<PAGE>
------------
MERCANTILE
MUTUAL FUNDS
------------
[LOGO OF FIRSTAR] Semi-Annual Report
May 31, 2000
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 FIRSTAR]
<PAGE>
Contents
--------------------------------------------------------------------------------
Mercantile Mutual Funds, Inc. May 31, 2000
<TABLE>
<S> <C>
Message From Your Investment Adviser........................................ 2
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..................................... 34
Bond Index Portfolio...................................................... 42
Government & Corporate Bond Portfolio..................................... 50
Tax-Exempt Bond Portfolios
Short-Intermediate Municipal Portfolio.................................... 58
Missouri Tax-Exempt Bond Portfolio........................................ 66
National Municipal Bond Portfolio......................................... 76
Stock Portfolios
Balanced Portfolio........................................................ 84
Equity Income Portfolio................................................... 92
Equity Index Portfolio.................................................... 100
Growth & Income Equity Portfolio.......................................... 112
Growth Equity Portfolio................................................... 120
Small Cap Equity Portfolio................................................ 128
Small Cap Equity Index Portfolio.......................................... 136
International Equity Portfolio............................................ 150
Notes to Financial Statements............................................... 159
</TABLE>
1
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Message From Your Investment Adviser
Dear Shareholder:
Mid-Year Review
With the Y2K "bug" vanquished, it was back to "business as usual" for
investors. That means, unexpectedly strong economic growth and unbelievably
volatile financial markets. The US economy continues to confound the pundits,
combining robust growth and low unemployment with modest inflation. However,
the jump in energy prices and a tight labor market have fostered a more
aggressive Federal Reserve interest rate policy. Clearly, the Fed views the
current pace of economic growth as "too fast," creating imbalances likely to
accelerate inflation if left unchecked. Some observers believe the Fed is
behind the curve and the inflation "genie" is already "out of the bottle."
Others contend the Fed is wrongly applying "old" economy metrics to a
fundamentally different "new" economy.
In our opinion, the foundation of our current economic success--robust
economic growth with low inflation--rests on the twin pillars of global
competition and improved productivity. US productivity growth averaged 3.7%
over the past twelve months and has averaged 2.3% per year since the end of the
last recession. Although Fed Chairman Alan Greenspan publicly questions the
sustainability of today's productivity gains, the recent upsurge is far from
unprecedented. The Golden Age of US productivity growth, from 1950 to 1973, saw
labor productivity grow at a 2.7% compound annual rate. Improved productivity
means higher profits. Higher profits lead to more spending on productivity-
enhancing technology. Further productivity gains lead to further profit
improvements and the process repeats. Although final demand is surging, supply-
side investment is growing even faster. Finally, Congressional approval of
permanent normal trade relations with China is a reminder that global
competition will only intensify.
Economic & Market Outlook
Looking ahead, our investment strategy is predicated on the following trends:
. Adjusted for inflation, US final sales rose at a +6.9% annual rate in the
first quarter of this year, representing the fastest growth rate of the
current economic cycle.
. Consumer confidence remains near record levels, reflecting strong income
gains, low unemployment and the wealth effect from rising asset values.
. Despite higher interest rates, cheap credit is still available to drive
consumer spending.
. Like a tax increase, higher energy prices erode income gains.
. Although much is made of the wealth effect from higher stock prices, the
increase in home values has been the biggest wealth creator for the majority
of Americans.
. Higher mortgage rates are beginning to slow the housing market with
decelerating price gains not far behind.
. The forty percent drop in the NASDAQ and ongoing stock market volatility
will dampen consumer exuberance.
. Fed tightening is raising the dollar's exchange rate, making imports cheaper
(holding down US inflation) and exports less competitive (slowing the US
economy).
. Clear signs of an economic slowdown are likely to emerge by the fall,
allowing the Fed to shift to a neutral policy and bond prices to rally (what
is good for bonds is even better for stocks).
. In the absence of the Treasury buyback, long-term government bond yields
would undoubtedly be higher and credit spreads (the difference in yield
between a corporate bond and a government bond of equal maturity) narrower.
. Today's high inflation-adjusted bond yields are attractive and the widening
in credit spreads creates opportunities to enhance bond portfolio returns.
. Corporate profits are better than expected, reflecting ongoing gains from
investments in productivity-enhancing technology and efficiencies from
restructuring.
. A "Jeckyl and Hyde" stock market has emerged as "old economy" shares vie
with the leading technology names for investor favor.
. The stock market will broaden out as the year progresses making portfolio
diversification, complemented by security selection that emphasizes high
quality companies with strong balance sheets, good earnings visibility and
dominant industry positions, the winning strategy.
2
<PAGE>
In summary, we expect the Federal Reserve will successfully engineer a "soft
landing" for the US economy, extending this unprecedented period of economic
prosperity. Slower growth will prevent inflation from accelerating further, yet
corporate profitability should remain strong thanks to ongoing productivity
gains and efficiencies achieved through restructuring and mergers. In short, we
anticipate the advent of a more favorable environment for financial assets
later in the year. As you peruse the following pages of this report, you will
find a broad range of equity and fixed income products to meet every investor's
needs. As always, we encourage you to contact us with your comments regarding
portfolio performance or our investment strategy.
Thank you for your continued confidence in Mercantile Mutual Funds.
Sincerely Yours,
Firstar Investment Research & Management
Company, LLC (FIRMCO)
John Blixen
Executive Vice President
Richard Burling
Senior Vice President, Director of Credit
Research
Walter Dewey
Senior Vice President, Senior Portfolio
Manager
Donald Keller
Senior Vice President, Senior Portfolio
Manager
George Schupp
Senior Vice President, Director of Fixed
Income
Marian Zentmyer, Committee Chairperson
Executive Vice President, Chief Equity
Investment Officer
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
involve investment risks, including the possible loss of the principal
amount invested.
3
<PAGE>
Mercantile Treasury Money Market Portfolio+
Q. What is the objective of the 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 Portfolio invests principally in obligations that
are issued by the U.S. Treasury.
Q. What were the conditions in the money markets during the six months ended
May 31, 2000?
A. The Federal Reserve, in an attempt to slow down sustained economic
growth, raised short-term interest rates in February, March and May. The Fed
Funds rate, which started the year at 5.50%, was 6.50% on May 31, 2000.
Q. How did you position the Portfolio to address these conditions?
A. The Portfolio maintained its strategy of laddering the maturity of its
holdings to take advantage of various points along the short-term yield curve.
The Portfolio maintained an average maturity in the 30-45 day range throughout
the period. We shortened the average maturity in the later months of the
period to take advantage of increased short-term rates.
Q. How did you allocate the Portfolio's assets among various types of
Treasury securities?
A. The Portfolio held a laddered position of Treasury bills to provide
liquidity to shareholders. To take advantage of the higher yields in Treasury
notes, we increased our weighting in notes versus bills at the end of the
period.*
Q. How will you manage the Portfolio during the coming months?
A. We will continue to purchase Treasury obligations and maintain liquidity.
We will focus on the activities of the Federal Reserve and monitor the growth
rate of the economy. We will shorten or lengthen the Portfolio's average
maturity in response to Fed activities to seek yield advantages along the
short-term yield curve.
-----
+ An investment in the Portfolio is not insured or guaranteed by the FDIC or
any other government agency. Although the Portfolio seeks to preserve the
value of your investment at $1.00 per share, it is possible to lose money by
investing in the Portfolio.
* Portfolio composition is subject to change.
4
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Treasury Money Market Portfolio May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
U.S. Treasury Bills (71.3%):
Shares or
Security Principal Amortized
Description Amount Cost
----------- ----------- ------------
<S> <C> <C>
6/1/00........................................... $33,903,000 $ 33,903,000
6/8/00........................................... 46,235,000 46,184,398
6/29/00.......................................... 49,734,000 49,518,491
7/13/00.......................................... 21,045,000 20,906,769
8/3/00........................................... 10,000,000 9,899,113
8/10/00.......................................... 7,570,000 7,482,203
8/17/00.......................................... 8,130,000 8,026,583
------------
TOTAL U.S. TREASURY BILLS 175,920,557
------------
U.S. Treasury Notes (22.2%):
5.38%, 7/31/00................................... 34,305,000 34,276,224
6.00%, 8/15/00................................... 7,900,000 7,897,796
8.75%, 8/15/00................................... 460,000 462,276
5.13%, 8/31/00................................... 12,150,000 12,116,682
------------
TOTAL U.S. TREASURY NOTES 54,752,978
------------
Investment Companies (6.6%):
Financial Square Treasury Obligation Portfolio... 12,308,489 12,308,489
Short-Term Investments Co. Treasury Tax Advantage
Portfolio....................................... 3,895,048 3,895,048
------------
TOTAL INVESTMENT COMPANIES 16,203,537
------------
TOTAL INVESTMENTS
(Amortized Cost $246,877,072) (a)--100.1% 246,877,072
Liabilities in excess of other assets--(0.1%) (303,251)
------------
TOTAL NET ASSETS--100.0% $246,573,821
============
</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, 2000
(Unaudited)
<S> <C> <C>
Assets:
Investments, at value (cost $246,877,072)............. $246,877,072
Interest receivable................................... 935,167
Prepaid expenses and other assets..................... 3,533
------------
Total Assets......................................... 247,815,772
Liabilities:
Dividends payable..................................... $1,011,710
Payable to affiliates................................. 133,557
Accrued expenses...................................... 96,684
----------
Total Liabilities.................................... 1,241,951
------------
Net Assets:
Capital............................................... 246,549,629
Undistributed net investment income................... 6,088
Accumulated net realized gains from investment
transactions......................................... 18,104
------------
Net Assets............................................ $246,573,821
============
Investor A Shares
Net Assets........................................... $ 76,220
Shares............................................... 76,222
Offering and redemption price per share.............. $1.00
=====
Trust Shares
Net Assets........................................... $157,028,068
Shares............................................... 157,006,103
Offering and redemption price per share.............. $1.00
=====
Institutional Shares
Net Assets........................................... $ 2,678,056
Shares............................................... 2,678,030
Offering and redemption price per share.............. $1.00
=====
Trust II Shares
Net Assets........................................... $ 86,791,477
Shares............................................... 86,791,698
Offering and redemption price per share.............. $1.00
=====
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the six months ended May 31, 2000
(Unaudited)
<S> <C> <C>
Investment Income:
Interest income............................................ $7,314,255
----------
Total Investment Income................................... 7,314,255
Expenses:
Investment advisory fees................................... $535,201
Administration fees........................................ 267,601
Distribution and services fees, Investor A Shares.......... 4,757
Administrative services fees, Trust Shares................. 230,833
Administrative services fees, Institutional Shares......... 8
Accounting fees............................................ 515
Custodian fees............................................. 9,519
Transfer agent fees........................................ 71,913
Other...................................................... 95,071
--------
Total expenses before voluntary fee reductions............. 1,215,418
Expenses voluntarily reduced............................... (191,398)
----------
Net Expenses............................................... 1,024,020
----------
Net Investment Income...................................... 6,290,235
----------
Realized/Unrealized Gains from Investments:
Net realized gains from investment transactions............ 3,734
----------
Change in net assets resulting from operations............. $6,293,969
==========
</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
six months For the
ended year ended
May 31, 2000 November 30,
(Unaudited) 1999
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 6,290,235 $ 12,363,114
Net realized gains from investment transactions... 3,734 14,292
------------ ------------
Change in net assets resulting from operations..... 6,293,969 12,377,406
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (83,659) (859,310)
From net realized gains from investment
transactions..................................... -- (637)
Distributions to Trust Shareholders:
From net investment income........................ (4,276,644) (7,646,066)
From net realized gains from investment
transactions..................................... -- (5,803)
Distributions to Institutional Shareholders:
From net investment income........................ (3,609) (5,854)
From net realized gains from investment
transactions..................................... -- (6)
Distributions to Trust II Shareholders:
From net investment income........................ (1,926,311) (3,851,884)
From net realized gains from investment
transactions..................................... -- (1,890)
------------ ------------
Change in net assets from shareholder
distributions..................................... (6,290,223) (12,371,450)
------------ ------------
Change in net assets from capital transactions..... (54,453,851) (47,836,358)
------------ ------------
Change in net assets............................... (54,450,105) (47,830,402)
Net Assets:
Beginning of period............................... 301,023,926 348,854,328
------------ ------------
End of period..................................... $246,573,821 $301,023,926
============ ============
</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
six months
ended
May 31, For the years ended November 30,
2000 ---------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
----------- -------- -------- -------- -------- --------
<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.. 0.023 0.038 0.043 0.044 0.044 0.048
Net realized gains from
investments........... -- (c) -- (c) -- -- -- --
-------- -------- -------- -------- -------- --------
Total from Investment
Activities............ 0.023 0.038 0.043 0.044 0.044 0.048
-------- -------- -------- -------- -------- --------
Distributions:
Net investment income.. (0.023) (0.038) (0.043) (0.044) (0.044) (0.048)
Net realized gains..... -- (c) -- (c) -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions.... (0.023) (0.038) (0.043) (0.044) (0.044) (0.048)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total Return............ 2.35%(a) 3.87% 4.40% 4.53% 4.46% 4.93%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 76 $ 20,470 $ 25,665 $ 8,409 $ 7,667 $ 2,776
Ratio of expenses to
average net assets..... 0.83%(b) 0.81% 0.81% 0.77% 0.81% 0.78%
Ratio of net investment
income to average net
assets................. 4.64%(b) 3.80% 4.22% 4.43% 4.35% 4.84%
Ratio of expenses to
average net assets*.... 0.98%(b) 0.95% 0.96% 0.92% 0.96% 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 gain and/or distribution
from net realized gain was less than $0.005.
Financial Highlights, Trust Shares
<CAPTION>
For the
six months
ended
May 31, For the years ended November 30,
2000 ---------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
----------- -------- -------- -------- -------- --------
<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.. 0.023 0.038 0.045 0.046 0.045 0.050
Net realized gains from
investments........... -- (c) -- (c) -- -- -- --
-------- -------- -------- -------- -------- --------
Total from Investment
Activities............ 0.023 0.038 0.045 0.046 0.045 0.050
-------- -------- -------- -------- -------- --------
Distributions:
Net investment income.. (0.023) (0.038) (0.045) (0.046) (0.045) (0.050)
Net realized gains..... -- (c) -- (c) -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions.... (0.023) (0.038) (0.045) (0.046) (0.045) (0.050)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total Return............ 2.35%(a) 3.87% 4.56% 4.70% 4.64% 5.12%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $157,028 $197,435 $245,959 $283,653 $131,322 $252,780
Ratio of expenses to
average net assets..... 0.83%(b) 0.81% 0.65% 0.61% 0.61% 0.60%
Ratio of net investment
income to average net
assets................. 4.64%(b) 3.80% 4.45% 4.60% 4.55% 5.01%
Ratio of expenses to
average net assets*.... 0.98%(b) 0.95% 0.96% 0.92% 0.76% 0.75%
</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 gain and/or distribution
from net realized gain was less than $0.005.
See notes to financial statements
8
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Treasury Money Market Portfolio
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
For the
six months For the years ended January 26, 1995
ended November 30, to
May 31, 2000 ------------------------------------- November 30,
(Unaudited) 1999 1998 1997 1996 1995(d)
------------ ------- ------- ------- ------- ----------------
<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.. 0.011 0.038 0.043 0.044 0.044 0.042
Net realized gains from
investments........... -- (c) -- (c) -- -- -- --
------- ------- ------- ------- ------- -------
Total from Investment
Activities............ 0.011 0.038 0.043 0.044 0.044 0.042
------- ------- ------- ------- ------- -------
Distributions:
Net investment income.. (0.011) (0.038) (0.043) (0.044) (0.044) (0.042)
Net realized gains..... -- (c) -- (c) -- -- -- --
------- ------- ------- ------- ------- -------
Total Distributions.... (0.011) (0.038) (0.043) (0.044) (0.044) (0.042)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total Return............ 1.12%(a) 3.87% 4.40% 4.53% 4.46% 4.94%(a)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 2,678 $ 62 $ 236 $ 233 $ 299 $ 28
Ratio of expenses to
average net assets..... 0.83%(b) 0.81% 0.81% 0.77% 0.79% 0.92%(b)
Ratio of net investment
income to average net
assets................. 4.64%(b) 3.76% 4.30% 4.44% 4.39% 5.76%(b)
Ratio of expenses to
average net assets*.... 0.98%(b) 0.95% 0.96% 0.92% 0.94% 1.07%(b)
</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 gain and/or distribution
from net realized gain was less than $0.005. (d) Period from commencement of
operations.
Financial Highlights, Trust II Shares
<TABLE>
<CAPTION>
For the
six months For the November 13, 1998
ended year ended to
May 31, 2000 November 30, November 30, 1998
(Unaudited) 1999 (a)
------------ ------------ -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Investment Activities:
Net investment income........ 0.024 0.040 0.002
Net realized gains from
investments................. -- (d) -- (d) --
------- ------- -------
Total from Investment
Activities.................. 0.024 0.040 0.002
------- ------- -------
Distributions:
Net investment income........ (0.024) (0.040) (0.002)
Net realized gains........... -- (d) -- (d) --
------- ------- -------
Total Distributions.......... (0.024) (0.040) (0.002)
------- ------- -------
Net Asset Value, End of
Period....................... $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total Return.................. 2.46%(b) 4.12% 0.20%(b)
Ratios/Supplementary Data:
Net Assets at end of period
(000)........................ $86,792 $83,057 $76,995
Ratio of expenses to average
net assets................... 0.60%(c) 0.57% 0.55%(c)
Ratio of net investment income
to average net assets........ 4.87%(c) 4.03% 4.09%(c)
Ratio of expenses to average
net assets*.................. 0.75%(c) 0.71% 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 gain and/or distribution from net realized gain
was less than $0.005.
See notes to financial statements.
9
<PAGE>
Mercantile Money Market Portfolio+
Q. What is the objective of the Portfolio?
A. The Mercantile Money Market Portfolio seeks current income with liquidity
and stability of principal. The Portfolio invests in a broad range of money
market instruments, including commercial paper, U.S. Government and bank
obligations.
Q. What were the conditions in the money markets during the six months ended
May 31, 2000?
A. The Federal Reserve, in an attempt to slow down sustained economic growth,
raised short-term interest rates in February, March and May. The Fed Funds
rate, which started the year at 5.50%, was 6.50% on May 31, 2000. Money market
rates rose during the period as a result. We anticipate the Federal Reserve
will have completed its tightening of interest rates by the end of the fiscal
year, though we may see one more rate increase between now and then.
Q. How did you position the Portfolio to address these conditions?
A. We shortened the average maturity of the Portfolio to take advantage of
higher short-term rates along the money market yield curve.
Q. How did you allocate the Portfolio's assets among various types of
securities?
A. Commercial paper made up the bulk of the Portfolio. We also held a small
position in bank certificates of deposit.*
Q. How will you manage the Portfolio during the coming months?
A. We will continue to manage the Portfolio in a manner that will provide the
highest level of liquidity and stability of principal. Additionally, we will
maintain the high credit quality of the Portfolio while closely monitoring
corporate credits. We will focus on the activities of the Federal Reserve and
monitor the growth rate of the economy. Finally, we will shorten or lengthen
the Portfolio's average maturity in response to Fed activities to seek yield
advantages along the short-term yield curve.
-----
+ An investment in the Portfolio is not insured or guaranteed by the FDIC or
any other government agency. Although the Portfolio seeks to preserve the
value of your investment at $1.00 per share, it is possible to lose money by
investing in the Portfolio.
*Portfolio composition is subject to change.
10
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Money Market Portfolio May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Certificates of Deposit (5.1%):
Security Principal Amortized
Description Amount Cost
----------- ----------- ------------
<S> <C> <C>
ABN AMRO, 5.94%, 6/26/00.............................. $30,000,000 $ 30,000,000
Union Bank of Switzerland, 5.51%, 6/5/00.............. 30,000,000 29,999,953
------------
TOTAL CERTIFICATES OF DEPOSIT 59,999,953
------------
Commercial Paper (88.7%):
Asset-Backed Security (16.5%):
Ciesco L.P., 6.63%, 8/11/00........................... 50,000,000 49,346,208
Corporate Asset Funding Co., Inc.:
6.58%, 7/20/00....................................... 25,000,000 24,776,097
6.60%, 8/11/00....................................... 30,000,000 29,609,500
Edison Asset:
6.43%, 6/15/00....................................... 22,000,000 21,944,988
6.50%, 6/27/00....................................... 40,000,000 39,812,222
Market Street Funding, 6.60%, 8/7/00.................. 30,000,000 29,631,500
------------
195,120,515
------------
Automotive (9.2%):
Ford Credit, 6.55%, 7/18/00........................... 30,000,000 29,743,458
Ford Credit Europe, 6.49%, 6/8/00..................... 30,000,000 29,962,142
General Motors Acceptance Corp., 6.59%, 8/14/00....... 50,000,000 49,322,694
------------
109,028,294
------------
Banking (6.7%):
Deutsche Bank Financial, Inc., 6.07%, 6/30/00......... 50,000,000 49,755,514
UBS Finance (Delaware), Inc., 6.50%, 6/13/00.......... 30,000,000 29,935,000
------------
79,690,514
------------
Communications (11.3%):
AT&T Corp., 6.61%, 8/11/00............................ 50,000,000 49,348,181
Motorola, Inc.:
6.52%, 7/14/00....................................... 20,000,000 19,844,244
6.12%, 7/17/00....................................... 25,000,000 24,804,500
SBC Communications, 6.28%, 6/21/00.................... 40,000,000 39,860,444
------------
133,857,369
------------
Financial Services (16.7%):
American Express, 6.48%, 6/6/00....................... 30,000,000 29,973,000
Associates First Capital Corp., 6.50%, 6/7/00......... 30,000,000 29,967,500
Goldman Sachs Group, L.P., 6.05%, 8/4/00.............. 50,000,000 49,462,222
Merrill Lynch and Co., Inc.:
6.56%, 7/25/00....................................... 30,000,000 29,704,800
6.41%, 8/11/00....................................... 30,000,000 29,620,742
Salomon Smith Barney, 6.60%, 8/2/00................... 30,000,000 29,659,000
------------
198,387,264
------------
Insurance (4.2%):
Prudential Funding Corp., 6.62%, 8/15/00.............. 50,000,000 49,310,417
------------
Machinery--Agriculture (2.1%):
CAT Financial Services, 6.40%, 8/4/00................. 24,574,000 24,294,403
------------
</TABLE>
<TABLE>
<S> <C> <C>
Commercial Paper, continued
<CAPTION>
Shares or
Security Principal Amortized
Description Amount Cost
----------- ----------- --------------
<S> <C> <C>
Miscellaneous--Finance (16.8%):
Bell Atlantic Financial Services, Inc., 6.45%,
6/19/00.......................................... $45,000,000 $ 44,854,875
CIT Group Holdings, Inc., 6.57%, 7/27/00.......... 40,000,000 39,591,200
GTE Funding, 6.27%, 6/2/00........................ 35,000,000 34,993,904
Honeywell International, Inc., 6.61%, 8/11/00..... 50,000,000 49,348,181
International Lease, 6.60%, 8/11/00............... 30,000,000 29,609,500
--------------
198,397,660
--------------
Printing & Publishing (1.8%):
McGraw Hill, 6.06%, 6/30/00....................... 22,000,000 21,892,603
--------------
Utilities (3.4%):
Ameren Corp., 6.11%, 7/6/00....................... 40,900,000 40,657,043
--------------
TOTAL COMMERCIAL PAPER 1,050,636,082
--------------
<CAPTION>
Investment Companies (6.5%):
<S> <C> <C>
Financial Square Prime Obligation Fund............ 22,694,267 22,694,267
Short-Term Investments Co. Liquid Assets
Portfolio........................................ 54,910,903 54,910,903
--------------
TOTAL INVESTMENT COMPANIES 77,605,170
--------------
TOTAL INVESTMENTS
(Amortized Cost $1,188,241,205)(a)--100.3% 1,188,241,205
Liabilities in excess of other assets--(0.3)% (3,668,505)
--------------
TOTAL NET ASSETS--100.0% $1,184,572,700
==============
</TABLE>
-----
(a) Cost for federal income tax and financial reporting purposes are the same.
See notes to the financial statements.
11
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Money Market Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
May 31, 2000
(Unaudited)
<S> <C> <C>
Assets:
Investments, at value (cost $1,188,241,205)........ $1,188,241,205
Receivable for capital shares sold................. 16,657
Interest receivable................................ 3,425,693
Prepaid expenses and other assets.................. 17,426
--------------
Total Assets...................................... 1,191,700,981
Liabilities:
Dividends payable.................................. $6,062,018
Payable to affiliates.............................. 676,131
Accrued expenses................................... 390,132
----------
Total Liabilities................................. 7,128,281
--------------
Net Assets:
Capital............................................ 1,184,571,603
Undistributed net investment income................ 6,015
Accumulated net realized losses from investment
transactions...................................... (4,918)
--------------
Net Assets......................................... $1,184,572,700
==============
Investor A Shares
Net Assets........................................ $ 13,262,982
Shares............................................ 13,262,589
Offering and redemption price per share........... $1.00
=====
Investor B Shares
Net Assets........................................ $ 50,039
Shares............................................ 50,040
Offering price per share*......................... $1.00
=====
Trust Shares
Net Assets........................................ $ 612,163,048
Shares............................................ 612,140,587
Offering and redemption price per share........... $1.00
=====
Institutional Shares
Net Assets........................................ $ 29,360,990
Shares............................................ 29,359,860
Offering and redemption price per share........... $1.00
=====
Trust II Shares
Net Assets........................................ $ 529,735,641
Shares............................................ 529,757,531
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 six months ended May 31, 2000
(Unaudited)
<S> <C> <C>
Investment Income:
Interest income........................................ $42,604,494
-----------
Total Investment Income 42,604,494
Expenses:
Investment advisory fees............................... $2,833,735
Administration fees.................................... 1,420,192
Distribution and services fees, Investor A Shares...... 71,319
Distribution and services fees, Investor B Shares...... 552
Administrative services fees, Trust Shares............. 940,111
Administrative services fees, Institutional Shares..... 43,385
Accounting fees........................................ 881
Custodian fees......................................... 142,010
Transfer agent fees.................................... 401,350
Other.................................................. 291,670
----------
Total expenses before voluntary fee reductions......... 6,145,205
Expenses voluntarily reduced........................... (1,008,662)
-----------
Net Expenses........................................... 5,136,543
-----------
Net Investment Income.................................. 37,467,951
-----------
Realized/Unrealized Losses from Investments:
Net realized losses from investment transactions....... (41)
-----------
Change in net assets resulting from operations......... $37,467,910
===========
</TABLE>
See notes to financial statements
12
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Money Market Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
six months For the
ended year ended
May 31, 2000 November 30,
(Unaudited) 1999
-------------- --------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income........................ $ 37,467,951 $ 71,294,708
Net realized losses from investment
transactions................................ (41) --
-------------- --------------
Change in net assets resulting from
operations................................... 37,467,910 71,294,708
-------------- --------------
Distributions to Investor A Shareholders:
From net investment income................... (1,433,735) (10,753,522)
Distributions to Investor B Shareholders:
From net investment income................... (2,290) (2,773)
Distributions to Trust Shareholders:
From net investment income................... (19,610,261) (31,077,088)
Distributions to Institutional Shareholders:
From net investment income................... (900,748) (1,666,075)
Distributions to Trust II Shareholders:
From net investment income................... (15,522,137) (27,795,250)
-------------- --------------
Change in net assets from shareholder
distributions................................ (37,469,171) (71,294,708)
-------------- --------------
Change in net assets from capital
transactions................................. (393,470,701) 34,899,243
-------------- --------------
Change in net assets.......................... (393,471,962) 34,899,243
Net Assets:
Beginning of period.......................... 1,578,044,662 1,543,145,419
-------------- --------------
End of period................................ $1,184,572,700 $1,578,044,662
============== ==============
</TABLE>
See notes to financial statements
13
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Money Market Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
six months
ended
May 31, For the years ended November 30,
2000 -------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
----------- -------- -------- -------- ------- -------
<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.. 0.026 0.043 0.048 0.048 0.047 0.052
Net realized gains from
investments........... -- -- -- (a) -- -- --
------- -------- -------- -------- ------- -------
Total from Investment
Activities............ 0.026 0.043 0.048 0.048 0.047 0.052
------- -------- -------- -------- ------- -------
Distributions:
Net investment income.. (0.026) (0.043) (0.048) (0.048) (0.047) (0.052)
------- -------- -------- -------- ------- -------
Total Distributions.... (0.026) (0.043) (0.048) (0.048) (0.047) (0.052)
------- -------- -------- -------- ------- -------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======== ======== ======= =======
Total Return............ 2.63%(b) 4.43% 4.95% 4.93% 4.81% 5.33%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $13,263 $255,404 $203,583 $164,777 $91,166 $64,865
Ratio of expenses to
average net assets..... 0.82%(c) 0.80% 0.78% 0.77% 0.78% 0.77%
Ratio of net investment
income to average net
assets................. 5.19%(c) 4.34% 4.83% 4.84% 4.70% 5.20%
Ratio of expenses to
average net assets*.... 0.97%(c) 0.94% 0.93% 0.92% 0.93% 0.92%
</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) Net realized gains per share were less than $0.005. (b) Not annualized.
(c) Annualized.
Financial Highlights, Investor B Shares
<TABLE>
<CAPTION>
For the
six months For the years ended
ended November 30, January 26, 1996
May 31, 2000 ------------------------- to November 30,
(Unaudited) 1999 1998 1997 1996 (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.. 0.022 0.036 0.041 0.041 0.033
Net realized gains from
investments........... -- -- -- (d) -- --
------ ------ ------ ------ ------
Total from Investment
Activities............ 0.022 0.036 0.041 0.041 0.033
------ ------ ------ ------ ------
Distributions:
Net investment income.. (0.022) (0.036) (0.041) (0.041) (0.033)
------ ------ ------ ------ ------
Total Distributions.... (0.022) (0.036) (0.041) (0.041) (0.033)
------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
Total Return (excludes
redemption charge)..... 2.20%(b) 3.65% 4.17% 4.15% 3.35%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 50 $ 173 $ 84 $ 73 $ 41
Ratio of expenses to
average net assets..... 1.57%(c) 1.55% 1.53% 1.52% 1.47%(c)
Ratio of net investment
income to average net
assets................. 4.44%(c) 3.61% 4.09% 4.10% 3.73%(c)
Ratio of expenses to
average net assets*.... 1.72%(c) 1.67% 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.
See notes to financial statements
14
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Money Market Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the
six months
ended For the years ended November 30,
May 31, 2000 -----------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
------------ -------- -------- ---------- -------- --------
<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.. 0.026 0.043 0.050 0.050 0.049 0.054
Net realized gains from
investments........... -- -- -- (a) -- -- --
-------- -------- -------- ---------- -------- --------
Total from Investment
Activities............ 0.026 0.043 0.050 0.050 0.049 0.054
-------- -------- -------- ---------- -------- --------
Distributions:
Net investment income.. (0.026) (0.043) (0.050) (0.050) (0.049) (0.054)
-------- -------- -------- ---------- -------- --------
Total Distributions.... (0.026) (0.043) (0.050) (0.050) (0.049) (0.054)
-------- -------- -------- ---------- -------- --------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========== ======== ========
Total Return............ 2.63%(b) 4.43% 5.08% 5.06% 4.99% 5.52%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $612,163 $734,262 $820,923 $1,042,151 $717,265 $698,131
Ratio of expenses to
average net assets..... 0.82%(c) 0.80% 0.66% 0.64% 0.61% 0.59%
Ratio of net investment
income to average net
assets................. 5.19%(c) 4.34% 4.97% 4.96% 4.88% 5.38%
Ratio of expenses to
average net assets*.... 0.97%(c) 0.94% 0.93% 0.92% 0.76% 0.74%
</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) Net realized gains per share were less than $0.005. (b) Not annualized.
(c) Annualized.
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
For the
six months
ended For the years ended November 30,
May 31, 2000 ----------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
------------ ------- ------- ------- ------- -------
<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.. 0.026 0.043 0.048 0.048 0.047 0.052
Net realized gains from
investments........... -- -- -- (a) -- -- --
------- ------- ------- ------- ------- -------
Total from Investment
Activities............ 0.026 0.043 0.048 0.048 0.047 0.052
------- ------- ------- ------- ------- -------
Distributions:
Net investment income.. (0.026) (0.043) (0.048) (0.048) (0.047) (0.052)
------- ------- ------- ------- ------- -------
Total Distributions.... (0.026) (0.043) (0.048) (0.048) (0.047) (0.052)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total Return............ 2.63%(b) 4.43% 4.95% 4.93% 4.81% 5.33%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $29,361 $36,088 $28,536 $22,022 $15,921 $13,340
Ratio of expenses to
average net assets..... 0.82%(c) 0.80% 0.78% 0.77% 0.78% 0.77%
Ratio of net investment
income to average net
assets................. 5.19%(c) 4.33% 4.84% 4.83% 4.70% 5.20%
Ratio of expenses to
average net assets*.... 0.97%(c) 0.94% 0.93% 0.92% 0.93% 0.92%
</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) Net realized gains per share were less than $0.005. (b) Not annualized.
(c) Annualized.
See notes to financial statements
15
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Money Market Portfolio
Financial Highlights, Trust II Shares
<TABLE>
<CAPTION>
For the
six months For the November 10, 1998
ended year ended to
May 31, 2000 November 30, November 30, 1998
(Unaudited) 1999 (a)
------------ ------------ -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period......................... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Investment Activities:
Net investment income.......... 0.027 0.046 0.003
-------- -------- --------
Total from Investment
Activities.................... 0.027 0.046 0.003
-------- -------- --------
Distributions:
Net investment income.......... (0.027) (0.046) (0.003)
-------- -------- --------
Total Distributions............ (0.027) (0.046) (0.003)
-------- -------- --------
Net Asset Value, End of Period.. $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return.................... 2.75%(b) 4.68% 0.27%(b)
Ratios/Supplementary Data:
Net Assets at end of period
(000).......................... $529,736 $552,118 $490,020
Ratio of expenses to average net
assets......................... 0.59%(c) 0.56% 0.56%(c)
Ratio of net investment income
to average net assets.......... 5.42%(c) 4.57% 4.76%(c)
Ratio of expenses to average net
assets*........................ 0.74%(c) 0.70% 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.
See notes to financial statements
16
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE>
Mercantile Tax-Exempt Money Market Portfolio+, ++
Q. What is the objective of the Portfolio?
A. The Mercantile Tax-Exempt Money Market Portfolio seeks as high a level of
current interest income exempt from federal income taxes as is consistent with
liquidity and stability of principal.
Q. What were the conditions in the money markets during the six months ended
May 31, 2000?
A. Short-term tax-exempt variable rate demand note yields rose to the 6.00%
level by the end of April, 2000 and then fell back to the 4.50% level by the
end of May, 2000.
Q. How did you position the Portfolio to address these conditions?
A. The Portfolio maintained a relatively short average maturity. We were
heavily weighted in tax-exempt variable rate demand notes as their yields were
very attractive.
Q. How did you allocate the Portfolio's assets among various types of
securities?
A. In general, we favored daily and weekly securities as their yields were
very attractive. Tax-exempt variable rate demand notes comprised most of the
Portfolio.*
Q. How will you manage the Portfolio during the coming months?
A. We expect continued fluctuations in short-term tax-exempt rates. We will
maintain an average maturity comparable to industry benchmarks. Emphasis will
continue to be placed on maintaining a high-quality profile of securities that
are not subject to the alternative minimum tax.
-----
+ An investment in the Portfolio is not insured or guaranteed by the FDIC or
any other government agency. Although the Portfolio seeks to preserve the
value of your investment at $1.00 per share, it is possible to lose money by
investing in the Portfolio.
++ 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.
18
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Tax-Exempt Money Market Portfolio May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds (93.4%):
Security Principal Amortized
Description Amount Cost
----------- ---------- ------------
<S> <C> <C>
Florida (3.6%):
Jacksonville Health Facilities Authority, Daughters
Health Revenue, 7.50%, Prerefunded 11/1/00........... $5,000,000 $ 5,162,156
------------
Georgia (5.6%):
Putnam County Development Authority, Pollution Control
Revenue, Georgia Power Co. Plant--2nd Series, 4.34%,
9/1/29*#............................................. 8,000,000 8,000,000
------------
Idaho (3.5%):
Idaho State, Tax Anticipation Notes, G.O., 4.25%,
6/30/00.............................................. 5,000,000 5,003,254
------------
Illinois (15.6%):
Chicago, O'Hare International Airport Revenue,
American Airlines, Inc., 4.34%, 12/1/17 (LOC-Royal
Bank of Canada)*#.................................... 8,000,000 8,000,000
Chicago, O'Hare International Airport Revenue,
American Airlines, Inc., 4.34%, 12/1/17 (LOC-Credit
Suisse)*#............................................ 6,500,000 6,500,000
Illinois State Health Facilities Authority Revenue,
University Chicago Hospitals, 4.34%, 8/1/26 (MBIA
Insured, SPA-Bank One, IL)*#......................... 8,000,000 8,000,000
------------
22,500,000
------------
Indiana (4.7%):
Indiana State Hopital Equipment Financing Authority
Revenue, 4.24%, 12/1/15 (MBIA Insured, SPA-NBD
Bank)*#.............................................. 6,700,000 6,700,000
------------
Iowa (1.4%):
Iowa State, School Cash Anticipation Program,
(Warrants) Iowa School Corp. Series A, 4.00%, 6/23/00
(FSA Insured)........................................ 2,000,000 2,000,898
------------
Kentucky (2.2%):
Lexington-Fayette Urban County Airport Revenue, Series
A, 4.49%, 7/1/28, AMT (MBIA Insured, SPA-Credit Local
De France)*#......................................... 3,200,000 3,200,000
------------
Louisiana (4.9%):
St. Charles Parish Pollution Control Revenue, Shell
Oil Co. Project, 4.34%, 10/1/25*#.................... 7,000,000 7,000,000
------------
Minnesota (3.4%):
Minneapolis Community Development Agency, Pollution
Control Revenue, Northern States Power Co. Project,
4.19%, 3/1/11*#...................................... 4,850,000 4,850,000
------------
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Amortized
Description Amount Cost
----------- ---------- ------------
<S> <C> <C>
Missouri (11.3%):
Missouri State Environmental Improvement and Energy
Resource Authority, Pollution Control Revenue,
Monsanto Co. Project, 4.24%, 6/1/23*#................ $1,000,000 $ 1,000,000
Missouri State Health & Educational Facilities
Authority, Educational Facilities Revenue, St. Louis
University, 4.09%, 9/1/10*#.......................... 4,600,000 4,600,000
Missouri State Health & Educational Facilities
Authority, Educational Facilities Revenue, St. Louis
University, 4.09%, 9/1/10 (SPA-Morgan Guaranty
Trust)*#............................................. 1,000,000 1,000,000
Missouri State Health & Educational Facilities
Authority, Educational Facilities Revenue, St. Louis
University, 4.09%, 12/1/15 (LOC-Morgan Guaranty
Trust)*#............................................. 6,800,000 6,800,000
Missouri State Health & Educational Facilities
Authority, Educational Facilities Revenue, St. Louis
University, 4.14%, 12/1/19*#......................... 2,900,000 2,900,000
------------
16,300,000
------------
New Hampshire (2.8%):
New Hampshire Health & Educational Facilities
Authority Revenue, Series G, 4.19%, 12/1/25 (AMBAC,
SPA-Mellon Bank N.A.)*#.............................. 4,000,000 4,000,000
------------
New Mexico (2.1%):
Albuquerque, Public Improvements, G.O., Series C,
4.50%, 7/1/00........................................ 3,000,000 3,002,151
------------
New York (2.8%):
New York State Medical Care Facilities, Beth Israel
Medical Center, Series A, 7.50%, Prerefunded 11/1/00
(MBIA)............................................... 1,690,000 1,744,486
New York State Medical Care Facilities, Financial
Agency Revenue, 7.88%, Prerefunded 8/15/00........... 2,190,000 2,248,398
------------
3,992,884
------------
Oklahoma (3.5%):
Tulsa Industrial Authority Revenue, University of
Tulsa, 4.29%, 10/1/26 (MBIA, SPA-Credit Local de
France)*#............................................ 5,000,000 5,000,000
------------
Oregon (3.1%):
Oregon State, Series 73 G, G.O., 4.09%, 12/1/18 (SPA-
Morgan Guaranty Trust)*#............................. 4,500,000 4,500,000
------------
Tennessee (3.5%):
Memphis, Series A, G.O., 4.19%, 8/1/04 (SPA-
Westdeutshe Landesbank)*#............................ 5,000,000 5,000,000
------------
</TABLE>
Continued
19
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Tax-Exempt Money Market Portfolio May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Amortized
Description Amount Cost
----------- ---------- ------------
<S> <C> <C>
Texas (14.5%):
Harris County Health Facilities Development, Hospital
Revenue, 4.3381%, 12/1/25 (SPA-Morgan Guaranty
Trust)*#.............................................. $7,000,000 $ 7,000,000
North Central Texas Health Facilities Development,
Methodist Hospitals of Dallas Revenue, 4.34%, 10/1/15
(MBIA, SPA-Rabobank Netherlands)*#.................... 3,700,000 3,700,000
Port Corpus Christi, Port, Airport & Marina Revenue,
Reynolds Metals Co., 3.99%, 9/1/14 (LOC--Westdeutsche
Landesbank)*#......................................... 2,200,000 2,200,000
Texas State, Multi-Modal-Water Development Board,
Series A, 4.34%, 3/1/15 (SPA-State Street Bank & Trust
Co.)*#................................................ 8,000,000 8,000,000
------------
20,900,000
------------
Utah (1.4%):
Salt Lake County, Pollution Control Revenue, SVC
Station Holdings Project, British Petroleum Co.,
Series B, 4.29%, 8/1/07*#............................. 2,000,000 2,000,000
------------
Washington (3.5%):
Washington State Public Power Supply, Series B, 7.00%,
Prerefunded 7/1/00.................................... 5,000,000 5,107,170
------------
TOTAL MUNICIPAL BONDS............................................. 134,218,513
------------
</TABLE>
<TABLE>
<CAPTION>
Investment Companies (6.3%):
Security Amortized
Description Shares Cost
----------- ---------- ------------
<S> <C> <C>
AIM Tax-Free Trust..................................... 3,836,243 $ 3,836,243
Federated Tax-Free Fund................................ 5,226,668 5,226,668
------------
TOTAL INVESTMENT COMPANIES 9,062,911
------------
TOTAL INVESTMENTS (Amortized Cost $143,281,424)(a)--99.7% 143,281,424
Other assets in excess of liabilities--0.3% 429,637
------------
TOTAL NET ASSETS--100.0% $143,711,061
============
</TABLE>
-----
(a) Cost for federal income tax and financial reporting purposes are the same.
* Variable rate security.
# Stated maturity with option to put.
AMBAC AMBAC Indemnity 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>
<S> <C> <C>
Statement of Assets and Liabilities
May 31, 2000
(Unaudited)
Assets:
Investments, at value (cost $143,281,424)................ $143,281,424
Interest receivable...................................... 1,049,910
Prepaid expenses and other assets........................ 4,021
------------
Total Assets............................................ 144,335,355
Liabilities:
Dividends payable........................................ $519,157
Payable to affiliates.................................... 82,550
Accrued expenses......................................... 22,587
--------
Total Liabilities....................................... 624,294
------------
Net Assets:
Capital.................................................. 143,698,869
Undistributed net investment income...................... 12,192
------------
Net Assets............................................... $143,711,061
============
Investor A Shares
Net Assets.............................................. $ 275,152
Shares.................................................. 275,082
Offering and redemption price per share................. $1.00
=====
Trust Shares
Net Assets.............................................. $ 28,306,119
Shares.................................................. 28,306,085
Offering and redemption price per share................. $1.00
=====
Trust II Shares
Net Assets.............................................. $115,129,790
Shares.................................................. 115,129,791
Offering and redemption price per share................. $1.00
=====
</TABLE>
<TABLE>
<S> <C> <C>
Statement of Operations
For the six months ended May 31, 2000
(Unaudited)
Investment Income:
Interest income............................................ $3,088,496
----------
Total Investment Income .................................. 3,088,496
----------
Expenses:
Investment advisory fees................................... $323,938
Administration fees........................................ 80,983
Distribution and services fees, Investor A Shares.......... 2,724
Administrative services fees, Trust Shares................. 48,758
Accounting fees............................................ 915
Custodian fees............................................. 16,196
Transfer agent fees........................................ 43,300
Other...................................................... 34,396
--------
Total expenses before voluntary fee reductions............ 551,210
Expenses voluntarily reduced.............................. (40,492)
----------
Net Expenses.............................................. 510,718
----------
Net Investment Income...................................... 2,577,778
----------
Change in net assets resulting from operations............. $2,577,778
==========
</TABLE>
See notes to financial statements
21
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Tax-Exempt Money Market Portfolio
<TABLE>
<S> <C> <C>
Statements of Changes in Net Assets
<CAPTION>
For the six For the
months ended year ended
May 31, 2000 November 30,
(Unaudited) 1999
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................ $ 2,577,778 $ 4,608,180
------------ ------------
Change in net assets resulting from operations.... 2,577,778 4,608,180
------------ ------------
Distributions to Investor A Shareholders:
From net investment income....................... (32,089) (303,265)
Distributions to Trust Shareholders:
From net investment income....................... (584,972) (791,156)
Distributions to Trust II Shareholders:
From net investment income....................... (1,960,685) (3,513,759)
------------ ------------
Change in net assets from shareholder
distributions.................................... (2,577,746) (4,608,180)
------------ ------------
Change in net assets from capital transactions.... (30,309,203) 388,594
------------ ------------
Change in net assets.............................. (30,309,171) 388,594
Net Assets:
Beginning of period.............................. 174,020,232 173,631,638
------------ ------------
End of period.................................... $143,711,061 $174,020,232
============ ============
</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 years ended November 30,
-----------------------------------
For the six For the For the
months ended six months ended year ended
May 31, 2000 November 30, May 31,
(Unaudited) 1999 1998 1997 1996 1995 (a) 1995 (d)
------------ ------- ------- -------- ------- ---------------- ------------
<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.. 0.015 0.024 0.027 0.028 0.028 0.014 0.027
------- ------- ------- -------- ------- ------- -------
Total from Investment
Activities............ 0.015 0.024 0.027 0.028 0.028 0.014 0.027
------- ------- ------- -------- ------- ------- -------
Distributions:
Net investment income.. (0.015) (0.024) (0.027) (0.028) (0.028) (0.014) (0.027)
------- ------- ------- -------- ------- ------- -------
Total Distributions.... (0.015) (0.024) (0.027) (0.028) (0.028) (0.014) (0.027)
------- ------- ------- -------- ------- ------- -------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======== ======= ======= =======
Total Return............ 1.53%(b) 2.44% 2.72% 2.88% 2.83% 1.45%(b) 2.70%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 275 $11,306 $13,980 $ 15,789 $17,984 $ 5,403 $ 5,138
Ratio of expenses to
average net assets..... 0.80%(c) 0.79% 0.79% 0.77% 0.75% 0.94%(c) 0.84%
Ratio of net investment
income to average net
assets................. 3.01%(c) 2.40% 2.68% 2.82% 2.78% 2.87%(c) 2.63%
Ratio of expenses to
average net assets*.... 0.85%(c) 0.84% 0.84% 0.82% 0.80% 0.99%(c) 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) Upon reorganizing as a portfolio of the ARCH Fund, Inc., the Tax-Exempt
Money Market Portfolio changed its fiscal year end from May 31 to November 30.
(b) Not annualized. (c) Annualized. (d) On September 27, 1994, the Portfolio
redesignated the Investor Shares as "Investor A" Shares.
Financial Highlights, Trust Shares
<CAPTION>
For the years ended November 30,
For the six ----------------------------------- For the
months ended six months ended For the
May 31, 2000 November 30, year ended
(Unaudited) 1999 1998 1997 1996 1995 (a) May 31, 1995
------------ ------- ------- -------- ------- ---------------- ------------
<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.. 0.015 0.024 0.029 0.030 0.030 0.016 0.029
------- ------- ------- -------- ------- ------- -------
Total from Investment
Activities............ 0.015 0.024 0.029 0.030 0.030 0.016 0.029
------- ------- ------- -------- ------- ------- -------
Distributions:
Net investment income.. (0.015) (0.024) (0.029) (0.030) (0.030) (0.016) (0.029)
------- ------- ------- -------- ------- ------- -------
Total Distributions.... (0.015) (0.024) (0.029) (0.030) (0.030) (0.016) (0.029)
------- ------- ------- -------- ------- ------- -------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======== ======= ======= =======
Total Return............ 1.53%(b) 2.44% 2.92% 3.08% 3.06% 1.57%(b) 2.93%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $28,306 $38,415 $37,541 $143,517 $95,726 $78,031 $85,324
Ratio of expenses to
average net assets..... 0.80%(c) 0.79% 0.59% 0.58% 0.53% 0.70%(c) 0.61%
Ratio of net investment
income to average net
assets................. 3.01%(c) 2.42% 2.88% 3.04% 3.01% 3.10%(c) 2.87%
Ratio of expenses to
average net assets*.... 0.85%(c) 0.84% 0.84% 0.83% 0.58% 0.75%(c) 0.70%
</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) Upon reorganizing as a portfolio of the ARCH Fund, Inc., the Tax-Exempt
Money Market Portfolio changed its fiscal year end from May 31 to November 30.
(b) Not annualized. (c) Annualized.
See notes to financial statements
23
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Tax-Exempt Money Market Portfolio
Financial Highlights, Trust II Shares
<TABLE>
<CAPTION>
For the
six months For the November 16, 1998
ended year ended to
May 31, 2000 November 30, November 30, 1998
(Unaudited) 1999 (a)
------------ ------------ -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period......................... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Investment Activities:
Net investment income.......... 0.016 0.026 0.001
-------- -------- --------
Total from Investment
Activities.................... 0.016 0.026 0.001
-------- -------- --------
Distributions:
Net investment income.......... (0.016) (0.026) (0.001)
-------- -------- --------
Total Distributions............ (0.016) (0.026) (0.001)
-------- -------- --------
Net Asset Value, End of Period.. $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return.................... 1.65%(b) 2.68% 0.11%(b)
Ratios/Supplementary Data:
Net Assets at end of period
(000).......................... $115,130 $124,299 $122,110
Ratio of expenses to average net
assets......................... 0.57%(c) 0.55% 0.57%(c)
Ratio of net investment income
to average net assets.......... 3.24%(c) 2.64% 2.69%(c)
Ratio of expenses to average net
assets*........................ 0.62%(c) 0.60% 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.
See notes to financial statements
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 reporting
period?
A. Over the past six months, the Federal Reserve has raised short-term rates
three times. The Federal Funds rate (the rate at which domestic banks can
borrow from the Federal Government) has gone from 5.50% to 6.50%. Treasury bond
yields have followed the Fed Funds rate increase, but on a slightly smaller
scale. The three-month Treasury Bill went from a yield of 5.30% at the
beginning of the period to 5.60% at the end of the period. The six-month
Treasury Bill had the largest change and tracked closer to the Fed Funds level
than any other security, going from 5.50% to 6.30%. The longer maturity
Treasuries had even less of a yield increase, in fact, the thirty-year Treasury
yield dropped from 6.30% to 6.00% over the period.
The primary reason that short-term rates have risen more than long-term rates
is the U.S. Government program to reduce the Federal debt. Since the Treasury
has been running large budget surpluses, they have initiated a buyback program
of the longer maturity Treasury debt. This has caused a perceived shortage of
long-term Treasury Bonds and as a result, investors have bid up the price of
these securities.
Q. How did you manage the Portfolio's sector exposure and credit quality in
that environment?
A. The credit quality of the Portfolio remains unchanged at AAA. The
composition of the Portfolio changed slightly, the mortgage-backed portion of
the Portfolio going from 73% to 80%, and the exposure to U.S. Government
agencies dropping from 20% to 12%.*
Q. How did you manage the Portfolio's average maturity and duration during
the period?
A. The average maturity of the Portfolio went from 4.5 years to 4.3 years.
The duration of the Portfolio declined slightly from 3.2 years to 3.1 years.
The Portfolio's duration continues to track very closely to that of the Lehman
Brothers Intermediate Government Bond Index, which currently has a duration of
3.2 years. Unexpected cash inflows and outflows at the end of the month causes
the duration of the Portfolio to drift slightly away from the Index at times.
For this reason, we constantly monitor and adjust the Portfolio's holdings to
remain duration neutral to the Index.
Q. What is your outlook for the Treasury market?
A. At this point in time, Treasuries appear to be expensive relative to other
sectors of the market. Based on historical comparisons, they are particularly
expensive as compared to the agency and mortgaged-backed sectors of the market.
We believe our rather large holdings in these two sectors and our avoidance of
the Treasury market should provide good relative returns.
-----
* Portfolio composition is subject to change.
26
<PAGE>
Mercantile U.S. Government Securities Portfolio
[GRAPH]
Value of a $10,000 Investment
Lehman Brothers
Investor A Investor A Investor B Intermediate
(No Load) (Load) (No CDSC)* Government Bond Index
5/90 10,000 9,600 10,000 10,000
5/91 11,212 10,764 11,212 11,190
5/92 12,416 11,920 12,416 12,460
5/93 13,599 13,055 13,599 13,710
5/94 13,674 13,127 13,674 13,880
5/95 15,105 14,500 15,061 15,140
5/96 15,633 15,008 15,481 15,826
5/97 16,602 15,938 16,328 16,953
5/98 17,781 17,070 17,366 18,407
5/99 18,460 17,722 17,938 19,324
5/00 18,817 18,064 18,176 19,904
Average Annual Total Returns
as of 5/31/00
1 Year 5 Year 10 Year
Investor A (No Load) 1.93% 4.49% 6.53%
Investor A* -2.14% 3.64% 6.09%
Investor B (No CDSC) 1.33% 3.77% 6.41%
Investor B (CDSC)** -3.51% 3.45% 6.41%
* Reflects 4.00% sales charge.
** Reflects applicable contingent deferred sales charge
(maximum 5.00%).
[GRAPH]
Value of a $10,000 Investment
Lehman Brothers
Intermediate
Institutional Trust Government Bond Index
5/90 10,000 10,000 10,000
5/91 11,212 11,221 11,190
5/92 12,416 12,463 12,460
5/93 13,599 13,691 13,710
5/94 13,674 13,807 13,880
5/95 15,058 15,297 15,140
5/96 15,582 15,880 15,826
5/97 16,533 16,915 16,953
5/98 17,706 18,170 18,407
5/99 18,399 18,921 19,324
5/00 18,734 19,344 19,904
Average Annual Total Returns
as of 5/31/00
1 Year 5 Year 10 Year
Trust 2.24% 4.81% 6.82%
Institutional 1.82% 4.47% 6.48%
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 graphs reflects the
deduction of these value-added services, as well as the deduction of a 4.00%
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, 2000 (Unaudited)
<TABLE>
<CAPTION>
U.S. Government Agencies (93.1%):
Security Principal Market
Description Amount Value
----------- ---------- -----------
<S> <C> <C>
Federal Home Loan Mortgage Corp. (43.3%):
6.00%, 11/1/00, Pool #190070............................ $ 210,602 $ 208,505
5.00%, 2/15/01.......................................... 3,000,000 2,961,543
9.50%, 9/1/04, Pool #380053............................. 5,347 5,454
8.50%, 3/1/06, Gold Pool #E00022........................ 104,426 105,673
7.50%, 4/1/08, Gold Pool #E45929........................ 146,574 145,171
6.00%, 2/1/11, Gold Pool #E62600........................ 289,131 271,376
6.50%, 2/1/11, Gold Pool #E00419........................ 470,865 449,382
7.00%, 7/1/11, Gold Pool #31335K........................ 430,038 417,586
7.00%, 11/1/11, Gold Pool #E65619....................... 274,794 266,837
6.50%, 1/1/12, Gold Pool #E00465........................ 622,088 593,706
6.00%, 2/1/12, Gold Pool #E66284........................ 990,093 925,785
6.50%, 2/1/12, Gold Pool #E66172........................ 368,849 351,392
6.50%, 2/1/12, Gold Pool #E66272........................ 620,544 592,233
6.00%, 3/1/12, Gold Pool #E66474........................ 801,212 749,172
7.50%, 9/1/12, Gold Pool #G10735........................ 2,156,946 2,129,899
5.50%, 12/1/12, Gold Pool #E68353....................... 3,548,702 3,254,033
6.00%, 3/1/13, Gold Pool #E69338........................ 821,853 766,799
6.00%, 4/1/13, Gold Pool #E70028........................ 765,852 716,108
6.00%, 4/1/13, Pool #E00543............................. 1,617,862 1,509,484
5.50%, 5/1/13, Gold Pool #G10814........................ 1,675,907 1,529,606
6.00%, 5/1/13, Gold Pool #E00549........................ 4,144,644 3,867,003
6.50%, 10/1/13, Gold Pool #E00574....................... 825,766 785,321
5.50%, 3/1/14, Gold Pool #E00633........................ 1,373,759 1,253,835
6.50%, 7/1/14, Gold Pool #E77812........................ 943,342 896,697
7.00%, 9/1/14, Gold Pool #E00746........................ 2,852,299 2,763,426
-----------
27,516,026
-----------
Federal National Mortgage Assoc. (40.2%):
5.36%, 2/16/01.......................................... 5,000,000 4,945,415
6.00%, 3/1/11, Pool #340503............................. 647,607 610,364
6.50%, 5/1/11, Pool #335713............................. 660,293 629,990
6.50%, 5/1/11, Pool #346276............................. 423,217 403,794
6.50%, 7/1/11, Pool #351761............................. 469,283 447,746
6.50%, 7/1/11, Pool #250613............................. 1,160,387 1,107,133
7.00%, 11/1/11, Pool #250738............................ 188,232 182,738
7.00%, 11/1/11, Pool #351122............................ 148,890 144,544
7.00%, 11/1/11, Pool #349630............................ 201,993 196,098
6.50%, 12/1/11, Pool #368127............................ 707,397 674,933
6.50%, 12/1/11, Pool #250781............................ 1,127,286 1,075,551
6.50%, 12/1/11, Pool #367868............................ 626,647 597,888
5.50%, 3/1/13, Pool #420158............................. 1,537,856 1,401,209
6.00%, 4/1/13, Pool #251656............................. 792,545 738,215
6.00%, 4/1/13, Pool #425550............................. 2,577,320 2,400,640
6.50%, 8/1/13, Pool #251901............................. 2,035,305 1,935,010
6.00%, 11/1/13, Pool #323379............................ 838,701 781,207
5.50%, 1/1/14, Pool #482515............................. 900,177 820,191
6.50%, 4/1/14, Pool #492264............................. 922,627 876,717
7.00%, 7/1/14, Pool #252637............................. 2,689,125 2,605,093
7.00%, 10/1/14, Pool #252799............................ 1,902,575 1,843,122
8.00%, 7/1/24, Pool #190264............................. 541,088 538,153
6.50%, 10/1/27, Pool #400141............................ 685,490 635,945
-----------
25,591,696
-----------
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Agencies, continued
Security Principal Market
Description Amount Value
----------- --------- ----------
<S> <C> <C>
Government National Mortgage Assoc. (9.6%):
8.00%, 1/15/07, Pool #315126.............................. $ 49,924 $ 50,604
6.50%, 5/15/08, Pool #340791.............................. 34,822 33,676
9.00%, 7/15/09, Pool #390782.............................. 135,222 139,653
9.00%, 11/15/09, Pool #359559............................. 174,881 180,611
8.00%, 10/15/10, Pool #414750............................. 251,741 254,743
6.50%, 11/15/10, Pool #414786............................. 75,656 72,865
6.50%, 2/15/11, Pool #373569.............................. 192,889 185,442
6.50%, 3/15/11, Pool #416179.............................. 30,712 29,526
6.50%, 3/15/11, Pool #406466.............................. 241,787 232,452
6.50%, 3/15/11, Pool #410935.............................. 406,714 391,012
6.50%, 3/15/11, Pool #344973.............................. 203,917 196,045
6.50%, 3/15/11, Pool #408253.............................. 234,466 225,414
6.50%, 4/15/11, Pool #416060.............................. 455,412 437,830
6.50%, 4/15/11, Pool #422652.............................. 299,815 288,240
6.50%, 5/15/11, Pool #408304.............................. 211,587 203,418
6.50%, 5/15/11, Pool #422814.............................. 44,192 42,486
6.50%, 5/15/11, Pool #433036.............................. 102,293 98,343
6.50%, 6/15/11, Pool #421731.............................. 170,565 163,980
6.50%, 6/15/11, Pool #432993.............................. 83,340 80,122
6.50%, 7/15/11, Pool #424521.............................. 218,010 209,593
6.50%, 7/15/11, Pool #433088.............................. 563,027 541,291
8.50%, 5/15/17, Pool #219152.............................. 69,897 71,654
8.50%, 6/15/21, Pool #307921.............................. 106,147 108,703
7.50%, 12/15/22, Pool #347332............................. 893,033 881,439
8.00%, 5/15/23, Pool #352469.............................. 226,378 227,636
9.50%, 1/15/25, Pool #384421.............................. 17,790 18,517
9.50%, 2/15/25, Pool #401796.............................. 18,163 18,905
9.50%, 2/15/25, Pool #392967.............................. 2,231 2,322
9.50%, 2/15/25, Pool #365292.............................. 294,988 307,040
9.50%, 3/15/25, Pool #407257.............................. 82,113 85,467
9.50%, 4/15/25, Pool #386741.............................. 77,295 80,453
7.00%, 9/15/27, Pool #455304.............................. 260,405 250,223
----------
6,109,705
----------
TOTAL U.S. GOVERNMENT AGENCIES 59,217,427
----------
<CAPTION>
U.S. Treasury Bonds (0.3%):
<S> <C> <C>
6.38%, 1/31/02............................................ 175,000 173,961
----------
TOTAL U.S. TREASURY BONDS 173,961
----------
<CAPTION>
U.S. Treasury Notes (2.3%):
<S> <C> <C>
5.63%, 2/28/01............................................ 1,450,000 1,440,485
----------
TOTAL U.S. TREASURY NOTES 1,440,485
----------
</TABLE>
Continued
28
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
U.S. Government Securities Portfolio May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Investment Companies (5.1%):
Security Market
Description Shares Value
----------- ---------- -----------
<S> <C> <C>
Federated Trust for U.S. Treasury Obligations........... 3,264,100 $ 3,264,100
-----------
TOTAL INVESTMENT COMPANIES 3,264,100
-----------
TOTAL INVESTMENTS
(Cost $66,521,895)(a)--100.8% 64,095,973
Liabilities in excess of other assets--(0.8)% (514,359)
-----------
TOTAL NET ASSETS--100.0% $63,581,614
===========
</TABLE>
-----
(a) Represents cost for federal income tax and financial reporting purposes and
differs from value by net unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.. $ 29,492
Unrealized depreciation.. (2,455,414)
-----------
Net unrealized deprecia-
tion.................... $(2,425,922)
===========
</TABLE>
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, 2000
(Unaudited)
<S> <C> <C>
Assets:
Investments, at value (cost $66,521,895)............... $64,095,973
Collateral received for securities loaned.............. 3,175,433
Interest receivable.................................... 441,851
Receivable for capital shares sold..................... 228
Prepaid expenses and other assets...................... 7,568
-----------
Total Assets.......................................... 67,721,053
Liabilities:
Dividends payable...................................... $ 296,825
Payable to custodian for overdraft..................... 227,097
Payable for capital shares redeemed.................... 387,601
Payable for return of collateral received on securities
loaned................................................ 3,175,433
Payable to affiliates.................................. 38,400
Accrued expenses....................................... 14,083
----------
Total Liabilities..................................... 4,139,439
-----------
Net Assets:
Capital................................................ 67,488,720
Undistributed net investment income.................... 376,717
Accumulated net realized losses from investment
transactions.......................................... (1,857,901)
Net unrealized depreciation from investments........... (2,425,922)
-----------
Net Assets............................................. $63,581,614
===========
Investor A Shares
Net Assets............................................ $ 3,778,614
Shares................................................ 372,572
Redemption price per share............................ $10.14
======
Maximum Sales Charge--Investor A Shares................ 4.00%
Maximum Offering Price (100%/(100%--Maximum Sales
Charge) of net asset value adjusted to the nearest
cent) per share....................................... $10.56
======
Investor B Shares
Net Assets............................................ $ 173,249
Shares................................................ 17,055
Offering price per share*............................. $10.16
======
Trust Shares
Net Assets............................................ $51,695,856
Shares................................................ 5,097,128
Offering and redemption price per share............... $10.14
======
Institutional Shares
Net Assets............................................ $ 7,933,895
Shares................................................ 785,233
Offering and redemption price per share............... $10.10
======
</TABLE>
-----
* Redemption price of Investor B Shares varies based on length of time held.
<TABLE>
<CAPTION>
Statement of Operations
For the six months ended May 31, 2000
(Unaudited)
<S> <C> <C>
Investment Income:
Interest income.......................................... $ 2,215,534
Income from securities lending........................... 2,140
-----------
Total Investment Income................................. 2,217,674
Expenses:
Investment advisory fees................................. $155,937
Administration fees...................................... 69,305
Distribution and services fees, Investor A Shares........ 6,054
Distribution and services fees, Investor B Shares........ 1,113
Administrative services fees, Trust Shares............... 85,522
Administrative services fees, Institutional Shares....... 11,800
Accounting fees.......................................... 8,750
Custodian fees........................................... 17,326
Transfer agent fees...................................... 16,266
Other.................................................... 23,508
--------
Total expenses before voluntary fee reductions........... 395,581
Expenses voluntarily reduced............................. (123,639)
-----------
Net Expenses............................................ 271,942
-----------
Net Investment Income.................................... 1,945,732
-----------
Realized/Unrealized Losses from Investments:
Net realized losses from investment transactions......... (719,217)
Net change in unrealized depreciation from investments... (714,337)
-----------
Net realized/unrealized losses from investments.......... (1,433,554)
-----------
Change in net assets resulting from operations........... $ 512,178
===========
</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
six months For the
ended year ended
May 31, 2000 November 30,
(Unaudited) 1999
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 1,945,732 $ 5,768,291
Net realized losses from investment transactions.. (719,217) (399,710)
Net change in unrealized depreciation from
investments...................................... (714,337) (3,562,519)
------------ ------------
Change in net assets resulting from operations..... 512,178 1,806,062
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (108,508) (252,475)
Distributions to Investor B Shareholders:
From net investment income........................ (5,184) (10,927)
Distributions to Trust Shareholders:
From net investment income........................ (1,620,656) (5,185,567)
Distributions to Institutional Shareholders:
From net investment income........................ (211,385) (319,303)
------------ ------------
Change in net assets from shareholder
distributions..................................... (1,945,733) (5,768,272)
------------ ------------
Change in net assets from capital transactions..... (20,953,004) (14,705,061)
------------ ------------
Change in net assets............................... (22,386,559) (18,667,271)
Net Assets:
Beginning of period............................... 85,968,173 104,635,444
------------ ------------
End of period..................................... $ 63,581,614 $ 85,968,173
============ ============
</TABLE>
See notes to financial statements
31
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
U.S. Government Securities Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
six months
ended For the years ended November 30,
May 31, 2000 --------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $10.34 $10.74 $10.62 $10.67 $10.85 $10.05
------ ------ ------ ------ ------ ------
Investment Activities:
Net investment income... 0.29 0.54 0.57 0.60 0.62 0.64
Net realized and
unrealized gains
(losses) from
investments............ (0.21) (0.40) 0.12 (0.07) (0.15) 0.80
------ ------ ------ ------ ------ ------
Total from Investment
Activities............. 0.08 0.14 0.69 0.53 0.47 1.44
------ ------ ------ ------ ------ ------
Distributions:
Net investment income... (0.28) (0.54) (0.57) (0.58) (0.62) (0.64)
In excess of net
realized gains......... -- -- -- -- (0.03) --
------ ------ ------ ------ ------ ------
Total Distributions..... (0.28) (0.54) (0.57) (0.58) (0.65) (0.64)
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period.................. $10.14 $10.34 $10.74 $10.62 $10.67 $10.85
====== ====== ====== ====== ====== ======
Total Return (excludes
sales charge)........... 0.75%(a) 1.37% 6.66% 5.20% 4.57% 14.66%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)............ $3,779 $4,620 $4,664 $5,181 $7,153 $8,179
Ratio of expenses to
average net assets...... 1.03%(b) 0.98% 0.97% 0.97% 0.97% 0.97%
Ratio of net investment
income to average net
assets.................. 5.39%(b) 5.15% 5.35% 5.56% 5.82% 6.05%
Ratio of expenses to
average net assets*..... 1.14%(b) 1.09% 1.07% 1.07% 1.07% 1.07%
Portfolio turnover**..... 4.38% 26.17% 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 Portfolio as a whole
without distinguishing between the classes of shares issued. (a) Not
annualized. (b) Annualized.
Financial Highlights, Investor B Shares
<TABLE>
<CAPTION>
For the
six months For the years ended March 1, 1995
ended November 30, to
May 31, 2000 ------------------------------------ November 30,
(Unaudited) 1999 1998 1997 1996 1995 (a)
------------ ------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.36 $10.74 $10.61 $10.66 $10.84 $10.34
------ ------ ------ ------ ------ ------
Investment Activities:
Net investment income.. 0.28 0.47 (d) 0.50 (d) 0.51 0.55 0.31
Net realized and
unrealized gains
(losses) from
investments........... (0.24) (0.38) 0.13 (0.05) (0.15) 0.50
------ ------ ------ ------ ------ ------
Total from Investment
Activities............ 0.04 0.09 0.63 0.46 0.40 0.81
------ ------ ------ ------ ------ ------
Distributions:
Net investment income.. (0.24) (0.47) (0.50) (0.51) (0.55) (0.31)
In excess of net
realized gains........ -- -- -- -- (0.03) --
------ ------ ------ ------ ------ ------
Total Distributions.... (0.24) (0.47) (0.50) (0.51) (0.58) (0.31)
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $10.16 $10.36 $10.74 $10.61 $10.66 $10.84
====== ====== ====== ====== ====== ======
Total Return (excludes
redemption charge)..... 0.40%(e) 0.86% 6.02% 4.47% 3.85% 12.85%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 173 $ 282 $ 149 $ 466 $ 359 $ 41
Ratio of expenses to
average net assets..... 1.73%(c) 1.68% 1.67% 1.67% 1.66% 1.68%(c)
Ratio of net investment
income to average net
assets................. 4.69%(c) 4.47% 4.67% 4.84% 5.06% 5.37%(c)
Ratio of expenses to
average net assets*.... 1.84%(c) 1.79% 1.77% 1.77% 1.76% 1.78%(c)
Portfolio turnover**.... 4.38% 26.17% 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 Portfolio 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.
See notes to financial statements
32
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
U.S. Government Securities Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the
six months
ended For the years ended November 30,
May 31, 2000 -------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 10.34 $ 10.74 $ 10.62 $ 10.67 $ 10.85 $ 10.05
------- ------- ------- ------- ------- -------
Investment Activities:
Net investment income.. 0.31 0.58 0.60 0.61 0.66 0.67
Net realized and
unrealized gains
(losses) from
investments........... (0.22) (0.41) 0.12 (0.05) (0.15) 0.80
------- ------- ------- ------- ------- -------
Total from Investment
Activities............ 0.09 0.17 0.72 0.56 0.51 1.47
------- ------- ------- ------- ------- -------
Distributions:
Net investment income.. (0.29) (0.57) (0.60) (0.61) (0.66) (0.67)
In excess of net
realized gains........ -- -- -- -- (0.03) --
------- ------- ------- ------- ------- -------
Total Distributions.... (0.29) (0.57) (0.60) (0.61) (0.69) (0.67)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 10.14 $ 10.34 $ 10.74 $ 10.62 $ 10.67 $ 10.85
======= ======= ======= ======= ======= =======
Total Return............ 0.90%(a) 1.67% 6.98% 5.51% 4.88% 15.00%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $51,696 $72,483 $93,683 $72,753 $60,079 $45,513
Ratio of expenses to
average net assets..... 0.73%(b) 0.68% 0.67% 0.67% 0.67% 0.67%
Ratio of net investment
income to average net
assets................. 5.69%(b) 5.45% 5.64% 5.84% 6.10% 6.36%
Ratio of expenses to
average net assets*.... 1.14%(b) 1.09% 1.07% 1.07% 0.77% 0.77%
Portfolio turnover**.... 4.38% 26.17% 54.57% 100.33% 53.76% 93.76%
* 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 Portfolio as a whole
without distinguishing between the classes of shares issued. (a) Not
annualized. (b) Annualized.
<CAPTION>
For the
six months
ended For the years ended November 30,
May 31, 2000 -------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 10.31 $ 10.70 $ 10.58 $ 10.64 $ 10.82 $ 10.02
------- ------- ------- ------- ------- -------
Investment Activities:
Net investment income.. 0.28 0.53 0.57 0.56 0.62 0.63
Net realized and
unrealized gains
(losses) from
investments........... (0.21) (0.38) 0.12 (0.04) (0.15) 0.80
------- ------- ------- ------- ------- -------
Total from Investment
Activities............ 0.07 0.15 0.69 0.52 0.47 1.43
------- ------- ------- ------- ------- -------
Distributions:
Net investment income.. (0.28) (0.54) (0.57) (0.58) (0.62) (0.63)
In excess of net
realized gains........ -- -- -- -- (0.03) --
------- ------- ------- ------- ------- -------
Total Distributions.... (0.28) (0.54) (0.57) (0.58) (0.65) (0.63)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 10.10 $ 10.31 $ 10.70 $ 10.58 $ 10.64 $ 10.82
======= ======= ======= ======= ======= =======
Total Return............ 0.64%(a) 1.45% 6.67% 5.10% 4.55% 14.69%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 7,934 $ 8,584 $ 6,140 $ 7,049 $ 2,232 $ 667
Ratio of expenses to
average net assets..... 1.03%(b) 0.98% 0.97% 0.97% 0.96% 0.97%
Ratio of net investment
income to average net
assets................. 5.39%(b) 5.17% 5.34% 5.52% 5.75% 5.91%
Ratio of expenses to
average net assets*.... 1.14%(b) 1.09% 1.07% 1.07% 1.06% 1.07%
Portfolio turnover**.... 4.38% 26.17% 54.57% 100.33% 53.76% 93.76%
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 Portfolio as a whole
without distinguishing between the classes of shares issued. (a) Not
annualized. (b) Annualized.
See notes to financial statements
33
<PAGE>
Mercantile Intermediate Corporate Bond Portfolio
Q. What were the conditions in the bond market during the six month period
ended May 31, 2000?
A. Intermediate bond yields rose throughout the period. The Fed tightened
credit by raising short-term interest rates three times. The first increase was
on February 2, when the Fed increased rates by 0.25%, the second increase was
on March 21, when the Fed also raised rates by 0.25%. The final increase of the
period occurred on May 16, when the Fed raised rates 0.50%.
The two-year Treasury began the period at 6.01% and ended the period at
6.67%. The ten-year Treasury began the period at 6.19% and ended the period at
6.27%. Corporate bonds did particularly poorly over the period, underperforming
their Treasury counterparts in the intermediate sector by just over 1.5%. The
corporate market was impacted by the increased supply of corporate debt
available and the lack of supply in the Treasury market. The U.S. Treasury has
been cutting back on the auctions of Treasury securities and at the same time
buying back some of its longer-term debt. This buyback of the Treasury debt is
due to the unprecedented fiscal surplus that the Government has been
experiencing this year.
Q. How did you manage the Portfolio's sector exposure and credit quality in
that environment?
A. The average quality of the Portfolio remained unchanged at A1. However, we
did change the composition of the Portfolio slightly to take advantage of the
higher yields available in the corporate sector. We sold all of our mortgage-
backed securities and bought a combination of corporates and Treasuries. The
corporate securities we bought allowed us to lock in higher yields and at the
same time eliminate the prepayment risk of the mortgage-backed securities. The
total holding of corporates went from 86.6% at the beginning of the period to
89.9% at the end of the period. Our Treasury exposure went from 0.1% to 5.5%.
The increase in Treasuries provides liquidity to the Portfolio since we hold
2.0% in cash./1/
Q. How did you manage the Portfolio's average maturity and duration?
A. The average maturity of the Portfolio was reduced from 5.5 years to 4.4
years. The duration of the Portfolio was reduced from 4.2 years to 3.5 years.
Both of these changes were implemented to bring the Portfolio's interest rate
risk more in line with that of the Lehman Brothers Intermediate Corporate Bond
Index, which also has a 3.5 year duration.
Q. What is your outlook for the corporate bond market?
A. Corporate bonds have definitely become very cheap relative to the Treasury
sector. We believe the Portfolio's large corporate holdings should continue to
provide it with a higher income and yield than would otherwise be available in
a more stable interest rate environment. Two years ago, corporate spreads
widened due to fears of credit risk in the corporate market and a subsequent
flight to quality in the Treasury market. This time it is primarily supply
problems driving the differences in yield, and we believe that over time these
will work themselves out to the benefit of the Portfolio and its shareholders.
-----
/1/The Portfolio composition is subject to change.
34
<PAGE>
Mercantile Intermediate Corporate Bond Portfolio
[GRAPH]
Value of a $10,000 Investment
Lehman Brothers
Intermediate
Investor A Investor A Corporate
(No Load) (Load)* Trust Institutional Bond Index
2/10/97 $10,000 $ 9,600 $10,000 $10,000 $10,000
11/97 10,648 10,222 10,665 10,660 10,771
11/98 11,639 11,173 11,682 11,653 11,636
11/99 11,447 10,989 11,535 11,472 11,766
5/30/2000 11,434 10,976 11,539 11,460 11,797
* Reflects 4.00% sales charge.
Average Annual Total Returns
as of 5/31/00
Since
Inception
1 Year (2/10/97)
Investor A (No Load) -0.05% 4.63%
Investor A* -4.05% 3.37%
Trust 0.24% 4.42%
Institutional -0.05% 4.20%
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 4.00% sales charge on Investor A
Shares.
35
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Intermediate Corporate Bond Portfolio May 31, 2000 (Unaudited)
Corporate Bonds (89.9%):
<TABLE>
<CAPTION>
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Aerospace/Defense (2.3%):
Raytheon Co., 6.15%, 11/2/08........................ $1,000,000 $ 858,929
------------
Automotive (4.7%):
Ford Motor Credit Corp., 7.50%, 1/15/03............. 800,000 795,530
General Motors Acceptance Corp., 8.50%, 2/4/02,
MTN................................................ 500,000 506,706
General Motors Acceptance Corp., Global Bond, 6.75%,
2/7/02............................................. 500,000 493,619
------------
1,795,855
------------
Automotive Parts (4.2%):
Dana Corp., 6.25%, 3/1/04........................... 1,700,000 1,591,406
------------
Banking (8.3%):
Bank One Dayton, N.A., 6.63%, 4/15/03............... 50,000 48,465
BankAmerica Corp., 8.13%, 2/1/02.................... 200,000 201,367
Bankers Trust New York, 7.25%, 1/15/03.............. 500,000 490,600
Boatmens Bancshares, 8.63%, 11/15/03................ 400,000 409,094
Chase Manhattan Corp., 7.13%, 3/1/05................ 500,000 486,236
National Westminster Bank-NY, 9.45%, 5/1/01......... 145,000 147,455
NationsBank Corp., 7.75%, 8/15/04................... 500,000 498,871
NationsBank Corp., 6.88%, 2/15/05................... 600,000 575,656
Wells Fargo & Co., 8.38%, 5/15/02................... 300,000 303,902
------------
3,161,646
------------
Beverages (2.6%):
Brown-Forman, Corp., 7.38%, 5/10/05 MTN............. 1,000,000 988,866
------------
Chemicals (4.8%):
Lubrizol Corp., 5.88%, 12/1/08...................... 1,000,000 884,189
Praxair, Inc., 6.90%, 11/1/06....................... 1,000,000 926,158
------------
1,810,347
------------
Commercial Services (2.2%):
Cendant Corp., 7.75%, 12/1/03....................... 880,000 846,470
------------
Computer Software (3.1%):
Computer Associates, 6.25%, 4/15/03................. 275,000 258,728
Dell Computer Corp., 6.55%, 4/15/08................. 1,000,000 910,825
------------
1,169,553
------------
Construction (4.5%):
Armstrong World, 6.35%, 8/15/03..................... 1,950,000 1,691,499
------------
Consumer Goods and Services (3.0%):
Clorox Co., 8.80%, 7/15/01.......................... 100,000 101,693
Motorola, Inc., 7.60%, 1/1/07....................... 1,000,000 998,116
Procter & Gamble, Inc., 8.00%, 11/15/03............. 50,000 51,046
------------
1,150,855
------------
Electrical & Electronics (2.5%):
Applied Materials, 7.00%, 9/6/05, MTN............... 1,000,000 952,847
------------
Entertainment (2.6%):
Walt Disney Co., Global Bond, Series B, 6.75%,
3/30/06............................................ 1,000,000 966,626
------------
</TABLE>
Corporate Bonds, continued
<TABLE>
<CAPTION>
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Financial Services (10.7%):
Associates Corp., N.A., 6.88%, 2/1/03............... $ 50,000 $ 48,817
Associates Corp., N.A., 7.23%, 5/17/06, MTN......... 1,000,000 954,385
Bear Stearns Co., Inc., 8.25%, 2/1/02............... 500,000 502,221
General Electric Capital Corp., 7.66%, 8/2/04, MTN.. 1,000,000 1,006,101
General Motors Acceptance Corp., 5.75%, 11/10/03.... 1,000,000 938,920
Merrill Lynch & Co., 8.00%, 6/1/07.................. 500,000 495,770
Norwest Financial, Inc., 6.13%, 8/1/03.............. 50,000 47,603
St. Paul Companies, Inc., 7.49%, 11/6/02, MTN....... 25,000 24,735
St. Paul Companies, Inc., 7.50%, 12/20/02, MTN...... 50,000 49,430
------------
4,067,982
------------
Food Products (6.0%):
Campbell Soup Co., 6.90%, 10/15/06.................. 1,000,000 966,102
General Mills, 8.90%, 3/15/06, MTN.................. 1,000,000 1,046,276
Quaker Oats Co., 9.00%, 12/7/01, MTN................ 150,000 152,756
Quaker Oats Co., 9.00%, 12/10/01, MTN............... 125,000 127,309
------------
2,292,443
------------
Industrial Goods & Services (3.2%):
E.l. duPont de Nemours & Co., 8.50%, 2/15/03........ 200,000 202,329
E.l. duPont de Nemours & Co., 8.13%, 3/15/04........ 1,000,000 1,024,618
------------
1,226,947
------------
Oil & Exploration, Production & Services (5.5%):
Exxon Capital Corp., 6.63%, 8/15/02................. 100,000 98,446
Texaco Capital, Inc., 7.09%, 2/1/07................. 1,000,000 964,756
Union Texas Petroleum Holdings, Inc., 8.50%,
4/15/07............................................ 1,000,000 1,039,376
------------
2,102,578
------------
Paper & Related (2.6%):
International Paper Co., 7.00%, 6/1/01.............. 1,000,000 992,604
------------
Retail Stores (5.2%):
Dilliards, Inc., 5.79%, 11/15/01.................... 450,000 425,312
J.C. Penney, Inc., 7.60%, 4/1/07.................... 1,000,000 839,901
Wal-Mart Stores, Inc., 6.50%, 6/1/03................ 100,000 98,062
Wal-Mart Stores, Inc., 7.50%, 5/15/04............... 600,000 604,195
------------
1,967,470
------------
Telecommunications (11.0%):
AT&T Corp., 7.13%, 1/15/02.......................... 50,000 49,654
AT&T Corp., 6.75%, 4/1/04........................... 1,150,000 1,113,650
AT&T Corp., 7.00%, 5/15/05.......................... 100,000 97,054
GTE California, 6.70%, 9/1/09....................... 1,000,000 910,770
SBC Communications, Inc., 7.25%, 7/1/02............. 1,065,000 1,062,506
Southwestern Bell Telephone, 6.56%, 11/15/05, MTN... 1,000,000 949,653
------------
4,183,287
------------
</TABLE>
Continued
36
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Intermediate Corporate Bond Portfolio May 31, 2000 (Unaudited)
Corporate Bonds, continued
<TABLE>
<CAPTION>
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Transportation & Shipping (0.5%):
Union Pacific Co., 7.88%, 2/15/02...................... $ 200,000 $ 200,386
------------
Utilities (0.4%):
National Rural Utilities, 6.65%, 10/1/05............... 100,000 95,848
Pacific Gas & Electric, 6.25%, 8/1/03.................. 50,000 47,992
------------
143,840
------------
TOTAL CORPORATE BONDS 34,162,436
------------
U.S. Government Agencies (1.4%):
Federal Farm Credit Bank (1.4%):
Federal Farm Credit Bank, 8.95%, 6/1/06................ 500,000 536,463
------------
TOTAL U.S. GOVERNMENT AGENCIES 536,463
------------
U.S. Treasury Notes (5.5%):
5.88%, 6/30/00......................................... 1,900,000 1,900,461
5.88%, 11/15/04........................................ 180,000 175,106
------------
TOTAL U.S. TREASURY NOTES 2,075,567
------------
</TABLE>
<TABLE>
<CAPTION>
Investment Companies (2.0%):
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Federated Money Market Trust............................... 771,674 $ 771,674
-----------
TOTAL INVESTMENT COMPANIES 771,674
-----------
TOTAL INVESTMENTS
Cost ($39,772,093)(a)--98.8% 37,546,140
Other assets in excess of liabilities--1.2% 463,646
-----------
TOTAL NET ASSETS--100.0% $38,009,786
===========
</TABLE>
-----
(a) Represents cost for federal income tax and financial reporting purposes
and differs from value by net unrealized depreciation of securities as
follows:
<TABLE>
<S> <C>
Unrealized appreciation.. $ 113,535
Unrealized depreciation.. (2,339,488)
-----------
Net unrealized
depreciation............ $(2,225,953)
===========
</TABLE>
MTN Medium Term Note
See notes to financial statements
37
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Intermediate Corporate Bond Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
May 31, 2000
(Unaudited)
<S> <C> <C>
Assets:
Investments, at value (cost $39,772,093)............... $37,546,140
Collateral received for securities loaned.............. 4,369,732
Cash................................................... 30,396
Interest receivable.................................... 673,325
Deferred organization costs............................ 8,227
Prepaid expenses and other assets...................... 4,226
-----------
Total Assets.......................................... 42,632,046
Liabilities:
Dividends payable...................................... $ 212,859
Payable for return of collateral received on securities
loaned................................................ 4,369,732
Payable to affiliates.................................. 26,462
Accrued expenses....................................... 13,207
----------
Total Liabilities..................................... 4,622,260
-----------
Net Assets:
Capital................................................ 41,171,965
Undistributed net investment income.................... 27,724
Accumulated net realized losses from investment
transactions.......................................... (963,950)
Net unrealized depreciation from investments........... (2,225,953)
-----------
Net Assets............................................. $38,009,786
===========
Investor A Shares
Net Assets............................................ $ 416,101
Shares................................................ 44,977
Redemption price per share............................ $9.25
=====
Maximum Sales Charge--Investor A Shares 4.00%
Maximum Offering Price (100%/(100%--Maximum Sales
Charge) of net asset value adjusted to the nearest
cent) per share....................................... $9.64
=====
Trust Shares
Net Assets............................................ $36,645,925
Shares................................................ 3,961,304
Offering and redemption price per share............... $9.25
=====
Institutional Shares
Net Assets............................................ $ 947,760
Shares................................................ 102,435
Offering and redemption price per share............... $9.25
=====
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the six months ended May 31, 2000
(Unaudited)
<S> <C> <C>
Investment Income:
Interest income.......................................... $ 1,676,840
Income from securities lending........................... 3,514
-----------
Total Investment Income................................. 1,680,354
Expenses:
Investment advisory fees................................. $126,576
Administration fees...................................... 46,028
Distribution and services fees, Investor A Shares........ 646
Administrative services fees, Trust Shares............... 66,789
Administrative services fees, Institutional Shares....... 1,452
Accounting fees.......................................... 6,418
Custodian fees........................................... 11,507
Transfer agent fees...................................... 9,082
Other.................................................... 16,206
--------
Total expenses before voluntary fee reductions........... 284,704
Expenses voluntarily reduced............................. (89,803)
-----------
Net Expenses............................................. 194,901
-----------
Net Investment Income.................................... 1,485,453
-----------
Realized/Unrealized Losses from Investments:
Net realized losses from investment transactions......... (693,824)
Net change in unrealized depreciation from investments... (728,996)
-----------
Net realized/unrealized losses from investments.......... (1,422,820)
-----------
Change in net assets resulting from operations........... $ 62,633
===========
</TABLE>
See notes to financial statements
38
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Intermediate Corporate Bond Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the six For the
months ended year ended
May 31, 2000 November 30,
(Unaudited) 1999
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income.............................. $ 1,485,453 $ 3,636,414
Net realized losses from investment transactions... (693,824) (260,282)
Net change in unrealized depreciation from
investments....................................... (728,996) (4,228,730)
------------ -----------
Change in net assets resulting from operations...... 62,633 (852,598)
------------ -----------
Distributions to Investor A Shareholders:
From net investment income......................... (13,297) (24,573)
In excess of net realized gains from investment
transactions...................................... -- (344)
Distributions to Trust Shareholders:
From net investment income......................... (1,441,370) (3,551,042)
In excess of net realized gains from investment
transactions...................................... -- (66,984)
Distributions to Institutional Shareholders:
From net investment income......................... (29,868) (60,807)
In excess of net realized gains from investment
transactions...................................... -- (1,354)
------------ -----------
Change in net assets from shareholder
distributions...................................... (1,484,535) (3,705,104)
------------ -----------
Change in net assets from capital transactions...... (12,324,591) (431,642)
------------ -----------
Change in net assets................................ (13,746,493) (4,989,344)
Net Assets:
Beginning of period................................ 51,756,279 56,745,623
------------ -----------
End of period...................................... $ 38,009,786 $51,756,279
============ ===========
</TABLE>
See notes to financial statements
39
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Intermediate Corporate Bond Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the For the years
six months ended February 10, 1997
ended November 30, to
May 31, 2000 --------------- November 30, 1997
(Unaudited) 1999 1998 (a)
------------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $9.55 $10.30 $10.11 $10.00
----- ------ ------ ------
Investment Activities:
Net investment income........ 0.29 0.57 0.60 0.52
Net realized and unrealized
gains (losses) from
investments................. (0.30) (0.74) 0.30 0.11
----- ------ ------ ------
Total from Investment
Activities.................. (0.01) (0.17) 0.90 0.63
----- ------ ------ ------
Distributions:
Net investment income........ (0.29) (0.57) (0.60) (0.52)
Net realized gains........... -- -- (0.11) --
In excess of net realized
gains....................... -- (0.01) -- --
----- ------ ------ ------
Total Distributions.......... (0.29) (0.58) (0.71) (0.52)
----- ------ ------ ------
Net Asset Value, End of
Period....................... $9.25 $ 9.55 $10.30 $10.11
===== ====== ====== ======
Total Return (excludes sales
charge)...................... (0.11)%(b) (1.65)% 9.32% 6.48%(b)
Ratios/Supplementary Data:
Net Assets at end of period
(000)........................ $ 416 $ 436 $ 284 $ 277
Ratio of expenses to average
net assets................... 1.14%(c) 1.09% 0.89% 0.58%(c)
Ratio of net investment income
to average net assets........ 6.18%(c) 5.78% 5.92% 6.52%(c)
Ratio of expenses to average
net assets*.................. 1.24%(c) 1.19% 1.19% 1.31%(c)
Portfolio turnover**.......... 10.91% 25.71% 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 Portfolio 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 For the years
six months ended February 10, 1997
ended November 30, to
May 31, 200 ----------------- November 30, 1997
(Unaudited) 1999 1998 (a)
----------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 9.55 $ 10.29 $ 10.11 $ 10.00
------- ------- ------- -------
Investment Activities:
Net investment income...... 0.30 0.60 0.63 0.53
Net realized and unrealized
gains (losses) from
investments............... (0.30) (0.73) 0.29 0.11
------- ------- ------- -------
Total from Investment
Activities................ -- (0.13) 0.92 0.64
------- ------- ------- -------
Distributions:
Net investment income...... (0.30) (0.60) (0.63) (0.53)
Net realized gains......... -- -- (0.11) --
In excess of net realized
gains..................... -- (0.01) -- --
------- ------- ------- -------
Total Distributions........ (0.30) (0.61) (0.74) (0.53)
------- ------- ------- -------
Net Asset Value, End of
Period..................... $ 9.25 $ 9.55 $ 10.29 $ 10.11
======= ======= ======= =======
Total Return................ 0.03%(b) (1.26)% 9.53% 6.65%(b)
Ratios/Supplementary Data:
Net Assets at end of period
(000)...................... $36,646 $50,325 $55,337 $44,443
Ratio of expenses to average
net assets................. 0.84%(c) 0.79% 0.60% 0.29%(c)
Ratio of net investment
income to average net
assets..................... 6.48%(c) 6.07% 6.23% 6.90%(c)
Ratio of expenses to average
net assets*................ 1.24%(c) 1.19% 1.19% 1.32%(c)
Portfolio turnover**........ 10.91% 25.71% 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 Portfolio as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
See notes to financial statements
40
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Intermediate Corporate Bond Portfolio
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
For the For the years
six months ended February 10, 1997
ended November 30, to
May 31, 2000 --------------- November 30, 1997
(Unaudited) 1999 1998 (a)
------------ ------ ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $ 9.55 $10.29 $10.11 $10.00
------ ------ ------ ------
Investment Activities:
Net investment income....... 0.29 0.57 0.61 0.53
Net realized and unrealized
gains (losses) from
investments................ (0.30) (0.73) 0.29 0.11
------ ------ ------ ------
Total from Investment
Activities................. (0.01) (0.16) 0.90 0.64
------ ------ ------ ------
Distributions:
Net investment income....... (0.29) (0.57) (0.61) (0.53)
Net realized gains.......... -- -- (0.11) --
In excess of net realized
gains...................... -- (0.01) -- --
------ ------ ------ ------
Total Distributions......... (0.29) (0.58) (0.72) (0.53)
------ ------ ------ ------
Net Asset Value, End of
Period...................... $ 9.25 $ 9.55 $10.29 $10.11
====== ====== ====== ======
Total Return................. (0.11)%(b) (1.56)% 9.32% 6.60%(b)
Ratios/Supplementary Data:
Net Assets at end of period
(000)....................... $ 948 $ 996 $1,124 $ 27
Ratio of expenses to average
net assets.................. 1.14%(c) 1.09% 1.07% 0.29%(c)
Ratio of net investment
income to average net
assets...................... 6.18%(c) 5.77% 5.72% 7.06%(c)
Ratio of expenses to average
net assets*................. 1.24%(c) 1.19% 1.18% 1.31%(c)
Portfolio turnover**......... 10.91% 25.71% 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 Portfolio as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
See notes to financial statements
41
<PAGE>
Mercantile Bond Index Portfolio
Q. What were the conditions in the bond market during the six month period
ended May 31, 2000?
A. Rising inflationary fears caused the Fed to increase short-term rates
three times during the past six months. The Consumer Price Index (CPI) had been
rising at a rate of 0.2% per month for the first three months of the period.
Then, in February, we saw a spike of 0.5% for the CPI, and again in March the
CPI recorded a 0.7% month over month rate of change. The Fed apparently saw a
trend developing. The first two increases in Fed Funds rate were only a quarter
of a percentage point each, while the final rate increase was one-half of one
percent.
Treasury yields also rose during this period, but not as much as the Fed
Funds rate. The largest yield increase occurred on the six-month Treasury Bill,
which rose 0.78%. The smallest increase occurred in the thirty-year Treasury
bond, which actually saw its yield drop -0.28%. Corporate bonds, agencies, and
mortgaged-backed securities performed relatively poorly during the period, due
primarily to the strong demand for Treasuries and the relatively weak demand
for other types of securities. The Treasury has been buying back some of its
longer maturity debt and cutting back on the auctions of its shorter debt. This
has caused a perceived lack of supply in the market for Treasury debt and, as a
result, Treasury prices have been bid up.
Q. How did the Portfolio perform during the period?
A. The Portfolio posted a total return of 1.65% (Investor A shares without
the maximum sales charge) during the six months ended May 31, 2000. That
compared to a 1.38% return for its benchmark, the Lehman Brothers Aggregate
Bond Index. The Index is comprised of 5,629 securities and the Portfolio
currently holds 151 securities to simulate the returns of the Index./1/ Minor
return differences will occur over short time periods, but over longer time
periods the returns of the Portfolio should be similar to those of the Index.
Q. What is your outlook for the bond market and the Portfolio?
A. The Fed has taken a very proactive stance on inflation, and we believe
this will cause the bond market to perform well for the remainder of the year.
Regardless of short-term market fluctuations, we will continue to strive to
track any changes in the benchmark in accordance with the Portfolio's objective
and shareholders' goals.
-----
/1/Portfolio composition is subject to change.
42
<PAGE>
Mercantile Bond Index Portfolio
[GRAPH]
Value of a $10,000 Investment
Lehman Brothers
Intermediate
Investor A Investor A Aggregate
(No Load) (Load)* Trust Institutional Bond Index
2/10/97 $10,000 $ 9,600 $10,000 $10,000 $10,000
11/97 10,693 10,265 10,715 10,720 10,823
11/98 11,695 11,227 11,754 11,733 11,846
11/99 11,589 11,125 11,682 11,627 11,841
5/30/2000 11,754 11,283 11,878 11,793 11,872
* Reflects 4.00% sales charge.
-------------------------------------------
Average Annual Total Returns
as of 5/31/00
Since
Inception
1 Year (2/10/97)
-------------------------------------------
Investor A (No Load) 1.76% 5.49%
Investor A* -2.31% 4.23%
Trust 2.17% 5.34%
Institutional 1.76% 5.11%
-------------------------------------------
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 4.00%
sales charge on Investor A Shares.
43
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Bond Index Portfolio May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Corporate Bonds (24.8%):
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Aerospace/Defense (1.5%):
Raytheon Co., 6.45%, 8/15/02........................ $2,595,000 $ 2,532,419
------------
Automotive (2.4%):
Ford Motor Credit Corp., Global Bond, 7.00%,
9/25/01............................................ 2,000,000 1,984,484
General Motors Acceptance Corp., 8.88%, 5/15/03..... 2,000,000 2,052,528
------------
4,037,012
------------
Automotive Parts (1.1%):
Dana Corp., 6.25%, 3/1/04........................... 2,000,000 1,872,242
------------
Commercial Services (1.1%):
Cendant Corp., 7.75%, 12/1/03....................... 2,000,000 1,923,796
------------
Computer Software (1.1%):
Computer Associates, 6.25%, 4/15/03................. 1,000,000 940,827
Dell Computer Corp., 6.55%, 4/15/08................. 1,000,000 910,825
------------
1,851,652
------------
Construction (1.0%):
Armstrong World, 6.35%, 8/15/03..................... 2,000,000 1,734,870
------------
Consumer Goods & Services (2.3%):
Motorola, Inc., 7.60%, 1/1/07....................... 3,000,000 2,994,348
Motorola, Inc., 6.50%, 11/15/28..................... 1,000,000 834,602
------------
3,828,950
------------
Financial Services (1.8%):
Household Finance Corp., 8.38%, 11/15/01............ 1,000,000 1,009,142
Household Finance Corp., 6.88%, 3/1/07.............. 1,000,000 928,535
Merrill Lynch & Co., 8.00%, 2/1/02.................. 1,000,000 1,008,924
------------
2,946,601
------------
Food Products (0.6%):
Campbell Soup Co., 6.90%, 10/15/06.................. 1,000,000 966,102
------------
Industrial Goods & Services (0.6%):
E.I. duPont de Nemours & Co., 6.88%, 10/15/09....... 1,000,000 949,307
------------
Oil & Exploration, Production & Services (4.8%):
Texaco Capital, Inc., 7.09%, 2/1/07................. 1,500,000 1,447,134
Union Texas Petroleum Holdings, Inc., 8.50%,
4/15/07............................................ 6,275,000 6,522,085
------------
7,969,219
------------
Paper & Related (1.2%):
International Paper Co., 7.00%, 6/1/01.............. 2,000,000 1,985,208
------------
Retail Stores (1.7%):
Dillards, Inc., 5.79%, 11/15/01..................... 3,000,000 2,835,411
------------
Telecommunications (3.6%):
Bell Telephone Co. of Pennsylvania, 8.75%, 8/15/31.. 1,000,000 1,053,913
Lucent Technologies, Inc., 6.90%, 7/15/01........... 3,000,000 2,995,428
Northern Telecom Ltd., 6.88%, 10/1/02............... 1,000,000 981,307
Pacific Bell, 7.25%, 7/1/02......................... 1,000,000 997,658
------------
6,028,306
------------
TOTAL CORPORATE BONDS 41,461,095
------------
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Agencies (41.4%):
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Federal Home Loan Bank (4.8%):
5.52%, 4/9/01, Series 3101............................. $1,500,000 $ 1,481,289
5.75%, 4/30/01, Series 4901............................ 1,000,000 988,442
6.39%, 6/22/04, Series K504............................ 2,000,000 1,931,208
6.67%, 1/8/07, Series I-07............................. 1,000,000 958,659
5.67%, 9/11/08, Series KS08............................ 3,000,000 2,661,657
------------
8,021,255
------------
Federal Home Loan Mortgage Corp. (17.6%):
8.50%, 10/1/01, Pool #200055........................... 9,174 9,223
9.00%, 3/1/03, Pool #380019............................ 52,225 52,912
9.00%, 5/1/03, Pool #380021............................ 17,915 18,144
7.50%, 11/1/09, Gold Pool #M30082...................... 1,121,216 1,100,543
7.00%, 11/1/10, Gold Pool #E20202...................... 179,298 174,312
7.00%, 11/1/10, Gold Pool #E62010...................... 194,862 189,444
6.00%, 2/1/11, Gold Pool #E62600....................... 289,131 271,376
6.00%, 3/1/11, Gold Pool #E63503....................... 645,606 605,961
6.00%, 4/1/11, Gold Pool #E63515....................... 587,800 551,704
6.00%, 6/1/11, Gold Pool #E00439....................... 642,424 602,974
7.00%, 7/1/11, Pool #31335K............................ 590,052 572,966
6.00%, 3/1/12, Gold Pool #E66538....................... 968,555 905,645
7.50%, 9/1/12, Gold Pool #G10735....................... 1,206,844 1,191,712
6.00%, 3/1/13, Gold Pool #E69338....................... 821,854 766,799
6.00%, 3/1/13, Pool #E69425............................ 753,601 703,119
6.00%, 4/1/13, Gold Pool #E70028....................... 765,852 716,108
6.00%, 4/1/13, Pool #E00543............................ 1,617,862 1,509,484
6.50%, 10/1/13, Gold Pool #E00574...................... 1,651,533 1,570,642
5.50%, 11/1/13, Gold Pool #E73355...................... 868,962 793,105
5.50%, 11/1/13, Gold Pool #E73249...................... 2,219,027 2,025,314
5.50%, 11/1/13, Gold Pool #E72928...................... 932,671 851,252
5.50%, 12/1/13, Gold Pool #E73342...................... 874,109 797,802
5.50%, 12/1/13, Gold Pool #E00598...................... 1,807,752 1,649,942
6.00%, 6/1/14, Gold Pool #E00677....................... 1,877,472 1,750,156
6.00%, 2/1/26, Gold Pool #D68286....................... 172,561 155,998
6.00%, 3/1/26, Gold Pool #C80393....................... 1,805,170 1,631,908
6.00%, 4/1/26, Gold Pool #D70772....................... 333,113 301,141
6.00%, 4/1/26, Gold Pool #D70405....................... 271,373 245,743
6.00%, 4/1/26, Gold Pool #C80395....................... 91,446 82,669
8.00%, 11/1/26, Gold Pool #D76134...................... 146,790 146,145
6.00%, 12/1/26, Gold Pool #D76870...................... 20,606 18,628
6.00%, 12/1/26, Gold Pool #C80465...................... 749,230 677,318
8.00%, 12/1/26, Gold Pool #D76530...................... 290,716 289,439
8.00%, 12/1/26, Gold Pool #D76906...................... 194,676 193,822
7.00%, 1/1/27, Gold Pool #D77743....................... 541,376 516,247
7.00%, 1/1/27, Gold Pool #D77720....................... 1,279,062 1,219,693
8.00%, 1/1/27, Gold Pool #C00490....................... 327,354 325,917
6.00%, 1/1/29, Gold Pool #C00702....................... 2,800,095 2,520,487
6.00%, 3/1/29, Gold Pool #C00730....................... 1,906,911 1,715,583
------------
29,421,377
------------
Federal National Mortgage Assoc. (13.3%):
6.00%, 11/1/00, Pool #190070........................... 210,602 208,505
7.50%, 2/11/02......................................... 4,970,000 4,993,056
6.00%, 5/1/11, Pool #337194............................ 606,616 568,399
6.00%, 2/1/12, Pool #250917............................ 712,606 665,194
6.00%, 3/1/12, Pool #374638............................ 645,885 602,911
6.00%, 3/1/12, Pool #373131............................ 720,660 672,711
6.00%, 3/1/12, Pool #359504............................ 755,013 704,778
7.50%, 3/1/12, Pool #250858............................ 1,204,368 1,190,039
6.00%, 4/1/13, Pool #414671............................ 732,254 682,057
</TABLE>
Continued
44
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Bond Index Portfolio May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
U.S. Government Agencies, continued
Security Principal Market
Description Amount Value
----------- ---------- -----------
<S> <C> <C>
Federal National Mortgage Assoc., continued
5.50%, 11/1/13, Pool #449032............................ $ 924,302 $ 842,173
6.00%, 11/1/13, Pool #323379............................ 838,701 781,207
5.50%, 1/1/14, Pool #482515............................. 1,800,354 1,640,383
6.00%, 10/1/26, Pool #368935............................ 1,177,307 1,065,730
9.00%, 10/1/26, Pool #353671............................ 72,664 74,734
9.00%, 10/1/26, Pool #358137............................ 66,579 68,475
9.00%, 10/1/26, Pool #361800............................ 79,829 82,103
9.00%, 11/1/26, Pool #364453............................ 149,326 153,579
9.00%, 11/1/26, Pool #358703............................ 59,666 61,365
9.00%, 12/1/26, Pool #368686............................ 47,308 48,655
6.00%, 1/1/28, Pool #398195............................. 774,604 696,866
6.00%, 1/1/28, Pool #402874............................. 807,475 727,464
6.00%, 12/1/28, Pool #455087............................ 1,865,326 1,678,124
6.00%, 1/1/29, Pool #481539............................. 1,865,412 1,678,201
6.00%, 7/1/29, Pool #323812............................. 2,688,121 2,415,616
-----------
22,302,325
-----------
Government National Mortgage Assoc. (5.7%):
7.50%, 4/15/02, Pool #210173............................ 38,498 38,453
7.50%, 7/15/02, Pool #216193............................ 6,341 6,334
7.50%, 7/15/08, Pool #349404............................ 213,726 213,182
7.50%, 8/15/10, Pool #413412............................ 74,961 74,687
7.50%, 9/15/10, Pool #413117............................ 64,880 64,643
7.50%, 11/15/10, Pool #415775........................... 164,045 163,445
6.00%, 3/15/11, Pool #425964............................ 37,057 34,819
6.50%, 3/15/11, Pool #419123............................ 17,428 16,755
6.00%, 4/15/11, Pool #393849............................ 337,674 317,278
6.00%, 4/15/11, Pool #421800............................ 42,587 40,015
6.00%, 4/15/11, Pool #429397............................ 406,888 382,312
6.00%, 5/15/11, Pool #421871............................ 507,169 476,536
6.00%, 5/15/11, Pool #432659............................ 390,321 366,745
6.00%, 5/15/11, Pool #345647............................ 37,833 35,548
6.50%, 5/15/11, Pool #412598............................ 382,238 367,481
6.50%, 5/15/11, Pool #432640............................ 253,425 243,641
6.00%, 6/15/11, Pool #406582............................ 195,517 183,707
6.00%, 6/15/11, Pool #423828............................ 201,195 189,043
6.50%, 6/15/11, Pool #426173............................ 358,989 345,130
6.50%, 8/15/11, Pool #421746............................ 248,973 239,361
6.50%, 2/15/12, Pool #393334............................ 309,802 297,727
6.50%, 3/15/12, Pool #399161............................ 301,908 290,140
7.50%, 7/15/12, Pool #447382............................ 497,857 495,470
8.50%, 11/15/21, Pool #297863........................... 108,578 111,192
8.00%, 5/15/23, Pool #350495............................ 1,772,272 178,258
9.00%, 5/15/25, Pool #401372............................ 85,803 88,516
9.00%, 5/15/25, Pool #386743............................ 210,908 217,578
9.50%, 8/15/25, Pool #414557............................ 20,520 21,358
7.50%, 10/15/25, Pool #366152........................... 262,260 258,244
7.50%, 10/15/25, Pool #366154........................... 320,811 315,899
6.50%, 3/15/26, Pool #419578............................ 58,865 55,277
6.50%, 4/15/26, Pool #422656............................ 756,950 710,812
6.50%, 5/15/26, Pool #428852............................ 74,180 69,659
6.50%, 6/15/26, Pool #423801............................ 648,812 609,265
7.00%, 8/20/26, Pool #002266............................ 372,149 355,866
9.50%, 9/15/26, Pool #438724............................ 127,417 132,664
9.50%, 10/15/26, Pool #438728........................... 131,549 136,966
9.50%, 11/15/26, Pool #436994........................... 54,058 56,284
9.50%, 11/15/26, Pool #438731........................... 50,676 52,763
7.00%, 9/15/27, Pool #455304............................ 434,008 417,036
7.00%, 8/15/28, Pool #482697............................ 876,125 841,481
-----------
9,511,570
-----------
TOTAL U.S. GOVERNMENT AGENCIES 69,256,527
-----------
</TABLE>
<TABLE>
<CAPTION>
U.S. Treasury Bonds (17.1%):
Shares or
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
12.00%, 8/15/13, Callable on
8/15/08 @ 100......................................... $2,055,000 $ 2,740,856
7.50%, 11/15/16........................................ 1,250,000 1,385,548
8.75%, 5/15/17......................................... 1,500,000 1,856,250
8.13%, 8/15/19......................................... 6,000,000 7,126,878
8.75%, 8/15/20......................................... 2,000,000 2,528,750
7.63%, 11/15/22........................................ 4,600,000 5,288,565
6.25%, 8/15/23......................................... 3,000,000 2,970,000
6.00%, 2/15/26......................................... 5,000,000 4,804,690
------------
TOTAL U.S. TREASURY BONDS 28,701,537
------------
<CAPTION>
U.S. Treasury Notes (15.5%):
<S> <C> <C>
6.38%, 9/30/01......................................... 1,500,000 1,492,500
5.88%,11/30/01......................................... 3,000,000 2,963,439
6.00%, 7/31/02......................................... 4,000,000 3,942,500
5.88%, 9/30/02......................................... 2,100,000 2,063,250
5.75%, 8/15/03......................................... 2,930,000 2,854,005
7.25%, 5/15/04......................................... 1,470,000 1,499,400
5.88%, 11/15/04........................................ 1,600,000 1,556,501
6.63%, 5/15/07......................................... 2,750,000 2,764,611
6.13%, 8/15/07......................................... 4,500,000 4,404,375
5.63%, 5/15/08......................................... 2,500,000 2,373,438
------------
TOTAL U.S. TREASURY NOTES 25,914,019
------------
<CAPTION>
Investment Companies (0.6%):
<S> <C> <C>
Federated Money Market Trust........................... 1,055,841 1,055,842
------------
TOTAL INVESTMENT COMPANIES 1,055,842
------------
TOTAL INVESTMENTS
(Cost $172,811,153)(a)--99.4% 166,389,020
Other assets in excess of liabilities--0.6% 1,015,675
------------
TOTAL NET ASSETS--100.0% $167,404,695
============
</TABLE>
-----
(a) Represents cost for federal income tax and financial reporting purposes
and differs from value by net unrealized depreciation of securities as
follows:
<TABLE>
<S> <C> <C>
Unrealized appreciation.................................. $ 1,743,247
Unrealized depreciation.................................. (8,165,380)
-----------
Net unrealized depreciation.............................. $(6,422,133)
=========== ===
</TABLE>
45
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Bond Index Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
May 31, 2000
(Unaudited)
<S> <C> <C>
Assets:
Investments, at value (cost $172,811,153)............ $166,389,020
Collateral received for securities loaned............ 49,072,857
Interest receivable.................................. 2,027,450
Receivable for capital shares sold................... 29,000
Deferred organization costs.......................... 4,855
Prepaid expenses and other assets.................... 7,390
------------
Total Assets........................................ 217,530,572
Liabilities:
Dividends payable.................................... $ 885,799
Payable for return of collateral received on
securities loaned................................... 49,072,857
Payable to custodian for overdraft................... 26,193
Payable for capital shares redeemed.................. 43,888
Payable to affiliates................................ 77,905
Accrued expenses..................................... 19,235
-----------
Total Liabilities................................... 50,125,877
------------
Net Assets:
Capital.............................................. 174,908,913
Distributions in excess of net investment income..... (1,697)
Accumulated net realized losses from investment
transactions........................................ (1,080,388)
Net unrealized depreciation from investments......... (6,422,133)
------------
Net Assets........................................... $167,404,695
============
Investor A Shares
Net Assets.......................................... $ 971,870
Shares.............................................. 101,292
Redemption price per share.......................... $9.59
=====
Maximum Sales Charge--Investor A Shares.............. 4.00%
Maximum Offering Price (100%/(100%--Maximum Sales
Charge) of net asset value adjusted to the nearest
cent) per share.................................... $9.99
=====
Trust Shares
Net Assets.......................................... $146,264,286
Shares.............................................. 15,258,287
Offering and redemption price per share............. $9.59
=====
Institutional Shares
Net Assets.......................................... $ 20,168,539
Shares.............................................. 2,102,175
Offering and redemption price per share............. $9.59
=====
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the six months ended May 31, 2000
(Unaudited)
<S> <C> <C>
Investment Income:
Interest income.......................................... $ 6,042,347
Income from securities lending........................... 11,713
-----------
Total Investment Income................................. 6,054,060
Expenses:
Investment advisory fees................................. $265,465
Administration fees...................................... 176,977
Distribution and services fees, Investor A Shares........ 1,533
Administrative services fees, Trust Shares............... 232,252
Administrative services fees, Institutional Shares....... 31,292
Accounting fees.......................................... 13,589
Custodian fees........................................... 44,245
Transfer agent fees...................................... 34,184
Other.................................................... 39,547
--------
Total expenses before voluntary fee reductions.......... 839,084
Expenses voluntarily reduced............................ (320,740)
-----------
Net Expenses............................................ 518,344
-----------
Net Investment Income.................................... 5,535,716
===========
Realized/Unrealized Losses from Investments:
Net realized losses from investment transactions......... (1,034,771)
Net change in unrealized depreciation from investments... (1,872,237)
-----------
Net realized/unrealized losses from investments.......... (2,907,008)
-----------
Change in net assets resulting from operations........... $ 2,628,708
===========
</TABLE>
See notes to financial statements
46
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Bond Index Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
six months For the
ended year ended
May 31, 2000 November 30,
(Unaudited) 1999
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 5,535,716 $ 11,771,650
Net realized losses from investment transactions.. (1,034,771) (98,655)
Net change in unrealized depreciation from
investments...................................... (1,872,237) (13,024,538)
------------ ------------
Change in net assets resulting from operations..... 2,628,708 (1,351,543)
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (30,349) (66,295)
In excess of net investment income................ -- (7)
From net realized gains from investment
transactions..................................... -- (1,522)
In excess of net realized gains from investment
transactions..................................... -- (197)
Distributions to Trust Shareholders:
From net investment income........................ (4,833,072) (10,589,956)
In excess of net investment income................ -- (1,170)
From net realized gains from investment
transactions..................................... -- (732,097)
In excess of net realized gains from investment
transactions..................................... -- (94,903)
Distributions to Institutional Shareholders:
From net investment income........................ (619,653) (1,115,400)
In excess of net investment income................ -- (123)
From net realized gains from investment
transactions..................................... -- (27,179)
In excess of net realized gains from investment
transactions..................................... -- (3,523)
------------ ------------
Change in net assets from shareholder
distributions..................................... (5,483,074) (12,632,372)
------------ ------------
Change in net assets from capital transactions..... (28,947,890) 36,404,559
------------ ------------
Change in net assets............................... (31,802,256) 22,420,644
Net Assets:
Beginning of period............................... 199,206,951 176,786,307
------------ ------------
End of period..................................... $167,404,695 $199,206,951
============ ============
</TABLE>
See notes to financial statements
47
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Bond Index Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the For the
six months years ended February 10, 1997
ended November 30, to
May 31, 2000 ------------------- November 30, 1997
(Unaudited) 1999 1998 (a)
------------ -------- -------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $ 9.74 $ 10.45 $ 10.17 $ 10.00
-------- -------- -------- --------
Investment Activities:
Net investment income... 0.29 0.56 0.61 0.50
Net realized and
unrealized gains
(losses) from
investments............ (0.15) (0.65) 0.31 0.17
-------- -------- -------- --------
Total from Investment
Activities............. 0.14 (0.09) 0.92 0.67
-------- -------- -------- --------
Distributions:
Net investment income... (0.29) (0.57) (0.61) (0.50)
Net realized gains...... -- (0.04) (0.03) --
In excess of net
realized gains......... -- (0.01) -- --
-------- -------- -------- --------
Total Distributions..... (0.29) (0.62) (0.64) (0.50)
-------- -------- -------- --------
Net Asset Value, End of
Period.................. $ 9.59 $ 9.74 $ 10.45 $ 10.17
======== ======== ======== ========
Total Return (excludes
sales charge)........... 1.42%(b) (0.90)% 9.36% 6.93%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)............ $ 972 $ 1,074 $ 364 $ 55
Ratio of expenses to
average net assets...... 0.85%(c) 0.83% 0.77% 0.54%(c)
Ratio of net investment
income to average net
assets.................. 6.00%(c) 5.65% 5.81% 6.71%(c)
Ratio of expenses to
average net assets*..... 0.95%(c) 0.93% 0.93% 0.95%(c)
Portfolio turnover**..... 1.11% 21.88% 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 Portfolio as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
<CAPTION>
For the For the years
six months ended November February 10, 1997
ended 30, to
May 31, 2000 ------------------- November 30, 1997
(Unaudited) 1999 1998 (a)
------------ -------- -------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $ 9.73 $ 10.44 $ 10.16 $ 10.00
-------- -------- -------- --------
Investment Activities:
Net investment income... 0.30 0.60 0.65 0.53
Net realized and
unrealized gains
(losses) from
investments............ (0.14) (0.66) 0.30 0.16
-------- -------- -------- --------
Total from Investment
Activities............. 0.16 (0.06) 0.95 0.69
-------- -------- -------- --------
Distributions:
Net investment income... (0.30) (0.60) (0.64) (0.53)
Net realized gains...... -- (0.04) (0.03) --
In excess of net
realized gains......... -- (0.01) -- --
-------- -------- -------- --------
Total Distributions..... (0.30) (0.65) (0.67) (0.53)
-------- -------- -------- --------
Net Asset Value, End of
Period.................. $ 9.59 $ 9.73 $ 10.44 $ 10.16
======== ======== ======== ========
Total Return............. 1.68%(b) (0.61)% 9.69% 7.15%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)............ $146,264 $176,426 $169,388 $138,319
Ratio of expenses to
average net assets...... 0.55%(c) 0.53% 0.42% 0.23%(c)
Ratio of net investment
income to average net
assets.................. 6.30%(c) 5.95% 6.20% 6.92%(c)
Ratio of expenses to
average net assets*..... 0.95%(c) 0.93% 0.93% 0.94%(c)
Portfolio turnover**..... 1.11% 21.88% 33.37% 46.16%
Financial Highlights, Trust 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 Portfolio as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
See notes to financial statements
48
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Bond Index Portfolio
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
For the
six months For the years ended February 10, 1997
ended November 30, to
May 31, 2000 ---------------------- November 30, 1997
(Unaudited) 1999 1998 (a)
------------ ---------- --------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 9.74 $10.45 $ 10.17 $10.00
------- ---------- --------- ------
Investment Activities:
Net investment income.. 0.29 0.56 0.62 0.53
Net realized and
unrealized gains
(losses) from
investments........... (0.15) (0.65) 0.31 0.17
------- ---------- --------- ------
Total from Investment
Activities............ 0.14 (0.09) 0.93 0.70
------- ---------- --------- ------
Distributions:
Net investment income.. (0.29) (0.57) (0.62) (0.53)
Net realized gains..... -- (0.04) (0.03) --
In excess of net
realized gains........ -- (0.01) -- --
------- ---------- --------- ------
Total Distributions.... (0.29) (0.62) (0.65) (0.53)
------- ---------- --------- ------
Net Asset Value, End of
Period................. $ 9.59 $ 9.74 $ 10.45 $10.17
======= ========== ========= ======
Total Return............ 1.42%(b) (0.90)% 9.47% 7.20%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $20,169 $ 21,707 $ 7,034 $ 27
Ratio of expenses to
average net assets..... 0.85%(c) 0.83% 0.79% 0.24%(c)
Ratio of net investment
income to average net
assets................. 6.00%(c) 5.66% 5.77% 7.09%(c)
Ratio of expenses to
average net assets*.... 0.95%(c) 0.93% 0.91% 0.95%(c)
Portfolio turnover**.... 1.11% 21.88% 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 Portfolio as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
See notes to financial statements
49
<PAGE>
Mercantile Government & Corporate Bond Portfolio
Q. What were the conditions in the Treasury market during the six month
period ended May 31, 2000?
A. The economy continued to remain strong with moderate inflation. However,
early in the year, there was a spike in the Consumer Price Index. The Fed had
apparently been anticipating this increase, because they chose to tighten
credit on February 2, by a quarter of a percentage point. The spikes in the
CPI occurred at the end of February and March, with the month over month rate
of change more than twice the rate of the previous months. This caused the Fed
to tighten two more times, on March 21, by a quarter of a point, and again on
May 16, by half a percentage point.
Bond yields experienced a rather unusual occurrence. The yields on the
shorter maturities rose while the yields on the longest maturities declined.
The yield on the two-year Treasury began the period at 6.01% and ended the
period at 6.67%. The yield on the thirty-year Treasury began the period at
6.29% and ended the period at 6.01%. The major reason for this anomaly is the
fact that the Treasury Department has been buying back the longer Treasuries
in an attempt to reduce the federal debt.
Q. How did you manage the Portfolio's sector and credit quality in that
environment?
A. As Treasury rates fell, corporate bond yields lagged, causing the
relative yield of corporate bonds to become more attractive versus Treasuries.
This provided us with an opportunity to increase the Portfolio's corporate
holdings from 35.9% to 36.7%. U.S. agencies also experienced the same kind of
spread widening as corporates, and here we increased the Portfolio's exposure
from 2.2% to 9.5%.*
The combined effect of adding to corporates and agencies has caused the
overall credit quality of the Portfolio to drop from AAA to AA1. The
additional income should more than makeup for this small decline in credit
quality.
Q. How did you manage the Portfolio's average maturity and duration during
the period?
A. The average maturity of the Portfolio dropped from 8.4 years at the
beginning of the period to 8.3 years at the end of the period. The duration of
the Portfolio went from 4.8 years at the beginning of the period to 5.0 years
at the end of the period. The change in maturity is largely the result of a
minor shift out of mortgages which have long average lives but short
durations, into agencies which have shorter average lives, but longer
durations. The change in our mortgage exposure was primarily due to principal
paydowns, which are inherent in mortgage-backed securities. The Portfolio's
current duration is almost an exact match to that of the Lehman Brothers
Aggregate Bond Index.
Q. What is your outlook for the bond market going forward?
A. We are somewhat optimistic that bond rates will decrease by the end of
the year. The Fed has already raised rates three times this year and it
appears to be having the desired affect on the economy as the CPI has
stabilized again at lower rates of change.
However, we are somewhat concerned with the recent trend in oil prices and
how it translates into increased prices at the gas pump. Whether this price
increase was caused by OPEC or by the oil industry is unknown, but we hope it
is a short-lived phenomenon.
-----
* Portfolio composition is subject to change.
50
<PAGE>
Mercantile Government & Corporate Bond Portfolio
[GRAPH]
Value of a $10,000 Investment
Investor A Investor A Investor B Lehman Brothers
(No Load) (Load)* (No CDSC) Aggregate Bond Index
5/90 10,000 9,600 10,000 10,000
5/91 11,102 10,658 11,102 11,253
5/92 12,293 11,802 12,293 12,653
5/93 13,529 12,988 13,529 14,083
5/94 13,609 13,064 13,609 14,183
5/95 15,018 14,418 14,963 15,811
5/96 15,427 14,810 15,278 16,503
5/97 16,467 15,808 16,212 17,876
5/98 18,098 17,375 17,713 19,827
5/99 18,826 18,073 18,299 20,689
5/00 19,088 18,324 18,427 21,126
---------------------------------------------------
Average Annual Total Returns
as of 5/31/00
---------------------------------------------------
1 Year 5 Year 10 Year
---------------------------------------------------
Investor A (No Load) 1.39% 4.91% 6.68%
Investor A* -2.66% 4.06% 6.24%
Investor B (No CDSC) 0.70% 4.25% 6.30%
Investor B (CDSC)** -4.09% 3.93% 6.30%
---------------------------------------------------
* Reflects 4.00% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
1
[GRAPH]
Value of a $10,000 Investment
Lehman Brothers
Institutional Trust Aggregate Bond Index
5/90 10,000 10,000 10,000
5/91 11,102 11,111 11,253
5/92 12,293 12,340 12,653
5/93 13,529 13,621 14,083
5/94 13,609 13,742 14,183
5/95 15,018 15,211 15,811
5/96 15,427 15,669 16,503
5/97 16,467 16,775 17,876
5/98 18,135 18,511 19,827
5/99 18,868 19,333 20,689
5/00 19,113 19,643 21,126
---------------------------------------------------
Average Annual Total Returns
as of 5/31/00
---------------------------------------------------
1 Year 5 Year 10 Year
---------------------------------------------------
Trust 1.60% 5.25% 6.98%
Institutional 1.31% 4.94% 6.69%
---------------------------------------------------
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
graphs reflects the deduction of these value-added services, as well as the
deduction of a 4.00% 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.
51
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Government & Corporate Bond Portfolio May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Corporate Bonds (36.7%):
Security Principal Market
Description Amount Value
----------- ---------- -------------
<S> <C> <C>
Automotive (6.4%):
Ford Motor Credit Corp., 6.80%, 4/23/01, MTN......... $1,850,000 $ 1,840,565
Ford Motor Credit Corp., Global Bond, 7.00%,
9/25/01............................................. 750,000 744,182
Ford Motor Credit Corp., Global Bond, 6.50%,
2/28/02............................................. 3,194,000 3,136,431
General Motors Acceptance Corp., 6.85%, 4/17/01,
MTN................................................. 1,000,000 994,642
General Motors Acceptance Corp., 6.70%, 4/3/01, MTN.. 1,400,000 1,390,137
-------------
8,105,957
-------------
Commercial Services (1.0%):
Cedant Corp., 7.75%, 12/1/03......................... 1,300,000 1,250,467
-------------
Computer Software (2.9%):
Computer Associates, 6.25%, 4/15/03.................. 1,500,000 1,411,241
Dell Computer Corp., 7.10%, 4/15/28.................. 1,200,000 1,040,506
IBM Corp., 6.45%, 8/1/07............................. 1,400,000 1,314,481
-------------
3,766,228
-------------
Cosmetics & Toiletries (1.9%):
Procter & Gamble Co., 6.60%, 12/15/04................ 2,500,000 2,425,663
-------------
Financial Services (12.5%):
Associates Corp., 5.80%, 4/20/04..................... 2,000,000 1,860,734
BankAmerica Corp. 7.50%, 10/15/02.................... 500,000 497,836
Citigroup, Inc., 6.63%, 1/15/28...................... 2,000,000 1,669,174
General Electric Capital Corp., 8.75%, 3/14/03, MTN.. 1,000,000 1,031,329
Household Finance Corp., 8.38%, 11/15/01............. 3,000,000 3,027,426
Merrill Lynch & Co., Series B, 6.38%, 10/1/01, MTN... 3,000,000 2,957,115
Traveler's Group, Inc., 7.30%, 5/15/02............... 2,000,000 1,990,688
Traveler's Group, Inc., 7.50%, 2/1/03................ 3,000,000 2,978,250
-------------
16,012,552
-------------
Industrial Goods & Services (1.4%):
E.I. duPont de Nemours & Co., 6.88%, 10/15/09........ 1,300,000 1,234,099
Rockwell International Corp., 6.75%, 9/15/02......... 500,000 493,532
-------------
1,727,631
-------------
Insurance (2.2%):
General Electric Global Insurance Holdings, 6.45%,
3/1/19.............................................. 1,700,000 1,434,159
St. Paul Companies, Inc., 6.38%, 12/15/08 MTN........ 1,550,000 1,378,998
-------------
2,813,157
-------------
International (0.4%):
Province of Ontario, Global Bond, 7.38%, 1/27/03..... 500,000 497,879
-------------
</TABLE>
<TABLE>
<CAPTION>
Corporate Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- -------------
<S> <C> <C>
Manufacturing--Consumer Goods (1.6%):
Texaco Capital, 6.95%, 10/15/01, MTN................. $2,000,000 $ 1,981,498
-------------
Retail Stores (0.8%):
Dillards, Inc., 7.13%, 8/1/18........................ 1,500,000 1,032,561
-------------
Telecommunications (4.5%):
AT&T Corp., 5.63%, 3/15/04........................... 1,000,000 933,556
Lucent Technologies, 6.45%, 3/15/29.................. 1,265,000 1,078,247
Southern New England Telecommunications Corp., Series
2, 6.50%, 2/15/02, MTN.............................. 3,250,000 3,199,040
United Telephone--Florida, 7.25%, 12/15/04........... 500,000 488,111
-------------
5,698,954
-------------
Utilities (1.1%):
Laclede Gas Co., 7.50%, 11/1/07...................... 1,500,000 1,464,641
-------------
TOTAL CORPORATE BONDS 46,777,188
-------------
<CAPTION>
U.S. Government Agencies (39.9%):
<S> <C> <C>
Federal Farm Credit Bank (2.7%):
7.21%, 4/4/07........................................ 2,000,000 1,971,120
6.37%, 10/30/07...................................... 1,500,000 1,403,997
-------------
3,375,117
-------------
Federal Home Loan Bank (2.9%):
5.71%, 9/8/08........................................ 1,000,000 889,748
5.79%, 4/27/09....................................... 3,100,000 2,757,019
-------------
3,646,767
-------------
Federal Home Loan Mortgage Corp. (11.1%):
8.50%, 5/1/01, Pool #200034.......................... 7,132 7,171
8.50%, 11/1/01, Pool #200058......................... 20,200 20,309
8.00%, 3/1/02, Pool #215507.......................... 17,539 17,670
7.50%, 4/1/02, Pool #200070.......................... 27,285 27,158
8.00%, 5/1/02, Pool # 216910......................... 7,982 8,041
8.00%, 6/1/02, Pool #218582.......................... 19,083 19,225
8.00%, 6/1/02, Pool #218101.......................... 68,677 69,189
8.00%, 7/1/02, Pool #501214.......................... 43,399 43,722
8.00%, 7/1/02, Pool #217891.......................... 13,519 13,620
8.50%, 3/1/05, Pool #380084.......................... 31,241 31,542
8.50%, 4/1/05, Pool #380085.......................... 3,881 3,918
8.50%, 9/1/05, Pool #503592.......................... 9,956 10,052
8.50%, 4/1/06, Gold Pool #E00025..................... 12,791 12,955
6.76%, 3/12/07, Pool #000001......................... 600,000 577,464
5.75%, 4/15/08....................................... 2,500,000 2,241,645
6.00%, 2/1/11, Gold Pool #E62600..................... 337,319 316,605
8.00%, 1/1/23, Gold Pool #C00225..................... 919,821 918,354
8.00%, 1/1/23, Gold Pool #D29451..................... 144,845 144,594
6.00%, 12/1/25, Gold Pool #G00427.................... 2,691,759 2,442,006
6.00%, 9/1/27, Gold Pool #C00565..................... 2,683,786 2,419,563
6.00%, 4/1/29, Pool #C24786.......................... 186,548 167,831
6.00%, 4/1/29, Pool #C25708.......................... 376,497 338,722
6.00%, 5/1/29, Pool #C25918.......................... 4,147,935 3,731,758
6.00%, 5/1/29, Pool #C25930.......................... 300,115 270,004
6.00%, 5/1/29, Pool #C26993.......................... 111,804 100,586
6.00%, 7/1/29, Pool #C29068.......................... 237,368 213,552
-------------
14,167,256
-------------
</TABLE>
Continued
52
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Government & Corporate Bond Portfolio May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
U.S. Government Agencies, continued
Security Principal Market
Description Amount Value
----------- ---------- -----------
<S> <C> <C>
Federal National Mortgage Assoc. (12.1%):
6.00%, 11/1/00, Pool #190070.......................... $ 421,204 $ 417,009
6.63%, 9/15/09........................................ 3,000,000 2,827,458
6.50%, 12/1/11, Pool #367838.......................... 1,745,947 1,665,820
6.50%, 7/1/12, Pool #370716........................... 393,006 374,290
6.50%, 7/1/12, Pool #393667........................... 728,418 694,988
6.50%, 8/1/12, Pool #251165........................... 648,484 617,601
6.00%, 1/1/13, Pool #251501........................... 3,060,040 2,856,442
6.00%, 2/1/26, Pool #336918........................... 2,273,524 2,058,055
6.00%, 10/1/26, Pool #368935.......................... 1,177,307 1,065,730
6.50%, 8/1/27, Pool #395219........................... 1,620,783 1,503,639
6.50%, 8/1/27, Pool #397372........................... 1,512,560 1,403,238
-----------
15,484,270
-----------
Government National Mortgage Assoc. (11.1%):
9.50%, 2/15/01, Pool #149206.......................... 852 867
8.00%, 1/15/02, Pool #188653.......................... 21,898 22,031
8.00%, 3/15/02, Pool #199167.......................... 3,298 3,318
8.00%, 4/15/02, Pool #180980.......................... 21,397 21,527
8.00%, 7/15/02, Pool #209779.......................... 41,586 41,839
9.50%, 10/15/02, Pool #232514......................... 16,481 16,963
6.50%, 9/15/03, Pool #002549.......................... 104,334 102,211
9.50%, 9/15/05, Pool #290435.......................... 16,245 16,873
9.50%, 1/15/06, Pool #298829.......................... 29,906 31,128
8.00%, 5/15/06, Pool #303851.......................... 52,854 53,447
9.50%, 7/15/07, Pool #331878.......................... 54,528 56,807
8.00%, 11/15/07, Pool #339329......................... 199,298 202,012
8.00%, 12/15/07, Pool #338551......................... 113,205 114,747
9.50%, 8/15/09, Pool #400219.......................... 316,985 329,980
9.50%, 9/15/09, Pool #377317.......................... 120,947 125,906
9.50%, 2/15/10, Pool #392932.......................... 240,848 250,502
8.00%, 5/15/10, Pool #398424.......................... 20,167 20,408
6.50%, 8/15/10, Pool #387094.......................... 134,175 129,223
8.00%, 11/15/10, Pool #405524......................... 123,006 124,473
8.00%, 11/15/10, Pool #410294......................... 648,906 656,644
8.00%, 11/15/10, Pool #414827......................... 157,374 159,251
6.50%, 3/15/11, Pool #408253.......................... 63,214 60,774
6.50%, 4/15/11, Pool #402546.......................... 219,294 210,828
6.50%, 4/15/11, Pool #418274.......................... 59,322 57,032
6.50%, 4/15/11, Pool #421831.......................... 292,480 281,188
6.50%, 5/15/11, Pool #408304.......................... 364,714 350,634
6.50%, 5/15/11, Pool #430822.......................... 49,241 47,340
6.50%, 6/15/11, Pool #430820.......................... 529,325 508,890
6.50%, 6/15/11, Pool #345631.......................... 471,431 453,230
6.50%, 6/15/11, Pool #421731.......................... 72,434 69,637
6.50%, 6/15/11, Pool #423833.......................... 244,720 235,272
8.50%, 4/15/17, Pool #212112.......................... 906,037 928,809
8.00%, 4/15/22, Pool #320818.......................... 721,691 725,940
7.50%, 4/15/23, Pool #343195.......................... 555,142 547,673
9.00%, 3/15/25, Pool #404067.......................... 454,164 468,525
6.50%, 4/15/26, Pool #415721.......................... 790,396 742,219
6.50%, 4/15/26, Pool #422323.......................... 759,509 713,215
6.50%, 5/15/26, Pool #417388.......................... 732,950 688,275
6.50%, 6/15/26, Pool #423801.......................... 3,857,337 3,622,220
7.00%, 9/15/27, Pool #455304.......................... 347,206 333,629
6.50%, 10/15/28, Pool #434031......................... 663,744 621,414
-----------
14,146,901
-----------
TOTAL U.S. GOVERNMENT AGENCIES 50,820,311
-----------
</TABLE>
<TABLE>
<CAPTION>
U.S. Treasury Bonds (10.4%):
Shares or
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
8.88%, 8/15/17......................................... $2,865,000 $ 3,587,519
8.88%, 2/15/19......................................... 3,150,000 3,987,705
8.75%, 8/15/20......................................... 2,183,000 2,760,131
8.00%, 11/15/21........................................ 2,500,000 2,971,095
------------
TOTAL U.S. TREASURY BONDS 13,306,450
------------
<CAPTION>
U.S. Treasury Notes (11.8%):
<S> <C> <C>
6.25%, 8/31/02......................................... 2,195,000 2,174,422
5.25%, 8/15/03......................................... 2,800,000 2,688,876
5.25%, 5/15/04......................................... 500,000 476,719
5.63%, 5/15/08......................................... 4,905,000 4,656,684
5.50%. 5/15/09......................................... 5,400,000 5,076,000
------------
TOTAL U.S. TREASURY NOTES 15,072,701
------------
<CAPTION>
Investment Companies (0.1%):
<S> <C> <C>
Federated Money Market Trust........................... 172,976 172,976
------------
TOTAL INVESTMENT COMPANIES 172,976
------------
TOTAL INVESTMENTS
(Cost $130,953,978)(a)--98.9%......................... 126,149,626
Other assets in excess of liabilities--1.1%............ 1,368,452
------------
TOTAL NET ASSETS--100.0% $127,518,078
============
</TABLE>
-----
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting in excess of federal income tax reporting of
$120,811. Cost for federal income tax purposes differs from value by net
unrealized depreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized
appreciation........... $ 1,443,739
Unrealized
depreciation........... (6,368,902)
------------
Net unrealized
depreciation........... $ (4,925,163)
============
Cost for federal income
tax purposes........... $131,074,789
</TABLE>
MTN Medium Term Note
See notes to financial statements
53
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Government & Corporate Bond Portfolio
Statement of Assets and Liabilities
May 31, 2000 (Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $130,953,978)............ $126,149,626
Collateral received for securities loaned............ 28,472,402
Cash................................................. 703,585
Interest receivable.................................. 1,487,189
Receivable for capital shares sold................... 610
Prepaid expenses and other assets.................... 19,922
------------
Total Assets........................................ 156,833,334
Liabilities:
Dividends payable.................................... $ 652,676
Payable for capital shares redeemed.................. 99,165
Payable for return of collateral received on
securities loaned................................... 28,472,402
Payable to affiliates................................ 72,770
Accrued expenses..................................... 18,243
-----------
Total Liabilities................................... 29,315,256
------------
Net Assets:
Capital.............................................. 134,215,903
Distributions in excess of net investment income..... (42,515)
Accumulated net realized losses from investment
transactions........................................ (1,850,958)
Net unrealized depreciation from investments......... (4,804,352)
------------
Net Assets........................................... $127,518,078
============
Investor A Shares
Net Assets.......................................... $ 3,096,351
Shares.............................................. 319,934
Redemption price per share.......................... $9.68
=====
Maximum Sales Charge--Investor A Shares.............. 4.00%
Maximum Offering Price
(100%/(100%--Maximum Sales Charge) of net asset
value adjusted to the nearest cent) per share...... $10.08
======
Investor B Shares
Net Assets.......................................... $ 652,968
Shares.............................................. 67,312
Offering price per share*........................... $9.70
=====
Trust Shares
Net Assets.......................................... $112,682,019
Shares.............................................. 11,623,928
Offering and redemption price per share............. $9.69
=====
Institutional Shares
Net Assets.......................................... $ 11,086,740
Shares.............................................. 1,143,710
Offering and redemption price per share............. $9.69
=====
</TABLE>
-----
* Redemption price of Investor B Shares varies based on length of time held.
Statement of Operations
For the six months ended May 31, 2000 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income.......................................... $ 4,341,408
Income from securities lending........................... 20,136
-----------
Total Investment Income................................. 4,361,544
Expenses:
Investment advisory fees................................ $289,182
Administration fees..................................... 128,526
Distribution and services fees, Investor A Shares....... 5,283
Distribution and services fees, Investor B Shares....... 3,383
Administrative services fees, Trust Shares.............. 178,372
Administrative services fees, Institutional Shares...... 7,905
Accounting fees......................................... 10,538
Custodian fees.......................................... 32,207
Transfer agent fees..................................... 24,603
Other................................................... 33,084
--------
Total expenses before voluntary fee reductions........... 713,083
Expenses voluntarily reduced............................ (249,136)
-----------
Net Expenses............................................ 463,947
-----------
Net Investment Income.................................... 3,897,597
-----------
Realized/Unrealized Losses from Investments:
Net realized losses from investment transactions......... (909,186)
Net change in unrealized depreciation from investments... (1,255,212)
-----------
Net realized/unrealized losses from investments.......... (2,164,398)
-----------
Change in net assets resulting from operations........... $ 1,733,199
===========
</TABLE>
See notes to financial statements
54
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Government & Corporate Bond Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
six months For the
ended year ended
May 31, 2000 November 30,
(Unaudited) 1999
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 3,897,597 $ 10,267,701
Net realized losses from investment transactions.. (909,186) (984,305)
Net change in unrealized depreciation from
investments...................................... (1,255,212) (11,045,947)
------------ ------------
Change in net assets resulting from operations..... 1,733,199 (1,762,551)
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (101,811) (234,658)
From net realized gains from investment
transactions..................................... -- (61,825)
In excess of net realized gains from investment
transactions..................................... -- (30,414)
Distributions to Investor B Shareholders:
From net investment income........................ (17,201) (36,673)
From net realized gains from investment
transactions..................................... -- (8,276)
In excess of net realized gains from investment
transactions..................................... -- (4,071)
Distributions to Trust Shareholders:
From net investment income........................ (3,623,233) (9,570,777)
From net realized gains from investment
transactions..................................... -- (2,237,800)
In excess of net realized gains from investment
transactions..................................... -- (1,100,854)
Distributions to Institutional Shareholders:
From net investment income........................ (155,353) (425,573)
From net realized gains from investment
transactions..................................... -- (249,601)
In excess of net realized gains from investment
transactions..................................... -- (122,788)
------------ ------------
Change in net assets from shareholder
distributions..................................... (3,897,598) (14,083,310)
------------ ------------
Change in net assets from capital transactions..... (6,132,237) (53,631,124)
------------ ------------
Change in net assets............................... (8,296,636) (69,476,985)
Net Assets:
Beginning of period............................... 135,814,714 205,291,699
------------ ------------
End of period..................................... $127,518,078 $135,814,714
============ ============
</TABLE>
See notes to financial statements
55
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Government & Corporate Bond Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
six months
ended For the years ended November 30,
May 31, 2000 ---------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 9.84 $10.72 $10.35 $10.34 $10.53 $ 9.64
------ ------ ------ ------ ------ ------
Investment Activities:
Net investment income.. 0.28 0.57 0.57 0.56 0.64 0.61
Net realized and
unrealized gains
(losses) from
investments........... (0.16) (0.69) 0.37 0.01 (0.19) 0.89
------ ------ ------ ------ ------ ------
Total from Investment
Activities............ 0.12 (0.12) 0.94 0.57 0.45 1.50
------ ------ ------ ------ ------ ------
Distributions:
Net investment income.. (0.28) (0.56) (0.57) (0.56) (0.64) (0.61)
Net realized gains..... -- (0.13) -- -- -- --
In excess of net
realized gains........ -- (0.07) -- -- -- --
------ ------ ------ ------ ------ ------
Total Distributions.... (0.28) (0.76) (0.57) (0.56) (0.64) (0.61)
------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $ 9.68 $ 9.84 $10.72 $10.35 $10.34 $10.53
====== ====== ====== ====== ====== ======
Total Return (excludes
sales charge).......... 1.26%(a) (1.13)% 9.31% 5.78% 4.51% 15.98%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $3,096 $3,878 $4,927 $4,774 $4,915 $5,496
Ratio of expenses to
average net assets..... 1.00%(b) 0.97% 0.96% 0.95% 0.95% 0.95%
Ratio of net investment
income to average net
assets................. 5.79%(b) 5.54% 5.41% 5.46% 6.06% 6.03%
Ratio of expenses to
average net assets*.... 1.11%(b) 1.08% 1.06% 1.05% 1.05% 1.05%
Portfolio turnover**.... 17.60% 38.29% 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 Portfolio as a whole
without distinguishing between the classes of shares issued. (a) Not
Annualized. (b) Annualized.
Financial Highlights, Investor B Shares
<TABLE>
<CAPTION>
For the
six months For the years ended March 1, 1995
ended November 30, to
May 31, 2000 ------------------------------- November 30,
(Unaudited) 1999 1998 1997 1996 1995 (a)
------------ ------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $9.86 $10.75 $10.37 $10.34 $10.53 $ 9.92
----- ------ ------ ------ ------ ------
Investment Activities:
Net investment income.. 0.24 0.49 0.50 0.49 0.57 0.38
Net realized and
unrealized gains
(losses) from
investments........... (0.15) (0.69) 0.38 0.03 (0.19) 0.61
----- ------ ------ ------ ------ ------
Total from Investment
Activities............ 0.09 (0.20) 0.88 0.52 0.38 0.99
----- ------ ------ ------ ------ ------
Distributions:
Net investment income.. (0.25) (0.49) (0.50) (0.49) (0.57) (0.38)
Net realized gains..... -- (0.13) -- -- -- --
In excess of net
realized gains........ -- (0.07) -- -- -- --
----- ------ ------ ------ ------ ------
Total Distributions.... (0.25) (0.69) (0.50) (0.49) (0.57) (0.38)
----- ------ ------ ------ ------ ------
Net Asset Value, End of
Period................. $9.70 $ 9.86 $10.75 $10.37 $10.34 $10.53
===== ====== ====== ====== ====== ======
Total Return (excludes
redemption charge)..... 0.91%(d) (1.90)% 8.65% 5.26% 3.79% 15.27%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 653 $ 712 $ 662 $ 545 $ 511 $ 106
Ratio of expenses to
average net assets..... 1.70%(c) 1.67% 1.66% 1.65% 1.65% 1.65%(c)
Ratio of net investment
income to average net
assets................. 5.09%(c) 4.85% 4.70% 4.84% 5.37% 5.19%(c)
Ratio of expenses to
average net assets*.... 1.81%(c) 1.78% 1.76% 1.75% 1.75% 1.75%(c)
Portfolio turnover**.... 17.60% 38.29% 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 Portfolio 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.
See notes to financial statements
56
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Government & Corporate Bond Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the
six months
ended For the years ended November 30,
May 31, 2000 -------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 9.86 $ 10.74 $ 10.37 $ 10.34 $ 10.53 $ 9.64
-------- -------- -------- -------- -------- --------
Investment Activities:
Net investment income.. 0.30 0.60 0.60 0.59 0.67 0.64
Net realized and
unrealized gains
(losses) from
investments........... (0.17) (0.69) 0.37 0.03 (0.19) 0.89
-------- -------- -------- -------- -------- --------
Total from Investment
Activities............ 0.13 (0.09) 0.97 0.62 0.48 1.53
-------- -------- -------- -------- -------- --------
Distributions:
Net investment income.. (0.30) (0.59) (0.60) (0.59) (0.67) (0.64)
Net realized gains..... -- (0.13) -- -- -- --
In excess of net
realized gains........ -- (0.07) -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions.... (0.30) (0.79) (0.60) (0.59) (0.67) (0.64)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 9.69 $ 9.86 $ 10.74 $ 10.37 $ 10.34 $ 10.53
======== ======== ======== ======== ======== ========
Total Return............ 1.31%(a) (0.83)% 9.63% 6.32% 4.82% 16.31%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $112,682 $126,472 $178,868 $172,637 $141,440 $127,741
Ratio of expenses to
average net assets..... 0.70%(b) 0.67% 0.66% 0.65% 0.65% 0.65%
Ratio of net investment
income to average net
assets................. 6.09%(b) 5.84% 5.71% 5.85% 6.36% 6.32%
Ratio of expenses to
average net assets*.... 1.11%(b) 1.08% 1.06% 1.05% 0.75% 0.75%
Portfolio turnover**.... 17.60% 38.29% 91.14% 140.72% 149.20% 59.32%
* 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 Portfolio as a whole
without distinguishing between the classes of shares issued. (a) Not
Annualized. (b) Annualized.
Financial Highlights, Institutional Shares
<CAPTION>
For the
six months
ended For the years ended November 30,
May 31, 2000 -------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 9.86 $ 10.74 $ 10.37 $ 10.34 $ 10.53 $ 9.64
-------- -------- -------- -------- -------- --------
Investment Activities:
Net investment income.. 0.27 0.56 (a) 0.57 0.56 0.64 0.61
Net realized and
unrealized gains
(losses) from
investments........... (0.16) (0.68) 0.37 0.03 (0.19) 0.89
-------- -------- -------- -------- -------- --------
Total from Investment
Activities............ 0.11 (0.12) 0.94 0.59 0.45 1.50
-------- -------- -------- -------- -------- --------
Distributions:
Net investment income.. (0.28) (0.56) (0.57) (0.56) (0.64) (0.61)
Net realized gains..... -- (0.13) -- -- -- --
In excess of net
realized gains........ -- (0.07) -- -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions.... (0.28) (0.76) (0.57) (0.56) (0.64) (0.61)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 9.69 $ 9.86 $ 10.74 $ 10.37 $ 10.34 $ 10.53
======== ======== ======== ======== ======== ========
Total Return............ 1.17%(b) (1.12)% 9.30% 6.00% 4.51% 15.98%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 11,087 $ 4,753 $ 20,835 $ 16,954 $ 14,875 $ 9,413
Ratio of expenses to
average net assets..... 1.00%(c) 0.97% 0.96% 0.95% 0.95% 0.95%
Ratio of net investment
income to average net
assets................. 5.79%(c) 5.49% 5.41% 5.55% 6.06% 6.01%
Ratio of expenses to
average net assets*.... 1.11%(c) 1.08% 1.06% 1.05% 1.05% 1.05%
Portfolio turnover**.... 17.60% 38.29% 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 Portfolio as a whole
without distinguishing between the classes of shares issued. (a) Per share net
investment income has been calculated using the daily average share method.
(b) Not Annualized. (c) Annualized.
See notes to financial statements
57
<PAGE>
Mercantile Short-Intermediate Municipal Portfolio/1/
Q. What were the economic and market conditions during the six month period
ended May 31, 2000?
A. Interest rates rose during most of the period. That trend was driven by
investors' fears that strong economic growth would cause the Fed to raise
short-term interest rates to head off inflation.
Q. How did the municipal bond market perform in that environment?
A. Longer-term municipal bonds outperformed shorter-term municipal issues.
Rate increases did not pose a significant threat to the municipal bond market
because tax-exempt issues were in short supply. Buyers' strong demand resulted
in strong performance relative to taxable bonds.
Q. How did you position the Portfolio?
A. The Portfolio's average maturity stood between four and five years
throughout the period. We generally attempt to maintain such an approach and
minimize trading.
Q. What was the average credit rating of the Portfolio's holdings?
A. We maintained the Portfolio's very high average credit quality at AA1.
High quality, liquid securities remained in demand as interest rates rose.
Furthermore, the additional yield available on lower-quality securities was not
attractive enough to warrant the extra risk in such issues.
Q. Did you find attractive opportunities among certain sectors of the
municipal market?
A. The Portfolio does not make large sector bets, but we did find
opportunities to capture attractive yields among issues of excellent quality
and structure in general obligation and revenue bonds. These areas represented
the largest share of the Portfolio's assets./2/
Q. What is your outlook for the economy and the municipal market going
forward?
A. In our opinion, the economy will probably continue to grow at a moderate
pace and inflation is likely to remain low. However, there is the potential for
another interest rate increase by the Fed in the coming months if inflation
appears to be in danger of rising. We believe the overall bond market will
trade in a narrow range, with long-term yields between 5.50% and 6.00%. We
expect the demand for municipal bonds to remain strong, and we anticipate the
municipal market will perform well relative to the taxable market.
Q. How will you position the Portfolio in that environment?
A. We will maintain the Portfolio's average maturity at between four and five
years and attempt to minimize trading in keeping with the objective of the
Portfolio. We also will continue to hold issuers with high credit quality.
-----
/1/The Portfolio's income may be subject to certain state and local taxes and,
depending on your tax status, the federal alternative minimum tax.
/2/Portfolio composition is subject to change.
58
<PAGE>
Mercantile Short-Intermediate Municipal Portfolio
[GRAPH]
Value of a $10,000 Investment
Lehman Brothers 3 year
Investor A (No Load) Investor A (Load)* Municipal Bond Index
7/10/95 10,000 9,600 10,000
11/95 10,080 9,677 10,220
11/96 10,485 10,066 10,713
11/97 10,918 10,482 11,229
11/98 11,481 11,023 11,836
11/99 11,528 11,068 12,117
5/30/00 11,266 10,816 12,241
-------------------------------------------
Average Annual Total Returns
as of 5/31/00
Since
Inception
1 Year (7/10/95)
-------------------------------------------
Investor A (No Load) -0.16% 2.69%
Investor A* -4.16% 2.03%
-------------------------------------------
* Reflects 4.00% sales charge.
[GRAPH]
Value of a $10,000 Investment
Lehman Brothers 3 year
Trust Municipal Bond Index
7/10/95 10,000 10,000
11/95 10,213 10,220
11/96 10,636 10,713
11/97 11,103 11,229
11/98 11,697 11,836
11/99 11,762 12,117
5/30/00 11,787 12,241
-------------------------------------------
Average Annual Total Returns
as of 5/31/00
Since
Inception
1 Year (7/10/95)
-------------------------------------------
Trust -0.12% 3.41%
-------------------------------------------
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 graphs reflects the deduction of
these value-added services, as well as the deduction of a 4.00% sales charge on
Investor A Shares.
59
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Short-Intermediate Municipal Portfolio May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds (96.7%):
Security Principal Market
Description Amount Value
----------- ---------- -----------
<S> <C> <C>
Colorado (3.7%):
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 $ 982,190
-----------
Hawaii (6.0%):
Hawaii State Highway Revenue, 4.80%, 7/1/03............. 600,000 595,926
Hawaii State, Series CI, G.O., 4.10%, 11/1/01........... 1,000,000 981,840
-----------
1,577,766
-----------
Illinois (10.0%):
Chicago, G.O., 5.50%, 1/1/13 (FSA Insured).............. 1,000,000 994,580
Du Page County, Forest Preservation District, G.O.,
5.90%, 11/1/01......................................... 500,000 507,025
Illinois State Toll Highway Authority, Toll Highway
Priority Revenue, Series A, 4.75%, 1/1/02.............. 750,000 746,610
Illinois State, G.O., 5.25%, 4/1/01..................... 400,000 401,888
-----------
2,650,103
-----------
Indiana (5.3%):
Muncie School Building Corp., 4.95%, 1/15/02 (MBIA
Insured)............................................... 500,000 500,125
St. Joseph County Hospital Authority, Memorial Health
System, 4.75%, 8/15/12, Callable on 2/15/08 @ 101 (MBIA
Insured)............................................... 1,000,000 887,820
-----------
1,387,945
-----------
Iowa (1.6%):
Ottumwa Community School District, G.O., 5.10%, 6/1/01
(FSA Insured).......................................... 425,000 426,823
-----------
Kansas (1.9%):
Kansas State Department of Transportation, Highway
Revenue, 5.50%, 9/1/10................................. 500,000 508,175
-----------
Maine (3.0%):
Maine Municipal Bond Bank, Series A, 4.90%, 11/1/02..... 800,000 799,064
-----------
Massachusetts (3.9%):
Massachusetts State Port Authority Revenue, Series A,
5.75%, 7/1/12.......................................... 1,000,000 1,019,140
-----------
Michigan (8.4%):
Chelsea School District, G.O., 5.25%, 5/1/01 (FGIC Q-
SBLF Insured).......................................... 400,000 402,084
Eaton Rapids Public Schools, G.O., 5.38%, 5/1/07,
Callable on 5/1/04 @ 101 (MBIA Q-SBLF Insured)......... 1,000,000 1,018,500
Kent County Building Authority, G.O., 4.50%, 12/1/01.... 800,000 794,424
-----------
2,215,008
-----------
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- -----------
<S> <C> <C>
Minnesota (1.4%):
Duluth, Series A, G.O., 4.65%, 2/1/02 (FSA Insured).... $ 365,000 $ 363,521
-----------
Nevada (3.4%):
Sparks, G.O., 4.80% 3/1/04, Callable on 3/1/01 @ 101
(AMBAC Insured)....................................... 900,000 890,244
-----------
New York (3.6%):
New York State, Environmental Facilities Revenue,
5.05%, 1/15/13, Callable on 7/15/08 @ 102............. 1,000,000 939,600
-----------
North Carolina (3.7%):
North Carolina Medical Care Community, Pitt County
Memorial Hospital, Hospital & Nursing Home Revenue,
Series A, 4.00%, 12/1/01.............................. 1,000,000 978,720
-----------
Ohio (3.3%):
Ohio State Building Authority, 4.75%, 10/1/17, Callable
on 10/1/08 @ 101...................................... 1,000,000 864,280
-----------
Oklahoma (3.7%):
Oklahoma State Capital Improvement Authority, Highway
Improvement Revenue, 4.00%, 12/1/01 (MBIA Insured).... 1,000,000 981,140
-----------
Rhode Island (3.3%):
Rhode Island State, Series A, G.O., 4.60%, 11/1/03,
Callable on 11/1/02 @ 102............................. 900,000 883,773
-----------
South Dakota (2.4%):
South Dakota State Building Authority, Building
Revenue, Series A, 5.00%, 9/1/02 (FSA Insured)........ 640,000 640,352
-----------
Texas (9.9%):
Houston, Series C, G.O., 5.50%, 4/1/01................. 800,000 805,688
Plano Independent School District, G.O., 4.70%,
2/15/13, Callable on 2/15/08 @ 100 (PSF Guaranteed)... 1,000,000 890,140
University of Texas Permanent University Fund, College
& University Revenue, 5.00%, 7/1/14, Callable on
7/1/08 @ 100 (PUFG Guaranteed)........................ 1,000,000 915,950
-----------
2,611,778
-----------
Utah (4.7%):
Box Elder County School District, G.O., 4.80%, 6/15/01
(AMBAC Insured)....................................... 675,000 675,992
North Davis County Sewer District, G.O., 5.70%, 3/1/02
(FGIC Insured)........................................ 560,000 567,426
-----------
1,243,418
-----------
Vermont (1.0%):
Vermont Municipal Bond Bank, Series 2, 4.50%, 12/1/01
(AMBAC Insured)....................................... 270,000 268,402
-----------
</TABLE>
Continued
60
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Short-Intermediate Municipal Portfolio May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- -----------
<S> <C> <C>
Virginia (3.8%):
Loudoun County, Series A, G.O., 5.00%, 12/1/02.......... $1,000,000 $ 1,002,310
-----------
Washington (8.7%):
Grant County Public Utilities District No. 002, Electric
Revenue, Series F, 4.80%, 1/1/04 (MBIA Insured)........ 500,000 492,900
King County School District No. 414, G.O., 5.00%,
12/1/08................................................ 1,000,000 968,370
Seattle Municipal Light & Power Revenue, 4.80%, 5/1/02.. 600,000 597,492
Washington State, Series R-92C, G.O., 5.75%, 9/1/02..... 250,000 254,168
-----------
2,312,930
-----------
TOTAL MUNICIPAL BONDS 25,546,682
-----------
</TABLE>
<TABLE>
<CAPTION>
Investment Companies (0.2%):
Security Market
Description Shares Value
----------- ------ -----------
<S> <C> <C>
Federated Tax-Free Fund..................................... 66,000 $ 66,000
-----------
TOTAL INVESTMENT COMPANIES 66,000
-----------
TOTAL INVESTMENTS
Cost ($26,454,316)(a)--96.9% 25,612,682
Other assets in excess of liabilities--3.1% 809,753
-----------
TOTAL NET ASSETS--100.0% $26,422,435
===========
</TABLE>
-----
(a) Represents cost for federal income tax and financial reporting purposes
and differs from value by net unrealized depreciation of securities as
follows:
<TABLE>
<S> <C>
Unrealized appreciation....................................... $ 921
Unrealized depreciation....................................... (842,555)
---------
Net unrealized depreciation................................... $(841,634)
=========
</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
See notes to financial statements
61
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Short-Intermediate Municipal Portfolio
Statement of Assets and Liabilities
May 31, 2000
(Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $26,454,316).................. $25,612,682
Cash...................................................... 640
Interest receivable....................................... 410,679
Receivable for investments sold........................... 508,272
Prepaid expenses and other assets......................... 3,342
-----------
Total Assets............................................. 26,535,615
Liabilities:
Dividends payable......................................... $90,034
Payable to affiliates..................................... 17,082
Accrued expenses.......................................... 6,064
-------
Total Liabilities........................................ 113,180
-----------
Net Assets:
Capital................................................... 27,453,252
Distributions in excess of net investment income.......... (3,589)
Accumulated net realized losses from investment
transactions............................................. (185,594)
Net unrealized depreciation from investments.............. (841,634)
-----------
Net Assets................................................ $26,422,435
===========
Investor A Shares
Net Assets............................................... $ 44,041
Shares................................................... 4,500
Redemption price per share............................... $9.79
=====
Maximum Sales Charge--Investor A Shares................... 4.00%
Maximum Offering Price
(100%/(100%--Maximum Sales
Charge) of net asset value adjusted to the nearest cent)
per share................................................ $10.20
======
Trust Shares
Net Assets............................................... $26,378,394
Shares................................................... 2,703,958
Offering and redemption price per share.................. $9.76
=====
</TABLE>
Statement of Operations
For the six months ended May 31, 2000 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income............................................ $ 717,321
---------
Total Investment Income................................... 717,321
Expenses:
Investment advisory fees................................... $84,741
Administration fees........................................ 30,815
Distribution and services fees, Investor A Shares.......... 50
Administrative services fees, Trust Shares................. 46,042
Accounting fees............................................ 4,290
Custodian fees............................................. 7,703
Transfer agent fees........................................ 5,822
Other fees................................................. 8,436
-------
Total expenses before voluntary fee reductions............ 187,899
Expenses voluntarily reduced.............................. (61,449)
---------
Net Expenses.............................................. 126,450
---------
Net Investment Income...................................... 590,871
---------
Realized/Unrealized Losses from Investments:
Net realized losses from investment transactions........... (183,673)
Net change in unrealized depreciation depreciation from
investments............................................... (367,328)
---------
Net realized/unrealized losses from investments............ (551,001)
---------
Change in net assets resulting from operations............. $ 39,870
=========
</TABLE>
See notes to financial statements
62
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Short-Intermediate Municipal Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
six months For the
ended year ended
May 31, 2000 November 30,
(Unaudited) 1999
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income.............................. $ 590,871 $ 1,493,285
Net realized losses from investment transactions... (183,673) (1,921)
Net change in unrealized depreciation from
investments....................................... (367,328) (1,303,205)
------------ -----------
Change in net assets resulting from operations...... 39,870 188,159
------------ -----------
Distributions to Investor A Shareholders:
From net investment income......................... (726) (754)
From net realized gains from investment
transactions...................................... -- (11)
In excess of net realized gains from investment
transactions...................................... -- (1)
Distributions to Trust Shareholders:
From net investment income......................... (593,414) (1,492,531)
In excess of net investment income................. -- (320)
From net realized gains from investment
transactions...................................... -- (14,074)
In excess of net realized gains from investment
transactions...................................... -- (1,914)
------------ -----------
Change in net assets from shareholder
distributions...................................... (594,140) (1,509,605)
------------ -----------
Change in net assets from capital transactions...... (9,805,774) (4,789,446)
------------ -----------
Change in net assets................................ (10,360,044) (6,110,892)
Net Assets:
Beginning of period................................ 36,782,479 42,893,371
------------ -----------
End of period...................................... $ 26,422,435 $36,782,479
============ ===========
</TABLE>
See notes to financial statements
63
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Short-Intermediate Municipal Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
six months For the years ended November July 10, 1995
ended 30, to
May 31, 2000 ------------------------------------ November 30,
(Unaudited) 1999 1998 1997 1996 1995 (a)
------------ ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 9.96 $ 10.26 $ 10.11 $ 10.08 $ 10.08 $ 10.00
------- ------- ------- ------- ------- -------
Investment Activities:
Net investment income.. 0.18 0.35 0.35 0.37 0.40 --
Net realized and
unrealized gains
(losses) from
investments........... (0.17) (0.30) 0.15 0.03 -- 0.08
------- ------- ------- ------- ------- -------
Total from Investment
Activities............ 0.01 0.05 0.50 0.40 0.40 0.08
------- ------- ------- ------- ------- -------
Distributions:
Net investment income.. (0.18) (0.35) (0.35) (0.37) (0.40) --
Net realized gains..... -- --(e) -- -- -- --
------- ------- ------- ------- ------- -------
Total Distributions.... (0.18) (0.35) (0.35) (0.37) (0.40) --
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 9.79 $ 9.96 $ 10.26 $ 10.11 $ 10.08 $ 10.08
======= ======= ======= ======= ======= =======
Total Return (excludes
sales charge).......... 0.09%(b) 0.41% 5.16% 4.12% 4.02% 0.80%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 44 $ 20 $ 32 $ 16 $ 51 $ -- (c)
Ratio of expenses to
average net assets..... 1.07%(d) 1.02% 0.89% 0.62% 0.56% 0.00%(d)
Ratio of net investment
income to average net
assets................. 3.60%(d) 3.43% 3.54% 3.78% 3.83% 0.00%(d)
Ratio of expenses to
average net assets*.... 1.17%(d) 1.19% 1.21% 1.32% 1.26% 0.00%(d)
Portfolio turnover**.... -- -- 18.58% -- -- --
* 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 Portfolio 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. (e)
Distribution per share from net realized gain was less than $0.005.
Financial Highlights, Trust Shares
<CAPTION>
For the
six months For the years ended November July 10, 1995
ended 30, to
May 31, 2000 ------------------------------------ November 30,
(Unaudited) 1999 1998 1997 1996 1995 (a)
------------ ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 9.93 $ 10.25 $ 10.10 $ 10.07 $ 10.07 $ 10.00
------- ------- ------- ------- ------- -------
Investment Activities:
Net investment income.. 0.19 0.37 0.38 0.40 0.41 0.14
Net realized and
unrealized gains
(losses) from
investments........... (0.17) (0.32) 0.15 0.03 -- 0.07
------- ------- ------- ------- ------- -------
Total from Investment
Activities............ 0.02 0.05 0.53 0.43 0.41 0.21
------- ------- ------- ------- ------- -------
Distributions:
Net investment income.. (0.19) (0.37) (0.38) (0.40) (0.41) (0.14)
Net realized gains..... -- --(d) -- -- -- --
------- ------- ------- ------- ------- -------
Total Distributions.... (0.19) (0.37) (0.38) (0.40) (0.41) (0.14)
------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 9.76 $ 9.93 $ 10.25 $ 10.10 $ 10.07 $ 10.07
======= ======= ======= ======= ======= =======
Total Return............ 0.20%(b) 0.55% 5.36% 4.39% 4.15% 2.15%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $26,378 $36,763 $42,862 $30,454 $29,472 $23,754
Ratio of expenses to
average net assets..... 0.82%(c) 0.77% 0.64% 0.38% 0.31% 0.47%(c)
Ratio of net investment
income to average net
assets................. 3.85%(c) 3.69% 3.75% 4.00% 4.07% 3.81%(c)
Ratio of expenses to
average net assets*.... 1.22%(c) 1.17% 1.20% 1.33% 0.96% 1.12%(c)
Portfolio turnover**.... -- -- 18.58% -- -- --
</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 Portfolio as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized. (d)
Distribution per share from net realized gain was less than $0.005.
See notes to financial statements
64
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
65
<PAGE>
Mercantile Missouri Tax-Exempt Bond Portfolio/1/
Q. What were the conditions in the Missouri municipal bond market during the
six month period ended May 31, 2000?
A. Interest rates rose during most of the period, driven by investors' fears
that strong economic growth would cause the Fed to raise short-term interest
rates to ease inflationary pressures. Supply in the Missouri market was tight,
but we were able to find attractive opportunities at reasonable valuations.
Q. How did you position the Portfolio in that environment?
A. The average maturity of the Portfolio remained near the middle of its
range during the period (roughly six to seven years). We attempted to find
opportunities to lengthen the Portfolio's average maturity and duration, but a
lack of supply in the Missouri bond market caused the Portfolio to drift
slightly shorter. This benefited the Portfolio during the recent period, as
interest rates rose and shorter-term issues outperformed longer-term bonds.
Q. How did you manage the Portfolio's credit quality?
A. The Portfolio's average credit rating remained very high at AA1. That
approach benefited the Portfolio, as investors favored high-quality, liquid
issues.
Q. What is your outlook for the U.S. economy and for the Missouri municipal
bond market?
A. We expect moderate economic growth and low inflation to continue going
forward. However, signs of rising inflation could lead the Fed to raise short-
term rates yet again. In that uncertain environment, we believe the overall
bond market probably will trade in a narrow range, with long-term yields
between 5.50% and 6.00%. We expect demand for municipal bonds to remain strong
during the coming months and supply in the Missouri market to be relatively
tight.
Q. How will you manage the Portfolio in that environment?
A. We will invest new cash in longer-term bonds in an effort to increase the
Portfolio's average maturity to around 10 years, aiming to capture additional
yield for shareholders. As always, we will favor bonds with very high credit
quality and seek opportunities to capture value in the Missouri market.
-----
/1/The Portfolio's income may be subject to certain state and local taxes and,
depending on your tax status, the federal alternative minimum tax. Regional
investing involves additional risk since investments are limited to one
geographical region.
66
<PAGE>
Mercantile Missouri Tax-Exempt Bond Portfolio
[GRAPH]
Value of a $10,000 Investment
Investor A Investor A Investor B Lehman Brothers
(No Load) (Load)* (No CDSC) Municipal Bond Index
5/90 10,000 9,600 10,000 10,000
5/91 10,811 10,379 10,811 11,008
5/92 11,918 11,441 11,918 12,089
5/93 13,285 12,754 13,285 13,536
5/94 13,488 12,949 13,488 13,870
5/95 14,690 14,103 14,650 15,134
5/96 15,147 14,541 14,982 15,826
5/97 16,232 15,582 15,911 17,136
5/98 17,530 16,829 17,063 18,743
5/99 18,165 17,438 17,541 19,619
5/00 17,812 17,100 17,048 19,450
---------------------------------------------------
Average Annual Total Returns
as of 5/31/00
1 Year 5 Year 10 Year
---------------------------------------------------
Investor A (No Load) -1.94% 3.93% 5.94%
Investor A* -5.87% 3.08% 5.51%
Investor B (No CDSC) -2.81% 3.08% 5.48%
Investor B (CDSC)** -7.49% 2.73% 5.48%
---------------------------------------------------
* Reflects 4.00% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[GRAPH]
Value of a $10,000 Investment
Lehman Brothers
Trust Municipal Bond Index
5/90 10,000 10,000
5/91 10,906 11,008
5/92 12,037 12,089
5/93 13,445 13,536
5/94 13,678 13,870
5/95 14,925 15,134
5/96 15,418 15,826
5/97 16,554 17,136
5/98 17,930 18,743
5/99 18,616 19,619
5/00 18,276 19,450
----------------------------------------------------
Average Annual Total Returns
as of 5/31/00
----------------------------------------------------
1 Year 5 Year 10 Year
Trust -1.83% 4.13% 6.22%
----------------------------------------------------
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 graphs reflects the deduction of these value-added
services, as well as the deduction of a 4.00% 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.
67
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Missouri Tax-Exempt Bond Portfolio May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds (91.5%):
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Missouri (84.5%):
Clayton School District, G.O., 5.00%, 3/1/17, Callable
on 3/1/07 @ 101...................................... $3,325,000 $ 2,969,258
Columbia, Water & Electrical Revenue, Series A, 6.13%,
10/1/12, Prerefunded on 10/1/02 @ 102................ 1,000,000 1,042,570
Hazelwood School District, G.O., 5.85%, 3/1/09,
Callable on 3/1/04 @ 100............................. 1,000,000 1,021,060
Jackson County School District, G.O., 4.85%, 3/1/13,
Callable on 3/1/08 @ 100............................. 2,000,000 1,814,840
Jefferson City School District, Series A, 6.70%,
3/1/11............................................... 1,000,000 1,084,710
Kansas City School District Building, Capital
Improvement Project, 5.00%, 2/1/14, Callable on
2/1/04 @ 102 (FGIC Insured).......................... 2,230,000 2,095,174
Kansas City School District Building, Capital
Improvement Project, 5.15%, 2/1/08, Callable on
2/1/04 @ 102 (FGIC Insured).......................... 2,415,000 2,387,783
Kansas City School District Building, Elementary
Improvement Project, Series D, 5.00%, 2/1/14,
Callable on 2/1/04 @ 102 (FGIC Insured).............. 1,000,000 939,540
Kansas City School District Building, Series C, 5.38%,
7/1/05, Callable on 7/1/03 @ 101 (FGIC Insured)...... 1,000,000 1,007,400
Kansas City Sewer Revenue, 5.75%, 3/1/01.............. 1,000,000 1,008,180
Kansas City Water Revenue, Series A, 5.00%, 12/1/11,
Callable on 12/1/08 @ 101............................ 4,390,000 4,150,437
Kansas City Water Revenue, Series B, 5.00%, 12/1/16,
Callable on 12/1/06 @ 101............................ 2,200,000 2,008,204
Kansas City, Series A, G.O., 5.25%, 9/1/12, Callable
on 3/1/08 @ 101...................................... 3,980,000 3,860,839
Mehlville School District No. 09, G.O., 6.00%,
2/15/13, Callable on 2/15/03 @ 102 (MBIA Insured).... 1,500,000 1,561,965
Missouri Health & Educational Facilities Authority,
Health Facilities Revenue, Nurshome Hospital, 5.00%,
5/15/28, Callable on 5/15/08 @ 101................... 3,105,000 2,528,805
Missouri Southern State College Revenue, 5.25%,
12/1/12, Prerefunded on 12/1/02 @ 100
(MBIA Insured)....................................... 750,000 755,550
Missouri State Board of Public Buildings, 6.40%,
12/1/09, Callable on 12/1/01 @ 100................... 1,500,000 1,527,180
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 1,045,610
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Missouri, continued
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 $ 1,147,245
Missouri State Environmental Improvement & Energy
Resources Authority, Water Pollution Control Revenue,
Series A, 6.55%, 7/1/14, Callable on 7/1/02 @ 102.... 500,000 522,465
Missouri State Environmental Improvement & Energy
Resources Authority, Water Pollution Control Revenue,
Series A, 5.00%, 1/1/19 Callable on 7/1/08 @ 101..... 2,200,000 1,944,228
Missouri State Environmental Improvement & Energy
Resources Authority, Water Pollution Control Revenue,
Series B, 5.25%, 1/1/15, Callable on 1/1/09 @ 101.... 2,180,000 2,053,386
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 1,236,275
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 1,011,200
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, Barnes
Hospital, 7.13%, 12/15/12, Prerefunded on 12/15/00
@ 102................................................ 500,000 516,260
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 2,181,150
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)..................... 600,000 625,068
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, BJC Health
Systems, Series A, 6.75%, 5/15/12.................... 1,000,000 1,105,580
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 1,202,772
</TABLE>
Continued
68
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Missouri Tax-Exempt Bond Portfolio May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Missouri, continued
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 $ 967,460
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).............. 750,000 769,087
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, SSM Health Care
System, Series A, 5.00%, 6/1/12, Callable on 6/1/08 @
101 (MBIA Insured)................................... 1,500,000 1,409,205
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, SSM Health Care
System, Series A, 5.00%, 6/1/18, Callable on 6/1/08 @
101 (MBIA Insured)................................... 3,895,000 3,406,139
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, SSM Health Care
System, Series AA, 6.25%, 6/1/16, Callable on 6/1/02
@ 102 (MBIA Insured)................................. 1,610,000 1,634,311
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).......................... 390,000 406,715
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 1,867,620
Missouri State Higher Education Loan Authority,
Student Loan Revenue, Series A, 5.75%, 2/15/02....... 1,000,000 1,009,690
Missouri State Housing Development Revenue, 6.60%,
7/1/24, Callable on 1/1/03 @ 100 (FHA Insured)....... 695,000 700,984
Missouri State Housing Development Revenue, Series B,
7.00%, 9/1/10, Callable on 9/1/01 @ 102
(FHA Insured)........................................ 430,000 443,416
Missouri State Housing Development Revenue, Series C,
6.90%, 7/1/18, Callable on 1/1/02 @ 102.............. 335,000 343,315
Missouri State Water Pollution Control Revenue, Series
A, G.O., 5.75%, 8/1/18, Callable on 8/1/06 @ 100..... 2,085,000 2,080,163
Missouri State Water Pollution Control Revenue, Series
A, G.O., 5.75%, 8/1/12, Callable on 8/1/02 @ 100..... 1,000,000 1,006,140
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Missouri, continued
Missouri State, Fourth Street Building, Series A, G.O.,
5.40%, 8/1/09, Callable on 8/1/06 @ 100............... $2,000,000 $ 2,013,360
Missouri State, Third Street Building, Series A, G.O.,
5.25%, 8/1/08, Callable on 8/1/02 @ 100............... 1,000,000 1,000,330
Missouri Western State College Revenue, 5.40%, 10/1/16,
Callable on 10/1/03 @ 102 (MBIA Insured).............. 1,000,000 967,280
Missouri Series A, G.O., 5.13%, 8/1/09, Callable on
8/1/02 @ 100.......................................... 1,000,000 989,500
North Kansas City Hospital Revenue, 5.00%, 11/15/28,
Callable on 11/15/08 @ 101 (AMBAC Insured)............ 3,000,000 2,491,440
O'Fallon, G.O., 5.75%, 3/1/10, Callable on 3/1/01 @ 100
(MBIA Insured)........................................ 570,000 573,135
Sikeston Electric Revenue, 5.00%, 6/1/22, Callable on
6/1/06 @ 101 (MBIA Insured)........................... 1,000,000 867,970
Sikeston Electric Revenue, 6.25%, 6/1/22, Prerefunded
on 6/1/02 @ 102 (MBIA Insured)........................ 1,000,000 1,042,860
Southeast Missouri Correctional Facilities Revenue,
5.75%, 10/15/08, Callable on 10/15/00 @ 102........... 500,000 505,115
Southeast Missouri Correctional Facilities Revenue,
5.75%, 10/15/16, Callable on 10/15/02 @ 100........... 500,000 498,385
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 1,974,020
Springfield Water Works Revenue, Series A, 5.60%,
5/1/23, Callable on 5/1/03 @ 102...................... 2,000,000 2,041,080
St. Charles County Community College, G.O., 6.00%,
2/15/09, Callable on 2/15/01 @ 102 (AMBAC Insured).... 1,000,000 1,017,270
St. Louis Co., G.O., 2/1/12............................ 3,250,000 3,081,065
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.......................................... 800,000 844,496
St. Louis County Industrial Development Authority,
Pollution Control Revenue, Anheuser-Busch Co. Project,
6.65%, 5/1/16......................................... 400,000 425,112
St. Louis County, Pattonville R-3 School District,
G.O., 6.25%, 2/1/10, Prerefunded on 2/1/02 @ 100
(FGIC Insured)........................................ 750,000 764,655
St. Louis County, Rockwood School District No. R-6,
G.O., 5.00%, 2/1/04, Callable on 2/1/02 @ 101......... 1,000,000 999,270
St. Louis County, Series B, G.O., 5.50%, 2/1/13,
Callable on 2/1/03 @ 100.............................. 2,500,000 2,512,650
</TABLE>
Continued
69
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Missouri Tax-Exempt Bond Portfolio May 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Missouri, continued
St. Louis Public Safety, G.O., 5.13%, 2/15/17, Callable
on 8/15/09 @ 100 (FGIC Insured)....................... $4,185,000 $ 3,852,167
St. Louis Water Revenue, 6.00%, 7/1/14, Prerefunded on
7/1/04 @ 102 (FGIC Insured)........................... 500,000 524,860
St. Peters, G.O., 5.85%, 1/1/13, Prerefunded on 1/1/02
@ 102................................................. 1,065,000 1,099,826
St. Peters, G.O., 5.80%, 1/1/09, Prerefunded on 1/1/02
@ 102................................................. 1,740,000 1,795,593
University City Industrial Development Authority,
Multifamily Housing Revenue, Series A, 5.95%,
12/20/25, Callable on 12/20/05 @ 102.................. 1,400,000 1,360,604
University Health Facilities Revenue, University of
Missouri Health System, Series A, 5.60%, 11/1/26,
Callable on 11/1/06 @ 102 (AMBAC Insured)............. 5,000,000 4,636,700
University of Missouri Health Systems, Series A, 5.13%,
11/1/28, Callable on 11/1/08 @ 100 (AMBAC Insured).... 4,000,000 3,398,960
University of Missouri, University Revenue, 5.50%,
11/1/23, Callable on 11/1/03 @ 101.................... 2,000,000 1,908,800
University of Missouri, University Revenue, 5.80%,
11/1/27, Callable on 11/1/07 @ 101.................... 5,000,000 4,912,150
University of Missouri, University Revenue, 5.50%,
11/1/21, Callable on 11/1/07 @ 101.................... 3,000,000 2,876,100
University of Missouri, University Revenue, Series A,
6.50%, 11/1/11, Prerefunded on 11/1/00 @ 102 (AMBAC
Insured).............................................. 925,000 950,058
Wentzville School District No. R-4, G.O., 5.10%,
3/1/18, Callable on 3/1/08 @ 100 (FSA Insured)........ 3,000,000 2,715,990
------------
117,039,780
------------
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds, continued
Shares
or
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Puerto Rico (7.0%):
Puerto Rico Commonwealth, G.O., 6.45%, 7/1/17,
Prerefunded on 7/1/04 @ 101.5......................... $ 500,000 $ 533,860
Puerto Rico Commonwealth, Series A, G.O., 6.00%,
7/1/06, Callable on 7/1/02 @ 101.5.................... 1,000,000 1,028,960
Puerto Rico Municipal Finance Agency, 5.50%, 8/1/23,
Callable on 8/1/09 @ 100.............................. 3,000,000 2,842,020
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 3,482,080
Puerto Rico Public Building Authority, Public Education
and Health Facilities Revenue, Series M, 5.50%,
7/1/21, Callable on 7/1/03 @ 101.5.................... 2,000,000 1,860,880
------------
9,747,800
------------
TOTAL MUNICIPAL BONDS 126,787,580
------------
<CAPTION>
Investment Companies (7.3%):
<S> <C> <C>
Federated Tax-Free Fund................................ 6,690,000 6,690,000
Nuveen Tax-Exempt Fund................................. 3,395,000 3,395,000
------------
TOTAL INVESTMENT COMPANIES 10,085,000
------------
TOTAL INVESTMENTS
(Cost $141,946,419)(a)--98.8% 136,872,580
Other assets in excess of liabilities--1.2% 1,656,020
------------
TOTAL NET ASSETS--100.0% $138,528,600
============
</TABLE>
-----
(a) Represents cost for federal income tax and financial reporting purposes
and differs from value by net unrealized depreciation of securities as
follows:
<TABLE>
<S> <C>
Unrealized appreciation.. $ 1,013,419
Unrealized depreciation.. (6,087,258)
-----------
Net unrealized deprecia-
tion.................... $(5,073,839)
===========
</TABLE>
AMBAC AMBAC Indemnity Corp.
FGIC Financial Guaranty Insurance Corp.
FHA Federal Housing Administration
FSA Federal Securities Assurance, Inc.
G.O. General Obligation
LOC Letter of Credit
MBIA Municipal Bond Insurance Association
See notes to financial statements
70
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Missouri Tax-Exempt Bond Portfolio
Statement of Assets and Liabilities
May 31, 2000
(Unaudited)
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $141,946,419)............... $136,872,580
Cash.................................................... 171,422
Interest receivable..................................... 2,133,076
Prepaid expenses and other assets....................... 5,672
------------
Total Assets........................................... 139,182,750
Liabilities:
Dividends payable....................................... $564,977
Payable for capital shares redeemed..................... 360
Payable to affiliates................................... 74,726
Other liabilities....................................... 14,087
--------
Total Liabilities...................................... 654,150
------------
Net Assets:
Capital................................................. 143,556,202
Distributions in excess of net investment income........ (9,478)
Accumulated net realized gains from investment
transactions........................................... 55,715
Net unrealized depreciation from investments............ (5,073,839)
------------
Net Assets.............................................. $138,528,600
============
Investor A Shares
Net Assets............................................. $ 19,487,149
Shares................................................. 1,752,603
Redemption price per share............................. $11.12
============
Maximum Sales Charge--Investor A Shares................. 4.00%
Maximum Offering Price (100%/(100%--Maximum Sales
Charge) of net asset value adjusted to the nearest
cent) per share....................................... $11.58
============
Investor B Shares
Net Assets............................................. $ 2,862,868
Shares................................................. 257,647
Offering price per share*.............................. $11.11
============
Trust Shares
Net Assets............................................. $116,178,583
Shares................................................. 10,446,136
Offering and redemption price per share................ $11.12
============
</TABLE>
-----
* Redemption price of Investor B Shares varies based on length of time held.
Statement of Operations
For the six months ended May 31, 2000
(Unaudited)
<TABLE>
<S> <C> <C>
Investment Income:
Interest income.......................................... $ 3,776,503
-----------
Total Investment Income................................. 3,776,503
Expenses:
Investment advisory fees................................. $304,365
Administration fees...................................... 135,274
Distribution and services fees, Investor A Shares........ 20,486
Distribution and services fees, Investor B Shares........ 16,733
Administrative services fees, Trust Shares............... 167,130
Accounting fees.......................................... 5,903
Custodian fees........................................... 33,898
Transfer agent fees...................................... 21,842
Other fees............................................... 27,082
--------
Total expenses before voluntary fee reductions.......... 732,713
Expenses voluntarily reduced............................ (241,609)
-----------
Net Expenses............................................ 491,104
-----------
Net Investment Income.................................... 3,285,399
-----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains from investment transactions.......... 55,705
Net change in unrealized depreciation from investments... (2,521,102)
-----------
Net realized/unrealized losses from investments.......... (2,465,397)
-----------
Change in net assets resulting from operations........... $ 820,002
===========
</TABLE>
See notes to financial statements
71
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Missouri Tax-Exempt Bond Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the
six months For the
ended year ended
May 31, 2000 November 30,
(Unaudited) 1999
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 3,285,399 $ 5,798,017
Net realized gains from investment transactions... 55,705 7,718
Net change in unrealized depreciation from
investments...................................... (2,521,102) (8,451,546)
------------ ------------
Change in net assets resulting from operations..... 820,002 (2,645,811)
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (479,270) (994,373)
In excess of net investment income................ -- (5,425)
From net realized gains from investment
transactions..................................... (1,199) (31,904)
Distributions to Investor B Shareholders:
From net investment income........................ (64,913) (119,095)
In excess of net investment income................ -- (650)
From net realized gains from investment
transactions..................................... (201) (3,590)
Distributions to Trust Shareholders:
From net investment income........................ (2,719,062) (4,684,549)
In excess of net investment income................ -- (25,557)
From net realized gains from investment
transactions..................................... (6,311) (127,535)
------------ ------------
Change in net assets from shareholder
distributions..................................... (3,270,956) (5,992,678)
------------ ------------
Change in net assets from capital transactions..... 4,376,588 24,732,551
------------ ------------
Change in net assets............................... 1,925,634 16,094,062
Net Assets:
Beginning of period............................... 136,602,966 120,508,904
------------ ------------
End of period..................................... $138,528,600 $136,602,966
============ ============
</TABLE>
See notes to financial statements
72
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Missouri Tax-Exempt Bond Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the For the
six months For the years ended November six months For the
ended 30, ended year ended
May 31, 2000 ----------------------------------- November 30, May 31,
(Unaudited) 1999 1998 1997 1996 1995 (d) 1995 (a)
------------ ------- ------- ------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 11.31 $ 12.08 $ 11.87 $ 11.69 $ 11.74 $ 11.52 $ 11.13
------- ------- ------- ------- ------- ------- -------
Investment Activities:
Net investment income.. 0.26 0.50 0.52 0.53 0.55 0.27 0.55
Net realized and
unrealized gains
(losses) from
investments........... (0.19) (0.74) 0.21 0.18 (0.05) 0.22 0.40
------- ------- ------- ------- ------- ------- -------
Total from Investment
Activities............ 0.07 (0.24) 0.73 0.71 0.50 0.49 0.95
------- ------- ------- ------- ------- ------- -------
Distributions:
Net investment income.. (0.26) (0.51) (0.52) (0.53) (0.55) (0.27) (0.55)
Net realized gains..... --(e) (0.02) -- -- -- -- (0.01)
------- ------- ------- ------- ------- ------- -------
Total Distributions.... (0.26) (0.53) (0.52) (0.53) (0.55) (0.27) (0.56)
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 11.12 $ 11.31 $ 12.08 $ 11.87 $ 11.69 $ 11.74 $ 11.52
======= ======= ======= ======= ======= ======= =======
Total Return (excludes
sales charge).......... 0.65%(b) (2.09)% 6.31% 6.27% 4.41% 4.32%(b) 8.91%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $19,487 $21,242 $23,611 $23,722 $25,144 $24,726 $24,318
Ratio of expenses to
average net assets..... 0.87%(c) 0.86% 0.86% 0.86% 0.85% 0.95%(c) 0.84%
Ratio of net investment
income to average net
assets................. 4.71%(c) 4.30% 4.38% 4.57% 4.75% 4.64%(c) 5.02%
Ratio of expenses to
average net assets*.... 0.98%(c) 1.07% 1.06% 1.06% 1.05% 1.18%(c) 1.18%
Portfolio turnover**.... 2.26% 0.76% 6.14% 3.50% 3.66% 1.55% --
* 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 Portfolio 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 the ARCH Fund, Inc., the Missouri Tax-Exempt Bond Portfolio
changed its fiscal year end from May 31 to November 30. (e) Distribution per
share from net realized gain was less than $0.005.
Financial Highlights, Investor B Shares
<CAPTION>
For the For the
six months For the years ended November six months March 1,
ended 30, ended 1995 to
May 31, 2000 ----------------------------------- November 30, May 31,
(Unaudited) 1999 1998 1997 1996 1995 (e) 1995 (a)
------------ ------- ------- ------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 11.31 $ 12.07 $ 11.86 $ 11.68 $ 11.74 $ 11.52 $ 11.19
------- ------- ------- ------- ------- ------- -------
Investment Activities:
Net investment income.. 0.22 0.41 0.43 0.44 0.45 0.22 0.11
Net realized and
unrealized gains
(losses) from
investments........... (0.20) (0.73) 0.21 0.18 (0.06) 0.22 0.33
------- ------- ------- ------- ------- ------- -------
Total from Investment
Activities............ 0.02 (0.32) 0.64 0.62 0.39 0.44 0.44
------- ------- ------- ------- ------- ------- -------
Distributions:
Net investment income.. (0.22) (0.42) (0.43) (0.44) (0.45) (0.22) (0.11)
Net realized gains..... --(f) (0.02) -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total Distributions.... (0.22) (0.44) (0.43) (0.44) (0.45) (0.22) (0.11)
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 11.11 $ 11.31 $ 12.07 $ 11.86 $ 11.68 $ 11.74 $ 11.52
======= ======= ======= ======= ======= ======= =======
Total Return (excludes
redemption charge)..... 0.16%(b) (2.79)% 5.47% 5.43% 3.48% 3.88%(b) 8.61%(c)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 2,863 $ 3,519 $ 2,496 $ 1,398 $ 675 $ 433 $ 94
Ratio of expenses to
average net assets..... 1.67%(d) 1.66% 1.66% 1.66% 1.65% 1.77%(d) 1.76%(d)
Ratio of net investment
income to average net
assets................. 3.91%(d) 3.51% 3.57% 3.76% 3.96% 3.82%(d) 4.00%(d)
Ratio of expenses to
average net assets*.... 1.78%(d) 1.77% 1.76% 1.76% 1.75% 1.87%(d) 1.88%(d)
Portfolio turnover**.... 2.26% 0.76% 6.14% 3.50% 3.66% 1.55% --
</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 Portfolio 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 the ARCH Fund, Inc., the Missouri Tax-
Exempt Bond Portfolio changed its fiscal year end from May 31 to November 30.
(f) Distribution per share from net realized gain was less than $0.005.
See notes to financial statements
73
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Missouri Tax-Exempt Bond Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the
six months For the
ended six months For the
May 31, For the years ended November 30, ended year ended
2000 ------------------------------------ November 30, May 31,
(Unaudited) 1999 1998 1997 1996 1995 (c) 1995
----------- -------- ------- ------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 11.32 $ 12.08 $ 11.87 $ 11.69 $ 11.74 $ 11.52 $ 11.13
-------- -------- ------- ------- ------- ------- -------
Investment Activities:
Net investment income.. 0.27 0.53 0.55 0.56 0.57 0.28 0.57
Net realized and
unrealized gains
(losses) from
investments........... (0.20) (0.74) 0.21 0.18 (0.05) 0.22 0.40
-------- -------- ------- ------- ------- ------- -------
Total from Investment
Activities............ 0.07 (0.21) 0.76 0.74 0.52 0.50 0.97
-------- -------- ------- ------- ------- ------- -------
Distributions:
Net investment income.. (0.27) (0.53) (0.55) (0.56) (0.57) (0.28) (0.57)
Net realized gains..... --(d) (0.02) -- -- -- -- (0.01)
-------- -------- ------- ------- ------- ------- -------
Total Distributions.... (0.27) (0.55) (0.55) (0.56) (0.57) (0.28) (0.58)
-------- -------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 11.12 $ 11.32 $ 12.08 $ 11.87 $ 11.69 $ 11.74 $ 11.52
======== ======== ======= ======= ======= ======= =======
Total Return............ 0.66%(a) (1.81)% 6.52% 6.48% 4.62% 4.41%(a) 9.12%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $116,179 $111,842 $94,402 $75,431 $55,905 $47,773 $44,336
Ratio of expenses to
average net assets..... 0.67%(b) 0.66% 0.66% 0.66% 0.65% 0.78%(b) 0.64%
Ratio of net investment
income to average net
assets................. 4.91%(b) 4.51% 4.57% 4.76% 4.95% 4.83%(b) 5.22%
Ratio of expenses to
average net assets*.... 1.08%(b) 1.07% 1.06% 1.06% 0.75% 0.88%(b) 1.16%
Portfolio turnover**.... 2.26% 0.76% 6.14% 3.50% 3.66% 1.55% --
</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 Portfolio as a whole
without distinguishing between the classes of shares issued. (a) Not
annualized. (b) Annualized. (c) Upon reorganizing as a Portfolio of the ARCH
Fund, Inc., the Missouri Tax-Exempt Bond Portfolio changed its fiscal year end
from May 31 to November 30. (d) Distribution per share from net realized gain
was less than $0.005.
See notes to financial statements
74
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
75
<PAGE>
Mercantile National Municipal Bond Portfolio/1/
Q. What were the conditions in the economy and the municipal bond market
during the six month period ended May 31, 2000?
A. Interest rates rose during much of the period, due to conflicting data
about the strength of the U.S. economy. It appeared at times that the economy
was growing at a moderate, sustainable pace and inflation would remain low, but
recurrent signs of rapid economic growth has caused the Fed to remain on watch
to head off inflation.
Q. How did the municipal bond market perform in that environment?
A. Longer-term municipal bonds outperformed shorter-term municipals, and
rising interest rates provided fewer municipal refundings. There were, however,
some attractive opportunities among new municipal issues.
Q. How did you manage the Portfolio in that environment?
A. We attempted to lengthen the Portfolio while battling tax-season
redemptions. Selling short-term securities helped stabilize the Portfolio's
average maturity and duration.
Q. In what sectors did you find attractive opportunities?
A. The Portfolio did not make large sector bets. However, we found
opportunities to capture attractive yields among general obligation and revenue
bonds. We later reduced the Portfolio's holdings in that sector./2/
Q. What is your outlook for the months ahead?
A. We believe the economy will continue to grow at a moderate pace with low
inflation. However, the Fed may again raise rates if inflation appears to be in
danger of rising. In that somewhat uncertain environment, we believe the
overall bond market will likely trade in a narrow range, with long-term yields
between 5.50% and 6.00%. Demand for municipal bonds should remain strong, and
we believe the municipal market should continue to perform well relative to
taxable bonds.
Q. How will you manage the Portfolio in that environment?
A. We will maintain the Portfolio's current position with an average maturity
of between eight and ten years in order to capture attractive yields for
shareholders. We will also continue to invest in bonds with very high credit
ratings, because the higher yields of lower-quality bonds do not justify their
additional risk.
-----
/1/The Portfolio's income may be subject to certain state and local taxes and,
depending on your tax status, the federal alternative minimum tax.
/2/Portfolio composition is subject to change.
76
<PAGE>
Mercantile National Municipal Bond Portfolio
[GRAPH]
Value of $10,000 Investment
Lehman Brothers
Investor A Investor A Investor B Investor B 10 Year Municipal
(No Load) (Load)* (No CDSC) (CDSC)** Bond Index
11/18/96 10,000 9,600 10,000 10,000 10,000
11/30/97 10,073 9,670 10,070 9,570 10,566
11/97 10,839 10,405 10,775 10,275 11,311
11/98 11,658 11,191 11,496 11,196 12,192
11/99 11,324 10,870 11,032 10,750 12,141
5/00 11,348 10,893 11,023 10,743 12,224
Average Annual Total Returns
as of 5/31/00
Since Inception
1 Year (11/18/96)
Investor A (No Load) -2.65% 3.46%
Investor A* -6.55% 2.43%
Investor B (No CDSC) -3.73% 2.78%
Investor B (CDSC)** -8.37% 2.04%
* Reflects 4.00% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[GRAPH]
Value of $10,000 Investment
Lehman Brothers
10 Year Municipal
Trust Bond Index
11/18/96 10,000 10,000
11/30/96 10,074 10,566
11/30/97 10,876 11,311
11/98 11,720 12,192
11/99 11,372 12,141
5/00 11,407 12,224
Average Annual Total Returns
as of 5/31/00
Since Inception
1 Year (11/18/96)
Trust -2.77% 3.77%
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 graphs reflects the
deduction of these value-added services, as well as the deduction of a 4.00%
sales charge on Investor A Shares and the applicable contingent deferred sales
charge (CDSC) on Investor B Shares.
77
<PAGE>
INVESTMENT ADVISOR
Firstar Investment Research & Management Company, LLC
777 E. Wisconsin Avenue, Suite 800
Milwaukee, Wisconsin 53202
Offices in Milwaukee and Madison, Wisconsin, Cincinnati,
Ohio, and St. Louis, Missouri
DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
AUDITORS
KPMG LLP
Two Nationwide Plaza
Columbus, Ohio 43215
LEGAL COUNSEL
Drinker Biddle & Reath LLP
One Logan Square
18th & Cherry Streets
Philadelphia, Pennsylvania 19103-6996
TRANSFER AGENT
Firstar Mutual Fund Services, LLC
615 E. Michigan Street
Milwaukee, Wisconsin 53202
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.
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 involve
investment risks, including the possible loss of the principal amount invested.
[LOGO OF FIRSTAR]
MFSEM-00
