......................................... 3,853 173,144
-----------
567,514
-----------
Chemicals (1.8%):
Air Products & Chemicals, Inc. ............................ 1,962 80,441
Avery Dennison Corp. ...................................... 1,051 62,929
Dow Chemical Co. .......................................... 1,967 238,990
</TABLE>
Continued
116
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Equity Index Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Chemicals, continued:
E. I. duPont de Nemours & Co. ............................. 9,798 $ 641,156
Eastman Chemical Co. ...................................... 717 36,298
Ecolab, Inc. .............................................. 1,128 47,940
Engelhard Corp. ........................................... 1,087 22,012
FMC Corp.(b)............................................... 277 18,334
Great Lakes Chemical Corp. ................................ 521 23,543
Hercules, Inc. ............................................ 918 32,073
Monsanto Co. .............................................. 5,477 227,295
Morton International, Inc. ................................ 1,006 39,234
Nalco Chemical Co. ........................................ 550 18,425
Praxair, Inc. ............................................. 1,389 67,801
Rohm & Haas Co.(c)......................................... 1,508 60,509
Sigma-Aldrich Corp. ....................................... 883 28,256
Union Carbide Corp. ....................................... 1,170 60,036
W.R. Grace & Co.(b)........................................ 600 10,688
-----------
1,715,960
-----------
Commercial Services (0.2%):
Browning-Ferris Industries, Inc. .......................... 1,395 57,893
Cendant Corp.(b)........................................... 6,700 123,531
H & R Block, Inc. ......................................... 900 43,369
-----------
224,793
-----------
Computer Software (4.9%):
Adobe Systems, Inc. ....................................... 575 42,622
BMC Software, Inc.(b)...................................... 2,090 103,324
Computer Associates International, Inc. ................... 4,649 219,956
Compuware Corp.(b)......................................... 3,236 100,518
Electronic Data Systems Corp. ............................. 4,263 239,794
IMS Health, Inc. .......................................... 2,740 67,473
Microsoft Corp.(b)......................................... 44,006 3,550,734
Novell, Inc.(b)............................................ 2,938 69,043
Oracle Corp.(b)............................................ 12,531 310,925
Parametric Technology Corp.(b)............................. 2,342 32,495
Peoplesoft, Inc.(b)........................................ 1,994 32,278
-----------
4,769,162
-----------
Computers (6.8%):
3Com Corp.(b).............................................. 3,169 87,148
Apple Computer, Inc.(b)(c)................................. 1,159 51,068
Cabletron Systems, Inc.(b)................................. 1,461 21,732
Cisco Systems, Inc.(b)..................................... 13,778 1,500,079
Compaq Computer Corp....................................... 14,735 349,035
Data General Corp.(b)...................................... 463 6,077
Dell Computer Corp.(b)..................................... 22,140 762,446
EMC Corp.(b)............................................... 4,333 431,675
Gateway 2000, Inc.(b)...................................... 1,373 83,496
Hewlett-Packard Co. ....................................... 8,792 829,196
IBM Corp. ................................................. 16,006 1,861,697
Seagate Technology, Inc.(b)................................ 2,160 65,205
Silicon Graphics, Inc.(b).................................. 1,620 20,048
Sun Microsystems, Inc.(b).................................. 6,756 403,671
Unisys Corp.(b)............................................ 2,289 86,839
-----------
6,559,412
-----------
Construction (0.2%):
Armstrong World Industries, Inc. .......................... 344 20,038
Centex Corp. .............................................. 511 18,939
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Construction, continued:
Ingersoll-Rand Co. ........................................ 1,395 $ 88,844
Kaufman & Broad Home Corp. ................................ 434 10,470
Pulte Corp. ............................................... 390 9,287
-----------
147,578
-----------
Consumer Goods & Services (1.6%):
Black & Decker Corp. ...................................... 760 43,273
Clorox Co. ................................................ 997 100,635
Colgate-Palmolive Co. ..................................... 2,550 254,681
Fortune Brands, Inc. ...................................... 1,470 60,086
Jostens, Inc. ............................................. 333 7,035
Procter & Gamble Co. ...................................... 11,550 1,078,481
Tupperware Corp. .......................................... 529 11,770
-----------
1,555,961
-----------
Containers & Packaging (0.2%):
Ball Corp. ................................................ 275 13,389
Bemis Co. ................................................. 489 18,460
Crown Cork & Seal Co., Inc. ............................... 1,074 33,697
Owens-Illinois, Inc.(b).................................... 1,310 39,955
Sealed Air Corp.(b)(c)..................................... 724 44,978
-----------
150,479
-----------
Cosmetics & Toiletries (0.7%):
Alberto-Culver Co.(c)...................................... 503 13,298
Avon Products, Inc. ....................................... 2,336 115,486
Gillette Co. .............................................. 9,632 491,232
International Flavors & Fragrances, Inc. .................. 926 38,082
-----------
658,098
-----------
Diversified Operations (0.8%):
Corning, Inc.(c)........................................... 2,009 109,742
Crane Co. ................................................. 594 17,857
Eastern Enterprises........................................ 233 8,082
Eaton Corp. ............................................... 590 51,441
ITT Industries, Inc. ...................................... 833 31,446
Minnesota Mining & Manufacturing Co. ...................... 3,457 296,437
National Service Industries, Inc. ......................... 335 12,332
PPG Industries, Inc. ...................................... 1,574 95,522
Raychem Corp. ............................................. 689 23,943
Tenneco, Inc. ............................................. 1,472 34,316
Textron, Inc. ............................................. 1,426 127,003
-----------
808,121
-----------
Electrical & Electronic (3.6%):
CMS Energy Corp. .......................................... 1,052 48,918
Emerson Electric Co. ...................................... 3,776 241,192
General Electric Co. ...................................... 28,548 2,902,974
Millipore Corp. ........................................... 352 11,748
Solectron Corp.(b)......................................... 2,220 121,545
Tandy Corp. ............................................... 851 70,208
Tektronix, Inc. ........................................... 377 8,742
Thomas & Betts Corp. ...................................... 492 21,064
W.W. Grainger, Inc. ....................................... 834 44,254
-----------
3,470,645
-----------
</TABLE>
Continued
117
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Equity Index Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Engineering (0.0%):
Fluor Corp. ............................................... 693 $ 25,814
Foster Wheeler Corp. ...................................... 341 4,689
-----------
30,503
-----------
Entertainment (1.6%):
Brunswick Corp. ........................................... 777 18,648
Harrah's Entertainment, Inc.(b)............................ 1,145 24,761
Harris Corp. .............................................. 668 25,259
King World Productions, Inc.(b)............................ 631 21,060
Meredith Corp. ............................................ 494 17,259
The Walt Disney Co.(b)..................................... 17,871 520,493
Time Warner, Inc. ......................................... 10,644 724,456
Viacom, Inc., Class B(b)(c)................................ 6,090 234,465
-----------
1,586,401
-----------
Environmental Services (0.3%):
Waste Management, Inc. .................................... 5,257 277,964
-----------
Financial Services (6.1%):
American Express Co. ...................................... 3,960 479,903
Associates First Capital Corp. ............................ 6,298 258,218
Bear Stearns Co., Inc. .................................... 969 42,999
Capital One Financial Corp. ............................... 562 84,686
Citigroup, Inc. ........................................... 19,709 1,305,720
Countrywide Credit Industries, Inc. ....................... 980 40,303
Dun & Bradstreet Corp. .................................... 1,420 49,700
Fannie Mae................................................. 9,060 616,079
Fleet Financial Group, Inc. ............................... 4,992 205,296
Franklin Resources, Inc. .................................. 2,184 95,004
Freddie Mac................................................ 5,946 346,726
Golden West Financial Corp. ............................... 509 48,291
Household International, Inc. ............................. 4,220 183,043
J. P. Morgan & Co., Inc. .................................. 1,506 209,805
Lehman Brothers Holding, Inc. ............................. 950 51,894
MBIA, Inc. ................................................ 829 56,631
MBNA Corp. ................................................ 6,945 191,856
Merrill Lynch & Co. ....................................... 3,071 257,964
MGIC Investment Corp. ..................................... 957 46,056
Morgan Stanley Dean Witter & Co. .......................... 4,990 481,535
Paychex, Inc. ............................................. 2,175 64,434
Providian Financial Corp. ................................. 1,187 113,878
Regions Financial Corp. ................................... 1,900 71,963
Schwab (Charles) Corp. .................................... 3,494 369,709
SLM Holding Corp. ......................................... 1,437 59,636
Washington Mutual, Inc. ................................... 5,135 196,093
-----------
5,927,422
-----------
Food Products (0.3%):
Unilever N.V. ............................................. 4,947 323,122
-----------
Food Products & Services (1.5%):
Archer-Daniels Midland Co. ................................ 5,151 77,265
Bestfoods.................................................. 2,499 124,950
Campbell Soup Co. ......................................... 3,908 172,441
ConAgra, Inc. ............................................. 4,262 111,078
General Mills, Inc. ....................................... 1,360 109,310
H. J. Heinz Co. ........................................... 3,104 149,962
Hershey Foods Corp. ....................................... 1,277 69,277
Kellogg Co. ............................................... 3,572 123,904
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Food Products & Services, continued:
Pioneer Hi-Bred International, Inc. ....................... 2,133 $ 79,988
Quaker Oats Co. ........................................... 1,180 77,954
Ralston Purina Group....................................... 2,852 77,717
Sara Lee Corp. ............................................ 7,980 191,519
Wm. Wrigley Jr. Co. ....................................... 1,025 89,239
-----------
1,454,604
-----------
Funeral Services (0.0%):
Service Corp. International................................ 2,413 46,299
-----------
Health Care (1.7%):
American Home Products Corp. .............................. 11,516 663,609
C.R. Bard, Inc. ........................................... 508 23,209
Columbia/HCA Healthcare Corp.(c)........................... 5,592 131,762
HCR Manor Care, Inc.(b).................................... 967 25,867
Healthsouth Corp.(b)....................................... 3,661 48,966
Humana, Inc.(b)............................................ 1,489 18,706
Mckesson HBOC, Inc. ....................................... 2,324 79,161
Tenet Healthcare Corp.(b).................................. 2,680 65,660
United Healthcare Corp. ................................... 1,627 94,773
Warner-Lambert Co. ........................................ 7,199 446,338
-----------
1,598,051
-----------
Hotels & Lodging (0.2%):
Hilton Hotels Corp. ....................................... 2,284 31,405
Marriott International, Inc., Class A...................... 2,100 79,931
Mirage Resorts, Inc.(b).................................... 1,678 34,399
-----------
145,735
-----------
Household - Major Appliances (0.1%):
Maytag Corp. .............................................. 759 53,556
Whirlpool Corp. ........................................... 679 43,796
-----------
97,352
-----------
Instrumentation (0.3%):
EG&G, Inc. ................................................ 343 10,183
Honeywell, Inc. ........................................... 1,118 105,790
Johnson Controls, Inc. .................................... 690 43,513
Parker Hannifin Corp. ..................................... 931 40,673
PE Corp. Biosystems........................................ 478 53,387
-----------
253,546
-----------
Insurance (3.5%):
Aetna, Inc. ............................................... 1,241 112,698
AFLAC, Inc. ............................................... 2,277 116,127
Allstate Corp. ............................................ 7,182 261,694
American General Corp. .................................... 2,210 159,673
American International Group, Inc. ........................ 10,656 1,218,113
AON Corp. ................................................. 2,194 94,342
Chubb Corp. ............................................... 1,461 102,361
Cigna Corp. ............................................... 1,796 167,477
Cincinnati Financial Corp. ................................ 1,482 61,040
Conseco, Inc. ............................................. 2,835 86,645
Hartford Financial Services Group, Inc. ................... 2,060 130,295
Jefferson-Pilot Corp. ..................................... 921 62,340
Lincoln National Corp. .................................... 851 86,589
Loews Corp. ............................................... 1,020 82,939
Marsh & McLennan Cos., Inc. ............................... 2,202 160,196
</TABLE>
Continued
118
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Equity Index Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Insurance, continued:
Progressive Corp. ......................................... 584 $ 81,979
Provident Companies, Inc. ................................. 1,154 45,078
SAFECO Corp. .............................................. 1,215 53,384
St. Paul Companies, Inc. .................................. 2,100 74,681
Torchmark Corp. ........................................... 1,199 40,017
Transamerica Corp. ........................................ 1,092 80,126
UNUM Corp. ................................................ 1,198 64,467
-----------
3,342,261
-----------
Internet (1.1%):
America Online, Inc. (b)(c)................................ 8,906 1,063,154
-----------
Leisure & Recreation/Gaming (0.2%):
Carnival Corp. ............................................ 5,235 214,635
-----------
Machinery & Equipment (0.4%):
Case Corp. ................................................ 600 28,200
Caterpillar, Inc. ......................................... 3,089 169,508
Deere & Co. ............................................... 2,095 79,741
Dover Corp. ............................................... 1,918 72,285
Harnischfeger Industries, Inc. ............................ 451 3,242
Milacron, Inc. ............................................ 338 7,204
Nacco Industries, Inc., Class A............................ 33 2,463
Snap-On, Inc. ............................................. 524 18,962
Stanley Works.............................................. 813 26,473
Thermo Electron Corp.(b)................................... 1,360 26,010
-----------
434,088
-----------
Manufacturing (0.9%):
Briggs & Stratton Corp. ................................... 218 13,625
Danaher Corp. ............................................. 1,120 67,690
Fleetwood Enterprises, Inc.(c) ............................ 270 6,868
Illinois Tool Works, Inc. ................................. 2,187 167,852
Pall Corp. ................................................ 1,114 22,350
Tyco International Ltd. ................................... 7,126 622,634
-----------
901,019
-----------
Manufacturing - Consumer Goods (0.1%):
Fruit Of the Loom, Inc.(b)................................. 589 6,074
Newell Rubbermaid, Inc. ................................... 2,404 97,362
-----------
103,436
-----------
Medical Equipment & Supplies (1.0%):
Bausch & Lomb, Inc. ....................................... 502 38,340
Baxter International, Inc. ................................ 2,465 159,147
Becton Dickinson & Co. .................................... 2,204 85,405
Biomet, Inc.(b)............................................ 942 37,621
Boston Scientific Corp.(b)................................. 3,384 128,381
Guidant Corp. ............................................. 2,612 130,600
Mallinckrodt, Inc. ........................................ 627 21,710
Medtronic, Inc. ........................................... 5,110 362,810
St. Jude Medical, Inc.(b).................................. 756 25,562
-----------
989,576
-----------
Medical Services (0.0%):
Shared Medical Systems Corp. .............................. 221 14,531
-----------
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Medical - Hospital Services (0.0%):
Lifepoint Hospitals, Inc.(b)............................... 1 $ 6
Triad Hospitals, Inc.(b)(c)................................ 1 6
-----------
12
-----------
Metals & Mining (0.4%):
Alcan Aluminum Ltd. ....................................... 1,974 55,272
Aloca, Inc. ............................................... 3,166 174,131
Asarco, Inc. .............................................. 325 5,220
Cyprus Amax Minerals Co. .................................. 831 10,439
Freeport McMoran Copper & Gold, Inc. ...................... 1,489 21,032
Inco Ltd. ................................................. 1,562 22,259
Phelps Dodge Corp. ........................................ 515 26,683
Reynolds Metals Co. ....................................... 597 31,753
-----------
346,789
-----------
Office Equipment & Services (0.5%):
Deluxe Corp. .............................................. 736 26,542
IKON Office Solutions, Inc. ............................... 1,275 17,770
Pitney Bowes, Inc. ........................................ 2,412 153,765
Xerox Corp. ............................................... 5,752 323,191
-----------
521,268
-----------
Oil & Exploration, Production & Services (0.5%):
Anadarko Petroleum Corp. .................................. 1,136 42,600
Apache Corp. .............................................. 942 33,912
Burlington Resources, Inc. ................................ 1,498 64,320
Coastal Corp. ............................................. 1,810 69,798
Halliburton Co. ........................................... 3,840 158,879
Kerr-McGee Corp. .......................................... 773 35,945
Rowan Cos., Inc.(b)........................................ 699 11,796
Sonat, Inc. ............................................... 927 32,851
Union Pacific Resources Group, Inc. ....................... 2,220 30,941
-----------
481,042
-----------
Oil & Gas Equipment/Services (0.6%):
Baker Hughes, Inc. ........................................ 2,862 89,080
McDermott International, Inc. ............................. 549 14,068
Schlumberger Ltd. ......................................... 4,737 285,108
Williams Cos., Inc. ....................................... 3,757 194,660
-----------
582,916
-----------
Oil Companies - Integrated (5.4%):
Amerada Hess Corp. ........................................ 830 49,748
Ashland, Inc. ............................................. 603 24,572
Atlantic Richfield Co. .................................... 2,866 239,848
Chevron Corp. ............................................. 5,715 529,709
Enron Corp. ............................................... 3,039 216,909
Exxon Corp. ............................................... 21,143 1,688,797
Helmerich & Payne, Inc. ................................... 479 11,167
Mobil Corp. ............................................... 6,768 685,260
Occidental Petroleum Corp. ................................ 2,993 63,227
Phillips Petroleum Co. .................................... 2,175 114,052
Royal Dutch Petroleum Co.-NY Shares........................ 18,656 1,055,230
Sunoco, Inc. .............................................. 773 23,528
Texaco, Inc. .............................................. 4,660 305,230
Unocal Corp. .............................................. 2,073 82,402
USX-Marathon Group, Inc. .................................. 2,699 80,801
-----------
5,170,480
-----------
</TABLE>
Continued
119
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Equity Index Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Paper & Related (1.0%):
Boise Cascade Corp. ....................................... 498 $ 19,733
Champion International Corp. .............................. 865 44,331
Fort James Corp. .......................................... 1,877 68,745
Georgia-Pacific Corp. ..................................... 748 64,655
International Paper Co. ................................... 3,606 180,311
Kimberly-Clark Corp. ...................................... 4,683 274,835
Louisiana-Pacific Corp. ................................... 994 20,129
Mead Corp. ................................................ 901 33,675
Potlatch Corp. ............................................ 243 9,568
Temple-Inland, Inc. ....................................... 501 33,567
Westvaco Corp. ............................................ 891 25,449
Weyerhaeuser Co. .......................................... 1,735 107,678
Williamette Industries, Inc. .............................. 1,002 42,460
-----------
925,136
-----------
Pharmaceuticals (7.6%):
Abbott Laboratories........................................ 13,246 598,554
Allergan, Inc. ............................................ 542 50,406
ALZA Corp.(b).............................................. 895 31,940
Amgen, Inc.(b)............................................. 4,410 278,933
Bristol-Myers Squibb Co. .................................. 17,332 1,189,409
Eli Lilly & Co. ........................................... 9,258 661,368
Johnson & Johnson.......................................... 11,739 1,087,325
Merck & Co., Inc. ......................................... 20,796 1,403,729
Pfizer, Inc. .............................................. 11,266 1,205,462
Pharmacia & UpJohn, Inc. .................................. 4,425 245,311
Schering-Plough Corp. ..................................... 12,786 576,169
Watson Pharmaceuticals, Inc. .............................. 846 32,412
-----------
7,361,018
-----------
Photography (0.2%):
Eastman Kodak Co. ......................................... 2,811 190,094
Polaroid Corp. ............................................ 336 7,098
-----------
197,192
-----------
Precious Metals (0.1%):
Barrick Gold Corp. ........................................ 3,284 56,649
Battle Mountain Gold Co. .................................. 1,992 4,856
Homestake Mining Co. ...................................... 2,249 17,570
Newmont Mining Corp.(c) ................................... 1,436 25,579
Placer Dome, Inc. ......................................... 2,178 24,230
-----------
128,884
-----------
Printing & Publishing (0.6%):
American Greetings Corp. Class A........................... 581 16,631
Dow Jones & Co., Inc. ..................................... 820 43,050
Gannett Co., Inc. ......................................... 2,477 178,963
Knight-Ridder, Inc. ....................................... 733 38,620
McGraw-Hill Cos., Inc. .................................... 1,762 91,404
New York Times Co. ........................................ 1,590 54,259
R.R. Donnelley Co. ........................................ 1,191 43,174
Times Mirror Co. .......................................... 607 35,775
Tribune Co. ............................................... 1,003 79,174
-----------
581,050
-----------
Restaurants (0.6%):
Darden Restaurants, Inc. .................................. 1,203 25,639
McDonald's Corp. .......................................... 11,750 452,375
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Restaurants, continued:
Tricon Global Restaurants, Inc.(b)......................... 1,354 $ 78,871
Wendy's International, Inc. ............................... 1,053 28,694
-----------
585,579
-----------
Retail Stores (5.4%):
Albertson's, Inc.(c)....................................... 2,175 116,363
American Stores Co. ....................................... 2,440 80,520
AutoZone, Inc.(b).......................................... 1,264 36,577
Circuit City Stores, Inc. ................................. 925 66,427
Consolidated Stores Corp.(b)............................... 983 33,791
CVS Corp. ................................................. 3,364 154,744
Dayton Hudson Corp. ....................................... 3,822 240,786
Dillards, Inc., Class A.................................... 939 32,982
Dollar General Corp. ...................................... 1,989 52,826
Federated Department Stores, Inc.(b)....................... 1,849 100,771
Great Atlantic & Pacific Tea Co. .......................... 331 10,840
Harcourt General, Inc. .................................... 615 30,250
Home Depot, Inc. .......................................... 12,860 731,412
J.C. Penney, Inc.(c) ...................................... 2,284 118,054
KMart Corp.(b)............................................. 4,328 66,543
Kohl's Corp.(b)............................................ 1,358 92,599
Kroger Co.(b).............................................. 3,630 212,582
Limited, Inc. ............................................. 1,932 94,427
Longs Drug Stores, Inc. ................................... 334 11,627
Lowe's Cos. ............................................... 3,264 169,524
May Department Stores Co. ................................. 3,100 134,269
Nordstrom, Inc. ........................................... 1,206 42,813
Pep Boys--Manny, Moe, & Jack............................... 447 8,437
Rite-Aid Corp. ............................................ 2,227 55,675
Safeway, Inc. (b)(c)....................................... 4,281 199,067
Sears, Roebuck & Co. ...................................... 3,374 161,319
Staples, Inc.(b)........................................... 4,022 115,633
TJX Cos., Inc. ............................................ 2,818 84,540
Toys R Us, Inc.(b)......................................... 2,186 50,415
Wal-Mart Stores, Inc. ..................................... 38,786 1,653,252
Walgreen Co. .............................................. 8,720 202,740
Winn-Dixie Stores, Inc. ................................... 1,338 47,917
-----------
5,209,722
-----------
Semiconductors (2.5%):
Advanced Micro Devices, Inc.(b)............................ 1,308 24,198
Applied Materials, Inc.(b)................................. 3,253 178,712
Intel Corp. ............................................... 29,004 1,568,028
KLA-Tencor Corp.(b)........................................ 744 33,852
LSI Logic Corp.(b)......................................... 1,199 44,438
Micron Technology, Inc.(b)................................. 2,156 81,793
National Semiconductor Corp.(b)............................ 1,495 28,966
Rockwell International Corp. .............................. 1,694 93,488
Texas Instruments, Inc. ................................... 3,381 369,797
-----------
2,423,272
-----------
Steel (0.1%):
Allegheny Teledyne, Inc. .................................. 1,712 34,989
Bethlehem Steel Corp.(b)................................... 1,106 9,194
Nucor Corp. ............................................... 808 40,299
USX-U.S. Steel Group....................................... 796 21,442
Worthington Industries, Inc. .............................. 819 10,493
-----------
116,417
-----------
</TABLE>
Continued
120
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Equity Index Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Technology (0.5%):
Autodesk, Inc. ............................................ 545 $ 15,056
Motorola, Inc. ............................................ 5,221 432,364
-----------
447,420
-----------
Telecommunications (4.9%):
AirTouch Communications, Inc.(b)........................... 4,948 497,274
Andrew Corp.(b)............................................ 771 11,951
Ascend Communications, Inc.(b)............................. 1,900 176,106
Centurytel, Inc. .......................................... 1,234 47,278
Comcast Corp. ............................................. 6,466 248,941
Frontier Corp. ............................................ 1,494 78,622
General Instrument Corp.(b)................................ 1,434 55,478
Lucent Technologies, Inc. ................................. 23,024 1,309,490
MCI Worldcom, Inc.(b)...................................... 15,942 1,376,989
Nextel Communications, Inc. Class A(b)(c).................. 2,550 94,031
Nortel Networks Corp. ..................................... 5,808 435,600
Scientific-Atlanta, Inc. .................................. 616 21,753
Sprint Corp. (PCS Group)(b)................................ 3,879 174,555
Tellabs, Inc.(b)........................................... 3,364 196,794
-----------
4,724,862
-----------
Textile Products (0.0%):
Springs Industries, Inc.(c)................................ 132 5,231
-----------
Tire & Rubber (0.1%):
B. F. Goodrich Co.(c)...................................... 619 25,070
Cooper Tire & Rubber Co. .................................. 661 15,699
Goodyear Tire & Rubber Co. ................................ 1,385 82,666
-----------
123,435
-----------
Tobacco (1.0%):
Philip Morris Companies, Inc. ............................. 21,253 819,568
RJR Nabisco Holdings Corp. ................................ 2,803 86,718
UST, Inc. ................................................. 1,635 49,868
-----------
956,154
-----------
Toys (0.2%):
Hasbro, Inc. .............................................. 1,729 49,493
Mattel, Inc. .............................................. 3,630 95,968
-----------
145,461
-----------
Transportation & Shipping (0.7%):
Burlington Northern Santa Fe............................... 4,050 125,550
CSX Corp. ................................................. 1,936 90,871
FDX Corp.(b)............................................... 2,588 142,501
Kansas City Southern Industries, Inc. ..................... 995 55,969
Laidlaw, Inc. ............................................. 2,832 19,824
Norfolk Southern Corp. .................................... 3,258 106,700
Timken Co. ................................................ 531 10,919
Union Pacific Corp. ....................................... 2,175 124,111
-----------
676,445
-----------
Trucking & Leasing (0.0%):
Ryder Systems, Inc. ....................................... 610 14,640
-----------
Utilities - Gas & Electric (2.3%):
AES Corp.(b)............................................... 1,690 84,078
Ameren Corp. .............................................. 1,242 50,844
American Electric Power, Inc. ............................. 1,665 72,219
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Utilities - Gas & Electric, continued:
Carolina Power & Light Co. ................................ 1,318 $ 57,663
Central & South West Corp. ................................ 1,861 47,921
CINergy Corp. ............................................. 1,394 47,570
Columbia Energy Group...................................... 750 40,125
Consolidated Edison, Inc. ................................. 2,010 97,611
Consolidated Natural Gas Co. .............................. 812 48,263
Constellation Energy Group, Inc. .......................... 1,303 40,637
Dominion Resources, Inc. .................................. 1,686 72,814
DTE Energy Co. ............................................ 1,218 53,059
Duke Energy Corp. ......................................... 3,192 192,517
Edison International....................................... 3,119 85,773
Entergy Corp. ............................................. 2,168 70,325
FirstEnergy Corp. ......................................... 2,100 66,806
FPL Group, Inc. ........................................... 1,622 94,380
GPU, Inc. ................................................. 1,117 48,659
New Century Energies, Inc. ................................ 1,014 41,004
Niagara Mohawk Holdings, Inc.(b)........................... 1,615 24,023
NICOR, Inc. ............................................... 453 17,044
Northern States Power Co. ................................. 1,364 35,549
Oneok, Inc. ............................................... 287 8,610
PacifiCorp................................................. 2,553 46,433
Peco Energy Co. ........................................... 1,959 95,869
People's Energy Corp. ..................................... 318 12,243
PG & E Corp. .............................................. 3,309 111,679
PP & L Resources, Inc. .................................... 1,338 40,140
Public Service Enterprise Group, Inc. ..................... 1,899 79,639
Reliant Energy Inc. ....................................... 2,452 74,786
Sempra Energy.............................................. 2,122 45,623
Southern Co. .............................................. 6,026 170,987
Texas Utilities Co. ....................................... 2,480 111,600
Unicom Corp. .............................................. 1,881 79,590
-----------
2,266,083
-----------
Utilities - Telephone (6.2%):
Alltel Corp. .............................................. 2,440 174,918
Ameritech Corp. ........................................... 9,588 631,010
AT&T Corp. ................................................ 27,389 1,520,089
Bell Atlantic Corp. ....................................... 13,536 741,096
BellSouth Corp. ........................................... 16,996 801,998
GTE Corp. ................................................. 8,428 531,491
SBC Communications, Inc. .................................. 17,065 872,447
Sprint Corp. (FON Group)................................... 3,858 434,990
US West, Inc. ............................................. 4,352 235,280
-----------
5,943,319
-----------
Wholesale Distribution (0.4%):
Cardinal Health, Inc. ..................................... 2,337 141,096
Costco Companies, Inc.(b).................................. 1,907 138,258
SUPERVALU, Inc. ........................................... 1,046 25,366
Sysco Corp. ............................................... 2,892 85,856
-----------
390,576
-----------
TOTAL COMMON STOCKS 92,937,508
-----------
Investment Companies (3.0%):
S&P 500 Depositary Receipt................................. 22,400 2,921,100
-----------
TOTAL INVESTMENT COMPANIES 2,921,100
-----------
</TABLE>
Continued
121
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Equity Index Portfolio May 31, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Short-Term Securities Held as Collateral (1.4%):
<CAPTION>
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Repurchase agreements (1.4%):
Greenwich Capital, 4.96%, 6/1/99 (Purchased on 5/28/99,
proceeds at maturity $735,349, collateralized by
$2,509,156 various U.S. Government Agency Mortgages,
0.00%-8.00%, 5/15/06-5/15/29, market value $749,952).. 735,247 $ 735,247
Salomon Smith Barney, Inc., 4.93%, 6/1/99 (Purchased on
5/28/99, proceeds at maturity $661,553, collateralized
by $1,086,456 various GNMA, 0.50%-10.00%, 11/15/00-
5/20/29, market value $674,692)....................... 661,463 661,463
-----------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL 1,396,710
-----------
TOTAL INVESTMENTS
(Cost $77,192,643)(a)--101.6%................................. 98,034,318
Liabilities in excess of other assets--(1.6%)................. (1,499,826)
-----------
TOTAL NET ASSETS--100.0%............................... $96,534,492
===========
</TABLE>
- -----
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation...................................... $23,465,126
Unrealized depreciation...................................... (2,623,451)
-----------
Net unrealized appreciation.................................. $20,841,675
===========
</TABLE>
(b) Represents non-income producing securities.
(c) A portion of this security was loaned as of May 31, 1999.
See notes to financial statements
122
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Equity Index Portfolio
Statement of Assets and Liabilities
May 31, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $75,795,933)............... $96,637,608
Repurchase agreements, at value (cost $1,396,710)...... 1,396,710
-----------
Total investments..................................... 98,034,318
Cash................................................... 161
Interest and dividends receivable...................... 157,662
Receivable for capital shares issued................... 13,631
Deferred organization costs............................ 17,568
Prepaid expenses and other assets...................... 4,298
-----------
Total Assets.......................................... 98,227,638
Liabilities:
Dividends payable...................................... $ 119,899
Payable for investments purchased...................... 119,895
Payable for capital shares redeemed.................... 863
Payable for return of collateral received.............. 1,396,710
Accrued expenses and other payables:
Investment advisory fees.............................. 24,960
Administration fees................................... 1,318
Distribution and administrative services fees......... 8,691
Custodian fees........................................ 4,160
Other liabilities..................................... 16,650
----------
Total Liabilities..................................... 1,693,146
-----------
Net Assets:
Capital................................................ 75,784,684
Undistributed net investment income.................... 4,580
Accumulated net realized losses from investment
transactions.......................................... (96,447)
Net unrealized appreciation from investments........... 20,841,675
-----------
Net Assets............................................. $96,534,492
===========
Investor A Shares
Net Assets............................................ $ 2,588,855
Shares................................................ 161,489
Redemption price per share............................ $16.03
======
Maximum Sales Charge -- Investor A Shares.............. 5.50%
Maximum Offering Price
(100%/(100% -- Maximum Sales Charge) of net asset
value adjusted to the nearest cent) per share........ $16.96
======
Trust Shares
Net Assets............................................ $63,081,526
Shares................................................ 3,931,732
Offering and redemption price per share............... $16.04
======
Institutional Shares
Net Assets............................................ $30,864,111
Shares................................................ 1,924,575
Offering and redemption price per share............... $16.04
======
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the period ended May 31, 1999
(Unaudited)
<S> <C> <C>
Investment Income:
Interest income.......................................... $ 20,134
Dividend income.......................................... 574,843
Income from securities lending........................... 678
Foreign tax witholding................................... (413)
----------
Total Income............................................ 595,242
Expenses:
Investment advisory fees................................. $125,924
Administration fees...................................... 83,950
Distribution and services fees, Investor A Shares........ 2,579
Administrative services fees, Trust Shares............... 87,169
Administrative services fees, Institutional Shares....... 36,176
Accounting fees.......................................... 10,579
Custodian fees........................................... 19,504
Transfer agent fees...................................... 9,082
Other.................................................... 20,051
--------
Total expenses before voluntary fee reductions.......... 395,014
Expenses voluntarily reduced............................ (129,143)
----------
Net Expenses............................................ 265,871
----------
Net investment income.................................... 329,371
----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized losses from investment transactions......... (88,984)
Net change in unrealized appreciation from investments... 8,213,817
----------
Net realized/unrealized gains from investments........... 8,124,833
----------
Change in net assets resulting from operations........... $8,454,204
==========
</TABLE>
See notes to financial statements
123
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Equity Index Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended
1999 November 30,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................... $ 329,371 $ 448,355
Net realized gains (losses) from investment
transactions....................................... (88,984) 780,875
Net change in unrealized appreciation from
investments........................................ 8,213,817 7,781,805
----------- -----------
Change in net assets resulting from operations....... 8,454,204 9,011,035
----------- -----------
Distributions to Investor A Shareholders:
From net investment income.......................... (5,504) (4,251)
From net realized gains from investment
transactions....................................... (11,564) (374)
Distributions to Trust Shareholders:
From net investment income.......................... (253,282) (406,100)
From net realized gains from investment
transactions....................................... (650,914) (57,368)
Distributions to Institutional Shareholders:
From net investment income.......................... (72,594) (43,165)
From net realized gains from investment
transactions....................................... (124,999) (14)
----------- -----------
Change in net assets from shareholder distributions.. (1,118,857) (511,272)
----------- -----------
Change in net assets from capital transactions....... 27,109,427 21,589,407
----------- -----------
Change in net assets................................. 34,444,774 30,089,170
Net Assets:
Beginning of period................................. 62,089,718 32,000,548
----------- -----------
End of period....................................... $96,534,492 $62,089,718
=========== ===========
</TABLE>
See notes to financial statements
124
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Equity Index Portfolio
Statement of Cash Flows
<TABLE>
<CAPTION>
For the
period ended
May 31,
1999
(Unaudited)
-------------
<S> <C>
Cash Flows from Operating Activities:
Net investment income.......................................... $ 329,371
Adjustments to reconcile net investment income to net cash used
in operating activities:
Cost of investment securities purchased........................ (151,060,691)
Proceeds from disposition of investment securities............. 124,739,088
Increase in investments purchased with cash collateral from
securities lending............................................ (613,338)
Increase in dividends and interest receivable.................. (71,626)
Increase in payable for return of collateral received from
securities lending............................................ 613,338
Increase in accrued expenses................................... 17,631
Amortization expense on organizational costs................... 2,955
Increase in prepaid expenses................................... (4,298)
Net amortization/accretion from investments.................... (20,134)
-------------
Net cash used in operating activities.......................... (26,067,704)
-------------
Cash Flows from Financing Activities:
Proceeds from shares issued.................................... 32,157,330
Cost of shares redeemed........................................ (5,041,805)
Cash distributions paid........................................ (1,047,883)
-------------
Net cash provided by financing activities...................... 26,067,642
-------------
Decrease in cash................................................ (62)
Cash:
Beginning balance.............................................. 223
-------------
Ending balance................................................. $ 161
=============
</TABLE>
Non-cash financing activities not included herein consist of reinvestment of
dividends from net investment income and distributions of net realized capital
gains of $919,355.
See notes to financial statements
125
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Equity Index Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended May 1, 1997 to
1999 November 30, November 30,
(Unaudited) 1998 1997 (a)
------------ ------------ --------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $ 14.54 $ 11.93 $ 10.00
------- ------- -------
Investment Activities
Net investment income............. 0.05 0.09 0.07
Net realized and unrealized gains
from investments................. 1.67 2.64 1.94
------- ------- -------
Total from Investment Activities.. 1.72 2.73 2.01
------- ------- -------
Distributions
Net investment income............. (0.05) (0.10) (0.07)
In excess of net investment
income........................... -- -- (0.01)
Net realized gains................ (0.18) (0.02) --
------- ------- -------
Total Distributions............... (0.23) (0.12) (0.08)
------- ------- -------
Net Asset Value, End of Period..... $ 16.03 $ 14.54 $ 11.93
======= ======= =======
Total Return (excludes sales
charge)........................... 12.01%(b) 23.01% 20.14%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000).. $ 2,589 $ 914 $ 206
Ratio of expenses to average net
assets............................ 0.84%(c) 0.86% 0.78%(c)
Ratio of net investment income to
average net assets................ 0.59%(c) 0.70% 1.02%(c)
Ratio of expenses to average net
assets*........................... 0.94%(c) 1.03% 1.21%(c)
Portfolio turnover**............... 20.88% 14.83% 1.66%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended May 1, 1997 to
1999 November 30, November 30,
(Unaudited) 1998 1997 (a)
------------ ------------ --------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $ 14.55 $ 11.94 $ 10.00
------- ------- -------
Investment Activities
Net investment income............. 0.07 0.13 0.10
Net realized and unrealized gains
from investments................. 1.67 2.64 1.94
------- ------- -------
Total from Investment Activities.. 1.74 2.77 2.04
------- ------- -------
Distributions
Net investment income............. (0.07) (0.14) (0.10)
Net realized gains................ (0.18) (0.02) --
------- ------- -------
Total Distributions............... (0.25) (0.16) (0.10)
------- ------- -------
Net Asset Value, End of Period..... $ 16.04 $ 14.55 $ 11.94
======= ======= =======
Total Return....................... 12.16%(b) 23.34% 20.40%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000).. $63,082 $50,232 $31,787
Ratio of expenses to average net
assets............................ 0.54%(c) 0.54% 0.39%(c)
Ratio of net investment income to
average net assets................ 0.87%(c) 1.02% 1.48%(c)
Ratio of expenses to average net
assets*........................... 0.94%(c) 1.03% 1.12%(c)
Portfolio turnover**............... 20.88% 14.83% 1.66%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
126
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Equity Index Portfolio
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended May 1, 1997 to
1999 November 30, November 30,
(Unaudited) 1998 1997 (a)
------------ ------------ --------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $ 14.54 $ 11.94 $10.00
------- ------- ------
Investment Activities
Net investment income............. 0.05 0.10 0.10
Net realized and unrealized gains
from investments................. 1.68 2.63 1.94
------- ------- ------
Total from Investment Activities.. 1.73 2.73 2.04
------- ------- ------
Distributions
Net investment income............. (0.05) (0.11) (0.10)
Net realized gains................ (0.18) (0.02) --
------- ------- ------
Total Distributions............... (0.23) (0.13) (0.10)
------- ------- ------
Net Asset Value, End of Period..... $ 16.04 $ 14.54 $11.94
======= ======= ======
Total Return....................... 12.08%(b) 23.01% 20.40%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000).. $30,864 $10,944 $ 8
Ratio of expenses to average net
assets............................ 0.84%(c) 0.91% 0.46%(c)
Ratio of net investment income to
average net assets................ 0.59%(c) 0.63% 1.30%(c)
Ratio of expenses to average net
assets*........................... 0.94%(c) 1.03% 1.19%(c)
Portfolio turnover**............... 20.88% 14.83% 1.66%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
127
<PAGE>
Mercantile Growth & Income Equity Portfolio
Q. What were conditions in the stock market during the six-month period ended
May 31, 1999?
A. Growth stocks continued to perform well compared to value stocks during
the first part of the period. But the discrepancy in valuations between those
sectors soon prompted investors to buy cyclical and value stocks. Meanwhile,
technology stocks, in many cases overvalued, slid when investors learned of
disappointing first-quarter revenues for some firms in that sector. The
Portfolio is value-oriented, so it benefited from the market's shift toward
that sector.
Toward the end of the period, fears that the Federal Reserve Board would
raise interest rates led to a moderate market correction. But market weakness
based on renewed fears of inflation posed much greater risk to stocks with high
multiples than to the value-oriented stocks in this Portfolio.
Q. How did you manage the Portfolio given that environment?
A. The Portfolio does not attempt to predict which sectors or types of
companies will perform well. Instead, we attempt to identify stocks with
attractive valuations relative to the market, irrespective of popular sectors
or themes. Although the Dow reached an unprecedented 11,000 during the period,
there were plenty of opportunities to buy inexpensive shares of strong
companies that did not fully participate in the market's high. For example, the
Portfolio purchased inexpensive shares of Masco (1.9% of the Portfolio's net
assets), a particularly strong home-improvement and building company, even
though the firm was not part of a particularly strong sector.
Since the Portfolio has a value focus, we try to take advantage of any market
weaknesses. For example, when prices of technology stocks started to slide, the
Portfolio was able to purchase attractively priced shares of Applied Materials
(2.0%) and Altera (2.4%), and add to our holdings of Tandy (1.0%) and Intel
(1.8%). We were also able to add to our Wal-Mart Stores holdings (1.7%) when
that firm's share prices fell due to worries that higher interest rates would
hurt the company's profits.*
Q. What changes did you make to the Portfolio's holdings during the period?
A. In January OPEC raised oil prices from $11 a barrel to $19, and oil stocks
performed well. As a result, we reduced our exposure to such shares, although
we remain overweight in the sector. We increased our exposure to financial
stocks, such as Chase Manhattan Bank (1.6%). Such shares are selling at
attractive valuations relative to the market, and further consolidation in the
sector could boost their long-term performance.*
Q. What is your outlook for the stock market, and how will you manage the
Portfolio going forward?
A. We are in the beginning of a long-term shift from growth-oriented to
value-oriented investing. There still are many opportunities to purchase shares
of strong companies at attractive prices. As always, we will seek to take
advantage of such opportunities as they occur by buying undervalued shares of
companies with good growth prospects.
- -----
* Portfolio composition is subject to change.
128
<PAGE>
Mercantile Growth & Income Equity Portfolio
[CHART OF GROWTH & INCOME EQUITY APPEARS HERE]
Value of a $10,000 Investment
Investor A Investor A Investor B S&P 500
Date (No Load) (Load) (No CDSC) Index
- ---- --------- ------ --------- -----
5/89 10,000 9,450 10,000 10,000
5/90 11,389 10,783 11,385 11,659
5/91 12,860 12,153 12,855 13,028
5/92 14,038 13,266 14,026 14,314
5/93 15,907 15,032 15,893 15,971
5/94 16,472 15,566 16,456 16,649
5/95 18,078 17,084 19,040 19,995
5/96 23,808 22,499 23,601 25,690
5/97 29,277 27,667 28,833 33,252
5/98 36,100 34,116 35,297 43,463
5/99 39,815 37,234 38,650 52,601
Average Annual Total Returns as of 5/31/99
1 Year 5 year 10 Year
Investor A (No Load) 10.29% 19.31% 14.82%
Investor A* 4.24% 17.97% 14.17%
Investor B (No CDSC) 9.50% 18,62% 14.48%
Investor B (CDSC)** 4.50% 18.52% 14.48%
* Reflects 5.50% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[CHART OF GROWTH & INCOME APPEARS HERE]
Value of a $10,000 Investment
Date Trust Institutional S&P 500 Index
- ---- ----- ------------- -------------
5/89 10,000 10,000 10,000
5/90 11,385 11,389 11,659
5/91 12,855 12,858 13,028
5/92 14,026 14,036 14,314
5/93 15,893 15,904 15,971
5/94 16,456 16,469 16,649
5/95 19,149 19,093 19,995
5/96 23,941 23,802 25,690
5/97 29,528 29,287 33,252
5/98 36,589 36,096 43,463
5/99 40,467 39,829 52,601
Average Annual Total Returns as of 5/31/99
1 Year 5 year 10 Year
------ ------ -------
Trust 10.60% 19.72% 15.00%
Institutional 10.34% 19.32% 14.82%
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Growth & Income Equity Portfolio is
measured against the Standard & Poor's 500 index, an unmanaged index generally
representative of the U.S. stock market as a whole. Investors are unable to
invest in the index directly, although they can invest in the underlying
securities. The performance of the index does not reflect the deduction of
expenses associated with a mutual fund, such as investment management and fund
accounting fees. By contrast, the performance of the Portfolio shown on the
graph reflects the deduction of these value-added services, as well as the
deduction of a 5.50% sales charge on Investor A Shares.
Investor B Shares were initially offered on March 1, 1995. The performance
figures for Investor B Shares for periods prior to such date represent the
performance for Investor A Shares of the Portfolio, which has been restated to
reflect the contingent deferred sales charge payable by holders of Investor B
Shares who redeem within six years of the date of purchase. Investor B Shares
are also subject to distribution and service fees at a maximum annual rate of
1.00%. Had these distribution and service fees been reflected, performance
would have been reduced.
Investor B Shares (CDSC) are not included in the above graph, since the
performance is for more than six years and the CDSC would no longer apply.
After six years, the performance for Investor B Shares (CDSC) mirrors the
Investor B Shares (No CDSC) performance.
Institutional Shares were initially offered on January 3, 1994. The
performance figures for Institutional Shares for periods prior to such date,
represent the performance for Investor A Shares of the Portfolio.
129
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Growth & Income Equity Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Commercial Paper (2.7%):
Shares
or
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Financial Services (2.7%):
Harsco, 4.95%, 6/1/99................................... 12,822,000 $ 12,822,000
------------
TOTAL COMMERCIAL PAPER 12,822,000
------------
Common Stocks (96.6%):
Aerospace/Defense (1.8%):
Raytheon Co., Class A................................... 130,000 8,636,875
------------
Banking (5.5%):
Bank One Corp........................................... 170,805 9,661,158
Chase Manhattan Corp.................................... 105,000 7,612,500
First Union Corp........................................ 191,175 8,805,998
------------
26,079,656
------------
Beverages (1.9%):
PepsiCo, Inc............................................ 259,700 9,300,506
------------
Building Products (1.9%):
Masco Corp.............................................. 326,000 9,311,375
------------
Business Services (2.6%):
First Data Corp......................................... 281,000 12,627,438
------------
Chemicals (2.8%):
Avery Dennison Corp..................................... 135,004 8,083,364
Solutia, Inc.(b)........................................ 239,000 5,362,563
------------
13,445,927
------------
Computer Software (3.8%):
Adaptec, Inc.(b)(c)..................................... 250,000 7,718,750
Microsoft Corp.(b)...................................... 132,300 10,674,956
------------
18,393,706
------------
Computers (2.2%):
Hewlett-Packard Co...................................... 109,000 10,280,063
------------
Containers & Packaging (3.5%):
Crown Cork & Seal Co., Inc.............................. 180,150 5,652,206
Sealed Air Corp.(b)(c).................................. 180,000 11,182,500
------------
16,834,706
------------
Cosmetics & Toiletries (2.9%):
Estee Lauder Cos., Class A(c)........................... 100,000 9,125,000
Gillette Co............................................. 90,000 4,590,000
------------
13,715,000
------------
Electrical & Electronic (5.7%):
General Electric Co..................................... 116,800 11,877,100
Millipore Corp.......................................... 91,300 3,047,138
Tandy Corp.............................................. 60,000 4,950,000
W.W. Grainger, Inc...................................... 135,104 7,168,956
------------
27,043,194
------------
Entertainment (0.8%):
Time Warner, Inc........................................ 53,000 3,607,313
------------
Financial Services (5.0%):
Heller Financial, Inc................................... 145,250 4,321,188
MBNA Corp............................................... 410,000 11,326,250
SLM Holding Corp........................................ 203,728 8,454,712
------------
24,102,150
------------
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Shares
or
Security Principal Market
Description Amount Value
----------- --------- ------------
<S> <C> <C>
Health Care (1.3%):
C.R. Bard, Inc........................................... 139,600 $ 6,377,975
------------
Manufacturing (0.6%):
Illinois Tool Works, Inc................................. 35,000 2,686,250
------------
Manufacturing--Consumer Goods (1.7%):
Newell Rubbermaid, Inc................................... 202,127 8,186,144
------------
Medical Equipment & Supplies (1.7%):
Baxter International, Inc................................ 128,000 8,264,000
------------
Oil & Exploration, Production & Services (7.5%):
Halliburton Co........................................... 270,000 11,171,249
Murphy Oil Corp.......................................... 169,800 8,330,813
Ocean Energy, Inc.(b).................................... 940,000 9,282,500
Vastar Resources, Inc.................................... 126,500 6,957,500
------------
35,742,062
------------
Oil Companies--Integrated (4.6%):
Atlantic Richfield Co.................................... 140,000 11,716,250
USX-Marathon Group, Inc.................................. 340,500 10,193,719
------------
21,909,969
------------
Paper & Related (2.0%):
Mead Corp................................................ 260,800 9,747,400
------------
Pharmaceuticals (9.5%):
Allergan, Inc............................................ 72,550 6,747,150
Bristol-Myers Squibb Co.................................. 177,632 12,189,995
Eli Lilly & Co........................................... 112,000 8,001,000
Merck & Co., Inc......................................... 138,000 9,315,000
Schering-Plough Corp..................................... 196,000 8,832,250
------------
45,085,395
------------
Restaurants (1.6%):
Tricon Global Restaurants, Inc.(b)....................... 134,820 7,853,265
------------
Retail Stores (6.3%):
Consolidated Stores Corp.(b)(c).......................... 290,500 9,985,937
Dillards, Inc., Class A.................................. 169,900 5,967,738
Office Depot, Inc. (b)................................... 300,000 6,262,500
Wal-Mart Stores, Inc..................................... 190,000 8,098,749
------------
30,314,924
------------
Semiconductors (9.3%):
Altera Corp.(b).......................................... 330,000 11,488,124
Applied Materials, Inc.(b)............................... 178,000 9,778,875
Intel Corp............................................... 155,200 8,390,500
KLA-Tencor Corp.(b)...................................... 195,000 8,872,500
Maxim Integrated Products(b)............................. 105,000 5,610,938
------------
44,140,937
------------
Tobacco (1.5%):
Philip Morris Companies, Inc............................. 185,500 7,153,344
------------
Transportation & Shipping (1.9%):
Burlington Northern Santa Fe............................. 289,500 8,974,500
------------
Utilities--Gas & Electric (1.7%):
Duke Energy Corp......................................... 135,600 8,178,375
------------
</TABLE>
Continued
130
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Growth & Income Equity Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Common Stocks, continued
Shares
or
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Utilities--Telephone (2.9%):
GTE Corp........................................... 143,000 $ 9,017,938
US West, Inc....................................... 94,000 5,081,875
------------
14,099,813
------------
Wholesale Distribution (2.1%):
Sysco Corp......................................... 341,670 10,143,328
------------
TOTAL COMMON STOCKS 462,235,590
------------
Investment Companies (0.5%):
Cash Assets Trust Money Market Fund................ 2,160,000 2,160,000
------------
TOTAL INVESTMENT COMPANIES 2,160,000
------------
Short-Term Securities Held as Collateral (4.9%):
Repurchase agreements (4.9%):
Greenwich Capital, 4.96%, 6/1/99 (Purchased on
5/2/99, proceeds at maturity $12,432,664,
collateralized by $42,428,631 various U.S.
Government Agency Mortgages, 0.00%-8.00%, 5/15/06-
5/15/29, market value $12,681,337)................ 12,432,684 $ 12,432,684
Salomon Smith Barney, Inc., 4.93%, 6/1/99
(Purchased on 5/28/99, proceeds at maturity
$11,186,548, collateralized by $18,371,445 various
GNMA, 0.50%-10.00%, 11/15/00-5/20/29, market value
$11,408,717)...................................... 11,185,016 11,185,016
------------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL 23,617,700
------------
TOTAL INVESTMENTS
(cost $347,127,952) (a)--104.7%.............................. 500,835,290
Liabilities in excess of other assets--(4.7%)................. (22,730,195)
------------
TOTAL NET ASSETS--100.0%...................................... $478,105,095
============
</TABLE>
- -----
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.. $158,797,305
Unrealized depreciation.. (5,089,967)
------------
Net unrealized apprecia-
tion.................... $153,707,338
============
</TABLE>
(b) Represents non-income producing securities.
(c) A portion of this security was loaned as of May 31, 1999.
See notes to financial statements
131
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Growth & Income Equity Portfolio
Statement of Assets and Liabilities
May 31, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $323,510,252)............ $477,217,590
Repurchase agreements, at value (cost $23,617,700)... 23,617,700
------------
Total investments................................... 500,835,290
Cash................................................. 649
Interest and dividends receivable.................... 681,981
Receivable for capital shares issued................. 9,338
Receivable for investments sold...................... 1,114,439
Prepaid expenses and other assets.................... 15,099
------------
Total Assets........................................ 502,656,796
Liabilities:
Dividends payable.................................... $ 483,938
Payable for capital shares redeemed.................. 66,446
Payable for return of collateral received............ 23,617,700
Accrued expenses and other payables:
Investment advisory fees............................ 230,576
Administration fees................................. 6,539
Distribution and administrative services fees....... 51,830
Custodian fees...................................... 12,577
Other liabilities................................... 82,095
-----------
Total Liabilities................................... 24,551,701
------------
Net Assets:
Capital.............................................. 278,328,451
Distributions in excess of net investment income..... (11,583)
Accumulated net realized gains from investment
transactions........................................ 46,080,889
Net unrealized appreciation from investments......... 153,707,338
------------
Net Assets........................................... $478,105,095
============
Investor A Shares
Net Assets.......................................... $ 51,954,578
Shares.............................................. 2,662,811
Redemption price per share.......................... $19.51
======
Maximum Sales Charge--Investor A Shares............. 5.50%
Maximum Offering Price (100%/(100%--Maximum Sales
Charge) of net asset value adjusted to the nearest
cent) per share................................... $20.65
======
Investor B Shares
Net Assets.......................................... $ 9,908,305
Shares.............................................. 515,824
Offering price per share*........................... $19.21
======
Trust Shares
Net Assets.......................................... $302,634,774
Shares.............................................. 15,439,353
Offering and redemption price per share............. $19.60
======
Institutional Shares
Net Assets.......................................... $113,607,438
Shares.............................................. 5,821,963
Offering and redemption price per share............. $19.51
======
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
<TABLE>
<CAPTION>
Statement of Operations
For the period ended May 31, 1999
(Unaudited)
<S> <C> <C>
Investment Income:
Interest income...................................... $ 337,490
Dividend income...................................... 3,490,756
Income from securities lending....................... 15,297
-----------
Total Income........................................ 3,843,543
Expenses:
Investment advisory fees............................. $1,353,884
Administration fees.................................. 492,326
Distribution and services fees, Investor A Shares.... 76,730
Distribution and services fees, Investor B Shares.... 47,759
Administrative services fees, Trust Shares........... 482,399
Administrative services fees, Institutional Shares... 165,027
Accounting fees...................................... 1,505
Custodian fees....................................... 109,192
Transfer agent fees.................................. 57,923
Other................................................ 79,396
----------
Total expenses before voluntary fee reductions...... 2,866,141
Expenses voluntarily reduced........................ (760,961)
-----------
Net Expenses........................................ 2,105,180
-----------
Net investment income................................ 1,738,363
-----------
Realized/Unrealized Gains from Investments:
Net realized gains from investment transactions...... 50,293,803
Net change in unrealized appreciation from
investments......................................... 21,143,385
-----------
Net realized/unrealized gains from investments....... 71,437,188
-----------
Change in net assets resulting from operations....... $73,175,551
===========
</TABLE>
See notes to financial statements
132
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Growth & Income Equity Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended
1999 November 30,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 1,738,363 $ 3,694,427
Net realized gains from investment transactions... 50,293,803 32,365,930
Net change in unrealized appreciation from
investments...................................... 21,143,385 6,355,836
------------ ------------
Change in net assets resulting from operations..... 73,175,551 42,416,193
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (142,653) (287,715)
In excess of net investment income................ -- (15,741)
From net realized gains from investment
transactions..................................... (3,741,492) (7,816,180)
Distributions to Investor B Shareholders:
From net investment income........................ (9,615) --
In excess of net investment income................ -- (11,629)
From net realized gains from investment
transactions..................................... (705,196) (1,082,825)
Distributions to Trust Shareholders:
From net investment income........................ (1,282,467) (2,804,823)
From net realized gains from investment
transactions..................................... (22,618,416) (54,343,715)
Distributions to Institutional Shareholders:
From net investment income........................ (307,404) (608,619)
In excess of net investment income................ -- (37,514)
From net realized gains from investment
transactions..................................... (8,249,371) (15,645,712)
------------ ------------
Change in net assets from shareholder
distributions..................................... (37,056,614) (82,654,473)
------------ ------------
Change in net assets from capital transactions..... (22,243,462) 36,928,012
------------ ------------
Change in net assets............................... 13,875,475 (3,310,268)
Net Assets:
Beginning of period............................... 464,229,620 467,539,888
------------ ------------
End of period..................................... $478,105,095 $464,229,620
============ ============
</TABLE>
See notes to financial statements
133
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Growth & Income Equity Portfolio
Statement of Cash Flows
<TABLE>
<CAPTION>
For the
period ended
May 31,
1999
(Unaudited)
---------------
<S> <C>
Cash Flows from Operating Activities:
Net investment income........................................ $ 1,738,363
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Cost of investment securities purchased...................... (1,819,868,490)
Proceeds from disposition of investment securities........... 1,877,279,206
Decrease in investments purchased with cash collateral from
securities lending.......................................... 16,271,200
Increase in dividends and interest receivable................ (221,471)
Decrease in payable for return of collateral received from
securities lending.......................................... (16,271,200)
Increase in accrued expenses................................. 22,556
Increase in prepaid expenses................................. (14,273)
Net amortization/accretion from investments.................. (337,490)
---------------
Net cash provided by operating activities.................... 58,598,401
---------------
Cash Flows from Financing Activities:
Proceeds from shares issued.................................. 86,623,424
Cost of shares redeemed...................................... (108,303,211)
Cash distributions paid...................................... (36,918,017)
---------------
Net cash used in financing activities........................ (58,597,804)
---------------
Increase in cash.............................................. 597
Cash:
Beginning balance............................................ 52
---------------
Ending balance............................................... $ 649
===============
</TABLE>
Non-cash financing activities not included herein consist of reinvestment of
dividends from net investment income and distributions of net realized capital
gains of $28,617,118.
See notes to financial statements
134
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Growth & Income Equity Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 --------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994 (a)
------------ ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 19.13 $ 21.12 $ 18.67 $ 16.30 $ 12.70 $ 14.74
------- ------- ------- ------- ------- -------
Investment Activities
Net investment income.. 0.05 0.12 0.11 0.20 0.23 0.20
Net realized and
unrealized gains
(losses) from
investments........... 1.85 1.58 3.96 3.32 3.74 (0.17)
------- ------- ------- ------- ------- -------
Total from Investment
Activities............ 1.90 1.71 4.07 3.52 3.97 0.03
------- ------- ------- ------- ------- -------
Distributions
Net investment income.. (0.05) (0.11) (0.13) (0.20) (0.23) (0.21)
In excess of net
investment income..... -- (0.01) (0.03) (0.01) -- -
Net realized gains..... (1.47) (3.57) (1.46) (0.94) (0.14) (0.18)
In excess of net
realized gains........ -- -- -- -- -- (1.68)
------- ------- ------- ------- ------- -------
Total Distributions.... (1.52) (3.69) (1.62) (1.15) (0.37) (2.07)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 19.51 $ 19.13 $ 21.12 $ 18.67 $ 16.30 $ 12.70
======= ======= ======= ======= ======= =======
Total Return (excludes
sales charge).......... 10.93%(b) 9.35% 23.90% 22.99% 31.95% 0.20%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $51,955 $48,868 $46,372 $38,229 $25,082 $18,343
Ratio of expenses to
average net assets..... 1.04%(c) 1.04% 1.04% 1.05% 1.05% 1.05%
Ratio of net investment
income to average net
assets................. 0.53%(c) 0.59% 0.60% 1.20% 1.59% 1.45%
Ratio of expenses to
average net assets*.... 1.15%(c) 1.14% 1.14% 1.15% 1.15% 1.15%
Portfolio turnover**.... 39.22% 91.23% 57.11% 63.90% 58.50% 65.00%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
</TABLE>
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) On
September 27, 1994, the Portfolio redesignated the Investor Shares as
"Investor A" Shares, and authorized the issuance of a series of shares
designated as "Investor B" Shares. (b) Not annualized. (c) Annualized.
Financial Highlights, Investor B Shares
<TABLE>
<CAPTION>
For the
period ended For the years March 1, 1995
May 31, ended November 30, to
1999 -------------------------- November 30,
(Unaudited) 1998 1997 1996 1995 (a)
------------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $18.89 $20.94 $18.58 $16.23 $13.43
------ ------ ------ ------ ------
Investment Activities
Net investment income
(loss)................ (0.01) (0.02)(d) (0.02) 0.11 0.14
Net realized and
unrealized gains from
investments........... 1.82 1.57 3.93 3.30 2.81
------ ------ ------ ------ ------
Total from Investment
Activities............ 1.81 1.55 3.91 3.41 2.95
------ ------ ------ ------ ------
Distributions
Net investment income.. (0.02) -- -- (0.11) (0.15)
In excess of net
investment income..... -- (0.03) (0.09) (0.01) --
Net realized gains..... (1.47) (3.57) (1.46) (0.94) --
------ ------ ------ ------ ------
Total Distributions.... (1.49) (3.60) (1.55) (1.06) (0.15)
------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $19.21 $18.89 $20.94 $18.58 $16.23
====== ====== ====== ====== ======
Total Return (excludes
redemption charge)..... 10.54%(e) 8.59% 23.04% 22.29% 31.20%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $9,908 $9,040 $6,349 $3,537 $ 781
Ratio of expenses to
average net assets..... 1.74%(c) 1.74% 1.73% 1.75% 1.75%(c)
Ratio of net investment
income to average net
assets................. (0.17)%(c) (0.10)% (0.11)% 0.49% 0.87%(c)
Ratio of expenses to
average net assets*.... 1.85%(c) 1.84% 1.83% 1.85% 1.85%(c)
Portfolio turnover**.... 39.22% 91.23% 57.11% 63.90% 58.50%
</TABLE>
*During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
**Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Represents total return for the Investor A
Shares from December 1, 1994 to February 28, 1995 plus the total return for
the Investor B Shares from March 1, 1995 to November 30, 1995. (c) Annualized.
(d) Per share net investment income has been calculated using the daily
average share method. (e) Not annualized.
135
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Growth & Income Equity Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 ------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 19.21 $ 21.19 $ 18.71 $ 16.32 $ 12.72 $ 14.74
-------- -------- -------- -------- -------- --------
Investment Activities
Net investment income.. 0.08 0.17 0.23 0.24 0.27 0.22
Net realized and
unrealized gains
(losses) from
investments........... 1.86 1.59 3.96 3.34 3.74 (0.17)
-------- -------- -------- -------- -------- --------
Total from Investment
Activities............ 1.94 1.76 4.19 3.58 4.01 0.05
-------- -------- -------- -------- -------- --------
Distributions
Net investment income.. (0.08) (0.17) (0.25) (0.24) (0.27) (0.21)
In excess of net
investment income..... -- -- -- (0.01) -- --
Net realized gains..... (1.47) (3.57) (1.46) (0.94) (0.14) (0.18)
In excess of net
realized gains........ -- -- -- -- -- (1.68)
-------- -------- -------- -------- -------- --------
Total Distributions.... (1.55) (3.74) (1.71) (1.19) (0.41) (2.07)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 19.60 $ 19.21 $ 21.19 $ 18.71 $ 16.32 $ 12.72
======== ======== ======== ======== ======== ========
Total Return............ 11.08%(b) 9.67% 24.55% 23.45% 32.27% 0.36%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $302,635 $299,188 $322,304 $348,183 $286,546 $235,955
Ratio of expenses to
average net assets..... 0.74%(c) 0.74% 0.74% 0.75% 0.75% 0.75%
Ratio of net investment
income to average net
assets................. 0.82%(c) 0.90% 0.91% 1.50% 1.89% 1.72%
Ratio of expenses to
average net assets*.... 1.15%(c) 1.14% 1.14% 0.85% 0.85% 1.15%
Portfolio turnover**.... 39.22% 91.23% 57.11% 63.90% 58.50% 65.00%
</TABLE>
*During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
**Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued. (b) Not annualized. (c)
Annualized.
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 ---------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994 (a)
------------ -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 19.13 $ 21.12 $ 18.67 $ 16.29 $ 12.70 $ 14.74
-------- -------- ------- ------- ------- -------
Investment Activities
Net investment income.. 0.05 0.12 0.12 0.20 0.23 0.20
Net realized and
unrealized gains
(losses) from
investments........... 1.85 1.58 3.95 3.33 3.74 (0.17)
-------- -------- ------- ------- ------- -------
Total from Investment
Activities............ 1.90 1.70 4.07 3.53 3.97 0.03
-------- -------- ------- ------- ------- -------
Distributions
Net investment income.. (0.05) (0.11) (0.13) (0.20) (0.24) (0.21)
In excess of net
investment income..... -- (0.01) (0.03) (0.01) -- --
Net realized gains..... (1.47) (3.57) (1.46) (0.94) (0.14) (0.18)
In excess of net
realized gains........ -- -- -- -- -- (1.68)
-------- -------- ------- ------- ------- -------
Total Distributions.... (1.52) (3.69) (1.62) (1.15) (0.38) (2.07)
-------- -------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 19.51 $ 19.13 $ 21.12 $ 18.67 $ 16.29 $ 12.70
======== ======== ======= ======= ======= =======
Total Return............ 10.98%(b) 9.36% 23.90% 23.08% 31.88% 0.19%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $113,607 $107,133 $92,515 $72,950 $40,228 $21,897
Ratio of expenses to
average net assets..... 1.04%(c) 1.04% 1.04% 1.05% 1.05% 1.05%
Ratio of net investment
income to average net
assets................. 0.53%(c) 0.60% 0.60% 1.19% 1.58% 1.41%
Ratio of expenses to
average net assets*.... 1.15%(c) 1.14% 1.14% 1.15% 1.15% 1.16%
Portfolio turnover**.... 39.22% 91.23% 57.11% 63.90% 58.50% 65.00%
</TABLE>
*During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
**Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued. (a) On January 3, 1994,
the Portfolio issued a new series of shares which were designated as
"Institutional" Shares. The financial highlights presented for the period
prior to January 3, 1994 represent financial highlights applicable to the
Investor Shares. (b) Not annualized. (c) Annualized.
136
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
137
<PAGE>
Mercantile Growth Equity Portfolio
Q. How did the stock market environment affect the Portfolio during the six-
month period ended May 31, 1999?
A. The period included two very different segments. During the first segment,
December and part of January, the market was fairly narrow and largely
dominated by growth stocks. In the remainder of the period, the market
broadened significantly to encompass value and small cap stocks. The broadening
came primarily because investors began to see the opportunities for earnings
growth in companies beyond the top twenty-five large-cap growth firms. Since
the objective of the Portfolio is to invest in growth stocks, this shift muted
relative performance.
Q. How did you manage the Portfolio in that environment?
A. We purchased shares of several companies in the technology sector,
specifically in the semiconductor group. As a result of the correction in the
technology sector in March, the Portfolio took advantage of the opportunity to
pick up shares of some very well positioned companies. Examples include Maxim
Integrated Products (0.9% of net assets) and Altera Corporation (1.2%). These
are relatively small semiconductor companies compared to giants like Intel and
Texas Instruments, but they have very strong, niche-oriented businesses. Also,
we have continued to look for good growth opportunities in general. New
purchases included Gillette (1.0%), as well as Tandy Corp. (1.3%) and Time
Warner (1.0%).
During the period we sold the remaining Portfolio's shares of Network
Associates. The firm's stock had done very well initially, but we had developed
concerns with regard to software and year 2000 issues, as well as spending
plans. As it turns out, those fears were justified, as the stock dropped
significantly from the price at which we sold.
Q. What is the Portfolio's strategy going forward?
A. The stronger economic climate could broaden the market further and add
strength to the value sector as such growth stocks still carry some risk. But
such fluctuations are a normal part of market cycles and we will not change our
strategy. We will continue to look for good companies with attractive long-term
growth prospects.
- -----
* Portfolio composition is subject to change.
138
<PAGE>
Mercantile Growth Equity Portfolio+
[CHART OF GROWTH EQUITY APPEARS HERE]
Value of a $10,000 Investment
Investor A* Investor A* Investor B Investor B S&P 500
Date (No Load) (Load)* (No CDSC) (CDSC)** Index
- ---- --------- ------- --------- -------- -----
1/4/93 10,000 9,551 10,000 10,000 10,000
11/30/93 9,870 9,427 9,870 9,378 10,787
11/30/94 9,643 9,287 9,725 9,342 10,903
11/30/95 14,179 13,655 14,296 13,996 14,296
11/30/96 17,086 16,455 17,225 16,925 19,084
11/30/97 20,440 19,685 20,621 20,421 24,531
5/98 23,226 22,183 23,174 23,074 28,227
11/30/98 25,254 24,120 25,113 25,013 28,874
5/31/99 27,426 25,922 27,188 27,088 34,163
Average Annual Total Returns as of 5/31/99
1 Year 5 year Since Inception (1/4/93)
------ ------ ------------------------
Investor A (No Load) 18.08% 22.72% 17.07%
Investor A* 11.57% 21.34% 16.04%
Investor B (No CDSC) 17.32% 22.51% 16.91%
Investor B (CDSC)** 12.32% 22.42% 16.84%
* Reflects 5.50% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[CHART OF GROWTH EQUITY TRUST APPEARS HERE]
Value of a $10,000 Investment
S&P 500
Date Institutional Trust Index
- ---- ------------- ----- -----
1/4/93 10,000 10,000 10,000
11/30/93 9,870 9,870 10,787
11/30/94 9,725 9,724 10,903
11/30/95 14,296 14,297 14,926
11/30/96 17,226 17,228 19,084
11/30/97 20,610 20,610 24,531
5/98 23,221 23,233 28,227
11/30/98 25,938 25,263 28,874
5/31/99 27,436 27,565 34,163
Average Annual Total Returns as of 5/31/99
1 Year 5 year Since Inception (1/4/93)
------ ------ ------------------------
Trust 18.64% 22.85% 17.16%
Institutional 18.15% 22.73% 17.07%
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Growth Equity Portfolio is measured against
the Standard & Poor's 500 Index, an unmanaged index generally representative of
the U.S. stock market as a whole. Investors are unable to invest in the index
directly, although they can invest in the underlying securities. The
performance of the index does not reflect the deduction of expenses associated
with a mutual fund, such as investment management and fund accounting fees. By
contrast, the performance of the Portfolio shown on the graph reflects the
deduction of these value-added services, as well as the deduction of a 5.50%
sales charge on Investor A Shares and the applicable contingent deferred sales
charge (CDSC) on Investor B Shares.
+ The Portfolio commenced operations on January 4, 1993 as the Arrow Equity
Portfolio (the "Predecessor Portfolio"), a portfolio of the Arrow Funds. On
November 24, 1997, the Predecessor Portfolio was reorganized as a new
portfolio of Mercantile Mutual Funds, Inc. Performance figures for periods
prior to November 24, 1997 represent the performance for the Predecessor
Portfolio.
Investor B Shares were initially offered on November 24, 1997, with the first
initial public investment on February 23, 1998. The performance figures for
Investor B Shares for periods prior to the initial offering date represent the
performance for the Arrow Equity Portfolio, which has been restated to reflect
the contingent deferred sales charge payable by holders of Investor B Shares
who redeem within six years of the date of purchase. The performance figures
for the period between the initial offering and initial public investment dates
represent the performance for the Trust Shares of the Portfolio. Investor B
Shares are also subject to distribution and service fees at a maximum annual
rate of 1.00%. Had these distribution and service fees been reflected,
performance would have been reduced.
Institutional Shares were initially offered on November 24, 1997, with the
first initial public investment on December 2, 1997. The performance figures
for Institutional Shares for periods prior to the initial offering date
represent the performance for the Arrow Equity Portfolio. The performance
figures for the period between the initial offering and initial public
investment dates represent the performance for the Trust Shares of the
Portfolio.
Trust Shares were initially offered on November 24, 1997. The performance
figures for Trust Shares for periods prior to such date represent the
performance of the Arrow Equity Portfolio.
139
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Growth Equity Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Commercial Paper (1.2%):
Shares
or
Security Principal Market
Description Amount Value
----------- --------- -----------
<S> <C> <C>
Financial Services (1.2%):
Harsco, 4.95%, 6/1/99.................................... 1,181,000 $ 1,181,000
-----------
TOTAL COMMERCIAL PAPER 1,181,000
-----------
Common Stocks (98.8%):
Banking (2.8%):
Bank of America Corp. ................................... 30,553 1,976,397
Wells Fargo & Co. ....................................... 20,000 800,000
-----------
2,776,397
-----------
Beverages (3.8%):
Coca-Cola Co. ........................................... 30,000 2,049,375
PepsiCo, Inc. ........................................... 47,500 1,701,094
-----------
3,750,469
-----------
Broadcasting & Publishing (1.0%):
Infinity Broadcasting Corp.(b)(c)........................ 38,000 971,375
-----------
Chemicals (1.0%):
Avery Dennison Corp. .................................... 16,000 958,000
-----------
Computer Software (4.6%):
Microsoft Corp.(b)....................................... 56,000 4,518,500
-----------
Computers (3.9%):
Compaq Computer Corp. ................................... 12,000 284,250
EMC Corp.(b)............................................. 15,000 1,494,375
Hewlett-Packard Co. ..................................... 21,200 1,999,425
-----------
3,778,050
-----------
Cosmetics & Toiletries (3.8%):
Estee Lauder Cos., Class A(c)............................ 30,000 2,737,500
Gillette Co. ............................................ 19,000 969,000
-----------
3,706,500
-----------
Electrical & Electronic (6.3%):
General Electric Co. .................................... 42,700 4,342,056
Solectron Corp.(b)....................................... 10,000 547,500
Tandy Corp. ............................................. 15,000 1,237,500
-----------
6,127,056
-----------
Entertainment (1.0%):
Time Warner, Inc. ....................................... 14,000 952,875
-----------
Financial Services (12.0%):
Citigroup, Inc. ......................................... 41,508 2,749,905
Fannie Mae .............................................. 26,000 1,768,000
Freddie Mac.............................................. 39,000 2,274,188
Household International, Inc. ........................... 45,300 1,964,888
MBNA Corp. .............................................. 106,050 2,929,630
-----------
11,686,611
-----------
Food Products & Services (0.9%):
Kellogg Co. ............................................. 12,000 416,250
Sara Lee Corp. .......................................... 20,000 480,000
-----------
896,250
-----------
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued:
Shares
or
Security Principal Market
Description Amount Value
----------- --------- -----------
<S> <C> <C>
Insurance (2.4%):
American International Group, Inc. ...................... 20,812 $ 2,379,072
-----------
Leisure & Recreation/Gaming (1.1%):
Carnival Corp. .......................................... 26,000 1,066,000
-----------
Manufacturing (2.4%):
Illinois Tool Works, Inc. ............................... 30,200 2,317,850
-----------
Medical Equipment & Supplies (3.1%):
Medtronic, Inc. ......................................... 43,000 3,053,000
-----------
Pharmaceuticals (19.4%):
Abbott Laboratories ..................................... 43,000 1,943,063
Amgen, Inc.(b) .......................................... 31,200 1,973,400
Bristol-Myers Squibb Co. ................................ 38,000 2,607,750
Eli Lilly & Co. ......................................... 18,000 1,285,875
Johnson & Johnson........................................ 22,000 2,037,750
Merck & Co., Inc. ....................................... 54,000 3,644,999
Pfizer, Inc. ............................................ 28,000 2,996,000
Schering-Plough Corp. ................................... 55,000 2,478,438
-----------
18,967,275
-----------
Printing & Publishing (1.5%):
Tribune Co. ............................................. 18,000 1,420,875
-----------
Retail Stores (9.1%):
Bed, Bath & Beyond, Inc.(b).............................. 40,000 1,367,500
Home Depot, Inc. ........................................ 48,000 2,730,000
Kroger Co.(b)............................................ 16,000 937,000
Safeway, Inc.(b)......................................... 19,000 883,500
Wal-Mart Stores, Inc. ................................... 70,400 3,000,800
-----------
8,918,800
-----------
Semiconductors (11.3%):
Altera Corp.(b).......................................... 34,400 1,197,550
Applied Materials, Inc.(b)............................... 56,000 3,076,499
Intel Corp. ............................................. 53,000 2,865,313
KLA-Tencor Corp.(b)...................................... 65,000 2,957,500
Maxim Integrated Products(b)............................. 17,000 908,438
-----------
11,005,300
-----------
Telecommunications (1.5%):
Ascend Communications, Inc.(b)........................... 16,000 1,483,000
-----------
Tobacco (2.6%):
Philip Morris Companies, Inc. ........................... 65,000 2,506,563
-----------
Toys (0.6%):
Hasbro, Inc. ............................................ 21,000 601,125
-----------
Utilities -- Telephone (0.8%):
Ameritech Corp. ......................................... 12,000 789,750
-----------
Wholesale Distribution (1.9%):
Sysco Corp. ............................................. 64,000 1,900,000
-----------
TOTAL COMMON STOCKS 96,530,693
-----------
</TABLE>
Continued
140
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Growth Equity Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Short-Term Securities Held as Collateral (3.9%):
Shares
or
Security Principal Market
Description Amount Value
----------- --------- ------------
<S> <C> <C>
Repurchase agreements (3.9%):
Greenwich Capital, 4.96%, 6/1/99 (Purchased on
5/28/99, proceeds at maturity $2,004,860,
collateralized by $6,840,980 various U.S. Government
Agency.............................................. 2,004,584 $ 2,004,584
------------
Salomon Smith Barney, Inc., 4.93%, 6/1/99 (Purchased
on 5/28/99, proceeds at maturity $1,803,663,
collateralized by $2,962,120 various GNMA, 0.50%-
10.00%, 11/15/00-5/20/29, market value $1,839,484).. 1,803,416 1,803,416
------------
TOTAL SHORT-TERM SECURITIES
HELD AS COLLATERAL 3,808,000
------------
TOTAL INVESTMENTS
(Cost $46,151,279)(a)--103.9%................................. 101,519,693
Liabilities in excess of other assets--(3.9%).................. (3,832,630)
------------
TOTAL NET ASSETS--100.0% $ 97,687,063
============
</TABLE>
- -----
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation... $55,486,799
Unrealized depreciation... (118,385)
-----------
Net unrealized
appreciation............. $55,368,414
===========
</TABLE>
(b) Represents non-income producing securities.
(c) A portion of this security was loaned as of May 31, 1999.
See notes to financial statements
141
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Growth Equity Portfolio
<TABLE>
<S> <C>
Statement of
Assets and
Liabilities
</TABLE>
May 31, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $42,343,279).............. $ 97,711,693
Repurchase agreements, at value (cost $3,808,000)..... 3,808,000
------------
Total investments.................................... 101,519,693
Cash.................................................. 8,952
Interest and dividends receivable..................... 40,602
Receivable for capital shares issued.................. 6,039
Prepaid expenses and other assets..................... 6,279
------------
Total Assets......................................... 101,581,565
Liabilities:
Payable for return of collateral received............. $3,808,000
Accrued expenses and other payables:
Investment advisory fees............................. 63,861
Administration fees.................................. 1,329
Distribution and administrative services fees........ 3,004
Custodian fees....................................... 4,754
Other liabilities.................................... 13,554
----------
Total Liabilities.................................... 3,894,502
------------
Net Assets:
Capital............................................... 34,135,878
Distributions in excess of net investment income...... (73,093)
Accumulated net realized gains from investment
transactions......................................... 8,255,864
Net unrealized appreciation from investments.......... 55,368,414
------------
Net Assets............................................ $ 97,687,063
============
Investor A Shares
Net Assets........................................... $ 6,966,500
Shares............................................... 358,880
Redemption price per share........................... $19.41
======
Maximum Sales Charge -- Investor A Shares............. 5.50%
Maximum Offering Price (100%/(100% -- Maximum Sales
Charge) of net asset value adjusted to the nearest
cent) per share...................................... $20.54
======
Investor B Shares
Net Assets........................................... $ 1,375,104
Shares............................................... 71,519
Offering price per share*............................ $19.23
======
Trust Shares
Net Assets........................................... $ 89,133,307
Shares............................................... 4,571,569
Offering and redemption price per share.............. $19.50
======
Institutional Shares
Net Assets........................................... $ 212,152
Shares............................................... 10,932
Offering and redemption price per share.............. $19.41
======
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
<TABLE>
<S> <C>
Statement
of
Operations
</TABLE>
For the period ended May 31, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income.......................................... $ 57,743
Dividend income.......................................... 415,657
Income from securities lending........................... 1,565
-----------
Total Income............................................ 474,965
Expenses:
Investment advisory fees................................. $380,736
Administration fees...................................... 101,531
Distribution and services fees, Investor A Shares........ 9,061
Distribution and services fees, Investor B Shares........ 3,629
Administrative services fees, Trust Shares............... 139,616
Administrative services fees, Institutional Shares....... 2,530
Accounting fees.......................................... 1,427
Custodian fees........................................... 23,384
Transfer agent fees...................................... 11,898
Other.................................................... 23,115
--------
Total expenses before voluntary fee reductions.......... 696,927
Expenses voluntarily reduced............................ (190,380)
-----------
Net Expenses............................................ 506,547
-----------
Net investment loss...................................... (31,582)
-----------
Realized/Unrealized Gains from Investments:
Net realized gains from investment transactions.......... 8,255,041
Net change in unrealized appreciation from investments... 11,291,493
-----------
Net realized/unrealized gains from investments........... 19,546,534
-----------
Change in net assets resulting from operations........... $19,514,952
===========
</TABLE>
See notes to financial statements
142
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Growth Equity Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
period ended For the year
May 31, ended
1999 November 30,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income (loss)........................ $ (31,582) $ 12,662
Net realized gains from investment transactions..... 8,255,041 9,413,747
Net change in unrealized appreciation from
investments........................................ 11,291,493 9,044,230
----------- -----------
Change in net assets resulting from operations....... 19,514,952 18,470,639
----------- -----------
Distributions to Investor A Shareholders:
From net investment income.......................... (173) --
In excess of net investment income.................. -- (685)
From net realized gains from investment
transactions....................................... (485,895) --
Distributions to Investor B Shareholders:
From net realized gains from investment
transactions....................................... (25,940) --
Distributions to Trust Shareholders:
From net investment income.......................... (41,338) (42,786)
In excess of net investment income.................. -- (2,177)
From net realized gains from investment
transactions....................................... (8,083,559) --
Distributions to Institutional Shareholders:
In excess of net investment income.................. -- (2,352)
From net realized gains from investment
transactions....................................... (789,128) --
----------- -----------
Change in net assets from shareholder distributions.. (9,426,033) (48,000)
----------- -----------
Change in net assets from capital transactions....... (6,036,486) 7,958,982
----------- -----------
Change in net assets................................. 4,052,433 26,381,621
Net Assets:
Beginning of period................................. 93,634,630 67,253,009
----------- -----------
End of period....................................... $97,687,063 $93,634,630
=========== ===========
</TABLE>
See notes to financial statements
143
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Growth Equity Portfolio
Statement of Cash Flows
<TABLE>
<CAPTION>
For the
period ended
May 31,
1999
(Unaudited)
-------------
<S> <C>
Cash Flows from Operating Activities:
Net investment loss............................................ $ (31,582)
Adjustments to reconcile net investment loss to net cash
provided by operating activities:
Cost of investment securities purchased........................ (289,111,979)
Proceeds from disposition of investment securities............. 304,653,502
Decrease in investments purchased with cash collateral from
securities lending............................................ 273,400
Decrease in dividends and interest receivable.................. 822
Decrease in payable for return of collateral received from
securities lending............................................ (273,400)
Increase in accrued expenses................................... 11,322
Increase in prepaid expenses................................... (4,854)
Net amortization/accretion from investments.................... (57,743)
-------------
Net cash provided by operating activities...................... 15,459,488
-------------
Cash Flows from Financing Activities:
Proceeds from shares issued.................................... 17,579,668
Cost of shares redeemed........................................ (23,604,823)
Cash distributions paid........................................ (9,426,033)
-------------
Net cash used in financing activities.......................... (15,451,188)
-------------
Increase in cash................................................ 8,300
Cash:
Beginning balance.............................................. 652
-------------
Ending balance................................................. $ 8,952
=============
</TABLE>
Non-cash financing activities not included herein consist of reinvestment of
dividends from net investment income and distributions of net realized capital
gains of $4,408,510.
See notes to financial statements
144
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Growth Equity Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
period ended For the For the years ended
May 31, year ended October 1, 1997 September 30,
1999 November 30, to November 30, -------------------------
(Unaudited) 1998 1997 (a) 1997 1996 1995
------------ ------------ --------------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $19.92 $16.26 $18.75 $ 15.06 $ 13.80 $ 9.74
------ ------ ------ ------- ------- -------
Investment Activities
Net investment income
(loss)................ (0.02) (0.04) (0.01) 0.08 0.12 0.10
Net realized and
unrealized gains
(losses) from
investments........... 1.54 3.70 (0.24) 4.75 1.32 4.05
------ ------ ------ ------- ------- -------
Total from Investment
Activities............ 1.52 3.66 (0.25) 4.83 1.44 4.15
------ ------ ------ ------- ------- -------
Distributions
Net investment income.. --(d) -- -- (0.09) (0.11) (0.09)
Net realized gains..... (2.03) -- (2.24) (1.05) (0.07) --
------ ------ ------ ------- ------- -------
Total Distributions.... (2.03) -- (2.24) (1.14) (0.18) (0.09)
------ ------ ------ ------- ------- -------
Net Asset Value, End of
Period................. $19.41 $19.92 $16.26 $ 18.75 $ 15.06 $ 13.80
====== ====== ====== ======= ======= =======
Total Return (excludes
sales charge).......... 8.60%(b) 22.53% (1.25)%(b) 33.85% 10.48% 42.90%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $6,967 $4,832 $3,467 $68,965 $55,573 $43,708
Ratio of expenses to
average net assets..... 1.27%(c) 1.35% 1.17%(c) 1.14% 1.17% 1.28%
Ratio of net investment
income (loss) to
average net assets..... (0.36)%(c) (0.26)% (0.27)%(c) 0.44% 0.86% 0.90%
Ratio of expenses to
average net assets*.... 1.37%(c) 1.45% 1.42%(c) 1.39% 1.45% 1.58%
Portfolio turnover**.... 9.47% 54.33% 24.45% 42.00% 45.00% 45.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Upon
reorganizing as a Portfolio of Mercantile Mutual Funds, Inc., the Arrow Equity
Portfolio became the Growth Equity Portfolio and changed its year-end to
November 30. Financial Highlights for the periods prior to November 24, 1997
represent financial highlights of the Arrow Equity Portfolio. (b) Not
Annualized. (c) Annualized. (d) Distribution per share was less than $0.005.
Financial Highlights, Investor B Shares
<TABLE>
<CAPTION>
For the
period ended February 23,
May 31, 1998 to
1999 November 30,
(Unaudited) 1998 (a)
------------ ------------
<S> <C> <C>
Net Asset Value, Beginning of Period............ $19.81 $16.27
------ ------
Investment Activities
Net investment income (loss)................... -- (0.07)
Net realized and unrealized gains from
investments................................... 1.45 3.61
------ ------
Total from Investment Activities............... 1.45 3.54
------ ------
Distributions
Net realized gains............................. (2.03) --
------ ------
Total Distributions............................ (2.03) --
------ ------
Net Asset Value, End of Period.................. $19.23 $19.81
====== ======
Total Return (excludes redemption charge)....... 8.26%(b) 9.87%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)............... $1,375 $ 252
Ratio of expenses to average net assets......... 1.98%(c) 2.11%(c)
Ratio of net investment income (loss) to average
net assets..................................... (1.16)%(c) (1.08)%(c)
Ratio of expenses to average net assets*........ 2.08%(c) 2.22%(c)
Portfolio turnover**............................ 9.47% 54.33%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
initial public investment. (b) Not annualized. (c) Annualized.
145
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Growth Equity Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the
period ended November 24,
May 31, For the 1997 to
1999 year ended November 30,
(Unaudited) November 30, 1998 1997 (a)
------------ ----------------- ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ 19.98 $ 16.26 $ 16.44
------- ------- -------
Investment Activities
Net investment income (loss).. -- 0.01 (0.01)
Net realized and unrealized
gains (losses) from
investments.................. 1.56 3.72 (0.17)
------- ------- -------
Total from Investment
Activities................... 1.56 3.73 (0.18)
------- ------- -------
Distributions
Net investment income......... (0.01) (0.01) --
Net realized gains............ (2.03) -- --
------- ------- -------
Total Distributions........... (2.04) (0.01) --
------- ------- -------
Net Asset Value, End of
Period........................ $ 19.50 $ 19.98 $ 16.26
======= ======= =======
Total Return................... 8.78%(b) 22.94% (1.09)%(b)
Ratios/Supplementary Data:
Net Assets at end of period
(000)......................... $89,133 $80,830 $63,786
Ratio of expenses to average
net assets.................... 0.97%(c) 1.04% 1.24%(c)
Ratio of net investment income
(loss) to average net assets.. (0.04)%(c) 0.05% (0.15)%(c)
Ratio of expenses to average
net assets*................... 1.37%(c) 1.44% 1.34%(c)
Portfolio turnover**........... 9.47% 54.33% 0.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
For the
period ended December 2,
May 31, 1997 to
1999 November 30,
(Unaudited) 1998 (a)
------------ ------------
<S> <C> <C>
Net Asset Value, Beginning of Period............. $19.92 $16.27
------ ------
Investment Activities
Net investment loss............................. 0.02 (d) (0.04)
Net realized and unrealized gains from
investments.................................... 1.50 3.70
------ ------
Total from Investment Activities................ 1.52 3.66
------ ------
Distributions
In excess of net investment income.............. -- (0.01)
Net realized gains.............................. (2.03) --
------ ------
Total Distributions............................. (2.03) (0.01)
------ ------
Net Asset Value, End of Period................... $19.41 $19.92
====== ======
Total Return..................................... 8.60%(b) 19.56%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................ $ 212 $7,720
Ratio of expenses to average net assets.......... 1.25%(c) 1.36%(c)
Ratio of net investment income (loss) to average
net assets...................................... 0.22%(c) (0.28%)(c)
Ratio of expenses to average net assets*......... 1.35%(c) 1.46%(c)
Portfolio turnover**............................. 9.47% 54.33%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
initial public investment. (b) Not annualized. (c) Annualized. (d) Per share
net investment income has been calculated using the daily average share
method.
146
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
147
<PAGE>
Mercantile Small Cap Equity Portfolio+
Q. What was the overall environment for small company stocks during the six
months ended May 31, 1999?
A. Small company stocks underperformed the S&P 500/1/ for the period showing
a gain of 11.03%, as reported by Russell 2000/2/, versus a 12.60% gain for the
S&P 500. Although small cap stocks showed their normal volatility during the
period, we were encouraged by the performance of smaller companies late in the
period. Beginning in early April, the market began to broaden with cyclical
stocks and small company stocks outperforming the S&P 500. Given its
diversification, the Small Cap Equity Portfolio was able to capitalize on this
late rally as its performance was roughly double that of the Russell 2000 from
early April to the end of May.
Q. What was your strategy in that environment?
A. As always, we looked for the best relative values, regardless of industry.
Early in the period there were economic concerns regarding the possibility of a
global recession. As a result we spotted some opportunities in cyclical
companies as the stocks were reflecting a sharp downturn in business despite
the fact that ongoing business trends were solid.
In the broadcasting segment, for instance, we invested in Cox Radio (1.4% of
the Portfolio's net assets). It is the fifth-largest radio broadcasting company
in the United States and operates in markets across the country. We also added
Eagle USA Airfreight (1.3%). It benefits from an improving economy since it
provides freight forwarding, transportation and logistics services. At the very
end of the quarter, we added Benchmark Electronics (1.4%), a contract
manufacturer of medical, telecommunications, industrial, instrumentation and
computer products. This company benefits from the trend in the technology
industry to outsource manufacturing. The stock trades at a significant discount
to its peers and to the market's price-to-earnings ratio, and the firm has
annual earnings growth prospects of at least 20%./3/
One problem with managing a small cap portfolio is that occasionally you have
to sell a long time winner simply because it gets too big. An example was
Allergan, which has been a long time holding in the portfolio. Allergan is a
drug and consumer products company specializing in eye and skin care products.
The shares were sold when the market capitalization reached $5 billion.
Q. What is your outlook for small-company stocks, and how will you manage the
Portfolio going forward?
A. We are encouraged by recent signs of broadening in the market and we think
that some of the liquidity issues which have helped drive investors to large
company shares may become less of an issue. Meanwhile, we continue to believe
that small company stocks represent extremely good values within the broad
stock market. Small company stocks have lower price-to-earnings ratios, lower
price-to-book ratios and better earnings growth than larger companies. Our
strategy remains unchanged in that our team of research analysts continues to
look for the best relative values within the market place.
- -----
+ Small capitalization funds typically carry additional risks since smaller
companies generally have a higher risk of failure. Historically, smaller
companies' stocks have experienced a greater degree of market volatility than
average.
/1/The S&P 500 Index is comprised of 500 widely held common stocks listed on
the New York Stock Exchange, the American Stock Exchange and NASDAQ.
/2/The Russell 2000 Index is generally representative of the small to mid-sized
companies.
/3/Source: WWW.msmoney.com
* Portfolio composition is subject to change.
148
<PAGE>
Mercantile Small Cap Equity Portfolio
[CHART OF SMALL CAP EQUITY APPEARS HERE]
Value of a $10,000 Investment
Investor A Investor A Investor B Rusell 2000
Date (No Load) (Load)* (no CDSC) Index
- ---- --------- ------- --------- -----
5/92 10,000 9,551 10,000 10,000
11/92 11,255 10,750 11,255 11,032
11/93 13,478 12,873 13,478 13,128
11/94 14,473 13,823 14,472 12,981
11/95 17,579 16,790 17,487 16,680
11/96 19,049 18,193 18,822 19,434
11/97 22,754 21,733 22,326 23,984
11/98 19,525 18,649 19,023 22,396
5/99 20,984 19,834 20,385 24,866
Average Annual Total Returns as of 5/31/99
1 Year 5 year Since Inception (5/6/92)
------ ------ ------------------------
Investor A (No Load) -13.05% 8.79% 11.06%
Investor A* -17.82% 7.57% 10.17%
Investor B (No CDSC) -13.59% 8.16% 10.60%
Investor B (CDSC)** -17.90% 8.01% 10.60%
* Reflects 5.50% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[CHART OF SMALL CAP EQUITY TRUST APPEARS HERE]
Value of a $10,000 Investment
Rusell 2000
Date Trust Institutional Index
- ---- ----- ------------- -----
5/92 10,000 10,000 10,000
11/92 11,255 11,255 11,032
11/93 13,478 13,478 13,128
11/94 14,497 14,436 12,981
11/95 17,642 17,531 16,680
11/96 19,181 19,002 19,434
11/97 22,973 22,691 23,984
11/98 19,784 19,475 22,396
5/99 21,292 20,935 24,866
Average Annual Total Returns as of 5/31/99
1 Year 5 year Since Inception (5/6/92)
------ ------ ------------------------
Trust -12.71% 9.11% 11.28%
Institutional -12.97% 8.74% 11.02%
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Small Cap Equity Portfolio is measured
against the Russell 2000 Index, an unmanaged index generally representative of
the total return of small to mid-sized companies. Investors are unable to
invest in the index directly, although they can invest in the underlying
securities. The performance of the index does not reflect the deduction of
expenses associated with a mutual fund, such as investment management and fund
accounting fees. By contrast, the performance of the Portfolio shown on the
graph reflects the deduction of these value-added services, as well as the
deduction of a 5.50% sales charge on Investor A Shares.
Investor B Shares were initially offered on March 1, 1995. The performance
figures for Investor B Shares for periods prior to such date represent the
performance for Investor A Shares of the Portfolio, which has been restated to
reflect the contingent deferred sales charge payable by holders of Investor B
Shares who redeem within six years of the date of purchase. Investor B Shares
are also subject to distribution and service fees at a maximum annual rate of
1.00%. Had these distribution and service fees been reflected, performance
would have been reduced.
Investor B Shares (CDSC) are not included in the above graph, since the
performance is for more than six years and the CDSC would no longer apply.
After six years, the performance for the Investor B Shares (CDSC) mirrors the
Investor B Shares (No CDSC) performance.
Institutional Shares were initially offered on January 3, 1994. The
performance figures for Institutional Shares for periods prior to such date
represent the performance for Investor A Shares of the Portfolio.
149
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Small Cap Equity Portfolio May 31, 1999 (Unaudited)
<TABLE>
<S> <C> <C> <C>
Commercial Paper (1.7%):
<CAPTION>
Shares
or
Security Principal Market
Description Amount Value
----------- --------- ------------
<S> <C> <C> <C>
Financial Services (1.7%):
Harsco, 4.95%, 6/1/99................................ 2,063,000 $ 2,063,000
------------
TOTAL COMMERCIAL PAPER
</TABLE>
<TABLE>
<S> <C> <C>
Common Stocks (97.5%):
Apparel (1.0%):
Kellwood Co.............................. 50,000 1,187,500
----------
Automotive Parts (1.2%):
Superior Industries International, Inc... 60,500 1,508,719
----------
Banking (9.9%):
Associated Banc-Corp..................... 43,600 1,509,650
Bank United Corp., Class A(c)............ 39,800 1,646,725
CCB Financial Corp....................... 35,900 1,936,355
Commercial Federal Corp.................. 53,700 1,225,031
Cullen/Frost Bankers, Inc................ 30,161 1,696,556
Sovereign Bancorp, Inc................... 104,600 1,379,413
St. Paul Bancorp, Inc.................... 40,000 1,037,500
Webster Financial Corp................... 59,900 1,740,844
----------
12,172,074
----------
Beverages (2.1%):
Beringer Wine Estates Holdings, 34,500
Inc.(b)(c).............................. 1,401,563
Canandaigua Wine, Inc., Class A(b)(c) ... 23,267 1,157,533
----------
2,559,096
----------
Broadcasting & Publishing (3.7%):
Cox Radio, Inc.(b)..........................30,900 1,651,219
Cumulus Media, Inc., Class A(b).......... 66,000 1,167,375
Young Broadcasting, Inc., Class A(b)..... 43,343 1,760,809
----------
4,579,403
----------
Building Products (2.0%):
Texas Industries, Inc.(c)................ 67,000 2,437,125
----------
Business Services (9.3%):
Condor Technology Solutions, Inc.(b)..... 83,000 887,063
Cotelligent Group, Inc.(b)............... 74,424 995,421
Iron Mountain, Inc.(b)................... 61,342 1,694,573
National Data Corp.(c)................... 55,500 2,611,968
Source Information Management Co.(b)(c).. 217,000 3,282,124
SunGard Data Systems, Inc.(b)............ 53,300 1,865,500
----------
11,336,649
----------
Chemicals (3.3%):
Minerals Technologies, Inc............... 35,736 1,902,942
OM Group, Inc............................ 58,200 2,175,225
----------
4,078,167
----------
Commercial Services (2.4%):
Interim Services, Inc.(b)(c)............. 56,900 1,241,131
Lason, Inc.(b)(c)........................ 44,261 1,695,750
----------
2,936,881
----------
</TABLE>
<TABLE>
<S> <C> <C>
Common Stocks, continued:
<CAPTION>
Shares
or
Security Principal Market
Description Amount Value
----------- --------- ------------
<S> <C> <C>
Computer Software (7.1%):
Aspen Technology, Inc.(b)(c)............................. 118,099 $ 1,232,658
Cognos, Inc.(b)(c)....................................... 100,000 2,418,750
Computer Network Technology Corp.(b)..................... 52,000 1,313,000
Quadramed Corp.(b)(c).................................... 180,804 1,864,541
SPSS, Inc.(b)(c)......................................... 69,000 1,625,813
Sterling Software, Inc.(b)............................... 11,650 283,241
------------
8,738,003
------------
Electrical & Electronic (11.1%):
Amkor Technologies, Inc.(b)(c)........................... 210,900 1,950,825
Benchmark Electronics, Inc............................... 22,000 664,125
CFM Technologies, Inc.(b)(c)............................. 117,395 1,082,235
Etec Systems, Inc.(b).................................... 64,776 1,736,807
Kulicke & Soffa Industries, Inc.(b)...................... 150,150 3,171,918
Photronics, Inc.(b)(c)................................... 122,646 2,422,259
PRI Automation, Inc.(b)(c)............................... 129,978 3,184,460
------------
14,212,629
------------
Entertainment (1.2%):
Anchor Gaming(b)......................................... 32,700 1,463,325
------------
Financial Services (3.7%):
Finova Group, Inc........................................ 38,200 1,826,438
Metris Companies, Inc.(c)................................ 33,793 1,970,554
Unicapital Corp.(b)...................................... 136,920 770,175
------------
4,567,167
------------
Food Products & Services (2.5%):
Performance Food Group Co.(b)(c)......................... 59,754 1,422,892
Universal Foods Corp..................................... 69,000 1,582,688
------------
3,005,580
------------
Health Care (4.0%):
American Oncology Resources(b)........................... 114,836 1,166,303
Hanger Orthopedic Group, Inc.(b)(c)...................... 63,950 1,047,181
Maxxim Medical, Inc.(b).................................. 68,863 1,093,200
Ocular Sciences, Inc.(b)(c).............................. 52,000 1,586,001
------------
4,892,685
------------
Machinery & Equipment (3.4%):
DT Industries, Inc.(c)................................... 99,100 960,031
GSI Lumonics, Inc.(b).................................... 342,155 1,582,467
Rental Service Corp.(b).................................. 66,894 1,597,094
------------
4,139,592
------------
Manufacturing--Consumer Goods (2.5%):
Aptargroup, Inc.......................................... 58,626 1,612,215
Blyth Industries, Inc.(b)(c)............................. 53,200 1,489,600
------------
3,101,815
------------
Medical Equipment & Supplies (3.0%):
DENTSPLY International, Inc.............................. 93,300 2,519,100
Serologicals Corp.(b).................................... 150,000 1,190,625
------------
3,709,725
------------
Office Equipment & Services (1.3%):
Zebra Technologies Corp., Class A(b)..................... 50,088 1,609,077
------------
</TABLE>
Continued
150
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Small Cap Equity Portfolio May 31, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Common Stocks, continued:
<CAPTION>
Shares
or
Security Principal Market
Description Amount Value
----------- --------- ------------
<S> <C> <C>
Oil & Exploration, Production & Services (4.1%):
BJ Services Co.(b)(c).................................... 50,000 $ 1,378,125
Cooper Cameron Corp.(b).................................. 41,200 1,490,925
Ocean Energy, Inc.(b).................................... 220,833 2,180,726
------------
5,049,776
------------
Pharmaceuticals (2.4%):
Shire Pharmaceuticals Group PLC ADR(b)...................
103,655 2,461,806
Zonagen, Inc.(b)(c)...................................... 43,000 462,250
------------
2,924,056
------------
Restaurants (0.8%):
Brinker International, Inc.(b)........................... 35,000 982,188
------------
Retail Stores (3.3%):
Men's Wearhouse, Inc. (The) (b)(c)....................... 50,000 1,276,563
The Bombay Company, Inc.(b).............................. 201,072 1,231,566
Whitehall Jewellers, Inc.(b)............................. 88,500 1,593,000
------------
4,101,129
------------
Semiconductors (2.9%):
Burr-Brown Corp.(b)(c)................................... 48,552 1,553,664
SMART Modular Technologies, Inc.(b)(c)...................
129,129 1,945,006
------------
3,498,670
------------
Telecommunications (1.0%):
Tekelec(b)............................................... 120,600 1,221,075
------------
Transportation & Shipping (4.7%):
Eagle USA Airfreight, Inc.(b)(c)......................... 33,000 1,555,125
Hub Group, Inc., Class A(b)(c)........................... 91,563 2,552,319
U.S. Freightways Corp.................................... 42,193 1,661,349
------------
5,768,793
------------
Wholesale Distribution (3.6%):
Barnett, Inc.(b)(c)...................................... 96,717 894,632
CDW Computer Centers, Inc.(b)(c)......................... 38,400 1,670,400
Watsco, Inc.(c).......................................... 92,298 1,782,505
------------
4,347,537
------------
TOTAL COMMON STOCKS 120,128,436
------------
</TABLE>
<TABLE>
<S> <C> <C>
Short-Term Securities Held as Collateral (15.2%):
<CAPTION>
Shares
or
Security Principal Market
Description Amount Value
----------- --------- ------------
<S> <C> <C>
Repurchase Agreements (15.2%):
Greenwich Capital, 4.96%, 6/1/99 (Purchased on
5/28/99, proceeds at maturity $9,808,335,
collateralized by $33,467,988 various U.S.
Government Agency Mortgages, 0.00%-8.00%, 5/15/06-
5/15/29, market value $10,003,124)................. 9,806,984 $ 9,806,984
Salomon Smith Barney, Inc., 4.93%, 6/1/99 (Purchased
on 5/28/99, proceeds at maturity $8,824,024,
collateralized by $14,491,519 various GNMA, 0.50%-
10.00%, 11/15/00-5/20/29, market value
$8,999,272)........................................ 8,822,816 8,822,816
------------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL 18,629,800
------------
TOTAL INVESTMENTS
(Cost $129,210,601)(a)--115.0%............................... 140,821,236
Other assets in excess of liabilities--(15.0%)................ (18,326,162)
------------
TOTAL NET ASSETS--100.0% $122,495,074
============
</TABLE>
- -----
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.. $ 25,369,210
Unrealized depreciation.. (13,758,575)
------------
Net unrealized apprecia-
tion.................... $ 11,610,635
============
</TABLE>
(b) Represents non-income producing securities.
(c) A portion of this security was loaned as of May 31, 1999.
ADR American Depositary Receipt
PLC Public Limited Company
See notes to financial statements
151
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Small Cap Equity Portfolio
<TABLE>
<S> <C>
Statement of
Assets and
Liabilities
</TABLE>
May 31, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $110,580,801)............. $122,191,436
Repurchase agreements, at value (cost $18,629,800).... 18,629,800
------------
Total investments.................................... 140,821,236
Cash.................................................. 339
Interest and dividends receivable..................... 36,981
Receivable for capital shares issued.................. 100
Receivable for investments sold....................... 1,278,727
Prepaid expenses and other assets..................... 11,022
------------
Total Assets......................................... 142,148,405
Liabilities:
Payable for investments purchased..................... $ 884,649
Payable for capital shares redeemed................... 22,203
Payable for return of collateral received............. 18,629,800
Accrued expenses and other payables:
Investment advisory fees............................. 77,719
Administration fees.................................. 1,675
Distribution and administrative services fees........ 5,820
Custodian fees....................................... 4,145
Other liabilities.................................... 27,320
----------
Total Liabilities.................................... 19,653,331
------------
Net Assets:
Capital............................................... 114,706,239
Distributions in excess of net investment income...... (249,307)
Accumulated net realized losses from investment
transactions......................................... (3,572,493)
Net unrealized appreciation from investments.......... 11,610,636
------------
Net Assets........................................... $122,495,074
============
Investor A Shares
Net Assets........................................... $ 9,186,585
Shares............................................... 723,921
Redemption price per share........................... $12.69
======
Maximum Sales Charge--Investor A Shares............... 5.50%
Maximum Offering Price (100%/(100%--Maximum Sales
Charge) of net asset value adjusted to the nearest
cent) per share..................................... $13.43
======
Investor B Shares
Net Assets........................................... $ 1,158,922
Shares............................................... 94,208
Offering price per share*............................ $12.30
======
Trust Shares
Net Assets........................................... $102,304,059
Shares............................................... 7,942,938
Offering and redemption price per share.............. $12.88
======
Institutional Shares
Net Assets........................................... $ 9,797,383
Shares............................................... 774,397
Offering and redemption price per share.............. $12.65
======
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
<TABLE>
<S> <C>
Statement
of
Operations
</TABLE>
For the year ended May 31, 1999
(Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income.......................................... $ 99,307
Dividend income.......................................... 327,628
Income from securities lending........................... 31,011
-----------
Total Income............................................ 457,946
Expenses:
Investment advisory fees................................. $526,732
Administration fees...................................... 140,463
Distribution and services fees, Investor A Shares........ 15,423
Distribution and services fees, Investor B Shares........ 6,227
Administrative services fees, Trust Shares............... 173,683
Administrative services fees, Institutional Shares....... 19,719
Accounting fees.......................................... 1,859
Custodian fees........................................... 30,951
Transfer agent fees...................................... 16,851
Other.................................................... 23,440
--------
Total expenses before voluntary fee reductions.......... 955,348
Expenses voluntarily reduced............................ (248,095)
-----------
Net Expenses............................................ 707,253
-----------
Net investment loss...................................... (249,307)
-----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized losses from investment transactions......... (2,258,866)
Net change in unrealized appreciation from investments... 13,671,699
-----------
Net realized/unrealized gains from investments........... 11,412,833
-----------
Change in net assets resulting from operations........... $11,163,526
===========
</TABLE>
See notes to financial statements
152
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Small Cap Equity Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended
1999 November 30,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment loss............................... $ (249,307) $ (518,575)
Net realized losses from investment transactions.. (2,258,866) (132,296)
Net change in unrealized appreciation from
investments...................................... 13,671,699 (34,779,392)
------------ ------------
Change in net assets resulting from operations..... 11,163,526 (35,430,263)
------------ ------------
Distributions to Investor A Shareholders:
From net realized gains from investment transac-
tions............................................ (49,318) (1,204,394)
In excess of net realized gains from investment
transactions..................................... -- (33,038)
Distributions to Investor B Shareholders:
From net realized gains from investment transac-
tions............................................ (5,657) (120,768)
In excess of net realized gains from investment
transactions..................................... -- (3,765)
Distributions to Trust Shareholders:
From net realized gains from investment transac-
tions............................................ (545,698) (16,700,771)
In excess of net realized gains from investment
transactions..................................... -- (364,216)
Distributions to Institutional Shareholders:
From net realized gains from investment transac-
tions............................................ (108,101) (2,733,301)
In excess of net realized gains from investment
transactions..................................... -- (71,538)
------------ ------------
Change in net assets from shareholder
distributions..................................... (708,774) (21,231,791)
------------ ------------
Change in net assets from capital transactions..... (55,474,356) (37,577,165)
------------ ------------
Change in net assets............................... (45,019,604) (94,239,219)
Net Assets:
Beginning of period............................... 167,514,678 261,753,897
------------ ------------
End of period..................................... $122,495,074 $167,514,678
============ ============
</TABLE>
See notes to financial statements
153
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Small Cap Equity Portfolio
Statement of Cash Flows
<TABLE>
<CAPTION>
For the
period ended
May 31,
1999
(Unaudited)
-------------
<S> <C>
Cash Flows from Operating Activities:
Net investment loss............................................ $ (249,307)
Adjustments to reconcile net investment loss to net cash pro-
vided by operating activities:
Cost of investment securities purchased........................ (512,330,076)
Proceeds from disposition of investment securities............. 568,855,583
Decrease in investments purchased with cash collateral from se-
curities lending.............................................. 19,663,600
Decrease in dividends and interest receivable.................. 46,459
Decrease in payable for return of collateral received from se-
curities lending.............................................. (19,663,600)
Decrease in accrued expenses................................... (44,348)
Increase in prepaid expenses................................... (9,545)
Net amortization/accretion from investments.................... (99,307)
-------------
Net cash provided by operating activities...................... 56,169,459
-------------
Cash Flows from Financing Activities:
Proceeds from shares issued.................................... 5,476,309
Cost of shares redeemed........................................ (60,936,817)
Cash distributions paid........................................ (708,774)
-------------
Net cash used in financing activities.......................... (56,169,282)
-------------
Increase in cash................................................ 177
Cash:
Beginning balance.............................................. 162
-------------
Ending balance................................................. $ 339
=============
</TABLE>
Non-cash financing activities not included herein consist of reinvestment of
dividends from net investment income and distributions of net realized capital
gains of $620,556.
See notes to financial statements
154
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Small Cap Equity Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 ------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994 (a)
------------ ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $11.86 $ 15.03 $ 13.40 $ 13.44 $ 11.99 $ 13.14
------ ------- ------- ------- ------- -------
Investment Activities
Net investment loss.... (0.09) (0.06) (0.05) (0.01) -- (0.03)
Net realized and
unrealized gains
(losses) from
investments........... 0.97 (1.89) 2.50 1.03 2.36 0.89
------ ------- ------- ------- ------- -------
Total from Investment
Activities............ 0.88 (1.95) 2.45 1.02 2.36 0.86
------ ------- ------- ------- ------- -------
Distributions
In excess of net
investment income..... -- -- -- (0.01) -- --
Net realized gains..... (0.05) (1.19) (0.82) (1.05) (0.91) (1.78)
In excess of net
realized gains........ -- (0.03) -- -- -- (0.23)
------ ------- ------- ------- ------- -------
Total Distributions.... (0.05) (1.22) (0.82) (1.06) (0.91) (2.01)
------ ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $12.69 $ 11.86 $ 15.03 $ 13.40 $ 13.44 $ 11.99
====== ======= ======= ======= ======= =======
Total Return (excludes
sales charge).......... 7.47%(b) (14.19)% 19.45% 8.36% 21.47% 7.38%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $9,187 $11,601 $14,213 $13,889 $15,056 $10,899
Ratio of expenses to
average net assets..... 1.25%(c) 1.25% 1.25% 1.26% 1.26% 1.25%
Ratio of net investment
income to average net
assets................. (0.60)%(c) (0.45)% (0.29)% (0.13)% (0.12)% (0.44)%
Ratio of expenses to
average net assets*.... 1.36%(c) 1.35% 1.35% 1.36% 1.36% 1.36%
Portfolio turnover**.... 27.68% 69.72% 80.23% 65.85% 83.13% 85.00%
</TABLE>
*During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
**Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued. (a) On September 27,
1994, the Portfolio redesignated the Investor Shares as "Investor A" Shares,
and authorized the issuance of a series of shares designated as "Investor B"
Shares. (b) Not annualized. (c) Annualized.
Financial Highlights, Investor B Shares
<TABLE>
<CAPTION>
For the
period ended March 1, 1995
May 31, For the years ended November 30, to
1999 ------------------------------------ November 30,
(Unaudited) 1998 1997 1996 1996 (a)
------------ ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $11.53 $ 14.74 $ 13.24 $ 13.37 $11.83
------ ---------- ---------- ---------- ------
Investment Activities
Net investment loss.... (0.14) (0.14) (0.13) (0.07) (0.03)
Net realized and
unrealized gains
(losses) from
investments........... 0.96 (1.85) 2.45 0.99 1.57
------ ---------- ---------- ---------- ------
Total from Investment
Activities............ 0.82 (1.99) 2.32 0.92 1.54
------ ---------- ---------- ---------- ------
Distributions
Net realized gains..... (0.05) (1.18) (0.82) (1.05) --
In excess of net
realized gains........ -- (0.04) -- -- --
------ ---------- ---------- ---------- ------
Total Distributions.... (0.05) (1.22) (0.82) (1.05) --
------ ---------- ---------- ---------- ------
Net Asset Value, End of
Period................. $12.30 $ 11.53 $ 14.74 $ 13.24 $13.37
====== ========== ========== ========== ======
Total Return (excludes
redemption charge)..... 7.16%(d) (14.79)% 18.62% 7.63% 20.83%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $1,159 $1,286 $ 1,503 $ 1,272 $ 603
Ratio of expenses to
average net assets..... 1.95%(c) 1.95% 1.95% 1.96% 1.96%(c)
Ratio of net investment
income to average net
assets................. (1.30)%(c) (1.15)% (0.99)% (0.83)% (0.78)%(c)
Ratio of expenses to
average net assets*.... 2.06%(c) 2.05% 2.05% 2.06% 2.06%(c)
Portfolio turnover**.... 27.68% 69.72% 80.23% 65.85% 83.13%
</TABLE>
*During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
**Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Represents total return for the Investor A
Shares from December 1, 1994 to February 28, 1995 plus the total return for
the Investor B Shares from March 1, 1995 to November 30, 1995. (c) Annualized.
(d) Not annualized.
155
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Small Cap Equity Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 ----------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $ 12.02 $ 15.17 $ 13.49 $ 13.49 $ 12.01 $ 13.14
-------- -------- -------- -------- -------- -------
Investment Activities
Net investment income
(loss)................. (0.01) (0.02) 0.01 0.02 0.03 (0.01)
Net realized and
unrealized gains
(losses) from
investments............ 0.92 (1.91) 2.50 1.05 2.36 0.89
-------- -------- -------- -------- -------- -------
Total from Investment
Activities............. 0.91 (1.93) 2.51 1.07 2.39 0.88
-------- -------- -------- -------- -------- -------
Distributions
Net investment income... -- -- (0.01) (0.02) -- --
Net realized gains...... (0.05) (1.19) (0.82) (1.05) (0.91) (1.78)
In excess of net
realized gains......... -- (0.03) -- -- -- (0.23)
-------- -------- -------- -------- -------- -------
Total Distributions..... (0.05) (1.22) (0.83) (1.07) (0.91) (2.01)
-------- -------- -------- -------- -------- -------
Net Asset Value, End of
Period.................. $ 12.88 $ 12.02 $ 15.17 $ 13.49 $ 13.49 $ 12.01
======== ======== ======== ======== ======== =======
Total Return............. 7.62%(a) (13.90)% 19.77% 8.72% 21.70% 7.56%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)............ $102,304 $129,591 $211,643 $171,295 $139,681 $77,690
Ratio of expenses to
average net assets...... 0.95%(d) 0.95% 0.95% 0.96% 0.96% 0.95%
Ratio of net investment
income to average net
assets.................. (0.30)%(d) (0.16)% 0.01% 0.17% 0.18% (0.16)%
Ratio of expenses to
average net assets*..... 1.35%(d) 1.35% 1.35% 1.06% 1.06% 1.36%
Portfolio turnover**..... 27.68% 69.72% 80.23% 65.85% 83.13% 85.00%
*During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
**Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued. (a) Not annualized. (b)
Annualized.
Financial Highlights, Institutional Shares
<CAPTION>
For the
period ended
May 31, For the years ended November 30,
1999 ----------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994 (a)
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $ 11.82 $ 14.98 $ 13.36 $ 13.40 $ 11.96 $ 13.14
-------- -------- -------- -------- -------- -------
Investment Activities
Net investment loss..... (0.20) (0.07) (0.04) (0.01) (0.01) (0.03)
Net realized and
unrealized gains
(losses) from
investments............ 1.08 (1.87) 2.48 1.03 2.36 0.86
-------- -------- -------- -------- -------- -------
Total from Investment
Activities............. 0.88 (1.94) 2.44 1.02 2.35 0.83
-------- -------- -------- -------- -------- -------
Distributions
In excess of net
investment income...... -- -- -- (0.01) -- --
Net realized gains...... (0.05) (1.19) (0.82) (1.05) (0.91) (1.78)
In excess of net
realized gains......... -- (0.03) -- -- -- (0.23)
-------- -------- -------- -------- -------- -------
Total Distributions..... (0.05) (1.22) (0.82) (1.06) (0.91) (2.01)
-------- -------- -------- -------- -------- -------
Net Asset Value, End of
Period.................. $ 12.65 $ 11.82 $ 14.98 $ 13.36 $ 13.40 $ 11.96
======== ======== ======== ======== ======== =======
Total Return............. 7.50%(b) (14.17)% 19.41% 8.39% 21.43% 7.11%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)............ $ 9,797 $ 25,037 $ 34,395 $ 30,081 $ 17,620 $ 5,633
Ratio of expenses to
average net assets...... 1.24%(c) 1.25% 1.25% 1.26% 1.26% 1.25%
Ratio of net investment
income to average net
assets.................. (0.58)%(c) (0.45)% (0.29)% (0.13)% (0.11)% (0.41)%
Ratio of expenses to
average net assets*..... 1.35%(c) 1.35% 1.35% 1.36% 1.36% 1.37%
Portfolio turnover**..... 27.68% 69.72% 80.23% 65.85% 83.13% 85.00%
</TABLE>
*During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
**Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued. (a) On January 3, 1994,
the Portfolio issued a new series of shares which were designated as
"Institutional" Shares. The financial highlights presented for the period
prior to January 3, 1994 represent financial highlights applicable to the
Investor Shares. (b) Not annualized. (c) Annualized.
156
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
157
<PAGE>
Mercantile Small Cap Equity Index Portfolio+
Q. What is the objective of this new Portfolio?
A. The Mercantile Small Cap Equity Index Portfolio attempts to mimic the
performance of the Standard & Poor's SmallCap 600 Index before deducting the
Portfolio's operating expense.
Investors who put their money to work in the Mercantile Small Cap Equity
Index Portfolio avoid some of the uncertainty of investing in an actively
managed fund while gaining exposure to small company stocks.
Q. Discuss the performance of the Portfolio for the period ended May 31,
1999.
A. During the period, the Portfolio produced a -0.44% (Investor A Shares no
load) return versus a -0.62% for the S&P SmallCap 600. The Portfolio's net
assets were approximately $28 million at the end of the period.
Q. Why did the Portfolio lag the index?
A. Index funds usually trail their benchmarks by a small margin, reflecting
the funds' operating expenses. Moreover, index funds tend to hold small amounts
of cash, usually 0.5% to 1.0% of the fund, unless they rebalance their
portfolios every day. That cash holding can hurt performance when the stock
market is rising, or help performance when the market is falling. That said,
the Portfolio's performance should be very close to that of the S&P SmallCap
600 over the long term.
- -----
+ Small capitalization funds typically carry additional risks since smaller
companies generally have a higher risk of failure. Historically, smaller
companies' stocks have experienced a greater degree of market volatility than
average.
158
<PAGE>
Mercantile Small Cap Equity Index Portfolio
[CHART OF SMALL CAP EQUITY INDEX APPEARS HERE]
Value of a $10,000 Investment
Investor A Investor A S & P SmallCap
Date (No Load) (Load)* 600
- ---- --------- ------- ---
12/31/98 10,000 9,950 10,000
1/31/99 9,880 9,630 9,874
2/28/99 9,010 8,782 8,985
3/31/99 9,125 8,622 9,101
4/30/99 9,736 9,202 9,702
5/31/99 9,956 9,410 9,938
Average Annual Total Returns as of 5/31/99
Since Inception (12/30/98)
------------------------
Investor A (No Load) -0.44%
Investor A* -5.90%
* Reflects 5.50% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[CHART OF SMALL CAP EQUITY INDEX TRUST APPEARS HERE]
Value of a $10,000 Investment
S & P SmallCap
Date Trust Institutional 600
- ---- ----- ------------- ---
12/31/98 10,240 10,240 10,000
1/31/99 9,880 9,870 9,874
2/28/99 9,020 9,010 8,985
3/31/99 9,130 9,123 9,101
4/30/99 9,740 9,724 9,702
5/31/99 9,961 9,944 9,938
Average Annual Total Returns as of 5/31/99
Since Inception (12/30/98)
--------------------------
Trust -0.39%
Institutional -0.56%
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Small Cap Equity Index Portfolio is
measured against the Standard & Poor's SmallCap 600 Index, an unmanaged index
generally representative of 600 domestic small-cap stocks in the market.
Investors are unable to invest in the index directly, although they can invest
in the underlying securities. The performance of the index does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management and fund accounting fees. By contrast, the performance of the
Portfolio shown on the graph reflects the deduction of these value-added
services, as well as the deduction of a 5.50% sales charge on Investor A
Shares.
159
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Small Cap Equity Index Portfolio May 31, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Commercial Paper (0.6%):
<CAPTION>
Shares
or
Security Principal Market
Description Amount Value
----------- --------- -----------
<S> <C> <C>
Financial Services (0.6%):
Harsco, 4.95%, 6/1/99.................................... 180,000 $ 180,000
-----------
TOTAL COMMERCIAL PAPER 180,000
-----------
Common Stocks (99.3%):
Advertising (1.1%):
Advo, Inc.(b)............................................ 1,891 37,465
Catalina Marketing Corp.(b).............................. 1,596 141,346
Cyrk, Inc.(b)............................................ 1,333 8,831
Ha-Lo Industries, Inc.(b)................................ 3,889 46,911
True North Communications, Inc. ......................... 3,874 90,555
-----------
325,108
-----------
Aerospace/Defense (1.0%):
AAR Corp. ............................................... 2,391 47,222
Alliant Techsystems, Inc.(b)............................. 1,056 89,760
BE Aerospace, Inc.(b).................................... 2,151 38,449
Kaman Corp. Class A...................................... 2,089 27,679
Orbital Sciences Corp.(b)................................ 3,169 71,699
-----------
274,809
-----------
Airlines (0.2%):
Mesa Air Group, Inc.(b).................................. 2,440 16,165
Skywest, Inc. ........................................... 2,125 49,406
-----------
65,571
-----------
Apparel (2.0%):
Ashworth, Inc. .......................................... 1,213 5,913
Authentic Fitness Corp. ................................. 2,002 32,908
Cone Mills Corp.(b)...................................... 2,174 13,452
Delta Woodside Industries, Inc. ......................... 2,055 14,513
Galey & Lord, Inc.(b).................................... 993 4,096
Haggar Corp. ............................................ 747 9,431
Hartmarx Corp.(b)........................................ 2,996 14,793
K-Swiss, Inc. ........................................... 922 52,900
Kellwood Co. ............................................ 2,423 57,546
Nautica Enterprises, Inc.(b)............................. 3,210 51,962
Oshkosh B'gosh, Inc. .................................... 1,570 30,811
Oxford Industries, Inc. ................................. 766 21,257
Phillps-Van Heusen Corp. ................................ 2,352 20,580
Quiksilver, Inc.(b)...................................... 2,823 80,455
St. John Knits, Inc. .................................... 1,463 41,878
Timberland Co.(b)........................................ 966 62,549
Wolverine World Wide(b).................................. 3,704 50,004
-----------
565,048
-----------
Automotive Parts (1.3%):
Breed Technologies, Inc.(b).............................. 3,166 10,487
O'Reilly Automotive, Inc.(b)............................. 2,104 92,707
Simpson Industries, Inc. ................................ 1,584 15,939
Spartan Motors, Inc. .................................... 1,048 6,026
Standard Motor Products, Inc. ........................... 1,089 25,932
Standard Products Co. ................................... 1,373 30,635
TBC Corp.(b)............................................. 1,801 12,720
Titan International, Inc. ............................... 1,841 17,259
Tower Automotive, Inc.(b)................................ 4,014 91,820
</TABLE>
<TABLE>
<S> <C> <C>
Common Stocks, continued:
<CAPTION>
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Automotive Parts, continued:
Wabash National Corp. ..................................... 2,032 38,735
Walbro Corp.(b)............................................ 755 $ 14,770
Wynn's International, Inc. ................................ 1,643 29,677
-----------
386,707
-----------
Banking (7.5%):
Anchor Bancorp Wisconsin, Inc. ............................ 1,542 25,443
Banknorth Group, Inc. ..................................... 2,050 54,709
Carolina First Corp. ...................................... 1,990 54,601
Centura Banks, Inc. ....................................... 2,403 140,125
Commerce Bancorp, Inc. NJ.................................. 2,383 95,916
Commercial Federal Corp. .................................. 5,222 119,127
Community First Bancshares................................. 4,216 89,327
Cullen/Frost Bankers, Inc. ................................ 2,315 130,219
Downey Financial Corp. .................................... 2,421 53,262
First Bancorp / Puerto Rico................................ 2,549 61,176
First Midwest Bancorp, Inc. ............................... 2,546 98,658
Firstmerit Corp. .......................................... 7,747 211,589
Hudson United Bancorp...................................... 3,765 115,303
JSB Financial, Inc. ....................................... 844 43,255
MAF Bancorp, Inc. ......................................... 2,206 50,876
Premier Bancshares, Inc. .................................. 2,177 45,309
Provident Bankshares Corp. ................................ 2,232 51,615
Queens County Bancorp, Inc. ............................... 1,872 59,202
Riggs National Corp. Washington, D.C. ..................... 2,613 43,931
Silicon Valley Bancshares(b)............................... 1,753 33,745
St. Paul Bancorp, Inc. .................................... 3,561 92,363
Susquehanna Bancshares, Inc. .............................. 3,154 57,363
Trustco Bank Corp. NY...................................... 2,325 65,100
U.S. Trust Corp. .......................................... 1,622 142,228
United Bankshares, Inc. ................................... 3,725 99,411
UST Corp. ................................................. 3,701 89,287
Whitney Holding Corp. ..................................... 2,006 81,745
-----------
2,204,885
-----------
Beverages (0.4%):
Canandaigua Wine, Inc., Class A(b)......................... 1,517 75,471
Coca-Cola Bottling Co. Consolidated........................ 731 39,748
-----------
115,219
-----------
Biotechnology (1.2%):
Advanced Tissue Sciences, Inc.(b).......................... 3,368 13,051
Bio-Technolgy General Corp.(b)............................. 4,541 32,071
Enzo Biochem, Inc.(b)...................................... 2,151 23,123
Idec Pharmaceuticals Corp.(b).............................. 1,745 88,013
Incyte Pharmaceuticals, Inc.(b)............................ 2,412 62,712
Liposome Company, Inc.(b).................................. 3,269 46,788
Organogenesis, Inc.(b)..................................... 2,533 28,021
Protein Design Labs, Inc.(b)............................... 1,598 31,361
Regeneron Pharmaceutical(b)................................ 2,640 18,810
-----------
343,950
-----------
Broadcasting & Publishing (0.6%):
Metro Networks, Inc.(b).................................... 1,452 80,768
Westwood One, Inc.(b)...................................... 2,460 85,485
-----------
166,253
-----------
</TABLE>
Continued
160
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Small Cap Equity Index Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Building Products (1.6%):
Apogee Enterprises, Inc. .................................. 2,382 $ 28,435
Butler Manufacturing Co. .................................. 679 19,097
Elcor Corp. ............................................... 1,165 47,037
Florida Rock Industries.................................... 1,626 64,837
Juno Lighting, Inc. ....................................... 1,602 36,746
Lone Star Industries....................................... 1,746 62,201
Republic Group, Inc. ...................................... 985 17,607
Simpson Manufacturing Co., Inc.(b)......................... 1,035 45,928
Texas Industries, Inc. .................................... 1,794 65,257
TJ International, Inc. .................................... 1,312 36,080
Universal Forest Products.................................. 1,764 31,752
-----------
454,977
-----------
Business Services (0.5%):
National Data Corp. ....................................... 2,953 138,976
-----------
Chemicals (1.5%):
Cambrex Corp. ............................................. 2,134 48,015
Chemfirst, Inc. ........................................... 1,634 38,910
Geon Company............................................... 2,058 61,997
Lilly Industries, Inc. .................................... 2,049 39,059
Macdermid, Inc. ........................................... 2,176 87,583
Mcwhorter Technologies, Inc.(b)............................ 881 12,224
Mississippi Chemical Corp. ................................ 2,263 21,781
O'Sullivan Corp. .......................................... 1,377 12,221
OM Group, Inc. ............................................ 2,098 78,413
Penford Corp. ............................................. 653 8,591
Quaker Chemical Corp. ..................................... 764 13,275
Tetra Technologies, Inc.(b)................................ 1,127 9,580
-----------
431,649
-----------
Commercial Services (5.1%):
ABM Industries, Inc. ...................................... 1,897 51,812
Billing Concepts Corp.(b).................................. 3,246 40,575
Bisys Group, Inc.(b)....................................... 2,311 126,888
CDI Corp.(b)............................................... 1,704 55,167
Central Parking Corp. ..................................... 2,524 82,030
Chemed Corp. .............................................. 851 27,604
CPI Corp. ................................................. 854 26,901
DBT Online, Inc.(b)........................................ 1,620 58,320
DeVry, Inc. ............................................... 6,029 134,144
Franklin Covey Co.(b)...................................... 1,830 17,843
Insurance Auto Auctions, Inc.(b)........................... 954 12,283
Interim Services, Inc.(b).................................. 4,145 90,413
Lason, Inc.(b)............................................. 1,351 51,760
Medquist, Inc.(b).......................................... 2,792 102,606
NFO Worldwide, Inc.(b)..................................... 1,803 25,580
Norrell Corp. ............................................. 2,267 42,081
Orthodontic Centers Of America, Inc.(b).................... 4,094 49,384
Parexel International Corp.(b)............................. 2,155 51,585
Pediatrix Medical Group, Inc.(b)........................... 1,350 30,459
Pharmaceutical Product Development, Inc.(b)................ 2,055 54,971
Phycor, Inc.(b)............................................ 6,605 46,029
Plexus Corp.(b)............................................ 1,315 40,190
Prepaid Legal Services, Inc.(b)............................ 1,994 52,966
Primark Corp.(b)........................................... 1,806 48,875
Profit Recovery Group International, Inc.(b)............... 2,356 86,730
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Commercial Services, continued:
Rural/Metro Corp. ......................................... 1,269 $ 9,597
Service Experts, Inc.(b)................................... 1,555 28,865
Volt Information Sciences, Inc.(b)......................... 1,326 22,874
-----------
1,468,532
-----------
Computer Software (5.6%):
Acxiom Corp.(b)............................................ 6,766 182,681
American Management Systems(b)............................. 3,605 114,458
Aspen Technology, Inc.(b).................................. 2,118 22,107
Avid Technology, Inc.(b)................................... 2,084 33,865
Cerner Corp.(b)............................................ 2,872 57,799
Custom Tracks Corp.(b)..................................... 1,325 79,500
Dendrite International, Inc.(b)............................ 2,039 67,287
Dialogic Corp.(b).......................................... 1,408 46,992
Digi International, Inc.(b)................................ 1,252 10,486
Digital Microwave Corp.(b)................................. 5,333 67,329
Epicor Software Corp.(b)................................... 3,456 24,408
Fair, Issac & Co., Inc. ................................... 1,249 40,905
Filenet Corp.(b)........................................... 2,779 27,443
Harbinger Corp.(b)......................................... 3,581 39,727
HNC Software, Inc.(b)...................................... 2,237 60,539
Hyperion Solutions Corp.(b)................................ 2,625 40,852
Inter-Tel, Inc. ........................................... 2,247 33,284
Macromedia, Inc.(b)........................................ 3,589 137,615
Mercury Interactive Corp.(b)............................... 3,102 101,978
Midway Games, Inc.(b)...................................... 3,305 35,116
National Instruments Corp.(b).............................. 2,877 109,506
Progress Software Corp.(b)................................. 1,509 39,328
S3, Inc.(b)................................................ 4,459 29,959
SEI Investments Co. ....................................... 1,542 157,283
System Software Associates,Inc.(b)......................... 4,084 8,296
TCSI Corp.(b).............................................. 1,985 5,273
Vantive Corp.(b)........................................... 2,270 24,686
Wall Data, Inc.(b)......................................... 848 8,639
-----------
1,607,341
-----------
Computers (3.4%):
Analysts International Corp. .............................. 1,993 31,763
Anixter International, Inc.(b)............................. 3,667 64,860
Applied Magnetics Corp.(b)................................. 3,619 10,857
Auspex Systems, Inc.(b).................................... 2,227 24,219
Banctec, Inc.(b)........................................... 1,674 26,993
CIBER, Inc.(b)............................................. 4,647 99,620
Computer Task Group, Inc. ................................. 1,766 29,360
Exabyte Corp.(b)........................................... 2,001 11,006
Factset Research Systems, Inc.(b).......................... 1,345 58,171
Hutchinson Technology(b)................................... 2,092 48,639
Inacom Corp.(b)............................................ 3,853 42,624
Intervoice, Inc.(b)........................................ 2,392 26,611
Jack Henry & Associates, Inc. ............................. 1,729 61,055
Komag, Inc.(b)............................................. 4,633 17,663
Kronos, Inc.(b)............................................ 1,137 42,087
Microage, Inc.(b).......................................... 1,779 9,951
Micros Systems, Inc.(b).................................... 1,411 44,094
National Computer Systems, Inc. ........................... 2,751 85,969
Read-Rite Corp.(b)......................................... 4,277 28,201
Technology Solutions Co.(b)................................ 3,592 33,451
Telxon Corp. .............................................. 1,415 14,681
</TABLE>
Continued
161
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Small Cap Equity Index Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Computers, continued:
Whittman-Hart, Inc.(b)..................................... 4,462 $ 126,609
Xircom, Inc.(b)............................................ 2,037 51,434
-----------
989,918
-----------
Construction (0.3%):
Dycom Industries, Inc.(b).................................. 1,877 90,565
-----------
Consumer Goods & Services (0.3%):
Brown Shoe Company, Inc. .................................. 1,562 29,678
Department 56, Inc.(b)..................................... 1,648 54,693
-----------
84,371
-----------
Containers & Packaging (0.1%):
Shorewood Packaging Corp.(b)............................... 2,344 40,141
-----------
Diversified Operations (0.5%):
Delta & Pineland Co. ...................................... 3,292 96,496
Triarc Co.(b).............................................. 2,508 51,101
-----------
147,597
-----------
Electrical & Electronic (4.5%):
Analogic Corp. ............................................ 1,053 34,288
Benchmark Electronics, Inc.(b)............................. 976 29,280
BMC Industries, Inc. ...................................... 2,332 23,466
Brady Corp. ............................................... 1,998 50,075
C-Cor Electronics(b)....................................... 829 19,585
Checkpoint Systems, Inc.(b)................................ 2,746 25,057
Coherent, Inc.(b).......................................... 2,089 33,685
CTS Corp. ................................................. 1,131 63,336
Dionex Corp.(b)............................................ 1,900 77,781
Electro Scientific Industries, Inc.(b)..................... 1,058 39,675
Etec Systems, Inc.(b)...................................... 1,865 50,005
Gentex Corp.(b)............................................ 6,218 186,734
Hadco Corp.(b)............................................. 1,199 37,169
Harmon Industries, Inc. ................................... 896 18,704
Innovex, Inc. ............................................. 1,314 17,575
Itron, Inc. ............................................... 1,307 10,864
Kemet Corp.(b)............................................. 3,358 53,938
Kent Electronics Corp.(b).................................. 2,459 32,121
Kulicke & Soffa Industries, Inc.(b)........................ 2,058 43,475
Methode Electronics, Inc. ................................. 3,082 56,824
Micrel, Inc.(b)............................................ 1,706 95,536
OAK Industries, Inc.(b).................................... 1,568 75,558
Park Electrochemical Corp. ................................ 886 21,209
Paxar Corp.(b)............................................. 4,175 37,836
Photronics, Inc.(b)........................................ 2,141 42,285
Standard Microsystems Corp.(b)............................. 1,305 9,951
Technitrol, Inc. .......................................... 1,421 42,275
Trimble Navigation Ltd.(b)................................. 1,920 24,000
Whittaker Corp.(b)......................................... 946 25,424
X-Rite, Inc. .............................................. 1,798 12,586
-----------
1,290,297
-----------
Electronic Components/Instruments (1.3%):
Belden, Inc. .............................................. 2,149 50,636
C&D Technologies, Inc. .................................... 1,104 30,153
C-Cube Microsystems, Inc.(b)............................... 3,221 80,726
Cable Design Technologies Corp.(b)......................... 2,473 34,931
Insteel Industries, Inc. .................................. 737 6,357
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Electronic Components/Instruments, continued:
Intermagnetics General Corp.(b)............................ 1,065 $ 8,320
SLI, Inc.(b)............................................... 2,363 76,502
Valence Technology, Inc.(b)................................ 2,326 17,300
Vicor Corp.(b)............................................. 3,678 60,687
-----------
365,612
-----------
Engineering (0.5%):
Dames & Moore Group........................................ 1,586 24,980
Insituform Technologies, Inc.(b)........................... 2,240 37,520
Morrison Knudsen Corp.(b).................................. 4,581 45,523
Stone & Webster, Inc. ..................................... 1,166 28,567
-----------
136,590
-----------
Entertainment (0.6%):
Anchor Gaming(b)........................................... 1,038 46,451
Aztar Corp.(b)............................................. 3,913 26,413
Carmike Cinemas, Inc.(b)................................... 958 16,825
GC Companies, Inc.(b)...................................... 682 24,637
Hollywood Park, Inc.(b).................................... 2,284 32,975
Players International, Inc.(b)............................. 2,810 18,265
-----------
165,566
-----------
Environmental Services (0.6%):
Imco Recycling, Inc. ...................................... 1,483 24,840
Ionics, Inc.(b)............................................ 1,414 44,276
Superior Services, Inc.(b)................................. 2,834 60,754
Tetra Tech, Inc.(b)........................................ 2,557 54,336
-----------
184,206
-----------
Financial Services (2.4%):
Americredit Corp.(b)....................................... 5,412 86,254
Amresco, Inc.(b)........................................... 3,941 27,094
Dain Rauscher Corp. ....................................... 1,038 54,041
Eaton Vance Corp. ......................................... 3,111 95,274
Hambrecht & Quist, Inc.(b)................................. 2,117 76,080
Jefferies Group, Inc. ..................................... 1,987 48,806
Legg Mason, Inc. .......................................... 4,882 165,073
Pioneer Group, Inc.(b)..................................... 2,219 39,110
Raymond James Financial Corp. ............................. 4,154 91,907
-----------
683,639
-----------
Food Products (2.1%):
Chiquita Brands International, Inc. ....................... 5,633 45,416
Corn Products International, Inc. ......................... 3,089 91,126
Earthgrains Co. ........................................... 3,740 87,656
Fleming Cos., Inc. ........................................ 3,299 34,021
J & J Snack Foods Corp.(b)................................. 781 16,206
Michael Foods, Inc. ....................................... 1,793 42,136
Nash Finch Co. ............................................ 956 8,963
Ralcorp Holdings, Inc.(b).................................. 2,653 50,075
Richfood Holdings, Inc. ................................... 4,097 52,493
Smithfield Foods, Inc.(b).................................. 3,633 96,955
Whole Foods Market, Inc.(b)................................ 2,289 94,993
-----------
620,040
-----------
Forest Products & Paper (0.5%):
Buckeye Technologies, Inc.(b).............................. 3,079 50,226
Caraustar Industries, Inc. ................................ 2,219 58,526
</TABLE>
Continued
162
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Small Cap Equity Index Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Forest Products & Paper, continued:
Pope & Talbot, Inc. ....................................... 1,217 $ 12,170
Schweitzer-Mauduit International, Inc. .................... 1,413 21,637
-----------
142,559
-----------
Gas - Distribution (2.2%):
Atmos Energy Corp. ........................................ 2,683 68,752
Cascade Natural Gas Corp. ................................. 934 15,703
Connecticut Energy Corp. .................................. 875 32,867
Energen Corp. ............................................. 2,600 49,725
New Jersey Resources....................................... 1,544 58,286
Northwest Natural Gas Co. ................................. 2,167 52,008
Penn Enterprises, Inc. .................................... 859 24,911
Piedmont Natural Gas Co. .................................. 2,702 91,361
Public Service Co. of North Carolina....................... 1,728 50,112
Southwest Gas Corp. ....................................... 2,676 75,597
Southwestern Energy Co. ................................... 2,178 20,555
Wicor, Inc. ............................................... 3,217 82,034
-----------
621,911
-----------
Health Care (4.2%):
Adac Laboratories(b)....................................... 1,812 14,609
American Oncology Resources(b)............................. 2,862 29,067
Ballard Medical Products................................... 2,698 64,078
Cooper Companies, Inc.(b).................................. 1,223 27,747
Coventry Health Care, Inc.(b).............................. 5,111 67,720
Curative Health Services, Inc.(b).......................... 1,061 7,228
Datascope Corp.(b)......................................... 1,276 32,099
Diagnostic Products Corp. ................................. 1,240 28,210
Genesis Health Ventures(b)................................. 3,058 13,570
Hanger Orthopedic Group, Inc.(b)........................... 1,667 27,297
Hologic, Inc.(b)........................................... 1,209 9,219
Idexx Laboratories, Inc.(b)................................ 3,314 84,506
Integrated Health Services, Inc.(b)........................ 4,579 26,902
Invacare Corp. ............................................ 2,562 63,890
Magellan Health Services(b)................................ 2,785 22,454
Mariner Post-Acute Network(b).............................. 6,360 14,310
Maxxim Medical, Inc.(b).................................... 1,208 19,177
Mentor Corp. .............................................. 2,071 33,007
Molecular Biosystems, Inc.(b).............................. 1,602 4,005
Renal Care Group, Inc.(b).................................. 3,806 105,616
Resound Corp.(b)........................................... 1,755 13,492
Respironics, Inc.(b)....................................... 2,754 44,408
Safeskin Corp.(b).......................................... 4,707 58,838
Sierra Health Services, Inc.(b)............................ 2,387 36,402
Sola International, Inc.(b)................................ 2,170 36,212
Spacelabs Medical, Inc.(b)................................. 811 12,571
Summit Technology, Inc.(b)................................. 3,661 72,304
Sunrise Medical, Inc.(b)................................... 1,973 16,401
Universal Health Services(b)............................... 2,868 143,041
Varian Medical Systems, Inc. .............................. 2,629 49,458
Vital Signs, Inc. ......................................... 1,060 20,339
-----------
1,198,177
-----------
Home Builders (1.9%):
Champion Enterprises, Inc.(b).............................. 4,124 84,284
Coachmen Industries, Inc. ................................. 1,412 31,064
D.R. Horton, Inc. ......................................... 5,597 95,148
M.D.C. Holdings, Inc. ..................................... 1,577 31,146
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Home Builders, continued:
Oakwood Homes Corp. ..................................... 4,121 $ 51,513
Ryland Group, Inc. ...................................... 1,307 36,351
Skyline Corp. ........................................... 812 25,324
Southern Energy Homes, Inc.(b)........................... 1,114 5,187
Standard-Pacific Corp. .................................. 2,546 33,416
Thor Industries, Inc. ................................... 1,022 26,891
Toll Brothers, Inc.(b)................................... 3,192 69,626
U.S. Home Corp.(b)....................................... 1,132 39,054
Winnebago Industries..................................... 1,939 31,994
-----------
560,998
-----------
Home Furnishings (1.1%):
Bassett Furniture Industries............................. 1,087 26,088
Ethan Allen Interiors, Inc. ............................. 3,556 113,363
Fedders Corp. ........................................... 3,138 17,847
Harman International..................................... 1,506 66,829
La-Z Boy, Inc. .......................................... 4,518 89,795
Royal Appliance Manufacturing(b)......................... 1,719 7,736
-----------
321,658
-----------
Hotels & Lodging (0.3%):
Marcus Corp. ............................................ 2,682 33,693
Prime Hospitality Corp.(b)............................... 4,481 46,770
-----------
80,463
-----------
Household Products/Wares (1.1%):
Gibson Greetings, Inc.(b)................................ 1,339 9,708
John H. Harland Co. ..................................... 2,644 47,262
Libbey, Inc. ............................................ 1,431 42,841
Nashua Corp. ............................................ 509 5,790
National Presto Industries, Inc. ........................ 655 24,440
New England Business Service, Inc. ...................... 1,245 33,848
Russ Berrie & Co., Inc. ................................. 1,883 48,370
Swiss Army Brands, Inc.(b)............................... 720 5,805
The Scott's Co.(b)....................................... 1,610 70,839
Toro Co. ................................................ 1,069 35,878
USA Detergents, Inc.(b).................................. 1,243 6,448
-----------
331,229
-----------
Insurance (4.7%):
American Bankers Insurance Group......................... 3,751 201,148
Arthur J. Gallagher & Co. ............................... 1,501 73,080
Capital Re Corp. ........................................ 2,808 45,806
CMAC Investment Corp. ................................... 2,013 101,782
Delphi Financial Group(b)................................ 1,769 61,351
Enhance Financial Services Group......................... 3,221 63,011
Executive Risk, Inc. .................................... 925 78,856
Fidelity National Financial, Inc. ....................... 2,480 42,005
First American Financial Corp. .......................... 5,223 85,853
Fremont General Corp. ................................... 6,054 128,269
Frontier Insurance Group, Inc. .......................... 3,229 55,498
Hilb, Rogal, & Hamilton Co. ............................. 1,122 22,861
Mutual Risk Management Ltd. ............................. 3,447 125,816
NAC RE Corp. ............................................ 1,572 85,772
Orion Capital Corp. ..................................... 2,380 69,466
Selective Insurance Group................................ 2,397 45,243
Trenwick Group, Inc. .................................... 1,010 31,815
Zenith National Insurance Corp. ......................... 1,487 33,829
-----------
1,351,461
-----------
</TABLE>
Continued
163
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Small Cap Equity Index Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Iron/Steel (0.4%):
Birmingham Steel Corp. .................................... 2,538 $ 13,007
Material Sciences Corp.(b)................................. 1,363 15,163
Reliance Steel & Aluminum Co. ............................. 1,624 57,855
Steel Technologies, Inc. .................................. 998 8,982
WHX Corp.(b)............................................... 1,517 11,378
-----------
106,385
-----------
Leisure & Recreation/Gaming (0.6%):
Arctic Cat, Inc. .......................................... 2,405 19,992
Family Golf Centers, Inc.(b)............................... 2,246 20,425
Huffy Corp. ............................................... 1,020 13,706
K2, Inc. .................................................. 1,450 14,409
Polaris Industries, Inc. .................................. 2,257 97,192
-----------
165,724
-----------
Machinery & Equipment (2.9%):
Applied Industrial Technology, Inc. ....................... 1,865 31,588
Applied Power, Inc. ....................................... 3,306 80,170
Astec Industries, Inc.(b).................................. 1,620 60,548
Baldor Electric Co. ....................................... 3,208 61,754
Cognex Corp.(b)............................................ 3,486 93,685
Esterline Technologies Corp.(b)............................ 1,500 22,406
Flow International Corp.(b)................................ 1,220 12,048
Gardner Denver Machinery, Inc.(b).......................... 1,422 24,352
Gerber Scientific, Inc. ................................... 1,914 44,740
Global Industries Technologies, Inc.(b).................... 1,863 23,171
Graco, Inc. ............................................... 1,712 55,961
Helix Technology Corp. .................................... 1,977 33,733
JLG Industries, Inc. ...................................... 3,827 73,909
Lindsay Manufacturing Co. ................................. 1,147 20,216
Manitowoc Co. ............................................. 2,257 76,738
Regal Beloit Corp. ........................................ 1,777 41,315
Robbins & Myers, Inc. ..................................... 935 22,323
Speedfam-IPEC, Inc.(b)..................................... 2,504 32,865
Thomas Industries, Inc. ................................... 1,398 28,310
-----------
839,832
-----------
Manufacturing--Consumer Goods (0.3%):
Aptargroup, Inc. .......................................... 3,120 85,800
-----------
Metal Fabrication & Hardware (1.1%):
A.M. Castle & Co. ......................................... 1,260 19,373
Amcast Industrial Corp. ................................... 795 13,366
Commercial Metals Co. ..................................... 1,230 28,828
Intermet Corp. ............................................ 2,231 30,955
Lawson Products............................................ 940 23,265
Mueller Industries, Inc.(b)................................ 3,088 89,551
Quanex Corp. .............................................. 1,269 33,153
Valmont Industries......................................... 2,195 36,286
Wolverine Tube, Inc.(b).................................... 1,266 30,147
-----------
304,924
-----------
Metals & Mining (0.7%):
Amcol International Corp. ................................. 2,306 32,716
Brush Wellman, Inc. ....................................... 1,437 24,339
Commonwealth Industries, Inc. ............................. 1,403 15,082
Couer D'Alene Mines Corp.(b)............................... 1,853 7,759
Hecla Mining Co.(b)........................................ 4,758 11,598
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Metals & Mining, continued:
RTI International Metals, Inc.(b).......................... 1,749 $ 23,284
Stillwater Mining Co.(b)................................... 2,945 94,056
-----------
208,834
-----------
Miscellaneous Manufacturing (2.4%):
A.O. Smith Corp. .......................................... 1,981 48,287
A.T. Cross Co. Class A..................................... 1,447 9,044
Barnes Group, Inc. ........................................ 1,717 39,598
Bell Industries, Inc.(b)................................... 805 8,251
Blount International, Inc. Class A......................... 3,233 90,120
Clarcor, Inc. ............................................. 2,144 39,396
Griffon Corp.(b)........................................... 2,636 21,088
Justin Industries.......................................... 2,294 30,826
Lydall, Inc.(b)............................................ 1,384 16,695
Mascotech, Inc. ........................................... 4,021 62,828
Myers Industries, Inc. .................................... 1,582 36,188
Roper Industries, Inc. .................................... 2,661 85,817
Scott Technologies, Inc.(b)................................ 1,597 30,143
SPS Technologies, Inc.(b).................................. 1,060 44,918
Standex International Corp. ............................... 1,090 28,476
Sturm, Ruger, & Co., Inc. ................................. 2,331 26,078
Tredegar Corp. ............................................ 3,221 69,050
-----------
686,803
-----------
Office Equipment & Services (0.4%):
Interface, Inc. ........................................... 4,556 35,309
Zebra Technologies Corp., Class A(b)....................... 2,756 88,537
-----------
123,846
-----------
Oil & Exploration, Production & Services (3.3%):
Barrett Resources Corp.(b)................................. 2,794 94,471
Benton Oil & Gas Co.(b).................................... 2,532 8,862
Cabot Oil & Gas Corp. ..................................... 2,177 38,914
Cross Timbers Oil Co. ..................................... 3,992 43,164
Daniel Industries.......................................... 1,520 31,920
Devon Energy Corp. ........................................ 2,839 98,654
Eagle Geophysical, Inc.(b)................................. 129 436
HS Resources, Inc.(b)...................................... 1,629 19,548
Input/Output, Inc.(b)...................................... 4,402 37,417
Newfield Exploration Co.(b)................................ 3,531 89,599
Oceaneering International, Inc.(b)......................... 1,937 29,902
Plains Resources, Inc.(b).................................. 1,472 25,300
Pogo Producing Co. ........................................ 3,526 64,570
Pool Energy Services Co.(b)................................ 1,788 30,173
Pride International, Inc.(b)............................... 4,379 45,706
Remington Oil & Gas Corp.(b)............................... 1,837 7,578
Seacor Holdings, Inc.(b)................................... 1,138 56,473
Seitel, Inc.(b)............................................ 2,007 31,736
St. Mary Land & Exploration Co. ........................... 930 18,600
Stone Energy Corp.(b)...................................... 1,265 47,675
Tuboscope, Inc.(b)......................................... 3,827 51,186
Vintage Petroleum, Inc. ................................... 4,599 51,739
WD-40 Co. ................................................. 1,380 35,449
-----------
959,072
-----------
Pharmaceuticals (3.8%):
Alliance Pharmaceutical Corp.(b)........................... 2,914 8,651
Alpharma, Inc. ............................................ 2,318 61,862
</TABLE>
Continued
164
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Small Cap Equity Index Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Pharmaceuticals, continued:
Barr Laboratories, Inc.(b)................................. 1,984 $ 65,348
Bindley Western Industries, Inc. .......................... 1,961 59,075
Biomatrix, Inc.(b)......................................... 2,014 61,679
Cephalon, Inc.(b).......................................... 2,461 33,224
COR Therapeutics, Inc.(b).................................. 2,122 30,106
Cygnus, Inc.(b)............................................ 1,927 21,920
Dura Pharmaceuticals, Inc.(b).............................. 3,971 41,199
Express Scripts, Inc.(b)................................... 2,935 205,816
Immune Response Corp.(b)................................... 2,051 13,075
Jones Pharma, Inc. ........................................ 2,467 87,732
Natures Sunshine Products, Inc. ........................... 1,588 19,354
NBTY, Inc.(b).............................................. 5,912 37,135
NCS Healthcare, Inc.(b).................................... 1,779 24,461
North American Vaccine, Inc.(b)............................ 2,831 15,217
Noven Pharmaceuticals, Inc.(b)............................. 1,820 11,148
Patterson Dental Co.(b).................................... 2,912 106,651
Priority Healthcare Corp. Class A(b)....................... 1,116 38,084
Priority Healthcare Corp. Class B(b)....................... 542 18,496
Roberts Pharmaceutical Corp.(b)............................ 2,758 52,402
Syncor International Corp.(b).............................. 929 31,586
U.S. Bioscience, Inc.(b)................................... 2,336 18,834
Vertex Pharmaceuticals, Inc.(b)............................ 2,210 44,338
-----------
1,107,393
-----------
Printing & Publishing (1.4%):
Bowne & Co., Inc. ......................................... 3,179 53,248
Consolidated Graphics, Inc.(b)............................. 1,278 58,948
Merrill Corp. ............................................. 1,442 21,810
Thomas Nelson, Inc. ....................................... 1,247 12,236
Valassis Communications, Inc.(b)........................... 4,925 171,452
World Color Press, Inc.(b)................................. 3,304 84,252
-----------
401,946
-----------
Restaurants (2.3%):
Applebees International, Inc. ............................. 2,586 76,287
CEC Entertainment, Inc.(b)................................. 1,580 59,744
CKE Restaurant, Inc. ...................................... 4,475 82,228
Consolidated Products, Inc.(b)............................. 2,279 42,162
Foodmaker, Inc.(b)......................................... 3,253 87,831
IHOP Corp.(b).............................................. 1,686 40,253
Landry's Seafood Restaurants, Inc.(b)...................... 2,590 23,634
Luby's, Inc. .............................................. 1,956 33,252
Panera Bread Co.(b)........................................ 1,003 7,021
Ruby Tuesday, Inc. ........................................ 2,788 51,752
Ryan's Family Steak Houses, Inc.(b)........................ 3,445 40,263
Sonic Corp.(b)............................................. 1,636 45,041
Taco Cabana, Inc. Class A(b)............................... 1,176 12,569
TCBY Enterprises, Inc. .................................... 1,944 12,879
The Cheesecake Factory, Inc.(b)............................ 1,715 47,377
-----------
662,293
-----------
Retail Stores (5.7%):
Ames Department Stores, Inc.(b)............................ 1,994 81,754
Anntaylor Stores Corp.(b).................................. 2,235 96,524
Books-A-Million, Inc.(b)................................... 1,516 12,507
Building Materials Holding Corp.(b)........................ 1,131 13,007
Casey's General Stores, Inc. .............................. 4,570 61,409
Cash America Investments, Inc. ............................ 2,191 27,798
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Retail Stores, continued:
Cato Corp. ................................................ 2,384 $ 31,290
Damark International, Inc.(b).............................. 551 5,407
Discount Auto Parts(b)..................................... 1,453 35,962
Dress Barn, Inc.(b)........................................ 1,951 28,655
Footstar, Inc.(b).......................................... 2,152 83,525
Goody's Family Clothing, Inc.(b)........................... 2,919 31,744
Gottschalks, Inc.(b)....................................... 1,049 8,654
Gymboree Corp.(b).......................................... 2,122 26,127
Hancock Fabrics, Inc. ..................................... 1,680 9,555
Hughes Supply, Inc. ....................................... 2,138 57,592
J. Baker, Inc. ............................................ 1,252 9,077
JAN Bell Marketing, Inc.(b)................................ 2,465 7,549
Jo-Ann Stores, Inc.(b)..................................... 1,626 27,337
Just For Feet, Inc(b)...................................... 2,676 20,405
Lillian Vernon Corp. ...................................... 805 10,364
Linens 'N Things, Inc.(b).................................. 3,341 133,222
Men's Wearhouse, Inc. (The)(b)............................. 3,009 76,824
Michaels Stores, Inc.(b)................................... 2,433 65,083
Pacific Sunwear Of California, Inc.(b)..................... 1,788 67,050
Pier 1 Imports, Inc. ...................................... 8,437 93,334
Regis Corp. ............................................... 3,144 75,849
Shopko Stores, Inc.(b)..................................... 2,266 80,443
Sports Authority, Inc. (The)(b)............................ 2,797 13,985
Stein Mart, Inc.(b)........................................ 3,948 36,272
Stride Rite Corp. ......................................... 4,070 42,481
The Bombay Company, Inc.(b)................................ 3,277 20,072
Williams-Sonoma, Inc.(b)................................... 4,793 142,891
Zale Corp.(b).............................................. 3,147 121,356
-----------
1,655,104
-----------
Security Services (0.4%):
Kroll O'Gara Co. Ltd.(b)................................... 1,788 35,928
Security Dynamics Technologies, Inc.(b).................... 3,518 66,842
-----------
102,770
-----------
Semiconductors (2.8%):
Alpha Industries, Inc.(b).................................. 1,423 49,538
Burr-Brown Corp.(b)........................................ 3,170 101,440
Dallas Semiconductor Corp. ................................ 2,412 104,922
Electroglas, Inc.(b)....................................... 1,688 24,476
General Semiconductor, Inc.(b)............................. 3,179 24,637
International Rectifier Corp.(b)........................... 4,474 48,655
Lattice Semiconductor Corp.(b)............................. 2,075 101,934
Marshall Industries(b)..................................... 1,454 25,627
Novellus Systems, Inc.(b).................................. 3,373 164,645
Pioneer-Standard Electronics............................... 2,288 22,451
Silicon Valley Group, Inc.(b).............................. 2,880 39,600
Three-Five Systems, Inc.(b)................................ 598 8,036
Ultratech Stepper, Inc.(b)................................. 1,787 23,454
Unitrode Corp.(b).......................................... 2,779 57,838
Watkins-Johnson Co. ....................................... 723 17,894
-----------
815,147
-----------
Telecommunications (2.0%):
Adaptive Broadband Corp.(b)................................ 1,323 21,003
Allen Telecom, Inc.(b)..................................... 2,367 24,706
Aspect Telecommunications Corp.(b)......................... 4,403 37,426
Centigram Communications Corp.(b).......................... 541 5,207
</TABLE>
Continued
165
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Small Cap Equity Index Portfolio May 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Telecommunications, continued:
Commscope, Inc.(b).......................................... 4,312 113,189
DSP Communications, Inc.(b)................................. 3,430 105,472
General Communication, Inc. Class A(b)...................... 4,333 21,394
Network Equipment Technologies, Inc.(b)..................... 1,833 19,017
P-Com, Inc.(b).............................................. 3,780 16,656
Picturetel Corp.(b)......................................... 3,294 29,234
Plantronics, Inc.(b)........................................ 1,442 88,322
Powerwave Technologies, Inc.(b)............................. 1,742 40,284
Symmetricom, Inc.(b)........................................ 1,295 8,256
Talk.Com, Inc.(b)........................................... 4,191 43,482
-----------
573,648
-----------
Textile Products (0.5%):
Angelica Corp. ............................................. 794 13,448
Dixie Group, Inc. (The)..................................... 956 8,724
G & K Services, Inc. ....................................... 1,746 82,498
Guilford Mills, Inc. ....................................... 2,039 20,390
Pillowtex Corp. ............................................ 1,266 20,573
-----------
145,633
-----------
Tobacco (0.1%):
Dimon, Inc. ................................................ 3,860 20,265
-----------
Transportation & Shipping (2.7%):
Air Express International Corp. ............................ 2,913 72,825
American Freightways Corp.(b)............................... 2,787 48,773
Arkansas Best Corp. ........................................ 1,680 14,910
Expeditors International Washington, Inc. .................. 2,158 120,039
Fritz Companies, Inc.(b).................................... 3,105 33,379
Frozen Foods Express Industries............................. 1,473 10,127
Halter Marine Group, Inc.(b)................................ 2,478 18,275
Heartland Express, Inc.(b).................................. 2,564 39,261
Kirby Corp.(b).............................................. 1,795 33,881
Landstar System, Inc.(b).................................... 919 34,577
M.S. Carriers, Inc.(b)...................................... 1,025 32,416
Offshore Logistics, Inc.(b)................................. 1,849 20,917
Pittson Bax Group........................................... 1,638 17,711
Railtex, Inc.(b)............................................ 794 10,719
Rollins Truck Leasing Corp. ................................ 5,077 55,212
U.S. Freightways Corp. ..................................... 2,280 89,775
Werner Enterprises, Inc. ................................... 4,107 79,316
Yellow Corp.(b)............................................. 2,268 38,556
-----------
770,669
-----------
Utilities--Gas & Electric (1.9%):
Bangor Hydro-Electric Co.(b)................................ 656 9,266
Central Hudson Gas & Electric .............................. 1,483 62,564
Central Vermont Public Service Corp. ....................... 963 11,496
Cilcorp, Inc. .............................................. 1,227 74,770
Commonwealth Energy System.................................. 1,825 77,334
Eastern Utilities Associates................................ 1,742 50,300
Green Mountain Power Corp. ................................. 495 5,136
Orange & Rockland Utilities, Inc. .......................... 1,220 70,989
Sierra Pacific Resources.................................... 2,635 95,848
TNP Enterprises, Inc. ...................................... 1,199 44,738
United Illuminating Co. (The)............................... 1,282 56,168
-----------
558,609
-----------
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued:
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Water Utility (0.7%):
American States Water Co. ................................. 776 20,710
Aquarion Co. .............................................. 943 29,292
Philadelphia Suburban Corp. ............................... 3,553 78,165
United Water Resources, Inc. .............................. 3,208 69,774
-----------
197,941
-----------
Wholesale Distribution (0.7%):
Aviation Sales Co.(b)...................................... 1,078 41,503
Brightpoint, Inc.(b)....................................... 4,529 25,759
Insight Enterprises, Inc.(b)............................... 2,209 56,053
Owens & Minor, Inc. ....................................... 2,856 31,059
Watsco, Inc. .............................................. 2,456 47,432
-----------
201,806
-----------
TOTAL COMMON STOCKS 28,650,467
-----------
TOTAL INVESTMENTS
(Cost $29,197,148)(a)--99.9% 28,830,467
Other assets in excess of liabilities--0.1% 16,454
-----------
TOTAL NET ASSETS--100.0% $28,846,921
===========
</TABLE>
- -----
(a)Represents cost for federal income tax purposes and differs from value by
net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.. $ 2,466,878
Unrealized depreciation.. (2,833,559)
-----------
Net unrealized deprecia-
tion.................... $ (366,681)
===========
</TABLE>
(b)Represents non-income producing securities.
(c)A portion of this security was loaned as of May 31, 1999.
Continued
166
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Small Cap Equity Index Portfolio
<TABLE>
<S> <C>
Statement of
Assets and
Liabilities
</TABLE>
May 31, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $29,197,148)................. $28,830,467
Cash..................................................... 788
Interest and dividends receivable........................ 17,275
Receivable for investments sold.......................... 70,275
Prepaid expenses and other assets........................ 1,981
-----------
Total Assets............................................ 28,920,786
Liabilities:
Payable for investments purchased........................ $52,270
Payable for capital shares redeemed...................... 89
Accrued expenses and other payables:
Investment advisory fees................................ 9,796
Administration fees..................................... 395
Distribution and administrative services fees........... 3,968
Custodian fees.......................................... 1,225
Other liabilities....................................... 6,122
-------
Total Liabilities....................................... 73,865
-----------
Net Assets:
Capital.................................................. 28,602,937
Undistributed net investment income...................... 4,121
Accumulated net realized gains from investment
transactions............................................ 606,544
Net unrealized depreciation from investments............. (366,681)
-----------
Net Assets............................................... $28,846,921
===========
Investor A Shares
Net Assets.............................................. $ 114,556
Shares.................................................. 11,515
Redemption price per share.............................. $9.95
=====
Maximum Sales Charge -- Investor A Shares................ 5.50%
Maximum Offering Price
(100%/(100% -- Maximum Sales Charge) of net asset value
adjusted to the nearest cent) per share................. $10.53
======
Trust Shares
Net Assets.............................................. $13,217,568
Shares.................................................. 1,327,900
Offering and redemption price per share................. $9.95
=====
Institutional Shares
Net Assets.............................................. $15,514,797
Shares.................................................. 1,560,503
Offering and redemption price per share................. $9.94
=====
</TABLE>
- -----
(a) For the period from December 30, 1998 (commencement of operations) through
May 31, 1999.
Statement of Operations
For the period ended May 31, 1999(a) (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income............................................. $ 96,318
---------
Total Income............................................... 96,318
Expenses:
Investment advisory fees.................................... $34,656
Administration fees......................................... 20,008
Distribution and services fees, Investor A Shares........... 42
Administrative services fees,
Trust Shares............................................... 11,111
Administrative services fees, Institutional Shares.......... 18,858
Accounting fees............................................. 9,878
Custodian fees.............................................. 4,863
Transfer agent fees......................................... 2,762
Other....................................................... 8,437
-------
Total expenses before voluntary fee reductions............. 110,615
Expenses voluntarily reduced............................... (37,191)
---------
Net Expenses............................................... 73,424
---------
Net investment income....................................... 22,894
---------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains from investment transactions............. 606,544
Net change in unrealized depreciation from investments...... (366,681)
---------
Net realized/unrealized gains from investments.............. 239,863
---------
Change in net assets resulting from operations.............. $ 262,757
=========
</TABLE>
See notes to financial statements
167
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Small Cap Equity Index Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
period ended
May 31,
1999(a)
(Unaudited)
------------
<S> <C>
From Investment Activities:
Operations:
Net investment income............................................ $ 22,894
Net realized gains from investment transactions.................. 606,544
Net change in unrealized depreciation from investments........... (366,681)
-----------
Change in net assets resulting from operations.................... 262,757
-----------
Distributions to Investor A Shareholders:
From net investment income....................................... (9)
Distributions to Trust Shareholders:
From net investment income....................................... (12,830)
Distributions to Institutional Shareholders:
From net investment income....................................... (5,934)
-----------
Change in net assets from shareholder distributions............... (18,773)
-----------
Change in net assets from capital transactions.................... 28,602,937
-----------
Change in net assets.............................................. 28,846,921
Net Assets:
Beginning of period.............................................. --
-----------
End of period.................................................... $28,846,921
===========
</TABLE>
- -----
(a)For the period from December 30, 1998 (commencement of operations) through
May 31, 1999.
See notes to financial statements
168
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Small Cap Equity Index Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
December 30,
1998 to
May 31,
1999(a)
(Unaudited)
------------
<S> <C>
Net Asset Value, Beginning of Period............................. $10.00
------
Investment Activities
Net investment income........................................... 0.01
Net realized and unrealized gains from investments.............. (0.05)
------
Total from Investment Activities................................ (0.04)
------
Distributions
Net investment income........................................... (0.01)
------
Total Distributions............................................. (0.01)
------
Net Asset Value, End of Period................................... $ 9.95
======
Total Return (excludes sales charge)............................. (0.44)%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)................................ $ 115
Ratio of expenses to average net assets.......................... 0.94%(c)
Ratio of net investment income to average net assets............. 0.09%(c)
Ratio of expenses to average net assets*......................... 1.09%(c)
Portfolio turnover**............................................. 16.04%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
December 30,
1998 to
May 31,
1999(a)
(Unaudited)
------------
<S> <C>
Net Asset Value, Beginning of Period............................ $ 10.00
-------
Investment Activities
Net investment income.......................................... 0.01
Net realized and unrealized gains from investments............. (0.05)
-------
Total from Investment Activities............................... (0.04)
-------
Distributions
Net investment income.......................................... (0.01)
-------
Total Distributions............................................ (0.01)
-------
Net Asset Value, End of Period.................................. $ 9.95
=======
Total Return.................................................... (0.39)%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)............................... $13,218
Ratio of expenses to average net assets......................... 0.57%(c)
Ratio of net investment income to average net assets............ 0.41%(c)
Ratio of expenses to average net assets*........................ 1.09%(c)
Portfolio turnover**............................................ 16.04%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
169
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Small Cap Equity Index Portfolio
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
December 30,
1998 to
May 31,
1999(a)
(Unaudited)
------------
<S> <C>
Net Asset Value, Beginning of Period........................... $ 10.00
-------
Investment Activities
Net investment income......................................... -- (d)
Net realized and unrealized gains from investments............ (0.06)
-------
Total from Investment Activities.............................. (0.06)
-------
Distributions
Net investment income......................................... -- (d)
-------
Total Distributions........................................... --
-------
Net Asset Value, End of Period................................. $ 9.94
=======
Total Return................................................... (0.56)%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000).............................. $15,515
Ratio of expenses to average net assets........................ 0.82%(c)
Ratio of net investment income to average net assets........... 0.12%(c)
Ratio of expenses to average net assets*....................... 1.10%(c)
Portfolio turnover**........................................... 16.04%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized. (d) Income and
distribution per share was less than $0.005.
170
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
171
<PAGE>
Mercantile International Equity Portfolio+
Q. How did the global equity markets perform during the six-month period
ended May 31, 1999?
A. In Europe, strong market performance triggered by the Federal Reserve
Board's interest rate cuts continued through December. However, that
performance faltered when Europe's new currency fell short of high
expectations. The Euro fell by 11% against the dollar after its launch at the
beginning of the year. Meanwhile, lagging consumer spending throughout Europe,
combined with weakness in manufactured exports, served to hold back European
equity markets during the period.
The Japanese markets performed exceptionally well, driven by evidence of
restructuring initiatives and currency strength. Strong returns in the Pacific
Rim ex-Japan markets (up 22.6% for the period) were part of a general recovery
in Asia, where improved trade balances and stronger currencies allowed interest
rates to fall sharply.
Q. How did you manage the Portfolio in that environment?
A. We significantly increased our exposure to the Asian markets at the
beginning of the period, which helped the Portfolio's performance. We also
reduced our exposure to Europe, especially in Germany and Italy--two of the
worst-performing markets. However, we were overweight in Europe during most of
the period, which dampened the Portfolio's performance.
Q. How did each major country allocation impact performance?
A. Our decision to increase the Portfolio's exposure to the Japanese markets
from 12.5% to 21.9% of the Portfolio paid off, and our excellent stock
selection further boosted returns in that market. The Portfolio's Japanese
holdings returned 42.5% for the period, versus 14.6% for the MSCI Japan Index.
The Portfolio's holdings in the other Pacific markets lagged the Index
somewhat, particularly in Singapore, but the Portfolio did benefit from an
increased allocation to Hong Kong (3.4% at the end of the period) and Singapore
(1.5%) over the period.*
We trimmed the Portfolio's holdings in Southern Europe, but the Portfolio's
returns were still hampered by an overweighted exposure to that region's
markets. Weak index performance in Italy was partially offset by stock
selection (the Portfolio returned 9.2%, while the fund's benchmark, the Morgan
Stanley Europe, Australia and Far East Index/1/ returned -3.5%). The Portfolio
also benefited from strong stock selection in Northern Europe. That portion of
the Portfolio returned 32.3%, versus the Index's 12.0%.*
Q. What sectors presented especially good opportunities for the Portfolio
during the period?
A. In Japan, we purchased shares of newer, smaller companies that have proved
capable of providing strong returns, even in the difficult Japanese market
environment. For example, our holdings in Ryohin Keikaku (1.1%), a niche
retailer, performed well for the Portfolio.*
A major theme during the period was the advance of cyclical stocks in Europe
that began in February. Although the Portfolio's style prevented us from
holding deep cyclical stocks, we did purchase several shallow cyclicals. For
example, we purchased shares of construction companies in France and
Switzerland.
We took advantage of several other trends in Europe, most notably the rise of
temporary employment, the move toward using private financial service firms as
a source of pension savings, and an increased demand for advertising by
financial and telecommunications companies. For example, we purchased shares of
the Swiss and Netherlands temporary employment companies Adecco (1.5%) and
Randstad (0.8%). Aegon (1.5%), in the Netherlands, and MLP (1.3%), in Germany,
are both plays on the investment theme. We purchased shares of several
companies poised to benefit from increased advertising spending.
Q. What is your outlook for overseas markets during the next several months?
A. We expect that global economic growth and inflation will build modestly
into the 2000, capping most global equity markets. We would expect to see
further reflationary moves in Japan that should benefit equity markets there.
The recovery in the Pacific Rim economies and markets is expected to continue,
although after the strong performance so far this year--and in light of the
possibility of increased rates in the United States--some near-term caution
would be prudent.
Relative performance for the markets of Continental Europe is likely to
remain weak until clear signs of economic recovery, particularly in Germany,
are evident. Economic weakness could be accompanied by further weakness in the
Euro. Thus, we will continue to emphasize the Far East and to focus less on
Europe.
- -----
* Portfolio composition is subject to change.
+ International investing involves increased risk and volatility.
/1/The Morgan Stanley Europe, Australia and Far East (EAFE) Index is generally
representative of international stocks.
172
<PAGE>
Mercantile International Equity Portfolio
[CHART OF INTERNATIONAL EQUITY APPEARS HERE]
Value of a $10,000 Investment
Morgan Stanley
Europe, Australia
Investor A* Investor A* Investor B Investor B & Far East
Date (No Load) (Load)* (No CDSC) (CDSC)** Index
- ---- --------- ------- --------- -------- -----
4/4/94 10,000 9,550 10,000 10,000 10,000
11/94 9,900 9,456 9,405 9,900 10,370
11/95 10,780 10,295 10,330 10,730 11,189
11/96 12,071 11,530 11,622 11,922 12,543
11/97 12,380 11,824 11,838 12,138 12,528
11/98 14,278 13,637 13,896 13,698 14,630
5/99 14,778 13,968 14,237 14,337 15,312
Average Annual Total Returns as of 5/31/99
1 Year 5 year Since Inception (4/4/94)
------ ------ ------------------------
Investor A (No Load) -1.33% 8.06% 7.87%
Investor A* -6.75% 6.85% 6.70%
Investor B (No CDSC) -2.04% 7.41% 7.24%
Investor B (CDSC)** -6.64% 7.26% 7.09%
* Reflects 5.50% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[CHART OF INTERNATIONAL EQUITY TRUST APPEARS HERE]
Value of a $10,000 Investment
Morgan Stanley
Europe, Austrialia
Date Trust Institutional Far East Index
- ---- ----- ------------- --------------
4/94 10,000 10,000 10,000
11/94 9,920 9,900 10,370
11/95 10,810 10,770 11,189
11/96 12,142 12,052 12,543
11/97 12,495 12,364 12,528
11/98 14,461 14,260 14,630
5/99 14,985 14,761 15,312
Average Annual Total Returns as of 5/31/99
1 Year 5 year Since Inception (4/4/94)
------ ------ ------------------------
Trust -1.01% 8.36% 8.16%
Institutional -1.33% 8.03% 7.84%
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile International Equity Portfolio is measured
against the Morgan Stanley Europe, Australia and Far East (EAFE) Index, an
unmanaged index representative of the performance of international stocks.
Investors are unable to invest in the Index directly, although they can invest
in the underlying securities. The performance of the index does not reflect
the deduction of expenses associated with a mutual fund, such as investment
management and fund accounting fees. By contrast, the performance of the
Portfolio shown on the graph reflects the deduction of these value-added
services, as well as the deduction of a 5.50% sales charge on Investor A
Shares and the applicable contingent deferred sales charge (CDSC) on Investor
B Shares.
Investor B Shares were initially offered on March 1, 1995. The performance
figures for Investor B Shares for periods prior to such date represent the
performance for Investor A Shares of the Portfolio, which has been restated to
reflect the contingent deferred sales charge payable by holders of Investor B
Shares who redeem within six years of the date of purchase. Investor B Shares
are also subject to distribution and service fees at a maximum annual rate of
1.00%. Had these distribution and service fees been reflected, performance
would have been reduced.
Institutional Shares were initially offered on April 24, 1994. The
performance figures for institutional Shares for periods prior to such date
represent the performance for the Trust Shares of the Portfolio.
173
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
International Equity Portfolio May 31, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Common Stocks (95.4%):
<CAPTION>
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Australia (4.1%):
Beverages (1.3%):
Foster's Brewing Group Ltd.............................. 335,000 $ 950,634
-----------
Oil & Gas Exploration, Production & Services (1.6%):
Australian Gas & Light Co............................... 85,400 541,637
Oil Search Ltd.(b)...................................... 437,000 551,466
-----------
1,093,103
-----------
Telecommunications (1.2%):
Telstra Corp. Ltd....................................... 164,000 812,815
-----------
2,856,552
-----------
Finland (1.5%):
Telecommunications (1.5%):
Nokia Oyj(b)............................................ 15,000 1,069,636
-----------
France (10.0%):
Broadcasting (1.9%):
Societe Television Francaise (T.F.1)(b)................. 5,225 1,256,536
-----------
Building Materials (1.4%):
Societe Generale D'Enterprises SA(b).................... 20,750 992,155
-----------
Diversified Operations (0.9%):
Vivendi(b).............................................. 8,850 656,995
Vivendi Rights(b)....................................... 8,850 9,161
-----------
666,156
-----------
Electrical & Electronic (0.7%):
Thomson CSF(b).......................................... 15,400 496,909
-----------
Hotels & Lodging (1.8%):
Accor SA(b)............................................. 5,100 1,254,203
-----------
Insurance (1.6%):
AXA Uap................................................. 10,000 1,155,374
-----------
Retail Stores (1.7%):
Castorama Dubois........................................ 5,023 1,228,965
-----------
7,050,298
-----------
Germany (6.8%):
Computer Software (1.3%):
SAP AG(c)............................................... 2,200 882,162
-----------
Diversified Operations (1.3%):
Siemens AG.............................................. 14,000 944,166
-----------
Insurance (1.3%):
MLP AG.................................................. 1,800 941,029
-----------
Machinery & Equipment (1.8%):
Mannesmann AG........................................... 9,000 1,232,747
-----------
Telecommunications (1.1%):
Mobilcom AG(b).......................................... 10,050 803,874
-----------
4,803,978
-----------
</TABLE>
<TABLE>
<S> <C> <C>
Common Stocks, continued:
<CAPTION>
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Greece (0.8%):
Financial Services (0.8%):
Ergo Bank SA............................................... 5,980 $ 537,861
-----------
Hong Kong (3.2%):
Banking (0.9%):
HSBC Holdings PLC.......................................... 20,000 655,104
-----------
Diversified Operations (0.9%):
Hutchison Whampoa Ltd...................................... 77,000 642,949
-----------
Financial Services (0.5%):
Hang Seng Bank Ltd......................................... 32,600 348,933
-----------
Telecommunications (0.9%):
China Telecom (Hong Kong) Ltd.(b).......................... 291,000 613,560
-----------
2,260,546
-----------
Italy (7.1%):
Broadcasting (1.0%):
Mediaset SpA(c)............................................ 87,000 706,807
-----------
Financial Services (1.5%):
Banca Popolare Di Brescia.................................. 26,200 1,036,878
-----------
Insurance (1.5%):
Istituto Nazionale Delle Assicurazioni (INA)(b)(c)......... 453,000 1,060,979
-----------
Publishing (1.0%):
Seat Pagine Gialle SpA..................................... 538,000 734,097
-----------
Retail Stores (1.7%):
Autogrill SpA(c)........................................... 114,600 1,177,872
-----------
Telecommunications (0.4%):
Telecom Italia SpA(b)...................................... 24,700 255,161
-----------
4,971,794
-----------
Japan (21.9%):
Chemicals (0.8%):
Taiyo Ink Manufacturing Co. Ltd. .......................... 7,200 572,091
-----------
Computer Software (2.1%):
Fujitsu Ltd.(c)............................................ 55,000 919,549
Nihon Unisys Ltd........................................... 29,000 540,060
-----------
1,459,609
-----------
Computer Software & Services (0.9%):
Japan Digital Laboratory Co. Ltd........................... 27,600 459,162
Obic Co. Ltd............................................... 1,200 186,724
-----------
645,886
-----------
Construction (0.6%):
Tostem Corp................................................ 23,000 442,601
-----------
Cosmetics & Toiletries (3.3%):
Fancl Corp. ............................................... 2,900 343,238
Homac Corp.(c)............................................. 22,000 458,864
</TABLE>
Continued
174
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
International Equity Portfolio May 31, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Common Stocks, continued:
<CAPTION>
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Japan, continued:
Cosmetics & Toiletries, continued:
Jusco Co. Ltd. ............................................ 18,000 $ 341,169
Yamada Denki............................................... 28,000 1,165,701
-----------
2,308,972
-----------
Diversified Operations (0.5%):
Nikon Corp................................................. 27,000 355,322
-----------
Electrical & Electronic (4.9%):
Fujikura Ltd. ............................................. 54,000 261,016
Minebea Co. Ltd.(c)........................................ 50,000 497,434
NEC Corp. ................................................. 60,000 665,454
Rohm Co. Ltd. ............................................. 3,000 393,064
Shinko Electric Industries(c).............................. 15,300 588,851
Sony Corp. ................................................ 2,500 235,060
Tamura Corp.(c)............................................ 82,000 437,759
Yamaichi Electronics Co. Ltd. ............................. 23,000 418,805
-----------
3,497,443
-----------
Entertainment - Television (0.5%):
Avex, Inc.................................................. 3,400 332,064
-----------
Financial Services (2.2%):
Daiwa Securities Co. Ltd. ................................. 135,000 712,879
Shohkoh Fund & Co. Ltd. ................................... 1,500 839,265
-----------
1,552,144
-----------
Pharmaceuticals (0.7%):
Eisai Co. Ltd. ............................................ 27,000 503,931
-----------
Retail Stores (1.8%):
Otsuka Kagu Ltd............................................ 4,200 472,769
Ryohin Keikaku Co. Ltd.(c)................................. 4,000 787,618
-----------
1,260,387
-----------
Telecommunications (3.6%):
DDI Corp.(c)............................................... 100 461,844
Nippon Telegraph & Telephone Corp. ........................ 63 615,295
NTT Mobile Communications Network, Inc..................... 12 656,515
Oki Electric Industry Co. Ltd. ............................ 127,000 441,483
Sumida Electric Co. Ltd.(b)................................ 15,000 384,870
-----------
2,560,007
-----------
15,490,457
-----------
Netherlands (5.5%):
Commercial Services (0.8%):
Randstad Holding NV........................................ 14,050 589,824
-----------
Financial Services (1.5%):
ING Groep NV............................................... 19,590 1,049,757
-----------
Insurance (1.4%):
Aegon NV................................................... 12,600 1,021,016
-----------
Publishing (1.8%):
VNU NV..................................................... 28,500 1,212,829
-----------
3,873,426
-----------
</TABLE>
<TABLE>
<S> <C> <C>
Common Stocks, continued:
<CAPTION>
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Portugal (2.2%):
Commercial Services (1.1%):
Brisa-Auto Estradas de Portugal SA(c)...................... 17,300 $ 784,867
-----------
Insurance (1.1%):
Companhia De Seguros Mundial Confianca SA(b)............... 26,000 749,770
-----------
1,534,637
-----------
Singapore (1.3%):
Financial Services (0.6%):
Oversea-Chinese Banking Corp. Ltd.......................... 52,000 407,027
-----------
Telecommunications (0.7%):
Datacraft Asia Ltd.(b)..................................... 148,000 526,880
-----------
933,907
-----------
Spain (6.0%):
Construction (1.2%):
Grupo Ferrovial SA(b)(c)................................... 39,300 879,360
-----------
Diversified - Holding Companies (1.5%):
Corp Financiera Reunida SA(b).............................. 80,500 1,031,080
-----------
Oil & Gas Exploration, Production, & Services (1.9%):
Repsol SA(b)............................................... 71,100 1,290,565
-----------
Telecommunications (1.4%):
Telefonica SA.............................................. 21,240 1,021,137
-----------
4,222,142
-----------
Sweden (1.3%):
Cosmetics & Toiletries (1.3%):
Hennes & Mauritz AB(b)..................................... 41,600 936,489
-----------
Switzerland (5.5%):
Business Services (1.5%):
Adecco SA - Registered Shares(b)........................... 2,035 1,067,256
-----------
Engineering (1.4%):
ABB AG, Bearer............................................. 675 958,336
-----------
Financial Services (1.1%):
Credit Suisse Group - Registered Shares(b)................. 4,350 756,646
-----------
Health Care - Drugs (1.5%):
Roche Holding AG........................................... 101 1,071,323
-----------
3,853,561
-----------
United Kingdom (15.4%):
Automotive Parts & Equipment (1.5%):
GKN PLC.................................................... 64,000 1,073,161
-----------
Banking (3.0%):
Abbey National PLC......................................... 52,000 1,073,162
Lloyds TSB Group PLC....................................... 74,000 987,101
-----------
2,060,263
-----------
</TABLE>
Continued
175
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
International Equity Portfolio May 31, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Common Stocks, continued:
<CAPTION>
Security Market
Description Shares Value
----------- ------- ------------
<S> <C> <C>
United Kingdom, continued:
Business Services (1.6%):
Reuters Group PLC(b)...................................... 80,000 $ 1,106,874
------------
Defense Engineering (1.0%):
British Aerospace PLC..................................... 109,000 717,381
------------
Electrical & Electronic (1.4%):
Electrocomponents PLC..................................... 118,400 956,629
------------
Financial Services (1.0%):
Electra Investment Trust PLC(b)........................... 60,000 719,116
------------
Insurance (1.7%):
Allied Zurich PLC(b)...................................... 94,000 1,189,120
------------
Pharmaceuticals (1.4%):
Smithkline Beecham PLC(b)................................. 75,500 983,520
------------
Telecommunications (1.3%):
Cable & Wireless Communications PLC(b).................... 99,800 949,867
------------
Transportation & Shipping (1.5%):
Stagecoach Holdings PLC................................... 331,100 1,087,574
------------
10,843,505
------------
United States (2.8%):
Health Care (1.5%):
Elan Corp. PLC, Sponsored ADR(b).......................... 18,500 996,688
------------
Telecommunications (1.3%):
Ericsson LM, Sponsored ADR(b)............................. 34,900 942,300
------------
1,938,988
------------
TOTAL COMMON STOCKS 67,177,777
------------
</TABLE>
<TABLE>
<S> <C> <C>
U.S. Government Agencies (2.6%):
<CAPTION>
Shares
or
Security Principal Market
Description Amount Value
----------- ---------- -----------
<S> <C> <C>
Federal Home Loan Mortgage Corp. (2.6%):
4.90%, 6/1/99......................................... $1,820,000 $ 1,819,761
-----------
TOTAL U.S. GOVERNMENT AGENCIES 1,819,761
-----------
Short-Term Securities Held as Collateral (8.0%):
Investment Companies (8.0%):
BT Institutional Daily Net Asset Fund................. 5,647,070 5,647,070
-----------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL 5,647,070
-----------
TOTAL INVESTMENTS
(Cost $64,108,710)(a)--106.0%................................... 74,644,608
Other assets in excess of liabilities--(6.0%).................... (4,219,289)
-----------
TOTAL NET ASSETS--100.0%......................................... $70,425,319
===========
</TABLE>
- -----
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation...................................... $12,610,136
Unrealized depreciation...................................... (2,074,238)
-----------
Net unrealized appreciation.................................. $10,535,898
===========
</TABLE>
(b) Represents non-income producing securities.
(c) A portion of this security was loaned as of May 31, 1999.
AB Aktiebolag (Swedish Stock Co.)
ADR American Depositary Receipt
AG Aktiengesellschaft (West German Stock Co.)
NV Naamloze Vennootschaap (Dutch Corp.)
PLC Public Limited Company
SA Societe Anonyme (French Corp.)
SpA Societa per Azioni (Italian Corp.)
See notes to financial statements
176
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
International Equity Portfolio
Statement of Assets and Liabilities
May 31, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value
(cost $64,108,710).................................. $74,644,608
Foreign currency, at value
(cost $1,183,305)................................... 1,178,703
Cash................................................. 984
Interest and dividends receivable.................... 92,155
Receivable for investments sold...................... 256,486
Tax reclaim receivable............................... 149,570
Prepaid expenses and other assets.................... 5,677
-----------
Total Assets........................................ 76,328,183
Liabilities:
Payable for investments purchased.................... $ 143,562
Payable for return of collateral received............ 5,647,070
Accrued expenses and other payables:
Investment advisory fees............................ 61,310
Administration fees................................. 965
Distribution and administrative services fees....... 3,563
Custodian fees...................................... 32,755
Other liabilities................................... 13,639
----------
Total Liabilities................................... 5,902,864
-----------
Net Assets:
Capital.............................................. 56,589,172
Distributions in excess of net investment income..... (55,726)
Accumulated net realized gains from investment and
foreign currency transactions....................... 3,355,636
Net unrealized appreciation from investments and
translation of assets and liabilities in foreign
currencies.......................................... 10,536,237
-----------
Net Assets........................................... $70,425,319
===========
Investor A Shares
Net Assets.......................................... $ 2,982,963
Shares.............................................. 230,992
Redemption price per share.......................... $12.91
======
Maximum Sales Charge--Investor A Shares.............. 5.50%
Maximum Offering Price
(100%/(100%--Maximum Sales Charge) of net asset
value adjusted to the nearest cent) per share...... $13.66
======
Investor B Shares
Net Assets.......................................... $ 614,798
Shares.............................................. 48,875
Offering price per share*........................... $12.58
======
Trust Shares
Net Assets.......................................... $58,151,933
Shares.............................................. 4,454,491
Offering and redemption price per share............. $13.05
======
Institutional Shares
Net Assets.......................................... $ 8,675,626
Shares.............................................. 672,918
Offering and redemption price per share............. $12.89
======
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
Statement of Operations
For the period ended May 31, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income.......................................... $ 53,129
Dividend income.......................................... 595,884
Income from securities lending........................... 10,977
Foreign tax withholding.................................. (37,941)
----------
Total Income............................................ 622,049
Expenses:
Investment advisory fees................................. $ 357,819
Administration fees...................................... 71,564
Distribution and services fees, Investor A Shares........ 4,683
Distribution and services fees, Investor B Shares........ 3,090
Administrative services fees, Trust Shares............... 89,007
Administrative services fees, Institutional Shares....... 12,729
Accounting fees.......................................... 518
Custodian fees........................................... 63,921
Transfer agent fees...................................... 8,584
Other.................................................... 16,002
---------
Total expenses before voluntary fee reductions.......... 627,917
Expenses voluntarily reduced............................ (150,565)
----------
Net Expenses............................................ 477,352
----------
Net investment income.................................... 144,697
----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains from investment and foreign currency
transactions............................................ 3,356,046
Net change in unrealized appreciation from investments
and translation of assets and liabilities in foreign
currencies.............................................. (923,174)
----------
Net realized/unrealized gains from investments........... 2,432,872
----------
Change in net assets resulting from operations........... $2,577,569
==========
</TABLE>
See notes to financial statements
177
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
International Equity Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
period ended For the
May 31, year ended
1999 November 30,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................... $ 144,697 $ 207,258
Net realized gains from investment and foreign
currency transactions.............................. 3,356,046 4,276,064
Net change in unrealized appreciation from
investments and translation of assets and
liabilities in foreign currencies.................. (923,174) 5,453,398
----------- -----------
Change in net assets resulting from operations...... 2,577,569 9,936,720
----------- -----------
Distributions to Investor A Shareholders:
From net investment income.......................... (8,342) (563)
In excess of net investment income.................. -- (15,934)
From net realized gains from investment
transactions....................................... (177,698) (102,677)
Distributions to Investor B Shareholders:
In excess of net investment income.................. (654) (1,057)
From net realized gains from investment
transactions....................................... (35,989) (20,585)
Distributions to Trust Shareholders:
From net investment income.......................... (198,790) (329,516)
In excess of net investment income.................. -- (123,727)
From net realized gains from investment
transactions....................................... (3,384,840) (1,964,807)
Distributions to Institutional Shareholders:
From net investment income.......................... (22,108) (4,462)
In excess of net investment income.................. -- (35,224)
From net realized gains from investment
transactions....................................... (458,068) (245,038)
----------- -----------
Change in net assets from shareholder distributions.. (4,286,489) (2,843,590)
----------- -----------
Change in net assets from capital transactions....... (348,342) 137,095
----------- -----------
Change in net assets................................. (2,057,262) 7,230,225
Net Assets:
Beginning of period................................. 72,482,581 65,252,356
----------- -----------
End of period....................................... $70,425,319 $72,482,581
=========== ===========
</TABLE>
See notes to financial statements
178
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
International Equity Portfolio
Statement of Cash Flows
<TABLE>
<CAPTION>
For the
period ended
May 31,
1999
(Unaudited)
-------------
<S> <C>
Cash Flows from Operating Activities:
Net investment income.......................................... $ 144,697
Adjustments to reconcile net investment income to net cash
provided by operating activities:
Cost of investment securities purchased........................ (194,408,803)
Proceeds from disposition of investment securities............. 198,822,180
Increase in investments purchased with cash collateral from
securities lending............................................ (4,789,705)
Decrease in dividends and interest receivable.................. 58,423
Increase in payable for return of collateral received from
securities lending............................................ 4,789,705
Increase in accrued expenses................................... 5,372
Increase in tax reclaim receivable............................. (16,348)
Decrease in amortization expense on organizational costs....... (1,929)
Increase in prepaid expenses................................... (4,411)
Net amortization/accretion from investments.................... 35,949
-------------
Net cash provided by operating activities...................... 4,635,130
-------------
Cash Flows from Financing Activities:
Proceeds from shares issued.................................... 6,451,457
Cost of shares redeemed........................................ (6,800,019)
Cash distributions paid........................................ (4,286,489)
-------------
Net cash used in financing activities.......................... (4,635,051)
-------------
Increase in cash................................................ 79
Cash:
Beginning balance.............................................. 905
-------------
Ending balance................................................. $ 984
=============
</TABLE>
Non-cash financing activities not included herein consist of reinvestment of
dividends from net investment income and distributions of net realized capital
gains of $2,541,318.
See notes to financial statements
179
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
International Equity Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
period ended For the years ended April 4, 1994
May 31, November 30, to
1999 ------------------------------- November 30,
(Unaudited) 1998 1997 1996 1995 1994(a)(b)(c)
------------ ------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $13.27 $11.99 $12.05 $10.76 $ 9.90 $10.00
------ ------ ------ ------ ------ ------
Investment Activities
Net investment income
(loss)................ -- (f) 0.01 (0.02) 0.02 0.02 (0.01)
Net realized and
unrealized gains
(losses) from
investments and
foreign currency...... 0.42 1.77 0.32 1.27 0.86 (0.09)
------ ------ ------ ------ ------ ------
Total from Investment
Activities............ 0.42 1.78 0.30 1.29 0.88 (0.10)
------ ------ ------ ------ ------ ------
Distributions
Net investment income
(loss)................ (0.03) -- -- -- -- --
In excess of net
investment income..... -- (0.07) (0.05) -- -- --
Net realized gains..... (0.75) (0.43) (0.31) -- (0.01) --
Tax return of capital.. -- -- -- -- (0.01) --
------ ------ ------ ------ ------ ------
Total Distributions.... (0.78) (0.50) (0.36) -- (0.02) --
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $12.91 $13.27 $11.99 $12.05 $10.76 $ 9.90
====== ====== ====== ====== ====== ======
Total Return (excludes
sales charge).......... 3.50%(d) 15.33% 2.58% 11.99% 8.89% (1.00)%(d)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $2,983 $3,154 $2,854 $2,573 $1,568 $ 791
Ratio of expenses to
average net assets..... 1.58%(e) 1.58% 1.59% 1.44% 1.45% 1.55%(e)
Ratio of net investment
income to average net
assets................. 0.08%(e) 0.02% (0.20)% 0.19% 0.07% (0.39)%(e)
Ratio of expenses to
average net assets*.... 1.75%(e) 1.75% 1.75% 1.75% 1.76% 1.89%(e)
Portfolio turnover**.... 47.77% 88.95% 75.18% 77.63% 62.78% 21.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) On April 4, 1994, the Portfolio issued a
series of shares which were designated as "Trust" Shares. In addition, on May
2, 1994, the Portfolio issued a new series of shares which were designated as
"Investor" Shares. The financial highlights presented for April 4, 1994 to May
2, 1994 represent financial highlights applicable to the Trust Shares. (c) On
September 27, 1994, the Portfolio redesignated the Investor Shares as
"Investor A" Shares. (d) Not annualized. (e) Annualized. (f) Per share net
investment income was less than $0.005.
Financial Highlights, Investor B Shares
<TABLE>
<CAPTION>
For the
period ended For the years ended March 1, 1995
May 31, November 30, to
1999 ------------------------ November 30,
(Unaudited) 1998 1997 1996 1995(a)
------------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $12.97 $11.77 $11.90 $10.71 $ 9.26
------ ------ ------ ------ ------
Investment Activities
Net investment income
(loss)................ (0.04) (0.09) (0.09) (0.04) (0.03)
Net realized and
unrealized gains
(losses) from
investments and
foreign currency...... 0.41 1.74 0.30 1.23 1.48
------ ------ ------ ------ ------
Total from Investment
Activities............ 0.37 1.65 0.21 1.19 1.45
------ ------ ------ ------ ------
Distributions
Net investment income.. (0.01) -- -- -- --
In excess of net
investment income..... -- (0.02) (0.03) -- --
Net realized gains..... (0.75) (0.43) (0.31) -- --
------ ------ ------ ------ ------
Total Distributions.... (0.76) (0.45) (0.34) -- --
------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $12.58 $12.97 $11.77 $11.90 $10.71
====== ====== ====== ====== ======
Total Return (excludes
redemption charge)..... 3.17%(d) 14.48% 1.82% 11.11% 8.38%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 615 $ 624 $ 562 $ 437 $ 102
Ratio of expenses to
average net assets..... 2.28%(c) 2.28% 2.29% 2.14% 2.02%(c)
Ratio of net investment
income to average net
assets................. (0.63)%(c) (0.70)% (0.91)% (0.50)% (0.96)%(c)
Ratio of expenses to
average net assets*.... 1.45%(c) 2.45% 2.45% 2.46% 2.44%(c)
Portfolio turnover**.... 47.77% 88.95% 75.18% 77.63% 62.78%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Represents total return for the Investor A
Shares from December 1, 1994 to February 28, 1995 plus the total return for
the Investor B Shares from March 1, 1995 to November 30, 1995. (c) Annualized.
(d) Not annualized.
180
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
International Equity Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the
period ended
May 31, For the years ended November 30, April 4, 1994 to
1999 -------------------------------------- November 30,
(Unaudited) 1998 1997 1996 1995 1994(a)
------------ -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 13.40 $ 12.09 $ 12.12 $ 10.79 $ 9.92 $ 10.00
------- -------- -------- -------- -------- -------
Investment Activities
Net investment income.. 0.02 0.04 0.01 0.06 0.03 0.01
Net realized and
unrealized gains
(losses) from
investments and
foreign currency...... 0.42 1.80 0.33 1.27 0.86 (0.09)
------- -------- -------- -------- -------- -------
Total from Investment
Activities............ 0.44 1.84 0.34 1.33 0.89 (0.08)
------- -------- -------- -------- -------- -------
Distributions
Net investment income.. (0.04) (0.03) (0.04) -- -- --
In excess of net
investment income..... -- (0.07) (0.02) -- -- --
Net realized gains..... (0.75) (0.43) (0.31) -- (0.01) --
Tax return of capital.. -- -- -- -- (0.01) --
------- -------- -------- -------- -------- -------
Total Distributions.... (0.79) (0.53) (0.37) -- (0.02) --
------- -------- -------- -------- -------- -------
Net Asset Value, End of
Period................. $ 13.05 $ 13.40 $ 12.09 $ 12.12 $ 10.79 $ 9.92
======= ======== ======== ======== ======== =======
Total Return............ 3.63%(b) 15.73% 2.91% 12.33% 8.97% (0.80)%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $58,152 $ 60,647 $ 55,038 $ 52,181 $ 36,096 $23,746
Ratio of expenses to
average net assets..... 1.28%(c) 1.28% 1.29% 1.14% 1.16% 1.23%(c)
Ratio of net investment
income to average net
assets................. 0.38%(c) 0.34% 0.09% 0.51% 0.39% 0.23%(c)
Ratio of expenses to
average net assets*.... 1.75%(c) 1.75% 1.75% 1.45% 1.46% 1.95%(c)
Portfolio turnover**.... 47.77% 88.95% 75.18% 77.63% 62.78% 21.00%
</TABLE>
*During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
**Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(a) Period from commencement of operations. (b) Not annualized. (c)
Annualized.
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
For the
period ended
May 31, For the years ended November 30, April 4, 1994 to
1999 --------------------------------------- November 30,
(Unaudited) 1998 1997 1996 1995 1994(a)
------------ -------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $13.25 $ 11.97 $ 12.03 $ 10.75 $ 9.90 $10.00
------ -------- -------- -------- -------- ------
Investment Activities
Net investment income.. 0.01 -- (0.03) 0.01 0.01 (0.01)
Net realized and
unrealized gains
(losses) from
investments and
foreign currency...... 0.41 1.78 0.33 1.27 0.86 (0.09)
------ -------- -------- -------- -------- ------
Total from Investment
Activities............ 0.42 1.78 0.30 1.28 0.87 (0.10)
------ -------- -------- -------- -------- ------
Distributions
Net investment income.. (0.03) (0.01) -- -- -- --
In excess of net
investment income..... -- (0.06) (0.05) -- -- --
Net realized gains..... (0.75) (0.43) (0.31) -- (0.01) --
Tax return of capital.. -- -- -- -- (0.01) --
------ -------- -------- -------- -------- ------
Total Distributions.... (0.78) (0.50) (0.36) -- (0.02) --
------ -------- -------- -------- -------- ------
Net Asset Value, End of
Period................. $12.89 $ 13.25 $ 11.97 $ 12.03 $ 10.75 $ 9.90
====== ======== ======== ======== ======== ======
Total Return............ 3.51%(b) 15.37% 2.59% 11.91% 8.78% (1.00)%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $8,676 $ 8,058 $ 6,798 $ 6,059 $ 2,159 $ 197
Ratio of expenses to
average net assets..... 1.58%(c) 1.58% 1.59% 1.44% 1.44% 1.70%(c)
Ratio of net investment
income to average net
assets................. 0.10%(c) 0.01% (0.21)% 0.16% 0.13% (0.48)%(c)
Ratio of expenses to
average net assets*.... 1.75%(c) 1.75% 1.75% 1.76% 1.75% 2.17%(c)
Portfolio turnover**.... 47.77% 88.95% 75.18% 77.63% 62.78% 21.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
(a) On April 24, 1994, the Portfolio issued a new series of shares which were
designated as "Institutional" Shares. The financial highlights presented for
April 4, 1994 to April 24, 1994 represent financial highlights applicable to
the Trust Shares. (b) Not annualized. (c) Annualized.
181
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements
May 31, 1999
(Unaudited)
1.Organization
Mercantile Mutual Funds, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. As of May 31, 1999, the Fund offered shares
in nineteen investment portfolios, including the Treasury Money Market,
Money Market, Tax-Exempt Money Market, U.S. Government Securities,
Intermediate Corporate Bond, Bond Index, Government & Corporate Bond, Short-
Intermediate Municipal, Missouri Tax-Exempt Bond, National Municipal Bond,
Balanced, Equity Income, Equity Index, Growth & Income Equity, Growth
Equity, Small Cap Equity, Small Cap Equity Index, International Equity
Portfolios (referred to individually as a "Portfolio" and collectively as
the "Portfolios") and Conning Money Market Portfolio (under separate cover).
The Fund, which was formerly known as The ARCH Fund, Inc., was organized as
a Maryland corporation on September 9, 1982.
The Portfolios' investment objectives are as follows:
Treasury Money Market Portfolio -- To seek a high level of current income
exempt from state income tax consistent with liquidity and security of
principal. In pursuing its investment objective, the Portfolio invests in
selected money market obligations issued by the U.S. Government (or its
agencies and instrumentalities) that are guaranteed as to principal and
interest by the U.S. Government.
Money Market Portfolio -- To seek current income with liquidity and
stability of principal. In pursuing its investment objective, the Portfolio
invests substantially all of its assets in a broad range of money market
instruments.
Tax-Exempt Money Market Portfolio -- To seek as high a level of current
interest income exempt from federal income tax as is consistent with
liquidity and stability of principal. The Portfolio invests substantially
all of its assets in short-term obligations issued by or on behalf of
states, territories and possessions of the United States, the District of
Columbia and their respective political subdivisions, agencies,
instrumentalities and authorities ("Municipal Obligations").
U.S. Government Securities Portfolio -- To seek a high rate of current
income that is consistent with relative stability of principal. In pursuing
its investment objective, the Portfolio invests in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities
normally having remaining maturities of 1 to 30 years and repurchase
agreements relating to such obligations.
Intermediate Corporate Bond Portfolio -- To seek as high a level of current
income as is consistent with preservation of capital. In pursuing its
investment objective, the Portfolio normally invests at least 65% of its
total assets in non-convertible corporate debt obligations. Under normal
market conditions, the Portfolio's average weighted maturity will be between
three and ten years.
Bond Index Portfolio -- To seek to provide investment results that, before
deduction of operating expenses, approximate the price and yield performance
of U.S. Government, mortgage-backed, asset-backed and corporate debt
securities as represented by the Lehman Brothers Aggregate Bond Index (the
"Lehman Aggregate"). The Portfolio will invest substantially all of its
assets in securities listed in the Lehman Aggregate.
Government & Corporate Bond Portfolio -- To seek the highest level of
current income consistent with conservation of capital. In pursuing its
investment objective, the Portfolio normally invests substantially all of
its assets in a broad range of investment grade debt securities, including
bonds, notes, debentures and securities convertible into or exchangeable for
common stock.
Short-Intermediate Municipal Portfolio -- To seek as high a level of current
income, exempt from regular federal income tax, as is consistent with
preservation of capital. The Portfolio seeks to achieve its objective by
investing substantially all of its assets in investment grade Municipal
Obligations. Under normal market conditions, the Portfolio's average
weighted maturity will be between two and five years.
Missouri Tax-Exempt Bond Portfolio -- To seek as high a level of interest
income exempt from federal income tax as is consistent with conservation of
capital. In pursuing its investment objective, the Portfolio invests
substantially all of its assets in investment grade Missouri Municipal
Obligations, that are also exempt, to the extent possible, from Missouri
income tax.
National Municipal Bond Portfolio -- To seek as high a level of current
income exempt from federal income tax as is consistent with conservation of
capital. In pursuing its investment objective, the Portfolio normally
invests substantially all of its assets in investment grade Municipal
Obligations.
Continued
182
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
May 31, 1999
(Unaudited)
Balanced Portfolio -- To maximize total return through a combination of
growth of capital and current income consistent with the preservation of
capital. The Portfolio seeks to achieve its objective by using a disciplined
approach of allocating assets primarily among three major asset groups, i.e.
equity securities, fixed income securities and cash equivalents.
Equity Income Portfolio -- To seek to provide an above-average level of
income consistent with long-term capital appreciation. In pursuing its
investment objective, the Portfolio normally invests substantially all of
its assets in common stock, preferred stock, rights, warrants, and
securities convertible into common stock.
Equity Index Portfolio -- To seek to provide investment results that, before
the deduction of operating expenses, approximate the price and yield
performance of U.S. publicly traded common stocks with large stock market
capitalizations, as represented by the Standard & Poor's 500 Composite Stock
Price Index (the "S&P 500"). The Portfolio will invest substantially all of
its assets in securities listed in the S&P 500.
Growth & Income Equity Portfolio -- To provide long-term capital growth,
with income a secondary consideration. In pursuing its investment objective,
the Portfolio normally invests substantially all of its assets in common
stock, preferred stock, rights, warrants and securities convertible into
common stock.
Growth Equity Portfolio -- To seek capital appreciation. In pursuing its
investment objective, the Portfolio invests primarily in equity securities
of companies selected on the basis of assessment of earnings and the risk
and volatility of each company's business.
Small Cap Equity Portfolio -- To seek capital appreciation. Current income
is an incidental consideration in the selection of portfolio securities. In
pursuing its investment objective, the Portfolio normally invests at least
65% of its total assets in common stock of emerging or established small- to
medium-sized companies with above-average potential for price appreciation.
Small Cap Equity Index Portfolio -- To seek to provide investment results
that, before the deduction of operating expenses, approximate the price and
yield performance of U.S. common stocks with smaller stock market
capitalizations, as represented by the S&P SmallCap 600 Index. The Portfolio
will invest substantially all of its assets in securities listed in the S&P
SmallCap 600 Index.
International Equity Portfolio -- To provide capital growth consistent with
reasonable investment risk. The Portfolio seeks to achieve this objective by
investing principally in foreign equity securities, most of which will be
denominated in foreign currencies.
2.Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses for
the period. Actual results could differ from these estimates.
Securities valuation:
The securities of the Treasury Money Market, Money Market and Tax-Exempt
Money Market Portfolios(collectively, "the money market portfolios") are
valued at amortized cost. Amortized cost valuation involves valuing an
instrument at its cost initially and, thereafter, assuming a constant
amortization to maturity of any discount or premium, regardless of the
effect of fluctuating interest rates on the market value of the instrument.
The securities of the U.S. Government Securities, Intermediate Corporate
Bond, Bond Index, Government & Corporate Bond, Short-Intermediate Municipal,
Missouri Tax-Exempt Bond, National Municipal Bond, Balanced, Equity Income,
Equity Index, Growth & Income Equity, Growth Equity, Small Cap Equity, Small
Cap Equity Index and International Equity Portfolios (collectively, "the
variable net asset value portfolios") that are traded on a recognized
exchange are valued at the last sale price on the national securities
market. Securities traded only on over-the-counter markets are valued on the
basis of market value when available. Securities for which there were no
transactions are valued at the mean of the most recent bid and asked prices.
Securities maturing in 60 days or less are valued at amortized cost.
Securities, including restricted securities, for which market quotations are
not readily available, are valued at fair market value by the investment
adviser (or the sub-investment adviser) in accordance with guidelines
approved by the Fund's Board of Directors. Quotations of foreign securities
in foreign currency are converted to the U.S. dollar equivalent at the
prevailing
Continued
183
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
May 31, 1999
(Unaudited)
exchange rate on the date of conversion. Investments in investment companies
are valued at their respective net asset values as reported by such
companies. The differences between cost and market values of the investments
of the variable net asset value portfolios are reflected as unrealized
appreciation or depreciation.
Repurchase agreements:
The Portfolios may engage in repurchase agreement transactions. Under the
terms of a typical repurchase agreement, a Portfolio takes possession of
collateral subject to an obligation of the seller to repurchase, and the
Portfolio to resell, the obligation at an agreed upon price and time,
thereby determining the yield during the Portfolio's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Portfolio's holding period. The value of the
collateral exceeds at all times the total amount of the repurchase
obligation, including accrued interest. In the event of counterparty
default, the Portfolio has the right to use the collateral to offset losses
incurred. There is potential for loss to the Portfolio in the event the
Portfolio is delayed or prevented from exercising its rights to dispose of
the collateral securities, including the risk of a possible decline in the
value of the underlying securities during the period while the Portfolio
seeks to assert its rights. The Portfolios' investment adviser (or the sub-
investment advise), acting under the supervision of the Board of Directors,
reviews the value of the collateral and the creditworthiness of those banks
and dealers with which the Portfolios enter into repurchase agreements to
evaluate potential risks.
Securities transactions and investment income:
Securities transactions are recorded on the trade date. Realized gains and
losses on investments sold are recorded on the identified cost basis.
Interest income, including accretion of discount and amortization of premium
on investments (where applicable), is accrued on a daily basis. Dividend
income is recorded on the ex-dividend date. Realized and unrealized gains
and losses are allocated based upon the relative net assets of each class of
shares.
Foreign currency translation:
The market value of investment securities and other assets and liabilities
of the Equity Index, Growth Equity and International Equity Portfolios
denominated in a foreign currency are translated into U.S. dollars at the
current exchange rate. Purchases and sales of securities, income receipts
and expense payments are translated into U.S. dollars at the exchange rate
on the dates of the transactions.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of foreign securities, sales of foreign currencies, currency
exchange fluctuations between the trade and settlement dates on securities
transactions, and the difference between the amount of assets and
liabilities recorded and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains and losses arise
from changes in the value of assets and liabilities, including investments
in securities, resulting from changes in exchange rates.
Risks associated with foreign securities and currencies:
Investments in securities of foreign issuers carry certain risks not
ordinarily associated with investments in securities of domestic issuers.
Such risks include future political and economic developments, and the
possible imposition of exchange controls or other foreign governmental laws
and restrictions. In addition, with respect to certain countries, there is
the possibility of expropriation of assets, confiscatory taxation, political
or social instability or diplomatic developments which could adversely
affect investments in those countries.
Certain countries may also impose substantial restrictions on investments in
their capital markets by foreign entities, including restrictions on
investments in issuers of industries deemed sensitive to relevant national
interests. These factors may limit the investment opportunities available to
the Equity Index, Growth Equity and International Equity Portfolios or
result in a lack of liquidity and high price volatility with respect to
securities of issuers from developing countries.
Foreign currency exchange contracts:
The International Equity Portfolio may enter into forward foreign currency
exchange contracts ("forwards"). A forward is an agreement between two
parties to buy and sell a currency at a set price on a future date. The
market value of the forward fluctuates with changes in currency exchange
rates. The forward is marked-to-market daily and the change in market value
is recorded by the Portfolio as unrealized appreciation or depreciation.
When the forward is closed, the Portfolio records a realized gain or loss
equal to the fluctuation in value during the period the forward was opened.
The Portfolio could be exposed to risk if a counterparty is unable to meet
the terms of a forward or if the value of the currency changes unfavorably.
The International Equity Portfolio may buy and sell securities denominated
in currencies other than the U.S. dollar, and receive interest, dividends
and sale proceeds in currencies other than the U.S. dollar. The Portfolio
may from time to time enter into
Continued
184
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
May 31, 1999
(Unaudited)
foreign currency exchange transactions to convert to and from different
foreign currencies and to convert foreign currencies to and from the U.S.
dollar. The Portfolio may enter into currency exchange transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or use forward currency contracts to purchase or sell
foreign currencies. Losses may arise from changes in the value of the
foreign currency or if the counterparties do not perform under the
contracts' terms.
Securities lending:
To increase return, the Treasury Money Market, Money Market, U.S. Government
Securities, Intermediate Corporate Bond, Bond Index, Government & Corporate
Bond, Short-Intermediate Municipal, National Municipal Bond, Balanced,
Equity Income, Equity Index, Growth & Income Equity, Growth Equity, Small
Cap Equity, Small Cap Equity Index and International Equity Portfolios may,
from time to time, lend portfolio securities to broker-dealers, banks or
institutional borrowers of securities pursuant to agreements requiring that
the loans be continuously secured by collateral equal in value to at least
the market value of the securities loaned. Collateral for such loans may
include cash, securities of the U.S. Government, or its agencies or
instrumentalities, irrevocable letters of credit, or any combination
thereof. The collateral must be valued daily and, should the market value of
the loaned securities increase, the borrower must furnish additional
collateral to the lending Portfolio. By lending its securities, a Portfolio
can increase its income by continuing to receive interest or dividends on
the loaned securities as well as either investing the cash collateral in
short-term instruments or obtaining yield in the form of interest paid by
the borrower when non-cash collateral, such as U.S. Government securities,
are held by the Portfolio. Loans are subject to termination by the Portfolio
or the borrower at any time. The risks to the Portfolios of lending
securities are that the borrower may fail to provide additional collateral
when required, or fail to return the borrowed securities when due. In
addition, if cash collateral invested by a Portfolio is less than the amount
required to be returned to the borrower as a result of a decrease in the
value of the cash collateral investments, the Portfolio must compensate the
borrower for the deficiency. At May 31, 1999, the following Portfolios had
securities with the following market values on loan:
<TABLE>
<CAPTION>
Market Value of Market Value of
Portfolio Collateral Loaned Securities
--------- --------------- -----------------
<S> <C> <C>
U.S. Government Securities Portfolio...... $15,040,896 $14,626,885
Intermediate Corporate Bond Portfolio..... 2,377,612 2,326,839
Bond Index Portfolio...................... 65,720,780 64,361,870
Government & Corporate Bond Portfolio..... 49,927,536 48,814,643
Balanced Portfolio........................ 21,931,780 21,439,093
Equity Income Portfolio................... 3,082,500 3,065,712
Equity Index Portfolio.................... 1,396,710 1,376,292
Growth & Income Equity Portfolio.......... 23,617,700 22,797,188
Growth Equity Portfolio................... 3,808,000 3,708,894
Small Cap Equity Portfolio................ 18,629,800 17,913,065
International Equity Portfolio............ 5,647,070 5,411,816
</TABLE>
The loaned securities were fully collateralized by cash and U.S. Government
securities.
Dividends and distributions to shareholders:
Dividends on each share of the Portfolios are determined in the same manner,
irrespective of class, except that shares of each class may bear separate
fees under either a Distribution and Services Plan or an Administrative
Services Plan adopted for that class and enjoy certain exclusive voting
rights on matters relating to these fees. It is the policy of the Treasury
Money Market, Money Market, Tax-Exempt Money Market, U.S. Government
Securities, Intermediate Corporate Bond, Bond Index, Government & Corporate
Bond, Short-Intermediate Municipal, Missouri Tax-Exempt Bond and National
Municipal Bond Portfolios to declare dividends daily from net investment
income and to pay such dividends no later than five business days after the
end of each month. Net investment income for the Balanced, Equity Income,
Equity Index, Growth & Income Equity and Growth Equity Portfolios is
declared and paid monthly as a dividend to shareholders of record. The Small
Cap Equity, Small Cap Equity Index and International Equity Portfolios
declare and pay dividends from net investment income quarterly. Net realized
capital gains for each Portfolio, if any, are distributed at least annually.
Additional distributions of net investment income and capital gains may be
made at the discretion of the Board of Directors in order to comply with
certain distibution requirements of the Internal Revenue Code.
Distributions from net investment income and from net realized capital gains
are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either
Continued
185
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
May 31, 1999
(Unaudited)
considered temporary or permanent in nature. To the extent these differences
are permanent in nature, such amounts are reclassified within the
composition of net assets based on their federal tax-basis treatment;
temporary differences do not require reclassification. Distributions to
shareholders which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as distributions in excess of net investment income or net realized gains.
To the extent they exceed net investment income and net realized gains for
tax purposes, they are reported as distributions of capital.
Federal income taxes:
It is the policy of each of the Portfolios to qualify or to continue to
qualify as a regulated investment company by complying with the provisions
available to registered investment companies, as defined in applicable
sections of the Internal Revenue Code, and to make distributions of net
investment income and net realized capital gains sufficient to relieve it
from all, or substantially all, federal income taxes.
Organization costs:
The Portfolios bear all costs in connection with their organization,
including the fees and expenses of registering and qualifying shares for
distribution under federal and state securities laws. All such costs are
amortized using the straight-line method over a period of five years from
the date each Portfolio commenced operations: from February 10, 1997 for the
Intermediate Corporate Bond Portfolio and the Bond Index Portfolio, from
November 18, 1996 for the National Municipal Bond Portfolio, from February
27, 1997 for the Equity Income Portfolio, and from May 1, 1997 for the
Equity Index Portfolio. As of May 31, 1999, all costs were fully amortized
for the Treasury Money Market, Money Market, Tax-Exempt Money Market, U.S.
Government Securities, Government & Corporate Bond, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond, Balanced, Growth & Income Equity,
Growth Equity, Small Cap Equity and International Equity Portfolios.
Other:
Operating expenses of the Fund not directly attributable to a Portfolio or
to any class of shares of a Portfolio are prorated among the Portfolios
based on the relative net assets of each Portfolio or another appropriate
basis. Operating expenses directly attributable to a Portfolio or class are
charged directly to that Portfolio's or class' operations. Fees paid under
either a Distribution and Services Plan or an Administrative Services Plan
are borne by the specific class of shares to which such a Plan applies.
3.Shares of Common Stock
The Fund is authorized to issue five classes of shares in each Portfolio
(except as noted): Investor A Shares, Investor B Shares (except the Treasury
Money Market, Tax-Exempt Money Market, Intermediate Corporate Bond, Bond
Index, Short-Intermediate Municipal, Equity Index and Small Cap Equity Index
Portfolios), Trust Shares, Institutional Shares (except the Tax-Exempt Money
Market, Short-Intermediate Municipal, Missouri Tax-Exempt Bond and National
Municipal Bond), and Trust II Shares (except the U.S. Government Securities,
Intermediate Corporate Bond, Bond Index, Government & Corporate Bond, Short-
Intermediate Municipal, Missouri Tax-Exempt Bond, National Municipal Bond,
Balanced, Equity Income, Equity Index, Growth & Income Equity, Growth
Equity, Small Cap Equity, Small Cap Equity Index and International Equity
Portfolios). Investor A Shares of the variable net asset value portfolios
are sold with front-end sales charges. Investor B Shares of the variable net
asset value portfolios and the Money Market Portfolio may be subject to
contingent deferred sales charges ("CDSC") on redemption based on the lesser
of the net asset value of the shares on the redemption date or the original
cost of the shares redeemed. The following table sets forth the time
schedule of redemptions of Investor B Shares subject to CDSC:
<TABLE>
<CAPTION>
CDSC
(percentage of dollar
Number of Years amount subject
Elapsed Since Purchase to the charge)
---------------------- ---------------------
<S> <C>
One or less............................................ 5.0%
More than one, but less than two....................... 4.0%
Two, but less than three............................... 3.0%
Three, but less than four.............................. 3.0%
Four, but less than five............................... 2.0%
Five, and up to and including six...................... 1.0%
More than six.......................................... None
</TABLE>
Investor B Shares of the Money Market Portfolio are available for purchase
only by those investors participating in the Mercantile Asset Advisor
Program or through exchanges of Investor B Shares of the variable net asset
value portfolios.
Continued
186
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
May 31, 1999
(Unaudited)
Each class of shares in a Portfolio has identical rights and privileges
except with respect to the fees that may be paid by a class under either a
Distribution and Services Plan or an Administrative Services Plan, expenses
allocable exclusively to each class of shares, voting rights on matters
affecting a single class of shares, the exchange privilege of each class of
shares, and the automatic conversion of Investor B Shares of a Portfolio
into Investor A Shares of that Portfolio eight years after purchase.
4.Capital Share Transactions
As of May 31, 1999, the Fund's Articles of Incorporation authorize the Board
of Directors, in its discretion, to issue up to twenty billion full and
fractional shares of capital stock, $.001 par value per share, and to
classify or reclassify any unissued shares of the Fund into one or more
additional classes.
Continued
187
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
May 31, 1999
(Unaudited)
Transactions in portfolio shares of the Fund were as follows:
<TABLE>
<CAPTION>
Treasury Money Market Money Market
Portfolio Portfolio
------------------------------ --------------------------------
For the For the
period ended For the period ended For the
May 31, year ended May 31, year ended
1999 November 30, 1999 November 30,
(Unaudited) 1998 (Unaudited) 1998
------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued................ $ 14,482,274 $ 48,161,504 $ 176,834,416 $ 369,131,165
Dividends reinvested... 441,001 585,498 4,760,298 8,108,346
Cost of shares
redeemed.............. (18,866,940) (31,490,665) (112,835,418) (338,433,452)
------------- --------------- --------------- ---------------
Investor A capital
transactions.......... $ (3,943,665) $ 17,256,337 $ 68,759,296 $ 38,806,059
------------- --------------- --------------- ---------------
Investor B Shares:
Proceeds from shares
issued................ $ -- $ -- $ 17,728 $ 28,315
Dividends reinvested... -- -- 1,374 2,973
Cost of shares
redeemed.............. -- -- (36,945) (19,653)
------------- --------------- --------------- ---------------
Investor B capital
transactions.......... $ -- $ -- $ (17,843) $ 11,635
------------- --------------- --------------- ---------------
Trust Shares:
Proceeds from shares
issued................ $ 562,783,845 $ 1,122,533,053 $ 1,212,747,800 $ 4,791,160,032
Dividends reinvested... 2,273,209 3,790,157 15,113,812 23,556,177
Cost of shares
redeemed.............. (614,486,374) (1,089,996,912) (1,393,723,998) (4,484,663,869)
Cost of shares
exchanged to Trust II
Class................. -- (74,019,033) -- (551,280,807)
------------- --------------- --------------- ---------------
Trust capital
transactions.......... $ (49,429,320) $ (37,692,735) $ (165,862,386) $ (221,228,467)
------------- --------------- --------------- ---------------
Institutional Shares:
Proceeds from shares
issued................ $ 137,467 $ 104,256 $ 80,996,482 $ 103,979,653
Dividends reinvested... -- -- 71,494 90,233
Cost of shares
redeemed.............. (208,900) (100,839) (74,189,231) (97,556,608)
------------- --------------- --------------- ---------------
Institutional capital
transactions.......... $ (71,433) $ 3,417 $ 6,878,745 $ 6,513,278
------------- --------------- --------------- ---------------
Trust II Shares:
Proceeds from shares
issued................ $ 193,397,093 $ 14,518,252 $ 957,516,101 $ 34,554,346
Proceeds from shares
exchanged from Trust
Class................. -- 74,019,033 -- 551,280,807
Cost of shares
redeemed.............. (161,719,566) (11,538,744) (820,434,088) (95,815,233)
------------- --------------- --------------- ---------------
Trust II capital
transactions.......... $ 31,677,527 $ 76,998,541 $ 137,082,013 $ 490,019,920
------------- --------------- --------------- ---------------
Total net increase from
capital transactions... $ (21,766,891) $ 56,565,560 $ 46,839,825 $ 314,122,425
============= =============== =============== ===============
SHARE TRANSACTIONS:
Investor A Shares:
Issued................. 14,482,273 48,161,504 176,834,418 369,131,165
Reinvested............. 441,001 585,498 4,760,298 8,108,346
Redeemed............... (18,866,940) (31,490,665) (112,835,418) (338,433,452)
------------- --------------- --------------- ---------------
Change in Investor A
Shares................ (3,943,666) 17,256,337 68,759,298 38,806,059
------------- --------------- --------------- ---------------
Investor B Shares:
Issued................. -- -- 17,728 28,315
Reinvested............. -- -- 1,374 2,973
Redeemed............... -- -- (36,945) (19,653)
------------- --------------- --------------- ---------------
Change in Investor B
Shares................ -- -- (17,843) 11,635
------------- --------------- --------------- ---------------
Trust Shares:
Issued................. 562,783,844 1,122,533,053 1,212,747,800 4,791,160,032
Reinvested............. 2,273,209 3,790,157 15,113,812 23,556,177
Redeemed............... (614,486,374) (1,089,996,912) (1,393,723,998) (4,484,663,869)
Exchanged to Trust II.. -- (74,019,033) -- (551,280,807)
------------- --------------- --------------- ---------------
Change in Trust
Shares................ (49,429,321) (37,692,735) (165,862,386) (221,228,467)
------------- --------------- --------------- ---------------
Institutional Shares:
Issued................. 137,466 104,256 80,996,482 103,979,653
Reinvested............. -- -- 71,494 90,233
Redeemed............... (208,900) (100,839) (74,189,231) (97,556,608)
------------- --------------- --------------- ---------------
Change in Institutional
Shares................ (71,434) 3,417 6,878,745 6,513,278
------------- --------------- --------------- ---------------
Trust II Shares:
Issued................. 193,397,094 14,518,252 957,516,101 34,554,346
Exchanged from Trust... -- 74,019,033 -- 551,280,807
Redeemed............... (161,719,566) (11,538,744) (820,434,088) (95,815,233)
------------- --------------- --------------- ---------------
Change in Trust II
Shares................ 31,677,528 76,998,541 137,082,013 490,019,920
------------- --------------- --------------- ---------------
Total net increase from
share transactions..... (21,766,893) 56,565,560 46,839,827 314,122,425
============= =============== =============== ===============
</TABLE>
Continued
188
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
May 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Tax-Exempt Money Market U.S. Government Securities
Portfolio Portfolio
---------------------------- ----------------------------
For the For the
period ended For the period ended For the
May 31, year ended May 31, year ended
1999 November 30, 1999 November 30,
(Unaudited) 1998 (Unaudited) 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued................ $ 12,432,195 $ 12,090,297 $ 1,059,590 $ 598,045
Dividends reinvested... 148,544 377,754 98,648 216,677
Cost of shares
redeemed.............. (13,000,307) (14,276,326) (497,307) (1,384,902)
------------- ------------- ------------ -------------
Investor A capital
transactions.......... $ (419,568) $ (1,808,275) $ 660,931 $ (570,180)
------------- ------------- ------------ -------------
Investor B Shares:
Proceeds from shares
issued................ $ -- $ -- $ 136,752 $ 86,346
Dividends reinvested... -- -- 3,892 13,439
Cost of shares
redeemed.............. -- -- (13,676) (420,240)
------------- ------------- ------------ -------------
Investor B capital
transactions.......... $ -- $ -- $ 126,968 $ (320,455)
------------- ------------- ------------ -------------
Trust Shares:
Proceeds from shares
issued................ $ 54,794,416 $ 464,895,774 $ 18,562,475 $ 30,579,477
Dividends reinvested... 368,392 594,675 940,862 2,016,378
Cost of shares
redeemed.............. (56,889,396) (449,390,916) (9,981,906) (12,702,582)
Cost of shares
exchanged to Trust II
Class................. -- (122,075,517) -- --
------------- ------------- ------------ -------------
Trust capital
transactions.......... $ (1,726,588) $(105,975,984) $ 9,521,431 $ 19,893,273
------------- ------------- ------------ -------------
Institutional Shares:
Proceeds from shares
issued................ $ -- $ -- $ 702,529 $ 914,079
Dividends reinvested... -- -- 149,201 350,232
Cost of shares
redeemed.............. -- -- (1,547,049) (2,247,540)
------------- ------------- ------------ -------------
Institutional capital
transactions.......... $ -- $ -- $ (695,319) $ (983,229)
------------- ------------- ------------ -------------
Trust II Shares:
Proceeds from shares
issued................ $ 130,307,370 $ 7,223,254 $ -- $ --
Proceeds from shares
exchanged from Trust
Class................. -- 122,075,517 -- --
Cost of shares
redeemed.............. (124,463,193) (7,188,947) -- --
------------- ------------- ------------ -------------
Trust II capital
transactions.......... $ 5,844,177 $ 122,109,824 $ -- $ --
------------- ------------- ------------ -------------
Total net increase from
capital transactions... $ 3,698,021 $ 14,325,565 $ 9,614,011 $ 18,019,409
============= ============= ============ =============
SHARE TRANSACTIONS:
Investor A Shares:
Issued 12,432,196 12,090,297 99,618 55,916
Reinvested............. 148,544 377,754 9,240 20,307
Redeemed............... (13,000,307) (14,276,326) (46,651) (130,027)
------------- ------------- ------------ -------------
Change in Investor A
Shares................ (419,567) (1,808,275) 62,207 (53,804)
------------- ------------- ------------ -------------
Investor B Shares:
Issued................. -- -- 12,828 8,112
Reinvested............. -- -- 365 1,262
Redeemed............... -- -- (1,275) (39,439)
------------- ------------- ------------ -------------
Change in Investor B
Shares................ -- -- 11,918 (30,065)
------------- ------------- ------------ -------------
Trust Shares:
Issued................. 54,794,415 464,895,774 1,754,333 2,865,536
Reinvested............. 368,392 594,675 88,122 188,932
Redeemed............... (56,889,396) (449,390,916) (935,289) (1,185,489)
Exchanged to Trust II.. -- (122,075,517) -- --
------------- ------------- ------------ -------------
Change in Trust
Shares................ (1,726,589) (105,975,984) 907,166 1,868,979
------------- ------------- ------------ -------------
Institutional Shares:
Issued................. -- -- 66,189 85,774
Reinvested............. -- -- 14,022 32,938
Redeemed............... -- -- (145,526) (211,334)
------------- ------------- ------------ -------------
Change in Institutional
Shares................ -- -- (65,315) (92,622)
------------- ------------- ------------ -------------
Trust II Shares:
Issued................. 130,307,370 7,223,254 -- --
Exchanged from Trust... -- 122,075,517 -- --
Redeemed............... (124,463,193) (7,188,947) -- --
------------- ------------- ------------ -------------
Change in Trust II
Shares................ 5,844,177 122,109,824 -- --
------------- ------------- ------------ -------------
Total net increase from
share transactions..... 3,698,021 14,325,565 915,976 1,692,488
============= ============= ============ =============
</TABLE>
Continued
189
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
May 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Intermediate Corporate Bond Index
Bond Portfolio Portfolio
-------------------------- --------------------------
For the For the
period ended For the period ended For the
May 31, year ended May 31, year ended
1999 November 30, 1999 November 30,
(Unaudited) 1998 (Unaudited) 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued................ $ 274,784 $ 126,081 $ 1,526,613 $ 364,368
Dividends reinvested... 8,758 8,954 11,044 1,014
Cost of shares
redeemed.............. (120,478) (131,756) (370,919) (62,757)
----------- ----------- ----------- -----------
Investor A capital
transactions.......... $ 163,064 $ 3,279 $ 1,166,738 $ 302,625
----------- ----------- ----------- -----------
Trust Shares:
Proceeds from shares
issued................ $14,607,591 $15,273,048 $31,802,263 $43,217,137
Dividends reinvested... 154,447 226,772 191,448 194,002
Cost of shares
redeemed.............. (3,207,714) (5,668,388) (8,391,530) (16,708,602)
----------- ----------- ----------- -----------
Trust capital
transactions.......... $11,554,324 $ 9,831,432 $23,602,181 $26,702,537
----------- ----------- ----------- -----------
Institutional Shares:
Proceeds from shares
issued................ $ -- $ 1,037,580 $16,726,616 $ 7,831,631
Dividends reinvested... 32,283 31,339 450,734 217,713
Cost of shares
redeemed.............. (57,117) -- (1,576,830) (1,189,468)
----------- ----------- ----------- -----------
Institutional capital
transactions.......... $ (24,834) $ 1,068,919 $15,600,520 $ 6,859,876
----------- ----------- ----------- -----------
Total net increase from
capital transactions... $11,692,554 $10,903,630 $40,369,439 $33,865,038
=========== =========== =========== ===========
SHARE TRANSACTIONS:
Investor A Shares:
Issued................. 26,916 12,264 148,696 35,481
Reinvested............. 863 883 1,082 98
Redeemed............... (11,735) (12,956) (36,408) (6,103)
----------- ----------- ----------- -----------
Change in Investor A
Shares................ 16,044 191 113,370 29,476
----------- ----------- ----------- -----------
Trust Shares:
Issued................. 1,452,474 1,515,729 3,123,511 4,219,358
Reinvested............. 15,245 22,405 18,667 18,881
Redeemed............... (318,795) (559,371) (820,757) (1,627,721)
----------- ----------- ----------- -----------
Change in Trust
Shares................ 1,148,924 978,763 2,321,421 2,610,518
----------- ----------- ----------- -----------
Institutional Shares:
Issued................. -- 103,447 1,621,846 765,633
Reinvested............. 3,178 3,075 44,032 21,111
Redeemed............... (5,628) -- (153,146) (116,316)
----------- ----------- ----------- -----------
Change in Institutional
Shares................ (2,450) 106,522 1,512,732 670,428
----------- ----------- ----------- -----------
Total net increase from
share transactions..... 1,162,518 1,085,476 3,947,523 3,310,422
=========== =========== =========== ===========
</TABLE>
Continued
190
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
May 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Government & Corporate Short-Intermediate
Bond Portfolio Municipal Portfolio
-------------------------- --------------------------
For the For the
period ended For the period ended For the
May 31, year ended May 31, year ended
1999 November 30, 1999 November 30,
(Unaudited) 1998 (Unaudited) 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued................ $ 442,243 $ 1,073,322 $ --- $ 91,194
Dividends reinvested... 160,207 195,042 377 695
Cost of shares
redeemed.............. (1,070,775) (1,272,958) (18,081) (76,439)
------------ ------------ ----------- -----------
Investor A capital
transactions.......... $ (468,325) $ (4,594) $ (17,704) $ 15,450
------------ ------------ ----------- -----------
Investor B Shares:
Proceeds from shares
issued................ $ 303,425 $ 263,150 $ -- $ --
Dividends reinvested... 25,450 23,945 -- --
Cost of shares
redeemed.............. (100,977) (192,748) -- --
------------ ------------ ----------- -----------
Investor B capital
transactions.......... $ 227,898 $ 94,347 $ -- $ --
------------ ------------ ----------- -----------
Trust Shares:
Proceeds from shares
issued................ $ 9,739,256 $ 24,828,565 $ 2,729,848 $17,180,260
Dividends reinvested... 3,543,549 4,210,194 20,426 41,199
Cost of shares
redeemed.............. (10,304,454) (29,074,053) (3,955,260) (5,386,222)
------------ ------------ ----------- -----------
Trust capital
transactions.......... $ 2,978,351 $ (35,294) $(1,204,986) $11,835,237
------------ ------------ ----------- -----------
Institutional Shares:
Proceeds from shares
issued................ $ 1,299,852 $ 8,543,150 $ -- $ --
Dividends reinvested... 700,885 1,034,861 -- --
Cost of shares
redeemed.............. (14,801,252) (6,380,539) -- --
------------ ------------ ----------- -----------
Institutional capital
transactions.......... $(12,800,515) $ 3,197,472 $ -- $ --
------------ ------------ ----------- -----------
Total net increase from
capital transactions... $(10,062,591) $ 3,251,931 $(1,222,690) $11,850,687
============ ============ =========== ===========
SHARE TRANSACTIONS:
Investor A Shares:
Issued................. 43,996 100,976 -- 8,936
Reinvested............. 15,275 18,575 37 69
Redeemed............... (102,694) (121,166) (1,752) (7,537)
------------ ------------ ----------- -----------
Change in Investor A
Shares................ (43,423) (1,615) (1,715) 1,468
------------ ------------ ----------- -----------
Investor B Shares:
Issued................. 29,284 24,974 -- --
Reinvested............. 2,424 2,273 -- --
Redeemed............... (9,670) (18,261) -- --
------------ ------------ ----------- -----------
Change in Investor B
Shares................ 22,038 8,986 -- --
------------ ------------ ----------- -----------
Trust Shares:
Issued................. 941,310 2,368,897 267,011 1,690,577
Reinvested............. 337,680 400,135 1,992 4,053
Redeemed............... (994,930) (2,765,360) (385,904) (529,634)
------------ ------------ ----------- -----------
Change in Trust
Shares................ 284,060 3,672 (116,901) 1,164,996
------------ ------------ ----------- -----------
Institutional Shares:
Issued................. 124,784 812,395 -- --
Reinvested............. 66,485 98,298 -- --
Redeemed............... (1,408,438) (606,407) -- --
------------ ------------ ----------- -----------
Change in Institutional
Shares................ (1,217,169) 304,286 -- --
------------ ------------ ----------- -----------
Total net increase from
share transactions..... (954,494) 315,329 (118,616) 1,166,464
============ ============ =========== ===========
</TABLE>
Continued
191
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
May 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Missouri Tax-Exempt National Municipal Bond
Bond Portfolio Portfolio
-------------------------- --------------------------
For the For the
period ended For the period ended For the
May 31, year ended May 31, year ended
1999 November 30, 1999 November 30,
(Unaudited) 1998 (Unaudited) 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued................ $ 2,152,746 $ 8,058,003 $ 1,586,025 $ 5,610,776
Dividends reinvested... 351,138 664,422 14,747 30,349
Cost of shares
redeemed.............. (2,072,263) (9,227,642) (824,708) (5,146,749)
----------- ------------ ------------ ------------
Investor A capital
transactions.......... $ 431,621 $ (505,217) $ 776,064 $ 494,376
----------- ------------ ------------ ------------
Investor B Shares:
Proceeds from shares
issued................ $ 1,265,262 $ 1,092,950 $ 374,255 $ 155,450
Dividends reinvested... 34,317 40,473 13,612 28,030
Cost of shares
redeemed.............. (47,252) (67,539) -- (87,475)
----------- ------------ ------------ ------------
Investor B capital
transactions.......... $ 1,252,327 $ 1,065,884 $ 387,867 $ 96,005
----------- ------------ ------------ ------------
Trust Shares:
Proceeds from shares
issued................ $16,217,029 $ 29,963,656 $ 15,142,934 $ 50,829,327
Dividends reinvested... 140,096 293,425 43,953 66,825
Cost of shares
redeemed.............. (4,808,335) (12,739,018) (17,331,693) (32,039,465)
----------- ------------ ------------ ------------
Trust capital
transactions.......... $11,548,790 $ 17,518,063 $ (2,144,806) $ 18,856,687
----------- ------------ ------------ ------------
Total net increase from
capital transactions... $13,232,738 $ 18,078,730 $ (980,875) $ 19,447,068
=========== ============ ============ ============
SHARE TRANSACTIONS:
Investor A Shares:
Issued................. 179,187 670,226 156,601 546,540
Reinvested............. 29,165 55,450 1,454 3,011
Redeemed............... (172,482) (768,730) (81,775) (505,742)
----------- ------------ ------------ ------------
Change in Investor A
Shares................ 35,870 (43,054) 76,280 43,809
----------- ------------ ------------ ------------
Investor B Shares:
Issued................. 105,333 91,170 37,123 15,272
Reinvested............. 2,853 3,378 1,340 2,789
Redeemed............... (3,938) (5,627) -- (8,630)
----------- ------------ ------------ ------------
Change in Investor B
Shares................ 104,248 88,921 38,463 9,431
----------- ------------ ------------ ------------
Trust Shares:
Issued................. 1,348,262 2,498,522 1,497,084 5,033,227
Reinvested............. 11,631 24,481 4,324 6,637
Redeemed............... (400,010) (1,061,071) (1,714,332) (3,162,200)
----------- ------------ ------------ ------------
Change in Trust
Shares................ 959,883 1,461,932 (212,924) 1,877,664
----------- ------------ ------------ ------------
Total net increase from
share transactions..... 1,100,001 1,507,799 (98,181) 1,930,904
=========== ============ ============ ============
</TABLE>
Continued
192
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
May 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Balanced Equity Income
Portfolio Portfolio
-------------------------- --------------------------
For the For the
period ended For the period ended For the
May 31, year ended May 31, year ended
1999 November 30, 1999 November 30,
(Unaudited) 1998 (Unaudited) 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued................ $ 1,242,242 $ 1,952,086 $ 647,563 $ 1,761,480
Dividends reinvested... 831,472 1,321,383 230,881 18,088
Cost of shares
redeemed.............. (1,130,528) (2,087,639) (518,528) (250,017)
------------ ------------ ------------ ------------
Investor A capital
transactions.......... $ 943,186 $ 1,185,830 $ 359,916 $ 1,529,551
------------ ------------ ------------ ------------
Investor B Shares:
Proceeds from shares
issued................ $ 1,029,800 $ 896,972 $ 370,394 $ 390,433
Dividends reinvested... 62,385 63,058 90,830 11,692
Cost of shares
redeemed.............. (75,925) (168,036) (84,516) (1,176)
------------ ------------ ------------ ------------
Investor B capital
transactions.......... $ 1,016,260 $ 791,994 $ 376,708 $ 400,949
------------ ------------ ------------ ------------
Trust Shares:
Proceeds from shares
issued................ $ 4,993,099 $ 5,005,922 $ 25,391,357 $ 20,648,865
Dividends reinvested... 3,120,789 6,833,201 8,127,396 716,518
Cost of shares
redeemed.............. (8,490,792) (20,235,380) (22,258,839) (26,119,236)
------------ ------------ ------------ ------------
Trust capital
transactions.......... $ (376,904) $ (8,396,257) $ 11,259,914 $ (4,753,853)
------------ ------------ ------------ ------------
Institutional Shares:
Proceeds from shares
issued................ $ 8,699,296 $ 20,666,805 $ 81,762 $ 32,901
Dividends reinvested... 5,703,688 8,365,996 8,581 354
Cost of shares
redeemed.............. (15,991,554) (16,796,846) (12,902) (689)
------------ ------------ ------------ ------------
Institutional capital
transactions.......... $ (1,588,570) $ 12,235,955 $ 77,441 $ 32,566
------------ ------------ ------------ ------------
Total net increase from
capital transactions... $ (6,028) $ 5,817,522 $ 12,073,979 $ (2,790,787)
============ ============ ============ ============
SHARE TRANSACTIONS:
Investor A Shares:
Issued................. 102,216 155,857 79,438 174,550
Reinvested............. 70,918 110,135 29,505 1,867
Redeemed............... (93,333) (170,222) (64,805) (24,476)
------------ ------------ ------------ ------------
Change in Investor A
Shares................ 79,801 95,770 44,138 151,941
------------ ------------ ------------ ------------
Investor B Shares:
Issued................. 85,716 71,467 45,196 38,340
Reinvested............. 5,385 5,311 11,632 1,215
Redeemed............... (6,249) (13,695) (10,303) (120)
------------ ------------ ------------ ------------
Change in Investor B
Shares................ 84,852 63,083 46,525 39,435
------------ ------------ ------------ ------------
Trust Shares:
Issued................. 407,069 405,688 4,144,579 2,045,276
Reinvested............. 265,737 569,093 1,038,563 74,222
Redeemed............... (702,124) (1,602,992) (2,760,810) (2,609,855)
------------ ------------ ------------ ------------
Change in Trust
Shares................ (29,318) (628,211) 2,422,332 (490,357)
------------ ------------ ------------ ------------
Institutional Shares:
Issued................. 716,944 1,641,322 9,884 3,338
Reinvested............. 488,264 699,538 1,096 37
Redeemed............... (1,319,654) (1,366,437) (1,514) (63)
------------ ------------ ------------ ------------
Change in Institutional
Shares................ (114,446) 974,423 9,466 3,312
------------ ------------ ------------ ------------
Total net increase from
share transactions..... 20,889 505,065 2,522,461 (295,669)
============ ============ ============ ============
</TABLE>
Continued
193
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
May 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Equity Index Growth & Income Equity
Portfolio Portfolio
-------------------------- --------------------------
For the For the
period ended For the period ended For the
May 31, year ended May 31, year ended
1999 November 30, 1999 November 30,
(Unaudited) 1998 (Unaudited) 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued................ $ 1,691,226 $ 1,026,183 $ 4,010,633 $ 8,253,738
Dividends reinvested... 12,903 3,332 3,761,101 7,873,832
Cost of shares
redeemed.............. (137,211) (421,139) (6,127,020) (9,602,068)
----------- ----------- ------------ ------------
Investor A capital
transactions.......... $ 1,566,918 $ 608,376 $ 1,644,714 $ 6,525,502
----------- ----------- ------------ ------------
Investor B Shares:
Proceeds from shares
issued................ $ -- $ -- $ 1,123,267 $ 3,007,678
Dividends reinvested... -- -- 655,139 1,071,581
Cost of shares
redeemed.............. -- -- (1,147,129) (863,083)
----------- ----------- ------------ ------------
Investor B capital
transactions.......... $ -- $ -- $ 631,277 $ 3,216,176
----------- ----------- ------------ ------------
Trust Shares:
Proceeds from shares
issued................ $ 8,311,554 $11,679,817 $ 41,877,100 $ 33,917,244
Dividends reinvested... 735,748 429,831 15,679,552 32,021,641
Cost of shares
redeemed.............. (1,604,467) (1,325,214) (85,522,672) (61,216,142)
----------- ----------- ------------ ------------
Trust capital
transactions.......... $ 7,442,835 $10,784,434 $(27,966,020) $ 4,722,743
----------- ----------- ------------ ------------
Institutional Shares:
Proceeds from shares
issued................ $21,228,826 $12,290,722 $ 10,481,145 $ 23,093,110
Dividends reinvested... 170,704 36,633 8,521,326 16,261,081
Cost of shares
redeemed.............. (3,299,856) (2,130,758) (15,555,904) (16,890,600)
----------- ----------- ------------ ------------
Institutional capital
transactions.......... $18,099,674 $10,196,597 $ 3,446,567 $ 22,463,591
----------- ----------- ------------ ------------
Total net increase from
capital transactions... $27,109,427 $21,589,407 $(22,243,462) $ 36,928,012
=========== =========== ============ ============
SHARE TRANSACTIONS:
Investor A Shares:
Issued................. 106,231 76,360 216,019 436,393
Reinvested............. 901 257 216,091 439,721
Redeemed............... (8,507) (31,001) (323,353) (517,451)
----------- ----------- ------------ ------------
Change in Investor A
Shares................ 98,625 45,616 108,757 358,663
----------- ----------- ------------ ------------
Investor B Shares:
Issued................. -- -- 60,515 162,335
Reinvested............. -- -- 38,221 60,550
Redeemed............... -- -- (61,512) (47,550)
----------- ----------- ------------ ------------
Change in Investor B
Shares................ -- -- 37,224 175,335
----------- ----------- ------------ ------------
Trust Shares:
Issued................. 530,273 855,554 3,483,084 1,839,159
Reinvested............. 51,127 33,350 896,173 1,779,849
Redeemed............... (102,705) (98,535) (4,515,740) (3,254,921)
----------- ----------- ------------ ------------
Change in Trust
Shares................ 478,695 790,369 (136,483) 364,087
----------- ----------- ------------ ------------
Institutional Shares:
Issued................. 1,374,337 902,102 558,501 1,227,134
Reinvested............. 11,834 2,765 489,301 908,077
Redeemed............... (214,189) (152,943) (824,915) (915,773)
----------- ----------- ------------ ------------
Change in Institutional
Shares................ 1,171,982 751,924 222,887 1,219,438
----------- ----------- ------------ ------------
Total net increase from
share transactions..... 1,749,302 1,587,909 232,385 2,117,523
=========== =========== ============ ============
</TABLE>
Continued
194
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
May 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Growth Equity Small Cap Equity
Portfolio Portfolio
-------------------------- --------------------------
For the For the
period ended For the period ended For the
May 31, year ended May 31, year ended
1999 November 30, 1999 November 30,
(Unaudited) 1998 (Unaudited) 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued................ $ 3,475,686 $ 1,408,296 $ 589,685 $ 62,836,410
Dividends reinvested... 435,801 670 48,002 1,205,204
Cost of shares
redeemed.............. (1,592,111) (851,631) (3,772,601) (63,487,066)
------------ ------------ ------------ ------------
Investor A capital
transactions.......... $ 2,319,376 $ 557,335 $ (3,134,914) $ 554,548
------------ ------------ ------------ ------------
Investor B Shares:
Proceeds from shares
issued................ $ 1,191,408 $ 233,145 $ 52,893 $ 270,135
Dividends reinvested... 23,329 -- 5,404 121,308
Cost of shares
redeemed.............. (40,140) (672) (263,848) (238,491)
------------ ------------ ------------ ------------
Investor B capital
transactions.......... $ 1,174,597 $ 232,473 $ (205,551) $ 152,952
------------ ------------ ------------ ------------
Trust Shares:
Proceeds from shares
issued................ $ 8,171,079 $ 30,607,289 $ 2,943,225 $ 33,509,356
Dividends reinvested... 3,160,252 3,491 459,050 14,925,021
Cost of shares
redeemed.............. (13,517,290) (30,091,260) (38,648,000) (84,328,666)
------------ ------------ ------------ ------------
Trust capital
transactions.......... $ (2,185,959) $ 519,520 $(35,245,725) $(35,894,289)
------------ ------------ ------------ ------------
Institutional Shares:
Proceeds from shares
issued................ $ 321,202 $ 7,252,607 $ 1,270,020 $ 6,699,479
Dividends reinvested... 789,128 2,352 108,100 2,804,840
Cost of shares
redeemed.............. (8,454,830) (605,305) (18,266,286) (11,894,695)
------------ ------------ ------------ ------------
Institutional capital
transactions.......... $ (7,344,500) $ 6,649,654 $(16,888,166) $ (2,390,376)
------------ ------------ ------------ ------------
Total net increase from
capital transactions... $ (6,036,486) $ 7,958,982 $(55,474,356) $(37,577,165)
============ ============ ============ ============
SHARE TRANSACTIONS:
Investor A Shares:
Issued................. 172,998 76,996 48,404 4,479,389
Reinvested............. 24,606 40 4,185 86,209
Redeemed............... (81,227) (47,765) (306,950) (4,532,914)
------------ ------------ ------------ ------------
Change in Investor A
Shares................ 116,377 29,271 (254,361) 32,684
------------ ------------ ------------ ------------
Investor B Shares:
Issued................. 59,513 12,745 4,316 19,015
Reinvested............. 1,326 -- 485 8,861
Redeemed............... (2,054) (12) (22,078) (18,329)
------------ ------------ ------------ ------------
Change in Investor B
Shares................ 58,785 12,733 (17,277) 9,547
------------ ------------ ------------ ------------
Trust Shares:
Issued................. 1,022,246 1,790,724 233,350 2,367,416
Reinvested............. 177,900 209 39,505 1,057,013
Redeemed............... (674,119) (1,667,394) (3,114,521) (6,589,617)
------------ ------------ ------------ ------------
Change in Trust
Shares................ 526,027 123,539 (2,841,666) (3,165,188)
------------ ------------ ------------ ------------
Institutional Shares:
Issued................. 16,517 420,420 104,746 497,497
Reinvested............. 44,583 141 9,458 201,352
Redeemed............... (437,833) (32,897) (1,458,090) (875,928)
------------ ------------ ------------ ------------
Change in Institutional
Shares................ (376,733) 387,664 (1,343,886) (177,079)
------------ ------------ ------------ ------------
Total net increase from
share transactions..... 324,456 553,207 (4,457,190) (3,300,036)
============ ============ ============ ============
</TABLE>
Continued
195
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
May 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Small Cap Equity Index International Equity
Portfolio Portfolio
---------------------- --------------------------
December 30, For the
1998 to period ended For the
May 31, May 31, year ended
1999(a) 1999 November 30,
(Unaudited) (Unaudited) 1998
---------------------- ------------ ------------
<S> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued.................... $ 123,197 $ 160,018 $ 669,346
Dividends reinvested....... 6 177,711 115,278
Cost of shares redeemed.... (10,476) (432,949) (793,880)
------------ ----------- -----------
Investor A capital
transactions.............. $ 112,727 $ (95,220) $ (9,256)
------------ ----------- -----------
Investor B Shares:
Proceeds from shares
issued.................... $ -- $ 60,906 $ 82,490
Dividends reinvested....... -- 34,541 21,431
Cost of shares redeemed.... -- (87,412) (103,597)
------------ ----------- -----------
Investor B capital
transactions.............. $ -- $ 8,035 $ 324
------------ ----------- -----------
Trust Shares:
Proceeds from shares
issued.................... $ 12,411,897 $ 2,122,835 $ 9,713,711
Dividends reinvested....... 12,647 1,848,891 1,287,283
Cost of shares redeemed.... (71,937) (5,060,201) (11,380,648)
------------ ----------- -----------
Trust capital
transactions.............. $ 12,352,607 $(1,088,475) $ (379,654)
------------ ----------- -----------
Institutional Shares:
Proceeds from shares
issued.................... $ 28,213,236 $ 1,566,380 $ 1,608,783
Dividends reinvested....... 5,933 480,175 284,724
Cost of shares redeemed.... (12,081,566) (1,219,237) (1,367,826)
------------ ----------- -----------
Institutional capital
transactions.............. $ 16,137,603 $ 827,318 $ 525,681
------------ ----------- -----------
Total net increase from
capital transactions....... $ 28,602,937 $ (348,342) $ 137,095
============ =========== ===========
SHARE TRANSACTIONS:
Investor A Shares:
Issued..................... 12,552 12,250 53,156
Reinvested................. 1 14,493 9,678
Redeemed................... (1,038) (33,374) (63,267)
------------ ----------- -----------
Change in Investor A
Shares.................... 11,515 (6,631) (433)
------------ ----------- -----------
Investor B Shares:
Issued..................... -- 4,757 6,571
Reinvested................. -- 2,891 1,838
Redeemed................... -- (6,852) (8,070)
------------ ----------- -----------
Change in Investor B
Shares.................... -- 796 339
------------ ----------- -----------
Trust Shares:
Issued..................... 1,333,953 160,430 735,639
Reinvested................. 1,376 149,251 106,889
Redeemed................... (7,429) (382,366) (867,651)
------------ ----------- -----------
Change in Trust Shares..... 1,327,900 (72,685) (25,123)
------------ ----------- -----------
Institutional Shares:
Issued..................... 2,855,262 119,205 123,011
Reinvested................. 646 39,222 23,946
Redeemed................... (1,295,405) (93,700) (106,702)
------------ ----------- -----------
Change in Institutional
Shares.................... 1,560,503 64,727 40,255
------------ ----------- -----------
Total net increase from
share transactions......... 2,899,918 (13,793) 15,038
============ =========== ===========
</TABLE>
(a) Period from commencement of operations.
Continued
196
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
May 31, 1999
(Unaudited)
5.Purchases and Sales of Investment Securities
Purchases and sales of securities (excluding short-term securities) during
the period ended May 31, 1999 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Purchases Sales
--------- -------
<S> <C> <C>
U.S. Government Securities................................ $18,224 $10,518
Intermediate Corporate Bond............................... 14,037 1,796
Bond Index................................................ 49,944 12,163
Government & Corporate Bond............................... 48,170 56,801
Short-Intermediate Municipal.............................. -- 380
Missouri Tax-Exempt Bond.................................. 13,638 160
National Municipal Bond................................... -- 4,388
Balanced.................................................. 23,344 30,484
Equity Income............................................. 68,444 79,463
Equity Index.............................................. 37,274 17,411
Growth & Income Equity.................................... 185,700 251,906
Growth Equity............................................. 9,248 19,522
Small Cap Equity.......................................... 42,865 86,011
Small Cap Equity Index.................................... 32,093 3,333
International Equity...................................... 33,382 32,877
</TABLE>
6.Related Party Transactions
Investment advisory services are provided to the Fund by Mississippi Valley
Advisors Inc. ("MVA"), a wholly-owned subsidiary of Mercantile Bank National
Association ("Mercantile"), which in turn is a wholly-owned subsidiary of
Mercantile Bancorporation Inc. Under the terms of the investment advisory
agreement, MVA is entitled to receive fees from each Portfolio based on a
percentage of the average daily net assets of that Portfolio. Mercantile
serves as custodian for the Fund. Under the terms of the custodian
agreement, Mercantile receives fees computed on the average daily net assets
of each Portfolio at an annual rate of 0.02% for the Treasury Money Market,
Money Market and Tax-Exempt Money Market Portfolios and at 0.05% for the
U.S. Government Securities, Intermediate Corporate Bond, Bond Index,
Government & Corporate Bond, Short-Intermediate Municipal, Missouri Tax-
Exempt Bond, National Municipal Bond, Balanced, Equity Income, Equity Index,
Growth & Income Equity, Growth Equity, Small Cap Equity and Small Cap Equity
Index Portfolios and at 0.19% of the first $50 million of the International
Equity Portfolio's average daily net assets, 0.175% of the next $50 million
of average daily net assets, 0.15% of the next $150 million of average daily
net assets, and 0.125% of average daily net assets over $250 million.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS")
is an Ohio limited partnership. BISYS Fund Services Ohio, Inc. ("BISYS
Ohio") and BISYS are subsidiaries of The BISYS Group, Inc.
BISYS Ohio, with whom certain officers of the Fund are affiliated, serves
the Fund as administrator. Such officers are paid no fees directly by the
Portfolios for serving as officers of the Fund. Under the terms of the
administration agreement, BISYS Ohio receives fees computed at an annual
rate of 0.20% (0.10% for the Tax-Exempt Money Market Portfolio) of the
average daily net assets of each Portfolio. BISYS Ohio also serves as
transfer agent to the Fund. BISYS serves as the Fund's distributor and is
entitled to receive commissions on sales of Investor A Shares and Investor B
Shares of the variable net asset value portfolios. For the period ended May
31, 1999, BISYS received approximately $318,751 from commissions earned on
sales of Investor A Shares and $219,091 from commissions earned on
redemptions of Investor B Shares. BISYS reallowed $493,063 to dealers of the
Fund's shares.
With respect to Investor A Shares of the Portfolios, the Fund has adopted a
Distribution and Services Plan (the "Plan") pursuant to Rule 12b-1 under the
1940 Act. Under the Plan, each Portfolio may pay (i) up to an annual rate of
0.10% of the average daily net assets of each Portfolio's outstanding
Investor A Shares to BISYS or another organization for distribution services
performed and expenses assumed relating to the Portfolio's Investor A Shares
and (ii) up to an annual rate of 0.20% (0.15% for the money market
portfolios) of the average daily net assets of each Portfolio's outstanding
Investor A Shares to broker-dealers and other organizations for shareholder
administrative services provided pursuant to servicing agreements under the
Plan.
Similarly, with respect to Investor B Shares, the Fund has adopted a
Distribution and Services Plan (the "Plan B") pursuant to Rule 12b-1 under
the 1940 Act. Under Plan B, a Portfolio may pay (i) up to an annual rate of
0.75% of the average daily net
Continued
197
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
May 31, 1999
(Unaudited)
assets of the Portfolio's outstanding Investor B Shares to BISYS or another
organization for distribution services performed and expenses assumed
relating to the Portfolio's Investor B Shares and (ii) up to an annual rate
of 0.25% of the average daily net assets of the Portfolio's Investor B
Shares to broker-dealers and other organizations for shareholder
administrative services provided pursuant to servicing agreements under Plan
B.
With respect to Trust and Institutional Shares of the Portfolios, the Fund
has adopted separate Administrative Services Plans pursuant to which a
Portfolio may pay banks and other financial institutions, which have agreed
to provide certain shareholder administrative services for their clients or
account holders, servicing fees of up to an annual rate of 0.30% (0.25% for
the money market portfolios) of the average daily net assets of the
Portfolio's outstanding Trust or Institutional Shares, respectively.
Fees may be voluntarily reduced to assist the Portfolios in maintaining
competitive expense ratios. Information regarding fee reduction transactions
is as follows for the period ended May 31, 1999:
<TABLE>
<CAPTION>
Administrative
Services
Investment Advisory Administration Fees -- Trust Custody
Fees Fees Shares Fees
--------------------- --------------- --------------- ----------
Annual
fee before
voluntary Voluntary Voluntary Voluntary Voluntary
fee Fee Fee Fee Fee
reductions Reductions Reductions Reductions Reductions
---------- ---------- --------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Treasury Money Market
Portfolio.............. 0.40% $ 83,775 $151,817 $ -- $ --
Money Market Portfolio.. 0.40% 386,400 718,626 -- --
Tax-Exempt Money Market
Portfolio.............. 0.40% 46,458 -- -- --
U.S. Government
Securities Portfolio... 0.45% -- 55,438 150,119 3,657
Intermediate Corporate
Bond Portfolio......... 0.55% -- 29,757 87,029 --
Bond Index Portfolio.... 0.30% -- 95,904 259,748 --
Government & Corporate
Bond Portfolio......... 0.45% -- 94,983 262,115 6,148
Short-Intermediate
Municipal Portfolio.... 0.55% -- 20,692 62,045 --
Missouri Tax-Exempt Bond
Portfolio.............. 0.45% -- 63,218 149,550 4,248
National Municipal Bond
Portfolio.............. 0.55% -- 190,260 567,361 6,322
Balanced Portfolio...... 0.75% -- 61,414 62,444 --
Equity Income
Portfolio.............. 0.75% -- 54,572 160,013 --
Equity Index Portfolio.. 0.30% -- 41,974 87,169 --
Growth & Income Equity
Portfolio.............. 0.55% -- 246,158 482,399 32,404
Growth Equity
Portfolio.............. 0.75% -- 50,764 139,616 --
Small Cap Equity
Portfolio.............. 0.75% -- 70,230 173,683 4,182
Small Cap Equity Index
Portfolio.............. 0.40% 16,076 10,004 11,111 --
International Equity
Portfolio.............. 1.00% -- 35,782 89,007 25,776
</TABLE>
Additionally, BISYS voluntarily waived distribution and services fees for
Investor A Shares in the amount of $5 for the Short-Intermediate Municipal
Portfolio, $11,807 for the Missouri Tax-Exempt Bond Portfolio and $802 for
the National Municipal Bond Portfolio.
Continued
198
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
May 31, 1999 (Unaudited)
7.Concentration of Credit Risk
The Missouri Tax-Exempt Bond Portfolio invests a substantial proportion of
its assets in Municipal Obligations issued by the State of Missouri and its
political subdivisions, agencies and public authorities. The Portfolio is
more susceptible to factors adversely affecting issuers of Missouri
Municipal Obligations than a portfolio that is not concentrated in these
issuers to the same extent.
The Tax-Exempt Money Market Portfolio, Short-Intermediate Municipal
Portfolio, Missouri Tax-Exempt Bond Portfolio and National Municipal Bond
Portfolio had the following concentrations by municipal funding source at
May 31, 1999 (as a percentage of total investments):
<TABLE>
<CAPTION>
Missouri
Short- Tax- National
Tax-Exempt Intermediate Exempt Municipal
Money Market Municipal Bond Bond
Portfolio Portfolio Portfolio Portfolio
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
Airport.......................... 7.35% -- -- --
Commercial Paper................. 4.86% -- -- --
Development...................... 8.14% -- 0.55% --
Education........................ -- 1.26% 4.42% 2.27%
Facilities....................... -- 6.08% 6.55% 2.06%
General.......................... -- -- -- 2.79%
General Obligation............... 16.95% 32.87% 16.75% 45.79%
Higher Education................. 7.24% 4.95% 7.75% 3.98%
Investment Companies............. 0.81% 3.18% 6.29% 0.84%
Medical.......................... 14.03% 7.34% 23.28% 5.54%
Multifamily Housing.............. -- -- 1.79% --
Nursing Homes.................... -- -- 0.68% --
Pollution Control................ 34.15% -- 5.99% 2.87%
Power............................ -- 2.75% 1.58% 4.35%
School District.................. 1.74% 21.12% 14.09% 9.94%
Single Family Housing............ -- -- 0.70% 0.28%
Student Loan..................... -- -- 0.79% --
Transportation................... 1.24% 12.17% -- 7.16%
Utilities........................ 1.11% 4.68% 1.63% 9.54%
Water............................ 2.38% 3.60% 7.16% 2.59%
------ ------ ------ ------
100.00% 100.00% 100.00% 100.00%
====== ====== ====== ======
</TABLE>
199
<PAGE>
- -------------
BULK RATE
U.S. POSTAGE
PAID
LANCASTER, PA
PERMIT 1793
- -------------
INVESTMENT ADVISER
Mississippi Valley Advisors Inc.
One Mercantile Center
Seventh & Washington Streets
St. Louis, Missouri 63101
DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
AUDITORS
KPMG
Two Nationwide Plaza
Columbus, Ohio 43215
LEGAL COUNSEL
Drinker Biddle & Reath LLP
One Logan Square
18th & Cherry Streets
Philadelphia, Pennsylvania 19103-6996
TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219-3035
This report is submitted for the general information of the shareholders of the
Mercantile Mutual Funds, Inc. It is not authorized for distribution to
prospective investors unless accompanied or preceded by effective prospectuses
for the Funds, which contain information concerning the Funds' investment
policies and expenses as well as other pertinent information.
7/99
[GRAPHIC APPEARS HERE]
