<PAGE>
[GRAPHIC]
Mercantile Mutual Funds
Annual Report
November 30, 1999
Money Market Portfolios
Treasury Money Market Portfolio
Money Market Portfolio
Tax-Exempt Money Market Portfolio
Taxable Bond Portfolios
U.S. Government Securities Portfolio
Intermediate Corporate Bond Portfolio
Bond Index Portfolio
Government & Corporate Bond Portfolio
Tax-Exempt Bond Portfolios
Short-Intermediate Municipal Portfolio
Missouri Tax-Exempt Bond Portfolio
National Municipal Bond Portfolio
Stock Portfolios
Balanced Portfolio
Equity Income Portfolio
Equity Index Portfolio
Growth & Income Equity Portfolio
Growth Equity Portfolio
Small Cap Equity Portfolio
Small Cap Equity Index Portfolio
International Equity Portfolio
MERCANTILE
<PAGE>
Contents
- --------------------------------------------------------------------------------
Mercantile Mutual Funds, Inc. November 30, 1999
<TABLE>
<S> <C>
Message From Your Chairman.................................................. 2
Message From Your Investment Advisor........................................ 3
Money Market Portfolios
Treasury Money Market Portfolio........................................... 4
Money Market Portfolio.................................................... 10
Tax-Exempt Money Market Portfolio......................................... 18
Taxable Bond Portfolios
U.S. Government Securities Portfolio...................................... 26
Intermediate Corporate Bond Portfolio..................................... 34
Bond Index Portfolio...................................................... 42
Government & Corporate Bond Portfolio..................................... 52
Tax-Exempt Bond Portfolios
Short-Intermediate Municipal Portfolio.................................... 62
Missouri Tax-Exempt Bond Portfolio........................................ 70
National Municipal Bond Portfolio......................................... 80
Stock Portfolios
Balanced Portfolio........................................................ 90
Equity Income Portfolio................................................... 100
Equity Index Portfolio.................................................... 108
Growth & Income Equity Portfolio.......................................... 122
Growth Equity Portfolio................................................... 130
Small Cap Equity Portfolio................................................ 138
Small Cap Equity Index Portfolio.......................................... 146
International Equity Portfolio............................................ 160
Notes to Financial Statements............................................... 169
Independent Auditor's Report................................................ 188
</TABLE>
1
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Message From Your Chairman
Dear Shareholders,
We are pleased to present the Annual Report for the Mercantile Mutual Funds,
Inc. for the 12 months ended November 30, 1999. During the period, the net
assets in the Mercantile Family of Mutual Funds increased to nearly $4.5
billion.
The financial markets delivered mixed results during the period. Stock market
averages such as the Dow Jones Industrial Average and the Standard & Poor's 500
Index/1/ continued their strong performance, driven by big run-ups in a small
number of stocks. The majority of stocks did not fare as well as the market
averages, however. The bond markets fared poorly during the period, as
investors worried about interest rate hikes by the Federal Reserve Board (the
Fed) and the potential for inflation.
The markets were very volatile during the period. Such fluctuations can be
unsettling and can tempt investors to alter their long-term strategies in
pursuit of short-term results. We believe, however, that investors are best
served by a disciplined, long-term approach. Such an approach typically should
incorporate a mix of investments that can help you meet your long-term goals
without exposing you to undue risk.
The following pages contain discussions about the Mercantile Mutual Fund's
Portfolios. These discussions should help you to better understand your
investments, including the Portfolios' recent performance and their managers'
outlooks for the coming period. If you would like additional information about
any of the Portfolios, please call your Investment Representative or the
Mercantile Mutual Funds Shareholder Servicing Center at 1-800-452-2724.
- -----
/1/The Dow Jones Industrial Average (DJIA) is an unmanaged price-weighted
average based on the "price only" performance of 30 blue chip stocks. The
Standard & Poor's 500 Index (the S&P 500) is an unmanaged index generally
representative of the U.S. stock market as a whole. Investors are unable to
invest directly in the DJIA or the S&P 500.
Mercantile Mutual Funds, Inc. are NOT INSURED BY THE FDIC or any other
governmental agency, are not deposits or obligations of, or endorsed or
guaranteed by, any bank, the distributor or any of their affiliates, and
involves investment risks, including the possible loss of the principal
amount invested.
2
<PAGE>
Message From Your Investment Advisor
Mississippi Valley Advisors Inc.
The U.S. economy continued its solid growth during the 12-month period ended
November 30, 1999. That growth led to inflationary pressure on the economy and,
in response, the Fed raised interest rates three times during the period, in
each instance by one quarter of a percentage point. The uncertainty surrounding
conflicting inflation-related data and speculation about Fed action caused
considerable volatility in the markets.
Stocks of small companies as well as cyclicals and other value-oriented
stocks performed well early on, reversing the trend of dominance by large
growth stocks. During the latter half of the period, however, investors went
back to buying shares of the largest companies in technology and other growth-
oriented sectors.
Markets in Asia performed very well during the period. Signs of a continued
turnaround in Far Eastern economies heartened investors. Markets in countries
such as Japan and Korea especially benefited from improving investor sentiment.
Northern European markets posted strong returns as well, but Southern European
markets generally declined.
Bond prices fell sharply during the period. Investors who foresaw that the
Fed would raise interest rates to slow the economy sold bonds, which pushed
prices down and yields up. Municipal issues outperformed Treasuries in that
environment.
Our Outlook
We believe that the economy will grow at approximately 3.2% next year,
compared to recent annualized growth of approximately 4.0%. Our estimate is in
line with the Fed's economic growth estimate, and it is based on higher bond
yields and the Fed's interest rate hikes.
We are optimistic about the outlook for the U.S. economy over the long term.
We believe the unprecedented economic performance of the past 17 years has
stemmed mainly from productivity increases by American companies and we expect
those increases to continue. Such productivity improvements could support solid
economic growth without dangerous levels of inflation, providing a good
environment for the financial markets.
As always, the best way to achieve your long-term financial goals is to
maintain a well-diversified portfolio that provides exposure to many sectors of
the financial markets. That approach could help protect you when particular
sectors of the market stumble, and may leave you in a position to reap the
benefits of long-term growth in the global economy and markets.
3
<PAGE>
Mercantile Treasury Money Market Portfolio+
Q. What is the objective of this Portfolio?
A. The Mercantile Treasury Money Market Portfolio seeks a high level of
current income exempt from state income tax, consistent with liquidity and
security of principal. The net assets of the Portfolio as of November 30, 1999,
were approximately $301 million.
Q. What were the conditions in the money markets during the 12 months ended
November 30, 1999?
A. Interest rates generally rose during the recent 12-month period. Investors
speculated that the Fed would raise short-term rates to stave off inflation
amid signs of strong economic growth. The Fed did raise rates three times, in
June, August and November.
Q. How did you position the Portfolio to address those conditions?
A. The Portfolio maintained an average maturity in the mid-40-to mid-50-day
range during most of the period. We reduced that average maturity to as low as
40 days in March, due to the relatively unattractive yields on longer-term
issues. We extended the Portfolio's average maturity as interest rates rose
during the rest of the period. The Portfolio's average maturity at the end of
the period stood at 59 days in order to capture additional yield.
Q. How did you allocate the Portfolio's assets among various types of
Treasury securities?
A. We maintained a heavy weighting in Treasury bills (83.5% of the Portfolio
as of November 30, 1999), and laddered those securities to provide adequate
levels of liquidity for shareholders. Treasury notes comprised the remaining
16.6% of the Portfolio.*
Q. How will you manage the Portfolio during the coming months?
A. We will focus on maintaining the Portfolio's liquidity, especially during
year end. After that, we will watch carefully for signs of continued strong
economic growth and the possibility of another interest rate increase by the
Fed. Such developments might lead us to shorten the Portfolio's average
maturity.
- -----
+ An investment in the Mercantile Treasury Money Market 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.
Treasury Money Market Portfolio
<TABLE>
<CAPTION>
U.S. Treasury Bills (83.5%):
Security Principal Amortized
Description Amount Cost
----------- ----------- ------------
<S> <C> <C>
12/2/99.............................................. $ 9,303,000 $ 9,301,843
12/9/99.............................................. 23,229,000 23,204,274
12/16/99............................................. 3,330,000 3,323,732
12/23/99............................................. 7,974,000 7,951,877
12/30/99............................................. 15,206,000 15,149,422
1/13/00.............................................. 35,000,000 34,779,058
1/20/00.............................................. 6,230,000 6,185,234
1/27/00.............................................. 57,857,000 57,407,082
2/3/00............................................... 20,510,000 20,334,315
2/10/00.............................................. 19,050,000 18,867,748
3/2/00............................................... 30,000,000 29,605,167
3/23/00.............................................. 7,930,000 7,802,085
3/30/00.............................................. 17,822,000 17,516,056
------------
TOTAL U.S. TREASURY BILLS 251,427,893
------------
U.S. Treasury Notes (16.6%):
5.63%, 12/31/99...................................... 29,855,000 29,860,643
5.50%, 3/31/00....................................... 20,000,000 20,013,845
------------
TOTAL U.S. TREASURY NOTES 49,874,488
------------
TOTAL INVESTMENTS
(Amortized Cost $301,302,381) (a)--100.1%....................... 301,302,381
Liabilities in excess of other assets--(0.1)%.................... (278,455)
------------
TOTAL NET ASSETS--100.0%......................................... $301,023,926
============
</TABLE>
- -----
(a) Cost for federal income tax and financial reporting purposes are the same.
Schedule of Portfolio Investments
November 30, 1999
See notes to financial statements
5
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Treasury Money Market Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
November 30, 1999
<S> <C> <C>
Assets:
Investments, at value (cost $301,302,381).............. $301,302,381
Cash................................................... 712
Interest and dividends receivable...................... 889,108
Prepaid expenses and other assets...................... 10,626
------------
Total Assets.......................................... 302,202,827
Liabilities:
Dividends payable...................................... $1,015,429
Accrued expenses and other liabilities:
Investment advisory fees.............................. 85,940
Administration fees................................... 7,829
Distribution and administrative services fees......... 43,868
Custodian fees........................................ 5,677
Other liabilities..................................... 20,158
----------
Total Liabilities..................................... 1,178,901
------------
Net Assets:
Capital................................................ 301,003,480
Undistributed net investment income.................... 20,446
------------
Net Assets............................................. $301,023,926
============
Investor A Shares
Net Assets............................................ $ 20,469,990
Shares................................................ 20,469,911
Offering and redemption price per share............... $1.00
=====
Trust Shares
Net Assets............................................ $197,435,041
Shares................................................ 197,415,697
Offering and redemption price per share............... $1.00
=====
Institutional Shares
Net Assets............................................ $ 61,977
Shares................................................ 61,979
Offering and redemption price per share............... $1.00
=====
Trust II Shares
Net Assets............................................ $ 83,056,918
Shares................................................ 83,058,316
Offering and redemption price per share............... $1.00
=====
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the year ended November 30, 1999
<S> <C> <C>
Investment Income:
Interest income........................................ $14,716,276
-----------
Total Investment Income............................... 14,716,276
Expenses:
Investment advisory fees............................... $1,278,456
Administration fees.................................... 639,234
Distribution and services fees, Investor A Shares...... 56,520
Administrative services fees, Trust Shares............. 503,360
Administrative services fees, Institutional Shares..... 390
Accounting fees........................................ 891
Custodian fees......................................... 62,090
Transfer agent fees.................................... 105,051
Other.................................................. 155,662
----------
Total expenses before voluntary fee reductions......... 2,801,654
Expenses voluntarily reduced........................... (448,492)
-----------
Net Expenses........................................... 2,353,162
-----------
Net Investment Income.................................. 12,363,114
-----------
Realized/Unrealized Gains from Investments:
Net realized gains from investment transactions........ 14,292
-----------
Change in net assets resulting from operations......... $12,377,406
===========
</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 For the
year ended year ended
November 30, November 30,
1999 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 12,363,114 $ 12,465,170
Net realized gains from investment transactions... 14,292 8,302
------------ ------------
Change in net assets resulting from operations..... 12,377,406 12,473,472
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (859,310) (647,741)
From net realized gains from investment
transactions..................................... (637) (432)
Distributions to Trust Shareholders:
From net investment income........................ (7,646,066) (11,660,049)
From net realized gains from investment
transactions..................................... (5,803) (13,834)
Distributions to Institutional Shareholders:
From net investment income........................ (5,854) (10,082)
From net realized gains from investment
transactions..................................... (6) (12)
Distributions to Trust II Shareholders:
From net investment income........................ (3,851,884) (147,298)
From net realized gains from investment
transactions..................................... (1,890) --
------------ ------------
Change in net assets from shareholder
distributions..................................... (12,371,450) (12,479,448)
------------ ------------
Change in net assets from capital transactions..... (47,836,358) 56,565,560
------------ ------------
Change in net assets............................... (47,830,402) 56,559,584
Net Assets:
Beginning of period............................... 348,854,328 292,294,744
------------ ------------
End of period..................................... $301,023,926 $348,854,328
============ ============
</TABLE>
See notes to financial statements
7
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Treasury Money Market Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the years ended November 30,
---------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<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... 0.038 0.043 0.044 0.044 0.048
Net realized gains from
investments............ -- (a) -- -- -- --
-------- -------- -------- -------- --------
Total from Investment
Activities............. 0.038 0.043 0.044 0.044 0.048
-------- -------- -------- -------- --------
Distributions:
Net investment income... (0.038) (0.043) (0.044) (0.044) (0.048)
Net realized gains...... -- (a) -- -- -- --
-------- -------- -------- -------- --------
Total Distributions..... (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
======== ======== ======== ======== ========
Total Return............. 3.87% 4.40% 4.53% 4.46% 4.93%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)............ $ 20,470 $ 25,665 $ 8,409 $ 7,667 $ 2,776
Ratio of expenses to
average net assets...... 0.81% 0.81% 0.77% 0.81% 0.78%
Ratio of net investment
income to average net
assets.................. 3.80% 4.22% 4.43% 4.35% 4.84%
Ratio of expenses to
average net assets*..... 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) Net realized gain and distribution from net realized gain was less than
$0.005.
Financial Highlights, Trust Shares
<CAPTION>
For the years ended November 30,
---------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<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... 0.038 0.045 0.046 0.045 0.050
Net realized gains from
investments............ -- (a) -- -- -- --
-------- -------- -------- -------- --------
Total from Investment
Activities............. 0.038 0.045 0.046 0.045 0.050
-------- -------- -------- -------- --------
Distributions:
Net investment income... (0.038) (0.045) (0.046) (0.045) (0.050)
Net realized gains...... -- (a) -- -- -- --
-------- -------- -------- -------- --------
Total Distributions..... (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
======== ======== ======== ======== ========
Total Return............. 3.87% 4.56% 4.70% 4.64% 5.12%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)............ $197,435 $245,959 $283,653 $131,322 $252,780
Ratio of expenses to
average net assets...... 0.81% 0.65% 0.61% 0.61% 0.60%
Ratio of net investment
income to average net
assets.................. 3.80% 4.45% 4.60% 4.55% 5.01%
Ratio of expenses to
average net assets*..... 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) Net realized gain and 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 years ended November January 26, 1995
30, to
------------------------------------- November 30,
1999 1998 1997 1996 1995 (a)
------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Investment Activities:
Net investment income.. 0.038 0.043 0.044 0.044 0.042
Net realized gains from
investments........... -- (d) -- -- -- --
------- ------- ------- ------- -------
Total from Investment
Activities............ 0.038 0.043 0.044 0.044 0.042
------- ------- ------- ------- -------
Distributions:
Net investment income.. (0.038) (0.043) (0.044) (0.044) (0.042)
Net realized gains..... -- (d) -- -- -- --
------- ------- ------- ------- -------
Total Distributions.... (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
======= ======= ======= ======= =======
Total Return............ 3.87% 4.40% 4.53% 4.46% 4.94%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 62 $ 236 $ 233 $ 299 $ 28
Ratio of expenses to
average net assets..... 0.81% 0.81% 0.77% 0.79% 0.92%(c)
Ratio of net investment
income to average net
assets................. 3.76% 4.30% 4.44% 4.39% 5.76%(c)
Ratio of expenses to
average net assets*.... 0.95% 0.96% 0.92% 0.94% 1.07%(c)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated. (a)
Period from commencement of operations. (b) Represents total return for the
Investor A Shares from December 1, 1994 to January 25, 1995 plus the total
return for the Institutional Shares from January 26, 1995 to November 30,
1995. (c) Annualized. (d) Net realized gain and distribution from net realized
gain was less than $0.005.
Financial Highlights, Trust II Shares
<TABLE>
<CAPTION>
For the November 13, 1998
year ended to
November 30, November 30,
1999 1998 (a)
------------ -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period......... $ 1.00 $ 1.00
------- -------
Investment Activities:
Net investment income........................ 0.040 0.002
Net realized gains from investments......... -- (d) --
------- -------
Total from Investment Activities............ 0.040 0.002
------- -------
Distributions:
Net investment income....................... (0.040) (0.002)
Net realized gains.......................... -- (d) --
------- -------
Total Distributions......................... (0.040) (0.002)
------- -------
Net Asset Value, End of Period............... $ 1.00 $ 1.00
======= =======
Total Return................................. 4.12% 0.20%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)............ $83,057 $76,995
Ratio of expenses to average net assets...... 0.57% 0.55%(c)
Ratio of net investment income to average net
assets...................................... 4.03% 4.09%(c)
Ratio of expenses to average net assets*..... 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 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's net assets were approximately $1.6
billion on November 30, 1999.
Q. What were conditions like in the money markets during the 12 months ended
November 30, 1999?
A. During much of the period, investors worried that strong economic growth
would spur inflation and cause the Fed to raise short-term interest rates.
Eventually, the Fed did raise rates three times, in June, August and November.
At the end of November the federal funds rate stood at 5.5%.
Q. How did you position the Portfolio in that environment?
A. We reduced the Portfolio's average maturity from 53 days at the start of
the period to around 30 days in January and February as the yields on longer-
term issues became less attractive. We then increased the average maturity of
the Portfolio in late March as the yield curve steepened, enabling us to
capture attractive yields on longer-term securities. The Portfolio maintained
an average maturity in the mid-40-to mid-50-day range until November. At that
point, we reduced the Portfolio's average maturity to boost liquidity as the
year 2000 approached. The Portfolio's average maturity stood at 40 days on
November 30, 1999.
Q. What types of securities constituted the largest holdings of the Portfolio
during the period?
A. Commercial paper made up the bulk of the Portfolio (73.5% as of November
30, 1999). We also held bank certificates of deposit, U.S. government agency
issues and floating-rate notes.*
Q. How will you position the Portfolio in the months ahead?
A. We will be sensitive to investor reaction to Y2K, making liquidity a major
concern through early 2000. After that issue is resolved, we may see yet
another rate increase by the Fed if economic growth remains strong. We will
therefore maintain a relatively short average maturity in the mid-40-day range
while continuing to seek out attractive yields for shareholders.
- -----
+ An investment in the Mercantile Money Market Portfolio is not insured or
guaranteed by the FDIC or any other government agency. Although the 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.
Money Market Portfolio
<TABLE>
<CAPTION>
Certificates of Deposit (14.8%):
Security Principal Amortized
Description Amount Cost
----------- ----------- --------------
<S> <C> <C>
ABN AMRO, 5.40%*, 12/15/99.......................... $50,000,000 $ 50,000,000
RABOBANK, 5.11%*, 12/3/99........................... 38,000,000 38,000,020
Societe Generale, 5.32%, 12/27/99................... 40,000,000 39,846,311
Union Bank of Switzerland, 5.08%*, 1/13/00.......... 25,000,000 24,999,858
Union Bank of Switzerland, 5.51%*, 6/5/00........... 30,000,000 29,997,787
Westdeutsche Landesbank, 5.41%*, 12/10/99........... 50,000,000 50,000,001
--------------
TOTAL CERTIFICATES OF DEPOSIT 232,843,977
--------------
Commercial Paper (73.5%):
Automotive Parts (2.8%):
Cooper Industries, 5.72%*, 12/1/99.................. 44,000,000 44,000,000
--------------
Banking (5.9%):
RABOBANK, 5.26%*, 12/15/99.......................... 30,000,000 29,939,917
Wells Fargo & Co., 5.99%*, 2/29/00.................. 35,000,000 34,483,750
Wells Fargo & Co., 5.90%*, 3/8/00................... 29,000,000 28,546,859
--------------
92,970,526
--------------
Beverages (3.0%):
Coca-Cola Co., 5.34%*, 12/8/99...................... 48,000,000 47,950,720
--------------
Building Products (2.1%):
Fortune Brands, 5.70%*, 12/1/99..................... 33,000,000 33,000,000
--------------
Chemicals (2.1%):
E.I. duPont de Nemours & Co., 4.97%*, 12/7/99....... 33,250,000 33,223,400
--------------
Consumer Goods & Services (5.5%):
Archer-Daniels-Midland, 5.39%*, 12/7/99............. 24,000,000 23,978,720
General Electric Co., 5.40%*, 12/22/99.............. 25,000,000 24,922,271
Illinois Tool Works, 6.02%*, 1/21/00................ 39,000,000 38,672,367
--------------
87,573,358
--------------
Financial Services (21.3%):
Associates First Capital Corp., 5.38%*, 12/13/99.... 43,000,000 42,923,890
Block Financial Corp., 6.28%*, 1/27/00.............. 27,000,000 26,735,805
General Electric Capital Corp., 5.87%*, 3/8/00...... 35,000,000 34,457,869
Merrill Lynch & Co., 5.95%*, 3/31/00................ 35,000,000 34,314,165
Morgan Stanley Dean Witter, 6.12%*, 1/12/00......... 40,000,000 39,718,600
New Center Asset Trust, 5.40%*, 12/17/99............ 30,500,000 30,427,749
New Center Asset Trust, 5.91%*, 2/7/00.............. 25,000,000 24,725,167
Salomon Smith Barney, 5.90%*, 2/14/00............... 25,000,000 24,701,563
Textron, Inc., 5.60%*, 12/7/99...................... 77,755,000 77,682,688
--------------
335,687,496
--------------
</TABLE>
<TABLE>
<CAPTION>
Schedule of Portfolio Investments
November 30, 1999
Commercial Paper, continued
Security Principal Amortized
Description Amount Cost
----------- ----------- --------------
<S> <C> <C>
Food Products & Services (5.1%):
H.J. Heinz, 5.34%*, 12/20/99........................ $30,000,000 $ 29,916,083
H.J. Heinz, 5.46%*, 12/28/99........................ 50,000,000 49,796,375
--------------
79,712,458
--------------
Industrial\Commercial Products (1.1%):
W.W. Grainger, 5.52%*, 12/28/99..................... 17,000,000 16,927,462
--------------
Insurance (2.8%):
Aon Corp., 5.36%*, 12/6/99.......................... 45,000,000 44,966,625
--------------
Metals & Mining (1.4%):
</TABLE>
<TABLE>
<S> <C> <C>
Alcoa, Inc., 5.50%*, 12/20/99..................... 22,500,000 22,435,044
--------------
Telecommunications--Services and Equipment (2.5%):
Motorola, Inc., 5.34%*, 12/23/99.................. 40,000,000 39,870,444
--------------
Toys, Games, Children's Vehicles (1.3%):
Hasbro, Inc., 5.52%*, 12/28/99.................... 21,050,000 20,963,169
--------------
Utilities--Gas & Electric (11.8%):
Consolidated Natural Gas, 5.52%*, 12/17/99........ 50,000,000 49,877,778
Gateway Fuel, 5.93%*, 1/31/00..................... 32,491,000 32,168,933
National Rural Utilities, 5.33%*, 12/2/99......... 35,000,000 34,994,847
Virginia Electric & Power, 5.96%*, 2/25/00........ 70,000,000 69,020,078
--------------
186,061,636
--------------
Utilities--Telephone (4.8%):
Bell Atlantic Corp., 5.32%*, 12/14/99............. 30,500,000 30,441,737
Bell Atlantic Corp., 6.00%*, 1/24/00.............. 45,000,000 44,598,375
--------------
75,040,112
--------------
TOTAL COMMERCIAL PAPER 1,160,382,450
--------------
<CAPTION>
Corporate Bonds (1.9%):
<S> <C> <C>
Financial Services (1.9%):
Bear Stearns Co., Inc., 5.46%**, 12/2/99, MTN..... 30,000,000 30,000,000
--------------
TOTAL CORPORATE BONDS 30,000,000
--------------
<CAPTION>
U.S. Government Agencies (7.9%):
<S> <C> <C>
Federal Farm Credit Bank (3.2%):
5.22%, 12/1/99.................................... 25,000,000 24,999,999
5.25%, 1/18/00.................................... 25,000,000 25,000,000
--------------
49,999,999
--------------
Federal Home Loan Bank (1.5%):
4.95%, 2/17/00.................................... 24,000,000 23,997,529
--------------
Federal Home Loan Mortgage Corp. (3.2%):
5.33%*, 12/15/99.................................. 50,000,000 49,901,417
--------------
TOTAL U.S. GOVERNMENT AGENCIES 123,898,945
--------------
</TABLE>
Continued
11
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Money Market Portfolio
<TABLE>
<CAPTION>
Investment Companies (2.0%):
Security Amortized
Description Shares Cost
----------- ----------- --------------
<S> <C> <C>
Financial Square Prime Obligation Fund.............. 31,956,304 $ 31,956,304
--------------
TOTAL INVESTMENT COMPANIES 31,956,304
--------------
TOTAL INVESTMENTS
(Amortized Cost $1,579,081,676)(a)--100.1% 1,579,081,676
Liabilities in excess of other assets--(0.1)% (1,037,014)
--------------
TOTAL NET ASSETS--100.0% $1,578,044,662
==============
</TABLE>
- -----
* Effective yield at date of purchase.
** Variable rate investment. The rate presented on the Schedule of Portfolio
Investments is the rate in effect at November 30, 1999. The date presented
reflects the next rate change date.
(a) Cost for federal income tax and financial reporting purposes are the same.
MTN Medium Term Note
Schedule of Portfolio Investments
November 30, 1999
See notes to financial statements
12
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Money Market Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
November 30, 1999
<S> <C> <C>
Assets:
Investments, at value (cost $1,579,081,676)........ $1,579,081,676
Cash............................................... 343
Receivable for capital shares sold................. 195,772
Interest and dividends receivable.................. 6,227,824
Prepaid expenses and other assets.................. 35,926
--------------
Total Assets...................................... 1,585,541,541
Liabilities:
Dividends payable.................................. $6,279,967
Payable for capital shares redeemed................ 192,880
Accrued expenses and other liabilities:
Investment advisory fees.......................... 464,800
Administration fees............................... 43,975
Distribution and administrative services fees..... 216,124
Custodian fees.................................... 31,068
Other liabilities................................. 268,065
----------
Total Liabilities................................. 7,496,879
--------------
Net Assets:
Capital............................................ 1,578,042,303
Undistributed net investment income................ 7,235
Accumulated net realized losses from investment
transactions...................................... (4,876)
--------------
Net Assets......................................... $1,578,044,662
==============
Investor A Shares
Net Assets........................................ $ 255,403,587
Shares............................................ 255,403,396
Offering and redemption price per share........... $1.00
=====
Investor B Shares
Net Assets........................................ $ 173,306
Shares............................................ 173,308
Offering price per share*......................... $1.00
=====
Trust Shares
Net Assets........................................ $ 734,262,021
Shares............................................ 734,259,917
Offering and redemption price per share........... $1.00
=====
Institutional Shares
Net Assets........................................ $ 36,087,580
Shares............................................ 36,087,650
Offering and redemption price per share........... $1.00
=====
Trust II Shares
Net Assets........................................ $ 552,118,168
Shares............................................ 552,118,168
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 year ended November 30, 1999
<S> <C> <C>
Investment Income:
Interest income........................................ $81,242,500
Dividend income........................................ 1,524,863
-----------
Total Investment Income............................... 82,767,363
Expenses:
Investment advisory fees............................... $6,396,885
Administration fees.................................... 3,219,726
Distribution and services fees, Investor A Shares...... 619,648
Distribution and services fees, Investor B Shares...... 768
Administrative services fees, Trust Shares............. 1,788,406
Administrative services fees, Institutional Shares..... 96,113
Accounting fees........................................ 1,837
Custodian fees......................................... 321,049
Transfer agent fees.................................... 561,153
Other.................................................. 682,176
----------
Total expenses before voluntary fee reductions......... 13,687,761
Expenses voluntarily reduced........................... (2,215,106)
-----------
Net Expenses........................................... 11,472,655
-----------
Net Investment Income.................................. 71,294,708
-----------
Change in net assets resulting from operations......... $71,294,708
===========
</TABLE>
See notes to financial statements
13
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Money Market Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
year ended year ended
November 30, November 30,
1999 1998
-------------- --------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income........................ $ 71,294,708 $ 68,317,384
Net realized gains from investment
transactions................................ -- 31
-------------- --------------
Change in net assets resulting from
operations................................... 71,294,708 68,317,415
-------------- --------------
Distributions to Investor A Shareholders:
From net investment income................... (10,753,522) (8,260,115)
Distributions to Investor B Shareholders:
From net investment income................... (2,773) (2,995)
Distributions to Trust Shareholders:
From net investment income................... (31,077,088) (57,503,882)
Distributions to Institutional Shareholders:
From net investment income................... (1,666,075) (1,329,331)
Distributions to Trust II Shareholders:
From net investment income................... (27,795,250) (1,221,277)
-------------- --------------
Change in net assets from shareholder
distributions................................ (71,294,708) (68,317,600)
-------------- --------------
Change in net assets from capital
transactions................................. 34,899,243 314,122,425
-------------- --------------
Change in net assets.......................... 34,899,243 314,122,240
Net Assets:
Beginning of period.......................... 1,543,145,419 1,229,023,179
-------------- --------------
End of period................................ $1,578,044,662 $1,543,145,419
============== ==============
</TABLE>
See notes to financial statements
14
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Money Market Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the years ended November 30,
-------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<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..... 0.043 0.048 0.048 0.047 0.052
Net realized gains from
investments.............. -- -- (a) -- -- --
-------- -------- -------- ------- -------
Total from Investment
Activities............... 0.043 0.048 0.048 0.047 0.052
-------- -------- -------- ------- -------
Distributions:
Net investment income..... (0.043) (0.048) (0.048) (0.047) (0.052)
-------- -------- -------- ------- -------
Total Distributions....... (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
======== ======== ======== ======= =======
Total Return............... 4.43% 4.95% 4.93% 4.81% 5.33%
Ratios/Supplementary Data:
Net Assets at end of period
(000)..................... $255,404 $203,583 $164,777 $91,166 $64,865
Ratio of expenses to
average net assets........ 0.80% 0.78% 0.77% 0.78% 0.77%
Ratio of net investment
income to average net
assets.................... 4.34% 4.83% 4.84% 4.70% 5.20%
Ratio of expenses to
average net assets*....... 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.
Financial Highlights, Investor B Shares
<TABLE>
<CAPTION>
For the years ended January 26, 1996
November 30, to
------------------------- November 30,
1999 1998 1997 1996 (a)
------ ------ ------ ----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------
Investment Activities:
Net investment income............ 0.036 0.041 0.041 0.033
Net realized gains from
investments..................... -- -- (d) -- --
------ ------ ------ ------
Total from Investment
Activities...................... 0.036 0.041 0.041 0.033
Distributions:
------ ------ ------ ------
Net investment income............ (0.036) (0.041) (0.041) (0.033)
------ ------ ------ ------
Total Distributions.............. (0.036) (0.041) (0.041) (0.033)
------ ------ ------ ------
Net Asset Value, End of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ======
Total Return (excludes redemption
charge).......................... 3.65% 4.17% 4.15% 3.35%(b)
Ratios/Supplementary Data:
Net Assets at end of period
(000)............................ $ 173 $ 84 $ 73 $ 41
Ratio of expenses to average net
assets........................... 1.55% 1.53% 1.52% 1.47%(c)
Ratio of net investment income to
average net assets............... 3.61% 4.09% 4.10% 3.73%(c)
Ratio of expenses to average net
assets*.......................... 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
15
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Money Market Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the years ended November 30,
-----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ---------- -------- --------
<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.. 0.043 0.050 0.050 0.049 0.054
Net realized gains from
investments........... -- -- (a) -- -- --
-------- -------- ---------- -------- --------
Total from Investment
Activities............ 0.043 0.050 0.050 0.049 0.054
-------- -------- ---------- -------- --------
Distributions:
Net investment income.. (0.043) (0.050) (0.050) (0.049) (0.054)
-------- -------- ---------- -------- --------
Total Distributions.... (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
======== ======== ========== ======== ========
Total Return............ 4.43% 5.08% 5.06% 4.99% 5.52%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $734,262 $820,923 $1,042,151 $717,265 $698,131
Ratio of expenses to
average net assets..... 0.80% 0.66% 0.64% 0.61% 0.59%
Ratio of net investment
income to average net
assets................. 4.34% 4.97% 4.96% 4.88% 5.38%
Ratio of expenses to
average net assets*.... 0.94% 0.93% 0.92% 0.76% 0.74%
* 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.
Financial Highlights, Institutional Shares
<CAPTION>
For the years ended November 30,
-----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ---------- -------- --------
<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.. 0.043 0.048 0.048 0.047 0.052
Net realized gains from
investments........... -- -- (a) -- -- --
-------- -------- ---------- -------- --------
Total from Investment
Activities............ 0.043 0.048 0.048 0.047 0.052
-------- -------- ---------- -------- --------
Distributions:
Net investment income.. (0.043) (0.048) (0.048) (0.047) (0.052)
-------- -------- ---------- -------- --------
Total Distributions.... (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
======== ======== ========== ======== ========
Total Return............ 4.43% 4.95% 4.93% 4.81% 5.33%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 36,088 $ 28,536 $ 22,022 $ 15,921 $ 13,340
Ratio of expenses to
average net assets..... 0.80% 0.78% 0.77% 0.78% 0.77%
Ratio of net investment
income to average net
assets................. 4.33% 4.84% 4.83% 4.70% 5.20%
Ratio of expenses to
average net assets*.... 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.
See notes to financial statements
16
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Money Market Portfolio
Financial Highlights, Trust II Shares
<TABLE>
<CAPTION>
For the November 10, 1998
year ended to
November 30, November 30,
1999 1998 (a)
------------ -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period........... $ 1.00 $ 1.00
-------- --------
Investment Activities:
Net investment income......................... 0.046 0.003
-------- --------
Total from Investment Activities.............. 0.046 0.003
-------- --------
Distributions:
Net investment income......................... (0.046) (0.003)
-------- --------
Total Distributions........................... (0.046) (0.003)
-------- --------
Net Asset Value, End of Period................. $ 1.00 $ 1.00
======== ========
Total Return................................... 4.68% 0.27%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000).............. $552,118 $490,020
Ratio of expenses to average net assets........ 0.56% 0.56%(c)
Ratio of net investment income to average net
assets........................................ 4.57% 4.76%(c)
Ratio of expenses to average net assets*....... 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
17
<PAGE>
Mercantile Tax-Exempt Money Market Portfolio+,++
Q. What were conditions like in the tax-exempt money markets during the 12
months ended November 30, 1999?
A. Taxable money market securities continued to offer more attractive yields
than tax-exempt money market issues during the period. That condition has
persisted for several years now.
Q. How did you manage the Portfolio during the period?
A. The Portfolio seeks a high level of current interest income exempt from
federal income tax, while protecting shareholders' liquidity and stability of
principal. In order to pursue those goals, the Portfolio observes strict credit
quality standards and maintains a relatively short average maturity. We
extended the average maturity of the Portfolio during the period, raising it
from around 20 days to 25 days to around 30 days in order to capture higher
yield for shareholders. We implemented that strategy by purchasing select pre-
refunded issues and longer-term notes. Overall, we favored daily and weekly
securities.*
Q. How will you manage the Portfolio going forward?
A. We believe the economy should continue to grow at a moderate pace and
inflation probably will remain low. That said, we will look for signs of a
potential rate hike by the Fed, which could happen if the economy grows too
rapidly. If the Fed does seem likely to increase rates, we will consider
slightly reducing the average maturity of the Portfolio. Meanwhile, we will
continue to look for ways to capture additional yield for shareholders by
taking advantage of seasonal factors and other opportunities.
- -----
+ An investment in the Mercantile Tax-Exempt Money Market Portfolio is not
insured or guaranteed by the FDIC or any other government agency. Although
the 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 November 30, 1999
<TABLE>
<CAPTION>
Commercial Paper (8.0%):
Security Principal Amortized
Description Amount Cost
----------- ---------- ------------
<S> <C> <C>
Georgia (2.9%):
Putnam County, 3.65%, 1/13/00.......................... $5,000,000 $ 5,000,000
------------
Texas (2.3%):
Houston, 3.70%, 2/16/00................................ 4,000,000 4,000,000
------------
Washington (2.8%):
King County, 3.70%, 4/12/00............................ 5,000,000 5,000,000
------------
TOTAL COMMERCIAL PAPER 14,000,000
------------
Municipal Bonds (89.6%):
Alaska (0.8%):
Anchorage, School Improvements, G.O., 4.00%, 12/1/99
(FGIC Insured)........................................ 1,410,000 1,410,000
------------
Arizona (2.2%):
Chandler Industrial Development Authority, Multifamily
Housing Revenue, Southpark Apartments Project, 3.85%*,
12/1/99
(LOC-CitiBank N.A.)................................... 2,375,000 2,375,000
Maricopa County, Pollution Control Revenue, Arizona
Public Service Co., Series C, 3.75%*, 12/1/99
(LOC-Toronto Dominion Bank)........................... 1,400,000 1,400,000
------------
3,775,000
------------
Delaware (4.9%):
Delaware State Economic Development Authority, Solid
Waste Disposal & Sewage Facilities, Series A, Ciba
Specialty Chemicals, 3.90%*, 12/1/99, AMT............. 8,500,000 8,500,000
------------
Idaho (2.9%):
Idaho State, Tax Anticipation Notes, G.O., 4.25%,
6/30/00............................................... 5,000,000 5,023,785
------------
Illinois (8.3%):
Chicago, O'Hare International Airport Revenue, American
Airlines, Inc., 3.80%*, 12/1/99 (LOC-Royal Bank of
Canada)............................................... 8,000,000 8,000,000
Chicago, O'Hare International Airport Revenue, American
Airlines, Inc., 3.80%*, 12/01/99 (LOC-Credit Suisse).. 6,500,000 6,500,000
------------
14,500,000
------------
Iowa (5.6%):
Iowa Finance Authority, Solid Waste Disposal Revenue,
Cedar River Paper Co., 3.95%*, 12/1/99, AMT (LOC-Union
Bank of Switzerland).................................. 500,000 500,000
Iowa Finance Authority, Solid Waste Disposal Revenue,
Cedar River Paper Co., Series A, 3.95%*, 12/1/99, AMT
(LOC-Union Bank of Switzerland)....................... 4,300,000 4,300,000
Iowa Finance Authority, Solid Waste Disposal Revenue,
Cedar River Paper Co., Series A, 3.95%*, 12/1/99, AMT
(LOC-Union Bank of Switzerland)....................... 3,000,000 3,000,000
Iowa State, School Cash Anticipation Program, Series A,
4.00%, 6/23/00 (FSA Insured).......................... 2,000,000 2,008,368
------------
9,808,368
------------
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Amortized
Description Amount Cost
----------- ---------- ------------
<S> <C> <C>
Kentucky (4.0%):
Lexington-Fayette Urban County Airport Revenue, Series
A, 3.85%*, 12/1/99, AMT (MBIA Insured, SPA-Credit
Local De France) $6,900,000 $ 6,900,000
------------
Louisiana (6.4%):
East Baton Rouge Parish, Pollution Control Revenue,
Exxon Project, 3.75%*, 12/1/99........................ 4,200,000 4,200,000
St. Charles Parish Pollution Control Revenue, Shell Oil
Co. Project, 3.80%*, 12/1/99.......................... 7,000,000 7,000,000
------------
11,200,000
------------
Massachusetts (2.4%):
Massachusetts State Water Authority, Series A, 7.00%,
4/1/18, Callable on 4/1/00 @102....................... 4,000,000 4,130,539
------------
Minnesota (5.1%):
Becker, Pollution Control Revenue, Northern States
Power Co., Series A, 3.30%, 4/11/00**................. 4,000,000 4,000,000
Minneapolis Community Development Agency, Pollution
Control Revenue, Northern States Power Co. Project,
3.95%*, 12/1/99....................................... 4,850,000 4,850,000
------------
8,850,000
------------
Missouri (10.1%):
Missouri State Environmental Improvement and Energy
Resource Authority, Pollution Control Revenue,
Monsanto Co. Project, 3.95%*, 12/1/99................. 1,000,000 1,000,000
Missouri State Health & Educational Facilities
Authority, Educational Facilities Revenue, St. Louis
University, 3.85%*, 12/1/99 (FGIC Insured, SPA-Morgan
Guaranty Trust)....................................... 1,000,000 1,000,000
Missouri State Health & Educational Facilities
Authority, Educational Facilities Revenue, Washington
University Project, Series A, 3.90%*, 12/1/99 (SPA-
Morgan Guaranty Trust)................................ 4,600,000 4,600,000
Missouri State Health & Educational Facilities
Authority, Educational Facilities Revenue, Washington
University Project, Series B, 3.90%*, 12/1/99 (SPA-
Morgan Guaranty Trust)................................ 1,000,000 1,000,000
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, Barnes Hospital
Project, 3.90%*, 12/1/99 (LOC-Morgan Guaranty Trust).. 7,000,000 7,000,000
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, St. Anthony
Medical Center, Series B, 3.90%*, 12/1/99 (SPA-ABN
AMRO Bank N.V. and RABOBANK Nederland N.V.)........... 3,000,000 3,000,000
------------
17,600,000
------------
</TABLE>
Continued
19
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Tax-Exempt Money Market Portfolio
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Amortized
Description Amount Cost
----------- ---------- ------------
<S> <C> <C>
New Mexico (1.7%):
Albequerque, Public
Improvements, G.O.,
4.50%, 7/1/00............ $3,000,000 $ 3,015,271
------------
Oklahoma (2.9%):
Tulsa Industrial Authority
Revenue, University of
Tulsa, Series B, 3.85%*,
12/1/99 (MBIA Insured,
SPA-Credit Local De
France).................. 5,000,000 5,000,000
------------
Oregon (2.6%):
Oregon State, Series 73 G,
G.O., 3.90%*, 12/1/99
(SPA-Morgan Guaranty
Trust)................... 4,500,000 4,500,000
------------
Pennsylvania (5.2%):
Bethel Park School
District, School
Improvements, G.O.,
6.90%, 2/1/05, Callable
on 2/1/00 @ 100
(AMBAC Insured).............1,000,000 1,006,086
Elizabeth Forward School
District, G.O., 7.25%,
1/15/10 (AMBAC Insured).. 2,000,000 2,010,216
Pennsylvania State Higher
Education Facilities
Authority, College &
University Revenue,
Carnegie Mellon
University, Series C,
3.70%*, 12/1/99 (SPA-
Union Bank of Switzerland
and Morgan Guaranty
Trust)................... 6,000,000 6,000,000
------------
9,016,302
------------
Tennessee (2.9%):
Memphis, Series A, G.O.,
3.95%*, 12/1/99 (SPA-
Westdeutshe Landesbank).....5,000,000 5,000,000
------------
Texas (16.9%):
Brazos River Authority,
Texas Pollution Control
Revenue, 3.90%*, 12/1/99
(MBIA Insured, SPA-Bank
of New York)............. 5,150,000 5,150,000
Harris County, Health
Facilities Development
Corp., Health, Hospital &
Nursing Home Revenue,
Methodist Hospital,
3.80%*, 12/1/99 (SPA-
Morgan Guaranty Trust)... 8,200,000 8,200,001
Harris County, Industrial
Development Corp.,
Pollution Control
Revenue, Exxon
Corporation, 3.75%*,
12/1/99.................. 3,200,000 3,200,000
North Central Texas Health
Facilities Development
Corp., Health, Hospital &
Nursing Home Revenue,
Methodist Hospitals of
Dallas, Series B, 3.75%*,
12/1/99 (MBIA Insured,
SPA-RABOBANK Nederland
N.V.).................... 3,700,000 3,700,000
</TABLE>
<TABLE>
<CAPTION>
Schedule of Portfolio Investments
November 30, 1999
Municipal Bonds, continued
Shares
or
Security Principal Amortized
Description Amount Cost
----------- ---------- ------------
<S> <C> <C>
Texas, continued
Port Corpus Christi, Port, Airport & Marina Revenue,
Reynolds Metals Co., 3.90%*, 12/1/99 (LOC-Westdeutsche
Landesbank)........................................... $2,200,000 $ 2,200,000
Texas State, Multi-Modal-Water Development Board,
Series A, 3.80%*, 12/1/99 (SPA-State Street B&T Co.).. 7,000,000 7,000,000
------------
29,450,001
------------
Utah (4.7%):
Salt Lake County, Pollution Control Revenue, SVC
Station Holdings Project, British Petroleum Co.,
Series B, 3.80%*, 12/1/99............................. 8,200,000 $ 8,200,000
------------
TOTAL MUNICIPAL BONDS 155,879,266
------------
Investment Companies (2.2%):
Federated Tax-Free Fund................................ 3,860,000 3,860,000
Nuveen Tax Exempt Fund................................. 1,000 1,000
------------
TOTAL INVESTMENT COMPANIES 3,861,000
------------
TOTAL INVESTMENTS (Amortized Cost $173,740,266) (a) - 99.8% 173,740,266
Other assets in excess of liabilities - 0.2% 279,966
------------
TOTAL NET ASSETS - 100.0% $174,020,232
============
</TABLE>
- -----
* Variable rate investment. The rate presented on the Schedule of Portfolio
Investments is the rate in effect at November 30, 1999. The date presented
reflects the next rate change date.
** Put and demand features exist allowing the fund to require the repurchase
of the investment within variable time periods ranging from daily, weekly,
monthly or semi-annually. Maturity date reflects the next put date.
(a) Cost for federal income tax and financial reporting purposes are the same.
AMBAC AMBAC Indemnity Corp.
AMT Alternative Minimum Tax
FGIC Financial Guaranty Insurance Corp.
FSA Financial Securities Assurance, Inc.
G.O. General Obligation
LOC Letter of Credit
MBIA Municipal Bond Insurance Association
SPA Standby Purchase Agreement
See notes to financial statements
20
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Tax-Exempt Money Market Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
November 30, 1999
<S> <C> <C>
Assets:
Investments, at value (cost $173,740,266)................ $173,740,266
Cash..................................................... 321
Receivable for capital shares purchased.................. 5,438
Interest and dividends receivable........................ 788,637
Prepaid expenses and other assets........................ 7,034
------------
Total Assets............................................ 174,541,696
Liabilities:
Dividends payable........................................ $423,013
Accrued expenses and other liabilities:
Investment advisory fees................................ 50,716
Administration fees..................................... 4,320
Distribution and administrative services fees........... 9,761
Custodian fees.......................................... 3,241
Other liabilities....................................... 30,413
--------
Total Liabilities....................................... 521,464
------------
Net Assets:
Capital.................................................. 174,008,072
Undistributed net investment income...................... 12,160
------------
Net Assets............................................... $174,020,232
============
Investor A Shares
Net Assets.............................................. $ 11,306,239
Shares.................................................. 11,306,200
Offering and redemption price per share................. $1.00
=====
Trust Shares
Net Assets.............................................. $ 38,415,190
Shares.................................................. 38,415,156
Offering and redemption price per share................. $1.00
=====
Trust II Shares
Net Assets.............................................. $124,298,803
Shares.................................................. 124,298,803
Offering and redemption price per share................. $1.00
=====
</TABLE>
<TABLE>
Statement of Operations
For the year ended November 30, 1999
<S> <C> <C>
Investment Income:
Interest income............................................ $4,716,685
Dividend income............................................ 989,943
----------
Total Investment Income................................... 5,706,628
Expenses:
Investment advisory fees................................... $714,571
Administration fees........................................ 178,643
Distribution and services fees, Investor A Shares.......... 31,544
Administrative services fees, Trust Shares................. 81,775
Accounting fees............................................ 1,839
Custodian fees............................................. 35,003
Transfer agent fees........................................ 68,003
Other...................................................... 76,394
--------
Total expenses before voluntary fee reductions............ 1,187,772
Expenses voluntarily reduced.............................. (89,324)
----------
Net Expenses.............................................. 1,098,448
----------
Net Investment Income...................................... 4,608,180
----------
Change in net assets resulting from operations............. $4,608,180
==========
</TABLE>
See notes to financial statements
21
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Tax-Exempt Money Market Portfolio
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
For the For the
year ended year ended
November 30, November 30,
1999 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................ $ 4,608,180 $ 4,858,270
------------ ------------
Change in net assets resulting from operations.... 4,608,180 4,858,270
------------ ------------
Distributions to Investor A Shareholders:
From net investment income....................... (303,265) (365,876)
Distributions to Trust Shareholders:
From net investment income....................... (791,156) (4,357,878)
Distributions to Trust II Shareholders:
From net investment income....................... (3,513,759) (134,516)
------------ ------------
Change in net assets from shareholder
distributions.................................... (4,608,180) (4,858,270)
------------ ------------
Change in net assets from capital transactions.... 388,594 14,325,565
------------ ------------
Change in net assets.............................. 388,594 14,325,565
Net Assets:
Beginning of period.............................. 173,631,638 159,306,073
------------ ------------
End of period.................................... $174,020,232 $173,631,638
============ ============
</TABLE>
See notes to financial statements
22
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Tax-Exempt Money Market Portfolio
<TABLE>
<CAPTION>
Financial Highlights, Investor A Shares
For the
six months For the
For the years ended November 30, ended year ended
----------------------------------- November 30, May 31,
1999 1998 1997 1996 1995 (d) 1995 (a)
------- ------- -------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- -------- ------- ------- -------
Investment Activities:
Net investment income.. 0.024 0.027 0.028 0.028 0.014 0.027
------- ------- -------- ------- ------- -------
Total from Investment
Activities............ 0.024 0.027 0.028 0.028 0.014 0.027
------- ------- -------- ------- ------- -------
Distributions:
Net investment income.. (0.024) (0.027) (0.028) (0.028) (0.014) (0.027)
------- ------- -------- ------- ------- -------
Total Distributions.... (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
======= ======= ======== ======= ======= =======
Total Return............ 2.44% 2.72% 2.88% 2.83% 1.45%(b) 2.70%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $11,306 $13,980 $ 15,789 $17,984 $ 5,403 $ 5,138
Ratio of expenses to
average net assets..... 0.79% 0.79% 0.77% 0.75% 0.94%(c) 0.84%
Ratio of net investment
income to average net
assets................. 2.40% 2.68% 2.82% 2.78% 2.87%(c) 2.63%
Ratio of expenses to
average net assets*.... 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) On September 27, 1994, the Portfolio redesignated the Investor Shares as
"Investor A" Shares. (b) Not annualized. (c) Annualized. (d) Upon reorganizing
as a portfolio of the ARCH Fund, Inc., the Tax-Exempt Money Market Portfolio
changed its fiscal year end from May 31 to November 30.
Financial Highlights, Trust
Shares
<CAPTION>
For the
six months For the
For the years ended November 30, ended year ended
----------------------------------- November 30, May 31,
1999 1998 1997 1996 1995 (c) 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.. 0.024 0.029 0.030 0.030 0.016 0.029
------- ------- -------- ------- ------- -------
Total from Investment
Activities............ 0.024 0.029 0.030 0.030 0.016 0.029
------- ------- -------- ------- ------- -------
Distributions:
Net investment income.. (0.024) (0.029) (0.030) (0.030) (0.016) (0.029)
------- ------- -------- ------- ------- -------
Total Distributions.... (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
======= ======= ======== ======= ======= =======
Total Return............ 2.44% 2.92% 3.08% 3.06% 1.57%(a) 2.93%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $38,415 $37,541 $143,517 $95,726 $78,031 $85,324
Ratio of expenses to
average net assets..... 0.79% 0.59% 0.58% 0.53% 0.70%(b) 0.61%
Ratio of net investment
income to average net
assets................. 2.42% 2.88% 3.04% 3.01% 3.10%(b) 2.87%
Ratio of expenses to
average net assets*.... 0.84% 0.84% 0.83% 0.58% 0.75%(b) 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) Not annualized. (b) Annualized. (c) 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.
See notes to financial statements
23
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Tax-Exempt Money Market Portfolio
<TABLE>
<CAPTION>
Financial Highlights, Trust II Shares
For the November 16, 1998
year ended to
November 30, November 30,
1999 1998 (a)
------------ -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period........... $ 1.00 $ 1.00
-------- --------
Investment Activities:
Net investment income......................... 0.026 0.001
-------- --------
Total from Investment Activities.............. 0.026 0.001
-------- --------
Distributions:
Net investment income......................... (0.026) (0.001)
-------- --------
Total Distributions........................... (0.026) (0.001)
-------- --------
Net Asset Value, End of Period................. $ 1.00 $ 1.00
======== ========
Total Return................................... 2.68% 0.11%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000).............. $124,299 $122,110
Ratio of expenses to average net assets........ 0.55% 0.57%(c)
Ratio of net investment income to average net
assets........................................ 2.64% 2.69%(c)
Ratio of expenses to average net assets*....... 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 12-month period
ended November 30, 1999?
A. The year was marked by considerable volatility. Inflationary pressures
caused the Fed to raise interest rates three times, each time by one quarter of
a percentage point. Investors sold bonds in anticipation of those rate hikes,
pushing yields higher and bond prices lower throughout the period. The yield on
the 30-year Treasury bond rose from 5.07% at the beginning of the period to
6.29% on November 30, 1999. Intermediate-term bonds fared especially poorly,
with the yield on five-year Treasury notes rising from 4.48% on December 1,
1998 to 6.11% at the end of the period.
Q. How did you manage the Portfolio in that environment?
A. We increased the Portfolio's exposure to mortgage-backed pass-through
securities from 69.8% at the beginning of the period to 86.8% on November 30,
1999. That move benefited the Portfolio, as mortgage-backed securities
significantly outperformed the rest of the bond market. Higher yields on
mortgage securities also allowed us to lock in greater income for
shareholders.*
We reduced the Portfolio's stake in Treasury securities from 13.7% at the
beginning of the period to 3.2% at the end of the period, and cut exposure to
government agency issues from 14.5% to 5.5%. Those sectors were less attractive
than mortgage-backed securities.*
Q. How did you manage the Portfolio's average maturity and duration during
the period?
A. We slightly extended the Portfolio's average maturity from 4.1 years as of
December 1, 1998 to 4.5 years on November 30, 1999. The average duration of the
securities in the Portfolio increased from 2.9 years to 3.2 years.*
We previously had kept the Portfolio's maturity and duration shorter than
those of its benchmark index, the Lehman Brothers Intermediate Government Bond
Index, due to uncertainty in the bond market. As somewhat longer-term issues
fell in price, we moved the Portfolio's maturity and duration close to that of
the benchmark. As of November 30, 1999, the Lehman Brothers Intermediate
Government Bond Index had an average maturity of 3.9 years and a duration of
3.3 years.
Q. What is your outlook for the Treasury market?
A. The economy remains strong, with very low unemployment and high money
supply levels. If these conditions persist, we anticipate that the Fed will
raise rates at least once more to head off inflation. Those conditions should
continue to bolster the performance of mortgage-backed securities, which are
trading at attractive levels compared to their historical valuations. We will
continue to hold a large percentage of the Portfolio's assets in mortgage-
backed pass-throughs to lock in relatively high yields for shareholders, with
the potential for greater total returns than are available in Treasury and
agency securities.
- -----
*Portfolio composition is subject to change.
26
<PAGE>
Mercantile U.S. Government Securities Portfolio
[CHART]
Value of a $10,000 Investment
Lehman Brothers
Investor A Investor A Investor B Intermediate
(No Load) (Load)* (No CDSC) Government Bond Index
1 11/89 10,000 9,750 10,000 10,000
2 11/90 10,964.18 10,686.5 10,964 10,838
3 11/91 12,316.51 12,005.33 12,317 12,241
4 11/92 13,200.42 12,856.32 13,200 13,234
5 11/93 14,522.76 14,155.16 14,523 14,443
6 11/94 14,066.69 13,710.55 14,067 14,203
7 11/95 16,124.74 15,716.59 15,872 16,143
8 11/96 16,859.56 16,432.9 16,480 17,057
9 11/97 17,736.41 17,286.83 17,218 18,127
10 11/98 18,918.49 18,438.94 18,254 19,749
11 11/99 19,176.96 18,691.23 18,410 19,985
- -------------------------------------------------------------------------------
- -
Average Annual Total Returns
as of 11/30/99
- -------------------------------------------------------------------------------
- -
1 Year 5 Years 10 Years
- -------------------------------------------------------------------------------
- -
Investor A (No Load) 1.37% 6.39% 6.73%
- -------------------------------------------------------------------------------
- -
Investor A* -1.21% 5.85% 6.46%
- -------------------------------------------------------------------------------
- -
Investor B (No CDSC) 0.86% 5.53% 6.29%
- -------------------------------------------------------------------------------
- -
Investor B (CDSC)** -3.97% 5.37% 6.29%
- -------------------------------------------------------------------------------
- -
* Reflects 2.50% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[CHART]
Value of a $10,000 Investment
Lehman Brothers
Investor A Investor A Intermediate
(No Load) (Load)* Government Bond Index
1 11/30/89 10,000 10,000 10,000
2 11/30/90 10,964 10,964 10,838
3 11/30/91 12,345 12,317 12,241
4 11/30/92 13,270 13,200 13,234
5 11/30/93 14,642 14,523 14,443
6 11/30/94 14,224 14,021 14,203
7 11/30/95 16,353 16,075 16,143
8 11/30/96 17,150 16,805 17,057
9 11/30/97 18,096 17,662 18,127
10 11/30/98 19,360 18,841 19,749
11 11/30/99 19,683 19,113 19,985
- -------------------------------------------------------------------------------
- -
Average Annual Total Returns
as of 11/30/99
- -------------------------------------------------------------------------------
- -
1 Year 5 Years 10 Years
- -------------------------------------------------------------------------------
- -
Trust 1.67% 6.71% 7.01%
- -------------------------------------------------------------------------------
- -
Institutional 1.45% 6.39% 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 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 2.50%
sales charge on Investor A Shares.
Investor B Shares were initially offered on March 1, 1995. The performance
figures for Investor B Shares for periods prior to such date represent the
performance for Investor A Shares of the Portfolio, which has been restated to
reflect the contingent deferred sales charges payable by holders of Investor B
Shares who redeem within six years of the date of purchase. Investor B Shares
are also subject to distribution and service fees at a maximum annual rate of
1.00%. Had these distribution and service fees been reflected, performance
would have been reduced.
Investor B Shares (CDSC) are not included in the above graph, since the
performance is for more than six years and the CDSC would no longer apply.
After six years, the performance for the Investor B Shares (CDSC) mirrors the
Investor B Shares (No CDSC) performance.
Institutional Shares were initially offered on June 7, 1994. The performance
figures for Institutional Shares for periods prior to such date represent the
performance for Investor A Shares of the Portfolio.
27
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
U.S. Government Securities Portfolio November 30, 1999
<TABLE>
<CAPTION>
U.S. Government Agencies (92.3%):
Security Principal Market
Description Amount Value
----------- ---------- -----------
<S> <C> <C>
Federal Home Loan Bank (5.5%):
5.13%, 9/15/03.......................................... $5,000,000 $ 4,763,800
-----------
Federal Home Loan Mortgage Corp. (38.9%):
5.00%, 2/15/01.......................................... 3,000,000 2,960,189
9.50%, 9/1/04, Pool #380053............................. 6,900 7,252
8.50%, 3/1/06, Gold Pool #E00022........................ 121,309 125,593
7.50%, 4/1/08, Gold Pool #E45929........................ 158,431 160,312
6.00%, 2/1/11, Gold Pool #E62600........................ 315,186 302,084
6.50%, 2/1/11, Gold Pool #E00419........................ 507,448 496,345
7.00%, 7/1/11, Gold Pool #E20252........................ 464,249 462,796
7.00%, 11/1/11, Gold Pool #E65619....................... 300,794 299,853
6.50%, 1/1/12, Gold Pool #E00465........................ 658,913 644,496
6.00%, 2/1/12, Gold Pool #E66284........................ 1,020,489 978,067
6.50%, 2/1/12, Gold Pool #E66172........................ 404,099 395,257
6.50%, 2/1/12, Gold Pool #E66272........................ 636,976 623,039
6.00%, 3/1/12, Gold Pool #E66474........................ 824,615 790,336
7.50%, 9/1/12, Gold Pool #G10735........................ 2,350,998 2,378,904
5.50%, 12/1/12, Gold Pool #E68353....................... 6,296,028 5,902,525
6.00%, 3/1/13, Gold Pool #E69338........................ 861,929 826,099
6.00%, 4/1/13, Gold Pool #E70028........................ 816,677 782,728
6.00%, 4/1/13, Pool #E00543............................. 1,706,339 1,635,407
5.50%, 5/1/13, Gold Pool #G10814........................ 1,755,091 1,645,398
6.00%, 5/1/13, Gold Pool #E00549........................ 4,362,260 4,180,920
6.50%, 10/1/13, Gold Pool #E00574....................... 869,786 850,755
5.50%, 3/1/14, Gold Pool #E00633........................ 1,432,395 1,342,870
6.50%, 7/1/14, Gold Pool #E77812........................ 984,222 962,687
7.00%, 9/1/14, Gold Pool #E00746........................ 2,964,901 2,955,621
6.00%, 3/1/28, Gold Pool #D87129........................ 927,753 861,651
6.00%, 1/1/29, Gold Pool #C00702........................ 963,719 895,054
-----------
33,466,238
-----------
Federal National Mortgage Assoc. (39.1%):
6.11%, 9/20/00.......................................... 4,000,000 3,998,600
6.00%, 11/1/00, Pool #190070............................ 267,658 259,042
5.36%, 2/16/01.......................................... 5,000,000 4,953,200
6.00%, 3/1/11, Pool #340503............................. 708,457 678,347
6.50%, 5/1/11, Pool #335713............................. 710,522 695,196
6.50%, 5/1/11, Pool #346276............................. 460,014 450,091
6.50%, 7/1/11, Pool #351761............................. 516,449 505,309
6.50%, 7/1/11, Pool #250613............................. 1,232,812 1,206,220
7.00%, 11/1/11, Pool #250738............................ 206,640 205,735
7.00%, 11/1/11, Pool #351122............................ 156,360 155,675
7.00%, 11/1/11, Pool #349630............................ 223,910 222,929
6.50%, 12/1/11, Pool #368127............................ 793,200 776,091
6.50%, 12/1/11, Pool #250781............................ 1,260,281 1,233,097
6.50%, 12/1/11, Pool #367868............................ 646,976 633,021
5.50%, 3/1/13, Pool #420158............................. 1,582,886 1,481,977
6.00%, 4/1/13, Pool #251656............................. 839,455 803,778
6.00%, 4/1/13, Pool #425550............................. 2,724,931 2,609,122
6.50%, 8/1/13, Pool #251901............................. 2,142,322 2,096,112
6.00%, 11/1/13, Pool #323379............................ 886,225 848,560
5.50%, 1/1/14, Pool #482515............................. 937,059 877,322
6.50%, 4/1/14, Pool #492264............................. 975,880 954,830
7.00%, 7/1/14, Pool #252637............................. 2,882,871 2,870,244
7.00%, 10/1/14, Pool #252799............................ 1,978,216 1,969,552
8.00%, 7/1/24, Pool #190264............................. 582,341 590,890
6.50%, 10/1/27, Pool #400141............................ 2,600,660 2,481,186
-----------
33,556,126
-----------
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Agencies, continued
Shares
or
Security Principal Market
Description Amount Value
----------- ---------- -----------
<S> <C> <C>
Government National Mortgage Assoc. (8.8%):
8.00%, 1/15/07, Pool #315126.......................... $ 65,058 $ 66,745
6.50%, 5/15/08, Pool #340791.......................... 38,037 37,182
9.00%, 7/15/09, Pool #390782.......................... 139,790 146,168
9.00%, 11/15/09, Pool #359559......................... 181,703 189,993
8.00%, 10/15/10, Pool #414750......................... 260,658 267,417
6.50%, 11/15/10, Pool #414786......................... 78,264 76,503
6.50%, 2/15/11, Pool #373569.......................... 238,686 233,316
6.50%, 3/15/11, Pool #416179.......................... 36,208 35,394
6.50%, 3/15/11, Pool #406466.......................... 261,475 255,592
6.50%, 3/15/11, Pool #410935.......................... 449,540 439,426
6.50%, 3/15/11, Pool #344973.......................... 226,060 220,973
6.50%, 3/15/11, Pool #408253.......................... 255,797 250,041
6.50%, 4/15/11, Pool #416060.......................... 483,998 473,109
6.50%, 4/15/11, Pool #422652.......................... 310,418 303,434
6.50%, 5/15/11, Pool #433036.......................... 106,141 103,753
6.50%, 5/15/11, Pool #408304.......................... 265,084 259,119
6.50%, 5/15/11, Pool #422814.......................... 45,572 44,547
6.50%, 6/15/11, Pool #421731.......................... 179,584 175,543
6.50%, 6/15/11, Pool #432993.......................... 90,340 88,307
6.50%, 7/15/11, Pool #424521.......................... 225,052 219,988
6.50%, 7/15/11, Pool #433088.......................... 584,165 571,021
8.50%, 5/15/17, Pool #219152.......................... 77,063 79,712
8.50%, 6/15/21, Pool #307921.......................... 106,983 110,660
7.50%, 12/15/22, Pool #347332......................... 901,437 900,589
8.00%, 5/15/23, Pool #352469.......................... 243,376 247,862
9.50%, 1/15/25, Pool #384421.......................... 34,225 36,535
9.50%, 2/15/25, Pool #401796.......................... 67,095 71,623
9.50%, 2/15/25, Pool #392967.......................... 2,247 2,398
9.50%, 2/15/25, Pool #365292.......................... 316,772 338,154
9.50%, 3/15/25, Pool #407257.......................... 82,519 88,089
9.50%, 4/15/25, Pool #386741.......................... 77,647 82,888
7.00%, 9/15/27, Pool #455304.......................... 262,205 256,387
7.00%, 8/15/28, Pool #482697.......................... 910,710 890,500
-----------
7,562,968
-----------
TOTAL U.S. GOVERNMENT AGENCIES 79,349,132
-----------
<CAPTION>
U.S. Treasury Notes (3.2%):
<S> <C> <C>
6.13%, 7/31/00........................................ 275,000 275,726
5.63%, 2/28/01........................................ 2,500,000 2,492,175
-----------
TOTAL U.S. TREASURY NOTES 2,767,901
-----------
<CAPTION>
Investment Companies (4.3%):
<S> <C> <C>
Federated Trust for U.S. Treasury Obligations......... 3,681,300 3,681,300
-----------
TOTAL INVESTMENT COMPANIES 3,681,300
-----------
</TABLE>
Continued
28
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
U.S. Government Securities Portfolio November 30, 1999
<TABLE>
<CAPTION>
Short-Term Securities Held as Collateral* (2.4%):
Security Principal Market
Description Amount Value
----------- ---------- -----------
<S> <C> <C>
Repurchase Agreements (2.4%):
Bank Of America, 5.78%, 12/1/99 (Purchased on 11/30/99,
proceeds at maturity $259,541, collateralized by
$322,405 various U.S. Government Agency Mortgages,
5.75%-6.77%, 4/15/23-2/1/29, market value $264,689)... $ 259,499 $ 259,499
CS First Boston, 5.77%, 12/1/99 (Purchased on 11/30/99,
proceeds at maturity $173,027, collateralized by
$221,339 various U.S. Government Agency Mortgages,
0.00%-8.00%, 5/15/01-8/15/29, market value $176,460).. 173,000 173,000
HSBC Securities, Inc., 5.72%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $173,027,
collateralized by $186,809, various U.S. Government
Agencies, 0.00%-9.80%, 4/19/01-11/30/17, market value
$176,460)............................................. 173,000 173,000
Prudential Bache Securities, 5.79%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $346,055,
collateralized by $602,278 various U.S. Government
Agency Mortgages, 0.00%-10.50%, 12/2/99-6/15/44,
market value $352,919)................................ 345,999 345,999
Salomon Smith Barney, Inc., 5.75%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $605,595,
collateralized by $778,610 various U.S. Government
Agencies, 0.00%-9.50%, 5/15/07-11/15/29, market value
$617,609)............................................. 605,499 605,499
Salomon Smith Barney, Inc., 5.73%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $495,082,
collateralized by $796,919 various GNMA, 5.00%-9.00%,
2/15/00-11/20/29, market value $504,903).............. 495,003 495,003
-----------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL 2,052,000
-----------
TOTAL INVESTMENTS
(Cost $89,561,918)(a)--102.2% 87,850,333
Liabilities in excess of other assets--(2.2)% (1,882,160)
-----------
TOTAL NET ASSETS--100.0% $85,968,173
===========
</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.. $ 46,082
Unrealized depreciation.. (1,757,667)
-----------
Net unrealized deprecia-
tion.................... $(1,711,585)
===========
</TABLE>
MTN Medium Term Note
* Represent securities purchased with cash collateral received on securities
loaned.
See notes to financial statements
29
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
U.S. Government Securities Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
November 30, 1999
<S> <C> <C>
Assets:
Investments, at value (cost $87,509,918)............... $85,798,333
Repurchase agreements, at value (cost $2,052,000)...... 2,052,000
-----------
Total Investments..................................... 87,850,333
Cash................................................... 1,167
Interest and dividends receivable...................... 615,933
Prepaid expenses and other assets...................... 7,795
-----------
Total Assets.......................................... 88,475,228
Liabilities:
Dividends payable...................................... $ 396,925
Payable for capital shares redeemed.................... 4,859
Payable for return of collateral received on securities
loaned................................................ 2,052,000
Accrued expenses and other liabilities:
Investment advisory fees.............................. 31,988
Administration fees................................... 2,123
Distribution and administrative services fees......... 3,531
Custodian fees........................................ 3,168
Other liabilities..................................... 12,461
----------
Total Liabilities...................................... 2,507,055
-----------
Net Assets:
Capital................................................ 88,441,724
Undistributed net investment income.................... 376,718
Accumulated net realized losses from investment
transactions.......................................... (1,138,684)
Net unrealized depreciation from investments........... (1,711,585)
-----------
Net Assets............................................. $85,968,173
===========
Investor A Shares
Net Assets............................................ $ 4,619,812
Shares................................................ 446,719
Redemption price per share............................ $10.34
======
Maximum Sales Charge--Investor A Shares................ 2.50%
Maximum Offering Price (100%/(100%--Maximum Sales
Charge) of net asset value adjusted to the nearest
cent) per share....................................... $10.61
======
Investor B Shares
Net Assets............................................ $ 281,550
Shares................................................ 27,179
Offering price per share*............................. $10.36
======
Trust Shares
Net Assets............................................ $72,482,580
Shares................................................ 7,007,793
Offering and redemption price per share............... $10.34
======
Institutional Shares
Net Assets............................................ $ 8,584,231
Shares................................................ 832,746
Offering and redemption price per share............... $10.31
======
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
<TABLE>
<CAPTION>
Statement of Operations
For the year ended November 30, 1999
<S> <C> <C>
Investment Income:
Interest income......................................... $ 6,410,454
Dividend income......................................... 87,349
Income from securities lending.......................... 26,114
-----------
Total Investment Income................................ 6,523,917
Expenses:
Investment advisory fees................................ $479,599
Administration fees..................................... 213,157
Distribution and services fees, Investor A Shares....... 14,696
Distribution and services fees, Investor B Shares....... 2,444
Administrative services fees, Trust Shares.............. 285,780
Administrative services fees, Institutional Shares...... 18,525
Accounting fees......................................... 16,076
Custodian fees.......................................... 50,780
Transfer agent fees..................................... 28,072
Other................................................... 47,624
--------
Total expenses before voluntary fee reductions.......... 1,156,753
Expenses voluntarily reduced............................ (401,127)
-----------
Net Expenses........................................... 755,626
-----------
Net Investment Income................................... 5,768,291
-----------
Realized/Unrealized Losses from Investments:
Net realized losses from investment transactions........ (399,710)
Net change in unrealized appreciation (depreciation)
from investments....................................... (3,562,519)
-----------
Net realized/unrealized losses from investments......... (3,962,229)
-----------
Change in net assets resulting from operations.......... $ 1,806,062
===========
</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 For the
year ended year ended
November 30, November 30,
1999 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 5,768,291 $ 5,727,743
Net realized losses from investment transactions.. (399,710) (15,513)
Net change in unrealized appreciation
(depreciation) from investments.................. (3,562,519) 1,182,911
------------ ------------
Change in net assets resulting from operations..... 1,806,062 6,895,141
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (252,475) (259,301)
Distributions to Investor B Shareholders:
From net investment income........................ (10,927) (18,379)
Distributions to Trust Shareholders:
From net investment income........................ (5,185,567) (5,105,111)
Distributions to Institutional Shareholders:
From net investment income........................ (319,303) (344,952)
------------ ------------
Change in net assets from shareholder
distributions..................................... (5,768,272) (5,727,743)
------------ ------------
Change in net assets from capital transactions..... (14,705,061) 18,019,409
------------ ------------
Change in net assets............................... (18,667,271) 19,186,807
Net Assets:
Beginning of period............................... 104,635,444 85,448,637
------------ ------------
End of period..................................... $ 85,968,173 $104,635,444
============ ============
</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 years ended November 30,
-----------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 10.74 $ 10.62 $ 10.67 $ 10.85 $10.05
-------- -------- -------- -------- ------
Investment Activities:
Net investment income.. 0.54 0.57 0.60 0.62 0.64
Net realized and
unrealized gains
(losses) from
investments........... (0.40) 0.12 (0.07) (0.15) 0.80
-------- -------- -------- -------- ------
Total from Investment
Activities............ 0.14 0.69 0.53 0.47 1.44
-------- -------- -------- -------- ------
Distributions:
Net investment income.. (0.54) (0.57) (0.58) (0.62) (0.64)
In excess of net
realized gains........ -- -- -- (0.03) --
-------- -------- -------- -------- ------
Total Distributions.... (0.54) (0.57) (0.58) (0.65) (0.64)
-------- -------- -------- -------- ------
Net Asset Value, End of
Period................. $ 10.34 $ 10.74 $ 10.62 $ 10.67 $10.85
======== ======== ======== ======== ======
Total Return (excludes
sales charge).......... 1.37% 6.66% 5.20% 4.57% 14.66%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 4,620 $ 4,664 $ 5,181 $ 7,153 $8,179
Ratio of expenses to
average net assets..... 0.98% 0.97% 0.97% 0.97% 0.97%
Ratio of net investment
income to average net
assets................. 5.15% 5.35% 5.56% 5.82% 6.05%
Ratio of expenses to
average net assets*.... 1.09% 1.07% 1.07% 1.07% 1.07%
Portfolio turnover**.... 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 fund as a whole
without distinguishing between the classes of shares issued.
<CAPTION>
Financial Highlights, Investor B Shares
March 1, 1995
For the years ended November 30, to
-------------------------------------------- November 30,
1999 1998 1997 1996 1995 (a)
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 10.74 $ 10.61 $ 10.66 $ 10.84 $10.34
-------- -------- -------- -------- ------
Investment Activities:
Net investment income.. 0.47 (d) 0.50 (d) 0.51 0.55 0.31
Net realized and
unrealized gains
(losses) from
investments........... (0.38) 0.13 (0.05) (0.15) 0.50
-------- -------- -------- -------- ------
Total from Investment
Activities............ 0.09 0.63 0.46 0.40 0.81
-------- -------- -------- -------- ------
Distributions:
Net investment income.. (0.47) (0.50) (0.51) (0.55) (0.31)
In excess of net
realized gains........ -- -- -- (0.03) --
-------- -------- -------- -------- ------
Total Distributions.... (0.47) (0.50) (0.51) (0.58) (0.31)
-------- -------- -------- -------- ------
Net Asset Value, End of
Period................. $ 10.36 $ 10.74 $ 10.61 $ 10.66 $10.84
======== ======== ======== ======== ======
Total Return (excludes
redemption charge)..... 0.86% 6.02% 4.47% 3.85% 12.85%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 282 $ 149 $ 466 $ 359 $ 41
Ratio of expenses to
average net assets..... 1.68% 1.67% 1.67% 1.66% 1.68%(c)
Ratio of net investment
income to average net
assets................. 4.47% 4.67% 4.84% 5.06% 5.37%(c)
Ratio of expenses to
average net assets*.... 1.79% 1.77% 1.77% 1.76% 1.78%(c)
Portfolio turnover**.... 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 fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Represents total return for the Investor A
Shares from December 1, 1994 to February 28, 1995 plus the total return for
the Investor B Shares from March 1, 1995 to November 30, 1995. (c) Annualized.
(d) Per share net investment income has been calculated using the daily
average share method.
See notes to financial statements
32
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
U.S. Government Securities Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the years ended November 30,
-------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 10.74 $ 10.62 $ 10.67 $ 10.85 $ 10.05
------- ------- ------- ------- -------
Investment Activities:
Net investment income............ 0.58 0.60 0.61 0.66 0.67
Net realized and unrealized gains
(losses) from investments....... (0.41) 0.12 (0.05) (0.15) 0.80
------- ------- ------- ------- -------
Total from Investment
Activities...................... 0.17 0.72 0.56 0.51 1.47
------- ------- ------- ------- -------
Distributions:
Net investment income............ (0.57) (0.60) (0.61) (0.66) (0.67)
In excess of net realized gains.. -- -- -- (0.03) --
------- ------- ------- ------- -------
Total Distributions.............. (0.57) (0.60) (0.61) (0.69) (0.67)
------- ------- ------- ------- -------
Net Asset Value, End of Period.... $ 10.34 $ 10.74 $ 10.62 $ 10.67 $ 10.85
======= ======= ======= ======= =======
Total Return...................... 1.67% 6.98% 5.51% 4.88% 15.00%
Ratios/Supplementary Data:
Net Assets at end of period
(000)............................ $72,483 $93,683 $72,753 $60,079 $45,513
Ratio of expenses to average net
assets........................... 0.68% 0.67% 0.67% 0.67% 0.67%
Ratio of net investment income to
average net assets............... 5.45% 5.64% 5.84% 6.10% 6.36%
Ratio of expenses to average net
assets*.......................... 1.09% 1.07% 1.07% 0.77% 0.77%
Portfolio turnover**.............. 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 fund as a whole
without distinguishing between the classes of shares issued.
Financial Highlights, Institutional Shares
<CAPTION>
For the years ended November 30,
-------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 10.70 $ 10.58 $ 10.64 $ 10.82 $ 10.02
------- ------- ------- ------- -------
Investment Activities:
Net investment income............ 0.53 0.57 0.56 0.62 0.63
Net realized and unrealized gains
(losses) from investments....... (0.38) 0.12 (0.04) (0.15) 0.80
------- ------- ------- ------- -------
Total from Investment
Activities...................... 0.15 0.69 0.52 0.47 1.43
------- ------- ------- ------- -------
Distributions:
Net investment income............ (0.54) (0.57) (0.58) (0.62) (0.63)
In excess of net realized gains.. -- -- -- (0.03) --
------- ------- ------- ------- -------
Total Distributions.............. (0.54) (0.57) (0.58) (0.65) (0.63)
------- ------- ------- ------- -------
Net Asset Value, End of Period.... $ 10.31 $ 10.70 $ 10.58 $ 10.64 $ 10.82
======= ======= ======= ======= =======
Total Return...................... 1.45% 6.67% 5.10% 4.55% 14.69%
Ratios/Supplementary Data:
Net Assets at end of period
(000)............................ $ 8,584 $ 6,140 $ 7,049 $ 2,232 $ 667
Ratio of expenses to average net
assets........................... 0.98% 0.97% 0.97% 0.96% 0.97%
Ratio of net investment income to
average net assets............... 5.17% 5.34% 5.52% 5.75% 5.91%
Ratio of expenses to average net
assets*.......................... 1.09% 1.07% 1.07% 1.06% 1.07%
Portfolio turnover**.............. 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 fund as a whole
without distinguishing between the classes of shares issued.
See notes to financial statements
33
<PAGE>
Mercantile Intermediate Corporate Bond Portfolio
Q. What were the conditions in the bond market during the 12-month period
ended November 30, 1999?
A. Yields rose throughout the period. Investors sold bonds because signs of
inflationary pressures indicated that the Fed might raise interest rates. Those
investors were proven right, and the Fed raised rates three times, each time by
one quarter of a percentage point.
Intermediate-term bonds fared especially poorly during the period, with the
yield on five-year Treasury notes rising from 4.48% at the beginning of the
period to 6.11% as of November 30, 1999. Corporate bonds underperformed
Treasuries during the first six months of the period, but slightly outperformed
Treasuries during the remainder of the period.
Q. How did you manage the Portfolio in that environment?
A. We reduced the Portfolio's weighting in Treasury securities from 2.6% to
0.1% during the period. We also slightly reduced the Portfolio's weighting in
mortgage-backed pass-through securities, from 15.3% to 10.6%. We increased the
Portfolio's exposure to corporate bonds to take advantage of opportunities in
that sector. Spreads between corporate bonds and Treasury securities were at
historically high levels during much of the period, allowing us to lock in
extra yield at attractive prices.*
The Portfolio's average credit quality fell slightly, from AA3 to A1. That
change reflected the significantly higher yields available on lower-grade
issues such as BAA-rated corporate paper. We increased the Portfolio's
weighting in such issues from 11.8% to 15% of assets.*
Q. How did you manage the Portfolio's average maturity and duration during
the period?
A. The Portfolio began the period with an average maturity of 5.75 years and
a duration of 4.3 years. We allowed the average maturity and duration to
decrease somewhat, to 5.5 years and 4.15 years, respectively, as some longer-
term issues reached their maturities.
Q. What is your outlook for the corporate bond market?
A. Corporate bonds were inexpensive at the end of the period, especially
given the favorable business environment. The five-to ten-year corporate bonds
on which the Portfolio focuses performed poorly during the period. In our
opinion, however, these securities now represent some of the bond market's best
values. The strength of the economy and the low level of inflation make us
confident that the corporate bond market should do well over the next year. We
will continue to take advantage of the attractive yields offered by
intermediate-term corporate bonds in order to lock in additional income for
shareholders.
- -----
* Portfolio composition is subject to change.
34
<PAGE>
Mercantile Intermediate Corporate Bond Portfolio
[CHART]
Value of a $10,000 Investment
Lehman Brothers
Investor A Investor A Intermediate Corporate
(No Load) (Load)* Trust Institutional Bond Index
2/10/97 10,000 9,551 10,000 10,000 10,000
11/97 10,648 10,170 10,665 10,660 10,771
11/98 11,639 11,117 11,682 11,653 11,636
11/99 11,447 10,902 11,535 11,472 11,766
- ------------------------------------------------------------------------------
- --
Average Annual Total Returns
as of 11/30/99
- ------------------------------------------------------------------------------
- --
Since
Inception
1 Year 2/10/97
- ------------------------------------------------------------------------------
- --
Investor A (No Load) -1.65% 4.94%
- ------------------------------------------------------------------------------
- --
Investor A* -6.29% 3.13%
- ------------------------------------------------------------------------------
- --
Trust -1.26% 5.23%
- ------------------------------------------------------------------------------
- --
Institutional -1.56% 5.02%
- ------------------------------------------------------------------------------
- --
* Reflects 4.75% sales charge.
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Intermediate Corporate Bond Portfolio is
measured against the Lehman Brothers Intermediate Corporate Bond Index, an
unmanaged index comprised of the Lehman Brothers Intermediate Index, including
intermediate and long-term components, and sub-indices covering AAA corporate
bonds, AA corporate bonds, A corporate bonds and BAA corporate bonds, each of
which also includes intermediate and long-term components. Investors are
unable to invest in the index directly, although they can invest in the
underlying securities. The performance of the index does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management and fund accounting fees. By contrast, the performance of the
Portfolio shown on the graph reflects the deduction of these value-added
services, as well as the deduction of a 4.75% sales charge on Investor A
Shares.
35
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Intermediate Corporate Bond Portfolio November 30, 1999
Corporate Bonds (85.9%):
<TABLE>
<CAPTION>
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Aerospace/Defense (1.7%):
Raytheon Co., 6.15%, 11/1/08.......................... $1,000,000 $ 890,000
------------
Automotive (3.5%):
Ford Motor Credit, 7.50%, 1/15/03..................... 800,000 813,000
General Motors Acceptance Corp., 8.50%, 2/4/02, MTN... 500,000 516,875
General Motors Acceptance Corp., Global Bond, 6.75%,
2/7/02............................................... 500,000 499,375
------------
1,829,250
------------
Automotive Parts (3.1%):
Dana Corp, 6.25%, 3/1/04.............................. 1,700,000 1,629,875
------------
Banking (6.4%):
Banc One Dayton, N.A.,
6.63%, 4/15/03....................................... 50,000 49,188
BankAmerica Corp., 8.13%, 2/1/02...................... 200,000 205,250
Bankers Trust New York,
7.25%, 1/15/03....................................... 500,000 499,375
Chase Manhattan Corp.,
7.13%, 3/1/05........................................ 500,000 500,625
National Westminster Bank-NY,
9.45%, 5/1/01........................................ 145,000 150,981
NationsBank Corp., 8.63%, 11/15/03.................... 400,000 421,000
NationsBank Corp., 7.75%, 8/15/04..................... 500,000 515,625
NationsBank Corp., 6.88%, 2/15/05..................... 600,000 595,499
Norwest Corp., 6.25%, 3/15/01, MTN.................... 85,000 84,681
Wells Fargo & Co., 8.38%, 5/15/02..................... 300,000 310,500
------------
3,332,724
------------
Beverages (2.4%):
Anheuser-Busch Cos., Inc.,
8.75%, 12/1/99....................................... 200,000 200,016
Brown-Forman, Corp.,
7.38%, 5/10/05, MTN.................................. 1,000,000 1,021,250
------------
1,221,266
------------
Chemicals (3.6%):
Lubrizol Corp., 5.88%, 12/1/08........................ 1,000,000 895,000
Praxair, Inc., 6.90%, 11/1/06......................... 1,000,000 958,750
------------
1,853,750
------------
Commercial Services (1.7%):
Cendant Corp., 7.75%, 12/1/03......................... 880,000 870,100
------------
Computer Software (2.4%):
Computer Associates, 6.25%, 4/15/03................... 275,000 265,375
Dell Computer Corp., 6.55%, 4/15/08................... 1,000,000 952,500
------------
1,217,875
------------
Construction (3.7%):
Armstrong World, 6.35%, 8/15/03....................... 1,950,000 1,891,500
------------
Consumer Goods & Services (2.3%):
Clorox Co., 8.80%, 7/15/01............................ 100,000 103,375
Motorola, Inc., 7.60%, 1/1/07......................... 1,000,000 1,021,250
Procter & Gamble, Inc.,
8.00%, 11/15/03...................................... 50,000 52,188
------------
1,176,813
------------
Electrical & Electronic (1.9%):
Applied Materials, 7.00%, 9/6/05, MTN................. 1,000,000 975,000
------------
</TABLE>
Corporate Bonds, continued
<TABLE>
<CAPTION>
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Entertainment (1.9%):
Walt Disney Co., Global Bond, Series B, 6.75%,
3/30/06............................................ $1,000,000 $ 991,250
------------
Financial Services (17.3%):
Ameritech Capital Funding,
6.15%, 1/15/08..................................... 2,000,000 1,859,999
Associates Corp., N.A., 6.88%, 2/1/03............... 50,000 50,061
Associates Corp., N.A.,
7.23%, 5/17/06, MTN................................ 1,000,000 1,000,000
Bear Stearns Co., Inc., 8.25%, 2/1/02............... 500,000 511,250
CIT Group Holdings,
6.80%, 4/17/00, MTN................................ 1,000,000 1,003,490
General Electric Capital Corp.,
7.66%, 8/2/04, MTN................................. 1,000,000 1,031,250
General Electric Capital Corp.,
8.30%, 9/20/09..................................... 745,000 800,875
General Motors Acceptance Corp., 5.75%, 11/10/03.... 1,000,000 958,750
Merrill Lynch & Co., 8.00%, 6/1/07.................. 500,000 521,250
Norwest Financial, Inc., 6.13%, 8/1/03.............. 50,000 48,688
Pitney Bowes Credit, 8.63%, 2/15/08................. 1,000,000 1,094,999
St. Paul Companies, Inc.,
7.49%, 11/6/02, MTN................................ 25,000 25,461
St. Paul Companies, Inc.,
7.50%, 12/20/02, MTN............................... 50,000 50,688
------------
8,956,761
------------
Food Products (4.6%):
Campbell Soup Co., 6.90%, 10/15/06.................. 1,000,000 998,750
General Mills, 8.90%, 3/15/06, MTN.................. 1,000,000 1,098,750
Quaker Oats Co.,
9.00%, 12/7/01, MTN................................ 150,000 156,120
Quaker Oats Co.,
9.00%, 12/10/01, MTN............................... 125,000 130,156
------------
2,383,776
------------
Food Service (0.9%):
McDonald's Corp.,
6.50%, 8/1/07, MTN................................. 500,000 487,500
------------
Industrial Goods & Services (2.4%):
E.I. duPont de Nemours & Co.,
8.50%, 2/15/03..................................... 200,000 204,250
E.I. duPont de Nemours & Co.,
8.13%, 3/15/04..................................... 1,000,000 1,047,500
------------
1,251,750
------------
Oil & Exploration, Production & Services (4.8%):
BP America, Inc., 9.38%, 11/1/00.................... 150,000 153,938
BP America, Inc., 8.50%, 4/15/01.................... 200,000 205,000
Exxon Capital Corp., 6.63%, 8/15/02................. 100,000 99,875
Texaco Capital, Inc., 7.09%, 2/1/07................. 1,000,000 992,500
Union Texas Petroleum Holdings, Inc., 8.50%,
4/15/07............................................ 1,000,000 1,058,750
------------
2,510,063
------------
Paper & Related (2.6%):
International Paper Co., 7.00%, 6/1/01.............. 1,000,000 998,750
Kimberly-Clark, 8.63%, 5/1/01....................... 350,000 360,500
------------
1,359,250
------------
</TABLE>
Continued
36
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Intermediate Corporate Bond Portfolio November 30, 1999
Corporate Bonds, continued
<TABLE>
<CAPTION>
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Printing & Publishing (0.6%):
Gannett Co., 5.85%, 5/1/00........................... $ 300,000 $ 299,625
------------
Retail Stores (4.1%):
Dillards, Inc., 5.79%, 11/15/01...................... 450,000 437,063
J. C. Penney, Inc., 7.60%, 4/1/07.................... 1,000,000 951,250
Wal-Mart Stores, Inc., 6.50%, 6/1/03................. 100,000 99,625
Wal-Mart Stores, Inc., 7.50%, 5/15/04................ 600,000 618,000
------------
2,105,938
------------
Telecommunications (8.3%):
AT&T Corp., 7.13%, 1/15/02........................... 50,000 50,438
AT&T Corp., 6.75%, 4/1/04............................ 1,150,000 1,147,124
AT&T Corp., 7.00%, 5/15/05........................... 100,000 99,625
GTE California, 6.70%, 9/1/09........................ 1,000,000 963,750
SBC Communications, Inc.,
7.25%, 7/1/02....................................... 1,065,000 1,076,981
Southwestern Bell Telephone,
6.56%, 11/15/05, MTN................................ 1,000,000 977,500
------------
4,315,418
------------
Transportation & Shipping (0.4%):
Union Pacific Co., 7.88%, 2/15/02.................... 200,000 203,000
------------
Utilities (5.3%):
Laclede Gas Co., 7.50%, 11/1/07...................... 1,500,000 1,518,750
National Rural Utilities, 6.45%, 4/1/01.............. 100,000 99,625
National Rural Utilities, 6.65%, 10/1/05............. 100,000 97,500
Pacific Gas & Electric, 6.25%, 8/1/03................ 50,000 48,938
Southern California Edison,
6.75%, 1/15/00...................................... 170,000 170,000
Wisconsin Power & Light,
7.00%, 6/15/07...................................... 810,000 799,875
------------
2,734,688
------------
TOTAL CORPORATE BONDS 44,487,172
------------
U.S. Government Agencies (11.7%):
Federal Farm Credit Bank (1.1%):
8.95%, 6/1/06........................................ 500,000 557,070
------------
Federal Home Loan Mortgage Corp. (1.2%):
6.00%, 2/1/11, Gold Pool #E62600..................... 315,186 302,084
6.50%, 6/1/12, Pool #E67059.......................... 321,645 314,607
------------
616,691
------------
Federal National Mortgage Assoc. (4.5%):
7.00%, 11/1/10, Pool #328614......................... 481,289 479,181
7.00%, 6/1/11, Pool #349980.......................... 646,861 644,028
6.50%, 3/1/12, Pool #372705.......................... 588,360 575,670
6.50%, 3/1/12, Pool #372719.......................... 619,185 605,829
------------
2,304,708
------------
Government National Mortgage Assoc. (4.9%):
6.00%, 4/15/26, Pool #345610......................... 854,192 789,060
6.50%, 1/15/27, Pool #439817......................... 906,182 862,848
7.00%, 1/15/27, Pool #442297......................... 669,099 654,252
7.00%, 9/15/27, Pool #455304......................... 262,205 256,387
------------
2,562,547
------------
TOTAL U.S. GOVERNMENT AGENCIES 6,041,016
------------
U.S. Treasury Notes (0.1%):
5.75%, 8/15/03....................................... 50,000 49,422
------------
TOTAL U.S. TREASURY NOTES 49,422
------------
</TABLE>
Investment Companies (1.3%):
<TABLE>
<CAPTION>
Shares
or
Security Principal Market
Description Amount Value
----------- ---------- -----------
<S> <C> <C>
Federated Money Market Trust.......................... 668,674 $ 668,674
-----------
TOTAL INVESTMENT COMPANIES 668,674
-----------
Short-Term Securities Held as Collateral* (7.7%):
Repurchase agreements (7.7%):
Bank Of America, 5.78%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $507,297,
collateralized by $630,170 various U.S. Government
Agency Mortgages, 5.75%-6.77%, 4/15/23-2/1/29, market
value $517,360)...................................... $ 507,215 507,215
CS First Boston, 5.77%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $338,198,
collateralized by $432,627 various U.S. Government
Agency Mortgages, 0.00%-8.00%, 5/15/01-8/15/29,
market value $344,906)............................... 338,143 338,143
HSBC Securities, Inc., 5.72%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $338,197,
collateralized by $365,135, various U.S. Government
Agencies, 0.00%-9.80%, 4/19/01-11/30/17, market value
$344,906)............................................ 338,143 338,143
Prudential Bache Securities, 5.79%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $676,396,
collateralized by $1,177,206 various U.S. Government
Agency Mortgages, 0.00%-10.50%, 12/2/99-6/15/44,
market value $689,813)............................... 676,287 676,287
Salomon Smith Barney, Inc., 5.75%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $1,183,691,
collateralized by $1,521,864 various U.S. Government
Agencies, 0.00%-9.50%, 5/15/07-11/15/29, market value
$1,207,172).......................................... 1,183,503 1,183,503
Salomon Smith Barney, Inc., 5.73%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $967,683,
collateralized by $1,557,651 various GNMA, 5.00%-
9.00%, 2/15/00-11/20/29, market value $986,879)...... 967,529 967,529
-----------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL 4,010,820
-----------
TOTAL INVESTMENTS
(Cost $56,754,061)(a)--106.8% 55,257,104
Liabilities in excess of other assets--(6.8)% (3,500,825)
-----------
TOTAL NET ASSETS--100.0% $51,756,279
===========
</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.. $ 288,663
Unrealized depreciation.. (1,785,620)
-----------
Net unrealized
depreciation............ $(1,496,957)
===========
</TABLE>
MTN Medium Term Note
* Represents securities purchased with cash collateral received on securities
loaned.
See notes to financial statements
37
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Intermediate Corporate Bond Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
November 30, 1999
<S> <C> <C>
Assets:
Investments, at value (cost $52,743,241)................ $51,246,284
Repurchase agreements, at value (cost $4,010,820)....... 4,010,820
-----------
Total Investments...................................... 55,257,104
Interest and dividends receivable....................... 816,162
Deferred organization costs............................. 10,606
Prepaid expenses and other assets....................... 4,000
-----------
Total Assets........................................... 56,087,872
Liabilities:
Dividends payable....................................... $ 270,466
Payable to custodian for overdraft...................... 177
Payable for return of collateral received on securities
loaned................................................. 4,010,820
Accrued expenses and other liabilities:
Investment advisory fees............................... 23,686
Administration fees.................................... 1,281
Distribution and administrative services fees.......... 359
Custodian fees......................................... 2,337
Other liabilities...................................... 22,467
---------
Total Liabilities....................................... 4,331,593
-----------
Net Assets:
Capital................................................. 53,496,556
Undistributed net investment income..................... 26,806
Accumulated net realized losses from investment
transactions........................................... (270,126)
Net unrealized depreciation from investments............ (1,496,957)
-----------
Net Assets.............................................. $51,756,279
===========
Investor A Shares
Net Assets............................................. $ 435,763
Shares................................................. 45,613
Redemption price per share............................. $9.55
=====
Maximum Sales Charge--Investor A Shares 4.75%
Maximum Offering Price (100%/(100%--Maximum Sales
Charge) of net asset value adjusted to the nearest
cent) per share........................................ $10.03
======
Trust Shares
Net Assets............................................. $50,324,969
Shares................................................. 5,268,045
Offering and redemption price per share................ $9.55
=====
Institutional Shares
Net Assets............................................. $ 995,547
Shares................................................. 104,198
Offering and redemption price per share................ $9.55
=====
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the year ended November 30, 1999
<S> <C> <C>
Investment Income:
Interest income......................................... $ 4,056,473
Dividend income......................................... 48,461
Income from securities lending.......................... 9,520
-----------
Total Investment Income................................ 4,114,454
Expenses:
Investment advisory fees................................ $330,032
Administration fees..................................... 120,013
Distribution and services fees, Investor A
Shares.................................................. 1,275
Administrative services fees, Trust Shares.............. 175,579
Administrative services fees, Institutional Shares...... 3,164
Accounting fees......................................... 11,294
Custodian fees.......................................... 28,695
Transfer agent fees..................................... 15,109
Other................................................... 28,463
--------
Total expenses before voluntary fee reductions.......... 713,624
Expenses voluntarily reduced............................ (235,584)
-----------
Net Expenses............................................ 478,040
-----------
Net Investment Income................................... 3,636,414
-----------
Realized/Unrealized Losses from Investments:
Net realized losses from investment transactions........ (260,282)
Net change in unrealized appreciation (depreciation)
from investments....................................... (4,228,730)
-----------
Net realized/unrealized losses from investments......... (4,489,012)
-----------
Change in net assets resulting from operations.......... $ (852,598)
===========
</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 For the
year ended year ended
November 30, November 30,
1999 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................... $ 3,636,414 $ 3,328,333
Net realized gains (losses) from investment
transactions....................................... (260,282) 78,258
Net change in unrealized appreciation (depreciation)
from investments................................... (4,228,730) 1,517,181
----------- -----------
Change in net assets resulting from operations....... (852,598) 4,923,772
----------- -----------
Distributions to Investor A Shareholders:
From net investment income.......................... (24,573) (15,794)
From net realized gains from investment
transactions....................................... -- (3,101)
In excess of net realized gains from investment
transactions....................................... (344) --
Distributions to Trust Shareholders:
From net investment income.......................... (3,551,042) (3,276,426)
From net realized gains from investment
transactions....................................... -- (497,257)
In excess of net realized gains from investment
transactions....................................... (66,984) --
Distributions to Institutional Shareholders:
From net investment income.......................... (60,807) (36,113)
From net realized gains from investment
transactions....................................... -- (309)
In excess of net realized gains from investment
transactions....................................... (1,354) --
----------- -----------
Change in net assets from shareholder distributions.. (3,705,104) (3,829,000)
----------- -----------
Change in net assets from capital transactions....... (431,642) 10,903,630
----------- -----------
Change in net assets................................. (4,989,344) 11,998,402
Net Assets:
Beginning of period................................. 56,745,623 44,747,221
----------- -----------
End of period....................................... $51,756,279 $56,745,623
=========== ===========
</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 years
ended February 10, 1997
November 30, to
----------------- November 30,
1999 1998 1997 (a)
------- ------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period...... $ 10.30 $ 10.11 $ 10.00
------- ------- -------
Investment Activities:
Net investment income.................... 0.57 0.60 0.52
Net realized and unrealized gains
(losses) from investments............... (0.74) 0.30 0.11
------- ------- -------
Total from Investment Activities......... (0.17) 0.90 0.63
------- ------- -------
Distributions:
Net investment income.................... (0.57) (0.60) (0.52)
Net realized gains....................... -- (0.11) --
In excess of net realized gains.......... (0.01) -- --
------- ------- -------
Total Distributions...................... (0.58) (0.71) (0.52)
------- ------- -------
Net Asset Value, End of Period............ $ 9.55 $ 10.30 $ 10.11
======= ======= =======
Total Return (excludes sales charge)...... (1.65)% 9.32% 6.48%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)......... $ 436 $ 284 $ 277
Ratio of expenses to average net assets... 1.09% 0.89% 0.58%(c)
Ratio of net investment income to average
net assets............................... 5.78% 5.92% 6.52%(c)
Ratio of expenses to average net assets*.. 1.19% 1.19% 1.31%(c)
Portfolio turnover**...................... 25.71% 9.65% 61.98%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
Financial Highlights, Trust Shares
<CAPTION>
For the years
ended February 10, 1997
November 30, to
----------------- November 30,
1999 1998 1997 (a)
------- ------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period...... $10.29 $10.11 $10.00
------- ------- -------
Investment Activities:
Net investment income.................... 0.60 0.63 0.53
Net realized and unrealized gains
(losses) from investments............... (0.73) 0.29 0.11
------- ------- -------
Total from Investment Activities......... (0.13) 0.92 0.64
------- ------- -------
Distributions:
Net investment income.................... (0.60) (0.63) (0.53)
Net realized gains....................... -- (0.11) --
In excess of net realized gains.......... (0.01) -- --
------- ------- -------
Total Distributions...................... (0.61) (0.74) (0.53)
------- ------- -------
Net Asset Value, End of Period............ $ 9.55 $10.29 $10.11
======= ======= =======
Total Return.............................. (1.26)% 9.53% 6.65%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)......... $50,325 $55,337 $44,443
Ratio of expenses to average net assets... 0.79% 0.60% 0.29%(c)
Ratio of net investment income to average
net assets............................... 6.07% 6.23% 6.90%(c)
Ratio of expenses to average net assets*.. 1.19% 1.19% 1.32%(c)
Portfolio turnover**...................... 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 fund 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 years
ended February 10, 1997
November 30, to
--------------- November 30,
1999 1998 1997 (a)
------ ------ -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period........ $10.29 $10.11 $10.00
------ ------ ------
Investment Activities:
Net investment income...................... 0.57 0.61 0.53
Net realized and unrealized gains (losses)
from investments.......................... (0.73) 0.29 0.11
------ ------ ------
Total from Investment Activities........... (0.16) 0.90 0.64
------ ------ ------
Distributions:
Net investment income...................... (0.57) (0.61) (0.53)
Net realized gains......................... -- (0.11) --
In excess of net realized gains............ (0.01) -- --
------ ------ ------
Total Distributions........................ (0.58) (0.72) (0.53)
------ ------ ------
Net Asset Value, End of Period.............. $ 9.55 $10.29 $10.11
====== ====== ======
Total Return................................ (1.56)% 9.32% 6.60%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)........... $ 996 $1,124 $ 27
Ratio of expenses to average net assets..... 1.09% 1.07% 0.29%(c)
Ratio of net investment income to average
net assets................................. 5.77% 5.72% 7.06%(c)
Ratio of expenses to average net assets*.... 1.19% 1.18% 1.31%(c)
Portfolio turnover**........................ 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 fund 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 conditions in the bond market during the 12 months ended
November 30, 1999?
A. Yields rose throughout the period, accompanied by significant volatility
in bond prices. Investors feared that data showing inflationary pressures would
lead the Fed to raise rates, so they sold bonds. Those investors were proven
right, as the Fed raised rates three times during the period, each time by one
quarter of a percentage point.
Intermediate-term bonds performed especially poorly during the period. The
yield on the five-year Treasury note rose from 4.48% at the beginning of the
period to 6.11% as of November 30, 1999.
Q. How did the Portfolio perform during the period?
A. The Portfolio posted a total return of - 0.90% (Investor A shares without
the maximum sales charge) during the 12 months ended November 30, 1999. That
compared to a - 0.04% return for its benchmark, the Lehman Brothers Aggregate
Bond Index. The Index is comprised of 5,521 securities, but we simulate the
returns of that Index with a portfolio of 156 issues. Therefore, the
Portfolio's results may differ slightly from those of its benchmark index in
the short-term but should be very similar over longer periods.*
Q. What is your outlook for the bond market and the Portfolio?
A. We believe the bond market will perform well during the coming year.
Yields are very high, given the present environment of solid economic growth
and low inflation. Regardless of short-term market fluctuations, we will
continue to track any changes in the benchmark to meet the Portfolio's
objective and shareholders' goals.
- -----
* Portfolio composition is subject to change.
42
<PAGE>
Mercantile Bond Index Portfolio
[CHART]
Value of a $10,000 Investment
Lehman Brothers
Investor A Investor A Aggregate Bond
(No Load) (Load)* Trust Institutional Index
2/10/97 10,000 9,747 10,000 10,000 10,000
11/30/97 10,693 10,422 10,715 10,720 10,823
11/30/98 11,695 11,398 11,754 11,733 11,846
11/31/99 11,589 11,037 11,682 11,627 11,841
- -------------------------------------------------------------------------------
- -
Average Annual Total Returns
as of 11/30/99
- -------------------------------------------------------------------------------
- -
Since
Inception
1 Year (2/10/97)
- -------------------------------------------------------------------------------
- -
Investor A (No Load) -0.90% 5.40%
- -------------------------------------------------------------------------------
- -
Investor A* -5.60% 3.58%
- -------------------------------------------------------------------------------
- -
Trust -0.61% 5.70%
- -------------------------------------------------------------------------------
- -
Institutional -0.90% 5.53%
- -------------------------------------------------------------------------------
- -
* Reflects 4.75% sales charge.
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Bond Index Portfolio is measured against
the Lehman Brothers Aggregate Bond Index, an unmanaged index comprised of the
Lehman Brothers Government/Corporate Bond Index and two Lehman Brothers asset-
backed securities indices. Investors are unable to invest in the index
directly, although they can invest in the underlying securities. The
performance of the index does not reflect the deduction of expenses associated
with a mutual fund, such as investment management and fund accounting fees. By
contrast, the performance of the Portfolio shown on the graph reflects the
deduction of these value-added services, as well as the deduction of a 4.75%
sales charge on Investor A Shares.
43
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Bond Index Portfolio November 30, 1999
<TABLE>
<CAPTION>
Corporate Bonds (23.3%):
Security Principal Market
Description Amount Value
----------- ----------- ------------
<S> <C> <C>
Aerospace/Defense (1.3%):
Raytheon Co., 6.45%, 8/15/02......................... $ 2,595,000 $ 2,536,613
------------
Automotive (2.1%):
Ford Motor Credit Corp., Global Bond, 7.00%,
9/25/01............................................. 2,000,000 2,010,000
General Motors Corp., 8.88%, 5/15/03................. 2,000,000 2,107,500
------------
4,117,500
------------
Automotive Parts (1.0%):
Dana Corp., 6.25%, 3/1/04............................ 2,000,000 1,917,500
------------
Commercial Services (1.0%):
Cendant Corp., 7.75%, 12/1/03........................ 2,000,000 1,977,500
------------
Computer Software (1.0%):
Computer Associates, 6.25%, 4/15/03.................. 1,000,000 965,000
Dell Computer Corp., 6.55%, 4/15/08.................. 1,000,000 952,500
------------
1,917,500
------------
Construction (1.0%):
Armstrong World, 6.35%, 8/15/03...................... 2,000,000 1,940,000
------------
Consumer Goods & Services (2.0%):
Motorola, Inc., 7.60%, 1/1/07........................ 3,000,000 3,063,750
Motorola, Inc., 6.50%, 11/15/28...................... 1,000,000 873,750
------------
3,937,500
------------
Entertainment (0.5%):
Walt Disney Co., Global Bond, Series B, 6.75%,
3/30/06............................................. 1,000,000 991,250
------------
Financial Services (2.9%):
CIT Group Holdings,
5.85%, 4/9/01, MTN.................................. 3,000,000 2,962,500
Household Finance Corp.,
8.38%, 11/15/01..................................... 1,000,000 1,026,250
Household Finance Corp., 6.88%, 3/1/07............... 1,000,000 967,500
Merrill Lynch & Co., 8.00%, 2/1/02................... 1,000,000 1,025,000
------------
5,981,250
------------
Food Products (0.5%):
Campbell Soup Co., 6.90%, 10/15/06................... 1,000,000 998,750
------------
Industrial Goods & Services (0.5%):
E.I. duPont de Nemours & Co.,
6.88%, 10/15/09..................................... 1,000,000 986,250
------------
Oil & Exploration, Production & Services (4.0%):
Texaco Capital, Inc., 7.09%, 2/1/07.................. 1,500,000 1,488,750
Union Texas Petroleum Holdings, Inc., 8.50%,
4/15/07............................................. 6,275,000 6,643,656
------------
8,132,406
------------
Paper & Related (1.0%):
International Paper Co., 7.00%, 6/1/01............... 2,000,000 1,997,500
------------
Retail Stores (1.5%):
Dillards, Inc., 5.79%, 11/15/01...................... 3,000,000 2,913,750
------------
Telecommunications (3.0%):
Bell Telephone Co. of Pennsylvania, 8.75%, 8/15/31... 1,000,000 1,123,750
Lucent Technologies, Inc.,
6.90%, 7/15/01...................................... 3,000,000 3,018,750
</TABLE>
<TABLE>
<CAPTION>
Corporate Bonds, continued
Security Principal Market
Description Amount Value
----------- ----------- ------------
<S> <C> <C>
Telecommunications, continued
Northern Telecom Ltd., 6.88%, 10/1/02.................. $ 1,000,000 $ 998,750
SBC Communications, Inc.,
7.25%, 7/1/02......................................... 1,000,000 1,011,250
------------
6,152,500
------------
TOTAL CORPORATE BONDS 46,497,769
------------
<CAPTION>
U.S. Government Agencies (41.5%):
<S> <C> <C>
Federal Home Loan Bank (7.4%):
5.52%, 4/9/01, Series 3101............................. 4,000,000 3,964,160
5.75%, 4/30/01, Series 4901............................ 1,000,000 993,820
6.39%, 6/22/04, Series K504............................ 2,000,000 1,983,600
6.67%, 1/8/07, Series I-07............................. 1,000,000 993,510
5.67%, 9/11/08, Series KS08............................ 3,000,000 2,775,540
5.50%, 11/1/13......................................... 2,326,566 2,181,156
6.00%, 3/1/29.......................................... 1,952,239 1,813,142
------------
14,704,928
------------
Federal Home Loan Mortgage Corp. (15.9%):
8.50%, 10/1/01, Pool #200055........................... 13,664 14,014
9.00%, 3/1/03, Pool #380019............................ 65,651 67,867
9.00%, 5/1/03, Pool #380021............................ 21,969 22,711
7.50%, 11/1/09, Gold Pool #M30082...................... 1,288,429 1,303,722
7.00%, 11/1/10, Gold Pool #E20202...................... 197,538 196,920
7.00%, 11/1/10, Gold Pool #E62010...................... 203,163 202,527
6.00%, 2/1/11, Gold Pool #E62600....................... 315,186 302,084
6.00%, 3/1/11, Gold Pool #E63503....................... 692,793 663,994
6.00%, 4/1/11, Gold Pool #E63515....................... 621,763 595,917
6.00%, 6/1/11, Gold Pool #E00439....................... 685,483 656,988
7.00%, 7/1/11, Gold Pool #E20252....................... 636,993 634,999
6.00%, 3/1/12, Gold Pool #E66538....................... 998,760 957,242
7.50%, 9/1/12, Gold Pool #G10735....................... 1,315,419 1,331,034
6.00%, 3/1/13, Gold Pool #E69338....................... 861,929 826,099
6.00%, 3/1/13, Pool #E69425............................ 793,601 760,611
6.00%, 4/1/13, Gold Pool #E70028....................... 816,677 782,728
6.00%, 4/1/13, Pool #E00543............................ 1,706,339 1,635,407
6.50%, 10/1/13, Gold Pool #E00574...................... 1,739,573 1,701,511
5.50%, 11/1/13, Gold Pool #E73355...................... 911,065 854,123
5.50%, 11/1/13, Gold Pool #E72928...................... 955,996 896,246
5.50%, 12/1/13, Gold Pool #E73342...................... 923,559 865,836
5.50%, 12/1/13, Gold Pool #E00598...................... 1,884,956 1,767,146
6.00%, 6/1/14, Gold Pool #E00677....................... 3,899,888 3,737,769
6.50%, 7/1/14, Gold Pool #E77812....................... 1,968,444 1,925,375
6.00%, 2/1/26, Gold Pool #D68286....................... 195,594 181,658
6.00%, 3/1/26, Gold Pool #C80393....................... 1,874,734 1,741,158
6.00%, 4/1/26, Gold Pool #D70772....................... 351,839 326,770
6.00%, 4/1/26, Gold Pool #D70405....................... 284,945 264,643
6.00%, 4/1/26, Gold Pool #C80395....................... 94,883 88,123
8.00%, 11/1/26, Gold Pool #D76134...................... 147,920 150,276
6.00%, 12/1/26, Gold Pool #D76870...................... 20,916 19,426
6.00%, 12/1/26, Gold Pool #C80465...................... 755,291 701,476
8.00%, 12/1/26, Gold Pool #D76530...................... 302,582 307,403
8.00%, 12/1/26, Gold Pool #D76906...................... 223,290 226,847
7.00%, 1/1/27, Gold Pool #D77743....................... 569,540 557,437
7.00%, 1/1/27, Gold Pool #D77720....................... 1,354,622 1,325,836
8.00%, 1/1/27, Gold Pool #C00490....................... 353,858 359,495
6.00%, 1/1/29, Gold Pool #C00702....................... 2,891,156 2,685,161
------------
31,638,579
------------
</TABLE>
Continued
44
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Bond Index Portfolio November 30, 1999
<TABLE>
<CAPTION>
U.S. Government Agencies, continued
Security Principal Market
Description Amount Value
----------- ----------- ------------
<S> <C> <C>
Federal National Mortgage Assoc. (12.9%):
6.00%, 11/1/00, Pool #190070........................... $ 267,658 $ 259,042
7.50%, 2/11/02......................................... 4,970,000 5,086,447
6.00%, 5/1/11, Pool #337194............................ 675,489 646,781
6.00%, 2/1/12, Pool #250917............................ 770,303 737,565
6.00%, 3/1/12, Pool #374638............................ 666,310 637,992
6.00%, 3/1/12, Pool #373131............................ 756,774 724,611
6.00%, 3/1/12, Pool #359504............................ 777,886 744,826
7.50%, 3/1/12, Pool #250858............................ 1,300,690 1,314,504
6.00%, 4/1/13, Pool #414671............................ 869,158 832,219
5.50%, 11/1/13, Pool #449032........................... 949,602 889,065
6.00%, 11/1/13, Pool #323379........................... 886,225 848,560
5.50%, 1/1/14, Pool #482515............................ 1,874,119 1,754,643
6.50%, 03/1/14, Pool #252346a.......................... 1,856,111 1,816,075
6.00%, 10/1/26, Pool #368935........................... 1,233,814 1,144,745
9.00%, 10/1/26, Pool #353671........................... 72,973 76,370
9.00%, 10/1/26, Pool #358137........................... 66,993 70,112
9.00%, 10/1/26, Pool #361800........................... 110,478 115,622
9.00%, 11/1/26, Pool #364453........................... 150,107 157,096
9.00%, 11/1/26, Pool #358703........................... 66,743 69,851
9.00%, 12/1/26, Pool #368686........................... 47,502 49,714
6.00%, 1/1/28, Pool #398195............................ 873,063 810,037
6.00%, 1/1/28, Pool #402874............................ 826,023 766,393
6.00%, 12/1/28......................................... 1,932,322 1,792,828
6.00%, 1/1/29, Pool #481539a........................... 1,921,780 1,783,046
6.00%, 7/1/29, Pool #323812............................ 2,753,978 2,555,168
------------
25,683,312
------------
Government National Mortgage Assoc. (5.3%):
7.50%, 4/15/02, Pool #210173........................... 58,694 59,427
7.50%, 7/15/02, Pool #216193........................... 8,034 8,134
7.50%, 7/15/08, Pool #349404........................... 255,963 259,163
7.50%, 8/15/10, Pool #413412........................... 87,127 88,216
7.50%, 9/15/10, Pool #413117........................... 69,174 70,038
7.50%, 11/15/10, Pool #415775.......................... 184,738 187,047
6.00%, 3/15/11, Pool #425964........................... 38,607 36,942
6.50%, 3/15/11, Pool #419123........................... 18,134 17,726
6.00%, 4/15/11, Pool #393849........................... 348,407 333,380
6.00%, 4/15/11, Pool #421800........................... 44,011 42,113
6.00%, 4/15/11, Pool #429397........................... 420,080 401,962
6.00%, 5/15/11, Pool #421871........................... 523,639 501,055
6.00%, 5/15/11, Pool #432659........................... 405,194 387,718
6.00%, 5/15/11, Pool #345647........................... 40,690 38,935
6.50%, 5/15/11, Pool #412598........................... 421,146 411,670
6.50%, 5/15/11, Pool #432640........................... 272,380 266,252
6.00%, 6/15/11, Pool #406582........................... 215,738 206,433
6.00%, 6/15/11, Pool #423828........................... 222,317 212,728
6.50%, 6/15/11, Pool #426173........................... 378,375 369,862
6.50%, 8/15/11, Pool #421746........................... 258,393 252,579
6.50%, 2/15/12, Pool #393334........................... 319,106 311,926
6.50%, 3/15/12, Pool #399161........................... 320,902 313,681
7.50%, 7/15/12, Pool #447382........................... 598,024 605,500
8.50%, 11/15/21, Pool #297863.......................... 128,148 132,552
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Agencies, continued
Shares
or
Security Principal Market
Description Amount Value
----------- ----------- ------------
<S> <C> <C>
Government National Mortgage Assoc., continued
8.00%, 5/15/23, Pool #350495......................... $ 193,130 $ 196,689
9.00%, 5/15/25, Pool #401372......................... 104,647 110,107
9.00%, 5/15/25, Pool #386743......................... 242,817 255,487
9.50%, 8/15/25, Pool #414557......................... 20,608 21,999
7.50%, 10/15/25, Pool #366152........................ 326,059 325,753
7.50%, 10/15/25, Pool #366154........................ 340,564 340,244
6.50%, 3/15/26, Pool #419578......................... 59,277 56,442
6.50%, 4/15/26, Pool #422656......................... 790,694 752,884
6.50%, 5/15/26, Pool #428852......................... 74,808 71,230
6.50%, 6/15/26, Pool #423801......................... 664,611 632,830
7.00%, 8/20/26, Pool #2266........................... 405,875 395,091
9.50%, 9/15/26, Pool #438724......................... 192,555 205,552
9.50%, 10/15/26, Pool #436991........................ 55,706 59,466
9.50%, 10/15/26, Pool #438728........................ 132,248 141,175
9.50%, 11/15/26, Pool #436994........................ 54,272 57,935
9.50%, 11/15/26, Pool #438731........................ 117,887 125,844
7.00%, 9/15/27, Pool #455304......................... 437,009 427,311
7.00%, 8/15/28, Pool #482697......................... 910,710 890,502
------------
10,581,580
------------
TOTAL U.S. GOVERNMENT AGENCIES 82,608,399
------------
<CAPTION>
U.S. Treasury Bonds (16.8%):
<S> <C> <C>
12.00%, 8/15/13, Callable on 8/15/08
@ 100............................................... 2,055,000 2,795,396
7.50%, 11/15/16...................................... 1,250,000 1,362,363
8.75%, 5/15/17....................................... 1,500,000 1,825,935
8.13%, 8/15/19....................................... 6,000,000 6,992,460
8.75%, 8/15/20....................................... 2,000,000 2,478,720
7.63%, 11/15/22...................................... 4,600,000 5,170,952
6.25%, 8/15/23....................................... 3,000,000 2,902,530
6.00%, 2/15/26....................................... 10,500,000 9,842,069
------------
TOTAL U.S. TREASURY BONDS 33,370,425
------------
<CAPTION>
U.S. Treasury Notes (16.6%):
<S> <C> <C>
5.50%, 12/31/00...................................... 4,200,000 4,182,822
6.38%, 9/30/01....................................... 4,000,000 4,025,880
5.88%, 11/30/01...................................... 3,000,000 2,993,580
6.00%, 7/31/02....................................... 4,000,000 3,999,600
5.88%, 9/30/02....................................... 2,100,000 2,091,432
5.75%, 8/15/03....................................... 2,930,000 2,896,100
7.25%, 5/15/04....................................... 2,190,000 2,281,695
6.63%, 5/15/07....................................... 2,750,000 2,805,688
6.13%, 8/15/07....................................... 5,500,000 5,447,860
5.63%, 5/15/08....................................... 2,500,000 2,393,725
------------
TOTAL U.S. TREASURY NOTES 33,118,382
------------
<CAPTION>
Investment Companies (1.2%):
<S> <C> <C>
Federated Money Market Trust......................... 2,318,841 2,318,841
------------
TOTAL INVESTMENT COMPANIES 2,318,841
------------
</TABLE>
Continued
45
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Bond Index Portfolio November 30, 1999
<TABLE>
<CAPTION>
Short-Term Securities Held as Collateral* (4.2%):
Security Principal Market
Description Amount Value
----------- ----------- ------------
<S> <C> <C>
Repurchase agreements (4.2%):
Bank Of America, 5.78%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $1,053,161,
collateralized by $1,308,249 various U.S.
Government Agency Mortgages, 5.75%-6.77%, 4/15/23-
2/1/29, market value $1,074,052).................. $ 1,052,992 $ 1,052,992
CS First Boston, 5.77%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $702,107,
collateralized by $898,146 various U.S. Government
Agency Mortgages, 0.00%-8.00%, 5/15/01-8/15/29,
market value $716,035)............................ 701,995 701,995
HSBC Securities, Inc., 5.72%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $702,106,
collateralized by $758,029 various U.S. Government
Agencies, 0.00%-9.80%, 4/19/01-11/30/17, market
value $716,035)................................... 701,995 701,995
Prudential Bache Securities, 5.79%, 12/1/99
(Purchased on 11/30/99, proceeds at maturity
$1,404,215, collateralized by $2,443,912 various
U.S. Government Agency Mortgages, 0.00%-10.50%,
12/2/99-6/15/44, market value $1,432,069)......... 1,403,989 1,403,989
Salomon Smith Barney, Inc., 5.75%, 12/1/99
(Purchased on 11/30/99, proceeds at maturity
$2,457,374, collateralized by $3,159,431 various
U.S. Government Agencies, 0.00%-9.50%, 5/15/07-
11/15/29, market value $2,506,121)................ 2,456,982 2,456,982
Salomon Smith Barney, Inc., 5.73%, 12/1/99
(Purchased on 11/30/99, proceeds at maturity
$2,008,935, collateralized by $3,233,725 various
GNMA, 5.00%-9.00%, 2/15/00-11/20/29, market value
$2,048,788)....................................... 2,008,615 2,008,615
------------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL 8,326,568
------------
TOTAL INVESTMENTS
(Cost $210,790,280)(a)--103.5% 206,240,384
Liabilities in excess of other assets--(3.5)% (7,033,433)
------------
TOTAL NET ASSETS--100.0% $199,206,951
============
</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..................................... $ 1,512,921
Unrealized depreciation..................................... (6,062,817)
-----------
Net unrealized depreciation................................. $(4,549,896)
===========
</TABLE>
MTN Medium Term Note
* Represents securities purchased with cash collateral received on securities
loaned.
See notes to financial statements
46
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Bond Index Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
November 30, 1999
<S> <C> <C>
Assets:
Investments, at value (cost $202,463,712)............. $197,913,816
Repurchase agreements, at value (cost $8,326,568)..... 8,326,568
------------
Total Investments.................................... 206,240,384
Cash.................................................. 442
Interest and dividends receivable..................... 2,360,151
Receivable for investments sold....................... 5,713
Deferred organization costs........................... 6,319
Prepaid expenses and other assets..................... 6,578
------------
Total Assets......................................... 208,619,587
Liabilities:
Dividends payable..................................... $ 992,765
Payable for return of collateral received on
securities loaned.................................... 8,326,568
Accrued expenses and other liabilities:
Investment advisory fees............................. 49,269
Administration fees.................................. 4,905
Distribution and administrative services fees........ 5,632
Custodian fees....................................... 8,553
Other liabilities.................................... 24,944
----------
Total Liabilities.................................... 9,412,636
------------
Net Assets:
Capital............................................... 203,856,803
Distributions in excess of net investment income...... (54,339)
Accumulated net realized losses from investment
transactions......................................... (45,617)
Net unrealized depreciation from investments.......... (4,549,896)
------------
Net Assets............................................ $199,206,951
============
Investor A Shares
Net Assets........................................... $ 1,074,416
Shares............................................... 110,322
Redemption price per share........................... $9.74
=====
Maximum Sales Charge--Investor A Shares............... 4.75%
Maximum Offering Price (100%/(100%--Maximum Sales
Charge) of net asset value adjusted to the nearest
cent) per share..................................... $10.23
======
Trust Shares
Net Assets........................................... $176,425,663
Shares............................................... 18,133,221
Offering and redemption price per share.............. $9.73
=====
Institutional Shares
Net Assets........................................... $ 21,706,872
Shares............................................... 2,229,132
Offering and redemption price per share.............. $9.74
=====
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
For the year ended November 30, 1999
<S> <C> <C>
Investment Income:
Interest income........................ $ 12,723,959
Dividend income........................ 100,081
Income from securities lending......... 57,853
--------------------
Total Investment Income............... 12,881,893
Expenses:
Investment advisory fees............... $ 596,823
Administration fees.................... 397,884
Distribution and services fees,
Investor A Shares..................... 3,513
Administrative services fees, Trust
Shares................................ 534,283
Administrative services fees,
Institutional Shares.................. 59,027
Accounting fees........................ 24,404
Custodian fees......................... 95,269
Transfer agent fees.................... 52,352
Other.................................. 79,910
----------------
Total expenses before voluntary fee
reductions........................... 1,843,465
Expenses voluntarily reduced.......... (733,222)
--------------------
Net Expenses.......................... 1,110,243
--------------------
Net Investment Income.................. 11,771,650
====================
Realized/Unrealized Losses from
Investments:
Net realized losses from investment
transactions.......................... (98,655)
Net change in unrealized appreciation
(depreciation) from investments....... (13,024,538)
--------------------
Net realized/unrealized losses from
investments........................... (13,123,193)
--------------------
Change in net assets resulting from
operations............................ $ (1,351,543)
====================
</TABLE>
See notes to financial statements
47
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Bond Index Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
year ended year ended
November 30, November 30,
1999 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 11,771,650 $ 9,741,081
Net realized gains (losses) from investment
transactions..................................... (98,655) 1,044,169
Net change in unrealized appreciation
(depreciation) from investments.................. (13,024,538) 3,948,766
------------ ------------
Change in net assets resulting from operations..... (1,351,543) 14,734,016
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (66,295) (10,279)
In excess of net investment income................ (7) --
From net realized gains from investment
transactions..................................... (1,522) (187)
In excess of net realized gains from investment
transactions..................................... (197) --
Distributions to Trust Shareholders:
From net investment income........................ (10,589,956) (9,482,085)
In excess of net investment income................ (1,170) --
From net realized gains from investment
transactions..................................... (732,097) (472,456)
In excess of net realized gains from investment
transactions..................................... (94,903) --
Distributions to Institutional Shareholders:
From net investment income........................ (1,115,400) (248,717)
In excess of net investment income................ (123) --
From net realized gains from investment
transactions..................................... (27,179) (94)
In excess of net realized gains from investment
transactions..................................... (3,523) --
------------ ------------
Change in net assets from shareholder
distributions..................................... (12,632,372) (10,213,818)
------------ ------------
Change in net assets from capital transactions..... 36,404,559 33,865,038
------------ ------------
Change in net assets............................... 22,420,644 38,385,236
Net Assets:
Beginning of period............................... 176,786,307 138,401,071
------------ ------------
End of period..................................... $199,206,951 $176,786,307
============ ============
</TABLE>
See notes to financial statements
48
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Bond Index Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
years ended February 10, 1997
November 30, to
------------------- November 30,
1999 1998 1997 (a)
-------- -------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.45 $ 10.17 $ 10.00
-------- -------- --------
Investment Activities:
Net investment income.................. 0.56 0.61 0.50
Net realized and unrealized gains
(losses) from investments............. (0.65) 0.31 0.17
-------- -------- --------
Total from Investment Activities....... (0.09) 0.92 0.67
-------- -------- --------
Distributions:
Net investment income.................. (0.57) (0.61) (0.50)
Net realized gains..................... (0.04) (0.03) --
In excess of net realized gains........ (0.01) -- --
-------- -------- --------
Total Distributions.................... (0.62) (0.64) (0.50)
-------- -------- --------
Net Asset Value, End of Period.......... $ 9.74 $ 10.45 $ 10.17
======== ======== ========
Total Return (excludes sales charge).... (0.90)% 9.36% 6.93%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)....... $ 1,074 $ 364 $ 55
Ratio of expenses to average net
assets................................. 0.83% 0.77% 0.54%(c)
Ratio of net investment income to
average net assets..................... 5.65% 5.81% 6.71%(c)
Ratio of expenses to average net
assets*................................ 0.93% 0.93% 0.95%(c)
Portfolio turnover**.................... 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 fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
Financial Highlights, Trust Shares
<CAPTION>
For the
years ended February 10, 1997
November 30, to
------------------- November 30,
1999 1998 1997 (a)
-------- -------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.44 $ 10.16 $ 10.00
-------- -------- --------
Investment Activities:
Net investment income.................. 0.60 0.65 0.53
Net realized and unrealized gains
(losses) from investments............. (0.66) 0.30 0.16
-------- -------- --------
Total from Investment Activities....... (0.06) 0.95 0.69
-------- -------- --------
Distributions:
Net investment income.................. (0.60) (0.64) (0.53)
Net realized gains..................... (0.04) (0.03) --
In excess of net realized gains........ (0.01) -- --
-------- -------- --------
Total Distributions.................... (0.65) (0.67) (0.53)
-------- -------- --------
Net Asset Value, End of Period.......... $ 9.73 $ 10.44 $ 10.16
======== ======== ========
Total Return............................ (0.61)% 9.69% 7.15%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)....... $176,426 $169,388 $138,319
Ratio of expenses to average net
assets................................. 0.53% 0.42% 0.23%(c)
Ratio of net investment income to
average net assets..................... 5.95% 6.20% 6.92%(c)
Ratio of expenses to average net
assets*................................ 0.93% 0.93% 0.94%(c)
Portfolio turnover**.................... 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 fund 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 MUTUAL FUNDS, INC.
Bond Index Portfolio
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
For the
years ended February 10, 1997
November 30, to
---------------- November 30,
1999 1998 1997 (a)
------- ------ -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period....... $ 10.45 $10.17 $10.00
------- ------ ------
Investment Activities:
Net investment income..................... 0.56 0.62 0.53
Net realized and unrealized gains (losses)
from investments......................... (0.65) 0.31 0.17
------- ------ ------
Total from Investment Activities.......... (0.09) 0.93 0.70
------- ------ ------
Distributions:
Net investment income..................... (0.57) (0.62) (0.53)
Net realized gains........................ (0.04) (0.03) --
In excess of net realized gains........... (0.01) -- --
------- ------ ------
Total Distributions....................... (0.62) (0.65) (0.53)
------- ------ ------
Net Asset Value, End of Period............. $ 9.74 $10.45 $10.17
======= ====== ======
Total Return............................... (0.90)% 9.47% 7.20%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000).......... $21,707 $7,034 $ 27
Ratio of expenses to average net assets.... 0.83% 0.79% 0.24%(c)
Ratio of net investment income to average
net assets................................ 5.66% 5.77% 7.09%(c)
Ratio of expenses to average net assets*... 0.93% 0.91% 0.95%(c)
Portfolio turnover**....................... 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 fund 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
50
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
51
<PAGE>
Mercantile Government & Corporate Bond Portfolio
Q. What were conditions in the economy and the bond market during the 12-
month period ended November 30, 1999?
A. The economy remained healthy, with low inflation, solid productivity gains
and strong GDP (Gross Domestic Product) growth. Because there were signs during
the period of inflationary pressures on the economy, the Fed raised interest
rates three times during the period, each time by one quarter of a percentage
point.
Bond yields began the period near their all-time lows, but then climbed
throughout the period. For example, the yield on the 30-year Treasury bond
increased from 5.1% on December 1, 1998 to 6.3% as of November 30, 1999.
Investors who worried about inflation and anticipated the Fed's rate hikes sold
bonds, driving their prices down. Low liquidity among corporate bonds made
those issues especially volatile early in the period.
Q. How did you manage the Portfolio's sector exposure and credit quality in
that environment?
A. We increased the Portfolio's exposure to mortgage-backed pass-through
securities, which performed relatively well during the period. Mortgage-backed
pass-throughs fell just 5% from the high point of the bond market in October
1998 to the end of the recent period, compared to a 20% drop in 30-year
Treasuries. We also reduced the Portfolio's exposure to five-to ten-year
Treasuries, which were among the worst performers of the market. We also
overweighted corporate bonds, which performed slightly better than Treasuries,
especially toward the end of the period.*
We found some opportunities in lower-quality investment-grade bonds,
especially BBB-rated bonds. Therefore, the average credit rating of the
Portfolio fell slightly, from AAA to AA1--still a very high rating.*
Q. How did you manage the Portfolio's average maturity and duration during
the period?
A. We shortened the Portfolio's average maturity and duration slightly to
deal with the uncertainty of the market environment. At the same time, we kept
both average maturity and duration longer than the Portfolio's benchmark, the
Lehman Brothers Aggregate Bond Index, to provide additional yield for
shareholders. The average maturity of the Portfolio at the beginning of the
period was 10.7 years and at the end of the period was 8.4 years, while the
Portfolio's duration began the period at 4.9 years and ended the period at 4.8
years.
Q. What is your outlook for the bond market and the Portfolio?
A. The relatively weak performance of bonds during the past year has created
many good values, especially among intermediate-term issues, which currently
offer attractive yields and relatively low prices. Such values fit well into
the Portfolio's strategy, since we think the middle of the maturity continuum
generally provides the best balance of safety and returns.
Low levels of liquidity should continue to cause volatility among corporate
issues in the months ahead. That said, the corporate bond market should benefit
from improving credit ratings due to a strong business environment.
We will continue to seek out opportunities to lock in high yields at
reasonable prices, rather than trying to predict Fed moves or the direction of
the bond markets. History shows us that such a value-oriented approach is the
best way to protect shareholders' capital while providing attractive levels of
current income.
- -----
* Portfolio composition is subject to change.
52
<PAGE>
Mercantile Government & Corporate Bond Portfolio
[CHART]
Value of a $10,000 Investment
Investor A Investor A Investor B Lehman Brothers
(No Load) (Load)* (No CDSC) Aggregate Bond Index
1 11/89 10,000 9,550 10,000 10,000
2 11/90 10,495.36 9,995.84 10,495.38 10,758
3 11/91 11,834.99 11,271.81 11,834.99 12,308
4 11/92 12,755.97 12,149.21 12,755.97 13,401
5 11/93 14,058.06 13,389.42 14,058.08 14,858
6 11/94 13,592.36 12,945.49 13,592.36 14,403
7 11/95 15,759.84 15,009.02 15,663.7 16,945
8 11/96 16,468.69 15,684.95 16,255.89 17,973
9 11/97 17,423.69 16,593.74 17,112.33 19,331
10 11/98 19,045.87 18,139.21 18,592.36 21,158
11 11/99 18,829.58 17,933.38 18,239.14 21,149
- ------------------------------------------------------------------------------
- --
Average Annual Total Returns
as of 11/30/99
- ------------------------------------------------------------------------------
- --
1 Year 5 Years 10 Years
- ------------------------------------------------------------------------------
- --
Investor A (No Load) -1.13% 6.74% 6.53%
- ------------------------------------------------------------------------------
- --
Investor A* -5.79% 5.70% 6.02%
- ------------------------------------------------------------------------------
- --
Investor B (No CDSC) -1.90% 6.06% 6.19%
- ------------------------------------------------------------------------------
- --
Investor B (CDSC)** -6.49% 5.90% 6.19%
- ------------------------------------------------------------------------------
- --
* Reflects 4.75% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[CHART]
Value of a $10,000 Investment
Lehman Brothers
Trust Institutional Aggregate Bond Index
1 11/89 10,000 10,000 10,000
2 11/90 10,495.38 10,495.38 10,758
3 11/91 11,861.15 11,834.99 12,308
4 11/92 12,822.26 12,755.97 13,401
5 11/93 14,173.21 14,058.08 14,858
6 11/94 13,744.11 13,592.36 14,403
7 11/95 15,980.29 15,759.64 16,945
8 11/96 16,749.52 16,468.69 17,973
9 11/97 17,808.3 17,457.7 19,331
10 11/98 19,522.94 19,082.5 21,158
11 11/99 19,362.46 18,868.83 21,149
- ------------------------------------------------------------------------------
- --
Average Annual Total Returns
as of 11/30/99
- ------------------------------------------------------------------------------
- --
1 Year 5 Years 10 Years
- ------------------------------------------------------------------------------
- --
Trust -0.83% 7.09% 6.83%
- ------------------------------------------------------------------------------
- --
Institutional -1.12% 6.78% 6.55%
- ------------------------------------------------------------------------------
- --
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 4.75% sales charge on Investor A Shares.
Investor B Shares were initially offered on March 1, 1995. The performance
figures for Investor B Shares for periods prior to such date represent the
performance for Investor A Shares of the Portfolio, which has been restated to
reflect the contingent deferred sales charge payable by holders of Investor B
Shares who redeem within six years of the date of purchase. Investor B Shares
are also subject to distribution and service fees at a maximum annual rate of
1.00%. Had these distribution and service fees been reflected, performance
would have been reduced.
Investor B shares (CDSC) are not included in the above graph, since the
performance is for more than six years and the CDSC would no longer apply.
After six years, the performance for the Investor B Shares (CDSC) mirrors
Investor B Shares (No CDSC) performance.
Institutional Shares were initially offered on January 3, 1994. The
performance figures for Institutional Shares for periods prior to such date
represent the performance for Investor A Shares of the Portfolio.
53
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Government & Corporate Bond Portfolio November 30, 1999
<TABLE>
<CAPTION>
Corporate Bonds (34.7%):
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Automotive (6.0%):
Ford Motor Credit Corp., 6.80%, 4/23/01, MTN...... $1,850,000 $ 1,852,313
Ford Motor Credit Corp., Global Bond, 7.00%,
9/25/01.......................................... 750,000 753,750
Ford Motor Credit Corp., Global Bond, 6.50%,
2/28/02.......................................... 3,194,000 3,174,037
General Motors Acceptance Corp., 6.85%, 4/17/01,
MTN.............................................. 1,000,000 1,001,250
General Motors Acceptance Corp., 6.70%, 4/30/01,
MTN.............................................. 1,400,000 1,400,000
------------
8,181,350
------------
Commercial Services (0.9%):
Cendant Corp., 7.75%, 12/1/03..................... 1,300,000 1,285,375
------------
Computer Software (2.9%):
Computer Associates, 6.25%, 4/15/03............... 1,500,000 1,447,500
Dell Computer Corp., 7.10%, 4/15/28............... 1,200,000 1,120,500
IBM Corp., 6.45%, 8/1/07.......................... 1,400,000 1,359,750
------------
3,927,750
------------
Financial Services (12.1%):
Associates Corp., 5.80%, 4/20/04,................. 2,000,000 1,915,000
BankAmerica Corp., 7.50%, 10/15/02................ 500,000 508,750
Citigroup, Inc., 6.63%, 1/15/28................... 2,000,000 1,717,500
General Electric Capital Corp., 8.75%, 3/14/03,
MTN.............................................. 1,000,000 1,057,500
Household Finance Corp., 8.38%, 11/15/01.......... 3,000,000 3,078,749
Merrill Lynch & Co., Series B, 6.38%, 10/1/01,
MTN.............................................. 3,000,000 2,985,000
Traveler's Group, Inc., 7.30%, 5/15/02............ 2,000,000 2,020,000
Traveler's Group, Inc., 7.50%, 2/1/03............. 3,000,000 3,041,250
------------
16,323,749
------------
Government Bond (0.4%):
Province of Ontario, Global Bond, 7.38%, 1/27/03.. 500,000 508,750
------------
Industrial Goods & Services (3.1%):
E.I. duPont de Nemours & Co., 6.88%, 10/15/09..... 1,300,000 1,282,125
Raytheon Co, 5.95%, 3/15/01....................... 2,500,000 2,462,500
Rockwell International Corp., 6.75%, 9/15/02...... 500,000 499,375
------------
4,244,000
------------
Insurance (2.1%):
General Electric Global Insurance Holdings, 6.45%,
3/1/19........................................... 1,700,000 1,487,500
St. Paul Companies, Inc., 6.38%, 12/15/08, MTN.... 1,550,000 1,424,063
------------
2,911,563
------------
Manufacturing--Consumer Goods (1.5%):
Texaco Capital, 6.95%, 10/15/01, MTN.............. 2,000,000 2,012,500
------------
Retail Stores (1.0%):
Dillards, Inc., 7.13%, 8/1/18..................... 1,500,000 1,342,500
------------
</TABLE>
<TABLE>
<CAPTION>
Corporate Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Telecommunications (3.6%):
Lucent Technologies, 6.45%, 3/15/29................... $1,265,000 $ 1,132,175
Southern New England Telecommunications Corp., Series
2,
6.50%, 2/15/02, MTN.................................. 3,250,000 3,237,813
United Telephone--Florida, 7.25%, 12/15/04............ 500,000 501,250
------------
4,871,238
------------
Utilities (1.1%):
Laclede Gas Co., 7.50%, 11/1/07....................... 1,500,000 1,518,750
------------
TOTAL CORPORATE BONDS 47,127,525
------------
<CAPTION>
U.S. Government Agencies (33.8%):
<S> <C> <C>
Federal Home Loan Bank (2.1%):
5.79%, 4/27/09........................................ 3,100,000 2,882,845
------------
Federal Home Loan Mortgage Corp. (7.6%):
8.50%, 5/1/01, Pool #200034........................... 12,158 12,515
8.50%, 11/1/01, Pool #200058.......................... 30,246 31,021
8.00%, 3/1/02, Pool #215507........................... 23,009 23,375
7.50%, 4/1/02, Pool #200070........................... 37,203 37,342
8.00%, 5/1/02, Pool #216910........................... 10,430 10,596
8.00%, 6/1/02, Pool #218582........................... 23,238 23,609
8.00%, 6/1/02, Pool #218101........................... 84,171 85,512
8.00%, 6/1/02, Pool #219187........................... 5,171 5,253
8.00%, 7/1/02, Pool #501214........................... 56,114 57,007
8.00%, 7/1/02, Pool #217891........................... 15,983 16,238
8.50%, 3/1/05, Pool #380084........................... 38,451 39,436
8.50%, 4/1/05, Pool #380085........................... 4,363 4,475
8.50%, 9/1/05, Pool #503592........................... 10,898 11,178
8.50%, 4/1/06, Gold Pool #E00025...................... 14,959 15,487
6.00%, 2/1/11, Gold Pool #E62600...................... 367,717 352,431
7.00%, 7/1/11, Gold Pool #E20252...................... 699,073 696,885
6.50%, 1/1/12, Gold Pool #E00465...................... 652,389 638,114
6.00%, 2/1/12, Gold Pool #E00472...................... 2,057,639 1,972,103
8.00%, 1/1/23, Gold Pool #C00225...................... 987,557 1,003,288
8.00%, 1/1/23, Gold Pool #D29451...................... 146,404 148,736
6.00%, 12/1/25, Gold Pool #G00427..................... 2,829,441 2,627,844
6.00%, 9/1/27, Gold Pool #C00565...................... 2,748,671 2,552,828
------------
10,365,273
------------
Federal National Mortgage Assoc. (12.4%):
6.00%, 11/1/00, Pool #190070.......................... 535,317 518,085
6.50%, 12/1/11, Pool #367838.......................... 1,926,964 1,885,399
6.50%, 7/1/12, Pool #370716........................... 446,092 436,470
6.50%, 7/1/12, Pool #393667........................... 756,357 740,042
6.50%, 8/1/12, Pool #251165........................... 685,302 670,520
6.00%, 1/1/13, Pool #251501........................... 4,873,269 4,666,156
5.50%, 12/1/13, Pool #445857.......................... 1,571,413 1,471,236
6.00%, 2/1/26, Pool #336918........................... 2,333,089 2,164,664
6.00%, 10/1/26, Pool #368935.......................... 1,233,814 1,144,745
6.50%, 8/1/27, Pool #395219........................... 1,633,955 1,558,892
6.50%, 8/1/27, Pool #397372........................... 1,579,921 1,507,339
------------
16,763,548
------------
Government National Mortgage Assoc. (11.7%):
9.50%, 2/15/01, Pool #149206.......................... 2,619 2,742
9.50%, 9/15/01, Pool #290435.......................... 25,750 26,957
</TABLE>
Continued
54
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Government & Corporate Bond Portfolio November 30, 1999
<TABLE>
<CAPTION>
U.S. Government Agencies, continued
Security Principal Market
Description Amount Value
----------- ---------- -----------
<S> <C> <C>
Government National Mortgage Assoc., continued
8.00%, 1/15/02, Pool #188653............................. $ 28,842 $ 29,590
8.00%, 3/15/02, Pool #199167............................. 6,296 6,459
8.00%, 4/15/02, Pool #180980............................. 27,297 28,005
8.00%, 7/15/02, Pool #209779............................. 57,141 58,622
9.50%, 10/15/02, Pool #232514............................ 20,756 21,728
6.50%, 9/15/03, Pool #2549............................... 128,042 121,919
9.50%, 1/15/06, Pool #298829............................. 47,433 49,656
8.00%, 5/15/06, Pool #303851............................. 57,254 58,739
9.50%, 7/15/07, Pool #331878............................. 57,146 59,824
8.00%, 11/15/07, Pool #339329............................ 210,395 215,850
8.00%, 12/15/07, Pool #338551............................ 166,028 170,333
9.50%, 8/15/09, Pool #400219............................. 361,065 377,989
9.50%, 9/15/09, Pool #377317............................. 124,842 130,693
9.50%, 2/15/10, Pool #392932............................. 276,233 289,180
8.00%, 5/15/10, Pool #398424............................. 24,332 24,963
6.50%, 8/15/10, Pool #387094............................. 139,975 136,826
8.00%, 11/15/10, Pool #405524............................ 133,982 137,456
8.00%, 11/15/10, Pool #410294............................ 678,354 695,944
8.00%, 11/15/10, Pool #414827............................ 162,736 166,955
6.50%, 3/15/11, Pool #408253............................. 68,965 67,413
6.50%, 4/15/11, Pool #402546............................. 274,990 268,803
6.50%, 4/15/11, Pool #418274............................. 63,503 62,074
6.50%, 4/15/11, Pool #421831............................. 306,763 299,861
6.50%, 5/15/11, Pool #408304............................. 456,928 446,647
6.50%, 5/15/11, Pool #430822............................. 50,765 49,623
6.50%, 6/15/11, Pool #430820............................. 573,268 560,369
6.50%, 6/15/11, Pool #345631............................. 509,685 498,218
6.50%, 6/15/11, Pool #421731............................. 76,264 74,548
6.50%, 6/15/11, Pool #423833............................. 252,658 246,973
6.50%, 7/15/11, Pool #345749............................. 265,526 259,552
6.50%, 8/15/11, Pool #426911............................. 285,709 279,280
8.50%, 4/15/17, Pool #212112............................. 983,202 1,016,996
8.00%, 4/15/22, Pool #320818............................. 770,533 784,734
7.50%, 4/15/23, Pool #343195............................. 582,660 582,112
9.00%, 3/15/25, Pool #404067............................. 521,525 548,738
6.50%, 4/15/26, Pool #415721............................. 815,524 776,527
6.50%, 4/15/26, Pool #422323............................. 795,024 757,006
6.50%, 5/15/26, Pool #417388............................. 769,670 732,864
6.50%, 6/15/26, Pool #423801............................. 3,951,263 3,762,314
7.00%, 9/15/27, Pool #455304............................. 349,607 341,849
6.50%, 10/15/28, Pool #434031............................ 677,531 645,131
-----------
15,872,062
-----------
TOTAL U.S. GOVERNMENT AGENCIES 45,883,728
-----------
<CAPTION>
U.S. Treasury Bonds (11.0%):
<S> <C> <C>
8.88%, 8/15/17........................................... 2,865,000 3,528,935
8.88%, 2/15/19........................................... 4,150,000 5,158,242
8.75%, 8/15/20........................................... 2,183,000 2,705,523
8.00%, 11/15/21.......................................... 3,100,000 3,603,347
-----------
TOTAL U.S. TREASURY BONDS 14,996,047
-----------
</TABLE>
<TABLE>
<CAPTION>
U.S. Treasury Notes (17.9%):
<S> <C> <C>
6.25%, 8/31/02............................................. 3,995,000 4,016,453
5.25%, 8/15/03............................................. 4,650,000 4,520,172
5.25%, 5/15/04............................................. 2,500,000 2,417,125
5.63%, 5/15/08............................................. 8,715,000 8,344,526
5.50%, 5/15/09............................................. 4,700,000 4,473,507
6.00%, 8/15/09............................................. 500,000 493,805
----------
TOTAL U.S. TREASURY NOTES 24,265,588
----------
</TABLE>
<TABLE>
<CAPTION>
Investment Companies (2.1%):
Shares
or
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Federated Money Market Trust.......................... 2,826,976 $ 2,826,976
------------
TOTAL INVESTMENT COMPANIES 2,826,976
------------
<CAPTION>
Short-Term Securities Held as Collateral* (11.9%):
<S> <C> <C>
Repurchase agreements (11.9%):
Bank Of America, 5.78%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $2,036,213,
collateralized by $2,529,407 various U.S. Government
Agency Mortgages, 5.75%-6.77%, 4/15/23-2/1/29, market
value $2,076,604).................................... $2,035,886 2,035,886
CS First Boston, 5.77%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $1,357,475,
collateralized by $1,736,502 various U.S. Government
Agency Mortgages, 0.00%-8.00%, 5/15/01-8/15/29,
market value $1,384,403)............................. 1,357,257 1,357,257
HSBC Securities, Inc., 5.72%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $1,357,473,
collateralized by $1,465,596 various U.S. Government
Agencies, 0.00%-9.80%, 4/19/01-11/30/17, market value
$1,384,403).......................................... 1,357,257 1,357,257
Prudential Bache Securities, 5.79%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $2,714,951,
collateralized by $4,725,131 various U.S. Government
Agency Mortgages, 0.00%-10.50%, 12/2/99-6/15/44,
market value $2,768,805)............................. 2,714,515 2,714,515
Salomon Smith Barney, Inc., 5.75%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $4,751,160,
collateralized by $6,108,537 various U.S. Government
Agencies, 0.00%-9.50%, 5/15/07-11/15/29, market value
$4,845,409).......................................... 4,750,402 4,750,402
Salomon Smith Barney, Inc., 5.73%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $3,884,134,
collateralized by $6,252,179 various GNMA, 5.00%-
9.00%, 2/15/00-11/20/29, market value $3,961,187).... 3,883,516 3,883,516
------------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL 16,098,833
------------
</TABLE>
Continued
55
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Government & Corporate Bond Portfolio November 30, 1999
<TABLE>
<CAPTION>
Short-Term Securities Held as Collateral, continued
Security Principal Market
Description Amount Value
----------- --------- ------------
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $154,747,837)(a)--111.3% $151,198,697
Liabilities in excess of other assets--
(11.3)% (15,383,983)
------------
TOTAL NET ASSETS--100.0% $135,814,714
============
</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.. $ 1,222,925
Unrealized depreciation.. (4,892,876)
-----------
Net unrealized
depreciation............ $(3,669,951)
===========
</TABLE>
MTN Medium Term Note
* Represents securities purchased with cash collateral received on loaned
securities.
See notes to financial statements
56
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Government & Corporate Bond Portfolio
Statement of Assets and Liabilities
November 30, 1999
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $138,649,004)............ $135,099,864
Repurchase agreements, at value (cost $16,098,833)... 16,098,833
------------
Total Investments................................... 151,198,697
Interest and dividends receivable.................... 1,439,459
Receivable for investments sold...................... 14,248
Prepaid expenses and other assets.................... 8,530
------------
Total Assets........................................ 152,660,934
Liabilities:
Dividends payable.................................... $ 668,308
Payable to custodian for overdraft................... 379
Payable for return of collateral received on
securities loaned................................... 16,098,833
Accrued expenses and other liabilities:
Investment advisory fees............................ 50,474
Administration fees................................. 3,357
Distribution and administrative services fees....... 2,759
Custodian fees...................................... 4,864
Other liabilities................................... 17,246
-----------
Total Liabilities................................... 16,846,220
------------
Net Assets:
Capital.............................................. 140,348,140
Distributions in excess of net investment income..... (42,514)
Accumulated net realized losses from investment
transactions........................................ (941,772)
Net unrealized depreciation from investments......... (3,549,140)
------------
Net Assets........................................... $135,814,714
============
Investor A Shares
Net Assets.......................................... $ 3,877,782
Shares.............................................. 394,002
Redemption price per share.......................... $9.84
=====
Maximum Sales Charge--Investor A Shares.............. 4.75%
Maximum Offering Price
(100%/(100%--Maximum Sales Charge) of net asset
value adjusted to the nearest cent) per share...... $10.33
======
Investor B Shares
Net Assets.......................................... $ 712,194
Shares.............................................. 72,196
Offering price per share*........................... $9.86
=====
Trust Shares
Net Assets.......................................... $126,471,794
Shares.............................................. 12,830,501
Offering and redemption price per share............. $9.86
=====
Institutional Shares
Net Assets.......................................... $ 4,752,944
Shares.............................................. 482,064
Offering and redemption price per share............. $9.86
=====
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
Investment Income:
For the year ended November 30, 1999
<TABLE>
<S> <C> <C>
Investment Income:
Interest income......................................... $11,242,360
Dividend income......................................... 145,035
Income from securities lending.......................... 101,132
-----------
Total Investment Income................................ 11,488,527
Expenses:
Investment advisory fees............................... $795,816
Administration fees.................................... 353,698
Distribution and services fees, Investor A Shares...... 12,711
Distribution and services fees, Investor B Shares...... 7,555
Administrative services fees, Trust Shares............. 492,185
Administrative services fees, Institutional Shares..... 23,382
Accounting fees........................................ 19,820
Custodian fees......................................... 83,317
Transfer agent fees.................................... 47,481
Other.................................................. 68,226
--------
Total expenses before voluntary fee reductions.......... 1,904,191
Expenses voluntarily reduced........................... (683,365)
-----------
Net Expenses........................................... 1,220,826
-----------
Net Investment Income................................... 10,267,701
-----------
Realized/Unrealized Losses from Investments:
Net realized losses from investment transactions........ (984,305)
Net change in unrealized appreciation (depreciation)
from investments....................................... (11,045,947)
-----------
Net realized/unrealized losses from investments......... (12,030,252)
-----------
Change in net assets resulting from operations.......... $(1,762,551)
===========
</TABLE>
See notes to financial statements
57
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Government & Corporate Bond Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
year ended year ended
November 30, November 30,
1999 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 10,267,701 $ 11,519,697
Net realized gains (losses) from investment
transactions..................................... (984,305) 5,187,984
Net change in unrealized appreciation
(depreciation) from investments.................. (11,045,947) 1,941,908
------------ ------------
Change in net assets resulting from operations..... (1,762,551) 18,649,589
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (234,658) (256,880)
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........................ (36,673) (27,341)
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........................ (9,570,777) (10,184,841)
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........................ (425,573) (1,050,635)
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..................................... (14,083,310) (11,519,697)
------------ ------------
Change in net assets from capital transactions..... (53,631,124) 3,251,931
------------ ------------
Change in net assets............................... (69,476,985) 10,381,823
Net Assets:
Beginning of period............................... 205,291,699 194,909,876
------------ ------------
End of period..................................... $135,814,714 $205,291,699
============ ============
</TABLE>
See notes to financial statements
58
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Government & Corporate Bond Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the years ended November 30,
------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 10.72 $ 10.35 $ 10.34 $ 10.53 $ 9.64
-------- -------- -------- -------- ------
Investment Activities:
Net investment income.. 0.57 0.57 0.56 0.64 0.61
Net realized and
unrealized gains
(losses) from
investments........... (0.69) 0.37 0.01 (0.19) 0.89
-------- -------- -------- -------- ------
Total from Investment
Activities............ (0.12) 0.94 0.57 0.45 1.50
-------- -------- -------- -------- ------
Distributions:
Net investment income.. (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.... (0.76) (0.57) (0.56) (0.64) (0.61)
-------- -------- -------- -------- ------
Net Asset Value, End of
Period................. $ 9.84 $ 10.72 $ 10.35 $ 10.34 $10.53
======== ======== ======== ======== ======
Total Return (excludes
sales charge).......... (1.13)% 9.31% 5.78% 4.51% 15.98%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 3,878 $ 4,927 $ 4,774 $ 4,915 $5,496
Ratio of expenses to
average net assets..... 0.97% 0.96% 0.95% 0.95% 0.95%
Ratio of net investment
income to average net
assets................. 5.54% 5.41% 5.46% 6.06% 6.03%
Ratio of expenses to
average net assets*.... 1.08% 1.06% 1.05% 1.05% 1.05%
Portfolio turnover**.... 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 fund as a whole
without distinguishing between the classes of shares issued.
<CAPTION>
Financial Highlights, Investor B Shares
March 1, 1995
For the years ended November 30, to
--------------------------------------- November 30,
1999 1998 1997 1996 1995 (a)
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 10.75 $ 10.37 $ 10.34 $ 10.53 $ 9.92
-------- -------- -------- -------- ------
Investment Activities:
Net investment income.. 0.49 0.50 0.49 0.57 0.38
Net realized and
unrealized gains
(losses) from
investments........... (0.69) 0.38 0.03 (0.19) 0.61
-------- -------- -------- -------- ------
Total from Investment
Activities............ (0.20) 0.88 0.52 0.38 0.99
-------- -------- -------- -------- ------
Distributions:
Net investment income.. (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.... (0.69) (0.50) (0.49) (0.57) (0.38)
-------- -------- -------- -------- ------
Net Asset Value, End of
Period................. $ 9.86 $ 10.75 $ 10.37 $ 10.34 $10.53
======== ======== ======== ======== ======
Total Return (excludes
redemption charge)..... (1.90)% 8.65% 5.26% 3.79% 15.27%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 712 $ 662 $ 545 $ 511 $ 106
Ratio of expenses to
average net assets..... 1.67% 1.66% 1.65% 1.65% 1.65%(c)
Ratio of net investment
income to average net
assets................. 4.85% 4.70% 4.84% 5.37% 5.19%(c)
Ratio of expenses to
average net assets*.... 1.78% 1.76% 1.75% 1.75% 1.75%(c)
Portfolio turnover**.... 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 fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Represents total return for the Investor A
Shares from December 1, 1994 to February 28, 1995 plus the total return for
the Investor B Shares from March 1, 1995 to November 30, 1995. (c) Annualized.
See notes to financial statements
59
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Government & Corporate Bond Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the years ended November 30,
---------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................ $ 10.74 $ 10.37 $ 10.34 $ 10.53 $ 9.64
-------- -------- -------- -------- --------
Investment Activities:
Net investment income.... 0.60 0.60 0.59 0.67 0.64
Net realized and
unrealized gains
(losses) from
investments............. (0.69) 0.37 0.03 (0.19) 0.89
-------- -------- -------- -------- --------
Total from Investment
Activities.............. (0.09) 0.97 0.62 0.48 1.53
-------- -------- -------- -------- --------
Distributions:
Net investment income.... (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...... (0.79) (0.60) (0.59) (0.67) (0.64)
-------- -------- -------- -------- --------
Net Asset Value, End of
Period................... $ 9.86 $ 10.74 $ 10.37 $ 10.34 $ 10.53
======== ======== ======== ======== ========
Total Return.............. (0.83)% 9.63% 6.32% 4.82% 16.31%
Ratios/Supplementary Data:
Net Assets at end of
period (000)............. $126,472 $178,868 $172,637 $141,440 $127,741
Ratio of expenses to
average net assets....... 0.67% 0.66% 0.65% 0.65% 0.65%
Ratio of net investment
income to average net
assets................... 5.84% 5.71% 5.85% 6.36% 6.32%
Ratio of expenses to
average net assets*...... 1.08% 1.06% 1.05% 0.75% 0.75%
Portfolio turnover**...... 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 fund as a whole
without distinguishing between the classes of shares issued.
<CAPTION>
Financial Highlights, Institutional Shares
For the years ended November 30,
---------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................ $ 10.74 $ 10.37 $ 10.34 $ 10.53 $ 9.64
-------- -------- -------- -------- --------
Investment Activities:
Net investment income.... 0.56 (a) 0.57 0.56 0.64 0.61
Net realized and
unrealized gains
(losses) from
investments............. (0.68) 0.37 0.03 (0.19) 0.89
-------- -------- -------- -------- --------
Total from Investment
Activities.............. (0.12) 0.94 0.59 0.45 1.50
-------- -------- -------- -------- --------
Distributions:
Net investment income.... (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...... (0.76) (0.57) (0.56) (0.64) (0.61)
-------- -------- -------- -------- --------
Net Asset Value, End of
Period................... $ 9.86 $ 10.74 $ 10.37 $ 10.34 $ 10.53
======== ======== ======== ======== ========
Total Return.............. (1.12)% 9.30% 6.00% 4.51% 15.98%
Ratios/Supplementary Data:
Net Assets at end of
period (000)............. $ 4,753 $ 20,835 $ 16,954 $ 14,875 $ 9,413
Ratio of expenses to
average net assets....... 0.97% 0.96% 0.95% 0.95% 0.95%
Ratio of net investment
income to average net
assets................... 5.49% 5.41% 5.55% 6.06% 6.01%
Ratio of expenses to
average net assets*...... 1.08% 1.06% 1.05% 1.05% 1.05%
Portfolio turnover**...... 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 fund 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.
See notes to financial statements
60
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
61
<PAGE>
Mercantile Short-Intermediate Municipal Portfolio+
Q. What were economic and market conditions like during the 12 months ended
November 30, 1999?
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. In fact, the Fed eventually
did raise rates three times, in June, August and November.
Q. How did the municipal bond market perform during the period?
A. Longer-term municipal bonds trailed shorter-term municipal issues,
reflecting rising rates and uncertainty over the direction of inflation and the
strength of economic growth. However municipal bonds outperformed taxable
bonds, in part because rising interest rates discouraged refundings, leading to
low supply. Nevertheless, there was sufficient supply to offer investors some
attractive opportunities, and the Portfolio took advantage of them.
Q. How did you position the Portfolio to address those conditions?
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. The Portfolio underperformed the Lipper Short-Intermediate
Municipal Debt Funds Index,/1/ which returned 1.32% during the period, as
compared to 0.41% for the Portfolio (Investor A Shares without the maximum
sales charge).
Q. What was the average credit rating of the Portfolio's holdings?
A. We maintained the Portfolio's very high 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 inherent in such issues.
Q. Did you find attractive opportunities among certain sectors of municipal
bonds?
A. The Portfolio does not make large sector bets. However, we found
opportunities to capture attractive yields among health-care bonds early in the
period. We reduced the Portfolio's holdings in that sector later in the period.
The Portfolio as a whole held mostly general obligation issues.
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 will remain low. However, there is the potential for another
interest rate increase by the Fed during the coming months if inflation appears
to be in danger of rising. The overall bond market will likely trade in a
narrow range, with long-term yields between 6.1% and 6.5%. We expect the demand
for municipal bonds to remain strong during the coming months, and we
anticipate that the municipal market will perform well relative to the taxable
bond market.
Q. How will you position the Portfolio in that environment?
A. We will maintain the Portfolio's average maturity of between four and five
years and attempt to minimize trading in keeping with the objective of the
Portfolio. We also will continue to hold issues with high credit quality.
- -----
+ The Portfolio's income may be subject to certain state and local taxes and,
depending on your tax status, the federal alternative minimum tax.
/1/The Lipper Short-Intermediate Municipal Debt Funds Index is a managed index
which consists of funds that generally invest at least 65% of their assets in
investment-grade debt issues (rated in top four grades) with dollar-weighted
average maturities of one to five years.
62
<PAGE>
Mercantile Short-Intermediate Municipal Portfolio
[CHART]
Value of a $10,000 Investment
Lehman Brothers
Investor A Investor A 3 year Municipal
(No Load) (Load)* Bond Index
7/95 10,000 9,747 10,000
11/95 10,080 9,825 10,220
11/96 10,485 10,220 10,713
11/97 10,918 10,641 11,229
11/98 11,481 11,191 11,836
11/99 11,528 11,236 12,117
- ------------------------------------------------------------------------------
- --
Average Annual Total Returns
as of 1/30/99
- ------------------------------------------------------------------------------
- --
Since
Inception
1 Year (7/10/95)
- ------------------------------------------------------------------------------
- --
Investor A (No Load) 0.41% 3.29%
- ------------------------------------------------------------------------------
- --
Investor A* -2.07% 2.69%
- ------------------------------------------------------------------------------
- --
* Reflects 2.50% sales charge.
[CHART]
Value of a $10,000 Investment
Lehman Brothers
3 year Municipal
Trust 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
- ------------------------------------------------------------------------------
- --
Average Annual Total Returns
as of 11/30/99
- ------------------------------------------------------------------------------
- --
Since
Inception
1 Year (7/10/95)
- ------------------------------------------------------------------------------
- --
Trust 0.55% 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 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 2.50% sales charge
on Investor A Shares.
63
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Short-Intermediate Municipal Portfolio November 30, 1999
<TABLE>
<CAPTION>
Municipal Bonds (96.8%):
Security Principal Market
Description Amount Value
----------- ---------- -----------
<S> <C> <C>
Alabama (2.7%):
Alabama State Public School & College Authority,
4.40%,12/1/00......................................... $1,000,000 $ 1,004,730
-----------
Colorado (2.7%):
Jefferson County School District No. R-001, Series A,
G.O., 5.25%, 12/15/11, Callable on 12/15/08 @101 (FGIC
Insured).............................................. 1,000,000 992,500
-----------
Hawaii (4.4%):
Hawaii State Highway Revenue, 4.80%, 7/1/03............ 600,000 605,250
Hawaii State, Series CI, G.O., 4.10%, 11/1/01.......... 1,000,000 996,250
-----------
1,601,500
-----------
Illinois (7.3%):
Chicago, G.O., 5.50%, 1/1/13 (FSA Insured)............. 1,000,000 1,008,750
Du Page County, Forest Preservation District, G.O.,
5.90%, 11/1/01........................................ 500,000 515,000
Illinois State Toll Highway Authority, Toll Highway
Priority Revenue, Series A, 4.75%, 1/1/02............. 750,000 751,875
Illinois State, G.O., 5.25%, 4/1/01.................... 400,000 405,000
-----------
2,680,625
-----------
Indiana (3.9%):
Muncie School Building Corp., 4.95%, 1/15/02 (MBIA
Insured).............................................. 500,000 506,250
St. Joseph County Hospital Authority, Memorial Health
System, 4.75%, 8/15/12, Callable on 2/15/08 @ 101
(MBIA Insured)........................................ 1,000,000 933,750
-----------
1,440,000
-----------
Iowa (1.2%):
Ottumwa Community School District, G.O., 5.10%, 6/1/01
(FSA Insured)......................................... 425,000 430,313
-----------
Kansas (2.8%):
Kansas State Department of Transportation, Highway
Revenue, 5.50%, 9/1/10................................ 1,000,000 1,032,500
-----------
Maine (2.2%):
Maine Municipal Bond Bank, Series A, 4.90%, 11/1/02.... 800,000 811,000
-----------
Maryland (2.5%):
Maryland State, Department of Transportation, 2nd
Issue, 4.10%, 12/15/00................................ 400,000 400,596
Washington Suburban Sanitation District, Sewer Disposal
Revenue, G.O., 5.00%, 6/1/00.......................... 500,000 502,665
-----------
903,261
-----------
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- -----------
<S> <C> <C>
Massachusetts (5.5%):
Massachusetts State Health & Educational Facilities,
Harvard Pilgrim Health Care, Hospital & Nursing Home
Revenue, Series A, 4.13%, 7/1/02 (FSA Insured)......... $1,000,000 $ 992,500
Massachusetts State Port Authority Revenue, Series A,
5.75%, 7/1/12.......................................... 1,000,000 1,023,750
-----------
2,016,250
-----------
Michigan (7.3%):
Chelsea School District, G.O., 5.25%, 5/1/01 (FGIC Q-
SBLF Insured).......................................... 400,000 405,500
Eaton Rapids Public Schools, G.O., 5.38%, 5/1/07,
Callable on 5/1/04 @ 101 (MBIA Q-SBLF Insured)......... 1,000,000 1,037,500
Kent County Building Authority, G.O., 4.50%, 12/1/01.... 800,000 805,000
Oakland County Building Authority, 4.75%, 4/1/00,
Callable on 4/1/99 @ 101.5............................. 450,000 451,238
-----------
2,699,238
-----------
Minnesota (3.6%):
Duluth, Series A, G.O., 4.65%, 2/1/02 (FSA Insured)..... 365,000 366,825
Faribault Independent School District, G.O., 4.63%,
6/1/10, Callable on 6/1/08 @ 100 (FSA Insured)......... 1,000,000 947,500
-----------
1,314,325
-----------
Missouri (0.9%):
Jefferson County School District, G.O., 4.70%, 3/1/01
(MBIA Insured)......................................... 320,000 322,000
-----------
Nevada (3.8%):
Sparks, G.O., 4.80%, 3/1/04, Callable on 3/1/01 @ 101
(AMBAC Insured)........................................ 900,000 902,250
Washoe County School District, G.O., 5.30%, 8/1/00 (MBIA
Insured)............................................... 500,000 504,270
-----------
1,406,520
-----------
New Mexico (2.9%):
Albuquerque, Water & Sewer Revenue, 4.40%, 7/1/00....... 345,000 345,966
New Mexico State, Capital Projects, G.O., 4.60%,
8/1/00................................................. 700,000 703,136
-----------
1,049,102
-----------
New York (2.6%):
New York State, Environmental Facilities Revenue, 5.05%,
1/15/13, Callable on 7/15/08 @ 102..................... 1,000,000 961,250
-----------
North Carolina (2.7%):
North Carolina Medical Care Community, Pitt County
Memorial Hospital, Hospital & Nursing Home Revenue,
Series A, 4.00%, 12/1/01............................... 1,000,000 992,500
-----------
</TABLE>
Continued
64
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Short-Intermediate Municipal Portfolio November 30, 1999
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- -----------
<S> <C> <C>
Ohio (2.4%):
Ohio State Building Authority, 4.75%, 10/1/17, Callable
on 10/1/08 @ 101....................................... $1,000,000 $ 868,750
-----------
Oklahoma (2.7%):
Oklahoma State Capital Improvement Authority, Highway
Improvement Revenue, 4.00%, 12/1/01 (MBIA Insured)..... 1,000,000 998,750
-----------
Pennsylvania (1.1%):
Delaware County, G.O., 4.35%, 10/1/00 (Municipal
Government Guaranteed)................................. 400,000 401,564
-----------
Rhode Island (2.5%):
Rhode Island State, Series A, G.O., 4.60%, 11/1/03,
Callable on 11/1/02 @ 102.............................. 900,000 903,375
-----------
South Dakota (1.8%):
South Dakota State Building Authority, Building Revenue,
Series A, 5.00%, 9/1/02 (FSA Insured).................. 640,000 650,400
-----------
Texas (9.7%):
Dallas Water Works & Sewer System Revenue, 4.60%,....... 450,000 452,250
Houston, Series C, G.O., 5.50%, 4/1/01.................. 800,000 813,000
Plano Independent School District, G.O., 4.70%,
2/15/13,Callable on 2/15/08 @ 100 (PSF Guaranteed)..... 1,000,000 930,000
Tarrant County Water Control and Improvement District
No. 001, Water Revenue, 5.60%, 3/1/00.................. 450,000 451,724
University of Texas Permanent University Fund, College &
University Revenue, 5.00%, 7/1/14, Callable on 7/1/08
@ 100 (PUFG Guaranteed)................................ 1,000,000 952,499
-----------
3,599,473
-----------
Utah (3.4%):
Box Elder County School District, G.O., 4.80%, 6/15/01
(AMBAC Insured)........................................ 675,000 680,906
North Davis County Sewer District, G.O., 5.70%, 3/1/02
(FGIC Insured)......................................... 560,000 576,100
-----------
1,257,006
-----------
Vermont (0.7%):
Vermont Municipal Bond Bank, Series 2, 4.50%, 12/1/01
(AMBAC Insured)........................................ 270,000 271,688
-----------
Virginia (3.9%):
Loudoun County, Series A, G.O., 5.00%, 12/1/02.......... 1,000,000 1,018,750
Virginia State Public Building Authority, Building
Revenue, Series A, 5.70%, 8/1/00....................... 400,000 404,736
-----------
1,423,486
-----------
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds, continued
Shares
or
Security Principal Market
Description Amount Value
----------- ---------- ----------
<S> <C> <C>
Washington (7.7%):
Clark County Public Utilities District No. 001, Electric
Revenue, 4.60%, 1/1/01 (FGIC Insured)................... $ 500,000 $ 502,280
Grant County Public Utilities District No. 002, Electric
Revenue, Series F, 4.80%, 1/1/04 (MBIA Insured)......... 500,000 503,750
King County School District No. 414, G.O., 5.00%,
12/1/08................................................. 1,000,000 996,249
Seattle Municipal Light & Power Revenue, 4.80%, 5/1/02... 600,000 606,000
Washington State, Series R-92C, G.O., 5.75%, 9/1/02...... 250,000 258,750
----------
2,867,029
----------
Wisconsin (1.9%):
Brown County, Series A, G.O., 4.80%, 11/1/01, Callable on
11/1/00 @ 100........................................... 325,000 326,453
Milwaukee County, Series A, G.O., 5.25%, 9/1/00.......... 380,000 383,815
----------
710,268
----------
TOTAL MUNICIPAL BONDS 35,609,403
----------
</TABLE>
<TABLE>
<CAPTION>
Investment Companies (2.0%):
<S> <C> <C>
Federated Tax-Free Fund.................................... 746,000 746,000
Nuveen Tax Exempt Fund..................................... 1,000 1,000
-----------
TOTAL INVESTMENT COMPANIES 747,000
-----------
TOTAL INVESTMENTS
(Cost $36,830,709)(a)--98.8% 36,356,403
Other assets in excess of liabilities--1.2% 426,076
-----------
TOTAL NET ASSETS--100.0% $36,782,479
===========
</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....................................... $ 102,418
Unrealized depreciation....................................... (576,724)
---------
Net unrealized depreciation................................... $(474,306)
=========
</TABLE>
AMBACAMBAC Indemnity Corp.
FGICFinancial Guaranty Insurance Corp.
FSAFinancial Securities Assurance, Inc.
G.O.General Obligation
MBIAMunicipal Bond Insurance Association
PSFPermanent School Fund
PUFGPermanent University Fund Guarantee
Q-SBLFQualified-School Bond Loan Fund
See notes to financial statements
65
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Short-Intermediate Municipal Portfolio
Statement of Assets and Liabilities
November 30, 1999
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $36,830,709)................. $36,356,403
Interest and dividends receivable........................ 568,368
Prepaid expenses and other assets........................ 3,260
-----------
Total Assets............................................ 36,928,031
Liabilities:
Dividends payable....................................... $114,815
Payable to custodian for overdraft...................... 298
Accrued expenses and other liabilities:
Investment advisory fees................................ 16,763
Administration fees..................................... 911
Distribution and administrative services fees........... 4
Custodian fees.......................................... 1,587
Other liabilities....................................... 11,174
--------
Total Liabilities....................................... 145,552
-----------
Net Assets:
Capital.................................................. 37,259,026
Distributions in excess of net investment income......... (320)
Accumulated net realized losses from investment
transactions............................................ (1,921)
Net unrealized depreciation from investments............. (474,306)
-----------
Net Assets............................................... $36,782,479
===========
Investor A Shares
Net Assets.............................................. $ 19,783
Shares.................................................. 1,987
Redemption price per share.............................. $9.96
=====
Maximum Sales Charge--Investor A Shares.................. 2.50%
Maximum Offering Price
(100%/(100%--Maximum Sales Charge) of net asset value
adjusted to the nearest cent) per share................ $10.22
======
Trust Shares
Net Assets.............................................. $36,762,696
Shares.................................................. 3,703,967
Offering and redemption price per share................. $9.93
=====
</TABLE>
Statement of Operations
For the year ended November 30, 1999
<TABLE>
<S> <C> <C>
Investment Income:
Interest income.......................................... $1,771,927
Dividend income.......................................... 31,283
----------
Total Investment Income................................. 1,803,210
Expenses:
Investment advisory fees................................. $222,864
Administration fees...................................... 81,042
Distribution and services fees,
Investor A Shares....................................... 65
Administrative services fees,
Trust Shares............................................ 121,496
Accounting fees.......................................... 8,161
Custodian fees........................................... 19,216
Transfer agent fees...................................... 10,474
Other fees............................................... 8,634
--------
Total expenses before voluntary fee reductions.......... 471,952
Expenses voluntarily reduced............................ (162,027)
----------
Net Expenses............................................ 309,925
----------
Net Investment Income.................................... 1,493,285
----------
Realized/Unrealized Losses from Investments:
Net realized losses from investment transactions......... (1,921)
Net change in unrealized appreciation (depreciation) from
investments............................................. (1,303,205)
----------
Net realized/unrealized losses from investments.......... (1,305,126)
----------
Change in net assets resulting from operations........... $188,159
========
</TABLE>
See notes to financial statements
66
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Short-Intermediate Municipal Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
year ended year ended
November 30, November 30,
1999 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................... $ 1,493,285 $ 1,470,513
Net realized gains (losses) from investment
transactions....................................... (1,921) 16,005
Net change in unrealized appreciation (depreciation)
from investments................................... (1,303,205) 556,532
----------- -----------
Change in net assets resulting from operations....... 188,159 2,043,050
----------- -----------
Distributions to Investor A Shareholders:
From net investment income.......................... (754) (559)
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.......................... (1,492,531) (1,469,954)
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.. (1,509,605) (1,470,513)
----------- -----------
Change in net assets from capital transactions....... (4,789,446) 11,850,687
----------- -----------
Change in net assets................................. (6,110,892) 12,423,224
Net Assets:
Beginning of period................................. 42,893,371 30,470,147
----------- -----------
End of period....................................... $36,782,479 $42,893,371
=========== ===========
</TABLE>
See notes to financial statements
67
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Short-Intermediate Municipal Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the years ended November July 10, 1995
30, to
------------------------------------ November 30,
1999 1998 1997 1996 1995 (a)
------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................ $ 10.26 $ 10.11 $ 10.08 $ 10.08 $ 10.00
------- ------- ------- ------- -------
Investment Activities:
Net investment income.... 0.35 0.35 0.37 0.40 --
Net realized and
unrealized gains
(losses) from
investments............. (0.30) 0.15 0.03 -- 0.08
------- ------- ------- ------- -------
Total from Investment
Activities.............. 0.05 0.50 0.40 0.40 0.08
------- ------- ------- ------- -------
Distributions:
Net investment income.... (0.35) (0.35) (0.37) (0.40) --
Net realized gains....... --(e) -- -- -- --
------- ------- ------- ------- -------
Total Distributions...... (0.35) (0.35) (0.37) (0.40) --
------- ------- ------- ------- -------
Net Asset Value, End of
Period................... $ 9.96 $ 10.26 $ 10.11 $ 10.08 $ 10.08
======= ======= ======= ======= =======
Total Return (excludes
sales charge)............ 0.41% 5.16% 4.12% 4.02% 0.80%(b)
Ratios/Supplementary Data:
Net Assets at end of
period (000)............. $ 20 $ 32 $ 16 $ 51 $ -- (c)
Ratio of expenses to
average net assets....... 1.02% 0.89% 0.62% 0.56% 0.00%(d)
Ratio of net investment
income to average net
assets................... 3.43% 3.54% 3.78% 3.83% 0.00%(d)
Ratio of expenses to
average net assets*...... 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 fund as a whole
without distinguishing between the classes of shares issued.(a) Period from
commencement of operations.(b) Not annualized.(c) Only one Investor A Share,
worth $10.08, was outstanding as of November 30, 1995.(d) Annualized.
(e)Distribution per share from net realized gain was less than $0.005.
<CAPTION>
Financial Highlights, Trust Shares
For the years ended November July 10, 1995
30, to
------------------------------------ November 30,
1999 1998 1997 1996 1995 (a)
------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................ $ 10.25 $ 10.10 $ 10.07 $ 10.07 $ 10.00
------- ------- ------- ------- -------
Investment Activities:
Net investment income.... 0.37 0.38 0.40 0.41 0.14
Net realized and
unrealized gains
(losses) from
investments............. (0.32) 0.15 0.03 -- 0.07
------- ------- ------- ------- -------
Total from Investment
Activities.............. 0.05 0.53 0.43 0.41 0.21
------- ------- ------- ------- -------
Distributions:
Net investment income.... (0.37) (0.38) (0.40) (0.41) (0.14)
Net realized gains....... --(d) -- -- -- --
------- ------- ------- ------- -------
Total Distributions...... (0.37) (0.38) (0.40) (0.41) (0.14)
------- ------- ------- ------- -------
Net Asset Value, End of
Period................... $ 9.93 $ 10.25 $ 10.10 $ 10.07 $ 10.07
======= ======= ======= ======= =======
Total Return.............. 0.55% 5.36% 4.39% 4.15% 2.15%(b)
Ratios/Supplementary Data:
Net Assets at end of
period (000)............. $36,763 $42,862 $30,454 $29,472 $23,754
Ratio of expenses to
average net assets....... 0.77% 0.64% 0.38% 0.31% 0.47%(c)
Ratio of net investment
income to average net
assets................... 3.69% 3.75% 4.00% 4.07% 3.81%(c)
Ratio of expenses to
average net assets*...... 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 fund 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
68
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
69
<PAGE>
Mercantile Missouri Tax-Exempt Bond Portfolio+
Q. What were conditions in the Missouri municipal bond market during the 12
months ended November 30, 1999?
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. The Fed eventually did raise rates three
times, in June, August and November, which led to lower returns across the bond
market. 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 upper end of its
range during the period (roughly eight to nine years) in order to capture
additional yield for shareholders. The average maturity of the Portfolio is
shorter than the average maturity of most Missouri funds. That strategy
benefited the Portfolio during the recent period, as interest rates rose and
shorter-term issues outperformed longer-term bonds.
Q. What was the average credit rating of the Portfolio's holdings?
A. The Portfolio's credit rating remained very high, at AA1. That approach
benefited the Portfolio during the period, as investors favored high-quality,
liquid issues. The additional yield available on lower-rated municipal bonds
was not enough to justify their additional risk.
Q. What is your outlook for the U.S. economy and for the Missouri municipal
bond market going forward?
A. We expect moderate economic growth and low inflation during the coming
months. However, signs of rising inflation could lead the Fed to raise short-
term rates yet again. In that uncertain environment, the overall bond market
probably will trade in a narrow range, with long-term yields between 6.1% and
6.5%. We expect demand for municipal bonds to remain strong during the coming
months and supply in the Missouri market to be relatively tight. Those factors
likely will help the municipal market perform well relative to the taxable bond
market.
Q. How will you manage the Portfolio in that environment?
A. We will invest new cash in longer-term bonds 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.
- -----
+ 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.
70
<PAGE>
Mercantile Missouri Tax-Exempt Bond Portfolio
[CHART]
Value of a $10,000 Investment
Lehman Brothers
Investor A Investor A Investor B Municipal
(No Load) (Load)* (No CDSC) Bond Index
11/89 10,000 9,550 10,000 10,000
11/90 10,600.03 10,094.77 10,599.83 10,770
11/91 11,603.82 11,051.21 11,606.71 11,875
11/92 12,753.10 12,145.40 12,759.04 13,066
11/93 14,092.63 13,422.10 14,101.55 14,514
11/94 13,227.44 12,597.37 13,235.80 13,752
11/95 15,658.57 14,912.30 15,565.40 16,351
11/96 16,347.28 15,569.15 16,106.71 17,312
11/97 17,371.73 16,545.40 16,981.93 18,553
11/98 18,468.49 17,588.80 17,910.50 19,993
11/99 18,081.10 17,220.34 17,409.64 19,778
- -------------------------------------------------------------------------------
- -
Average Annual Total Returns
as of 11/30/99
- -------------------------------------------------------------------------------
- -
1 Year 5 Year 10 Year
- -------------------------------------------------------------------------------
- -
Investor A (No Load) -2.09% 6.45% 6.10%
- -------------------------------------------------------------------------------
- -
Investor A* -6.73% 5.42% 5.59%
- -------------------------------------------------------------------------------
- -
Investor B (No CDSC) -2.79% 5.63% 5.70%
- -------------------------------------------------------------------------------
- -
Investor B (CDSC)** -7.48% 5.47% 5.70%
- -------------------------------------------------------------------------------
- -
* Reflects 4.75% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[CHART]
Value of a $10,000 Investment
Lehman Brothers
Municipal
Trust Bond Index
11/89 10,000 10,000
11/90 10,627.58 10,770
11/91 11,649.45 11,875
11/92 12,822.83 13,066
11/93 14,198.52 14,514
11/94 13,353.13 13,752
11/95 15,836.78 16,351
11/96 16,565.94 17,312
11/97 17,640.32 18,553
11/98 18,790.46 19,993
11/99 18,449.55 19,778
- -------------------------------------------------------------------------------
- -
Average Annual Total Returns
as of 11/30/99
- -------------------------------------------------------------------------------
- -
1 Year 5 Year 10 Year
- -------------------------------------------------------------------------------
- -
Trust -1.81% 6.68% 6.32%
- -------------------------------------------------------------------------------
- -
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 4.75% sales charge on Investor A
Shares.
The Portfolio commenced operations on July 5, 1988 as a separate investment
portfolio (the "Predecessor Portfolio") of The Arch Tax-Exempt Trust. On
October 2, 1995, the Predecessor Portfolio was reorganized as a new portfolio
of Mercantile Mutual Funds, Inc. Prior to the reorganization, the Predecessor
Portfolio offered and sold shares that were similar to the Portfolio's Investor
A, Investor B and Trust Shares. Total returns for periods prior to October 2,
1995, reflect the performance of the Predecessor Portfolio.
Investor B Shares were initially offered on March 1, 1995. The performance
figures for Investor B Shares for periods prior to such date represent the
performance for Investor A Shares of the Portfolio, which has been restated to
reflect the contingent deferred sales charge payable by holders of Investor B
Shares who redeem within six years of the date of purchase. Investor B Shares
are also subject to distribution and service fees at a maximum annual rate of
1.00%. Had these distribution and service fees been reflected, performance
would have been reduced.
Investor B Shares (CDSC) are not included in the above graph, since the
performance is for more than six years and the CDSC would no longer apply.
After six years, the performance for Investor B Shares (CDSC) mirrors the
Investor B Shares (No CDSC) performance.
71
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Missouri Tax-Exempt Bond Portfolio November 30, 1999
<TABLE>
<CAPTION>
Municipal Bonds (95.0%):
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Missouri (89.8%):
Clayton School District, G.O., 5.00%, 3/1/17, Callable
on 3/1/07 @ 101...................................... $3,325,000 $ 3,029,906
Columbia, G.O., 5.50%, 10/1/03........................ 595,000 616,569
Columbia, G.O., 5.50%, 10/1/03........................ 660,000 682,275
Columbia, Water & Electrical Revenue, Series A, 6.13%,
10/1/12, Prerefunded on 10/1/02 @ 102................ 1,000,000 1,061,250
Franklin County Reorganized School District, No. R-XI,
G.O., 5.75%, 3/1/13, Callable 3/1/03 @ 100
(FGIC Insured)....................................... 110,000 111,925
Franklin County Reorganized School District, No. R-XI,
G.O., 5.75%, 3/1/13, Prerefunded on 3/1/03 @ 100
(FGIC Insured)....................................... 640,000 659,200
Hazelwood School District, G.O., 5.85%, 3/1/09,
Callable on 3/1/04 @ 100............................. 1,000,000 1,033,750
Jackson County School District, G.O., 4.85%, 3/1/13,
Callable on 3/1/08 @ 100............................. 2,000,000 1,885,000
Jefferson City School District, Series A, 6.70%,
3/1/11............................................... 1,000,000 1,103,750
Kansas City School District Building, Capital
Improvement Project, 5.00%, 2/1/14, Callable on
2/1/04 @ 102 (FGIC Insured).......................... 2,230,000 2,107,350
Kansas City School District Building, Capital
Improvement Project, 5.15%, 2/1/08, Callable on
2/1/04 @ 102 (FGIC Insured).......................... 2,415,000 2,430,094
Kansas City School District Building, Elementary
School Project, Series D, 5.00%, 2/1/14, Callable on
2/1/04 @ 102 (FGIC Insured).......................... 1,000,000 945,000
Kansas City School District Building, Series C, 5.38%,
7/1/05, Callable on 7/1/03 @ 101 (FGIC Insured)...... 1,000,000 1,025,000
Kansas City Sewer Revenue, 5.75%, 3/1/01.............. 1,000,000 1,018,750
Kansas City Water Revenue, Series A, 5.00%, 12/1/11,
Callable 12/1/08 @ 101............................... 4,390,000 4,291,225
Kansas City Water Revenue, Series B, 5.00%, 12/1/16,
Callable on 12/1/06 @ 101............................ 2,200,000 2,037,750
Kansas City, Series A, G.O., 5.25%, 9/1/12, Callable
on 3/1/08 @ 101...................................... 3,980,000 3,950,150
Mehlville School District No. 09, G.O., 6.00%,
2/15/13, Callable on 2/15/03 @ 102 (MBIA Insured).... 1,500,000 1,590,000
Missouri Health & Educational Facilities Authority,
Health Facilities Revenue, Nurshome Hospital, 5.00%,
5/15/28, Callable on 5/15/08 @ 101................... 3,105,000 2,615,963
Missouri Southern State College Revenue, 5.25%,
12/1/12, Prerefunded on 12/1/02 @ 100
(MBIA Insured)....................................... 750,000 767,813
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Missouri, continued:
Missouri State Board of Public Buildings, 6.40%,
12/1/09, Callable on 12/1/01 @ 100................... $1,500,000 $ 1,545,000
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 1,063,750
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 1,164,625
Missouri State Environmental Improvement & Energy
Resources Authority, Water Pollution Control Revenue,
Series A, 6.55%, 7/1/14, Callable on 7/1/02 @ 102.... 500,000 528,750
Missouri State Environmental Improvement & Energy
Resources Authority, Water Pollution Control Revenue,
Series A, 5.00%, 1/1/19, Callable 7/1/08 @ 101....... 2,200,000 1,985,500
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 2,098,250
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 1,021,250
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 1,250,000
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, Barnes
Hospital, 7.13%, 12/15/12, Prerefunded on 12/15/00
@ 102................................................ 500,000 525,565
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 2,240,625
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)..................... 600,000 636,750
Missouri State Health & Educational Facilities
Authority, Health Facilities Revenue, BJC Health
Systems, Series A, 6.75%, 5/15/12.................... 1,000,000 1,125,000
</TABLE>
Continued
72
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Missouri Tax-Exempt Bond Portfolio November 30, 1999
<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, Children's Mercy Hospital
Projects, 5.63%, 5/15/12, Callable on 5/15/03 @ 101
(MBIA Insured).......................................... $1,200,000 $ 1,216,500
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)................................................ 1,000,000 982,500
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).......................................... 750,000 780,000
Missouri State Health & Educational Facilities Authority,
Health Facilities Revenue, SSM Health Care System,
Series A, 5.00%, 6/1/10, Callable on 6/1/08 @ 101 (MBIA
Insured)................................................ 1,500,000 1,468,125
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 3,500,631
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 1,680,438
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).......................................... 390,000 413,888
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 1,912,500
Missouri State Higher Education Loan Authority, Student
Loan Revenue, Series A, 5.75%, 2/15/02.................. 1,000,000 1,021,250
Missouri State Housing Development Revenue, 6.60%,
7/1/24, Callable on 1/1/03 @ 100 (FHA Insured)............. 835,000 851,700
Missouri State Housing Development Revenue, Series B,
7.00%, 9/1/10, Callable on 9/1/01 @ 102
(FHA Insured)........................................... 455,000 472,631
Missouri State Housing Development Revenue, Series C,
6.90%, 7/1/18, Callable on 1/1/02 @ 102................. 370,000 381,100
Missouri State Water Pollution Control Revenue, Series A,
G.O., 5.75%, 8/1/18, Callable on 8/1/06 @ 100........... 2,085,000 2,087,606
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Missouri, continued
Missouri State Water Pollution Control Revenue, Series
A, G.O., 5.75%, 8/1/12, Callable on 8/1/02 @ 100...... $1,000,000 $ 1,022,500
Missouri State, Fourth Street Building, Series A, G.O.,
5.40%, 8/1/09, Callable on 8/1/06 @ 100............... 2,000,000 2,057,500
Missouri State, Third Street Building, Series A, G.O.,
5.25%, 8/1/08, Callable on 8/1/02 @ 100............... 1,000,000 1,010,000
Missouri Western State College Revenue, 5.40%, 10/1/16,
Callable on 10/1/03 @ 102 (MBIA Insured).............. 1,000,000 975,000
Missouri, Series A, G.O., 5.13%, 8/1/09, Callable on
8/1/02 @ 100.......................................... 1,000,000 1,005,000
North Kansas City Hospital Revenue, 5.00%, 11/15/28,
Callable on 11/15/08 @ 101 (AMBAC Insured)............ 3,000,000 2,598,750
O'Fallon, G.O., 5.75%, 3/1/10, Callable on 3/1/01 @ 100
(MBIA Insured)........................................ 570,000 577,125
Phelps County Hospital Revenue, Phelps County Regional
Medical Center, 8.20%, 3/1/05, Prerefunded on 3/1/00 @
102................................................... 600,000 618,108
Sikeston Electric Revenue, 5.00%, 6/1/22, Callable on
6/1/06 @ 101 (MBIA Insured)........................... 1,000,000 890,000
Sikeston Electric Revenue, 6.25%, 6/1/22, Prerefunded
on 6/1/02 @ 102 (MBIA Insured)........................ 1,000,000 1,061,250
Southeast Missouri Correctional Facilities Revenue,
5.75%, 10/15/08, Callable on 10/15/00 @ 102........... 500,000 507,500
Southeast Missouri Correctional Facilities Revenue,
5.75%, 10/15/16, Callable on 10/15/02 @ 100........... 500,000 502,500
Springfield School District No. R-12, Series A, G.O.,
5.25%, 3/1/11, Callable on 3/1/03 @ 100
(MBIA Insured)........................................ 2,000,000 2,002,500
Springfield Water Works Revenue, Series A, 5.60%,
5/1/23, Callable on 5/1/03 @ 102...................... 2,000,000 2,082,500
St. Charles County Community College, G.O., 6.00%,
2/15/09, Callable on 2/15/01 @ 102 (AMBAC Insured).... 1,000,000 1,032,500
St. Charles County Public Facilities Authority,
Leasehold Revenue, 6.38%, 3/15/07, Callable on 3/15/02
@ 102 (FGIC Insured).................................. 500,000 524,375
St. Louis Co., G.O., 5.00%, 2/1/12..................... 3,250,000 3,172,813
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.......................................... 800,000 861,000
St. Louis County Industrial Development Authority,
Pollution Control Revenue, Anheuser-Busch Co. Project,
6.65%, 5/1/16......................................... 400,000 431,000
</TABLE>
Continued
73
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Missouri Tax-Exempt Bond Portfolio November 30, 1999
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Missouri, continued
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 $ 776,250
St. Louis County, Rockwood School District No. R-6,
G.O., 5.00%, 2/1/04, Callable on 2/1/02 @ 101......... 1,000,000 1,017,500
St. Louis County, Series B, G.O., 5.50%, 2/1/13,
Callable on 2/1/03 @ 100.............................. 2,500,000 2,553,125
St. Louis Public Safety, G.O., 5.13%, 2/15/17, Callable
on 8/15/09 @ 100 (FGIC Insured)....................... 4,185,000 3,892,050
St. Louis Water Revenue, 6.00%, 7/1/14, Prerefunded on
7/1/04 @ 102 (FGIC Insured)........................... 500,000 536,250
St. Peters, G.O., 5.85%, 1/1/13, Prerefunded on 1/1/02
@ 102................................................. 1,065,000 1,114,256
St. Peters, G.O., 5.80%, 1/1/09, Prerefunded on 1/1/02
@ 102................................................. 1,740,000 1,818,300
University City Industrial Development Authority,
Multifamily Housing Revenue, Series A, 5.95%,
12/20/25, Callable on 12/20/05 @ 102.................. 1,400,000 1,408,750
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 4,762,499
University of Missouri Health Systems, Series A, 5.13%,
11/1/28, Callable on 11/1/08 @ 100 (AMBAC Insured).... 4,000,000 3,505,000
University of Missouri, University Revenue, 5.50%,
11/1/23, Callable on 11/1/03 @ 101.................... 2,000,000 1,915,000
University of Missouri, University Revenue, 5.80%,
11/1/27, Callable on 11/1/07 @ 101.................... 5,000,000 4,912,499
University of Missouri, University Revenue, 5.50%,
11/1/21, Callable on 11/1/07 @ 101.................... 3,000,000 2,880,000
University of Missouri, University Revenue, Series A,
6.50%, 11/1/11, Prerefunded on 11/1/00 @ 102 (AMBAC
Insured).............................................. 925,000 963,804
Wentzville School District No. R-4, G.O., 5.10%,
3/1/18, Callable on 3/1/08 @ 100 (FSA Insured)........ 3,000,000 2,763,750
------------
122,667,608
------------
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds, continued
Shares
or
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Puerto Rico (5.2%):
Puerto Rico Commonwealth, G.O., 6.45%, 7/1/17,
Prerefunded on 7/1/04 @ 101.5......................... $ 500,000 $ 548,750
Puerto Rico Commonwealth, Series A, G.O., 6.00%,
7/1/06, Callable on 7/1/02 @ 101.5.................... 1,000,000 1,045,000
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 3,535,000
Puerto Rico Public Buildings Authority, Public
Education and Health Facilities Revenue, Series M,
5.50%, 7/1/21, Callable on 7/1/03 @ 101.5............. 2,000,000 1,912,500
------------
7,041,250
------------
TOTAL MUNICIPAL BONDS 129,708,858
------------
<CAPTION>
Investment Companies (3.9%):
<S> <C> <C>
Federated Tax-Free Fund................................ 3,951,000 3,951,000
Nuveen Tax Exempt Fund................................. 1,436,000 1,436,000
------------
TOTAL INVESTMENT COMPANIES 5,387,000
------------
TOTAL INVESTMENTS
(Cost $137,648,595)(a)--98.9% 135,095,858
Other assets in excess of liabilities--1.1% 1,507,108
------------
TOTAL NET ASSETS--100.0% $136,602,966
============
</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.. $ 1,849,872
Unrealized depreciation.. (4,402,609)
-----------
Net unrealized deprecia-
tion.................... $(2,552,737)
===========
</TABLE>
AMBACAMBAC Indemnity Corp.
FGICFinancial Guaranty Insurance Corp.
FHAFederal Housing Administration
FSAFinancial Securities Assurance, Inc.
G.O.General Obligation
LOCLetter of Credit
MBIAMunicipal Bond Insurance Association
See notes to financial statements
74
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Missouri Tax-Exempt Bond Portfolio
Statement of Assets and Liabilities
November 30, 1999
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $137,648,595)............... $135,095,858
Interest and dividends receivable....................... 2,113,274
Prepaid expenses and other assets....................... 5,260
------------
Total Assets........................................... 137,214,392
Liabilities:
Dividends payable....................................... $529,809
Payable to custodian for overdraft...................... 66
Accrued expenses and other liabilities:
Investment advisory fees............................... 50,723
Administration fees.................................... 3,371
Distribution and administrative services fees.......... 6,422
Custodian fees......................................... 4,786
Other liabilities...................................... 16,249
--------
Total Liabilities...................................... 611,426
------------
Net Assets:
Capital................................................. 139,179,614
Distributions in excess of net investment income........ (31,632)
Accumulated net realized gains from investment
transactions........................................... 7,721
Net unrealized depreciation from investments............ (2,552,737)
------------
Net Assets.............................................. $136,602,966
============
Investor A Shares
Net Assets............................................. $ 21,241,537
Shares................................................. 1,877,478
Redemption price per share............................. $11.31
======
Maximum Sales Charge--Investor A Shares................. 4.75%
Maximum Offering Price
(100%/(100%--Maximum Sales Charge) of net asset value
adjusted to the nearest cent) per share............... $11.87
======
Investor B Shares
Net Assets............................................. $ 3,519,467
Shares................................................. 311,259
Offering price per share*.............................. $11.31
======
Trust Shares
Net Assets............................................. $111,841,962
Shares................................................. 9,882,228
Offering and redemption price per share................ $11.32
======
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
Statement of Operations
For the year ended November 30, 1999
<TABLE>
<S> <C> <C>
Investment Income:
Interest income......................................... $ 6,501,432
Dividend income......................................... 242,247
-----------
Total Investment Income................................ 6,743,679
Expenses:
Investment advisory fees................................ $586,025
Administration fees..................................... 260,457
Distribution and services fees,
Investor A Shares...................................... 69,307
Distribution and services fees,
Investor B Shares...................................... 33,805
Administrative services fees, Trust Shares.............. 311,235
Accounting fees......................................... 10,081
Custodian fees.......................................... 62,245
Transfer agent fees..................................... 32,153
Other fees.............................................. 55,865
--------
Total expenses before voluntary fee reductions......... 1,421,173
Expenses voluntarily reduced........................... (475,511)
-----------
Net Expenses........................................... 945,662
-----------
Net Investment Income................................... 5,798,017
-----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains from investment transactions......... 7,718
Net change in unrealized appreciation (depreciation)
from investments....................................... (8,451,546)
-----------
Net realized/unrealized losses from investments......... (8,443,828)
-----------
Change in net assets resulting from operations.......... $(2,645,811)
===========
</TABLE>
See notes to financial statements
75
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Missouri Tax-Exempt Bond Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
year ended year ended
November 30, November 30,
1999 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 5,798,017 $ 4,850,391
Net realized gains from investment transactions... 7,718 281,600
Net change in unrealized appreciation (deprecia-
tion) from investments........................... (8,451,546) 1,598,199
------------ ------------
Change in net assets resulting from operations..... (2,645,811) 6,730,190
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (994,373) (1,054,885)
In excess of net investment income................ (5,425) --
From net realized gains from investment transac-
tions............................................ (31,904) --
Distributions to Investor B Shareholders:
From net investment income........................ (119,095) (70,214)
In excess of net investment income................ (650) --
From net realized gains from investment transac-
tions............................................ (3,590) --
Distributions to Trust Shareholders:
From net investment income........................ (4,684,549) (3,725,292)
In excess of net investment income................ (25,557) --
From net realized gains from investment transac-
tions............................................ (127,535) --
------------ ------------
Change in net assets from shareholder distribu-
tions............................................. (5,992,678) (4,850,391)
------------ ------------
Change in net assets from capital transactions..... 24,732,551 18,078,730
------------ ------------
Change in net assets............................... 16,094,062 19,958,529
Net Assets:
Beginning of period............................... 120,508,904 100,550,375
------------ ------------
End of period..................................... $136,602,966 $120,508,904
============ ============
</TABLE>
See notes to financial statements
76
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Missouri Tax-Exempt Bond Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
six months For the
For the years ended November 30, ended year ended
--------------------------------------- November 30, May 31,
1999 1998 1997 1996 1995 (d) 1995 (a)
-------- -------- -------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 12.08 $ 11.87 $ 11.69 $ 11.74 $ 11.52 $ 11.13
-------- -------- -------- -------- ------- -------
Investment Activities
Net investment income.. 0.50 0.52 0.53 0.55 0.27 0.55
Net realized and
unrealized gains
(losses) from
investments........... (0.74) 0.21 0.18 (0.05) 0.22 0.40
-------- -------- -------- -------- ------- -------
Total from Investment
Activities............ (0.24) 0.73 0.71 0.50 0.49 0.95
-------- -------- -------- -------- ------- -------
Distributions
Net investment income.. (0.51) (0.52) (0.53) (0.55) (0.27) (0.55)
Net realized gains..... (0.02) -- -- -- -- (0.01)
-------- -------- -------- -------- ------- -------
Total Distributions.... (0.53) (0.52) (0.53) (0.55) (0.27) (0.56)
-------- -------- -------- -------- ------- -------
Net Asset Value, End of
Period................. $ 11.31 $ 12.08 $ 11.87 $ 11.69 $ 11.74 $ 11.52
======== ======== ======== ======== ======= =======
Total Return (excludes
sales charge).......... (2.09)% 6.31% 6.27% 4.41% 4.32%(b) 8.91%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 21,242 $ 23,611 $ 23,722 $ 25,144 $24,726 $24,318
Ratio of expenses to
average net assets..... 0.86% 0.86% 0.86% 0.85% 0.95%(c) 0.84%
Ratio of net investment
income to average net
assets................. 4.30% 4.38% 4.57% 4.75% 4.64%(c) 5.02%
Ratio of expenses to
average net assets*.... 1.07% 1.06% 1.06% 1.05% 1.18%(c) 1.18%
Portfolio turnover**.... 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 fund as a whole
without distinguishing between the classes of shares issued. (a) On September
27, 1994, the Portfolio redesignated the Investor Shares as "Investor A"
Shares, and authorized the issuance of a series of shares designated as
"Investor B" Shares. (b) Not annualized. (c) Annualized. (d) Upon reorganizing
as a Portfolio of the ARCH Fund, Inc., the Missouri Tax-Exempt Bond Portfolio
changed its fiscal year end from May 31 to November 30.
Financial Highlights, Investor B Shares
<CAPTION>
For the
six months March 1,
For the years ended November 30, ended 1995 to
--------------------------------------- November 30, May 31,
1999 1998 1997 1996 1995 (e) 1995 (a)
-------- -------- -------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 12.07 $ 11.86 $ 11.68 $ 11.74 $ 11.52 $ 11.19
-------- -------- -------- -------- ------- -------
Investment Activities
Net investment income.. 0.41 0.43 0.44 0.45 0.22 0.11
Net realized and
unrealized gains
(losses) from
investments........... (0.73) 0.21 0.18 (0.06) 0.22 0.33
-------- -------- -------- -------- ------- -------
Total from Investment
Activities............ (0.32) 0.64 0.62 0.39 0.44 0.44
-------- -------- -------- -------- ------- -------
Distributions
Net investment income.. (0.42) (0.43) (0.44) (0.45) (0.22) (0.11)
Net realized gains..... (0.02) -- -- -- -- --
-------- -------- -------- -------- ------- -------
Total Distributions.... (0.44) (0.43) (0.44) (0.45) (0.22) (0.11)
-------- -------- -------- -------- ------- -------
Net Asset Value, End of
Period................. $ 11.31 $ 12.07 $ 11.86 $ 11.68 $ 11.74 $ 11.52
======== ======== ======== ======== ======= =======
Total Return (excludes
redemption charge)..... (2.79)% 5.47% 5.43% 3.48% 3.88%(b) 8.61%(c)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 3,519 $ 2,496 $ 1,398 $ 675 $ 433 $ 94
Ratio of expenses to
average net assets..... 1.66% 1.66% 1.66% 1.65% 1.77%(d) 1.76%(d)
Ratio of net investment
income to average net
assets................. 3.51% 3.57% 3.76% 3.96% 3.82%(d) 4.00%(d)
Ratio of expenses to
average net assets*.... 1.77% 1.76% 1.76% 1.75% 1.87%(d) 1.88%(d)
Portfolio turnover**.... 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 fund as a whole
without distinguishing between the classes of shares issued. (a) On September
27, 1994, the Portfolio redesignated Investor shares as "Investor A" shares
and authorized the issuance of a third series of shares designated as
"Investor B" shares. These financial highlights of Investor B shares cover the
period from March 1, 1995 (commencement of operations) through May 31, 1995.
(b) Not annualized. (c) Represents total return for the Investor A Shares from
June 1, 1994 to February 28, 1995, plus the total return for the Investor B
Shares for the period from March 1, 1995 to May 31, 1995. (d) Annualized. (e)
Upon reorgainizing 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.
See notes to financial statements
77
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Missouri Tax-Exempt Bond Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the
six months For the
For the years ended November 30, ended year ended
------------------------------------ November 30, May 31,
1999 1998 1997 1996 1995 (c) 1995
-------- ------- ------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 12.08 $ 11.87 $ 11.69 $ 11.74 $ 11.52 $ 11.13
-------- ------- ------- ------- ------- -------
Investment Activities
Net investment income.. 0.53 0.55 0.56 0.57 0.28 0.57
Net realized and
unrealized gains
(losses) from
investments........... (0.74) 0.21 0.18 (0.05) 0.22 0.40
-------- ------- ------- ------- ------- -------
Total from Investment
Activities............ (0.21) 0.76 0.74 0.52 0.50 0.97
-------- ------- ------- ------- ------- -------
Distributions
Net investment income.. (0.53) (0.55) (0.56) (0.57) (0.28) (0.57)
Net realized gains..... (0.02) -- -- -- -- (0.01)
-------- ------- ------- ------- ------- -------
Total Distributions.... (0.55) (0.55) (0.56) (0.57) (0.28) (0.58)
-------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 11.32 $ 12.08 $ 11.87 $ 11.69 $ 11.74 $ 11.52
======== ======= ======= ======= ======= =======
Total Return............ (1.81)% 6.52% 6.48% 4.62% 4.41%(a) 9.12%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $111,842 $94,402 $75,431 $55,905 $47,773 $44,336
Ratio of expenses to
average net assets..... 0.66% 0.66% 0.66% 0.65% 0.78%(b) 0.64%
Ratio of net investment
income to average net
assets................. 4.51% 4.57% 4.76% 4.95% 4.83%(b) 5.22%
Ratio of expenses to
average net assets*.... 1.07% 1.06% 1.06% 0.75% 0.88%(b) 1.16%
Portfolio turnover**.... 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 fund 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.
See notes to financial statements
78
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
79
<PAGE>
Mercantile National Municipal Bond Portfolio+
Q. What were conditions in the economy and the municipal bond market during
the 12 months ended November 30, 1999?
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 pace and inflation would remain low. But recurrent
signs of rapid economic growth caused the Fed to raise short-term rates on
three occasions in order to head off inflation.
Q. How did the municipal bond market perform in that environment?
A. The performance of both the municipal bond market and the overall bond
market were dampened by rising interest rates. Longer-term municipal bonds
trailed shorter-term munis in that environment. Municipal bonds outperformed
taxable bonds, in part because supply for municipal issues was relatively weak.
Because of rising interest rates, there were fewer municipal refundings. There
were, however, some attractive opportunities among new municipal issues.
Q. How did you position the Portfolio in that environment?
A. We reduced the Portfolio's average maturity slightly during the period--
from around ten years to approximately nine years. That move helped support the
Portfolio's total return as interest rates rose without giving up much yield.
The average credit rating of the Portfolio remained very high, at AA1. The
yield advantage on lower-quality bonds was not sufficient to make up for those
issues' additional risk. Our approach helped performance, as investors
continued to favor high-quality, liquid issues during the period.
Q. In what sectors of the municipal market did you find attractive
opportunities?
A. The Portfolio did not make large sector bets. However, we found
opportunities to capture attractive yields among health-care bonds early in the
period. We later reduced the Portfolio's holdings in that sector.*
Q. What is your outlook for the months ahead?
A. In our opinion, the economy will likely grow at a moderate pace, with low
inflation. However, the Fed may raise rates in 2000 if inflation appears to be
in danger of rising. In that somewhat uncertain environment, the overall bond
market will likely trade in a narrow range, with long-term yields between 6.1%
and 6.5%. Demand for municipal bonds should remain strong, and the municipal
market should continue to perform well relative to the taxable bond market.
Q. How will you manage the Portfolio given those conditions?
A. We will maintain the Portfolio's current position, with an average
maturity of between nine and ten years, in order to capture attractive yields
for shareholders. We also will continue to invest in bonds with very high
credit ratings, because the higher yields of lower-quality bonds do not justify
their additional risk.
- -----
+ The Portfolio's income may be subject to certain state and local taxes and,
depending on your tax status, the federal alternative minimum tax.
* Portfolio composition is subject to change.
80
<PAGE>
Mercantile National Municipal Bond Portfolio
[CHART]
Value of a $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 9,551 10,000 10,000 10,000
11/30/97 10,073 9,620 10,070 9,570 10,566
11/97 10,839 10,352 10,775 10,275 11,311
11/98 11,658 11,135 11,496 11,196 12,192
11/99 11,324 10,785 11,032 10,750 12,141
- ---------------------------------------------------------
Average Annual Total Returns
as of 11/30/99
- ---------------------------------------------------------
Since
Inception
1 Year (11/18/96)
- ---------------------------------------------------------
Investor A (No Load) -2.87% 4.18%
- ---------------------------------------------------------
Investor A* -7.48% 2.52%
- ---------------------------------------------------------
Investor B (No CDSC) -4.03% 3.29%
- ---------------------------------------------------------
Investor B (CDSC)** -8.63% 2.41%
- ---------------------------------------------------------
* Reflects 4.75% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[CHART]
Value of a $10,000 Investment
Lehman Brothers
10 Year Municipal
Trust Bond Index
11/18/96 10,000 10,000
11/30/97 10,074 10,566
11/30/97 10,876 11,311
11/98 11,720 12,192
11/99 11,372 12,141
- ---------------------------------------------------------
Average Annual Returns
as of 11/30/99
- ---------------------------------------------------------
Since
Inception
1 Year (11/18/96)
- ---------------------------------------------------------
Trust -2.97% 4.33%
- ---------------------------------------------------------
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 4.75%
sales charge on Investor A Shares and the applicable contingent deferred sales
charge (CDSC) on Investor B Shares.
81
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
National Municipal Bond Portfolio November 30, 1999
<TABLE>
<CAPTION>
Municipal Bonds (97.7%):
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Alaska (0.3%):
Alaska State, Housing Finance Corp., Series A, 5.70%,
12/1/11, Callable on 12/1/05 @ 102 (MBIA Insured)..... $1,000,000 $ 1,011,250
------------
California (6.1%):
Sacramento Municipal Utility District, Electric Power &
Light Revenue, Series L, 5.10%, 7/1/13, Callable on
7/1/07 @ 102 (AMBAC Insured).......................... 9,000,000 8,820,000
San Francisco Bay Area Rapid Transit Tax Revenue,
5.25%, 7/1/17, Callable on 7/1/08 @ 101............... 5,000,000 4,781,250
Southern California Public Power Authority, Electric
Power & Light Revenue, Palo Verde, Series A, 5.00%,
7/1/15, Callable on 7/1/03 @ 102 (AMBAC-TCRS
Insured).............................................. 7,000,000 6,580,000
------------
20,181,250
------------
Colorado (3.7%):
Adams County School District No. 012, G.O., 5.40%,
12/15/13, Callable on 12/15/07 @ 101 (FGIC Insured)... 6,655,000 6,646,681
Colorado Springs, Utilities Revenue, System
Improvement, Series A, 5.25%, 11/15/22, Callable on
11/15/07 @ 100........................................ 6,160,000 5,613,300
------------
12,259,981
------------
Connecticut (3.9%):
Connecticut State, Clean Water Foundation Revenue,
5.25%, 3/1/20, Callable on 3/1/08 @ 101............... 4,360,000 4,092,950
Connecticut State, Series A, G.O., 5.25%, 3/1/13,
Callable on 3/1/07 @ 101.............................. 8,785,000 8,675,188
------------
12,768,138
------------
District of Columbia (1.5%):
District of Columbia Water & Sewer Authority Revenue,
5.50%, 10/1/18, Callable on 4/1/09 @ 160 (FSA
Insured).............................................. 5,000,000 4,862,500
------------
Florida (5.5%):
Florida State Department of Environmental Preservation
2000, General Services Revenue, Series A, 5.50%,
7/1/13, Callable on 7/1/06 @ 101 (MBIA Insured)....... 5,000,000 5,031,250
Florida State Department of Transportation, G.O.,
5.25%, 7/1/17, Callable on 7/1/06 @ 101............... 5,525,000 5,200,406
Palm Beach County, Park & Recreational Facilities
Revenue, 5.25%, 11/1/16, Callable on 11/1/06 @ 102
(FSA Insured) 5,000,000 4,781,250
Palm Beach County, Solid Waste Authority Revenue,
Series B, 5.38%, 10/1/11, Callable on 10/1/06 @ 101
(AMBAC Insured)....................................... 3,000,000 3,026,250
------------
18,039,156
------------
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Hawaii (3.8%):
Hawaii State, Series CN, G.O., 5.50%, 3/1/14, Callable
on 3/1/07 @ 102 (FGIC Insured)........................ $8,000,000 $ 7,960,000
Hawaii State, Series CR, G.O., 5.00%, 4/1/16, Callable
on 4/1/08 @ 101 (MBIA Insured)........................ 5,000,000 4,562,500
------------
12,522,500
------------
Illinois (10.2%):
Chicago Metropolitan Water Reclamation District, G.O.,
5.25%, 12/1/14, Callable on 12/1/08 @102.............. 5,000,000 4,812,500
Cook County, Series A, G.O., 6.25%, 11/15/12 (MBIA
Insured).............................................. 9,090,000 9,839,925
Cook County, Series B, G.O., 5.13%, 11/15/16, Callable
on 11/15/07 @ 101 (MBIA Insured)...................... 6,000,000 5,445,000
Illinois Health Facility Authority, 5.38%, 7/1/17,
Callable on 7/1/07 @ 101 (MBIA Insured)............... 5,395,000 5,125,250
Illinois State, G.O., 5.25%, 2/1/13, Callable on 2/1/07
@ 101 (FGIC Insured).................................. 8,400,000 8,200,500
------------
33,423,175
------------
Indiana (1.1%):
Indiana Transportation Finance Authority, Highway
Revenue, Series A, 5.75%, 6/1/12 (AMBAC Insured)...... 3,500,000 3,631,250
------------
Maryland (2.1%):
Maryland State and Local Facilities, 2nd Series, G.O.,
5.00%, 8/1/08, Callable on 8/1/07 @ 101............... 7,000,000 7,052,500
------------
Massachusetts (5.6%):
Massachusetts Bay Transportation Authority, Series A,
5.00%, 3/1/12, Callable on 3/1/07 @ 101 (FGIC
Insured).............................................. 5,795,000 5,599,419
Massachusetts Bay Transportation Authority, Series A,
5.13%, 3/1/17, Callable on 3/1/07 @ 101 (FGIC
Insured).............................................. 6,165,000 5,664,094
Massachusetts State Water Pollution Abatement Trust,
Series 3, 5.63%, 2/1/15, Callable on 2/1/07 @ 101..... 7,115,000 7,150,575
------------
18,414,088
------------
Minnesota (4.7%):
Minnesota State, G.O., 4.90%, 8/1/14, Callable on
8/1/07 @ 100.......................................... 5,000,000 4,650,000
Monticello Independent School District No. 882, G.O.,
5.40%, 2/1/15, Callable on 2/1/06 @ 100............... 6,000,000 6,127,500
Rochester Health Care Facilities, Mayo Foundation,
Series A, 5.38%, 11/15/18, Callable on 5/15/08 @101... 5,000,000 4,731,250
------------
15,508,750
------------
</TABLE>
Continued
82
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
National Municipal Bond Portfolio November 30, 1999
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- -------------
<S> <C> <C>
Mississippi (2.0%):
Mississippi State, Series A, G.O., 5.13%, 7/1/14,
Callable on 7/1/07 @ 100............................ $6,835,000 $ 6,535,969
-------------
Nevada (5.3%):
Clark County Flood Control, Series F, G.O., 5.00%,
11/1/12, Callable on 11/1/08 @ 101 (FGIC Insured)... 6,460,000 6,217,750
Clark County School District, Series B, G.O., 5.50%,
6/15/11, Callable on 6/15/07 @ 101 (FGIC Insured)... 5,000,000 5,050,000
Nevada State, 5.00%, 5/15/15, Callable on 5/15/08 @
100................................................. 6,745,000 6,213,831
-------------
17,481,581
-------------
New Jersey (6.2%):
Camden County, Municipal Utilities Authority Sewer
Revenue, Series C, G.O., 5.10%, 7/15/12, Callable on
7/15/08 @101........................................ 5,000,000 4,900,000
New Jersey State Transportation System, Series A,
5.00%, 6/15/14, Callable on 6/15/08 @100............ 7,500,000 7,068,750
New Jersey State, Series E, G.O., 6.00%, 7/15/09 .... 8,000,000 8,600,000
-------------
20,568,750
-------------
New York (1.5%):
New York State Thruway Authority, Series A, 5.25%,
4/1/14, Callable on 4/1/07 @ 102 (AMBAC Insured).... 5,000,000 4,868,750
-------------
North Carolina (2.4%):
North Carolina State, Series A, G.O., 5.20%, 3/1/13,
Callable on 3/1/07 @ 102............................ 8,000,000 7,890,000
-------------
North Dakota (1.5%):
Fargo Water Revenue, 5.13%, 1/1/17, Callable on
1/1/08 @ 100 (MBIA Insured)......................... 5,250,000 4,777,500
-------------
Ohio (2.1%):
Ohio State Building Authority, 4.75%, 10/1/17,
Callable on 10/1/08 @ 101........................... 8,000,000 6,950,000
-------------
Oregon (1.9%):
Washington County, Unified Sewer Agency, Sewer
Revenue, Series 1, 5.75%, 10/1/10 (FGIC Insured).... 6,110,000 6,392,588
-------------
Pennsylvania (2.7%):
Pennsylvania State, G.O., 5.13%, 9/15/11, Callable on
3/15/07 @ 101.5 (AMBAC Insured)..................... 9,000,000 8,921,250
-------------
</TABLE>
<TABLE>
<CAPTION>
Municipal Bonds, continued
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Rhode Island (1.5%):
Rhode Island State, Series A, G.O., 5.13%, 8/1/12,
Callable on 8/1/07 @ 101 (MBIA Insured).............. $5,055,000 $ 4,941,263
------------
Texas (10.1%):
Harris County Health Facilities Development Revenue,
Memorial Hospital Systems Project, Series A, 5.50%,
6/1/17, Callable on 6/1/07 @ 102 (MBIA Insured)...... 8,000,000 7,719,999
San Antonio Independent School District, G.O., 5.13%,
8/15/14, Callable on 8/15/08 @ 100 (PSF Guaranteed).. 6,000,000 5,715,000
Texas State, G.O., 5.40%, 8/1/21, Callable on 8/1/06 @
100.................................................. 6,750,000 6,345,000
University of Texas Permanent University Fund, College
& University Revenue, 5.00%, 7/1/14, Callable on
7/1/08 @ 100 (PUFG Guaranteed)....................... 7,060,000 6,724,650
University of Texas, College & University Revenue,
Series B, 5.10%, 8/15/13, Callable on 8/15/06 @ 102.. 7,500,000 7,190,625
------------
33,695,274
------------
Utah (1.9%):
Utah State, Series F, G.O., 5.00%, 7/1/09, Callable on
7/1/07 @ 100......................................... 6,200,000 6,192,250
------------
Virginia (1.5%):
Virginia State Transportation Board, Transportation
Contract Revenue, U.S. Route 58 Corridor, Series B,
5.13%, 5/15/12, Callable on 5/15/06 @ 101............ 4,920,000 4,797,000
------------
Washington (6.1%):
King County School District No. 415, G.O., 5.35%,
12/1/16, Callable on 12/1/07 @ 100 (MBIA Insured).... 4,050,000 3,862,688
King County, Series F, G.O., 5.13%, 12/1/14, Callable
on 12/1/07 @ 100..................................... 5,000,000 4,731,250
Washington State Motor Vehicle Fuel Tax, Series D,
G.O., 5.38%, 1/1/22, Callable on 1/1/07 @ 100 (FGIC
Insured)............................................. 8,000,000 7,399,999
Washington State, Series C, G.O., 5.50%, 1/1/17,
Callable on 1/1/07
@ 100................................................ 4,190,000 4,038,113
------------
20,032,050
------------
West Virginia (2.5%):
West Virginia School Building Authority Revenue,
5.40%, 7/1/10, Callable on 7/1/07 @ 102 (AMBAC
Insured)............................................. 7,940,000 8,108,725
------------
TOTAL MUNICIPAL BONDS 321,827,488
------------
</TABLE>
Continued
83
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
National Municipal Bond Portfolio November 30, 1999
<TABLE>
<CAPTION>
Investment Companies (1.1%):
Security Market
Description Shares Value
----------- --------- ------------
<S> <C> <C>
Federated Tax-Free Fund................................ 3,471,000 $ 3,471,000
Nuveen Tax Exempt Fund................................. 1,000 1,000
------------
TOTAL INVESTMENT COMPANIES 3,472,000
------------
TOTAL INVESTMENTS
(Cost $332,712,110)(a)--98.8% 325,299,488
Other assets in excess of liabilities--1.2% 3,869,418
------------
TOTAL NET ASSETS--100.0% $329,168,906
============
</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.. $ 1,370,673
Unrealized depreciation.. (8,783,295)
-----------
Net unrealized
depreciation............ $(7,412,622)
===========
</TABLE>
AMBACAMBAC Indemnity Corp.
FGICFinancial Guaranty Insurance Corp.
FSAFinancial Securities Assurance, Inc.
G.O.General Obligation
MBIAMunicipal Bond Insurance Association
PSFPermanent School Fund
PUFGPermanent University Fund Guarantee
TCRSTransferrable Custodial Receipts
See notes to financial statements
84
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
National Municipal Bond Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
November 30, 1999
<S> <C> <C>
Assets:
Investments, at value (cost $332,712,110)............. $325,299,488
Cash.................................................. 972
Interest and dividends receivable..................... 5,302,573
Deferred organizational costs......................... 14,251
Prepaid expenses and other assets..................... 14,427
------------
Total Assets......................................... 330,631,711
Liabilities:
Dividends payable..................................... $1,247,044
Accrued expenses and other liabilities:
Investment advisory fees............................. 150,627
Administration fees.................................. 8,148
Distribution and administrative services fees........ 938
Custodian fees....................................... 11,595
Other liabilities.................................... 44,453
----------
Total Liabilities.................................... 1,462,805
------------
Net Assets:
Capital............................................... 337,180,912
Distributions in excess of net investment income...... (256,021)
Accumulated net realized losses from investment
transactions......................................... (343,363)
Net unrealized depreciation from investments.......... (7,412,622)
------------
Net Assets............................................ $329,168,906
============
Investor A Shares
Net Assets........................................... $ 1,582,011
Shares............................................... 167,803
Redemption price per share........................... $9.43
=====
Maximum Sales Charge -- Investor A Shares............. 4.75%
Maximum Offering Price (100%/(100% -- Maximum Sales
Charge) of net asset value adjusted to the nearest
cent) per share..................................... $9.90
=====
Investor B Shares
Net Assets........................................... $ 747,113
Shares............................................... 79,355
Offering price per share*............................ $9.41
=====
Trust Shares
Net Assets........................................... $326,839,782
Shares............................................... 34,741,138
Offering and redemption price per share.............. $9.41
=====
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
<TABLE>
<CAPTION>
Statement of Operations
For the year ended November 30, 1999
<S> <C> <C>
Investment Income:
Interest income...................................... $ 18,526,192
Dividend income...................................... 107,339
------------
Total Investment Income............................. 18,633,531
Expenses:
Investment advisory fees............................. $2,017,683
Administration fees.................................. 733,709
Distribution and services fees, Investor A Shares.... 5,256
Distribution and services fees, Investor B Shares.... 7,727
Administrative services fees, Trust Shares........... 1,092,983
Accounting fees...................................... 7,240
Custodian fees....................................... 160,728
Transfer agent fees.................................. 93,203
Other................................................ 144,475
----------
Total expenses before voluntary fee reductions...... 4,263,004
Expenses voluntarily reduced........................ (1,485,563)
------------
Net Expenses........................................ 2,777,441
------------
Net Investment Income................................ 15,856,090
------------
Realized/Unrealized Losses from Investments:
Net realized losses from investment transactions..... (343,264)
Net change in unrealized appreciation (depreciation)
from investments.................................... (26,887,094)
------------
Net realized/unrealized losses from investments...... (27,230,358)
------------
Change in net assets resulting from operations....... $(11,374,268)
============
</TABLE>
See notes to financial statements
85
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
National Municipal Bond Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
year ended year ended
November 30, November 30,
1999 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 15,856,090 $ 16,839,148
Net realized gains (losses) from investment
transactions..................................... (343,264) 3,596,137
Net change in unrealized appreciation
(depreciation) from investments.................. (26,887,094) 7,680,490
------------ ------------
Change in net assets resulting from operations..... (11,374,268) 28,115,775
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (72,676) (68,990)
In excess of net investment income................ (1,174) --
From net realized gains from investment
transactions..................................... (9,653) (24,447)
In excess of net realized gains from investment
transactions..................................... (1,019) --
Distributions to Investor B Shareholders:
From net investment income........................ (26,003) (14,432)
In excess of net investment income................ (420) --
From net realized gains from investment
transactions..................................... (4,241) (13,927)
In excess of net realized gains from investment
transactions..................................... (448) --
Distributions to Trust Shareholders:
From net investment income........................ (15,757,410) (16,755,726)
In excess of net investment income................ (254,526) --
From net realized gains from investment
transactions..................................... (3,239,010) (12,517,074)
In excess of net realized gains from investment
transactions..................................... (341,765) --
------------ ------------
Change in net assets from shareholder
distributions..................................... (19,708,345) (29,394,596)
------------ ------------
Change in net assets from capital transactions..... (25,930,814) 19,447,068
------------ ------------
Change in net assets............................... (57,013,427) 18,168,247
Net Assets:
Beginning of period............................... 386,182,333 368,014,086
------------ ------------
End of period..................................... $329,168,906 $386,182,333
============ ============
</TABLE>
See notes to financial statements
86
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
National Municipal Bond Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
November 18, 1996
For the years ended November 30, to
------------------------------------ November 30,
1999 1998 1997 1996 (a)
---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 10.22 $ 10.27 $ 10.05 $10.00
---------- ---------- ---------- ------
Investment Activities
Net investment income.. 0.41 0.44 0.52 0.02
Net realized and
unrealized gains
(losses) from
investments........... (0.69) 0.30 0.22 0.05
---------- ---------- ---------- ------
Total from Investment
Activities............ (0.28) 0.74 0.74 0.07
---------- ---------- ---------- ------
Distributions
Net investment income.. (0.40) (0.44) (0.52) (0.02)
In excess of net
investment income..... (0.01) -- -- --
Net realized gains..... (0.09) (0.35) -- --
In excess of net
realized gains........ (0.01) -- -- --
---------- ---------- ---------- ------
Total Distributions.... (0.51) (0.79) (0.52) (0.02)
---------- ---------- ---------- ------
Net Asset Value, End of
Period................. $ 9.43 $ 10.22 $ 10.27 $10.05
========== ========== ========== ======
Total Return (excludes
sales charge).......... (2.87)%+ 7.56% 7.61% 0.73%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 1,582 $ 1,162 $ 717 $ 1
Ratio of expenses to
average net assets..... 0.96% 0.85% 0.35% 0.37%(c)
Ratio of net investment
income to average net
assets................. 4.14% 4.18% 4.71% 9.08%(c)
Ratio of expenses to
average net assets*.... 1.16% 1.16% 1.17% 1.07%(c)
Portfolio turnover**.... -- 18.30% 83.94% --
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized. + Incurred
class specific gains. The total return excluding this would have been (3.14)%.
Financial Highlights, Investor B Shares
<TABLE>
<CAPTION>
November 18, 1996
For the years ended November 30, to
----------------------------------- November 30,
1999 1998 1997 1996 (a)
---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 10.24 $ 10.29 $ 10.05 $10.00
---------- ---------- ---------- ------
Investment Activities
Net investment income.. 0.33 0.36 0.44 0.02
Net realized and
unrealized gains
(losses) from
investments........... (0.72) 0.30 0.24 0.05
---------- ---------- ---------- ------
Total from Investment
Activities............ (0.39) 0.66 0.68 0.07
---------- ---------- ---------- ------
Distributions
Net investment income.. (0.33) (0.36) (0.44) (0.02)
In excess of net
investment income..... (0.01) -- -- --
Net realized gains..... (0.09) (0.35) -- --
In excess of net
realized gains........ (0.01) -- -- --
---------- ---------- ---------- ------
Total Distributions.... (0.44) (0.71) (0.44) (0.02)
---------- ---------- ---------- ------
Net Asset Value, End of
Period................. $ 9.41 $ 10.24 $ 10.29 $10.05
========== ========== ========== ======
Total Return (excludes
redemption charge)..... (4.03)% 6.69% 7.01% 0.70%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 747 $ 503 $ 408 $ 1
Ratio of expenses to
average net assets..... 1.76% 1.56% 1.17% 1.10%(c)
Ratio of net investment
income to average net
assets................. 3.34% 3.51% 4.08% 8.35%(c)
Ratio of expenses to
average net assets*.... 1.86% 1.86% 1.89% 1.80%(c)
Portfolio turnover**.... -- 18.30% 83.94% --
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
See notes to financial statements.
87
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
National Municipal Bond Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
November 18, 1996
For the years ended November 30, to
----------------------------------- November 30,
1999 1998 1997 1996 (a)
---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 10.23 $ 10.28 $ 10.05 $ 10.00
---------- ---------- ---------- --------
Investment Activities:
Net investment income.. 0.43 0.46 0.54 0.02
Net realized and
unrealized gains
(losses) from
investments........... (0.72) 0.30 0.23 0.05
---------- ---------- ---------- --------
Total from Investment
Activities............ (0.29) 0.76 0.77 0.07
---------- ---------- ---------- --------
Distributions:
Net investment income.. (0.42) (0.46) (0.54) (0.02)
In excess of net
investment income..... (0.01) -- -- --
Net realized gains..... (0.09) (0.35) -- --
In excess of net
realized gains........ (0.01) -- -- --
---------- ---------- ---------- --------
Total Distributions.... (0.53) (0.81) (0.54) (0.02)
---------- ---------- ---------- --------
Net Asset Value, End of
Period................. $ 9.41 $ 10.23 $ 10.28 $ 10.05
========== ========== ========== ========
Total Return............ (2.97)% 7.76% 7.97% 0.74%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 326,840 $ 384,518 $ 366,889 $310,413
Ratio of expenses to
average net assets..... 0.76% 0.56% 0.14% 0.12%(c)
Ratio of net investment
income to average net
assets................. 4.33% 4.52% 5.38% 5.77%(c)
Ratio of expenses to
average net assets*.... 1.16% 1.16% 1.17% 0.82%(c)
Portfolio turnover**.... -- 18.30% 83.94% --
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
See notes to financial statetments.
88
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
89
<PAGE>
Mercantile Balanced Portfolio
Q. What were the conditions in the financial markets during the 12 months
through November 30, 1999?
A. In the second quarter, the stock market broadened to include strong
performances by cyclical and value stocks, as well as shares of small
companies. That broadening came after a long period of outperformance by shares
of the largest growth companies, and resulted from disappointing first-quarter
revenue numbers from some technology and other growth-oriented firms. Such
companies rebounded, however, to drive the market's gains in the second half of
the period.
Inflationary signs led the Fed to raise interest rates three times during the
period, each time by one quarter of a percentage point. Bond yields began the
period near their all-time lows, but climbed throughout the period, resulting
in a decline in bond prices. The yield on the 30-year Treasury bond rose from
5.1% on December 1, 1998, to 6.3% on November 30, 1999.
Q. How did you allocate the Portfolio's assets among stocks, bonds and cash
during the period?
A. Typically, the Portfolio invests 50% to 60% of its assets in equities,
with the rest in fixed-income securities. The allocation at the end of the
period stood at 58.6% in stocks, 34.7% in bonds and the remainder in cash and
cash equivalents.*
Q. What types of stocks did you favor?
A. We maintained the Portfolio's overweight exposure to technology stocks
during the period. We increased the Portfolio's investment in shares of
semiconductor manufacturers such as Intel (0.6% of net assets), KLA-Tencor
(1.3%) and Applied Materials (1.3%), as well as computer hardware manufacturers
such as Hewlett-Packard (1.2%).*
We also found good opportunities in shares of retail companies such as Wal-
Mart (1.2%) and financial services companies such as Chase Manhattan (1.3%). We
added home-improvement company Masco (1.0%) as well as Carnival Cruise Lines
(1.3%) to the Portfolio during the period.*
Q. What types of bonds did you favor?
A. The Portfolio's fixed-income component consisted of a mix of Treasury
bonds, high-quality mortgage-backed securities and select corporate issues. Our
position in mortgage-backed bonds helped the performance of the Portfolio
during the period as those securities rallied. We also found opportunities to
purchase high-quality corporate bonds that offered attractive yields relative
to Treasuries.
Q. How will you manage the Portfolio in the months ahead?
A. We will continue to look for shares of undervalued companies with good
growth potential. We believe that technology stocks will continue to drive the
market going forward. We will maintain the Portfolio's overweight position in
those stocks, focusing on shares of profitable, high-quality firms.
We also will continue to invest in high-quality fixed-income securities that
offer attractive yields to shareholders. In particular, we may reduce the
Portfolio's position in mortgage-backed securities, which have performed
extremely well in recent months, and invest the profits in high-quality
corporate bonds with relatively long maturities. As always, we will monitor the
financial markets and may consider modest shifts in the Portfolio's asset
allocation if circumstances require such a move.
- -----
* Portfolio composition is subject to change.
90
<PAGE>
Mercantile Balanced Portfolio
[CHART]
Value of a $10,000 Investment
Lehman Brothers
Investor A Investor A Investor B S&P 500 Aggregate
(No Load) (Load)* (No CDSC) Index Bond Index
4/1/93 $10,000 $9,551 $10,000 $10,000 $10,000
11/93 10,386 9,920 10,674 10,421 10,529
11/94 10,188 9,730 10,335 10,536 10,207
11/95 12,719 12,148 12,800 14,433 12,007
11/96 14,640 13,500 14,434 18,477 12,736
11/97 16,895 16,134 16,537 23,745 13,698
11/98 18,483 17,653 17,963 28,874 14,992
11/99 20,017 18,919 19,356 34,906 14,986
- -------------------------------------------------------------------------------
- -
Average Annual Total Returns
as of 11/30/99
- -------------------------------------------------------------------------------
- -
Since
Inception
1 Year 5 Years (4/1/93)
- -------------------------------------------------------------------------------
- -
Investor A (No Load) 8.30% 14.46% 10.97%
- -------------------------------------------------------------------------------
- -
Investor A * 2.30% 13.17% 10.04%
- -------------------------------------------------------------------------------
- -
Investor B (No CDSC) 7.75% 13.70% 10.42%
- -------------------------------------------------------------------------------
- -
Investor B (CDSC)** 2.83% 13.58% 10.42%
- -------------------------------------------------------------------------------
- -
* Reflects 5.50% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[CHART]
Value of a $10,000 Investment
Lehman Brothers
S&P 500 Aggregate
Trust Institutional Index Bond Index
4/1/93 $10,000 $10,000 $10,000 $10,000
11/93 10,387 10,386 10,421 10,529
11/94 10,199 10,179 10,536 10,207
11/95 12,744 12,690 14,433 12,007
11/96 14,727 14,601 18,477 12,736
11/97 17,054 16,868 23,745 13,698
11/98 18,714 18,448 28,874 14,992
11/99 20,310 19,967 34,906 14,986
- -------------------------------------------------------------------------------
- -
Average Annual Total Returns
as of 11/30/99
- -------------------------------------------------------------------------------
- -
Since
Inception
1 Year 5 Years (4/1/93)
- -------------------------------------------------------------------------------
- -
Trust 8.53% 14.77% 11.22%
- -------------------------------------------------------------------------------
- -
Institutional 8.24% 14.43% 10.93%
- -------------------------------------------------------------------------------
- -
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Balanced Portfolio is measured against the
Standard & Poor's 500 Index, an unmanaged index generally representative of the
U.S. stock market as a whole, and the Lehman Brothers Aggregate Bond Index, an
unmanaged Index comprised of the Lehman Brothers Government/Corporate Bond
Index and two Lehman Brothers asset-backed securities indices. Investors are
unable to invest in the indices directly, although they can invest in the
underlying securities. The performance of the indices does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management and fund accounting fees. By contrast, the performance of the
Portfolio shown on the graphs reflects the deduction of these value-added
services, as well as the deduction of a 5.50% sales charge on Investor A Shares
and the applicable contingent deferred sales charge (CDSC) on Investor B
Shares.
Investor B Shares were initially offered on March 1, 1995. The performance
figures for Investor B Shares for periods prior to such date represent the
performance for Investor A Shares of the Portfolio, which has been restated to
reflect the contingent deferred sales charge payable by holders of Investor B
Shares who redeem within six years of the date of purchase. Investor B Shares
are also subject to distribution and service fees at a maximum annual rate of
1.00%. Had these distribution and service fees been reflected, performance
would have been reduced.
Investor B Shares (CDSC) are not included in the above graph, since the
performance is for more than six years and the CDSC would no longer apply.
After six years, the performance for Investor B Shares (CDSC) mirrors the
Investor B Shares (No CDSC) performance.
Institutional Shares were initially offered on January 3, 1994. The
performance figures for Institutional Shares for periods prior to such date
represent the performance for Investor A Shares of the Portfolio.
91
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Balanced Portfolio November 30, 1999
<TABLE>
<CAPTION>
Commercial Paper (6.0%):
Shares
or
Security Principal Market
Description Amount Value
----------- --------- ------------
<S> <C> <C>
Financial Services (1.9%):
Household Finance, 5.60%, 12/9/99................... $2,000,000 $ 1,997,511
Natural Gas Utility (4.1%):
Ciesco, 5.60%, 12/1/99.............................. 4,226,000 4,226,000
------------
TOTAL COMMERCIAL PAPER 6,223,511
------------
<CAPTION>
Common Stocks (58.6%):
<S> <C> <C>
Aerospace/Defense (0.5%):
Raytheon Co., Class A............................... 19,411 565,345
------------
Banking (2.4%):
Chase Manhattan Corp................................ 17,235 1,331,404
First Union Corp.................................... 29,894 1,156,524
------------
2,487,928
------------
Beverages (1.2%):
PepsiCo, Inc........................................ 36,564 1,263,743
------------
Building Products (1.0%):
Masco Corp.......................................... 41,950 1,059,238
------------
Business Services (1.2%):
First Data Corp..................................... 29,277 1,266,230
------------
Chemicals (1.8%):
Avery Dennison Corp................................. 22,680 1,346,625
Solutia, Inc........................................ 33,381 500,715
------------
1,847,340
------------
Computer Software (3.7%):
Adaptec, Inc.(b).................................... 17,094 920,939
BMC Software, Inc.(b)............................... 21,800 1,587,313
Microsoft Corp.(b).................................. 14,930 1,359,330
------------
3,867,582
------------
Computers (2.5%):
Cisco Systems, Inc.(b).............................. 9,700 865,119
Compaq Computer Corp................................ 21,000 513,188
Hewlett-Packard Co.................................. 12,827 1,216,961
------------
2,595,268
------------
Containers & Packaging (1.5%):
Crown Cork & Seal Co., Inc.......................... 25,427 518,075
Sealed Air Corp.(b)................................. 23,162 1,088,614
------------
1,606,689
------------
Cosmetics & Toiletries (1.8%):
Estee Lauder Cos., Class A.......................... 28,653 1,208,799
Gillette Co......................................... 15,890 638,579
------------
1,847,378
------------
Electrical & Electronic (2.4%):
General Electric Co................................. 9,696 1,260,480
Millipore Corp...................................... 36,847 1,209,042
------------
2,469,522
------------
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------ ------------
<S> <C> <C>
Entertainment (1.8%):
Carnival Corp....................................... 30,100 $ 1,328,163
Time Warner, Inc.................................... 9,282 572,583
------------
1,900,746
------------
Financial Services (3.8%):
Heller Financial, Inc............................... 26,193 579,520
MBNA Corp........................................... 47,542 1,200,436
Morgan Stanley Dean Witter & Co..................... 7,800 940,875
SLM Holding Corp.................................... 26,311 1,304,039
------------
4,024,870
------------
Health Care (0.7%):
C.R. Bard, Inc...................................... 13,800 749,513
------------
Manufacturing (0.6%):
Illinois Tool Works, Inc............................ 9,441 611,305
------------
Manufacturing--Consumer Goods (1.0%):
Newell Rubbermaid, Inc.............................. 31,393 1,030,083
------------
Medical Equipment & Supplies (1.4%):
Baxter International, Inc........................... 21,350 1,442,459
------------
Metals & Mining (1.3%):
Alcoa, Inc.......................................... 21,000 1,375,500
------------
Oil & Exploration, Production & Services (2.3%):
Murphy Oil Corp..................................... 21,220 1,198,930
Ocean Energy, Inc.(b)............................... 63,220 482,053
Vastar Resources, Inc............................... 12,312 689,472
------------
2,370,455
------------
Oil Companies--Integrated (1.8%):
Unocal Corp......................................... 22,163 735,535
USX-Marathon Group, Inc............................. 43,030 1,137,605
------------
1,873,140
------------
Paper & Related (1.1%):
Mead Corp........................................... 32,051 1,143,820
------------
Pharmaceuticals (5.8%):
Allergan, Inc....................................... 6,254 615,237
Bristol-Myers Squibb Co............................. 18,984 1,387,018
Eli Lilly & Co...................................... 18,510 1,328,093
Merck & Co., Inc.................................... 19,264 1,512,223
Schering-Plough Corp................................ 25,988 1,328,637
------------
6,171,208
------------
Restaurants (0.5%):
Tricon Global Restaurants, Inc.(b).................. 12,774 530,121
------------
Retail Stores (4.0%):
Consolidated Stores Corp.(b)........................ 52,156 821,457
Dillards, Inc., Class A............................. 39,363 742,977
Office Depot, Inc.(b)............................... 60,907 677,590
Tandy Corp.......................................... 9,282 711,233
Wal-Mart Stores, Inc................................ 22,081 1,272,418
------------
4,225,675
------------
</TABLE>
Continued
92
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Balanced Portfolio November 30, 1999
<TABLE>
<CAPTION>
Common Stocks, continued
Shares
or
Security Principal Market
Description Amount Value
----------- --------- ------------
<S> <C> <C>
Semiconductors (5.3%):
Altera Corp.(b).................................... 26,340 $ 1,419,067
Applied Materials, Inc.(b)......................... 14,158 1,379,520
Intel Corp......................................... 8,000 613,500
KLA-Tencor Corp.(b)................................ 15,986 1,351,816
Maxim Integrated Products(b)....................... 10,000 803,125
------------
5,567,028
------------
Telecommunications (2.1%):
Lucent Technologies, Inc........................... 9,700 708,706
MCI Worldcom, Inc.(b).............................. 17,400 1,438,763
------------
2,147,469
------------
Utilities--Gas & Electric (1.4%):
Cinergy Corp....................................... 31,423 795,394
Duke Energy Corp................................... 12,606 638,967
------------
1,434,361
------------
Utilities--Telephone (2.5%):
GTE Corp........................................... 18,549 1,354,077
US West, Inc....................................... 20,640 1,280,970
------------
2,635,047
------------
Wholesale Distribution (1.2%):
Sysco Corp......................................... 33,227 1,264,703
------------
TOTAL COMMON STOCKS 61,373,766
------------
<CAPTION>
Corporate Bonds (4.7%):
<S> <C> <C>
Automotive (2.7%):
Ford Motor Credit, 6.7%, 7/16/04................... 1,000,000 988,750
General Motors Acceptance Corp., 6.60%, 1/17/01,
MTN............................................... 1,000,000 1,000,000
General Motors Acceptance Corp., 6.85%, 4/17/01,
MTN............................................... 890,000 891,113
------------
2,879,863
------------
Brokerage Services (1.1%):
Merrill Lynch & Co., Inc., Series B, 7.15%,
7/30/12, MTN, Callable on 7/30/02 @ 100........... 1,100,000 1,098,625
------------
Entertainment (0.9%):
Walt Disney Co., 5.25%, 11/10/03................... 1,000,000 945,000
------------
TOTAL CORPORATE BONDS 4,923,488
------------
<CAPTION>
U.S. Government Agencies (16.1%):
<S> <C> <C>
Federal Home Loan Bank (1.9%):
5.35%, 2/7/01, MTN................................. 2,000,000 1,981,440
------------
Federal Home Loan Mortgage Corp. (5.9%):
6.50%, 4/1/08, Gold Pool #E00225................... 281,008 274,860
7.00%, 4/1/08, Gold Pool #E46076................... 32,636 32,534
7.00%, 4/1/08, Gold Pool #E46044................... 165,365 164,848
6.50%, 1/1/09, Gold Pool #E55696................... 437,619 428,044
6.50%, 1/1/18, Gold Pool #G30098................... 2,405,972 2,297,703
6.00%, 4/1/18, Gold Pool #C90214................... 3,160,550 2,935,362
------------
6,133,351
------------
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Agencies, continued
Security Principal Market
Description Amount Value
----------- --------- ----------
<S> <C> <C>
Federal National Mortgage Assoc. (1.1%):
6.00%, 3/1/13, Pool #418297............................... 478,186 $ 457,862
6.00%, 5/1/13, Pool #425391............................... 352,424 337,446
6.00%, 6/1/13, Pool #251760............................... 215,465 206,308
7.00%, 2/1/16, Pool #303725............................... 179,713 175,781
----------
1,177,397
----------
Government National Mortgage Assoc. (7.2%):
7.00%, 7/15/09, Pool #364246.............................. 154,959 154,522
6.50%, 10/20/10, Pool #2108............................... 326,597 316,799
6.50%, 7/15/11, Pool #436630.............................. 1,459,293 1,426,458
8.50%, 6/15/17, Pool #217380.............................. 6,981 7,221
8.00%, 7/15/22, Pool #328848.............................. 239,982 244,405
7.00%, 11/15/22, Pool #341287............................. 239,534 234,218
7.00%, 11/15/22, Pool #337961............................. 160,542 156,979
7.50%, 3/15/23, Pool #331533.............................. 374,397 374,045
8.50%, 3/15/23, Pool #350083.............................. 6,336 6,554
7.50%, 4/15/23, Pool #343195.............................. 194,220 194,037
8.50%, 8/15/24, Pool #365113.............................. 290,162 300,135
8.50%, 9/15/24, Pool #375056.............................. 72,066 74,543
8.50%, 9/15/24, Pool #353354.............................. 206,679 213,783
8.50%, 1/15/25, Pool #400165.............................. 71,257 73,706
8.50%, 2/15/25, Pool #406286.............................. 38,157 39,468
8.50%, 3/15/25, Pool #384593.............................. 167,082 172,824
8.50%, 4/15/25, Pool #346295.............................. 29,264 30,270
8.00%, 8/15/25, Pool #389312.............................. 207,272 211,092
7.50%, 9/15/25, Pool #394485.............................. 15,769 15,754
7.50%, 9/15/25, Pool #384783.............................. 11,704 11,693
7.50%, 10/15/25, Pool #409725............................. 692,194 691,543
7.50%, 10/15/25, Pool #416975............................. 13,503 13,490
7.50%, 10/15/25, Pool #400096............................. 19,667 19,649
7.50%, 10/15/25, Pool #246633............................. 652,172 651,559
6.50%, 1/15/26, Pool #417525.............................. 650,909 619,782
6.50%, 1/15/26, Pool #385123.............................. 121,882 116,054
6.50%, 3/15/26, Pool #417294.............................. 18,919 18,014
6.50%, 4/15/26, Pool #422323.............................. 372,737 354,912
6.50%, 4/15/26, Pool #421399.............................. 387,272 368,753
6.50%, 4/15/26, Pool #408279.............................. 338,986 322,775
6.50%, 5/15/26, Pool #430798.............................. 145,102 138,164
----------
7,573,201
----------
TOTAL U.S. GOVERNMENT AGENCIES 16,865,389
----------
<CAPTION>
U.S. Treasury Bonds (8.9%):
<S> <C> <C>
10.75%, 8/15/05........................................... 300,000 362,787
12.00%, 8/15/13, Callable on 8/15/08 @ 100................ 2,750,000 3,740,798
8.13%, 5/15/21............................................ 1,000,000 1,173,640
8.13%, 8/15/21............................................ 1,000,000 1,174,460
8.00%, 11/15/21........................................... 1,200,000 1,394,844
6.25%, 8/15/23............................................ 1,500,000 1,451,265
----------
TOTAL U.S. TREASURY BONDS 9,297,794
----------
</TABLE>
Continued
93
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Balanced Portfolio
<TABLE>
<CAPTION>
U.S. Treasury Notes (5.0%):
Shares
or
Security Principal Market
Description Amount Value
----------- --------- ------------
<S> <C> <C>
7.50%, 5/15/02........................................ $2,500,000 $ 2,583,200
7.00%, 7/15/06........................................ 2,500,000 2,598,775
------------
TOTAL U.S. TREASURY NOTES 5,181,975
------------
<CAPTION>
Investment Companies (0.5%):
<S> <C> <C>
Cash Assets Trust Money Market Fund................... 500,000 500,000
------------
TOTAL INVESTMENT COMPANIES 500,000
------------
<CAPTION>
Short-Term Securities Held as Collateral* (6.0%):
<S> <C> <C>
Repurchase Agreements (6.0%):
Bank Of America, 5.78%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $791,156,
collateralized by $982,784 various U.S. Government
Agency Mortgages, 5.57%-6.77%, 4/15/23-2/1/29, market
value $806,850)...................................... 791,029 791,029
CS First Boston, 5.77%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $527,437,
collateralized by $674,706 various U.S. Government
Agency Mortgages, 0.00%-8.00%, 5/15/01-8/15/29,
market value $537,900)............................... 527,353 527,353
HSBC Securities, Inc., 5.72%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $527,437,
collateralized by $569,447 various U.S. Government
Agencies, 0.00%-9.80%, 4/19/01-11/30/17, market value
$537,900)............................................ 527,353 527,353
Prudential Bache Securities, 5.79%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $1,054,875,
collateralized by $1,836,917 various U.S. Government
Agency Mortgages, 0.00%-10.50%, 12/2/99-6/15/44,
market value $1,075,800)............................. 1,054,706 1,054,706
</TABLE>
<TABLE>
<CAPTION>
Schedule of Portfolio Investments
November 30, 1999
Short-Term Securities Held as Collateral, continued
Security Principal Market
Description Amount Value
----------- --------- ------------
<S> <C> <C>
Salomon Smith Barney, Inc., 5.75%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $1,846,030,
collateralized by $2,373,430 various U.S. Government
Agencies, 0.00%-9.50%, 5/15/07-11/15/29, market value
$1,882,650).......................................... 1,845,736 $ 1,845,736
Salomon Smith Barney, Inc., 5.73%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $1,509,154,
collateralized by $2,429,241 various GNMA, 5.00%-
9.00%, 2/15/00-11/20/29, market value $1,539,092).... 1,508,913 1,508,913
------------
TOTAL SHORT-TERM SECURITIES
HELD AS COLLATERAL 6,255,090
------------
TOTAL INVESTMENTS
(Cost $99,532,422)(a)--105.8% 110,621,013
Liabilities in excess of other assets--(5.8)% (6,070,544)
------------
TOTAL NET ASSETS--100.0% $104,550,469
------------
</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
$276,125. Cost for federal income tax purposes differs from value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation... $16,794,782
Unrealized depreciation... (5,982,316)
-----------
Net unrealized apprecia-
tion..................... $10,812,466
===========
</TABLE>
(b) Represents non-income producing securities.
MTN Medium Term Note
* Represents securities purchased with cash collateral received on securities
loaned.
See notes to financial statements
94
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Balanced Portfolio
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
November 30, 1999
<S> <C> <C>
Assets:
Investments, at value (cost $93,277,332)............... $104,365,923
Repurchase agreements, at value (cost $6,255,090)...... 6,255,090
------------
Total Investments..................................... 110,621,013
Cash................................................... 32
Interest and dividends receivable...................... 517,257
Prepaid expenses and other assets...................... 8,330
------------
Total Assets.......................................... 111,146,632
Liabilities:
Dividends payable...................................... $ 236,396
Payable for capital shares redeemed.................... 3,674
Payable for return of collateral received on securities
loaned................................................ 6,255,090
Accrued expenses and other liabilities:
Investment advisory fees.............................. 65,801
Administration fees................................... 2,633
Distribution and administrative services fees......... 18,891
Custodian fees........................................ 5,008
Other liabilities..................................... 8,670
---------
Total Liabilities..................................... 6,596,163
------------
Net Assets:
Capital................................................ 79,177,582
Undistributed net investment income.................... 44,538
Accumulated net realized gains from investment
transactions.......................................... 14,239,758
Net unrealized appreciation from investments........... 11,088,591
------------
Net Assets............................................. $104,550,469
============
Investor A Shares
Net Assets............................................ $ 11,416,303
Shares................................................ 918,062
Redemption price per share............................ $12.44
======
Maximum Sales Charge--Investor A Shares................ 5.50%
Maximum Offering Price
(100%/(100%--Maximum Sales Charge) of net asset value
adjusted to the nearest cent) per share.............. $13.16
======
Investor B Shares
Net Assets............................................ $ 2,380,141
Shares................................................ 193,217
Offering price per share*............................. $12.32
======
Trust Shares
Net Assets............................................ $ 35,171,777
Shares................................................ 2,826,958
Offering and redemption price per share............... $12.44
======
Institutional Shares
Net Assets............................................ $ 55,582,248
Shares................................................ 4,484,862
Offering and redemption price per share............... $12.39
======
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
<TABLE>
<CAPTION>
Statement of Operations
For the year ended November 30, 1999
<S> <C> <C>
Investment Income:
Interest income........................................... $3,088,025
Dividend income........................................... 993,952
Income from securities lending............................ 18,179
----------
Total Investment Income.................................. 4,100,156
Expenses:
Investment advisory fees.................................. $884,054
Administration fees....................................... 235,750
Distribution and services fees, Investor A Shares......... 33,982
Distribution and services fees, Investor B Shares......... 20,903
Administrative services fees, Trust Shares................ 121,416
Administrative services fees, Institutional Shares........ 191,954
Accounting fees........................................... 11,685
Custodian fees............................................ 57,099
Transfer agent fees....................................... 29,195
Other..................................................... 48,610
--------
Total expenses before voluntary fee reductions........... 1,634,648
Expenses voluntarily reduced............................. (239,289)
----------
Net Expenses............................................. 1,395,359
----------
Net Investment Income..................................... 2,704,797
----------
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains from investment transactions........... 15,091,212
Net change in unrealized appreciation from investments.... (7,869,591)
----------
Net realized/unrealized gains from investments............ 7,221,621
----------
Change in net assets resulting from operations............ $9,926,418
==========
</TABLE>
See notes to financial statements
95
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Balanced Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
year ended year ended
November 30, November 30,
1999 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 2,704,797 $ 2,947,999
Net realized gains from investment transactions... 15,091,212 8,092,471
Net change in unrealized appreciation from invest-
ments............................................ (7,869,591) 429,152
------------ ------------
Change in net assets resulting from operations..... 9,926,418 11,469,622
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (250,865) (239,659)
From net realized gains from investment transac-
tions............................................ (744,138) (1,098,018)
Distributions to Investor B Shareholders:
From net investment income........................ (33,364) (14,866)
From net realized gains from investment transac-
tions............................................ (90,071) (58,233)
Distributions to Trust Shareholders:
From net investment income........................ (1,012,706) (1,205,632)
From net realized gains from investment transac-
tions............................................ (3,042,833) (5,997,694)
Distributions to Institutional Shareholders:
From net investment income........................ (1,404,770) (1,551,106)
From net realized gains from investment transac-
tions............................................ (4,971,558) (6,839,335)
------------ ------------
Change in net assets from shareholder distribu-
tions............................................. (11,550,305) (17,004,543)
------------ ------------
Change in net assets from capital transactions..... (20,507,622) 5,817,522
------------ ------------
Change in net assets............................... (22,131,509) 282,601
Net Assets:
Beginning of period............................... 126,681,978 126,399,377
------------ ------------
End of period..................................... $104,550,469 $126,681,978
============ ============
</TABLE>
See notes to financial statements
96
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Balanced Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the years ended November 30,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------ ------ -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 12.63 $ 13.26 $12.58 $11.65 $ 9.61
------- ------- ------ ------ ------
Investment Activities:
Net investment income........ 0.27 0.28 0.32 0.32 0.32
Net realized and unrealized
gains from investments...... 0.69 0.84 1.47 1.34 2.02
------- ------- ------ ------ ------
Total from Investment
Activities.................. 0.96 1.12 1.79 1.66 2.34
------- ------- ------ ------ ------
Distributions:
Net investment income........ (0.27) (0.28) (0.40) (0.31) (0.30)
Net realized gains........... (0.88) (1.47) (0.71) (0.42) --
------- ------- ------ ------ ------
Total Distributions.......... (1.15) (1.75) (1.11) (0.73) (0.30)
------- ------- ------ ------ ------
Net Asset Value, End of
Period...................... $ 12.44 $ 12.63 $13.26 $12.58 $11.65
======= ======= ====== ====== ======
Total Return (excludes sales
charge)...................... 8.30% 9.43% 15.38% 15.10% 24.85%
Ratios/Supplementary Data:
Net Assets at end of period
(000)........................ $11,416 $10,659 $9,923 $9,328 $8,348
Ratio of expenses to average
net assets................... 1.28% 1.26% 1.27% 1.27% 1.27%
Ratio of net investment income
to average net assets........ 2.21% 2.23% 2.57% 2.79% 2.98%
Ratio of expenses to average
net assets*.................. 1.38% 1.36% 1.37% 1.37% 1.37%
Portfolio turnover**.......... 34.80% 47.79% 43.60% 85.16% 58.16%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
Financial Highlights, Investor B Shares
<CAPTION>
For the years ended November March 1, 1995
30, to
-------------------------------- November 30,
1999 1998 1997 1996 1995 (a)
------- ------- ------ ------ -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 12.50 $ 13.15 $12.49 $11.59 $10.13
------- ------- ------ ------ ------
Investment Activities:
Net investment income........ 0.20 0.21 0.25 0.25 0.22
Net realized and unrealized
gains from investments...... 0.69 0.81 1.43 1.33 1.44
------- ------- ------ ------ ------
Total from Investment
Activities.................. 0.89 1.02 1.68 1.58 1.66
------- ------- ------ ------ ------
Distributions:
Net investment income........ (0.19) (0.20) (0.26) (0.26) (0.20)
In excess of net investment
income...................... -- -- (0.05) -- --
Net realized gains........... (0.88) (1.47) (0.71) (0.42) --
------- ------- ------ ------ ------
Total Distributions.......... (1.07) (1.67) (1.02) (0.68) (0.20)
------- ------- ------ ------ ------
Net Asset Value, End of
Period....................... $ 12.32 $ 12.50 $13.15 $12.49 $11.59
======= ======= ====== ====== ======
Total Return (excludes
redemption charge)........... 7.75% 8.63% 14.57% 14.35% 23.92%(b)
Ratios/Supplementary Data:
Net Assets at end of period
(000)........................ $ 2,380 $ 1,285 $ 522 $ 321 $ 36
Ratio of expenses to average
net assets................... 1.98% 1.96% 1.96% 1.96% 1.93%(c)
Ratio of net investment income
to average net assets........ 1.51% 1.57% 1.85% 2.09% 2.28%(c)
Ratio of expenses to average
net assets*.................. 2.08% 2.06% 2.06% 2.06% 2.03%(c)
Portfolio turnover**.......... 34.80% 47.79% 43.60% 85.16% 58.16%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Represents total return for the Investor A
Shares from December 1, 1994 to February 28, 1995 plus the total return for
the Investor B Shares from March 1, 1995 to November 30, 1995. (c) Annualized.
See notes to financial statements
97
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Balanced Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the years ended November 30,
-------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.......................... $ 12.64 $ 13.27 $ 12.58 $ 11.64 $ 9.62
------- ------- ------- ------- -------
Investment Activities:
Net investment income........... 0.30 0.32 0.38 0.37 0.34
Net realized and unrealized
gains from investments......... 0.69 0.84 1.45 1.34 2.02
------- ------- ------- ------- -------
Total from Investment
Activities..................... 0.99 1.16 1.83 1.71 2.36
------- ------- ------- ------- -------
Distributions:
Net investment income........... (0.31) (0.32) (0.43) (0.35) (0.34)
Net realized gains.............. (0.88) (1.47) (0.71) (0.42) --
------- ------- ------- ------- -------
Total Distributions............. (1.19) (1.79) (1.14) (0.77) (0.34)
------- ------- ------- ------- -------
Net Asset Value, End of Period... $ 12.44 $ 12.64 $ 13.27 $ 12.58 $ 11.64
======= ======= ======= ======= =======
Total Return..................... 8.53% 9.75% 15.81% 15.56% 24.97%
Ratios/Supplementary Data:
Net Assets at end of period
(000)........................... $35,172 $43,776 $54,299 $61,821 $72,669
Ratio of expenses to average net
assets.......................... 0.98% 0.96% 0.97% 0.97% 0.98%
Ratio of net investment income to
average net assets.............. 2.51% 2.53% 2.87% 3.08% 3.29%
Ratio of expenses to average net
assets*......................... 1.38% 1.36% 1.37% 1.07% 1.08%
Portfolio turnover**............. 34.80% 47.79% 43.60% 85.16% 58.16%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
Financial Highlights, Institutional Shares
<CAPTION>
For the years ended November 30,
-------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.......................... $ 12.59 $ 13.23 $ 12.54 $ 11.62 $ 9.60
------- ------- ------- ------- -------
Investment Activities:
Net investment income........... 0.28 0.28 0.31 0.32 0.31
Net realized and unrealized
gains from investments......... 0.67 0.83 1.49 1.34 2.02
------- ------- ------- ------- -------
Total from Investment
Activities..................... 0.95 1.11 1.80 1.66 2.33
------- ------- ------- ------- -------
Distributions:
Net investment income........... (0.27) (0.28) (0.37) (0.32) (0.31)
In excess of net investment
income......................... -- -- (0.03) -- --
Net realized gains.............. (0.88) (1.47) (0.71) (0.42) --
------- ------- ------- ------- -------
Total Distributions............. (1.15) (1.75) (1.11) (0.74) (0.31)
------- ------- ------- ------- -------
Net Asset Value, End of Period... $ 12.39 $ 12.59 $ 13.23 $ 12.54 $ 11.62
======= ======= ======= ======= =======
Total Return..................... 8.24% 9.38% 15.52% 15.08% 24.67%
Ratios/Supplementary Data:
Net Assets at end of period
(000)........................... $55,582 $70,962 $61,655 $54,731 $36,827
Ratio of expenses to average net
assets.......................... 1.28% 1.26% 1.27% 1.27% 1.27%
Ratio of net investment income to
average net assets.............. 2.20% 2.23% 2.56% 2.78% 2.97%
Ratio of expenses to average net
assets*......................... 1.38% 1.36% 1.37% 1.37% 1.37%
Portfolio turnover**............. 34.80% 47.79% 43.60% 85.16% 58.16%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
See notes to financial statements
98
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
99
<PAGE>
Mercantile Equity Income Portfolio
Q. How did the overall stock market environment affect the Portfolio's
returns during the 12-month period ended November 30, 1999?
A. Throughout the year the market remained strong, even though the Fed raised
interest rates three times. Early on, investors began to take notice of
neglected stocks with attractive valuations. Cyclicals and value stocks
outperformed large-cap growth stocks, which helped the Portfolio during the
first six months of the fiscal year. Then investors began to shift back to
growth stocks, primarily in the technology sector, while rising interest rates
hurt some other sectors--including financial services and utility stocks.
Q. What was your strategy in that environment?
A. As always, we search for the best values among the various sectors.
Throughout the year we found value in underperforming sectors such as health-
care, retail and household products, Pepsico (2.0% of net assets) and Gillette
(1.0%) were two such underperformers that we added.*
We reduced the Portfolio's weighting in energy stocks in September to match
the weighting of the Russell 1000 Value Index. The energy sector had presented
great value late last year but became less appealing as rising oil and gas
prices boosted stock valuations.
We also reduced the Portfolios investments in basic industry and financial
services stocks as rising interest rates hurt prospects for those sectors. Even
so, the Portfolio was overweighted in the banking sector, which hurt
performance during the period.
We also continued to buy shares of neglected companies with growth potential.
For example, we purchased Hewlett-Packard (2.6%) due to the attractive
prospects for its printer and hardware divisions, and food distributor Sysco
(2.7%), which we feel could benefit from recent merger and acquisition
activity, as well as favorable demographic trends.*
Q. What is the Portfolio's strategy going forward?
A. We will continue to invest in stocks that offer attractive long-term
values. That approach should benefit shareholders as investors recognize that
there are some superb valuations outside of the momentum-driven sectors of the
market.
- -----
* Portfolio composition is subject to change.
100
<PAGE>
Mercantile Equity Income Portfolio
[CHART]
Value of a $10,000 Investment
Investor A Investor A Investor B Investor B Russell 1000
(No Load) (Load)* (No CDSC) (CDSC)** Value Index
2/27/97 $10,000 $9,551 $10,000 $10,000 $10,000
11/97 11,741 11,214 11,674 11,175 12,013
11/98 13,114 12,526 12,956 12,556 13,826
11/99 13,108 12,390 12,846 12,611 16,771
- -------------------------------------------------------------------------------
- -
Average Annual Total Returns
as of 11/30/99
- -------------------------------------------------------------------------------
- -
Since
Inception
1 Year (2/27/97)
- -------------------------------------------------------------------------------
- -
Investor A (No Load) -0.05% 10.32%
- -------------------------------------------------------------------------------
- -
Investor A * -5.58% 8.08%
- -------------------------------------------------------------------------------
- -
Investor B (No CDSC) -0.85% 9.51%
- -------------------------------------------------------------------------------
- -
Investor B (CDSC)** -4.67% 8.78%
- -------------------------------------------------------------------------------
- -
* Reflects 5.50% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[CHART]
Value of a $10,000 Investment
Russell 1000
Trust Institutional Value Index
2/27/97 $10,000 $10,000 $10,000
11/97 11,763 11,763 12,013
11/98 13,174 13,154 13,826
11/99 13,205 13,166 16,771
- -------------------------------------------------------------------------------
- -
Average Annual Total Returns
as of 11/30/99
- -------------------------------------------------------------------------------
- -
Since
Inception
1 Year (2/27/97)
- -------------------------------------------------------------------------------
- -
Trust 0.23% 10.61%
- -------------------------------------------------------------------------------
- -
Institutional 0.09% 10.49%
- -------------------------------------------------------------------------------
- -
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Equity Income Portfolio is measured against
the Russell 1000 Value Index, an unmanaged index is generally representative of
those securities in the Russell 1000 Index with certain valuation and
historical growth characteristics indicative of value-based stocks. Companies
in this Index generally have low price-to-book and price-to-earnings ratios,
higher dividend yields and lower forecasted growth values. Investors are unable
to invest in the index directly, although they can invest in the underlying
securities. The performance of the index does not reflect the deduction of
expenses associated with a mutual fund, such as investment management and fund
accounting fees. By contrast, the performance of the Portfolio shown on the
graphs reflects the deduction of these value-added services, as well as the
deduction of a 5.50% sales charge on Investor A Shares and the applicable
contingent deferred sales charge (CDSC) on Investor B Shares.
101
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Equity Income Portfolio November 30, 1999
<TABLE>
<CAPTION>
Commercial Paper (5.3%):
Shares or
Security Principal
Description Amount Market Value
----------- ---------- ------------
<S> <C> <C>
Financial Services (1.4%):
Household Finance, 5.60%, 12/9/99....................... $1,500,000 $ 1,498,133
Natural Gas Utility (3.9%):
Ciesco, 5.60%, 12/1/99.................................. 4,150,000 4,150,000
------------
TOTAL COMMERCIAL PAPER 5,648,133
------------
<CAPTION>
Common Stocks (91.8%):
<S> <C> <C>
Aerospace/Defense (1.0%):
Raytheon Co., Class A................................... 35,000 1,019,375
------------
Banking (11.9%):
Chase Manhattan Corp. .................................. 25,300 1,954,425
Comerica, Inc. ......................................... 31,500 1,669,500
First Union Corp. ...................................... 46,500 1,798,969
National City Corp. .................................... 52,000 1,296,750
PNC Bank Corp. ......................................... 40,150 2,238,362
Union Planters Corp. ................................... 37,500 1,598,438
Wachovia Corp. ......................................... 27,600 2,137,274
------------
12,693,718
------------
Beverages (2.0%):
PepsiCo, Inc. .......................................... 62,000 2,142,875
------------
Building Products (3.1%):
Masco Corp. ............................................ 90,000 2,272,500
Sherwin-Williams Co. ................................... 50,000 1,071,875
------------
3,344,375
------------
Business Services (2.4%):
First Data Corp. ....................................... 60,000 2,595,000
------------
Chemicals (1.9%):
Solutia, Inc. .......................................... 56,200 843,000
Union Carbide Corp. .................................... 20,000 1,170,000
------------
2,013,000
------------
Computers (3.5%):
Hewlett-Packard Co. .................................... 29,000 2,751,375
IBM Corp. .............................................. 10,000 1,030,625
------------
3,782,000
------------
Containers & Packaging (1.7%):
Crown Cork & Seal Co., Inc. ............................ 89,200 1,817,450
------------
Cosmetics & Toiletries (1.0%):
Gillette Co. ........................................... 26,200 1,052,913
------------
Electrical & Electronic (2.2%):
W.W. Grainger, Inc. .................................... 50,140 2,362,848
------------
Financial Services (10.8%):
Fannie Mae.............................................. 40,000 2,665,000
Heller Financial, Inc. ................................. 88,000 1,947,000
MBNA Corp. ............................................. 75,393 1,903,673
Mellon Financial Corp. ................................. 70,000 2,550,625
SLM Holding Corp. ...................................... 50,000 2,478,125
------------
11,544,423
------------
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Security
Description Shares Market Value
----------- ------ ------------
<S> <C> <C>
Food Products & Services (2.1%):
Ralston Purina Group.................................... 37,900 $ 1,125,156
Sara Lee Corp. ......................................... 45,200 1,096,100
------------
2,221,256
------------
Health Care (2.0%):
C.R. Bard, Inc. ........................................ 40,000 2,172,500
------------
Manufacturing--Consumer Goods (0.9%):
Newell Rubbermaid, Inc. ................................ 29,300 961,406
------------
Medical Equipment & Supplies (1.3%):
Baxter International, Inc. ............................. 20,000 1,351,250
------------
Metals & Mining (1.8%):
Alcoa, Inc. ............................................ 30,000 1,965,000
------------
Oil & Exploration, Production & Services (5.3%):
Murphy Oil Corp. ....................................... 40,000 2,260,000
National Fuel Gas Co. .................................. 40,000 2,002,500
Vastar Resources, Inc. ................................. 25,000 1,400,000
------------
5,662,500
------------
Oil Companies--Integrated (6.3%):
Atlantic Richfield Co. ................................. 25,000 2,409,374
Phillips Petroleum Co. ................................. 45,000 2,151,563
Unocal Corp. ........................................... 10,122 335,924
USX-Marathon Group, Inc. ............................... 70,000 1,850,625
------------
6,747,486
------------
Paper & Related (3.5%):
Mead Corp. ............................................. 57,000 2,034,187
Temple-Inland, Inc. .................................... 30,550 1,748,988
------------
3,783,175
------------
Pharmaceuticals (3.8%):
Abbott Laboratories..................................... 50,000 1,900,000
Pharmacia & UpJohn, Inc. ............................... 40,000 2,187,500
------------
4,087,500
------------
Printing & Publishing (2.7%):
Tribune Co. ............................................ 60,000 2,883,750
------------
Retail Stores (3.1%):
Dillards, Inc., Class A................................. 94,200 1,778,025
May Department Stores Co. .............................. 45,000 1,513,125
------------
3,291,150
------------
Steel (1.8%):
USX-U.S. Steel Group.................................... 75,000 1,898,438
------------
Utilities--Gas & Electric (8.7%):
Ameren Corp. ........................................... 50,000 1,731,250
Cinergy Corp. .......................................... 40,000 1,012,500
Constellation Energy Group, Inc. ....................... 65,000 1,913,438
Duke Energy Corp. ...................................... 30,000 1,520,625
NICOR, Inc. ............................................ 25,000 867,188
SCANA Corp. ............................................ 85,000 2,305,624
------------
9,350,625
------------
</TABLE>
Continued
102
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Equity Income Portfolio
<TABLE>
<CAPTION>
Common Stocks, continued
Shares or
Security Principal
Description Amount Market Value
----------- --------- ------------
<S> <C> <C>
Utilities--Telephone (4.3%):
GTE Corp. .............................................. 29,500 $ 2,153,500
US West, Inc. .......................................... 40,000 2,482,500
------------
4,636,000
------------
Wholesale Distribution (2.7%):
Sysco Corp. ............................................ 75,000 2,854,688
------------
TOTAL COMMON STOCKS 98,234,701
------------
<CAPTION>
Real Estate Investment Trusts (3.0%):
<S> <C> <C>
Apartments (1.2%):
Archstone Communities Trust............................. 62,000 1,243,875
------------
Office Property (1.8%):
Prentiss Properties Trust............................... 95,000 1,923,750
------------
TOTAL REAL ESTATE INVESTMENT TRUSTS 3,167,625
------------
Short-Term Securities Held as Collateral* (5.4%):
Repurchase agreements (5.4%):
Bank Of America, 5.78%, 12/1/99 (Purchased on 11/30/99,
proceeds at maturity $727,461, collateralized by
$903,661 various U.S. Government Agency Mortgages,
5.75%-6.77%, 4/15/23-2/1/29, market value $741,891).... 727,345 727,345
CS First Boston, 5.77%, 12/1/99 (Purchased on 11/30/99,
proceeds at maturity $484,974, collateralized by
$620,386 various U.S. Government Agency Mortgages,
0.00%-8.00%, 5/15/01-8/15/29, market value $494,594)... 484,896 484,896
HSBC Securities, Inc., 5.72%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $484,973, collateralized
by $523,602 various U.S. Government Agencies, 0.00%-
9.80%, 4/19/01-11/30/17, market value $494,594)........ 484,896 484,896
</TABLE>
<TABLE>
<CAPTION>
Schedule of Portfolio Investments
November 30, 1999
Short-Term Securities Held as Collateral, continued
Security Principal
Description Amount Market Value
----------- --------- ------------
<S> <C> <C>
Repurchase agreements, continued
Prudential Bache Securities, 5.79%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $969,949,
collateralized by $1,688,109 various U.S. Government
Agency Mortgages, 0.00%-10.50%, 12/2/99-6/15/44,
market value $989,189)............................... 969,793 $ 969,793
Salomon Smith Barney, Inc., 5.75%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $1,697,408,
collateralized by $2,182,348 various U.S. Government
Agencies, 0.00%-9.50%, 5/15/07-11/15/29, market value
$1,731,080).......................................... 1,697,138 1,697,138
Salomon Smith Barney, Inc., 5.73%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $1,387,653,
collateralized by $2,233,665 various GNMA. 5.00%-
9.00%, 2/15/00-11/20/29, market value $1,415,181).... 1,387,432 1,387,432
------------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL 5,751,500
------------
TOTAL INVESTMENTS
(Cost $93,497,258)(a)--105.5% 112,801,959
Liabilities in excess of other assets--(5.5)% (5,842,903)
------------
TOTAL NET ASSETS--100.0% $106,959,056
============
</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
$453,359. Cost for federal income tax purposes differs from value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation... $21,268,170
Unrealized depreciation... (2,416,828)
-----------
Net unrealized apprecia-
tion..................... $18,851,342
===========
</TABLE>
* Represents securities purchased with cash collateral received on securities
loaned.
See notes to financial statements
103
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Equity Income Portfolio
Statement of Assets and Liabilities
November 30, 1999
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $87,745,758)............... $107,050,459
Repurchase agreements, at value (cost $5,751,500)...... 5,751,500
------------
Total Investments..................................... 112,801,959
Cash................................................... 28
Interest and dividends receivable...................... 220,882
Receivable for capital shares issued................... 30
Deferred organization costs............................ 17,610
Prepaid expenses and other assets...................... 7,125
------------
Total Assets.......................................... 113,047,634
Liabilities:
Dividends payable...................................... $ 246,753
Payable for capital shares redeemed.................... 380
Payable for return of collateral received on securities
loaned................................................ 5,751,500
Accrued expenses and other liabilities:
Investment advisory fees.............................. 68,606
Administration fees................................... 2,687
Distribution and administrative services fees......... 1,012
Custodian fees........................................ 5,688
Other liabilities..................................... 11,952
----------
Total Liabilities..................................... 6,088,578
------------
Net Assets:
Capital................................................ 73,611,410
Undistributed net investment income.................... 19,737
Accumulated net realized gains from investment
transactions.......................................... 14,023,208
Net unrealized appreciation from investments........... 19,304,701
------------
Net Assets............................................. $106,959,056
============
Investor A Shares
Net Assets............................................ $ 1,336,429
Shares................................................ 170,761
Redemption price per share............................ $7.83
=====
Maximum Sales Charge--Investor A Shares................ 5.50%
Maximum Offering Price
(100%/(100%--Maximum Sales Charge) of net asset value
adjusted to the nearest cent) per share.............. $8.29
=====
Investor B Shares
Net Assets............................................ $ 765,659
Shares................................................ 98,015
Offering price per share*............................. $7.81
=====
Trust Shares
Net Assets............................................ $104,762,242
Shares................................................ 13,373,236
Offering and redemption price per share............... $7.83
=====
Institutional Shares
Net Assets............................................ $ 94,726
Shares................................................ 12,083
Offering and redemption price per share............... $7.84
=====
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
<TABLE>
<CAPTION>
Statement of Operations
For the year ended November 30, 1999
<S> <C> <C>
Investment Income:
Interest income.......................................... $ 254,975
Dividend income.......................................... 2,922,926
Income from securities lending........................... 5,467
-----------
Total Investment Income................................. 3,183,368
Expenses:
Investment advisory fees................................. $830,725
Administration fees...................................... 221,529
Distribution and services fees, Investor A Shares........ 4,892
Distribution and services fees, Investor B Shares........ 7,649
Administrative services fees, Trust Shares............... 324,829
Administrative services fees, Institutional Shares....... 276
Accounting fees.......................................... 2,811
Custodian fees........................................... 54,482
Transfer agent fees...................................... 29,049
Other.................................................... 54,966
--------
Total expenses before voluntary fee reductions.......... 1,531,208
Expenses voluntarily reduced............................ (435,592)
-----------
Net Expenses............................................ 1,095,616
-----------
Net Investment Income.................................... 2,087,752
===========
Realized/Unrealized Gains (Losses) from Investments:
Net realized gains from investment transactions.......... 14,439,223
Net change in unrealized appreciation from investments... (8,182,692)
-----------
Net realized/unrealized gains from investments........... 6,256,531
-----------
Change in net assets resulting from operations........... $ 8,344,283
===========
</TABLE>
See notes to financial statements
104
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Equity Income Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
year ended year ended
November 30, November 30,
1999 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 2,087,752 $ 2,213,589
Net realized gains from investment transactions... 14,439,223 24,493,831
Net change in unrealized appreciation from
investments...................................... (8,182,692) (13,549,445)
------------ ------------
Change in net assets resulting from operations..... 8,344,283 13,157,975
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (25,873) (16,781)
From net realized gains from investment
transactions..................................... (384,497) (34,436)
Distributions to Investor B Shareholders:
From net investment income........................ (7,033) (2,683)
From net realized gains from investment
transactions..................................... (125,397) (26,125)
Distributions to Trust Shareholders:
From net investment income........................ (2,042,486) (2,270,617)
From net realized gains from investment
transactions..................................... (24,393,845) (26,111,109)
Distributions to Institutional Shareholders:
From net investment income........................ (1,468) (164)
From net realized gains from investment
transactions..................................... (8,237) --
In excess of net realized gains from investment
transactions..................................... -- (233)
------------ ------------
Change in net assets from shareholder
distributions..................................... (26,988,836) (28,462,148)
------------ ------------
Change in net assets from capital transactions..... 11,473,882 (2,790,787)
------------ ------------
Change in net assets............................... (7,170,671) (18,094,960)
Net Assets:
Beginning of period............................... 114,129,727 132,224,687
------------ ------------
End of period..................................... $106,959,056 $114,129,727
============ ============
</TABLE>
See notes to financial statements
105
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Equity Income Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
years ended February 27, 1997
November 30, to
--------------- November 30, 1997
1999 1998 (a)
------ ------ -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period...... $10.24 $11.56 $10.00
------ ------ ------
Investment Activities:
Net investment income.................... 0.13 0.17 0.16
Net realized and unrealized gains
(losses) from investments............... (0.18) 0.98 1.57
------ ------ ------
Total from Investment Activities......... (0.05) 1.15 1.73
------ ------ ------
Distributions:
Net investment income.................... (0.13) (0.18) (0.16)
In excess of net investment income....... -- -- (0.01)
Net realized gains....................... (2.23) (2.29) --
------ ------ ------
Total Distributions...................... (2.36) (2.47) (0.17)
------ ------ ------
Net Asset Value, End of Period............ $ 7.83 $10.24 $11.56
====== ====== ======
Total Return (excludes sales charge)...... (0.05)% 11.69% 17.42%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)......... $1,336 $1,709 $ 173
Ratio of expenses to average net assets... 1.28% 1.15% 0.45%(c)
Ratio of net investment income to average
net assets............................... 1.60% 1.51% 2.29%(c)
Ratio of expenses to average net assets*.. 1.38% 1.38% 1.38%(c)
Portfolio turnover**...................... 81.84% 98.32% 48.33%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
Financial Highlights, Investor B Shares
<CAPTION>
For the
years ended February 27, 1997
November 30, to
--------------- November 30, 1997
1999 1998 (a)
------ ------ -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period...... $10.23 $11.55 $10.00
------ ------ ------
Investment Activities:
Net investment income.................... 0.08 0.11(d) 0.10
Net realized and unrealized gains
(losses) from investments............... (0.19) 0.97 1.57
------ ------ ------
Total from Investment Activities......... (0.11) 1.08 1.67
------ ------ ------
Distributions:
Net investment income.................... (0.08) (0.11) (0.10)
In excess of net investment income....... -- -- (0.02)
Net realized gains....................... (2.23) (2.29) --
------ ------ ------
Total Distributions...................... (2.31) (2.40) (0.12)
------ ------ ------
Net Asset Value, End of Period............ $ 7.81 $10.23 $11.55
====== ====== ======
Total Return (excludes redemption
charge).................................. (0.85)% 10.98% 16.75%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)......... $ 766 $ 520 $ 131
Ratio of expenses to average net assets... 1.98% 1.84% 1.14%(c)
Ratio of net investment income to average
net assets............................... 0.89% 0.83% 1.53%(c)
Ratio of expenses to average net assets*.. 2.08% 2.08% 2.07%(c)
Portfolio turnover**...................... 81.84% 98.32% 48.33%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized. (d) Per share
net investment income has been calculated using the daily average share
method.
See notes to financial statements
106
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Equity Income Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the
years ended February 27, 1997
November 30, to
------------------- November 30, 1997
1999 1998 (a)
-------- -------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.24 $ 11.56 $ 10.00
-------- -------- --------
Investment Activities:
Net investment income.................. 0.16 0.19 0.20
Net realized and unrealized gains
(losses) from investments............. (0.18) 0.98 1.55
-------- -------- --------
Total from Investment Activities....... (0.02) 1.17 1.75
-------- -------- --------
Distributions:
Net investment income.................. (0.16) (0.20) (0.19)
Net realized gains..................... (2.23) (2.29) --
-------- -------- --------
Total Distributions.................... (2.39) (2.49) (0.19)
-------- -------- --------
Net Asset Value, End of Period.......... $ 7.83 $ 10.24 $ 11.56
======== ======== ========
Total Return............................ 0.23% 12.00% 17.64%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)....... $104,762 $111,866 $131,919
Ratio of expenses to average net
assets................................. 0.98% 0.71% 0.15%(c)
Ratio of net investment income to
average net assets..................... 1.90% 1.94% 2.51%(c)
Ratio of expenses to average net
assets*................................ 1.38% 1.37% 1.38%(c)
Portfolio turnover**.................... 81.84% 98.32% 48.33%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
Financial Highlights, Institutional Shares
<CAPTION>
For the
years ended February 27, 1997
November 30, to
------------------- November 30, 1997
1999 1998 (a)
-------- -------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.24 $ 11.56 $ 10.00
-------- -------- --------
Investment Activities:
Net investment income.................. 0.14 0.18 0.19
Net realized and unrealized gains
(losses) from investments............. (0.18) 0.98 1.56
-------- -------- --------
Total from Investment Activities....... (0.04) 1.16 1.75
-------- -------- --------
Distributions:
Net investment income.................. (0.13) (0.19) (0.19)
Net realized gains..................... (2.23) (2.29) --
-------- -------- --------
Total Distributions.................... (2.36) (2.48) (0.19)
-------- -------- --------
Net Asset Value, End of Period.......... $ 7.84 $ 10.24 $ 11.56
======== ======== ========
Total Return............................ 0.09%+ 11.82% 17.64%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)....... $ 95 $ 35 $ 1
Ratio of expenses to average net
assets................................. 1.28% 1.23% 0.37%(c)
Ratio of net investment income to
average net assets..................... 1.58% 1.40% 2.34%(c)
Ratio of expenses to average net
assets*................................ 1.38% 1.32% 1.60%(c)
Portfolio turnover**.................... 81.84% 98.32% 48.33%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized. + Incurred
class specific gains. The total return excluding this would have been (0.07)%.
See notes to financial statements
107
<PAGE>
Mercantile Equity Index Portfolio
Q. What is the role of an index fund in an investor's portfolio?
A. Index funds simulate the composition of a particular market index, with
the goal of providing returns which, before the deduction of operating
expenses, are comparable to that benchmark's returns. The Mercantile Equity
Index Portfolio attempts to duplicate the performance of the S&P 500 Index, the
most common measure of the U.S. stock market's performance. The Index includes
500 stocks of large companies across various sectors of the economy.
Q. How did the stock market and the Portfolio perform during the 12 months
ended November 30, 1999?
A. The S&P 500 Index rose 20.89% for the period, and the Portfolio gained
19.84% (Investor A Shares without the maximum sales charge). Gains in the Index
and the Portfolio were in part driven by strong performances from shares of
large technology companies, which investors prized for their potential earnings
power, and energy stocks, which benefited from rising oil prices.
Q. What accounts for the difference between the benchmark's return and the
return of the Portfolio?
A. Index funds usually trail their benchmarks by a small margin, reflecting
the expenses involved with managing the Portfolio. Moreover, the Portfolio
includes small amounts of cash, which in a strong market can weigh down
returns. Over long periods, however, the return of the Portfolio should be very
close to that of its benchmark index.
108
<PAGE>
Mercantile Equity Index Portfolio
[CHART]
Value of a $10,000 Investment
Investor A Investor A S & P 500
(No Load) (Load)* Trust Institutional Index
1 5/1/97 10,000 9,747 10,000 10,000 10,000
2 11/30/97 12,014 11,710 12,040 12,040 11,964
3 11/98 14,778 14,404 14,851 14,812 14,797
4 11/99 17,710 16,739 17,845 17,750 17,888
- -------------------------------------------------------------------------------
- -
Average Annual Total Returns
as of 11/30/99
- -------------------------------------------------------------------------------
- -
Since
Inception
1 Year (5/1/97)
- -------------------------------------------------------------------------------
- -
Investor A (No Load) 19.84% 24.76%
- -------------------------------------------------------------------------------
- -
Investor A* 13.22% 22.07%
- -------------------------------------------------------------------------------
- -
Trust 20.16% 25.13%
- -------------------------------------------------------------------------------
- -
Institutional 19.83% 24.87%
- -------------------------------------------------------------------------------
- -
* Reflects 5.50% sales charge.
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Equity Index Portfolio is measured against
the Standard & Poor's 500 Index, an unmanaged index generally representative of
the U.S. stock market as a whole. Investors are unable to invest in the Index
directly, although they can invest in the underlying securities. The
performance of the Index does not reflect the deduction of expenses associated
with a mutual fund, such as investment management and fund accounting fees. By
contrast, the performance of the Portfolio shown on the graph reflects the
deduction of these value-added services, as well as the deduction of a 5.50%
sales charge on Investor A Shares.
109
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Equity Index Portfolio November 30, 1999
<TABLE>
<CAPTION>
Commercial Paper (0.2%):
Shares or
Security Principal Market
Description Amount Value
----------- --------- ------------
<S> <C> <C>
Natural Gas Utility (0.2%):
Ciesco, 5.60%, 12/1/99.................................. $191,000 $ 191,000
------------
TOTAL COMMERCIAL PAPER 191,000
------------
Common Stocks (99.0%):
Advertising (0.2%):
Interpublic Group Cos., Inc. ........................... 2,517 118,299
Omnicom Group, Inc. .................................... 1,616 142,410
------------
260,709
------------
Aerospace/Defense (0.9%):
Boeing Co. ............................................. 8,776 358,171
General Dynamics Corp. ................................. 1,791 92,348
Lockheed Martin Corp.................................... 3,599 71,530
Northrop Grumman Corp. ................................. 636 35,735
Raytheon Co., Class B................................... 3,089 94,794
Teledyne Technologies, Inc.(b).......................... 245 2,155
TRW, Inc................................................ 1,069 55,788
United Technologies Corp. .............................. 4,363 246,510
------------
957,031
------------
Aircraft Engines & Engine Parts (0.3%):
AlliedSignal, Inc. ..................................... 5,010 299,661
------------
Airlines (0.2%):
AMR Corp.(b)............................................ 1,344 81,816
Delta Air Lines, Inc.................................... 1,273 62,695
Southwest Airlines Co. ................................. 4,562 74,418
US Airways Group, Inc.(b)............................... 662 18,495
------------
237,424
------------
Apparel/Shoes (0.5%):
Gap, Inc................................................ 7,790 315,495
Liz Claiborne, Inc. .................................... 592 22,163
Nike, Inc. ............................................. 2,603 119,738
Reebok International Ltd.(b)............................ 502 4,518
Russell Corp. .......................................... 306 3,997
VF Corp................................................. 1,095 32,713
------------
498,624
------------
Automotive (1.2%):
Cooper Industries, Inc. ................................ 866 37,184
Cummins Engine Co. ..................................... 411 16,646
Dana Corp. ............................................. 1,472 40,848
Delphi Automotive Systems............................... 5,174 81,490
Ford Motor Co........................................... 11,017 556,358
General Motors Corp..................................... 5,887 423,863
Genuine Parts Co........................................ 1,613 41,535
Navistar International Corp.(b)......................... 600 22,313
PACCAR, Inc............................................. 718 29,528
------------
1,249,765
------------
Banking (5.4%):
Amsouth Bancorp......................................... 3,550 80,097
Bank of America Corp.................................... 15,673 916,871
Bank of New York, Inc. ................................. 6,679 266,325
Bank One Corp. ......................................... 10,616 374,214
BB & T Corp. ........................................... 2,899 93,130
Chase Manhattan Corp. .................................. 7,609 587,795
Comerica, Inc. ......................................... 1,396 73,988
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------ ------------
<S> <C> <C>
Banking, continued
Fifth Third Bancorp........................................ 2,697 $ 188,790
First Union Corp........................................... 8,658 334,956
Firstar Corp.(c)........................................... 8,927 232,102
Fleet Boston Financial Corp. .............................. 8,405 317,814
Huntington BancShares, Inc. ............................... 2,080 57,590
KeyCorp.................................................... 4,117 111,159
National City Corp. ....................................... 5,624 140,249
Northern Trust Corp. ...................................... 1,018 98,555
Old Kent Financial Corp.................................... 1,059 42,956
PNC Bank Corp. ............................................ 2,795 155,821
Republic New York Corp. ................................... 1,002 70,829
Southtrust Corp. .......................................... 1,566 60,780
State Street Corp.......................................... 1,508 110,744
Summit Bancorp............................................. 1,561 50,928
SunTrust Banks, Inc. ...................................... 2,961 206,900
Synovus Financial Corp..................................... 2,423 48,460
U.S. Bancorp............................................... 6,667 227,928
Union Planters Corp. ...................................... 1,305 55,626
Wachovia Corp.............................................. 1,825 141,323
Wells Fargo & Co........................................... 14,954 695,361
------------
5,741,291
------------
Beverages (2.5%):
Adolph Coors Co. .......................................... 330 16,418
Anheuser-Busch Co. ........................................ 4,239 317,130
Brown-Forman Corp. ........................................ 607 38,051
Coca-Cola Co. ............................................. 22,462 1,511,973
Coca-Cola Enterprises, Inc. ............................... 3,857 81,720
PepsiCo, Inc. ............................................. 13,345 461,237
Seagram Co. Ltd. .......................................... 3,939 171,593
------------
2,598,122
------------
Broadcasting & Publishing (1.0%):
CBS Corp.(b)............................................... 6,928 360,262
Clear Channel Communications, Inc.(b)...................... 3,030 243,536
Mediaone Group, Inc.(b).................................... 5,501 435,954
------------
1,039,752
------------
Building Products (0.2%):
Masco Corp................................................. 4,035 101,884
Owens Corning.............................................. 488 7,686
Sherwin-Williams Co........................................ 1,526 32,714
Vulcan Materials Co. ...................................... 877 35,299
------------
177,583
------------
Business Services (0.6%):
Automatic Data Processing, Inc............................. 5,611 277,044
Ceridian Corp.(b).......................................... 1,314 28,415
Computer Science Corp.(b).................................. 1,449 94,547
Equifax, Inc. ............................................. 1,313 32,497
First Data Corp. .......................................... 3,853 166,642
------------
599,145
------------
Chemicals (1.5%):
Air Products & Chemicals, Inc. ............................ 2,062 66,757
Avery Dennison Corp. ...................................... 1,076 63,888
Dow Chemical Co. .......................................... 1,967 230,385
E. I. duPont de Nemours & Co............................... 9,450 561,700
Eastman Chemical Co. ...................................... 717 27,873
</TABLE>
Continued
110
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Equity Index Portfolio November 30, 1999
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------ ------------
<S> <C> <C>
Chemicals, continued
Ecolab, Inc................................................ 1,128 $ 39,057
Engelhard Corp............................................. 1,187 19,956
FMC Corp.(b)............................................... 277 13,435
Great Lakes Chemical Corp. ................................ 521 17,291
Hercules, Inc.............................................. 918 21,803
Monsanto Co................................................ 5,752 242,663
Praxair, Inc............................................... 1,489 66,447
Rohm & Haas Co............................................. 1,978 72,444
Sigma-Aldrich Corp. ....................................... 883 25,276
Union Carbide Corp. ....................................... 1,170 68,445
W.R. Grace & Co.(b)........................................ 600 8,175
------------
1,545,595
------------
Commercial Services (0.2%):
Cendant Corp.(b)........................................... 6,600 109,312
H & R Block, Inc........................................... 900 38,700
Quintiles Transnational Corp.(b)........................... 1,020 22,504
------------
170,516
------------
Computer Software (6.0%):
Adaptec, Inc.(b)........................................... 972 52,367
Adobe Systems, Inc......................................... 1,150 78,991
BMC Software, Inc.(b)...................................... 2,190 159,459
Computer Associates International, Inc. ................... 4,849 315,185
Compuware Corp.(b)......................................... 3,211 108,572
Electronic Data Systems Corp. ............................. 4,463 287,027
IMS Health, Inc. .......................................... 2,840 66,918
Microsoft Corp.(b)......................................... 46,406 4,225,123
Novell, Inc.(b)............................................ 3,013 58,942
Oracle Corp.(b)............................................ 13,056 885,360
Parametric Technology Corp.(b)............................. 2,417 54,836
Peoplesoft, Inc.(b)........................................ 2,169 40,804
------------
6,333,584
------------
Computers (8.6%):
3Com Corp.(b).............................................. 3,244 129,152
Apple Computer, Inc.(b).................................... 1,434 140,353
Cabletron Systems, Inc.(b)................................. 1,561 35,805
Cisco Systems, Inc.(b)..................................... 29,581 2,638,254
Compaq Computer Corp....................................... 15,460 377,804
Dell Computer Corp.(b)..................................... 23,065 993,237
EMC Corp.(b)............................................... 9,185 767,522
Gateway, Inc.(b)........................................... 2,821 215,454
Hewlett-Packard Co......................................... 9,167 869,719
IBM Corp. ................................................. 16,406 1,690,842
Lexmark International Group, Inc.
Class A(b)................................................ 1,145 95,035
Network Appliance, Inc.(b)................................. 669 78,733
Seagate Technology, Inc.(b)................................ 2,010 74,370
Silicon Graphics, Inc.(b).................................. 1,695 15,997
Sun Microsystems, Inc.(b).................................. 7,031 929,850
Unisys Corp.(b)............................................ 2,739 78,746
------------
9,130,873
------------
Construction (0.1%):
Armstrong World Industries, Inc............................ 344 11,524
Centex Corp. .............................................. 511 12,136
Ingersoll-Rand Co. ........................................ 1,495 72,415
Kaufman & Broad Home Corp. ................................ 434 9,602
Pulte Corp. ............................................... 390 7,824
------------
113,501
------------
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------ ------------
<S> <C> <C>
Consumer Goods & Services (1.7%):
Black & Decker Corp. .................................. 760 $ 34,105
Clorox Co.............................................. 2,169 96,656
Colgate-Palmolive Co................................... 5,275 289,466
Fortune Brands, Inc.................................... 1,470 50,256
Jostens, Inc. ......................................... 333 6,119
Procter & Gamble Co. .................................. 12,100 1,306,799
Tupperware Corp........................................ 529 9,423
------------
1,792,824
------------
Containers & Packaging (0.1%):
Ball Corp. ............................................ 275 10,227
Bemis Co. ............................................. 489 15,404
Crown Cork & Seal Co., Inc. ........................... 1,074 21,883
Owens-Illinois, Inc.(b)................................ 1,410 33,752
Sealed Air Corp.(b).................................... 724 34,027
------------
115,293
------------
Cosmetics & Toiletries (0.5%):
Alberto-Culver Co. .................................... 503 13,235
Avon Products, Inc. ................................... 2,336 85,118
Gillette Co. .......................................... 9,882 397,133
International Flavors & Fragrances, Inc. .............. 926 34,088
------------
529,574
------------
Diversified Operations (0.8%):
Corning, Inc........................................... 2,184 204,614
Crane Co. ............................................. 594 10,915
Eastern Enterprises.................................... 233 13,223
Eaton Corp............................................. 665 51,496
ITT Industries, Inc. .................................. 758 26,435
Minnesota Mining & Manufacturing Co. .................. 3,657 349,473
National Service Industries, Inc. ..................... 335 9,903
PPG Industries, Inc. .................................. 1,574 92,177
Textron, Inc. ......................................... 1,351 96,005
------------
854,241
------------
Electrical & Electronic (4.4%):
Analog Devices(b)...................................... 1,589 91,268
CMS Energy Corp. ...................................... 1,052 34,979
Emerson Electric Co. .................................. 3,976 226,632
Florida Progress Corp. ................................ 876 37,449
General Electric Co. .................................. 29,848 3,880,240
Millipore Corp. ....................................... 427 14,011
PerkinElmer, Inc. ..................................... 368 15,134
Pinnacle West Capital Corp. ........................... 800 26,550
Solectron Corp.(b)..................................... 2,470 203,466
Tektronix, Inc. ....................................... 452 15,368
Teradyne, Inc.(b)...................................... 1,436 62,556
Thomas & Betts Corp.................................... 492 20,172
W.W. Grainger, Inc. ................................... 834 39,302
------------
4,667,127
------------
Electronic Components/Instruments (0.1%):
Molex, Inc. ........................................... 1,319 66,807
------------
Engineering (0.0%):
Fluor Corp. ........................................... 693 29,149
Foster Wheeler Corp. .................................. 341 3,474
------------
32,623
------------
</TABLE>
Continued
111
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Equity Index Portfolio November 30, 1999
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------ ------------
<S> <C> <C>
Entertainment (1.8%):
Brunswick Corp. ........................................... 852 $ 18,584
Carnival Corp. ............................................ 5,535 244,232
Harrah's Entertainment, Inc.(b)............................ 1,145 31,631
Meredith Corp.............................................. 494 18,679
The Walt Disney Co. ....................................... 18,721 521,848
Time Warner, Inc. ......................................... 11,744 724,458
Viacom, Inc., Class B(b)................................... 6,365 316,659
------------
1,876,091
------------
Environmental Services (0.1%):
Allied Waste Industries, Inc.(b)........................... 1,682 13,666
Waste Management, Inc. .................................... 5,632 91,520
------------
105,186
------------
Financial Services (6.1%):
American Express Co........................................ 4,135 625,677
Associates First Capital Corp.............................. 6,573 218,552
Bear Stearns Co., Inc...................................... 1,122 45,810
Capital One Financial Corp................................. 1,786 83,161
Citigroup, Inc............................................. 30,688 1,653,315
Countrywide Credit Industries, Inc. ....................... 980 27,563
Dun & Bradstreet Corp...................................... 1,495 40,365
Fannie Mae................................................. 9,335 621,944
Franklin Resources, Inc. .................................. 2,259 71,017
Freddie Mac................................................ 6,321 312,099
Golden West Financial Corp................................. 509 51,377
Household International, Inc. ............................. 4,395 173,877
J. P. Morgan & Co., Inc. .................................. 1,606 211,189
Lehman Brothers Holding, Inc. ............................. 1,050 80,194
MBIA, Inc. ................................................ 954 47,700
MBNA Corp. ................................................ 7,320 184,830
Mellon Financial Corp...................................... 4,716 171,839
Merrill Lynch & Co......................................... 3,371 271,787
MGIC Investment Corp. ..................................... 957 54,071
Morgan Stanley Dean Witter & Co. .......................... 5,190 626,044
Paine Webber Group, Inc. .................................. 1,337 52,394
Paychex, Inc. ............................................. 2,275 90,858
Price (T. Rowe) Associates................................. 1,067 38,412
Providian Financial Corp. ................................. 1,287 101,834
Regions Financial Corp. ................................... 2,000 54,875
Schwab (Charles) Corp. .................................... 7,463 283,128
SLM Holding Corp........................................... 1,437 71,221
Washington Mutual, Inc. ................................... 5,310 153,990
------------
6,419,123
------------
Food Products (0.3%):
Nabisco Group Holdings Corp. .............................. 2,978 34,433
Unilever N.V. ............................................. 5,222 284,273
------------
318,706
------------
Food Products & Services (1.3%):
Archer-Daniels Midland Co. ................................ 5,583 69,439
Bestfoods.................................................. 2,499 136,976
Campbell Soup Co. ......................................... 3,908 174,395
ConAgra, Inc............................................... 4,437 107,043
General Mills, Inc......................................... 2,720 102,510
H. J. Heinz Co. ........................................... 3,304 138,355
Hershey Foods Corp......................................... 1,277 62,733
Kellogg Co................................................. 3,672 124,389
Quaker Oats Co............................................. 1,180 76,995
Ralston Purina Group....................................... 2,927 86,895
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------ ------------
<S> <C> <C>
Food Products & Services, continued
Sara Lee Corp. ............................................ 8,255 $ 200,183
Wm. Wrigley Jr. Co. ....................................... 1,025 85,267
------------
1,365,180
------------
Funeral Services (0.0%):
Service Corp. International................................ 2,513 19,005
------------
Health Care (1.7%):
American Home Products Corp. .............................. 11,866 617,032
C.R. Bard, Inc............................................. 433 23,517
Columbia/HCA Healthcare Corp. ............................. 5,092 138,757
Healthsouth Corp.(b)....................................... 3,761 21,391
Humana, Inc.(b)............................................ 1,489 10,423
Manor Care, Inc.(b)........................................ 967 19,400
Mckesson HBOC, Inc. ....................................... 2,599 60,752
Tenet Healthcare Corp.(b).................................. 2,780 62,029
United Healthcare Corp. ................................... 1,552 80,607
Warner-Lambert Co.......................................... 7,774 697,231
Wellpoint Health Networks(b)............................... 607 34,940
------------
1,766,079
------------
Home Furnishings (0.0%):
Leggett & Platt, Inc. ..................................... 1,808 38,759
------------
Hotels & Lodging (0.1%):
Hilton Hotels Corp. ....................................... 2,284 22,983
Marriott International, Inc., Class A...................... 2,300 74,893
Mirage Resorts, Inc.(b).................................... 1,778 22,781
------------
120,657
------------
Household--Major Appliances (0.1%):
Maytag Corp. .............................................. 759 36,195
Whirlpool Corp. ........................................... 679 41,419
------------
77,614
------------
Household Products/Wares (0.0%):
Water Pik Technologies, Inc.(b)............................ 86 631
------------
Instrumentation (0.3%):
Honeywell, Inc. ........................................... 1,118 125,146
Johnson Controls, Inc. .................................... 790 43,055
Parker Hannifin Corp. ..................................... 1,031 48,521
PE Corp. Biosystems........................................ 881 71,912
------------
288,634
------------
Insurance (3.0%):
Aetna, Inc................................................. 1,241 67,790
AFLAC, Inc. ............................................... 2,377 113,799
Allstate Corp. ............................................ 7,282 190,697
American General Corp. .................................... 2,310 169,352
American International Group, Inc.......................... 14,070 1,452,727
AON Corp. ................................................. 2,294 81,867
Chubb Corp. ............................................... 1,561 83,611
Cigna Corp. ............................................... 1,796 147,721
Cincinnati Financial Corp.................................. 1,482 49,647
Conseco, Inc. ............................................. 3,010 60,953
Hartford Financial Services Group, Inc. ................... 2,085 97,343
Jefferson-Pilot Corp. ..................................... 921 62,513
Lincoln National Corp. .................................... 1,802 75,121
Loews Corp. ............................................... 945 60,480
Marsh & McLennan Cos., Inc................................. 2,377 186,892
Progressive Corp. ......................................... 684 55,105
</TABLE>
Continued
112
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Equity Index Portfolio November 30, 1999
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------ -------------
<S> <C> <C>
Insurance, continued
SAFECO Corp. .............................................. 1,215 $ 28,780
St. Paul Companies, Inc. .................................. 2,025 61,130
Torchmark Corp. ........................................... 1,199 38,068
UnumProvident Corp. ....................................... 2,140 69,684
-------------
3,153,280
-------------
Internet (1.4%):
America Online, Inc.(b).................................... 20,162 1,465,525
-------------
Machinery & Equipment (0.4%):
Caterpillar, Inc........................................... 3,189 147,890
Deere & Co. ............................................... 2,095 89,954
Dover Corp. ............................................... 1,918 83,193
Milacron, Inc. ............................................ 338 4,922
Nacco Industries, Inc., Class A............................ 108 5,231
Snap-On, Inc............................................... 549 16,607
Stanley Works.............................................. 813 25,305
Thermo Electron Corp.(b)................................... 1,435 21,525
-------------
394,627
-------------
Manufacturing (0.8%):
Briggs & Stratton Corp. ................................... 218 11,649
Danaher Corp. ............................................. 1,295 63,617
Fleetwood Enterprises, Inc. ............................... 345 7,245
Illinois Tool Works, Inc. ................................. 2,262 146,465
Pall Corp. ................................................ 1,114 26,109
Tyco International Ltd..................................... 15,190 608,550
-------------
863,635
-------------
Manufacturing--Consumer Goods (0.1%):
Newell Rubbermaid, Inc. ................................... 2,604 85,444
-------------
Medical Equipment & Supplies (0.9%):
Bausch & Lomb, Inc. ....................................... 502 27,516
Baxter International, Inc. ................................ 2,665 180,054
Becton Dickinson & Co. .................................... 2,304 62,784
Biomet, Inc. .............................................. 1,017 32,226
Boston Scientific Corp.(b)................................. 3,759 79,409
Guidant Corp.(b)........................................... 2,712 135,600
Mallinckrodt, Inc. ........................................ 627 20,848
Medtronic, Inc. ........................................... 10,670 414,796
St. Jude Medical, Inc.(b).................................. 756 20,081
-------------
973,314
-------------
Medical Services (0.0%):
Shared Medical Systems Corp. .............................. 221 9,669
-------------
Metals & Mining (0.4%):
Alcan Aluminum Ltd. ....................................... 2,049 69,666
Alcoa, Inc................................................. 3,366 220,473
Freeport McMoran Copper & Gold, Inc.(b).................... 1,489 23,545
Inco Ltd. ................................................. 1,737 31,917
Phelps Dodge Corp. ........................................ 806 41,904
Reynolds Metals Co. ....................................... 597 37,350
-------------
424,855
-------------
Office Equipment & Services (0.3%):
Deluxe Corp. .............................................. 661 17,310
IKON Office Solutions, Inc................................. 1,350 9,028
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------ ------------
<S> <C> <C>
Office Equipment & Services, continued
Pitney Bowes, Inc. .................................... 2,412 $ 115,625
Xerox Corp. ........................................... 6,027 163,106
------------
305,069
------------
Oil & Exploration, Production & Services (0.6%):
Anadarko Petroleum Corp................................ 1,161 34,975
Apache Corp............................................ 1,017 36,421
Burlington Resources, Inc. ............................ 1,598 53,733
Coastal Corp........................................... 1,910 67,328
Conoco, Inc. .......................................... 5,688 148,955
Halliburton Co......................................... 4,015 155,329
Kerr-McGee Corp. ...................................... 773 44,254
Rowan Cos., Inc.(b).................................... 774 13,255
Tosco Corp. ........................................... 1,407 38,077
Union Pacific Resources Group, Inc. ................... 2,320 30,305
------------
622,632
------------
Oil & Gas Equipment/Services (0.6%):
Baker Hughes, Inc...................................... 3,037 76,684
El Paso Energy Corp. .................................. 2,086 80,311
McDermott International, Inc........................... 549 4,701
Schlumberger Ltd. ..................................... 4,937 296,529
Williams Cos., Inc. ................................... 3,932 132,705
------------
590,930
------------
Oil Companies--Integrated (5.1%):
Amerada Hess Corp. .................................... 830 48,088
Ashland, Inc. ......................................... 678 22,883
Atlantic Richfield Co. ................................ 2,966 285,848
Chevron Corp. ......................................... 6,015 532,703
Enron Corp. ........................................... 6,478 246,569
Exxon Corp. ........................................... 22,068 1,750,267
Helmerich & Payne, Inc. ............................... 404 9,141
Mobil Corp. ........................................... 7,168 747,712
Occidental Petroleum Corp.............................. 3,168 69,498
Phillips Petroleum Co. ................................ 2,350 112,359
Royal Dutch Petroleum Co.-NY Shares.................... 19,506 1,131,348
Sunoco, Inc. .......................................... 873 22,316
Texaco, Inc. .......................................... 5,060 308,344
Unocal Corp. .......................................... 2,248 74,606
USX-Marathon Group, Inc................................ 2,774 73,338
------------
5,435,020
------------
Packaging (0.0%):
Pactiv Corp.(b)........................................ 1,547 15,857
------------
Paper & Related (0.9%):
Boise Cascade Corp. ................................... 498 17,243
Champion International Corp. .......................... 865 47,953
Fort James Corp. ...................................... 1,977 56,839
Georgia-Pacific Corp................................... 1,596 63,541
International Paper Co. ............................... 3,781 197,321
Kimberly-Clark Corp. .................................. 4,858 310,305
Louisiana-Pacific Corp. ............................... 994 12,177
Mead Corp.............................................. 901 32,154
Potlatch Corp. ........................................ 243 9,826
Temple-Inland, Inc..................................... 501 28,682
Westvaco Corp.......................................... 891 26,897
</TABLE>
Continued
113
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Equity Index Portfolio November 30, 1999
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------ ------------
<S> <C> <C>
Paper & Related, continued
Weyerhaeuser Co. .......................................... 1,810 $ 110,863
Williamette Industries, Inc. .............................. 1,002 41,458
------------
955,259
------------
Pharmaceuticals (7.8%):
Abbott Laboratories........................................ 13,821 525,198
Allergan, Inc. ............................................ 617 60,697
ALZA Corp.(b).............................................. 895 38,653
Amgen, Inc.(b)............................................. 9,370 426,921
Bristol-Myers Squibb Co. .................................. 18,082 1,321,115
Eli Lilly & Co. ........................................... 9,933 712,693
Johnson & Johnson.......................................... 12,189 1,264,609
Merck & Co., Inc. ......................................... 21,346 1,675,660
Pfizer, Inc. .............................................. 35,273 1,276,442
Pharmacia & UpJohn, Inc. .................................. 4,600 251,563
Schering-Plough Corp. ..................................... 13,336 681,803
Watson Pharmaceuticals, Inc.(b)............................ 846 31,461
------------
8,266,815
------------
Photography (0.2%):
Eastman Kodak Co. ......................................... 2,886 178,572
Polaroid Corp. ............................................ 361 6,949
------------
185,521
------------
Precious Metals (0.1%):
Barrick Gold Corp. ........................................ 3,584 64,512
Homestake Mining Co........................................ 2,349 19,379
Newmont Mining Corp. ...................................... 1,511 35,792
Placer Dome, Inc. ......................................... 2,978 33,875
------------
153,558
------------
Printing & Publishing (0.6%):
American Greetings Corp. Class A........................... 581 13,690
Dow Jones & Co., Inc....................................... 820 49,713
Gannett Co., Inc........................................... 2,577 184,417
Knight-Ridder, Inc. ....................................... 733 39,994
McGraw-Hill Cos., Inc...................................... 1,762 99,883
New York Times Co. ........................................ 1,590 61,116
R.R. Donnelley Co. ........................................ 1,191 28,584
Times Mirror Co. .......................................... 507 32,733
Tribune Co................................................. 2,181 104,824
------------
614,954
------------
Restaurants (0.6%):
Darden Restaurants, Inc. .................................. 1,203 21,428
McDonald's Corp. .......................................... 12,325 554,625
Tricon Global Restaurants, Inc.(b)......................... 1,354 56,191
Wendy's International, Inc................................. 1,128 24,887
------------
657,131
------------
Retail Stores (5.9%):
Albertson's, Inc........................................... 3,812 121,746
AutoZone, Inc.(b).......................................... 1,364 37,595
Bed, Bath & Beyond, Inc.(b)................................ 1,251 39,094
Best Buy, Inc.(b).......................................... 1,901 118,813
Circuit City Stores, Inc. ................................. 1,875 90,938
Consolidated Stores Corp.(b)............................... 983 15,482
CVS Corp. ................................................. 3,564 141,446
Dayton Hudson Corp......................................... 4,022 283,802
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------ ------------
<S> <C> <C>
Retail Stores, continued
Dillards, Inc., Class A.................................... 939 $ 17,724
Dollar General Corp. ...................................... 2,088 51,156
Federated Department Stores, Inc.(b)....................... 1,849 87,019
Great Atlantic & Pacific Tea Co............................ 331 8,420
Harcourt General, Inc. .................................... 615 20,372
Home Depot, Inc. .......................................... 13,510 1,068,134
J.C. Penney, Inc........................................... 2,359 52,635
KMart Corp.(b)............................................. 4,503 44,749
Kohl's Corp.(b)............................................ 1,458 105,249
Kroger Co.(b).............................................. 7,535 160,590
Limited, Inc. ............................................. 1,932 81,989
Longs Drug Stores, Inc. ................................... 334 8,392
Lowe's Cos. ............................................... 3,439 171,305
May Department Stores Co. ................................. 3,050 102,556
Nordstrom, Inc. ........................................... 1,281 35,628
Office Depot, Inc.(b)...................................... 3,388 37,692
Pep Boys--Manny, Moe, & Jack............................... 447 4,330
Rite-Aid Corp. ............................................ 2,327 17,598
Safeway, Inc.(b)........................................... 4,656 171,690
Sears, Roebuck & Co. ...................................... 3,474 118,767
Staples, Inc.(b)........................................... 4,222 99,217
Tandy Corp. ............................................... 1,802 138,078
TJX Cos., Inc. ............................................ 2,893 75,760
Toys R Us, Inc.(b)......................................... 2,286 40,005
Wal-Mart Stores, Inc....................................... 40,461 2,331,565
Walgreen Co................................................ 9,095 264,892
Winn-Dixie Stores, Inc. ................................... 1,338 35,039
------------
6,199,467
------------
Semiconductors (3.7%):
Advanced Micro Devices, Inc.(b)............................ 1,308 36,951
Applied Materials, Inc.(b)................................. 3,428 334,016
Intel Corp. ............................................... 30,129 2,310,517
KLA-Tencor Corp.(b)........................................ 819 69,257
LSI Logic Corp.(b)......................................... 1,299 78,508
Micron Technology, Inc.(b)................................. 2,256 151,434
National Semiconductor Corp.(b)............................ 1,495 63,538
Rockwell International Corp. .............................. 1,694 84,065
Texas Instruments, Inc..................................... 7,162 687,999
Xilinx, Inc.(b)............................................ 1,406 125,837
------------
3,942,122
------------
Steel (0.1%):
Allegheny Technologies, Inc................................ 856 21,561
Bethlehem Steel Corp.(b)................................... 1,181 7,381
Nucor Corp. ............................................... 808 40,753
USX-U.S. Steel Group....................................... 796 20,149
Worthington Industries, Inc. .............................. 819 13,104
------------
102,948
------------
Technology (0.6%):
Autodesk, Inc. ............................................ 545 15,975
Motorola, Inc. ............................................ 5,496 627,918
------------
643,893
------------
Telecommunications (7.8%):
ADC Telecommunications, Inc.(b)............................ 1,332 71,012
Andrew Corp.(b)............................................ 796 11,094
Centurytel, Inc. .......................................... 1,234 56,764
</TABLE>
Continued
114
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Equity Index Portfolio November 30, 1999
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------ ------------
<S> <C> <C>
Telecommunications, continued
Comcast Corp. ............................................. 6,816 $ 307,998
General Instrument Corp.(b)................................ 1,534 100,477
Global Crossing Ltd.(b).................................... 7,016 306,073
Lucent Technologies, Inc. ................................. 27,884 2,037,274
MCI Worldcom, Inc.(b)...................................... 16,992 1,405,026
Nextel Communications, Inc. Class A(b)..................... 3,050 302,331
Nortel Networks Corp. ..................................... 12,116 896,584
Qualcomm, Inc.(b).......................................... 1,440 521,730
SBC Communications, Inc. .................................. 31,094 1,614,945
Scientific-Atlanta, Inc.................................... 691 40,294
Sprint Corp. (PCS Group)(b)................................ 3,954 362,780
Tellabs, Inc.(b)........................................... 3,564 231,215
------------
8,265,597
------------
Telecommunications--Services and Equipment (0.1%):
Comverse Technology, Inc.(b)............................... 651 78,690
------------
Textile Products (0.0%):
Springs Industries, Inc. .................................. 132 5,280
------------
Tire & Rubber (0.1%):
B. F. Goodrich Co. ........................................ 994 22,427
Cooper Tire & Rubber Co. .................................. 661 9,915
Goodyear Tire & Rubber Co. ................................ 1,385 46,744
------------
79,086
------------
Tobacco (0.6%):
Philip Morris Companies, Inc. ............................. 21,703 571,060
UST, Inc. ................................................. 1,560 41,535
------------
612,595
------------
Toys (0.1%):
Hasbro, Inc. .............................................. 1,729 37,282
Mattel, Inc. .............................................. 3,830 54,816
------------
92,098
------------
Transportation & Shipping (0.5%):
Burlington Northern Santa Fe............................... 4,250 123,250
CSX Corp. ................................................. 1,936 68,849
FDX Corp.(b)............................................... 2,663 112,345
Kansas City Southern Industries, Inc. ..................... 995 59,265
Laidlaw, Inc. ............................................. 3,032 18,571
Norfolk Southern Corp. .................................... 3,458 73,915
Timken Co. ................................................ 531 10,155
Union Pacific Corp. ....................................... 2,275 107,067
------------
573,417
------------
Trucking & Leasing (0.0%):
Ryder Systems, Inc. ....................................... 610 13,763
------------
Utilities--Gas & Electric (1.8%):
AES Corp.(b)............................................... 1,890 109,501
Ameren Corp. .............................................. 1,242 43,004
American Electric Power, Inc. ............................. 1,740 54,593
Carolina Power & Light Co. ................................ 1,418 42,717
Central & South West Corp. ................................ 1,961 39,220
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------ ------------
<S> <C> <C>
Utilities--Gas & Electric, continued
Cinergy Corp............................................... 1,494 $ 37,817
Columbia Energy Group...................................... 750 47,063
Consolidated Edison, Inc................................... 2,010 69,345
Consolidated Natural Gas Co................................ 887 56,879
Constellation Energy Group, Inc. .......................... 1,403 41,301
Dominion Resources, Inc. .................................. 1,786 81,040
DTE Energy Co. ............................................ 1,318 43,576
Duke Energy Corp. ......................................... 3,367 170,664
Edison International....................................... 3,119 82,654
Entergy Corp............................................... 2,268 62,512
FirstEnergy Corp. ......................................... 2,100 48,956
FPL Group, Inc............................................. 1,622 70,963
GPU, Inc. ................................................. 1,117 35,744
New Century Energies, Inc. ................................ 1,014 31,878
Niagara Mohawk Holdings, Inc.(b)........................... 1,690 25,350
NICOR, Inc. ............................................... 453 15,713
Northern States Power Co. ................................. 1,364 27,877
Oneok, Inc. ............................................... 287 7,731
PacifiCorp................................................. 2,728 55,280
Peco Energy Co. ........................................... 1,734 57,114
People's Energy Corp. ..................................... 318 11,687
PG & E Corp. .............................................. 3,484 77,955
PP & L Resources, Inc. .................................... 1,413 32,587
Public Service Enterprise Group, Inc. ..................... 1,974 69,090
Reliant Energy Inc......................................... 2,727 67,664
Sempra Energy.............................................. 2,222 41,107
Southern Co. .............................................. 6,201 144,947
Texas Utilities Co. ....................................... 2,480 88,814
Unicom Corp. .............................................. 1,956 62,470
------------
1,954,813
------------
Utilities--Telephone (4.7%):
Alltel Corp. .............................................. 2,740 237,010
AT&T Corp. ................................................ 29,014 1,621,156
Bell Atlantic Corp. ....................................... 14,111 893,403
BellSouth Corp. ........................................... 17,171 793,086
GTE Corp. ................................................. 8,878 648,094
Sprint Corp. (FON Group)................................... 7,841 543,969
US West, Inc. ............................................. 4,552 282,509
------------
5,019,227
------------
Wholesale Distribution (0.4%):
Cardinal Health, Inc. ..................................... 2,437 127,486
Costco Wholesale Corp.(b).................................. 1,982 181,725
SUPERVALU, Inc. ........................................... 1,271 24,705
Sysco Corp. ............................................... 2,967 112,931
------------
446,847
------------
TOTAL COMMON STOCKS 104,610,268
------------
Investment Companies (0.6%):
S&P 500 Depositary Receipt................................. 4,766 663,666
------------
TOTAL INVESTMENT COMPANIES 663,666
------------
</TABLE>
Continued
115
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Equity Index Portfolio November 30, 1999
<TABLE>
<CAPTION>
Short-Term Securities Held as Collateral* (5.1%):
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Repurchase agreements (5.1%):
Bank of America, 5.78%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $676,602,
collateralized by $840,483 various U.S. Government
Agency Mortgages, 5.75%-6.77%, 4/15/23-2/01/29,
market value $690,023)............................... $ 676,493 $ 676,493
CS First Boston, 5.77%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $451,068,
collateralized by $577,013 various U.S. Government
Agency Mortgages, 0.00%-8.00%, 5/15/01-8/15/29,
market value $460,015)............................... 450,996 450,996
HSBC Securities, Inc., 5.72%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $451,067,
collateralized by $486,995 various U.S. Government
Agencies, 0.00%-9.80%, 4/19/01-11/30/17, market value
$460,015)............................................ 450,996 450,996
Prudential Bache Securities, 5.79%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $902,136,
collateralized by $1,570,088 various U.S. Government
Agency Mortgages, 0.00%-10.50%, 12/02/99-6/15/44,
market value $920,031)............................... 901,991 901,991
Salomon Smith Barney, Inc., 5.75%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $1,578,737,
collateralized by $2,029,772 various U.S. Government
Agencies, 0.00%-9.50%, 5/15/07-11/15/29, market value
$1,610,054).......................................... 1,578,484 1,578,484
</TABLE>
<TABLE>
<CAPTION>
Short-Term Securities Held as Collateral, continued
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Repurchase agreements, continued
Salomon Smith Barney, Inc., 5.73%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $1,290,637,
collateralized by $2,077,502 various GNMA, 5.00%-
9.00%, 2/15/00-11/20/29, market value $1,316,241)... $1,290,432 $ 1,290,432
------------
TOTAL SHORT-TERM SECURITIES
HELD AS COLLATERAL 5,349,392
------------
TOTAL INVESTMENTS
(Cost $83,908,126)(a)--104.8% 110,814,326
Liabilities in excess of other assets--(4.8)% (5,119,648)
------------
TOTAL NET ASSETS--100.0% $105,694,678
============
</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
$368,334. Cost for federal income tax purposes differs from value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation...................................... $31,877,564
Unrealized depreciation...................................... (5,339,698)
-----------
Net unrealized appreciation.................................. $26,537,866
===========
</TABLE>
(b) Represents non-income producing securities.
(c) Security of affiliated issuer which must be held due to nature of index
portfolios.
* Represents securities purchased with cash collateral received on securities
loaned.
See notes to financial statements
116
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Equity Index Portfolio
Statement of Assets and Liabilities
November 30, 1999
<TABLE>
<S> <C> <C>
Assets:
Investments, at value
(cost $78,306,975).................................... $105,232,832
Investment in affiliated issuer, at value (cost
$251,759)............................................. 232,102
Repurchase agreements, at value (cost $5,349,392)...... 5,349,392
------------
Total Investments..................................... 110,814,326
Cash................................................... 62
Interest and dividends receivable...................... 133,005
Receivable for investment securities sold.............. 300,053
Receivable for capital shares issued................... 17,558
Deferred organization costs............................ 14,527
Prepaid expenses and other assets...................... 3,744
------------
Total Assets.......................................... 111,283,275
Liabilities:
Dividends payable...................................... $ 77,015
Payable for investments purchased...................... 105,424
Payable for capital shares redeemed.................... 400
Payable for return of collateral received on securities
loaned................................................ 5,349,392
Accrued expenses and other liabilities:
Investment advisory fees.............................. 26,216
Administration fees................................... 2,662
Distribution and administrative services fees......... 9,964
Custodian fees........................................ 5,077
Other liabilities..................................... 12,447
---------
Total Liabilities..................................... 5,588,597
------------
Net Assets:
Capital................................................ 78,349,516
Undistributed net investment income.................... 13,542
Accumulated net realized gains from investment
transactions.......................................... 425,420
Net unrealized appreciation from investments........... 26,906,200
------------
Net Assets............................................. $105,694,678
============
Investor A Shares
Net Assets............................................ $ 3,385,344
Shares................................................ 197,858
Redemption price per share............................ $17.11
======
Maximum Sales Charge--Investor A Shares................ 5.50%
Maximum Offering Price
(100%/(100%--Maximum Sales Charge) of net asset value
adjusted to the nearest cent) per share.............. $18.11
======
Trust Shares
Net Assets............................................ $ 65,452,968
Shares................................................ 3,822,757
Offering and redemption price per share............... $17.12
======
Institutional Shares
Net Assets............................................ $ 36,856,366
Shares................................................ 2,153,769
Offering and redemption price per share............... $17.11
======
</TABLE>
Statement of Operations
For the year ended November 30, 1999
<TABLE>
<S> <C> <C>
Investment Income:
Interest income......................................... $ 39,336
Dividend income (net of foreign tax withholding of
$904).................................................. 1,206,934
Income from securities lending.......................... 4,632
-----------
Total Investment Income................................ 1,250,902
Expenses:
Investment advisory fees................................ $275,897
Administration fees..................................... 183,932
Distribution and services fees, Investor A Shares....... 7,192
Administrative services fees, Trust Shares.............. 181,936
Administrative services fees, Institutional Shares...... 86,769
Accounting fees......................................... 20,434
Custodian fees.......................................... 45,641
Transfer agent fees..................................... 21,881
Other................................................... 47,328
--------
Total expenses before voluntary fee reductions.......... 871,010
Expenses voluntarily reduced........................... (273,900)
-----------
Net Expenses........................................... 597,110
-----------
Net Investment Income................................... 653,792
-----------
Realized/Unrealized Gains from Investments:
Net realized gains from investment transactions......... 432,883
Net change in unrealized appreciation from investments.. 14,278,342
-----------
Net realized/unrealized gains from investments.......... 14,711,225
-----------
Change in net assets resulting from operations.......... $15,365,017
===========
</TABLE>
See notes to financial statements
117
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Equity Index Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
year ended year ended
November 30, November 30,
1999 1998
------------- ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................ $ 653,792 $ 448,355
Net realized gains from investment transactions.. 432,883 780,875
Net change in unrealized appreciation from
investments..................................... 14,278,342 7,781,805
------------- ------------
Change in net assets resulting from operations.... 15,365,017 9,011,035
------------- ------------
Distributions to Investor A Shareholders:
From net investment income....................... (12,676) (4,251)
From net realized gains from investment
transactions.................................... (11,564) (374)
Distributions to Trust Shareholders:
From net investment income....................... (484,829) (406,100)
From net realized gains from investment
transactions.................................... (650,914) (57,368)
Distributions to Institutional Shareholders:
From net investment income....................... (149,334) (43,165)
From net realized gains from investment
transactions.................................... (124,999) (14)
------------- ------------
Change in net assets from shareholder
distributions.................................... (1,434,316) (511,272)
------------- ------------
Change in net assets from capital transactions.... 29,674,259 21,589,407
------------- ------------
Change in net assets.............................. 43,604,960 30,089,170
Net Assets:
Beginning of period.............................. 62,089,718 32,000,548
------------- ------------
End of period.................................... $ 105,694,678 $ 62,089,718
============= ============
</TABLE>
See notes to financial statements
118
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Equity Index Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the years ended May 1, 1997
November 30, to
-------------------- November 30,
1999 1998 1997(a)
--------- --------- ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period..... $ 14.54 $ 11.93 $ 10.00
--------- --------- --------
Investment Activities:
Net investment income................... 0.09 0.09 0.07
Net realized and unrealized gains from
investments............................ 2.74 2.64 1.94
--------- --------- --------
Total from Investment Activities........ 2.83 2.73 2.01
--------- --------- --------
Distributions:
Net investment income................... (0.08) (0.10) (0.07)
In excess of net investment income...... -- -- (0.01)
Net realized gains...................... (0.18) (0.02) --
--------- --------- --------
Total Distributions..................... (0.26) (0.12) (0.08)
--------- --------- --------
Net Asset Value, End of Period........... $ 17.11 $ 14.54 $ 11.93
========= ========= ========
Total Return (excludes sales charge)..... 19.84% 23.01% 20.14%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)........ $ 3,385 $ 914 $ 206
Ratio of expenses to average net assets.. 0.85% 0.86% 0.78%(c)
Ratio of net investment income to average
net assets.............................. 0.50% 0.70% 1.02%(c)
Ratio of expenses to average net
assets*................................. 0.95% 1.03% 1.21%(c)
Portfolio turnover**..................... 27.84% 14.83% 1.66%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
Financial Highlights, Trust Shares
<CAPTION>
For the years ended May 1, 1997
November 30, to
-------------------- November 30,
1999 1998 1997(a)
--------- --------- ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period..... $ 14.55 $ 11.94 $ 10.00
--------- --------- --------
Investment Activities:
Net investment income................... 0.13 0.13 0.10
Net realized and unrealized gains from
investments............................ 2.75 2.64 1.94
--------- --------- --------
Total from Investment Activities........ 2.88 2.77 2.04
--------- --------- --------
Distributions:
Net investment income................... (0.13) (0.14) (0.10)
Net realized gains...................... (0.18) (0.02) --
--------- --------- --------
Total Distributions..................... (0.31) (0.16) (0.10)
--------- --------- --------
Net Asset Value, End of Period........... $ 17.12 $ 14.55 $ 11.94
========= ========= ========
Total Return............................. 20.16% 23.34% 20.40%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)........ $ 65,453 $ 50,232 $ 31,787
Ratio of expenses to average net assets.. 0.55% 0.54% 0.39%(c)
Ratio of net investment income to average
net assets.............................. 0.81% 1.02% 1.48%(c)
Ratio of expenses to average net
assets*................................. 0.95% 1.03% 1.12%(c)
Portfolio turnover**..................... 27.84% 14.83% 1.66%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
See notes to financial statements
119
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Equity Index Portfolio
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
For the years ended May 1, 1997
November 30, to
-------------------- November 30,
1999 1998 1997(a)
--------- --------- ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period...... $ 14.54 $ 11.94 $10.00
--------- --------- ------
Investment Activities:
Net investment income.................... 0.09 0.10 0.10
Net realized and unrealized gains from
investments............................. 2.74 2.63 1.94
--------- --------- ------
Total from Investment Activities......... 2.83 2.73 2.04
--------- --------- ------
Distributions:
Net investment income.................... (0.08) (0.11) (0.10)
Net realized gains....................... (0.18) (0.02) --
--------- --------- ------
Total Distributions...................... (0.26) (0.13) (0.10)
--------- --------- ------
Net Asset Value, End of Period............ $ 17.11 $ 14.54 $11.94
========= ========= ======
Total Return.............................. 19.83% 23.01% 20.40%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)......... $ 36,856 $ 10,944 $ 8
Ratio of expenses to average net assets... 0.85% 0.91% 0.46%(c)
Ratio of net investment income to average
net assets............................... 0.51% 0.63% 1.30%(c)
Ratio of expenses to average net assets*.. 0.95% 1.03% 1.19%(c)
Portfolio turnover**...................... 27.84% 14.83% 1.66%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
See notes to financial statements
120
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
121
<PAGE>
Mercantile Growth & Income Equity Portfolio
Q. What were conditions in the stock market during the 12-month period ended
November 30, 1999?
A. We saw a shift in investor sentiment toward cyclical and value stocks
during the second quarter, due in part to disappointing first quarter revenues
for some technology companies. However, sentiment then shifted back toward
growth stocks, and Internet and technology companies drove the market during
most of the period. The Nasdaq rose more than 60%. The Fed raised the federal
funds rate three times during the period, but the U.S. economy continued to be
strong, with very low inflation and unemployment.
Q. How did you manage the Portfolio in that environment?
A. We maintained our overweighting in technology stocks throughout the
period. Semiconductor companies including Intel (2.0% of net assets), KLA-
Tencor (2.7%), and Applied Materials (2.7%) enhanced the performance of the
Portfolio. We also added to our investment in computer hardware companies such
as Hewlett-Packard (2.1%).*
In the retail sector, we added to our investment in Wal-Mart (2.2%) when the
share price temporarily declined. We also increased our weighting in financial
stocks early in the year, adding to our stake in companies such as Chase
Manhattan (1.7%). We reduced our weighting in the energy sector early in the
year, and recently trimmed back our holdings in pharmaceuticals. The Portfolio
also remained underweighted in consumer cyclicals, such as autos, retailers and
airlines.*
Q. What is your outlook for the stock market, and how will you manage the
Portfolio in that environment?
A. The recent period offered an example of how quickly value-oriented stocks
can come back into favor. While we wait for that to happen again, the market
continues to offer opportunities to buy undervalued shares of companies with
good growth prospects. We will attempt to take advantage of those
opportunities. We will also maintain the Portfolio's overweighting in
technology stocks, as these shares continue to drive the market.
- -----
* Portfolio composition is subject to change.
122
<PAGE>
Mercantile Growth & Income Equity Portfolio
[CHART]
Value of a $10,000 Investment
Investor A Investor A Investor B S&P 500
(No Load) (Load)* (No CDSC) Index
11/89 10,000 9,550 10,000 10,000
11/90 9,865.40 9,325 9,861.57 9,653
11/91 11,580.99 10,947.10 11,576.79 11,612
11/92 13,965.02 13,199.54 13,952.23 13,753
11/93 15,310.27 14,471.16 15,296.27 15,139
11/94 15,342.21 14,501.58 15,327.45 15,297
11/95 20,244.11 19,134.43 20,110.29 20,946
11/96 24,898.10 23,533.80 24,694.96 26,779
11/97 30,848.67 29,158.31 30,263.94 34,412
11/98 33,733.84 31,885.39 32,863.01 42,562
11/99 38,337.64 36,236.85 37,067.01 51,454
- ------------------------------------------------------------------------------
- --
Average Annual Total Returns
as of 11/30/99
- ------------------------------------------------------------------------------
- --
1 Year 5 Year 10 Year
- ------------------------------------------------------------------------------
- --
Investor A (No Load) 13.65% 20.10% 14.38%
- ------------------------------------------------------------------------------
- --
Investor A* 7.42% 18.75% 13.74%
- ------------------------------------------------------------------------------
- --
Investor B (No CDSC) 12.79% 19.32% 14.00%
- ------------------------------------------------------------------------------
- --
Investor B (CDSC)** 7.79% 19.22% 14.00%
- ------------------------------------------------------------------------------
- --
* Reflects 5.50% sales charge.
** Reflects aplicable contingent deferred sales charge (maximum 5.00%).
[CHART]
Value of a $10,000 Investment
Trust Institutional S&P 500 Index
11/89 10,000 10,000 10,000
11/90 9,862 9,865 9,653
11/91 11,577 11,579 11,812
11/92 13,952 13,962 13,753
11/93 15,298 15,307 15,139
11/94 15,352 15,337 15,297
11/95 20,306 20,224 20,946
11/96 25,066 24,893 26,779
11/97 31,222 30,844 34,412
11/98 34,243 33,730 42,562
11/99 39,016 38,321 51,454
- ------------------------------------------------------------------------------
- --
Average Annual Total Returns
as of 11/30/99
- ------------------------------------------------------------------------------
- --
1 Year 5 Year 10 Year
- ------------------------------------------------------------------------------
- --
Trust 13.94% 20.51% 14.58%
- ------------------------------------------------------------------------------
- --
Institutional 13.61% 20.10% 14.38%
- ------------------------------------------------------------------------------
- --
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Growth & Income Equity Portfolio is
measured against the Standard & Poor's 500 index, an unmanaged index generally
representative of the U.S. stock market as a whole. Investors are unable to
invest in the index directly, although they can invest in the underlying
securities. The performance of the index does not reflect the deduction of
expenses associated with a mutual fund, such as investment management and fund
accounting fees. By contrast, the performance of the Portfolio shown on the
graphs reflects the deduction of these value-added services, as well as the
deduction of a 5.50% sales charge on Investor A Shares.
Investor B Shares were initially offered on March 1, 1995. The performance
figures for Investor B Shares for periods prior to such date represent the
performance for Investor A Shares of the Portfolio, which has been restated to
reflect the contingent deferred sales charge payable by holders of Investor B
Shares who redeem within six years of the date of purchase. Investor B Shares
are also subject to distribution and service fees at a maximum annual rate of
1.00%. Had these distribution and service fees been reflected, performance
would have been reduced.
Investor B Shares (CDSC) are not included in the above graph, since the
performance is for more than six years and the CDSC would no longer apply.
After six years, the performance for Investor B Shares (CDSC) mirrors the
Investor B Shares (No CDSC) performance.
Institutional Shares were initially offered on January 3, 1994. The
performance figures for Institutional Shares for periods prior to such date
represent the performance for Investor A Shares of the Portfolio.
123
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Growth & Income Equity Portfolio November 30, 1999
<TABLE>
<CAPTION>
Commercial Paper (4.4%):
Shares
or
Security Principal Market
Description Amount Value
----------- ----------- ------------
<S> <C> <C>
Natural Gas Utility (4.4%):
Ciesco, 5.60%, 12/1/99................................ $20,833,000 $ 20,833,000
------------
TOTAL COMMERCIAL PAPER 20,833,000
------------
<CAPTION>
Common Stocks (95.2%):
<S> <C> <C>
Banking (2.2%):
Bank One Corp......................................... 67,805 2,390,126
Chase Manhattan Corp.................................. 105,000 8,111,250
------------
10,501,376
------------
Beverages (2.0%):
PepsiCo, Inc.......................................... 270,400 9,345,700
------------
Building Products (1.9%):
Masco Corp............................................ 346,000 8,736,500
------------
Business Services (2.1%):
First Data Corp....................................... 223,000 9,644,750
------------
Chemicals (2.3%):
Avery Dennison Corp................................... 85,004 5,047,113
Solutia, Inc.......................................... 395,000 5,925,000
------------
10,972,113
------------
Computer Software (7.7%):
Adaptec, Inc.(b)...................................... 218,000 11,744,750
BMC Software, Inc.(b)................................. 167,000 12,159,687
Microsoft Corp.(b).................................... 132,300 12,045,502
------------
35,949,939
------------
Computers (2.1%):
Hewlett-Packard Co.................................... 103,000 9,772,125
------------
Containers & Packaging (2.3%):
Crown Cork & Seal Co., Inc............................ 137,150 2,794,431
Sealed Air Corp.(b)................................... 170,000 7,990,000
------------
10,784,431
------------
Cosmetics & Toiletries (1.5%):
Estee Lauder Cos., Class A............................ 170,000 7,171,875
------------
Electrical & Electronic (5.0%):
General Electric Co................................... 113,800 14,794,000
Millipore Corp........................................ 111,300 3,652,031
W.W. Grainger, Inc.................................... 105,104 4,953,026
------------
23,399,057
------------
Entertainment (3.1%):
Carnival Corp......................................... 209,000 9,222,125
Time Warner, Inc...................................... 88,000 5,428,500
------------
14,650,625
------------
Financial Services (6.3%):
Heller Financial, Inc................................. 220,250 4,873,031
MBNA Corp............................................. 350,000 8,837,500
Morgan Stanley Dean Witter & Co....................... 52,000 6,272,500
SLM Holding Corp...................................... 188,728 9,353,832
------------
29,336,863
------------
Health Care (1.6%):
C.R. Bard, Inc........................................ 139,600 7,582,025
------------
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------- ------------
<S> <C> <C>
Manufacturing (0.9%):
Illinois Tool Works, Inc.................................. 65,000 $ 4,208,750
------------
Medical Equipment & Supplies (2.0%):
Baxter International, Inc................................. 142,000 9,593,875
------------
Metals & Mining (1.0%):
Alcoa, Inc................................................ 75,000 4,912,500
------------
Oil & Exploration, Production & Services (6.6%):
Halliburton Co............................................ 235,000 9,091,563
Murphy Oil Corp........................................... 169,800 9,593,700
Ocean Energy, Inc.(b)..................................... 910,000 6,938,750
Vastar Resources, Inc..................................... 91,500 5,124,000
------------
30,748,013
------------
Oil Companies--Integrated (3.7%):
Atlantic Richfield Co..................................... 40,000 3,855,000
Unocal Corp............................................... 138,984 4,612,532
USX-Marathon Group, Inc................................... 332,500 8,790,468
------------
17,258,000
------------
Paper & Related (1.9%):
Mead Corp................................................. 250,800 8,950,425
------------
Pharmaceuticals (10.2%):
Allergan, Inc............................................. 72,550 7,137,106
Bristol-Myers Squibb Co................................... 160,632 11,736,175
Eli Lilly & Co............................................ 130,000 9,327,500
Merck & Co., Inc.......................................... 124,000 9,734,000
Schering-Plough Corp...................................... 196,000 10,020,500
------------
47,955,281
------------
Restaurants (1.3%):
Tricon Global Restaurants, Inc.(b)........................ 144,820 6,010,030
------------
Retail Stores (5.2%):
Consolidated Stores Corp.(b).............................. 265,000 4,173,750
Tandy Corp................................................ 130,100 9,968,913
Wal-Mart Stores, Inc...................................... 175,000 10,084,375
------------
24,227,038
------------
Semiconductors (11.9%):
Altera Corp.(b)........................................... 238,000 12,822,249
Applied Materials, Inc.(b)................................ 131,000 12,764,312
Intel Corp................................................ 123,000 9,432,563
KLA-Tencor Corp.(b)....................................... 147,000 12,430,687
Maxim Integrated Products(b).............................. 105,000 8,432,813
------------
55,882,624
------------
Telecommunications (1.6%):
Charter Communications Inc.(b)............................ 100,000 2,318,750
Lucent Technologies, Inc.................................. 73,000 5,333,563
------------
7,652,313
------------
Transportation & Shipping (1.9%):
Burlington Northern Santa Fe.............................. 309,500 8,975,500
------------
Utilities--Gas & Electric (1.2%):
Duke Energy Corp.......................................... 115,600 5,859,475
------------
Utilities--Telephone (3.7%):
GTE Corp.................................................. 116,000 8,468,000
US West, Inc.............................................. 146,000 9,061,125
------------
17,529,125
------------
</TABLE>
Continued
124
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Growth & Income Equity Portfolio November 30, 1999
<TABLE>
<CAPTION>
Common Stocks, continued
Shares or
Security Principal Market
Description Amount Value
----------- --------- ------------
<S> <C> <C>
Wholesale Distribution (2.0%):
Sysco Corp............................................ 246,670 $ 9,388,877
------------
TOTAL COMMON STOCKS 446,999,205
------------
<CAPTION>
Investment Companies (0.5%):
<S> <C> <C>
Cash Assets Trust Money Market Fund................... 2,160,000 2,160,000
------------
TOTAL INVESTMENT COMPANIES 2,160,000
------------
<CAPTION>
Short-Term Securities Held as Collateral* (5.2%):
<S> <C> <C>
Repurchase agreements (5.2%):
Bank Of America, 5.78%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $2,959,888,
collateralized by $3,676,807 various U.S. Government
Agency Mortgages, 5.75%-6.77%, 4/15/23-2/1/29, market
value $3,018,601).................................... 2,959,413 2,959,413
CS First Boston, 5.77%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $1,973,258,
collateralized by $2,524,221 various U.S. Government
Agency Mortgages, 0.00%-8.00%, 5/15/01-8/15/29,
market value $2,012,401)............................. 1,972,942 1,972,942
HSBC Securities, Inc., 5.72%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $1,973,255,
collateralized by $2,130,425 various U.S. Government
Agencies, 0.00%-9.80%, 4/19/01-11/30/17, market value
$2,012,401).......................................... 1,972,942 1,972,942
Prudential Bache Securities, 5.79%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $3,946,518,
collateralized by $6,868,564 various U.S. Government
Agency Mortgages, 0.00%-10.50%, 12/2/99-6/15/44,
market value $4,024,802)............................. 3,945,884 3,945,884
</TABLE>
<TABLE>
<CAPTION>
Short-Term Securities Held as Collateral*, continued
Security Principal Market
Description Amount Value
----------- --------- ------------
<S> <C> <C>
Repurchase agreements, continued
Salomon Smith Barney, Inc., 5.75%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $6,906,400,
collateralized by $8,879,516 various U.S. Government
Agencies, 0.00%-9.50%, 4/15/03-11/15/29, market value
$7,043,403).......................................... 6,905,297 $ 6,905,297
Salomon Smith Barney, Inc., 5.73%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $5,646,071,
collateralized by $9,088,318 various GNMA, 5.00%-
9.00%, 2/15/00-11/20/29, market value $5,758,076).... 5,645,172 5,645,172
------------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL 23,401,650
------------
TOTAL INVESTMENTS
(Cost $334,798,450)(a)--105.1% 493,393,855
Liabilities in excess of other assets--(5.1)% (24,074,991)
------------
TOTAL NET ASSETS--100.0% $469,318,864
============
</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
$3,787,604. Cost for federal income tax purposes differs from value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.. $162,274,383
Unrealized depreciation.. (7,466,582)
------------
Net unrealized apprecia-
tion.................... $154,807,801
============
</TABLE>
(b) Represents non-income producing securities.
* Represent securities purchased with cash collateral received on securities
loaned.
See notes to financial statements
125
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Growth & Income Equity Portfolio
Statement of Assets and Liabilities
November 30, 1999
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $311,396,800)............ $469,992,205
Repurchase agreements, at value (cost $23,401,650)... 23,401,650
------------
Total Investments................................... 493,393,855
Cash................................................. 969
Interest and dividends receivable.................... 509,420
Receivable for capital shares issued................. 937
Prepaid expenses and other assets.................... 15,092
------------
Total Assets........................................ 493,920,273
Liabilities:
Dividends payable.................................... $ 296,778
Payable for investment securities purchased.......... 551,458
Payable for capital shares redeemed.................. 10,107
Payable for return of collateral received on
securities loaned................................... 23,401,650
Accrued expenses and other liabilities:
Investment advisory fees............................ 220,936
Administration fees................................. 11,908
Distribution and administrative services fees....... 44,786
Custodian fees...................................... 13,615
Other liabilities................................... 50,171
-----------
Total Liabilities................................... 24,601,409
------------
Net Assets:
Capital.............................................. 255,521,620
Undistributed net investment income.................. 41,674
Accumulated net realized gains from investment
transactions........................................ 55,160,165
Net unrealized appreciation from investments......... 158,595,405
------------
Net Assets........................................... $469,318,864
============
Investor A Shares
Net Assets.......................................... $ 51,301,765
Shares.............................................. 2,573,281
Redemption price per share.......................... $19.94
======
Maximum Sales Charge--Investor A Shares............. 5.50%
Maximum Offering Price (100%/(100%--Maximum Sales
Charge) of net asset value adjusted to the nearest
cent) per share.................................... $21.10
======
Investor B Shares
Net Assets.......................................... $ 10,110,130
Shares.............................................. 515,962
Offering price per share*........................... $19.59
======
Trust Shares
Net Assets.......................................... $316,872,513
Shares.............................................. 15,818,786
Offering and redemption price per share............. $20.03
======
Institutional Shares
Net Assets.......................................... $ 91,034,456
Shares.............................................. 4,564,461
Offering and redemption price per share............. $19.94
======
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
Statement of Operations
For the year ended November 30,1999
<TABLE>
<S> <C> <C>
Investment Income:
Interest income....................................... $ 736,578
Dividend income....................................... 6,452,568
Income from securities lending........................ 29,244
-----------
Total Investment Income.............................. 7,218,390
Expenses:
Investment advisory fees.............................. $2,670,936
Administration fees................................... 971,258
Distribution and services fees, Investor A Shares..... 156,243
Distribution and services fees, Investor B Shares..... 99,548
Administrative services fees, Trust Shares............ 957,193
Administrative services fees, Institutional Shares.... 313,577
Accounting fees....................................... 2,844
Custodian fees........................................ 231,846
Transfer agent fees................................... 120,920
Other................................................. 174,112
----------
Total expenses before voluntary fee reductions....... 5,698,477
Expenses voluntarily reduced......................... (1,523,112)
-----------
Net Expenses......................................... 4,175,365
-----------
Net Investment Income................................. 3,043,025
-----------
Realized/Unrealized Gains from Investments:
Net realized gains from investment transactions....... 59,660,167
Net change in unrealized appreciation from
investments.......................................... 26,031,452
-----------
Net realized/unrealized gains from investments........ 85,691,619
-----------
Change in net assets resulting from operations........ $88,734,644
===========
</TABLE>
See notes to financial statements
126
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Growth & Income Equity Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
year ended year ended
November 30, November 30,
1999 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income............................. $ 3,043,025 $ 3,694,427
Net realized gains from investment transactions... 59,660,167 32,365,930
Net change in unrealized appreciation from
investments...................................... 26,031,452 6,355,836
------------ ------------
Change in net assets resulting from operations..... 88,734,644 42,416,193
------------ ------------
Distributions to Investor A Shareholders:
From net investment income........................ (235,418) (287,715)
In excess of net investment income................ -- (15,741)
From net realized gains from investment
transactions..................................... (3,773,249) (7,816,180)
Distributions to Investor B Shareholders:
From net investment income........................ (9,614) --
In excess of net investment income................ -- (11,629)
From net realized gains from investment
transactions..................................... (711,367) (1,082,825)
Distributions to Trust Shareholders:
From net investment income........................ (2,296,557) (2,804,823)
From net realized gains from investment
transactions..................................... (22,799,001) (54,343,715)
Distributions to Institutional Shareholders:
From net investment income........................ (452,517) (608,619)
In excess of net investment income................ -- (37,514)
From net realized gains from investment
transactions..................................... (8,317,384) (15,645,712)
------------ ------------
Change in net assets from shareholder
distributions..................................... (38,595,107) (82,654,473)
------------ ------------
Change in net assets from capital transactions..... (45,050,293) 36,928,012
------------ ------------
Change in net assets............................... 5,089,244 (3,310,268)
Net Assets:
Beginning of period............................... 464,229,620 467,539,888
------------ ------------
End of period..................................... $469,318,864 $464,229,620
============ ============
</TABLE>
See notes to financial statements
127
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Growth & Income Equity Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the years ended November 30,
----------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 19.13 $ 21.12 $ 18.67 $ 16.30 $ 12.70
-------- -------- -------- -------- -------
Investment Activities:
Net investment income.. 0.09 0.12 0.11 0.20 0.23
Net realized and
unrealized gains from
investments........... 2.29 1.58 3.96 3.32 3.74
-------- -------- -------- -------- -------
Total from Investment
Activities............ 2.38 1.70 4.07 3.52 3.97
-------- -------- -------- -------- -------
Distributions:
Net investment income.. (0.09) (0.11) (0.13) (0.20) (0.23)
In excess of net
investment income..... -- (0.01) (0.03) (0.01) --
Net realized gains..... (1.48) (3.57) (1.46) (0.94) (0.14)
-------- -------- -------- -------- -------
Total Distributions.... (1.57) (3.69) (1.62) (1.15) (0.37)
-------- -------- -------- -------- -------
Net Asset Value, End of
Period................. $ 19.94 $ 19.13 $ 21.12 $ 18.67 $ 16.30
======== ======== ======== ======== =======
Total Return (excludes
sales charge).......... 13.65% 9.35% 23.90% 22.99% 31.95%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 51,302 $ 48,868 $ 46,372 $ 38,229 $25,082
Ratio of expenses to
average net assets..... 1.04% 1.04% 1.04% 1.05% 1.05%
Ratio of net investment
income to average net
assets................. 0.44% 0.59% 0.60% 1.20% 1.59%
Ratio of expenses to
average net assets*.... 1.16% 1.14% 1.14% 1.15% 1.15%
Portfolio turnover**.... 60.31% 91.23% 57.11% 63.90% 58.50%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
Financial Highlights, Investor B Shares
<CAPTION>
March 1, 1995
For the years ended November 30, to
------------------------------------------- November 30,
1999 1998 1997 1996 1995(a)
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 18.89 $ 20.94 $ 18.58 $ 16.23 $ 13.43
-------- -------- -------- -------- -------
Investment Activities:
Net investment income
(loss)................ (0.04) (0.02)(d) (0.02) 0.11 0.14
Net realized and
unrealized gains from
investments........... 2.24 1.57 3.93 3.30 2.81
-------- -------- -------- -------- -------
Total from Investment
Activities............ 2.20 1.55 3.91 3.41 2.95
-------- -------- -------- -------- -------
Distributions:
Net investment income.. (0.02) -- -- (0.11) (0.15)
In excess of net
investment income..... -- (0.03) (0.09) (0.01) --
Net realized gains..... (1.48) (3.57) (1.46) (0.94) --
-------- -------- -------- -------- -------
Total Distributions.... (1.50) (3.60) (1.55) (1.06) (0.15)
-------- -------- -------- -------- -------
Net Asset Value, End of
Period................. $ 19.59 $ 18.89 $ 20.94 $ 18.58 $ 16.23
======== ======== ======== ======== =======
Total Return (excludes
redemption charge)..... 12.79% 8.59% 23.04% 22.29% 31.20%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 10,110 $ 9,040 $ 6,349 $ 3,537 $ 781
Ratio of expenses to
average net assets..... 1.74% 1.74% 1.73% 1.75% 1.75%(c)
Ratio of net investment
income (loss) to
average net assets..... (0.26)% (0.10)% (0.11)% 0.49% 0.87%(c)
Ratio of expenses to
average net assets*.... 1.86% 1.84% 1.83% 1.85% 1.85%(c)
Portfolio turnover**.... 60.31% 91.23% 57.11% 63.90% 58.50%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Represents total return for the Investor A
Shares from December 1, 1994 to February 28, 1995 plus the total return for
the Investor B Shares from March 1, 1995 to November 30, 1995. (c) Annualized.
(d) Per share net investment income has been calculated using the daily
average share method.
See notes to financial statements
128
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Growth & Income Equity Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the years ended November 30,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 19.21 $ 21.19 $ 18.71 $ 16.32 $ 12.72
-------- -------- -------- -------- --------
Investment Activities:
Net investment income...... 0.14 0.17 0.23 0.24 0.27
Net realized and unrealized
gains from investments.... 2.30 1.59 3.96 3.34 3.74
-------- -------- -------- -------- --------
Total from Investment
Activities................ 2.44 1.76 4.19 3.58 4.01
-------- -------- -------- -------- --------
Distributions:
Net investment income...... (0.14) (0.17) (0.25) (0.24) (0.27)
In excess of net investment
income.................... -- -- -- (0.01) --
Net realized gains......... (1.48) (3.57) (1.46) (0.94) (0.14)
-------- -------- -------- -------- --------
Total Distributions........ (1.62) (3.74) (1.71) (1.19) (0.41)
-------- -------- -------- -------- --------
Net Asset Value, End of
Period..................... $ 20.03 $ 19.21 $ 21.19 $ 18.71 $ 16.32
======== ======== ======== ======== ========
Total Return................ 13.94% 9.67% 24.55% 23.45% 32.27%
Ratios/Supplementary Data:
Net Assets at end of period
(000)...................... $316,873 $299,188 $322,304 $348,183 $286,546
Ratio of expenses to average
net assets................. 0.74% 0.74% 0.74% 0.75% 0.75%
Ratio of net investment
income to average net
assets..................... 0.74% 0.90% 0.91% 1.50% 1.89%
Ratio of expenses to average
net assets*................ 1.16% 1.14% 1.14% 0.85% 0.85%
Portfolio turnover**........ 60.31% 91.23% 57.11% 63.90% 58.50%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
Financial Highlights, Institutional Shares
<CAPTION>
For the years ended November 30,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 19.13 $ 21.12 $ 18.67 $ 16.29 $ 12.70
-------- -------- -------- -------- --------
Investment Activities:
Net investment income...... 0.08 0.12 0.12 0.20 0.23
Net realized and unrealized
gains from investments.... 2.29 1.58 3.95 3.33 3.74
-------- -------- -------- -------- --------
Total from Investment
Activities................ 2.37 1.70 4.07 3.53 3.97
-------- -------- -------- -------- --------
Distributions:
Net investment income...... (0.08) (0.11) (0.13) (0.20) (0.24)
In excess of net investment
income.................... -- (0.01) (0.03) (0.01) --
Net realized gains......... (1.48) (3.57) (1.46) (0.94) (0.14)
-------- -------- -------- -------- --------
Total Distributions........ (1.56) (3.69) (1.62) (1.15) (0.38)
-------- -------- -------- -------- --------
Net Asset Value, End of
Period..................... $ 19.94 $ 19.13 $ 21.12 $ 18.67 $ 16.29
======== ======== ======== ======== ========
Total Return................ 13.61% 9.36% 23.90% 23.08% 31.88%
Ratios/Supplementary Data:
Net Assets at end of period
(000)...................... $ 91,034 $107,133 $ 92,515 $ 72,950 $ 40,228
Ratio of expenses to average
net assets................. 1.04% 1.04% 1.04% 1.05% 1.05%
Ratio of net investment
income to average net
assets..................... 0.45% 0.60% 0.60% 1.19% 1.58%
Ratio of expenses to average
net assets*................ 1.16% 1.14% 1.14% 1.15% 1.15%
Portfolio turnover**........ 60.31% 91.23% 57.11% 63.90% 58.50%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
See notes to financial statements
129
<PAGE>
Mercantile Growth Equity Portfolio
Q. How did the stock market environment affect the Portfolio's returns during
the 12-month period ended November 30, 1999?
A. The market remained strong throughout the period, with value and growth
stocks taking turns leading the way. During the first half of the period
investors favored value stocks over growth stocks, a shift that in part
reflected the attractive values among many promising small and medium-sized
companies. Later in the year, however, investors began to shift back to more
popular stocks with higher valuations, particularly Internet-related and other
technology stocks. This led to strong performances among large-capitalization
technology growth stocks, which helped this growth-oriented Portfolio.
Q. How did you manage the Portfolio in that environment?
A. We began the year with a market weighting in technology stocks, but we
gradually increased that weighting, particularly in electronic stocks. We added
smaller tech companies, such as Maxim Integrated Products (1.1% of net assets)
and Altera Corporation (1.5%), and increased the Portfolio's positions in
companies such as Applied Materials (3.6%) and KLA-Tencor Corp. (3.0%).*
Other sectors also performed well during the period. Shares of the largest
financial services companies, which had experienced a stretch of lackluster
performance, produced strong returns. Companies such as Morgan Stanley Dean
Witter (1.1%) and Citigroup (2.8%) benefited from strong earnings growth. In
the retail sector, Wal-Mart (3.4%), Tandy (1.9%) and Home Depot (2.9%) were
excellent performers. We gradually eliminated the Portfolio's position in
Philip Morris.*
Q. What is the Portfolio's strategy going forward?
A. The dominance of Internet and technology stocks should continue into the
new year as worries about Y2K subside. Meanwhile, short-term political concerns
during this presidential election year may cause some healthcare stocks to
stumble, offering value to selective investors. We will continue to look for
stocks of high-quality companies that offer above-average long-term growth
potential and trade at reasonable valuations, with core positions in
technology, health-care, financial services and consumer goods.
- -----
* Portfolio composition is subject to change.
130
<PAGE>
Mercantile Growth Equity Portfolio+
[CHART]
Value of a $10,000 Investment
Investor A Investor A Investor B Investor B S&P 500
(No Load) (Load)* (No CDSC) (CDSC)** Index
1 1/4/93 10,000 9,551 10,000 10,000 10,000
2 11/93 9,870 9,427 9,870 9,378 10,787
3 11/94 9,643 9,287 9,725 9,342 10,903
4 11/95 14,179 13,655 14,296 13,996 14,926
5 11/96 17,086 16,455 17,225 16,925 19,084
6 11/97 20,440 19,685 20,621 20,421 24,531
7 11/98 25,254 24,120 25,113 25,013 28,874
8 11/99 31,989 30,235 31,584 31,484 34,906
- -------------------------------------------------------------------------------
- -
Average Annual Total Returns
as of 11/30/99
- -------------------------------------------------------------------------------
- -
Since
Inception
1 Year 5 Years (1/4/93)+
- -------------------------------------------------------------------------------
- -
Investor A (No Load) 26.67% 26.89% 18.34%
- -------------------------------------------------------------------------------
- -
Investor A 19.70% 25.46% 17.38%
- -------------------------------------------------------------------------------
- -
Investor B (No CDSC) 25.77% 26.57% 18.13%
- -------------------------------------------------------------------------------
- -
Investor B (CDSC)** 20.77% 26.49% 18.07%
- -------------------------------------------------------------------------------
- -
* Reflects 5.50% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[CHART]
Value of a $10,000 Investment
Trust Institutional S&P 500
1 1/4/93 10,000 10,000 10,000
2 11/93 9,870 9,870 10,787
3 11/94 9,724 9,725 10,903
4 11/95 14,297 14,298 14,296
5 11/96 17,228 17,226 19,084
6 11/97 20,610 20,610 24,531
7 11/98 25,338 25,263 28,874
8 11/99 32,172 31,972 34,906
- -------------------------------------------------------------------------------
- -
Average Annual Total Returns
as of 11/30/99
- -------------------------------------------------------------------------------
- -
Since
Inception
1 Year 5 Years (1/4/93)
- -------------------------------------------------------------------------------
- -
Trust 26.97% 27.03% 18.44%
- -------------------------------------------------------------------------------
- -
Institutional 26.56% 26.87% 18.33%
- -------------------------------------------------------------------------------
- -
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Growth Equity Portfolio is measured against
the Standard & Poor's 500 Index, an unmanaged index generally representative of
the U.S. stock market as a whole. Investors are unable to invest in the index
directly, although they can invest in the underlying securities. The
performance of the index does not reflect the deduction of expenses associated
with a mutual fund, such as investment management and fund accounting fees. By
contrast, the performance of the Portfolio shown on the graphs reflects the
deduction of these value-added services, as well as the deduction of a 5.50%
sales charge on Investor A Shares and the applicable contingent deferred sales
charge (CDSC) on Investor B Shares.
+ The Portfolio commenced operations on January 4, 1993, as the Arrow Equity
Portfolio (the "Predecessor Portfolio"), a portfolio of the Arrow Funds. On
November 24, 1997, the Predecessor Portfolio was reorganized as a new
portfolio of Mercantile Mutual Funds, Inc. Performance figures for periods
prior to November 24, 1997, represent the performance for the Predecessor
Portfolio.
Investor B Shares were initially offered on November 24, 1997, with the first
initial public investment on February 23, 1998. The performance figures for
Investor B Shares for periods prior to the initial offering date represent the
performance for the Arrow Equity Portfolio, which has been restated to reflect
the contingent deferred sales charge payable by holders of Investor B Shares
who redeem within six years of the date of purchase. The performance figures
for the period between the initial offering and initial public investment dates
represent the performance for the Trust Shares of the Portfolio. Investor B
Shares are also subject to distribution and service fees at a maximum annual
rate of 1.00%. Had these distribution and service fees been reflected,
performance would have been reduced.
Institutional Shares were initially offered on November 24, 1997, with the
first initial public investment on December 2, 1997. The performance figures
for Institutional Shares for periods prior to the initial offering date
represent the performance for the Arrow Equity Portfolio. The performance
figures for the period between the initial offering and initial public
investment dates represent the performance for the Trust Shares of the
Portfolio.
Trust Shares were initially offered on November 24, 1997. The performance
figures for Trust Shares for periods prior to such date represent the
performance of the Arrow Equity Portfolio.
131
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Growth Equity Portfolio November 30, 1999
<TABLE>
<CAPTION>
Commercial Paper (5.0%):
Shares
or
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Financial Services (1.7%):
Household Finance, 5.60%, 12/9/99....................... $2,000,000 $ 1,997,511
------------
Natural Gas Utility (3.3%):
Ciesco, 5.60%, 12/1/99.................................. 4,065,000 4,065,000
------------
TOTAL COMMERCIAL PAPER 6,062,511
------------
Common Stocks (95.0%):
Banking (3.4%):
Bank of America Corp. .................................. 30,553 1,787,351
Wells Fargo & Co. ...................................... 49,000 2,278,500
------------
4,065,851
------------
Beverages (2.9%):
Coca-Cola Co. .......................................... 27,000 1,817,437
PepsiCo, Inc. .......................................... 47,500 1,641,719
------------
3,459,156
------------
Broadcasting & Publishing (1.1%):
Infinity Broadcasting Corp.(b).......................... 38,000 1,384,625
------------
Chemicals (0.8%):
Avery Dennison Corp. ................................... 16,000 950,000
------------
Computer Software (5.7%):
BMC Software, Inc.(b)................................... 30,000 2,184,375
Microsoft Corp.(b)...................................... 51,000 4,643,391
------------
6,827,766
------------
Computers (5.8%):
Cisco Systems, Inc.(b).................................. 14,000 1,248,625
Compaq Computer Corp. .................................. 49,000 1,197,438
EMC Corp.(b)............................................ 30,000 2,506,875
Hewlett-Packard Co. .................................... 21,200 2,011,350
------------
6,964,288
------------
Cosmetics & Toiletries (1.7%):
Estee Lauder Cos., Class A.............................. 48,000 2,025,000
------------
Electrical & Electronic (4.2%):
General Electric Co. ................................... 38,700 5,031,000
------------
Entertainment (2.0%):
Carnival Corp. ......................................... 26,000 1,147,250
Time Warner, Inc. ...................................... 21,000 1,295,438
------------
2,442,688
------------
Financial Services (11.6%):
Citigroup, Inc. ........................................ 62,262 3,354,365
Fannie Mae.............................................. 26,000 1,732,250
Freddie Mac............................................. 39,000 1,925,625
Heller Financial, Inc. ................................. 51,000 1,128,375
Household International, Inc. .......................... 45,300 1,792,181
MBNA Corp. ............................................. 106,050 2,677,763
Morgan Stanley Dean Witter & Co. ....................... 11,000 1,326,875
------------
13,937,434
------------
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------ ------------
<S> <C> <C>
Insurance (2.2%):
American International Group, Inc. ......................... 26,015 $ 2,686,049
------------
Manufacturing (1.6%):
Illinois Tool Works, Inc. .................................. 30,200 1,955,450
------------
Medical Equipment & Supplies (2.8%):
Medtronic, Inc. ............................................ 86,000 3,343,250
------------
Pharmaceuticals (18.1%):
Abbott Laboratories......................................... 43,000 1,634,000
Amgen, Inc.(b).............................................. 62,400 2,843,100
Bristol-Myers Squibb Co. ................................... 42,000 3,068,625
Eli Lilly & Co. ............................................ 23,000 1,650,250
Johnson & Johnson........................................... 22,000 2,282,500
Merck & Co., Inc. .......................................... 54,000 4,238,999
Pfizer, Inc. ............................................... 84,000 3,039,750
Schering-Plough Corp. ...................................... 62,000 3,169,750
------------
21,926,974
------------
Printing & Publishing (1.4%):
Tribune Co. ................................................ 36,000 1,730,250
------------
Retail Stores (10.3%):
Bed, Bath & Beyond, Inc.(b)................................. 40,000 1,250,000
Home Depot, Inc. ........................................... 44,000 3,478,750
Kroger Co.(b)............................................... 32,000 682,000
Safeway, Inc.(b)............................................ 19,000 700,625
Tandy Corp. ................................................ 30,000 2,298,750
Wal-Mart Stores, Inc. ...................................... 70,400 4,056,800
------------
12,466,925
------------
Semiconductors (12.3%):
Altera Corp.(b)............................................. 34,400 1,853,300
Applied Materials, Inc.(b).................................. 44,000 4,287,249
Intel Corp. ................................................ 48,000 3,680,999
KLA-Tencor Corp.(b)......................................... 43,000 3,636,188
Maxim Integrated Products(b)................................ 17,000 1,365,313
------------
14,823,049
------------
Telecommunications (4.7%):
Lucent Technologies, Inc. .................................. 33,400 2,440,287
MCI Worldcom, Inc.(b)....................................... 29,000 2,397,938
SBC Communications, Inc. ................................... 15,792 820,197
------------
5,658,422
------------
Toys (0.4%):
Hasbro, Inc. ............................................... 21,000 452,813
------------
Wholesale Distribution (2.0%):
Sysco Corp. ................................................ 64,000 2,436,000
------------
TOTAL COMMON STOCKS 114,566,990
------------
</TABLE>
Continued
132
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Growth Equity Portfolio November 30, 1999
<TABLE>
<CAPTION>
Short-Term Securities Held as Collateral* (11.0%):
Security Principal Market
Description Amount Value
----------- ---------- ------------
<S> <C> <C>
Repurchase agreements (11.0%):
Bank Of America, 5.78%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $1,681,136,
collateralized by $2,088,326 various U.S. Government
Agency Mortgages, 5.75%-6.77%, 4/15/23-2/1/29,
market value $1,714,483)............................ $1,680,866 $ 1,680,866
CS First Boston, 5.77%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $1,120,757,
collateralized by $1,433,689 various U.S. Government
Agency Mortgages, 0.00%-8.00%, 5/15/01-8/15/29,
market value $1,142,989)............................ 1,120,577 1,120,577
HSBC Securities, Inc., 5.72%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $1,120,755,
collateralized by $1,210,024 various U.S. Government
Agencies, 0.00%-9.80%, 4/19/01-11/30/17, market
value $1,142,989)................................... 1,120,577 1,120,577
Prudential Bache Securities, 5.79%, 12/1/99
(Purchased on 11/30/99, proceeds at maturity
$2,241,515, collateralized by $3,901,157 various
U.S. Government Agency Mortgages, 0.00%-10.50%,
12/2/99-6/15/44, market value $2,285,978)........... 2,241,155 2,241,155
Salomon Smith Barney, Inc., 5.75%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $3,922,647,
collateralized by $5,043,323 various U.S. Government
Agencies, 0.00%-9.50%, 5/15/07-11/15/29, market
value $4,000,461)................................... 3,922,021 3,922,021
Salomon Smith Barney, Inc., 5.73%, 12/1/99 (Purchased
on 11/30/99, proceeds at maturity $3,206,815,
collateralized by $5,161,917 various GNMA, 5.00%-
9.00%, 2/15/00-11/20/29, market value $3,270,430)... 3,206,304 3,206,304
------------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL 13,291,500
------------
TOTAL INVESTMENTS
(Cost $66,936,841)(a)--111.1% 133,921,001
Liabilities in excess of other assets--(11.1%) (13,329,216)
------------
TOTAL NET ASSETS--100.0% $120,591,785
============
</TABLE>
- -----
(a) Represents cost for financial reporting and federal income tax purposes and
differs from value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation...................................... $67,267,113
Unrealized depreciation...................................... (282,953)
-----------
Net unrealized appreciation.................................. $66,984,160
===========
</TABLE>
(b) Represents non-income producing securities.
* Represents securities purchased with cash collateral received on securities
loaned.
See notes to financial statements
133
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Growth Equity Portfolio
Statement of Assets and Liabilities
November 30, 1999
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $53,645,341)............. $120,629,501
Repurchase agreements, at value (cost $13,291,500)... 13,291,500
------------
Total Investments.................................... 133,921,001
Cash................................................. 881
Interest and dividends receivable.................... 51,530
Receivable for capital shares issued................. 1,220
Prepaid expenses and other assets.................... 7,590
------------
Total Assets........................................ 133,982,222
Liabilities:
Payable for capital shares redeemed.................. $ 768
Payable for return of collateral received on
securities loaned................................... 13,291,500
Accrued expenses and other liabilities:
Investment advisory fees............................ 75,368
Administration fees................................. 3,046
Distribution and administrative services fees....... 3,921
Custodian fees...................................... 5,927
Other liabilities................................... 9,907
-----------
Total Liabilities................................... 13,390,437
------------
Net Assets:
Capital.............................................. 39,691,936
Accumulated net realized gains from investment
transactions........................................ 13,915,689
Net unrealized appreciation from investments......... 66,984,160
------------
Net Assets........................................... $120,591,785
============
Investor A Shares
Net Assets.......................................... $ 8,893,074
Shares.............................................. 392,792
Redemption price per share.......................... $22.64
======
Maximum Sales Charge--Investor A Shares.............. 5.50%
Maximum Offering Price
(100%/(100%--Maximum Sales Charge) of net asset
value adjusted to the nearest cent) per share...... $23.96
======
Investor B Shares
Net Assets.......................................... $ 2,020,205
Shares.............................................. 90,441
Offering price per share*........................... $22.34
======
Trust Shares
Net Assets.......................................... $109,516,344
Shares.............................................. 4,811,026
Offering and redemption price per share............. $22.76
======
Institutional Shares
Net Assets.......................................... $ 162,162
Shares.............................................. 7,168
Offering and redemption price per share............. $22.62
======
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
Statement of Operations
For the year ended November 30, 1999
<TABLE>
<S> <C> <C>
Investment Income:
Interest income.......................................... $ 132,643
Dividend income.......................................... 850,867
Income from securities lending........................... 8,535
-----------
Total Investment Income................................. 992,045
Expenses:
Investment advisory fees................................. $789,145
Administration fees...................................... 210,441
Distribution and services fees, Investor A Shares........ 21,297
Distribution and services fees, Investor B Shares........ 12,390
Administrative services fees, Trust Shares............... 287,804
Administrative services fees, Institutional Shares....... 2,841
Accounting fees.......................................... 2,583
Custodian fees........................................... 52,059
Transfer agent fees...................................... 25,082
Other.................................................... 48,686
--------
Total expenses before voluntary fee reductions.......... 1,452,328
Expenses voluntarily reduced............................ (393,022)
-----------
Net Expenses............................................ 1,059,306
-----------
Net Investment Loss...................................... (67,261)
-----------
Realized/Unrealized Gains from Investments:
Net realized gains from investment transactions.......... 14,024,461
Net change in unrealized appreciation from investments... 22,907,239
-----------
Net realized/unrealized gains from investments........... 36,931,700
-----------
Change in net assets resulting from operations........... $36,864,439
===========
</TABLE>
See notes to financial statements
134
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Growth Equity Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
year ended year ended
November 30, November 30,
1999 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income (loss)....................... $ (67,261) $ 12,662
Net realized gains from investment transactions.... 14,024,461 9,413,747
Net change in unrealized appreciation from
investments....................................... 22,907,239 9,044,230
------------ -----------
Change in net assets resulting from operations...... 36,864,439 18,470,639
------------ -----------
Distributions to Investor A Shareholders:
From net investment income......................... (173) --
In excess of net investment income................. -- (685)
From net realized gains from investment
transactions...................................... (485,895) --
Distributions to Investor B Shareholders:
From net realized gains from investment
transactions...................................... (25,940) --
Distributions to Trust Shareholders:
From net investment income......................... (41,338) (42,786)
In excess of net investment income................. -- (2,177)
From net realized gains from investment
transactions...................................... (8,083,559) --
Distributions to Institutional Shareholders:
In excess of net investment income................. -- (2,352)
From net realized gains from investment
transactions...................................... (789,128) --
------------ -----------
Change in net assets from shareholder
distributions...................................... (9,426,033) (48,000)
------------ -----------
Change in net assets from capital transactions...... (481,251) 7,958,982
------------ -----------
Change in net assets................................ 26,957,155 26,381,621
Net Assets:
Beginning of period................................ 93,634,630 67,253,009
------------ -----------
End of period...................................... $120,591,785 $93,634,630
============ ===========
</TABLE>
See notes to financial statements
135
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Growth Equity Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the
years ended For the years ended
November 30, October 1, 1997 September 30,
---------------- to November 30, -------------------------
1999 1998 1997 (a) 1997 1996 1995
------ ------ --------------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $19.92 $16.26 $18.75 $ 15.06 $ 13.80 $ 9.74
------ ------ ------ ------- ------- -------
Investment Activities:
Net investment income
(loss)................ (0.04) (0.04) (0.01) 0.08 0.12 0.10
Net realized and
unrealized gains
(losses) from
investments........... 4.79 3.70 (0.24) 4.75 1.32 4.05
------ ------ ------ ------- ------- -------
Total from Investment
Activities............ 4.75 3.66 (0.25) 4.83 1.44 4.15
------ ------ ------ ------- ------- -------
Distributions:
Net investment income.. --(d) -- -- (0.09) (0.11) (0.09)
Net realized gains..... (2.03) -- (2.24) (1.05) (0.07) --
------ ------ ------ ------- ------- -------
Total Distributions.... (2.03) -- (2.24) (1.14) (0.18) (0.09)
------ ------ ------ ------- ------- -------
Net Asset Value, End of
Period................. $22.64 $19.92 $16.26 $ 18.75 $ 15.06 $ 13.80
====== ====== ====== ======= ======= =======
Total Return (excludes
sales charge).......... 26.67% 22.53% (1.25)%(b) 33.85% 10.48% 42.90%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $8,893 $4,832 $3,467 $68,965 $55,573 $43,708
Ratio of expenses to
average net assets..... 1.27% 1.35% 1.17%(c) 1.14% 1.17% 1.28%
Ratio of net investment
income (loss) to
average net assets..... (0.34)% (0.26)% (0.27)%(c) 0.44% 0.86% 0.90%
Ratio of expenses to
average net assets*.... 1.37% 1.45% 1.42%(c) 1.39% 1.45% 1.58%
Portfolio turnover**.... 21.85% 54.33% 24.45% 42.00% 45.00% 45.00%
</TABLE>
*During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
**Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued. (a) Upon reorganizing as
a Portfolio of the Arch Fund, Inc., the Arrow Equity Portfolio became the
Growth Equity Portfolio and changed its year-end to November 30. Financial
Highlights for the periods prior to November 24, 1997 represent financial
highlights of the Arrow Equity Portfolio. (b) Not Annualized. (c) Annualized.
(d) Distributions per share was less than $0.005.
Financial Highlights, Investor B Shares
<TABLE>
<CAPTION>
For the
year ended February 23, 1998
November 30, to
1999 November 30, 1998 (a)
------------ ---------------------
<S> <C> <C>
Net Asset Value, Beginning of Period....... $19.81 $16.27
------ ------
Investment Activities:
Net investment loss....................... (0.22)(d) (0.07)
Net realized and unrealized gains from
investments.............................. 4.78 3.61
------ ------
Total from Investment Activities.......... 4.56 3.54
------ ------
Distributions:
Net realized gains........................ (2.03) --
------ ------
Total Distributions....................... (2.03) --
------ ------
Net Asset Value, End of Period............. $22.34 $19.81
====== ======
Total Return (excludes redemption charge).. 25.77% 9.87%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000).......... $2,020 $ 252
Ratio of expenses to average net assets.... 1.97% 2.11%(c)
Ratio of net investment loss to average net
assets.................................... (1.07)% (1.08)%(c)
Ratio of expenses to average net assets*... 2.07% 2.22%(c)
Portfolio turnover**....................... 21.85% 54.33%
</TABLE>
*During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
**Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized. (d) Per share
net investment income has been calculated using the daily average share
method.
See notes to financial statements
136
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Growth Equity Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the
years ended November 24, 1997
November 30, to
------------------ November 30,
1999 1998 1997 (a)
-------- ------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period..... $ 19.98 $ 16.26 $ 16.44
-------- ------- -------
Investment Activities:
Net investment income (loss)............ (0.01) 0.01 (0.01)
Net realized and unrealized gains
(losses) from investments.............. 4.83 3.72 (0.17)
-------- ------- -------
Total from Investment Activities........ 4.82 3.73 (0.18)
-------- ------- -------
Distributions:
Net investment income................... (0.01) (0.01) --
Net realized gains...................... (2.03) -- --
-------- ------- -------
Total Distributions..................... (2.04) (0.01) --
-------- ------- -------
Net Asset Value, End of Period........... $ 22.76 $ 19.98 $ 16.26
======== ======= =======
Total Return............................. 26.97% 22.94% (1.09)%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)........ $109,516 $80,830 $63,786
Ratio of expenses to average net assets.. 0.97% 1.04% 1.24%(c)
Ratio of net investment income (loss) to
average net assets...................... (0.03)% 0.05% (0.15)%(c)
Ratio of expenses to average net
assets*................................. 1.37% 1.44% 1.34%(c)
Portfolio turnover**..................... 21.85% 54.33% --
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized.
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
For the December 2, 1997
year ended to
November 30, November 30,
1999 1998 (a)
------------ ----------------
<S> <C> <C>
Net Asset Value, Beginning of Period............ $19.92 $16.27
------ ------
Investment Activities:
Net investment income (loss)................... 0.03(d) (0.04)
Net realized and unrealized gains from
investments................................... 4.70 3.70
------ ------
Total from Investment Activities............... 4.73 3.66
------ ------
Distributions:
In excess of net investment income............. -- (0.01)
Net realized gains............................. (2.03) --
------ ------
Total Distributions............................ (2.03) (0.01)
------ ------
Net Asset Value, End of Period.................. $22.62 $19.92
====== ======
Total Return.................................... 26.56% 19.56%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)............... $ 162 $7,720
Ratio of expenses to average net assets......... 1.27% 1.36%(c)
Ratio of net investment income (loss) to average
net assets..................................... 0.17% (0.28)%(c)
Ratio of expenses to average net assets*........ 1.37% 1.46%(c)
Portfolio turnover**............................ 21.85% 54.33%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Not annualized. (c) Annualized. (d) Per share
net investment income has been calculated using the daily average share
method.
See notes to financial statements
137
<PAGE>
The Mercantile Small Cap Equity Portfolio+
Q. What was the overall environment for small-company stocks during the 12
months ended November 30, 1999?
A. Small caps (as measured by the Russell 2000 Index) rose about 15.67%
during the period, compared to a 20.89% gain for the S&P 500 Index. However, we
began to see a bit of a change in investor psychology beginning in April. At
that time, the market began to broaden, with cyclical stocks and small-company
stocks outperforming the S&P 500. Since that time, the Russell 2000 has risen
nearly 9% versus a roughly 3% gain for the S&P 500.
Our style of relative value investing had the opportunity to shine in those
conditions. For the period ended November 30, 1999, the Portfolio outperformed
its benchmarks, gaining 17.21% (Investor A Shares without the maximum sales
charge) versus 15.67% for the Russell 2000 and only a 0.36% gain for the Lipper
Small Cap Value Funds Index./1/
Q. What was your strategy in that environment?
A. We continued to look for the best relative values. The Portfolio was
overweighted in technology stocks, which helped performance a great deal. We
initiated many of the Portfolio's technology investments during the summer and
fall of 1998, when electronic stocks suffered due to weakness in semiconductor
demand and weak Asian economies. The electronics sector performed extremely
well in 1999--well enough that we are reducing our position in some electronics
holdings (in some cases significantly) as the stocks approach our price
targets.
Q. Where else did you find opportunities during the period?
A. Stocks and sectors in which we are beginning to find attractive values
include various specialty retailers, such as Men's Wearhouse (2.2% of net
assets) and Ames Department Stores (1.1%). We also found opportunities among
select consumer staples companies, such as Rayovac (1.1%) and Celestial
Seasoning (0.3%). Another attractive sector included consumer cyclicals. For
example, Avis Rent-a-Car (1.9%) seems significantly undervalued given the
improved pricing in the industry. We also like certain categories of business
services. Companies such as Acxiom (1.3%) and Source Information Management
(2.6%) are making strategic investments to capitalize on business-to-business
e-commerce on the Internet. Unlike pure Internet plays, these stocks appear to
be reasonably valued.*
Q. What other strategies did you employ to help boost the Portfolio's
returns?
A. We have added to the Portfolio's software holdings, as many stocks in the
sector have been hit hard by Y2K-related spending cuts. We increased
allocations to existing software holdings, such as Quadramed (1.4%), Computer
Network Technology (1.1%) and Aspen Technology (2.1%). We also added new
positions in Sterling Software (1.8%) and others.*
Q. What is your outlook for small company stocks, and how will you manage the
Portfolio going forward?
A. We believe the small-cap sector is extremely attractive, given that the
Russell 2000 recently traded at 17 to 18 times earnings versus 30 or more times
for stocks in the S&P 500. Investors chasing growth have disregarded valuation
as an investment criterion. We seem to be experiencing a market of "have's"
(stocks with price-to-earnings ratios (P/Es) of 50 to 100) and "have-not's"
(those with P/Es of 8 to 12). This momentum-driven market is a key reason why
small-cap value stocks have lagged growth stocks in recent years. However, the
recent strong performance of small-company shares is an encouraging sign. If
the market continues to broaden out as it has done during the past seven
months, the Portfolio's approach of seeking the best relative values should
deliver excellent returns.
- -----
+ Small capitalization funds typically carry additional risks since smaller
companies generally have a higher risk of failure. Historically, smaller
companies' stocks have experienced a greater degree of market volatility than
average.
* Portfolio composition is subject to change.
/1/The Lipper Small Cap Value Fund Index is a managed index that consists of
funds that generally invest at least 75% of their equity assets in companies
with market capitalizations (on a three-year weighted basis) of less than
250% of the dollar-weighted median market capitalization of the S&P SmallCap
600 Index.
138
<PAGE>
Mercantile Small Cap Equity Portfolio
[CHART]
Investor A Investor A Investor B Russell
(No Load) (Load)* (No CDSC) 2000 Index
5/92 10,000 9,551 10,000 10,000
11/92 11,255 10,750 11,255 11,032
11/93 13,478 12,873 13,478 13,128
11/94 14,473 13,823 14,472 12,981
11/95 17,579 16,790 17,487 16,680
11/96 19,049 18,193 18,822 19,434
11/97 22,754 21,733 22,326 23,984
11/98 19,525 18,649 19,023 22,396
11/99 22,886 21,631 22,175 25,905
- -------------------------------------------------------------------------------
- -
Average Annual Total Return
as of 11/30/99
- -------------------------------------------------------------------------------
- -
Since
Inception
1 Year 5 Year (5/6/92)
- -------------------------------------------------------------------------------
- -
Investor A (No Load) 17.21% 9.60% 11.56%
- -------------------------------------------------------------------------------
- -
Investor A* 10.77% 8.36% 10.73%
- -------------------------------------------------------------------------------
- -
Investor B (No CDSC) 16.57% 8.91% 11.09%
- -------------------------------------------------------------------------------
- -
Investor B (No CDSC)** 11.57% 8.77% 11.09%
- -------------------------------------------------------------------------------
- -
* Reflects 5.50% sales charge.
** Reflects applicable contingent deferred sales charge (maximum 5.00%).
[CHART]
Trust Institutional Russell 2000 Index
5/92 10,000 10,000 10,000
11/92 11,255 11,255 11,032
11/93 13,478 13,478 13,128
11/94 14,497 14,436 12,981
11/95 17,642 17,531 16,680
11/96 19,181 19,002 19,434
11/97 22,973 22,691 23,984
11/98 19,784 19,475 22,396
11/99 23,259 22,839 25,905
- -------------------------------------------------------------------------------
- -
Average Annual Total Returns
as of 11/30/99
- -------------------------------------------------------------------------------
- -
Since
Inception
1 Year 5 Year (5/6/92)
- -------------------------------------------------------------------------------
- -
Trust 17.57% 9.92% 11.80%
- -------------------------------------------------------------------------------
- -
Institutional 17.27% 9.61% 11.53%
- -------------------------------------------------------------------------------
- -
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Small Cap Equity Portfolio is measured
against the Russell 2000 Index, an unmanaged index generally representative of
the total return of small to mid-sized companies. Investors are unable to
invest in the index directly, although they can invest in the underlying
securities. The performance of the index does not reflect the deduction of
expenses associated with a mutual fund, such as investment management and fund
accounting fees. By contrast, the performance of the Portfolio shown on the
graphs reflects the deduction of these value-added services, as well as the
deduction of a 5.50% sales charge on Investor A Shares.
Investor B Shares were initially offered on March 1, 1995. The performance
figures for Investor B Shares for periods prior to such date represent the
performance for Investor A Shares of the Portfolio, which has been restated to
reflect the contingent deferred sales charge payable by holders of Investor B
Shares who redeem within six years of the date of purchase. Investor B Shares
are also subject to distribution and service fees at a maximum annual rate of
1.00%. Had these distribution and service fees been reflected, performance
would have been reduced.
Investor B Shares (CDSC) are not included in the above graph, since the
performance is for more than six years and the CDSC would no longer apply.
After six years, the performance for the Investor B Shares (CDSC) mirrors the
Investor B Shares (No CDSC) performance.
Institutional Shares were initially offered on January 3, 1994. The
performance figures for Institutional Shares for periods prior to such date
represent the performance for Investor A Shares of the Portfolio.
139
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Small Cap Equity Portfolio
<TABLE>
<CAPTION>
Commercial Paper (6.3%):
Shares
or
Security Principal
Description Amount Market Value
----------- ---------- ------------
<S> <C> <C>
Financial Services (1.6%):
Household Finance, 5.60%, 12/9/99....................... $2,000,000 $ 1,997,511
------------
Natural Gas Utility (4.7%):
Ciesco, 5.60%, 12/1/99.................................. 5,798,000 5,798,000
------------
TOTAL COMMERCIAL PAPER 7,795,511
------------
Common Stocks (94.8%):
Apparel (1.1%):
Kellwood Co. ........................................... 63,200 1,311,400
------------
Banking (7.9%):
Associated Banc-Corp. .................................. 35,700 1,394,531
Bank United Corp., Class A.............................. 46,337 1,650,756
CCB Financial Corp. .................................... 35,600 1,544,150
Commerce Bancorp, Inc. NJ............................... 25,000 1,075,000
Cullen/Frost Bankers, Inc. ............................. 50,022 1,425,627
Sovereign Bancorp, Inc. ................................ 122,562 1,087,738
Webster Financial Corp. ................................ 59,600 1,586,850
------------
9,764,652
------------
Beverages (2.0%):
Beringer Wine Estates Holdings, Inc.(b)................. 34,700 1,444,387
Canandaigua Brands, Inc., Class A(b).................... 13,967 743,743
Celestial Seasonings, Inc.(b)........................... 15,478 320,201
------------
2,508,331
------------
Building Products (1.8%):
Texas Industries, Inc. ................................. 61,600 2,233,000
------------
Business Services (7.0%):
Acxiom Corp.(b)......................................... 90,000 1,600,313
Iron Mountain, Inc.(b).................................. 54,642 1,608,524
Source Information Management Co.(b).................... 211,600 3,226,899
SunGard Data Systems, Inc.(b)........................... 101,800 2,265,050
------------
8,700,786
------------
Chemicals (3.7%):
Hanna (M.A.) Co. ....................................... 85,000 887,188
Minerals Technologies, Inc. ............................ 43,436 1,715,722
OM Group, Inc. ......................................... 57,600 1,944,000
------------
4,546,910
------------
Commercial Services (4.5%):
Avis Rent a Car, Inc.(b)................................ 120,587 2,306,227
Interim Services, Inc(b)................................ 63,900 1,178,156
Lason, Inc.(b).......................................... 87,561 2,134,299
------------
5,618,682
------------
Computer Software (8.5%):
Aspen Technology, Inc.(b)............................... 140,966 2,660,734
AVT Corp.(b)............................................ 40,400 1,623,575
Computer Network Technology Corp.(b).................... 65,372 1,323,783
Quadramed Corp.(b)...................................... 257,575 1,746,680
SPSS, Inc.(b)........................................... 46,400 1,055,600
Sterling Software, Inc.(b).............................. 83,806 2,205,145
------------
10,615,517
------------
</TABLE>
<TABLE>
<CAPTION>
Schedule of Portfolio Investments
November 30, 1999
Common Stocks, continued
Security Market
Description Shares Value
----------- ------- ------------
<S> <C> <C>
Computers (0.4%):
Black BOX Corp.(b)....................................... 9,130 $ 543,235
------------
Electrical & Electronic (13.3%):
Amkor Technologies, Inc.(b).............................. 90,900 2,454,300
Benchmark Electronics, Inc.(b)........................... 63,484 1,412,519
CFM Technologies, Inc.(b)................................ 96,995 1,079,069
Etec Systems, Inc.(b).................................... 64,476 2,772,468
Kulicke & Soffa Industries, Inc.(b)...................... 116,050 4,141,535
Photronics, Inc.(b)...................................... 94,660 2,283,673
PRI Automation, Inc.(b).................................. 51,412 2,435,644
------------
16,579,208
------------
Entertainment (1.0%):
Anchor Gaming(b)......................................... 22,500 1,238,906
------------
Financial Services (2.1%):
Finova Group, Inc. ...................................... 38,800 1,442,875
Metris Companies, Inc. .................................. 35,286 1,115,920
------------
2,558,795
------------
Food Distributors (1.2%):
Performance Food Group Co.(b)............................ 59,254 1,481,350
------------
Food Products & Services (1.2%):
Universal Foods Corp. ................................... 68,800 1,462,000
------------
Health Care (1.4%):
Hanger Orthopedic Group, Inc.(b)......................... 54,997 563,719
Ocular Sciences, Inc.(b)................................. 32,600 605,138
ResMed, Inc.(b).......................................... 14,229 570,049
------------
1,738,906
------------
Insurance (1.0%):
Gallagher, Arthur J. & Co. .............................. 22,800 1,242,600
------------
Machinery & Equipment (3.3%):
DT Industries, Inc. ..................................... 112,128 883,008
GSI Lumonics, Inc.(b).................................... 368,255 3,245,247
------------
4,128,255
------------
Manufacturing--Consumer Goods (3.2%):
Aptargroup, Inc. ........................................ 57,926 1,571,243
Blyth Industries, Inc.(b)................................ 44,400 1,065,600
Rayovac Corp.(b)......................................... 57,500 1,390,781
------------
4,027,624
------------
Medical Equipment & Supplies (2.8%):
DENTSPLY International, Inc. ............................ 92,300 2,209,431
Serologicals Corp.(b).................................... 179,000 1,275,375
------------
3,484,806
------------
Office Equipment & Services (3.6%):
CDW Computer Centers, Inc.(b)............................ 38,700 2,721,094
Zebra Technologies Corp., Class A(b)..................... 28,288 1,707,888
------------
4,428,982
------------
Oil & Exploration, Production & Services (2.9%):
Ocean Energy, Inc.(b).................................... 209,033 1,593,876
Pride International, Inc.(b)............................. 81,100 1,165,813
Veritas DGC, Inc.(b)..................................... 59,300 863,556
------------
3,623,245
------------
</TABLE>
Continued
140
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Small Cap Equity Portfolio November 30, 1999
<TABLE>
<CAPTION>
Common Stocks, continued
Shares
or
Security Principal Market
Description Amount Value
----------- --------- -----------
<S> <C> <C>
Pharmaceuticals (3.1%):
Alpharma, Inc. ......................................... 44,109 $ 1,411,488
Shire Pharmaceuticals Group PLC ADR(b).................. 77,855 2,389,175
-----------
3,800,663
-----------
Real Estate Investment Trusts (0.8%):
Plum Creek Timber, Inc. ................................ 38,000 954,750
-----------
Restaurants (0.9%):
Brinker International, Inc.(b).......................... 48,300 1,092,788
-----------
Retail Stores (6.9%):
Ames Department Stores, Inc.(b)......................... 53,000 1,407,813
Goody's Family Clothing, Inc.(b)........................ 180,000 1,192,500
Regis Corp.............................................. 48,400 998,250
The Men's Wearhouse, Inc.(b)............................ 106,000 2,729,499
Whitehall Jewellers, Inc.(b)............................ 71,300 2,237,038
-----------
8,565,100
-----------
Semiconductors (1.9%):
Burr-Brown Corp.(b)..................................... 52,989 2,348,075
-----------
Telecommunications (2.3%):
Digital Microwave Corp.(b).............................. 73,000 1,149,750
Tekelec(b).............................................. 93,500 1,659,625
-----------
2,809,375
-----------
Transportation & Shipping (3.5%):
Eagle USA Airfreight, Inc.(b)........................... 49,000 1,650,687
HUB Group, Inc., Class A(b)............................. 86,263 1,498,820
U.S. Freightways Corp................................... 29,893 1,248,033
-----------
4,397,540
-----------
Wholesale Distribution (1.5%):
Barnett, Inc.(b)........................................ 54,217 476,093
Watsco, Inc............................................. 128,398 1,396,328
-----------
1,872,421
-----------
TOTAL COMMON STOCKS 117,677,902
-----------
Short-Term Securities Held as Collateral* (27.5%):
Repurchase agreements (27.5%):
Bank Of America, 5.78%, 12/1/99 (Purchased on 11/30/99,
proceeds at maturity $4,309,953, collateralized by
$5,353,873 various U.S. Government Agency Mortgages,
5.75%-6.77%, 4/15/23-2/1/29, market value $4,395,446).. 4,309,261 4,309,261
CS First Boston, 5.77%, 12/1/99 (Purchased on 11/30/99,
proceeds at maturity $2,873,301, collateralized by
$3,675,569 various U.S. Government Agency Mortgages,
0.00%-8.00%, 5/15/01-8/15/29, market value
$2,930,297)............................................ 2,872,841 2,872,841
</TABLE>
<TABLE>
<CAPTION>
Short-Term Securities Held as Collateral, continued
Security Principal Market
Description Amount Value
----------- ----------- ------------
<S> <C> <C>
Repurchase agreements, continued
HSBC Securities, Inc., 5.72%, 12/1/99 (Purchased on
11/30/99, proceeds at maturity $2,873,297,
collateralized by $3,102,156 various U.S.
Government Agencies, 0.00%-9.80%, 4/19/01-
11/30/17, market value $2,930,297)................ 2,872,841 $ 2,872,841
Prudential Bache Securities, 5.79%, 12/1/99
(Purchased on 11/30/99, proceeds at maturity
$5,746,604, collateralized by $10,001,455 various
U.S. Government Agency Mortgages, 0.00%-10.50%,
12/2/99-6/15/44, market value $5,860,595)......... 5,745,681 5,745,681
Salomon Smith Barney, Inc., 5.75%, 12/1/99
(Purchased on 11/30/99, proceeds at maturity
$10,056,548, collateralized by $12,929,642 various
U.S. Government Agencies, 0.00%-9.50%, 5/15/07-
11/15/29, market value $10,256,041)............... 10,054,942 10,054,942
Salomon Smith Barney, Inc., 5.73%, 12/1/99
(Purchased on 11/30/99, proceeds at maturity
$8,221,358, collateralized by $13,233,683 various
GNMA, 5.00%-9.00%, 2/15/00-11/20/29, market value
$8,384,451)....................................... 8,220,050 8,220,050
------------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL 34,075,615
------------
TOTAL INVESTMENTS
(Cost $141,905,514)(a)--128.6% 159,549,028
Liabilities in excess of other assets--(28.6)% (35,478,798)
------------
TOTAL NET ASSETS--100.0% $124,070,230
============
</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
$1,229,449. Cost for federal income tax purposes differs from value by net
unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized apprecia-
tion................... $ 26,744,121
Unrealized deprecia-
tion................... (10,330,056)
------------
Net unrealized apprecia-
tion................... $ 16,414,065
============
</TABLE>
(b) Represents non-income producing securities.
ADR American Depositary Receipt
PLC Public Limited Company
* Represents securities purchased with cash collateral received on securities
loaned.
See notes to financial statements
141
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Small Cap Equity Portfolio
Statement of Assets and Liabilities
November 30, 1999
<TABLE>
<S> <C> <C>
Assets:
Investments, at value (cost $107,829,899)............ $125,473,413
Repurchase agreements, at value (cost $34,075,615)... 34,075,615
------------
Total Investments................................... 159,549,028
Cash................................................. 922
Interest and dividends receivable.................... 48,467
Receivable for investments sold...................... 454,703
Prepaid expenses and other assets.................... 6,551
------------
Total Assets........................................ 160,059,671
Liabilities:
Payable for investments purchased.................... $ 1,815,140
Payable for return of collateral received on
securities loaned................................... 34,075,615
Accrued expenses and other liabilities:
Investment advisory fees............................ 75,600
Administration fees................................. 3,082
Distribution and administrative services fees....... 3,670
Custodian fees...................................... 5,080
Other liabilities................................... 11,254
-----------
Total Liabilities................................... 35,989,441
------------
Net Assets:
Capital.............................................. 105,300,315
Accumulated net realized gains from investment
transactions........................................ 1,126,401
Net unrealized appreciation from investments......... 17,643,514
------------
Net Assets.......................................... $124,070,230
============
Investor A Shares
Net Assets.......................................... $ 8,884,717
Shares.............................................. 641,900
Redemption price per share.......................... $13.84
======
Maximum Sales Charge--Investor A Shares.............. 5.50%
Maximum Offering Price
(100%/(100%--Maximum Sales Charge) of net asset
value adjusted to the nearest cent) per share....... $14.65
======
Investor B Shares
Net Assets.......................................... $ 1,094,286
Shares.............................................. 81,787
Offering price per share*........................... $13.38
======
Trust Shares
Net Assets.......................................... $111,643,146
Shares.............................................. 7,935,498
Offering and redemption price per share............. $14.07
======
Institutional Shares
Net Assets.......................................... $ 2,448,081
Shares.............................................. 177,419
Offering and redemption price per share............. $13.80
======
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
Statement of Operations
For the year ended November 30, 1999
<TABLE>
<S> <C> <C>
Investment Income:
Interest income......................................... $ 202,727
Dividend income......................................... 587,667
Income from securities lending.......................... 74,759
-----------
Total Investment Income................................ 865,153
Expenses:
Investment advisory fees................................ $942,833
Administration fees..................................... 251,425
Distribution and services fees, Investor A Shares....... 29,020
Distribution and services fees, Investor B Shares....... 11,769
Administrative services fees, Trust Shares.............. 319,053
Administrative services fees, Institutional Shares...... 25,532
Accounting fees......................................... 3,294
Custodian fees.......................................... 59,517
Transfer agent fees..................................... 31,641
Other................................................... 46,786
--------
Total expenses before voluntary fee reductions......... 1,720,870
Expenses voluntarily reduced........................... (454,493)
-----------
Net Expenses........................................... 1,266,377
-----------
Net Investment Loss..................................... (401,224)
-----------
Realized/Unrealized Gains from Investments:
Net realized gains from investment transactions......... 2,841,261
Net change in unrealized appreciation (depreciation)
from investments....................................... 19,704,578
-----------
Net realized/unrealized gains from investments.......... 22,545,839
-----------
Change in net assets resulting from operations.......... $22,144,615
===========
</TABLE>
See notes to financial statements
142
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Small Cap Equity Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
year ended year ended
November 30, November 30,
1999 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment loss............................... $ (401,224) $ (518,575)
Net realized gains (losses) from investment
transactions..................................... 2,841,261 (132,296)
Net change in unrealized appreciation
(depreciation) from investments.................. 19,704,578 (34,779,392)
------------ ------------
Change in net assets resulting from operations..... 22,144,615 (35,430,263)
------------ ------------
Distributions to Investor A Shareholders:
From net realized gains from investment
transactions..................................... (49,318) (1,204,394)
In excess of net realized gains from investment
transactions..................................... -- (33,038)
Distributions to Investor B Shareholders:
From net realized gains from investment
transactions..................................... (5,657) (120,768)
In excess of net realized gains from investment
transactions..................................... -- (3,765)
Distributions to Trust Shareholders:
From net realized gains from investment
transactions..................................... (545,699) (16,700,771)
In excess of net realized gains from investment
transactions..................................... -- (364,216)
Distributions to Institutional Shareholders:
From net realized gains from investment
transactions..................................... (108,101) (2,733,301)
In excess of net realized gains from investment
transactions..................................... -- (71,538)
------------ ------------
Change in net assets from shareholder
distributions..................................... (708,775) (21,231,791)
------------ ------------
Change in net assets from capital transactions..... (64,880,288) (37,577,165)
------------ ------------
Change in net assets............................... (43,444,448) (94,239,219)
Net Assets:
Beginning of period............................... 167,514,678 261,753,897
------------ ------------
End of period..................................... $124,070,230 $167,514,678
============ ============
</TABLE>
See notes to financial statements
143
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Small Cap Equity Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the years ended November 30,
------------------------------------------------------
1999 1998 1997 1996 1995
------ ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $11.86 $ 15.03 $ 13.40 $ 13.44 $ 11.99
------ ------- ------- ------- -------
Investment Activities
Net investment loss.... (0.07)(a) (0.06) (0.05) (0.01) --
Net realized and
unrealized gains
(losses) from
investments........... 2.10 (1.89) 2.50 1.03 2.36
------ ------- ------- ------- -------
Total from Investment
Activities............ 2.03 (1.95) 2.45 1.02 2.36
Distributions
In excess of net
investment income..... -- -- -- (0.01) --
Net realized gains..... (0.05) (1.19) (0.82) (1.05) (0.91)
In excess of net
realized gains........ -- (0.03) -- -- --
------ ------- ------- ------- -------
Total Distributions.... (0.05) (1.22) (0.82) (1.06) (0.91)
------ ------- ------- ------- -------
Net Asset Value, End of
Period................. $13.84 $ 11.86 $ 15.03 $ 13.40 $ 13.44
====== ======= ======= ======= =======
Total Return (excludes
sales charge).......... 17.21% (14.19)% 19.45% 8.36% 21.47%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $8,885 $11,601 $14,213 $13,889 $15,056
Ratio of expenses to
average net assets..... 1.26% 1.25% 1.25 % 1.26% 1.26%
Ratio of net investment
loss to average net
assets................. (0.57)% (0.45)% (0.29)% (0.13)% (0.12)%
Ratio of expenses to
average net assets*.... 1.36% 1.35% 1.35 % 1.36% 1.36%
Portfolio turnover**.... 72.08% 69.72% 80.23 % 65.85% 83.13%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
(a) Per share net investment loss has been calculated using the daily average
share method.
<CAPTION>
Financial Highlights, Investor B Shares
For the years ended November March 1, 1995
30, to
-------------------------------------- November 30,
1999 1998 1997 1996 1995 (a)
------ ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $11.53 $ 14.74 $ 13.24 $ 13.37 $ 11.83
------ ------- ------- ------- -------
Investment Activities
Net investment loss.... (0.16)(d) (0.14) (0.13) (0.07) (0.03)
Net realized and
unrealized gains
(losses) from
investments........... 2.06 (1.85) 2.45 0.99 1.57
------ ------- ------- ------- -------
Total from Investment
Activities............ 1.90 (1.99) 2.32 0.92 1.54
------ ------- ------- ------- -------
Distributions
Net realized gains..... (0.05) (1.18) (0.82) (1.05) --
In excess of net
realized gains........ -- (0.04) -- -- --
------ ------- ------- ------- -------
Total Distributions.... (0.05) (1.22) (0.82) (1.05) --
------ ------- ------- ------- -------
Net Asset Value, End of
Period................. $13.38 $ 11.53 $ 14.74 $ 13.24 $ 13.37
====== ======= ======= ======= =======
Total Return (excludes
redemption charge)..... 16.57% (14.79)% 18.62% 7.63% 20.83%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $1,094 $ 1,286 $ 1,503 $ 1,272 $ 603
Ratio of expenses to
average net assets..... 1.96% 1.95% 1.95% 1.96% 1.96%(c)
Ratio of net investment
loss to average net
assets................. (1.27)% (1.15)% (0.99)% (0.83)% (0.78)%(c)
Ratio of expenses to
average net assets*.... 2.06% 2.05% 2.05% 2.06% 2.06%(c)
Portfolio turnover**.... 72.08% 69.72% 80.23% 65.85% 83.13%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Represents total return for the Investor A
Shares from December 1, 1994 to February 28, 1995 plus the total return for
the Investor B Shares from March 1, 1995 to November 30, 1995. (c) Annualized.
(d) Per share net investment loss has been calculated using the daily average
share method.
See notes to financial statements
144
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Small Cap Equity Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the years ended November 30,
------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 12.02 $ 15.17 $ 13.49 $ 13.49 $ 12.01
-------- -------- -------- -------- --------
Investment Activities:
Net investment income
(loss)................ (0.03)(a) (0.02) 0.01 0.02 0.03
Net realized and
unrealized gains
(losses) from
investments........... 2.13 (1.91) 2.50 1.05 2.36
-------- -------- -------- -------- --------
Total from Investment
Activities............ 2.10 (1.93) 2.51 1.07 2.39
-------- -------- -------- -------- --------
Distributions:
Net investment income.. -- -- (0.01) (0.02) --
Net realized gains..... (0.05) (1.19) (0.82) (1.05) (0.91)
In excess of net
realized gains........ -- (0.03) -- -- --
-------- -------- -------- -------- --------
Total Distributions.... (0.05) (1.22) (0.83) (1.07) (0.91)
-------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 14.07 $ 12.02 $ 15.17 $ 13.49 $ 13.49
======== ======== ======== ======== ========
Total Return............ 17.57% (13.90)% 19.77% 8.72% 21.70%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $111,643 $129,591 $211,643 $171,295 $139,681
Ratio of expenses to
average net assets..... 0.96% 0.95% 0.95% 0.96% 0.96%
Ratio of net investment
income (loss) to
average net assets..... (0.26)% (0.16)% 0.01% 0.17% 0.18%
Ratio of expenses to
average net assets*.... 1.36% 1.35% 1.35% 1.06% 1.06%
Portfolio turnover**.... 72.08% 69.72% 80.23% 65.85% 83.13%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
(a) Per share net investment loss has been calculated using the daily average
share method.
<CAPTION>
Financial Highlights, Institutional Shares
For the years ended November 30,
------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 11.82 $ 14.98 $ 13.36 $ 13.40 $ 11.96
-------- -------- -------- -------- --------
Investment Activities:
Net investment loss.... (0.07)(a) (0.07) (0.04) (0.01) (0.01)
Net realized and
unrealized gains
(losses) from
investments........... 2.10 (1.87) 2.48 1.03 2.36
-------- -------- -------- -------- --------
Total from Investment
Activities............ 2.03 (1.94) 2.44 1.02 2.35
-------- -------- -------- -------- --------
Distributions:
In excess of net
investment income..... -- -- -- (0.01) --
Net realized gains..... (0.05) (1.19) (0.82) (1.05) (0.91)
In excess of net
realized gains........ -- (0.03) -- -- --
-------- -------- -------- -------- --------
Total Distributions.... (0.05) (1.22) (0.82) (1.06) (0.91)
-------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 13.80 $ 11.82 $ 14.98 $ 13.36 $ 13.40
======== ======== ======== ======== ========
Total Return............ 17.27% (14.17)% 19.41% 8.39% 21.43%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 2,448 $ 25,037 $ 34,395 $ 30,081 $ 17,620
Ratio of expenses to
average net assets..... 1.26% 1.25% 1.25% 1.26% 1.26%
Ratio of net investment
loss to average net
assets................. (0.59)% (0.45)% (0.29)% (0.13)% (0.11)%
Ratio of expenses to
average net assets*.... 1.36% 1.35% 1.35% 1.36% 1.36%
Portfolio turnover**.... 72.08% 69.72% 80.23% 65.85% 83.13%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
(a) Per share net investment loss has been calculated using the daily average
share method.
See notes to financial statements
145
<PAGE>
Mercantile Small Cap Equity Index Portfolio+
Q. What is this index fund's role in an investor's portfolio?
A. A diversified portfolio should provide exposure to both large- and small-
company stocks because the two sectors tend to follow different performance
cycles. This Portfolio attempts to simulate the composition of the S&P SmallCap
600 Index of small company stocks, aiming to approximate the returns, before
the deduction of operating expenses, of that Index. Many investors choose index
funds because they often, but not always, provide above-average returns to
actively managed funds, and because index funds' costs tend to be lower than
those of actively managed funds.
Q. How did small company stocks and the Portfolio perform during the 12
months ended November 30, 1999?
A. Small-cap stocks did not perform as well as large-cap stocks during the
period. Since its inception on December 30, 1998, the Portfolio has returned
1.86% (Investor A Shares without the maximum sales charge). During the same
time period, the S&P SmallCap 600 returned 3.87%. That performance compared to
a 14.31% gain for the S&P 500 Index of large-company stocks. During the second
half of the period, however, small caps outperformed large-cap stocks, possibly
indicating a shift in investor sentiment toward the small-cap sector.
Q. What accounts for the difference between the return of the Portfolio and
the return of the benchmark index?
A. Index funds normally trail their benchmarks by a small amount, due to
management costs and the need to hold small sums of cash for liquidity
purposes. Two events during this period caused the Portfolio to lag the
benchmark more than anticipated, however. We received the initial funding for
the Portfolio in two stages: once at the beginning of January, and again two
weeks later. We decided to use the initial cash infusion to buy shares of the
largest stocks in the Index, and then use the second infusion to purchase the
Index's remaining shares. During that two-week period in which we held only the
Index's largest stocks, the smaller shares in the Index outperformed. As a
result, the performance of the Portfolio lagged the benchmark for that period.
In addition, the Portfolio experienced very large cash inflows in September,
with assets climbing from $27 million to $54 million. Those heavy inflows
caused the Portfolio to hold unusually large amounts of cash, which weighed
down performance. Those two events were very unusual, and it is highly unlikely
that they will recur. Going forward, we expect to more closely match the
performance of the S&P SmallCap 600 Index.
- -----
+ Small capitalization funds typically carry additional risks since smaller
companies generally have a higher risk of failure. Historically, smaller
companies' stocks have experienced a greater degree of market volatility than
average.
146
<PAGE>
Mercantile Small Cap Equity Index Portfolio
[CHART]
Value of a $10,000 Investment
Investor A (No Load) Investor A (Load)* S&P SmallCap 600
1 12/30/98 10,000 9,450 10,000
2 1/99 9,880 9,629.64 9,874
3 2/99 9,010 8,781.69 8,984
4 3/99 9,125.47 8,625.15 9,100
5 4/99 9,735.84 9,202.05 9,702
6 5/99 9,955.97 9,410.11 9,938
7 6/99 10,506.26 9,930.3 10,503
8 7/99 10,416.2 9,845.18 10,411
9 8/99 9,965.94 9,419.6 9,952
10 9/99 9,805.84 9,268.28 10,370
11 10/99 9,775.82 9,239.91 10,345
12 11/99 10,186.07 9,627.66 10,777
- -------------------------------------------------------------------------------
- -
Aggregate Total Returns
as of 11/30/99
- -------------------------------------------------------------------------------
- -
Since Inception
(12/30/98)
- -------------------------------------------------------------------------------
- -
Investor A (No Load) 1.86%
- -------------------------------------------------------------------------------
- -
Investor A* -3.72%
- -------------------------------------------------------------------------------
- -
* Reflects 5.50% sales charge.
[CHART]
Value of a $10,000 Investment
Trust Institutional S&P SmallCap 600
1 12/30/98 10,000 10,000 10,000
2 1/99 9,880 9,870 9,874
3 2/99 9,020 9,010 8,984
4 3/99 9,129.76 9,123.83 9,100
5 4/99 9,740.41 9,724.08 9,702
6 5/99 9,960.65 9,944.17 9,938
7 6/99 10,521.29 10,494.46 10,503
8 7/99 10,431.19 10,414.42 10,411
9 8/99 9,980.71 9,964.23 9,952
10 9/99 9,820.54 9,794.16 10,370
11 10/99 9,800.51 9,774.15 10,345
12 11/99 10,200.94 10,174.32 10,777
- -------------------------------------------------------------------------------
- -
Aggregate Total Returns
as of 11/30/99
- -------------------------------------------------------------------------------
- -
Since Inception
(12/30/98)
- -------------------------------------------------------------------------------
- -
Trust 2.01%
- -------------------------------------------------------------------------------
- -
Institutional 1.74%
- -------------------------------------------------------------------------------
- -
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile Small Cap Equity Index Portfolio is
measured against the Standard & Poor's SmallCap 600 Index, an unmanaged index
generally representative of 600 domestic small-cap stocks in the market.
Investors are unable to invest in the index directly, although they can invest
in the underlying securities. The performance of the index does not reflect the
deduction of expenses associated with a mutual fund, such as investment
management and fund accounting fees. By contrast, the performance of the
Portfolio shown on the graphs reflects the deduction of these value-added
services, as well as the deduction of a 5.50% sales charge on Investor A
Shares.
147
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Small Cap Equity Index Portfolio November 30, 1999
<TABLE>
<CAPTION>
Commercial Paper (1.9%):
Shares or
Security Principal Market
Description Amount Value
----------- --------- -----------
<S> <C> <C>
Natural Gas Utility (1.9%):
Ciesco, 5.60%, 12/1/99................................... $121,000 $ 1,121,000
-----------
TOTAL COMMERCIAL PAPER 1,121,000
-----------
Common Stocks (97.4%):
Advertising (1.6%):
Advo, Inc.(b)............................................ 3,591 73,840
Catalina Marketing Corp.(b).............................. 3,146 299,853
Cyrk, Inc.(b)............................................ 2,733 20,156
Ha-Lo Industries, Inc.(b)................................ 8,589 53,681
Snyder Communications, Inc.(b)........................... 12,662 170,146
True North Communications, Inc. ......................... 8,174 325,427
-----------
943,103
-----------
Aerospace/Defense (0.7%):
AAR Corp. ............................................... 4,741 78,227
Alliant Techsystems, Inc.(b)............................. 1,806 99,216
BE Aerospace, Inc.(b).................................... 4,251 29,757
Gencorp, Inc. ........................................... 7,224 79,013
Kaman Corp. Class A...................................... 4,089 48,557
Orbital Sciences Corp.(b)................................ 6,469 89,757
-----------
424,527
-----------
Agriculture (0.1%):
Agribrands International, Inc.(b)........................ 1,776 83,583
-----------
Airlines (0.4%):
Atlantic Coast Airlines Holdings, Inc.(b)................ 3,225 66,919
Mesa Air Group, Inc.(b).................................. 5,790 29,674
Midwest Express Holdings(b).............................. 2,458 71,128
Skywest, Inc. ........................................... 4,225 103,512
-----------
271,233
-----------
Apparel (1.4%):
Ashworth, Inc.(b)........................................ 2,413 11,085
Authentic Fitness Corp. ................................. 4,002 82,791
Cone Mills Corp.(b)...................................... 4,374 21,597
Delta Woodside Industries, Inc. ......................... 4,055 7,857
Haggar Corp. ............................................ 1,197 14,514
Hartmarx Corp.(b)........................................ 5,246 20,000
K-Swiss, Inc. ........................................... 1,972 28,101
Kellwood Co. ............................................ 4,773 99,039
Nautica Enterprises, Inc.(b)............................. 5,910 77,569
Oshkosh B'gosh, Inc. .................................... 2,170 43,943
Oxford Industries, Inc. ................................. 1,416 30,179
Phillps-Van Heusen Corp. ................................ 4,702 39,967
Quiksilver, Inc.(b)...................................... 3,873 58,579
Timberland Co.(b)........................................ 3,582 171,935
WET Seal, Inc.(b)........................................ 2,368 32,264
Wolverine World Wide..................................... 7,104 77,700
-----------
817,120
-----------
Automotive Parts (1.0%):
O'Reilly Automotive, Inc.(b)............................. 4,304 197,985
Simpson Industries, Inc. ................................ 3,084 32,478
Spartan Motors, Inc. .................................... 2,148 8,995
Standard Motor Products, Inc. ........................... 2,289 41,917
TBC Corp.(b)............................................. 3,601 21,156
Tenneco Automotive, Inc. ................................ 5,845 46,029
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Automotive Parts, continued
Titan International, Inc. ................................. 3,541 $ 23,459
Tower Automotive, Inc.(b).................................. 8,014 120,210
Wabash National Corp. ..................................... 3,932 57,751
Wynn's International, Inc. ................................ 3,193 48,294
-----------
598,274
-----------
Banking (6.5%):
Anchor Bancorp Wisconsin, Inc. ............................ 4,392 70,272
Banknorth Group, Inc. ..................................... 3,950 120,352
Carolina First Corp. ...................................... 4,440 90,743
Centura Banks, Inc. ....................................... 4,903 227,990
Chittenden Corp. .......................................... 4,873 157,459
Commerce Bancorp, Inc. NJ.................................. 4,783 205,669
Commercial Federal Corp. .................................. 10,422 189,550
Community First Bancshares................................. 8,716 158,522
Cullen/Frost Bankers, Inc. ................................ 9,230 263,054
Downey Financial Corp. .................................... 4,821 97,023
First Bancorp / Puerto Rico................................ 4,949 100,217
First Midwest Bancorp, Inc. ............................... 4,746 199,332
Hudson United Bancorp...................................... 6,916 213,545
Investors Financial Services Corp. ........................ 2,525 115,519
JSB Financial, Inc. ....................................... 1,644 97,202
MAF Bancorp, Inc. ......................................... 4,106 91,102
Premier Bancshares, Inc. .................................. 4,927 81,603
Provident Bankshares Corp. ................................ 4,432 87,809
Queens County Bancorp, Inc. ............................... 3,672 106,488
Riggs National Corp. Washington, D.C. ..................... 4,913 69,703
Silicon Valley Bancshares(b)............................... 3,553 130,795
Susquehanna Bancshares, Inc. .............................. 6,304 109,138
Trustco Bank Corp. NY...................................... 9,250 134,703
U.S. Trust Corp. .......................................... 3,122 248,393
United Bankshares, Inc. ................................... 7,425 183,769
UST Corp. ................................................. 7,351 232,016
Whitney Holding Corp. ..................................... 3,906 148,428
-----------
3,930,396
-----------
Beverages (0.4%):
Canandaigua Brands, Inc., Class A(b)....................... 3,067 163,318
Coca-Cola Bottling Co. Consolidated........................ 1,531 78,464
-----------
241,782
-----------
Biomedical (1.9%):
Advanced Tissue Sciences, Inc.(b).......................... 8,968 28,586
Bio-Technolgy General Corp.(b)............................. 9,041 108,492
Enzo Biochem, Inc.(b)...................................... 4,251 111,057
Idec Pharmaceuticals Corp.(b).............................. 3,545 449,328
Incyte Pharmaceuticals, Inc.(b)............................ 4,812 139,548
Liposome Company, Inc.(b).................................. 6,719 83,568
Organogenesis, Inc.(b)..................................... 5,233 48,732
Protein Design Labs, Inc.(b)............................... 3,198 127,920
Regeneron Pharmaceutical(b)................................ 5,340 40,718
-----------
1,137,949
-----------
Building Products (1.1%):
Apogee Enterprises, Inc. .................................. 4,782 28,991
Butler Manufacturing Co. .................................. 1,179 25,275
Elcor Corp. ............................................... 3,322 107,550
Florida Rock Industries.................................... 3,226 100,813
Republic Group, Inc. ...................................... 1,985 31,512
</TABLE>
Continued
148
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Small Cap Equity Index Portfolio November 30, 1999
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Building Products, continued
Simpson Manufacturing Co., Inc.(b)......................... 2,085 $ 86,918
Texas Industries, Inc. .................................... 3,594 130,282
TJ International, Inc. .................................... 2,662 110,971
Universal Forest Products.................................. 3,564 54,797
-----------
677,109
-----------
Business Services (0.3%):
National Data Corp. ....................................... 5,853 191,686
-----------
Chemicals (1.4%):
Cambrex Corp. ............................................. 4,234 133,371
Chemfirst, Inc. ........................................... 3,134 73,257
Geon Company............................................... 4,058 122,755
Lilly Industries, Inc. .................................... 3,999 55,736
Macdermid, Inc. ........................................... 4,276 162,754
McWhorter Technologies, Inc.(b)............................ 1,681 23,114
Mississippi Chemical Corp. ................................ 4,513 23,975
OM Group, Inc. ............................................ 4,048 136,620
Omnova Solutions, Inc. .................................... 7,187 44,919
Penford Corp. ............................................. 1,253 18,952
Quaker Chemical Corp. ..................................... 1,564 24,438
Tetra Technologies, Inc.(b)................................ 2,327 18,034
-----------
837,925
-----------
Commercial Services (4.6%):
Aaron Rents, Inc. ......................................... 3,409 61,575
ABM Industries, Inc. ...................................... 3,847 82,711
Billing Concepts Corp.(b).................................. 6,446 35,654
BISYS Group, Inc.(c)(b).................................... 4,661 270,046
CDI Corp.(b)............................................... 3,254 78,910
Central Parking Corp. ..................................... 6,324 163,634
Chemed Corp. .............................................. 1,801 46,826
CPI Corp. ................................................. 1,754 43,412
DBT Online, Inc.(b)........................................ 3,420 65,835
Franklin Covey Co.(b)...................................... 3,530 25,813
Hooper Holmes, Inc. ....................................... 4,943 116,778
Insurance Auto Auctions, Inc.(b)........................... 2,004 29,058
Interim Services, Inc(b)................................... 11,285 208,067
Labor Ready, Inc.(b)....................................... 7,322 92,898
Lason, Inc.(b)............................................. 3,201 78,024
Maximus, Inc.(b)........................................... 3,574 100,072
MedQuist, Inc.(b).......................................... 6,192 176,472
NFO Worldwide, Inc.(b)..................................... 3,803 49,677
Orthodontic Centers Of America, Inc.(b).................... 8,294 101,083
Parexel International Corp.(b)............................. 4,355 52,260
Pediatrix Medical Group, Inc.(b)........................... 2,650 20,538
Pharmaceutical Product Development, Inc.(b)................ 4,255 52,656
Plexus Corp.(b)............................................ 3,015 118,716
Prepaid Legal Services, Inc.(b)............................ 3,894 92,969
Primark Corp.(b)........................................... 3,506 93,128
Profit Recovery Group International, Inc.(b)............... 8,184 303,191
Rural/Metro Corp.(b)....................................... 2,469 14,042
Service Experts, Inc.(b)................................... 3,005 18,781
StaffMark, Inc.(b)......................................... 5,047 40,218
US Oncology Inc.(b)........................................ 14,662 69,186
Volt Information Sciences, Inc.(b)......................... 2,576 57,477
-----------
2,759,707
-----------
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Computer Software (8.9%):
American Management Systems(b)............................. 7,205 $ 211,647
Aspen Technology, Inc.(b).................................. 4,318 81,502
Avid Technology, Inc.(b)................................... 4,084 45,179
Barra, Inc.(b)............................................. 2,394 69,725
Cerner Corp.(b)............................................ 5,772 109,668
Choicepoint Inc.(b)........................................ 5,042 168,277
Clarify, Inc.(b)........................................... 3,995 372,345
Concord Communications, Inc.(b)............................ 2,500 133,750
Dendrite International, Inc.(b)............................ 6,659 183,123
Digi International, Inc.(b)................................ 2,552 41,151
Epicor Software Corp.(b)................................... 7,056 41,234
Fair, Issac & Co., Inc..................................... 2,449 104,083
Filenet Corp.(b)........................................... 5,529 110,580
Great Plains Software, Inc.(b)............................. 2,336 124,830
Harbinger Corp.(b)......................................... 6,581 115,579
HNC Software, Inc.(b)...................................... 4,187 297,277
Hyperion Solutions Corp.(b)................................ 5,275 144,403
Information Resources, Inc.(b)............................. 4,842 48,420
Inter-Tel, Inc. ........................................... 4,447 88,662
Macromedia, Inc.(b)........................................ 7,389 485,826
Mercury Interactive Corp.(b)............................... 6,502 540,478
Midway Games, Inc.(b)...................................... 6,505 140,671
National Instruments Corp.(b).............................. 8,515 255,450
Progress Software Corp.(b)................................. 2,909 115,996
Project Software & Development(b).......................... 1,694 151,190
Remedy Corp.(b)............................................ 4,991 174,061
S3, Inc.(b)................................................ 12,359 103,507
SEI Investments Co. ....................................... 2,992 303,501
THQ, Inc.(b)............................................... 2,036 109,435
Vantive Corp.(b)........................................... 4,670 72,385
Verity, Inc.(b)............................................ 2,591 268,088
Visio Corp.(b)............................................. 5,175 185,653
-----------
5,397,676
-----------
Computers (5.3%):
Analysts International Corp. .............................. 3,843 45,876
Anixter International, Inc.(b)............................. 6,217 126,671
APEX, Inc.(b).............................................. 3,503 82,321
Auspex Systems, Inc. ...................................... 4,527 55,456
Black BOX Corp.(b)......................................... 3,060 182,070
Ciber, Inc.(b)............................................. 10,047 214,127
Computer Task Group, Inc. ................................. 3,566 52,821
Cybex Computer Products Corp.(b)........................... 1,930 83,231
Exabyte Corp.(b)........................................... 3,851 26,837
Factset Research Systems, Inc.(b).......................... 2,695 167,090
Hutchinson Technology(b)................................... 4,292 79,402
InaCom Corp.(b)............................................ 7,803 46,330
InterVoice-Brite, Inc.(b).................................. 5,492 82,723
Jack Henry & Associates, Inc. ............................. 3,429 135,660
Komag, Inc.(b)............................................. 9,233 21,928
Kronos, Inc.(b)............................................ 2,187 113,451
Microage, Inc.(b).......................................... 3,479 10,437
Micros Systems, Inc.(b).................................... 2,761 139,603
National Computer Systems, Inc. ........................... 5,451 209,182
QRS Corp.(b)............................................... 2,311 134,327
Read-Rite Corp.(b)......................................... 8,577 47,174
Technology Solutions Co.(b)................................ 7,192 196,881
Telxon Corp. .............................................. 2,765 43,549
</TABLE>
Continued
149
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Small Cap Equity Index Portfolio November 30, 1999
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Computers, continued
Whittman-Hart, Inc.(b)..................................... 9,262 $ 569,033
Xircom, Inc.(b)............................................ 4,187 219,817
Zixit Corp.(b)............................................. 2,625 113,531
-----------
3,199,528
-----------
Construction (0.3%):
Dycom Industries, Inc.(b).................................. 4,427 178,187
-----------
Consumer Goods & Services (0.3%):
Action Performance Cos., Inc.(b)........................... 2,883 48,831
Brown Shoe Company, Inc. .................................. 3,112 49,014
Department 56, Inc.(b)..................................... 2,948 55,091
-----------
152,936
-----------
Containers & Packaging (0.1%):
Shorewood Packaging Corp.(b)............................... 4,744 77,683
-----------
Diversified Operations (0.4%):
Delta & Pineland Co. ...................................... 6,642 169,786
Triarc Co.(b).............................................. 4,408 85,681
-----------
255,467
-----------
Electrical & Electronic (6.0%):
Analogic Corp. ............................................ 2,203 65,746
Benchmark Electronics, Inc.(b)............................. 2,776 61,766
BMC Industries, Inc. ...................................... 4,732 25,730
Brady Corp. ............................................... 3,898 119,620
C-COR.net Corporation(b)................................... 2,579 131,690
Checkpoint Systems, Inc.(b)................................ 5,146 40,846
Coherent, Inc.(b).......................................... 4,089 108,359
CTS Corp. ................................................. 4,762 381,852
Dionex Corp.(b)............................................ 3,800 147,725
Electro Scientific Industries, Inc.(b)..................... 2,258 131,952
Etec Systems, Inc.(b)...................................... 3,665 157,595
Gentex Corp.(b)............................................ 12,568 234,864
Hadco Corp.(b)............................................. 2,349 110,990
Harmon Industries, Inc. ................................... 1,946 24,082
Innovex, Inc. ............................................. 2,514 22,626
Itron, Inc.(b)............................................. 2,557 16,141
Kemet Corp.(b)............................................. 6,758 244,977
Kent Electronics Corp.(b).................................. 4,759 109,160
Kulicke & Soffa Industries, Inc.(b)........................ 4,058 144,820
Methode Electronics, Inc. ................................. 6,082 164,214
Micrel, Inc.(b)............................................ 7,062 347,803
Northwestern Corp. ........................................ 3,954 83,528
OAK Industries, Inc.(b).................................... 3,118 234,824
Park Electrochemical Corp. ................................ 1,786 58,715
Paxar Corp.(b)............................................. 7,975 67,788
Photronics, Inc.(b)........................................ 4,041 97,489
Standard Microsystems Corp.(b)............................. 2,705 33,136
Technitrol, Inc. .......................................... 2,771 118,807
Trimble Navigation Ltd.(b)................................. 3,820 64,463
Watts Industries........................................... 4,529 63,123
X-Rite, Inc. .............................................. 3,598 24,287
-----------
3,638,718
-----------
Electronic Components/Instruments (1.8%):
Artesyn Technologies, Inc.(b).............................. 6,399 139,578
Belden, Inc. .............................................. 4,199 83,980
C&D Technologies, Inc. .................................... 2,204 86,232
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Electronic Components/Instruments, continued
C-Cube Microsystems, Inc.(b)............................... 6,821 $ 305,347
Cable Design Technologies Corp.(b)......................... 4,873 116,647
Insteel Industries, Inc. .................................. 1,437 12,125
Intermagnetics General Corp.(b)............................ 2,165 14,478
SLI, Inc.(b)............................................... 6,113 79,087
Valence Technology, Inc.(b)................................ 4,776 43,581
Vicor Corp.(b)............................................. 7,128 230,769
-----------
1,111,824
-----------
Engineering (0.5%):
Insituform Technologies, Inc.(b)........................... 4,390 110,024
Morrison Knudsen Corp.(b).................................. 9,081 78,891
Stone & Webster, Inc. ..................................... 2,266 37,106
URS Corp.(b)............................................... 2,683 52,319
-----------
278,340
-----------
Entertainment (0.6%):
Anchor Gaming(b)........................................... 2,038 112,218
Aztar Corp.(b)............................................. 7,613 81,364
Carmike Cinemas, Inc.(b)................................... 1,958 24,475
GC Companies, Inc.(b)...................................... 1,382 38,955
Hollywood Park, Inc.(b).................................... 4,434 89,511
Players International, Inc.(b)............................. 5,510 43,047
-----------
389,570
-----------
Environmental Services (0.3%):
Imco Recycling, Inc. ...................................... 2,833 36,475
Ionics, Inc.(b)............................................ 2,764 73,764
Tetra Tech, Inc.(b)........................................ 6,596 75,030
-----------
185,269
-----------
Financial Services (1.8%):
Americredit Corp.(b)....................................... 12,412 211,004
Amresco, Inc.(b)........................................... 8,341 16,682
Dain Rauscher Corp. ....................................... 2,138 104,094
Eaton Vance Corp. ......................................... 6,211 223,207
Hambrecht & Quist, Inc.(b)................................. 4,217 209,796
Jefferies Group, Inc. ..................................... 4,087 81,229
Pioneer Group, Inc.(b)..................................... 4,569 67,964
Raymond James Financial Corp. ............................. 8,104 152,457
-----------
1,066,433
-----------
Food Distributors (0.1%):
Performance Food Group Co.(b).............................. 2,378 59,450
United Natural Foods, Inc.(b).............................. 3,109 26,038
-----------
85,488
-----------
Food Products (1.8%):
Chiquita Brands International, Inc. ....................... 11,333 49,582
Corn Products International, Inc. ......................... 6,439 202,023
Earthgrains Co. ........................................... 7,340 133,038
Fleming Cos., Inc. ........................................ 6,699 80,807
J & J Snack Foods Corp.(b)................................. 1,581 29,644
Michael Foods, Inc. ....................................... 3,443 86,290
Nash Finch Co. ............................................ 1,956 14,181
Ralcorp Holdings, Inc.(b).................................. 5,253 102,762
Smithfield Foods, Inc.(b).................................. 7,233 185,346
Whole Foods Market, Inc.(b)................................ 4,539 178,439
-----------
1,062,112
-----------
</TABLE>
Continued
150
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Small Cap Equity Index Portfolio November 30, 1999
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Forest Products & Paper (0.4%):
Buckeye Technologies, Inc.(b).............................. 6,079 $ 96,504
Caraustar Industries, Inc. ................................ 4,319 105,546
Pope & Talbot, Inc. ....................................... 2,567 30,644
Schweitzer-Mauduit International, Inc. .................... 2,713 35,947
-----------
268,641
-----------
Gas--Distribution (2.3%):
Atmos Energy Corp. ........................................ 5,333 118,993
Cascade Natural Gas Corp. ................................. 1,934 33,966
Connecticut Energy Corp. .................................. 1,825 71,973
Energen Corp. ............................................. 5,100 98,175
New Jersey Resources....................................... 3,044 122,521
Northwest Natural Gas Co. ................................. 4,267 107,208
Piedmont Natural Gas Co. .................................. 5,302 168,339
Public Service Co. of North Carolina....................... 3,528 113,337
Southern Union Co.(b)...................................... 11,174 215,099
Southwest Gas Corp. ....................................... 5,276 123,656
Southwestern Energy Co. ................................... 4,328 32,190
Wicor, Inc. ............................................... 6,417 192,510
-----------
1,397,967
-----------
Health Care (3.2%):
Adac Laboratories(b)....................................... 3,562 41,631
Cooper Companies, Inc. .................................... 2,373 59,918
Coventry Health Care, Inc.(b).............................. 10,111 58,138
Curative Health Services, Inc.(b).......................... 1,761 14,528
Datascope Corp.(b)......................................... 2,626 97,408
Diagnostic Products Corp. ................................. 2,390 60,198
Genesis Health Ventures(b)................................. 6,258 17,601
Hanger Orthopedic Group, Inc.(b)........................... 3,217 32,974
Hologic, Inc.(b)........................................... 2,659 14,292
Idexx Laboratories, Inc.(b)................................ 6,814 126,059
Invacare Corp. ............................................ 4,912 103,459
Laser Vision Centers, Inc.(b).............................. 4,322 62,669
Magellan Health Services(b)................................ 5,485 34,281
Mentor Corp. .............................................. 4,221 98,666
Renal Care Group, Inc.(b).................................. 7,606 155,923
ResMed, Inc.(b)............................................ 722 28,925
Respironics, Inc.(b)....................................... 5,254 41,704
Safeskin Corp.(b).......................................... 9,557 115,879
Sierra Health Services, Inc.(b)............................ 4,587 43,003
Sola International, Inc.(b)................................ 4,270 60,848
Spacelabs Medical, Inc.(b)................................. 1,661 23,046
Summit Technology, Inc.(b)................................. 7,961 152,752
Sunrise Medical, Inc.(b)................................... 3,773 22,638
Universal Health Services(b)............................... 5,418 178,455
Varian Medical Systems, Inc................................ 5,229 136,608
Vital Signs, Inc. ......................................... 2,060 47,895
Wesley Jessen Visioncare(b)................................ 2,961 84,574
-----------
1,914,072
-----------
Home Builders (1.4%):
Champion Enterprises, Inc.(b).............................. 8,274 70,846
Coachmen Industries, Inc. ................................. 2,862 40,962
D.R. Horton, Inc. ......................................... 10,997 151,209
M.D.C. Holdings, Inc. ..................................... 3,877 57,913
Monaco Coach Corp.(b)...................................... 3,234 69,531
Oakwood Homes Corp. ....................................... 8,071 24,213
Ryland Group, Inc. ........................................ 2,557 58,172
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Home Builders, continued
Skyline Corp. ........................................... 1,562 $ 38,757
Southern Energy Homes, Inc.(b)........................... 2,114 4,757
Standard-Pacific Corp. .................................. 5,096 56,056
Thor Industries, Inc. ................................... 2,122 59,283
Toll Brothers, Inc.(b)................................... 6,242 111,576
U.S. Home Corp.(b)....................................... 2,332 60,049
Winnebago Industries..................................... 3,839 72,461
-----------
875,785
-----------
Home Furnishings (1.1%):
Bassett Furniture Industries............................. 2,187 34,855
Ethan Allen Interiors, Inc. ............................. 7,056 234,612
Fedders Corp. ........................................... 6,138 32,992
Harman International..................................... 3,006 154,809
La-Z-Boy, Inc. .......................................... 9,018 162,324
Royal Appliance Manufacturing(b)......................... 3,119 18,129
-----------
637,721
-----------
Hotels & Lodging (0.2%):
Marcus Corp. ............................................ 5,132 65,433
Prime Hospitality Corp.(b)............................... 8,931 77,588
-----------
143,021
-----------
Household Products/Wares (1.3%):
Enesco Group, Inc ....................................... 2,329 28,385
Fossil, Inc.(b).......................................... 5,500 115,500
Gibson Greetings, Inc.(b)................................ 2,739 26,021
John H. Harland Co. ..................................... 5,344 99,198
Libbey, Inc. ............................................ 2,781 73,697
Nashua Corp.(b).......................................... 1,009 7,441
National Presto Industries, Inc. ........................ 1,255 44,239
New England Business SVC, Inc. .......................... 2,445 55,318
Russ Berrie & Co., Inc. ................................. 3,533 90,092
Swiss Army Brands, Inc.(b)............................... 1,370 11,131
The Scott's Co.(b)....................................... 3,110 124,982
Toro Co. ................................................ 2,269 73,601
USA Detergents, Inc.(b).................................. 2,393 10,170
-----------
759,775
-----------
Insurance (2.5%):
Blanch (EW) Holdings, Inc. .............................. 2,203 127,774
Delphi Financial Group(b)................................ 3,537 109,658
Enhance Financial Services Group......................... 6,571 112,528
Fidelity National Financial, Inc. ....................... 5,230 78,777
First American Financial Corp. .......................... 11,223 144,496
Fremont General Corp. ................................... 12,054 61,023
Frontier Insurance Group, Inc. .......................... 5,929 17,787
Gallagher, Arthur J. & Co. .............................. 3,101 169,005
Hilb, Rogal, & Hamilton Co. ............................. 2,272 61,628
Mutual Risk Management Ltd. ............................. 7,447 114,032
Radian Group, Inc. ...................................... 6,363 310,991
Selective Insurance Group................................ 4,797 83,948
Trenwick Group, Inc. .................................... 3,160 64,188
Zenith National Insurance Corp. ......................... 2,937 60,943
-----------
1,516,778
-----------
Iron/Steel (0.4%):
Birmingham Steel Corp. .................................. 5,088 36,888
Material Sciences Corp.(b)............................... 2,613 28,580
</TABLE>
Continued
151
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Small Cap Equity Index Portfolio November 30, 1999
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Iron/Steel, continued
Reliance Steel & Aluminum Co. ............................. 4,786 $ 116,658
Steel Technologies, Inc. .................................. 1,948 21,915
WHX Corp.(b)............................................... 2,867 25,445
-----------
229,486
-----------
Leisure & Recreation/Gaming (0.4%):
Arctic Cat, Inc. .......................................... 4,455 45,663
Huffy Corp. ............................................... 1,720 11,288
K2, Inc. .................................................. 3,100 22,863
Polaris Industries, Inc. .................................. 4,257 163,894
-----------
243,708
-----------
Machinery & Equipment (3.1%):
Applied Industrial Technology, Inc. ....................... 3,665 62,763
Applied Power, Inc. ....................................... 6,706 214,172
Astec Industries, Inc.(b).................................. 3,320 82,585
Baldor Electric Co. ....................................... 6,208 121,444
Cognex Corp.(b)............................................ 7,086 230,294
Esterline Technologies Corp.(b)............................ 3,000 37,688
Flow International Corp.(b)................................ 2,470 25,318
Gardner Denver Machinery, Inc.(b).......................... 2,572 42,117
Gerber Scientific, Inc. ................................... 3,764 72,457
Graco, Inc. ............................................... 3,462 114,030
Helix Technology Corp. .................................... 3,877 156,958
Idex Corp. ................................................ 5,095 140,431
JLG Industries, Inc. ...................................... 7,577 103,710
Lindsay Manufacturing Co. ................................. 2,147 36,096
Manitowoc Co. ............................................. 4,457 135,939
Regal Beloit Corp. ........................................ 3,577 78,694
Robbins & Myers, Inc. ..................................... 1,835 36,700
Specialty Equipment Cos., Inc.(b).......................... 3,186 70,490
SpeedFam-IPEC, Inc.(b)..................................... 5,004 59,423
Thomas Industries, Inc. ................................... 2,698 43,505
-----------
1,864,814
-----------
Manufacturing--Consumer Goods (0.3%):
Aptargroup, Inc. .......................................... 6,220 168,718
-----------
Medical Equipment & Supplies (0.3%):
Osteotech, Inc.(b)......................................... 2,479 34,706
Techne Corp.(b)............................................ 3,217 154,818
-----------
189,524
-----------
Metal Fabrication & Hardware (1.0%):
A.M. Castle & Co. ......................................... 2,410 28,318
Amcast Industrial Corp. ................................... 1,595 22,330
Commercial Metals Co. ..................................... 2,530 80,960
Intermet Corp. ............................................ 4,381 44,358
Lawson Products............................................ 1,790 40,723
Mueller Industries, Inc.(b)................................ 6,188 222,767
Quanex Corp. .............................................. 2,469 52,312
Valmont Industries......................................... 4,195 74,461
Wolverine Tube, Inc.(b).................................... 2,316 35,174
-----------
601,403
-----------
Metals & Mining (0.6%):
Amcol International Corp. ................................. 4,606 81,757
Brush Wellman, Inc. ....................................... 2,837 46,101
Commonwealth Industries, Inc. ............................. 2,703 34,801
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Metals & Mining, continued
Couer D'Alene Mines Corp.(b)............................... 3,753 $ 15,247
Hecla Mining Co.(b)........................................ 11,458 23,632
RTI International Metals, Inc.(b).......................... 3,549 23,512
Stillwater Mining Co.(b)................................... 6,445 156,291
-----------
381,341
-----------
Miscellaneous Manufacturing (1.7%):
A.O. Smith Corp. .......................................... 4,031 88,682
A.T. Cross Co. Class A..................................... 2,847 14,947
Barnes Group, Inc. ........................................ 3,317 53,901
Clarcor, Inc. ............................................. 4,144 72,002
Griffon Corp.(b)........................................... 5,236 40,252
Justin Industries.......................................... 4,394 68,382
Lydall, Inc.(b)............................................ 2,684 23,988
Mascotech, Inc. ........................................... 7,671 92,052
Myers Industries, Inc. .................................... 3,440 51,600
Roper Industries, Inc. .................................... 5,211 193,783
Scott Technologies, Inc.(b)................................ 3,097 63,876
SPS Technologies, Inc.(b).................................. 2,160 70,740
Standex International Corp. ............................... 2,190 46,264
Sturm, Ruger, & Co., Inc. ................................. 4,631 41,679
Tredegar Corp. ............................................ 6,371 123,040
-----------
1,045,188
-----------
Office Equipment & Services (0.6%):
Interface, Inc. ........................................... 9,156 41,202
Zebra Technologies Corp., Class A(b)....................... 5,356 323,369
-----------
364,571
-----------
Oil & Exploration, Production & Services (3.0%):
Atwood Oceanics(b)......................................... 2,414 81,171
Barrett Resources Corp.(b)................................. 5,594 148,590
Benton Oil & Gas Co.(b).................................... 5,082 10,164
Cabot Oil & Gas Corp. ..................................... 4,277 65,492
Cross Timbers Oil Co. ..................................... 8,342 84,984
Dril-Quip(b)............................................... 2,936 72,299
Friede Goldman Halter, Inc.(b)............................. 6,843 57,742
HS Resources, Inc.(b)...................................... 3,229 41,775
Input/Output, Inc.(b)...................................... 8,702 46,773
Nabors Industries, Inc.(b)................................. 3,558 94,503
Newfield Exploration Co.(b)................................ 7,131 184,068
Oceaneering International, Inc.(b)......................... 3,837 49,881
Plains Resources, Inc.(b).................................. 2,922 32,142
Pogo Producing Co. ........................................ 6,926 124,668
Pride International, Inc.(b)............................... 9,679 139,136
Remington Oil & Gas Corp.(b)............................... 3,637 18,185
Seacor Smit, Inc.(b)....................................... 2,088 108,315
Seitel, Inc.(b)............................................ 4,207 28,397
St. Mary Land & Exploration Co. ........................... 1,930 40,289
Stone Energy Corp.(b)...................................... 3,165 123,237
Tuboscope, Inc.(b)......................................... 7,627 108,685
Vintage Petroleum, Inc. ................................... 10,699 114,346
WD-40 Co. ................................................. 2,680 62,310
-----------
1,837,152
-----------
Pharmaceuticals (4.0%):
Advance Paradigm, Inc.(b).................................. 1,796 71,391
Alliance Pharmaceutical Corp.(b)........................... 7,464 33,588
Alpharma, Inc. ............................................ 5,118 163,776
</TABLE>
Continued
152
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Small Cap Equity Index Portfolio November 30, 1999
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Pharmaceuticals, continued
Barr Laboratories, Inc.(b)................................. 3,884 $ 122,346
Bindley Western Industries, Inc. .......................... 5,847 77,473
Biomatrix, Inc.(b)......................................... 3,964 93,154
Cephalon, Inc.(b).......................................... 5,261 117,057
COR Therapeutics, Inc.(b).................................. 4,272 84,372
Cygnus, Inc.(b)............................................ 4,127 41,012
Dura Pharmaceuticals, Inc.(b).............................. 7,571 98,660
Immune Response Corp.(b)................................... 4,301 19,086
Jones Pharma, Inc. ........................................ 7,450 257,955
Medicis Pharmaceutical(b).................................. 4,894 171,901
Medimmune, Inc.(b)......................................... 710 85,381
Natures Sunshine Products, Inc. ........................... 2,988 25,211
NBTY, Inc.(b).............................................. 11,512 112,602
NCS Healthcare, Inc.(b).................................... 3,479 9,241
North American Vaccine, Inc.(b)............................ 5,631 30,971
Noven Pharmaceuticals, Inc.(b)............................. 3,720 48,128
Patterson Dental Co.(b).................................... 5,762 264,331
Priority Healthcare Corp. Class A(b)....................... 1,016 25,146
Priority Healthcare Corp. Class B(b)....................... 2,692 66,627
Roberts Pharmaceutical Corp.(b)............................ 5,458 176,361
Syncor International Corp.(b).............................. 1,979 55,536
Theragenics Corp.(b)....................................... 5,107 48,836
Vertex Pharmaceuticals, Inc.(b)............................ 4,410 117,141
-----------
2,417,283
-----------
Printing & Publishing (0.9%):
Bowne & Co., Inc. ......................................... 6,379 75,352
Consolidated Graphics, Inc.(b)............................. 2,728 61,210
Thomas Nelson, Inc. ....................................... 2,447 21,717
Valassis Communications, Inc.(b)........................... 9,675 380,953
-----------
539,232
-----------
Restaurants (1.8%):
Applebees International, Inc. ............................. 4,886 147,190
CEC Entertainment, Inc.(b)................................. 4,720 141,599
CKE Restaurant, Inc. ...................................... 8,975 57,777
Consolidated Products, Inc.(b)............................. 4,579 48,080
IHOP Corp.(b).............................................. 3,386 52,483
Jack In the Box, Inc.(b)................................... 6,553 138,023
Landry's Seafood Restaurants, Inc.(b)...................... 4,440 39,128
Luby's, Inc. .............................................. 3,806 44,245
Panera Bread Co.(b)........................................ 2,103 16,298
Ruby Tuesday, Inc. ........................................ 5,488 110,446
Ryan's Family Steak Houses, Inc.(b)........................ 6,345 62,657
Sonic Corp.(b)............................................. 3,186 86,022
Taco Cabana, Inc. Class A(b)............................... 2,326 20,207
TCBY Enterprises, Inc. .................................... 3,894 15,576
The Cheesecake Factory, Inc.(b)............................ 3,415 105,865
-----------
1,085,596
-----------
Retail Stores (5.0%):
Ames Department Stores, Inc.(b)............................ 4,894 129,997
Anntaylor Stores Corp.(b).................................. 5,435 234,723
Books-A-Million, Inc.(b)................................... 3,116 32,329
Building Materials Holding Corp.(b)........................ 2,181 21,537
Casey's General Stores, Inc. .............................. 9,070 115,643
Cash America Investments, Inc. ............................ 4,391 38,147
Cato Corp. ................................................ 4,584 60,165
Copart, Inc.(b)............................................ 4,625 120,250
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Retail Stores, continued
Cost Plus, Inc.(b)......................................... 3,538 $ 130,906
Damark International, Inc.- Class A(b)..................... 1,001 9,760
Discount Auto Parts(b)..................................... 2,853 39,407
Dress Barn, Inc.(b)........................................ 3,451 58,883
Footstar, Inc.(b).......................................... 3,702 122,860
Goody's Family Clothing, Inc.(b)........................... 5,719 37,888
Gottschalks, Inc.(b)....................................... 2,149 19,341
Group 1 Automotive, Inc.(b)................................ 3,679 53,346
Gymboree Corp.(b).......................................... 4,122 25,247
Hancock Fabrics, Inc. ..................................... 3,280 13,120
Hughes Supply, Inc. ....................................... 3,988 94,466
J. Baker, Inc. ............................................ 2,402 12,310
JAN Bell Marketing, Inc.(b)................................ 4,665 13,120
Jo-Ann Stores, Inc.(b)..................................... 3,126 40,833
Lillian Vernon Corp........................................ 1,605 19,260
Linens 'N Things, Inc.(b).................................. 6,741 227,508
Michaels Stores, Inc.(b)................................... 4,933 154,773
Pacific Sunwear Of California, Inc.(b)..................... 5,282 163,082
Pier 1 Imports, Inc. ...................................... 16,637 115,419
Regis Corp. ............................................... 6,644 137,033
Shopko Stores, Inc.(b)..................................... 5,066 114,935
Stein Mart, Inc.(b)........................................ 7,648 46,366
Stride Rite Corp. ......................................... 7,970 50,809
The Bombay Company, Inc.(b)................................ 6,327 31,635
The Men's Wearhouse, Inc.(b)............................... 7,209 185,632
The Sports Authority, Inc.(b).............................. 5,497 11,681
Zale Corp.(b).............................................. 6,297 318,785
-----------
3,001,196
-----------
Security Services (0.5%):
Kroll- O'Gara Co. Ltd.(b).................................. 3,788 62,029
RSA Security, Inc.(b)...................................... 6,718 250,245
-----------
312,274
-----------
Semiconductors (3.1%):
Alpha Industries, Inc.(b).................................. 3,323 201,042
American Xtal Technology, Inc.(b).......................... 2,972 46,066
Burr-Brown Corp.(b)........................................ 6,370 282,271
Dallas Semiconductor Corp. ................................ 4,962 286,245
Electroglas, Inc.(b)....................................... 3,388 96,452
General Semiconductor, Inc.(b)............................. 6,279 86,336
International Rectifier Corp.(b)........................... 8,924 180,711
Lattice Semiconductor Corp.(b)............................. 8,150 364,712
Pioneer-Standard Electronics............................... 4,688 63,874
Silicon Valley Group, Inc.(b).............................. 5,680 81,295
Three-Five Systems, Inc.(b)................................ 1,598 67,915
Ultratech Stepper, Inc.(b)................................. 3,637 68,876
Watkins-Johnson Co. ....................................... 1,173 45,527
-----------
1,871,322
-----------
Telecommunications (2.9%):
Adaptive Broadband Corp.(b)................................ 2,573 102,277
Allen Telecom, Inc.(b)..................................... 4,767 44,691
Aspect Telecommunications Corp.(b)......................... 8,203 270,699
Centigram Communications Corp.(b).......................... 991 13,874
Commscope, Inc.(b)......................................... 8,762 369,099
Digital Microwave Corp.(b)................................. 10,933 172,195
General Communication, Inc. Class A(b)..................... 8,633 35,611
Network Equipment Technologies, Inc.(b).................... 3,633 44,731
</TABLE>
Continued
153
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Small Cap Equity Index Portfolio November 30, 1999
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Telecommunications, continued
P-Com, Inc.(b)............................................. 11,080 $ 62,325
Picturetel Corp.(b)........................................ 6,894 33,608
Plantronics, Inc.(b)....................................... 2,842 179,046
Powerwave Technologies, Inc.(b)............................ 3,392 202,884
Symmetricom, Inc.(b)....................................... 2,595 19,949
Talk.Com, Inc.(b).......................................... 10,491 177,036
-----------
1,728,025
-----------
Telecommunications--Services and Equipment (0.2%):
Proxim, Inc.(b)............................................ 1,943 108,808
-----------
Textile Products (0.3%):
Angelica Corp. ............................................ 1,444 14,440
Dixie Group, Inc. (The).................................... 1,956 13,570
G & K Services, Inc. ...................................... 3,496 118,427
Guilford Mills, Inc. ...................................... 3,789 27,470
Pillowtex Corp. ........................................... 2,416 9,664
-----------
183,571
-----------
Tobacco (0.0%):
DIMON, Inc. ............................................... 7,660 25,853
-----------
Transportation & Shipping (2.9%):
Air Express International Corp. ........................... 5,713 184,244
American Freightways Corp.(b).............................. 5,437 94,128
Arkansas Best Corp.(b)..................................... 3,380 42,250
Eagle USA Airfreight, Inc.(b).............................. 4,602 155,030
Expeditors International Washington, Inc. ................. 8,616 351,103
Fritz Companies, Inc.(b)................................... 6,305 62,262
Frozen Foods Express Industries............................ 2,773 11,785
Heartland Express, Inc.(b)................................. 5,164 76,169
Kirby Corp.(b)............................................. 4,195 77,083
Landstar System, Inc.(b)................................... 1,669 66,864
M.S. Carriers, Inc.(b)..................................... 2,125 55,781
Offshore Logistics, Inc.(b)................................ 3,649 36,034
Pittson Bax Group.......................................... 3,538 33,611
Railtex, Inc.(b)........................................... 1,644 27,743
Rollins Truck Leasing Corp. ............................... 9,877 116,055
U.S. Freightways Corp. .................................... 4,580 191,215
Werner Enterprises, Inc. .................................. 8,107 121,605
Yellow Corp.(b)............................................ 4,318 72,596
-----------
1,775,558
-----------
Utilities--Gas & Electric (0.8%):
Bangor Hydro-Electric Co. ................................. 1,256 20,175
Central Hudson Gas & Electric.............................. 2,883 96,400
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Utilities--Gas & Electric, continued
Central Vermont Public Service Corp. ...................... 1,963 $ 24,292
Eastern Utilities Associates............................... 3,542 107,588
Green Mountain Power Corp. ................................ 895 7,663
TNP Enterprises, Inc. ..................................... 2,349 95,869
United Illuminating Co. (The).............................. 2,482 128,444
-----------
480,431
-----------
Water Utility (0.9%):
American States Water Co. ................................. 1,576 59,790
Aquarion Co. .............................................. 1,993 73,243
Philadelphia Suburban Corp. ............................... 7,053 163,101
United Water Resources, Inc. .............................. 6,708 224,717
-----------
520,851
-----------
Wholesale Distribution (0.7%):
Aviation Sales Co.(b)...................................... 2,578 36,414
Brightpoint, Inc.(b)....................................... 9,129 100,990
Insight Enterprises, Inc.(b)............................... 4,459 149,655
Owens & Minor, Inc. ....................................... 5,656 53,025
Watsco, Inc. .............................................. 4,956 53,897
-----------
393,981
-----------
TOTAL COMMON STOCKS 58,877,271
-----------
TOTAL INVESTMENTS
(Cost $58,283,466)(a)--99.3% 59,998,271
Other assets in excess of liabilities--0.7% 422,624
-----------
TOTAL NET ASSETS--100.0% $60,420,895
===========
</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 $80,641. Cost
for federal income tax purposes differs from value by net unrealized
appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.. $ 8,060,172
Unrealized depreciation.. (6,426,008)
-----------
Net unrealized
appreciation............ $ 1,634,164
===========
</TABLE>
(b) Represents non-income producing securities.
(c) Security of affiliated issuer which must be held due to nature of index
portfolios.
See notes to financial statements
154
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
Small Cap Equity Index Portfolio November 30, 1999
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
November 30, 1999
<S> <C> <C>
Assets:
Investments, at value (cost $58,055,305)................. $59,728,225
Investment in affiliated issuer, at value (cost
$228,161)............................................... 270,046
-----------
Total Investments....................................... 59,998,271
Cash..................................................... 797
Interest and dividends receivable........................ 29,568
Receivable for investments sold.......................... 581,667
Prepaid expenses and other assets........................ 3,965
-----------
Total Assets............................................ 60,614,268
Liabilities:
Payable for investments purchased........................ $154,818
Accrued expenses and other liabilities:
Investment advisory fees................................ 19,324
Administration fees..................................... 1,492
Distribution and administrative services fees........... 3,722
Custodian fees.......................................... 2,455
Other liabilities....................................... 11,562
--------
Total Liabilities....................................... 193,373
-----------
Net Assets:
Capital.................................................. 57,950,653
Undistributed net investment income...................... 14,281
Accumulated net realized gains from investment
transactions............................................ 741,156
Net unrealized appreciation from investments............. 1,714,805
-----------
Net Assets............................................... $60,420,895
===========
Investor A Shares
Net Assets.............................................. $ 134,297
Shares.................................................. 13,197
Redemption price per share.............................. $10.18
======
Maximum Sales Charge--Investor A Shares.................. 5.50%
Maximum Offering Price
(100%/(100%--Maximum Sales Charge) of net asset value
adjusted to the nearest cent) per share................ $10.77
======
Trust Shares
Net Assets.............................................. $45,331,318
Shares.................................................. 4,446,528
Offering and redemption price per share................. $10.19
======
Institutional Shares
Net Assets.............................................. $14,955,280
Shares.................................................. 1,470,506
Offering and redemption price per share................. $10.17
======
</TABLE>
- -----
(a) For the period from December 30, 1998 (initial public investment) through
November 30, 1999.
Statement of Operations
For the period ended November 30, 1999(a)
<TABLE>
<S> <C> <C>
Investment Income:
Dividend income (net of foreign tax withholding of $66)... $ 241,238
Interest income........................................... 16,791
----------
Total Investment Income.................................. 258,029
Expenses:
Investment advisory fees.................................. $120,357
Administration fees....................................... 59,519
Distribution and services fees, Investor A Shares......... 239
Administrative services fees, Trust Shares................ 46,955
Administrative services fees, Institutional Shares........ 42,085
Accounting fees........................................... 25,267
Custodian fees............................................ 14,895
Transfer agent fees....................................... 7,486
Other..................................................... 20,972
--------
Total expenses before voluntary fee reductions........... 337,775
Expenses voluntarily reduced............................. (99,468)
----------
Net Expenses............................................. 238,307
----------
Net Investment Income..................................... 19,722
----------
Realized/Unrealized Gains from Investments:
Net realized gains from investment transactions........... 741,156
Net change in unrealized appreciation from investments.... 1,714,805
----------
Net realized/unrealized gains from investments............ 2,455,961
----------
Change in net assets resulting from operations............ $2,475,683
==========
</TABLE>
See notes to financial statements
155
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Small Cap Equity Index Portfolio
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the
period ended
November 30,
1999(a)
------------
<S> <C>
From Investment Activities:
Operations:
Net investment income............................................ $ 19,722
Net realized gains from investment transactions.................. 741,156
Net change in unrealized appreciation from investments........... 1,714,805
-----------
Change in net assets resulting from operations.................... 2,475,683
-----------
Distributions to Investor A Shareholders:
From net investment income....................................... (9)
Distributions to Trust Shareholders:
From net investment income....................................... (12,830)
Distributions to Institutional Shareholders:
From net investment income....................................... (5,934)
-----------
Change in net assets from shareholder distributions............... (18,773)
-----------
Change in net assets from capital transactions.................... 57,963,985
-----------
Change in net assets.............................................. 60,420,895
Net Assets:
Beginning of period.............................................. --
-----------
End of period.................................................... $60,420,895
===========
</TABLE>
- -----
(a) For the period from December 30, 1998 (initial public investment) through
November 30, 1999.
See notes to financial statements
156
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Small Cap Equity Index Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
December 30, 1998 to
November 30, 1999(a)
--------------------
<S> <C>
Net Asset Value, Beginning of Period....................... $10.00
------
Investment Activities:
Net investment loss....................................... -- (d)
Net realized and unrealized gains from investments........ 0.19
------
Total from Investment Activities.......................... 0.19
------
Distributions:
Net investment income..................................... (0.01)
------
Total Distributions....................................... (0.01)
------
Net Asset Value, End of Period............................ $10.18
======
Total Return (excludes sales charge)....................... 1.86%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000).......................... $ 134
Ratio of expenses to average net assets.................... 1.00 %(c)
Ratio of net investment loss to average net assets......... (0.15)%(c)
Ratio of expenses to average net assets*................... 1.14 %(c)
Portfolio turnover**....................................... 35.27 %
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
initial public investment. (b) Not annualized. (c) Annualized. (d) Net
investment income per share was less than $0.005.
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
December 30, 1998 to
November 30, 1999(a)
--------------------
<S> <C>
Net Asset Value, Beginning of Period...................... $ 10.00
-------
Investment Activities:
Net investment income.................................... 0.01
Net realized and unrealized gains from investments....... 0.19
-------
Total from Investment Activities......................... 0.20
-------
Distributions:
Net investment income.................................... (0.01)
-------
Total Distributions...................................... (0.01)
-------
Net Asset Value, End of Period............................ $ 10.19
=======
Total Return.............................................. 2.01%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)......................... $45,331
Ratio of expenses to average net assets................... 0.68%(c)
Ratio of net investment income to average net assets...... 0.18%(c)
Ratio of expenses to average net assets*.................. 1.13%(c)
Portfolio turnover**...................................... 35.27%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
initial public investment. (b) Not annualized. (c) Annualized.
See notes to financial statements
157
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Small Cap Equity Index Portfolio
Financial Highlights, Institutional Shares
<TABLE>
<CAPTION>
December 30, 1998 to
November 30, 1999(a)
--------------------
<S> <C>
Net Asset Value, Beginning of Period....................... $ 10.00
-------
Investment Activities
Net investment loss....................................... -- (d)
Net realized and unrealized gains from investments........ 0.17
-------
Total from Investment Activities.......................... 0.17
-------
Distributions
Net investment income..................................... -- (d)
-------
Total Distributions....................................... --
-------
Net Asset Value, End of Period............................. $ 10.17
=======
Total Return............................................... 1.74%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000).......................... $14,955
Ratio of expenses to average net assets.................... 0.92%(c)
Ratio of net investment loss to average net assets......... (0.06)%(c)
Ratio of expenses to average net assets*................... 1.12%(c)
Portfolio turnover**....................................... 35.27%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
initial public investment. (b) Not annualized. (c) Annualized. (d) Net
investment income and distributions from net investment income per share was
less than $0.005.
See notes to financial statements
158
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
159
<PAGE>
The Mercantile International Equity Portfolio+
Q. How did the global equity markets perform during the 12-month period ended
November 30, 1999?
A. Global markets performed well during the period, with the Morgan Stanley
Capital International EAFE (Europe, Australia and Far East) Index (MSCI EAFE)
returning 21.10%. This strong return was driven largely by Asian markets, which
rebounded dramatically during the period. Japan's stock market performed
particularly well, rising 58.2%. This growth was spurred by an improving
economic environment, advances in the banking system, and an explosion of
interest in emerging growth companies. Markets elsewhere in Asia also
experienced a recovery that was better than anticipated.
European markets were mixed during the period. Northern European markets
posted exceptionally strong results, the United Kingdom and Central European
markets performed solidly, and Southern European markets declined modestly. The
Euro has not been a resounding success to date (weakening against the dollar
since its introduction), but has become established as a recognized unit of
currency around the world.
Q. How did you manage the Portfolio in that environment?
A. The Portfolio delivered results well ahead of the Index during the period,
returning 36.62% (Investor A Shares without the maximum sales charge), versus
21.10% for the MSCI EAFE. We significantly increased the Portfolio's exposure
to Japan during the period. We also moved to an overweight position in other
Pacific markets.
We reduced the Portfolio's exposure to European markets, lessening its stake
in Central Europe, the United Kingdom and Southern Europe. We made the most
significant reductions in Germany, Great Britain, Italy and Spain. We did,
however, add to the Portfolio's exposure in France and maintained its overall
weighting in Northern Europe. We reduced the Portfolio's modest exposure to
emerging markets during the period.
Q. How did your country allocations affect performance?
A. The Portfolio benefited dramatically from an increased allocation to Japan
(31.9% of net assets), as well as successful stock allocations within that
market. The Portfolio's holdings in Japan returned 177.8% for the period,
versus 58.2% for the MSCI Japan Index. Similarly, increasingly strong economies
in other Asian markets, such as Hong Kong (2.5%) and Singapore (0.9%), helped
boost returns.*
The Portfolio's overall exposure to Europe fell during the period from 76.8%
to 58.7%. Good stock selection in Germany (8.1%) and Switzerland (4.6%) was
offset by disappointments in France (12.7%) and the Netherlands (3.9%). We
trimmed exposure to Southern European markets, but the Portfolio did benefit
from excellent stock selection in Italy. The portfolio's modest exposure to
Greece (0.7%) also performed exceptionally well, up 82.3% for the period. But
its holdings in Australia (3.2%) lagged the benchmark, detracting modestly from
the Portfolio's results.*
Q. What other moves did you make to enhance returns?
A. Cyclical stocks in Europe performed very well during much of the period.
Although our style prohibits us from owning deep cyclical stocks, we did
purchase several shallow cyclicals (for example, construction companies),
including SGE (1.2% of net assets) in France and ABB (1.2%) in Switzerland. The
rise of temporary employment in Europe was reflected in our holdings of Adecco
(1.3%) in Switzerland and Randstad (0.8%) in the Netherlands. Another notable
theme in Europe has been the increasing importance of savings and mutual fund
companies. MLP (1.7%) in Germany and Bipop-Carire (1.4%) in Italy are two
companies that benefited from this trend. The Portfolio also holds several
stocks that are poised to benefit from an advertising boom in Europe, including
TF1 (1.1%) in France and Mediaset (1.3%) in Italy.*
A notable trend in Japan has been the strong performance of newer, smaller
companies that have proved capable of performing well even in difficult market
environments. Ryohin Keikaku (0.4%), a niche retailer in Japan, is one of these
companies. The Portfolio also has benefited from exposure to the "Digital
Revolution" in Asia, which is represented in the Portfolio by several holdings,
including NTT Mobile Communications (0.9%), Sony (0.9%), TDK Corp. (1.6%) and
Toyoda Gosei (0.9%).*
Q. What is your outlook for overseas markets during the next several months?
A. We expect to maintain the Portfolio's overweight position in Japan, as we
believe the currency will continue to grow stronger. We also believe that the
Bank of Japan will attempt to constrain this pressure with some intervention in
the currency markets, creating liquidity that could benefit the equity market.
We will take profits in stocks whose valuations have been driven to relatively
high levels after a period of significant outperformance.
The prospects for an upswing in Europe's economic activity have improved
considerably. Business surveys published in France and Germany suggest that
strong recoveries are underway. This already has led one member of the European
Central Bank to indicate that it may raise interest rates soon. We expect that
as the European economy strengthens, the euro will appreciate against the
dollar, and European equities will perform well.
Economic forecasts in the Pacific Rim continue to be upgraded, but interest
rates in Southeast Asia have stopped falling. The induction of China into the
World Trade Organization, as well as a continued improvement in the Chinese
economy, will help Hong Kong. The Japanese economic recovery also is boosting
smaller Asian economies, since intra-regional trade accounts for more than 50%
of total trade.
All told, we see opportunities for further gains in overseas markets,
especially given the extraordinarily high valuations in the U.S. market. We
will continue to seek opportunities to increase the Portfolio's total return
while maintaining a disciplined approach to evaluating and managing investment
risk.
- -----
+ International investing involves increased risk and volatility.
* Portfolio composition is subject to change.
160
<PAGE>
Mercantile International Equity Portfolio
[CHART]
Value of a $10,000 Investment
Morgan Stanley
Investor A Investor A Investor B Investor B Europe, Australia &
(No Load) (Load)* (CDSC) (No CDSC) Far East Index
4/4/94 10,000 9,551 10,000 10,000 10,000
11/94 9,900 9,456 9,990 9,405 10,370
11/95 10,780 10,296 10,730 10,330 11,189
11/96 12,072 11,530 11,922 11,622 12,543
11/97 12,384 11,828 12,138 11,838 12,528
11/98 14,278 13,637 13,896 13,696 14,630
11/99 19,507 18,438 18,850 18,750 17,717
- ------------------------------------------------------------------------------
- -
Average Annual Total Returns
as of 11/30/99
- ------------------------------------------------------------------------------
- -
Since
Inception
1 Year 5 Years (4/4/94)
- ------------------------------------------------------------------------------
- -
Investor A (No Load) 36.62% 14.53% 12.54%
- ------------------------------------------------------------------------------
- -
Investor A* 29.13% 13.23% 11.42%
- ------------------------------------------------------------------------------
- -
Investor B (No CDSC) 35.65% 13.75% 11.86%
- ------------------------------------------------------------------------------
- -
Investor B (CDSC)** 30.65% 13.63% 11.75%
- ------------------------------------------------------------------------------
- -
[CHART]
Value of a $10,000 Investment
Morgan Stanley Europe,
Trust Institutional Australia & Far East Index
4/4/94 10,000 10,000 10,000
11/94 9,920 9,900 10,370
11/95 10,810 10,770 11,189
11/96 12,142 12,052 12,543
11/97 12,495 12,364 12,520
11/98 14,461 14,260 14,630
11/99 19,808 19,480 17,717
- -------------------------------------------------------------------------
Average Annual Total Returns
as of 11/30/99
- -------------------------------------------------------------------------
Since
Inception
1 Year 5 Years (4/4/94)
- -------------------------------------------------------------------------
Trust 36.98% 14.83% 12.84%
- -------------------------------------------------------------------------
Institutional 36.61% 14.50% 12.51%
- -------------------------------------------------------------------------
Past performance is not predictive of future results. Investment return and
principal value will fluctuate, so that shares of a particular class, when
redeemed, may be worth more or less than their original cost.
The performance of the Mercantile International Equity Portfolio is measured
against the Morgan Stanley Europe, Australia and Far East (EAFE) Index, an
unmanaged index representative of the performance of international stocks.
Investors are unable to invest in the Index directly, although they can invest
in the underlying securities. The performance of the index does not reflect
the deduction of expenses associated with a mutual fund, such as investment
management and fund accounting fees. By contrast, the performance of the
Portfolio shown on the graphs reflects the deduction of these value-added
services, as well as the deduction of a 5.50% sales charge on Investor A
Shares and the applicable contingent deferred sales charge (CDSC) on Investor
B Shares.
Investor B Shares were initially offered on March 1, 1995. The performance
figures for Investor B Shares for periods prior to such date represent the
performance for Investor A Shares of the Portfolio, which has been restated to
reflect the contingent deferred sales charge payable by holders of Investor B
Shares who redeem within six years of the date of purchase. Investor B Shares
are also subject to distribution and service fees at a maximum annual rate of
1.00%. Had these distribution and service fees been reflected, performance
would have been reduced.
Institutional Shares were initially offered on April 24, 1994. The
performance figures for Institutional Shares for periods prior to such date
represent the performance for the Trust Shares of the Portfolio.
161
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
International Equity Portfolio November 30, 1999
<TABLE>
<CAPTION>
Common Stocks (94.8%):
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Australia (3.2%):
Airlines (0.9%):
Qantas Airways Limited..................................... 383,000 $ 1,005,524
-----------
Beverages (1.0%):
Foster's Brewing Group Ltd. ............................... 408,700 1,095,600
-----------
Telecommunications (1.3%):
Telstra Corp. Ltd. ........................................ 229,000 1,333,443
-----------
3,434,567
-----------
Finland (1.5%):
Telecommunications (1.5%):
Nokia OYJ.................................................. 11,650 1,649,205
-----------
France (12.7%):
Advertising (1.3%):
Havas Advertising.......................................... 3,700 1,400,725
-----------
Banking (1.1%):
Banque Nationale De Paris.................................. 12,600 1,154,450
-----------
Building Materials (0.8%):
Lafarge.................................................... 9,800 924,054
-----------
Engineering & Construction (2.6%):
Bouygues................................................... 3,240 1,494,080
Societe Generale D'Enterprises SA.......................... 28,400 1,276,742
-----------
2,770,822
-----------
Food Products (0.4%):
Carrefour Supermarche...................................... 2,600 452,880
-----------
Hotels & Lodging (1.2%):
Accor SA................................................... 5,700 1,293,576
-----------
Insurance (1.0%):
AXA UAP.................................................... 8,025 1,081,904
-----------
Media (1.9%):
Societe Television Francaise 1............................. 5,700 2,066,049
-----------
Oil Companies--Integrated (1.1%):
Total Fina SA, Class B..................................... 9,250 1,230,291
-----------
Retail (1.3%):
Castorama Dubois Investissements........................... 5,523 1,434,690
-----------
13,809,441
-----------
Germany (8.1%):
Computer Software (1.0%):
SAP AG..................................................... 2,715 1,097,536
-----------
Diversified Operations (1.0%):
Preussag AG................................................ 21,300 1,069,075
-----------
Financial Services (1.7%):
Marschollek Lautenschlaeger und Partner AG................. 6,400 1,804,269
-----------
Health Care (0.7%):
Fresenius Medical Care AG.................................. 8,800 730,085
-----------
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Germany, continued
Machinery & Equipment (1.2%)
Mannesmann AG.............................................. 6,475 $ 1,345,590
-----------
Media (1.1%):
EM. TV & Merchandising AG.................................. 15,500 1,209,474
-----------
Miscellaneous Manufacturing (1.4%):
Siemens AG................................................. 15,600 1,572,251
-----------
8,828,280
-----------
Greece (0.7%):
Building Materials (0.7%):
Titan Cement Company....................................... 6,200 729,345
-----------
Hong Kong (2.5%):
Airlines (0.6%):
Cathay Pacific Airways..................................... 326,000 617,043
-----------
Banking (0.3%):
DAO Heng Bank Group Ltd. .................................. 65,500 373,616
-----------
Diversified Operations (0.6%):
Hutchison Whampoa Ltd. .................................... 52,000 639,421
-----------
Telecommunications (1.0%):
China Telecom (Hong Kong) Ltd.(b).......................... 207,000 1,111,441
-----------
2,741,521
-----------
Italy (6.1%):
Banking (1.4%):
Bipop-Carire SpA........................................... 29,300 1,475,030
-----------
Media (2.5%):
Mediaset SpA............................................... 122,300 1,391,451
Seat Pagine Gialle SpA..................................... 656,000 1,334,193
-----------
2,725,644
-----------
Retail (2.2%):
Autogrill SpA.............................................. 114,600 1,205,769
Bulgari SpA................................................ 161,000 1,240,083
-----------
2,445,852
-----------
6,646,526
-----------
Japan (31.9%):
Automotive (1.1%):
Fuji Heavy Industries...................................... 156,000 1,161,775
-----------
Automotive Parts & Equipment (0.9%):
Toyoda Gosei............................................... 21,000 984,391
-----------
Banking (1.3%):
Sakura Bank Ltd. .......................................... 100,000 738,856
Sanwa Bank................................................. 60,000 728,091
-----------
1,466,947
-----------
Building Materials (0.5%):
Tostem Corp. .............................................. 33,000 592,602
-----------
Chemicals (1.0%):
Taiyo Ink Manufacturing Co. Ltd. .......................... 7,200 1,042,815
-----------
</TABLE>
Continued
162
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
International Equity Portfolio November 30, 1999
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Japan, continued
Computer Software (4.6%):
Fujitsu Ltd. .............................................. 40,000 $ 1,417,038
Japan Digital Laboratory Co. Ltd. ......................... 31,600 664,873
Nihon Unisys Ltd. ......................................... 30,000 1,147,918
TDK Corp. ................................................. 16,000 1,753,681
-----------
4,983,510
-----------
Electrical & Electronic (6.4%):
Alps Electric Co. ......................................... 25,000 462,397
Citizen Electronics Co. ................................... 8,000 1,072,564
KOA........................................................ 72,000 1,275,334
NEC Corp. ................................................. 39,000 910,261
Rohm Co. Ltd. ............................................. 5,000 1,354,405
Sony Corp. ................................................ 5,500 1,017,273
Sumida Electric Co. Ltd. .................................. 15,000 686,989
Yamaichi Electronics Co. Ltd. ............................. 10,000 274,013
-----------
7,053,236
-----------
Entertainment--Television (1.2%):
Avex, Inc. ................................................ 4,350 1,349,464
-----------
Financial Services (3.1%):
Daiwa Securities Co. Ltd. ................................. 88,000 1,255,605
Nomura Securities Co. Ltd. ................................ 64,000 1,139,893
Orix Corp. ................................................ 6,000 975,877
-----------
3,371,375
-----------
Health Care (0.5%):
Hogy Medical Co. .......................................... 7,000 497,333
-----------
Media (0.9%):
Shobunsha Publications Inc. ............................... 13,200 944,287
-----------
Recreation (0.7%):
Nintendo Co. Ltd. ......................................... 4,600 765,729
-----------
Retail (3.1%):
Aucnet, Inc. .............................................. 8,100 713,412
Homac Corp. ............................................... 22,000 641,581
Ryohin Keikaku Co. Ltd. ................................... 1,900 447,179
Yamada Denki............................................... 15,000 1,541,323
-----------
3,343,495
-----------
Telecommunications (5.4%):
DDI Corp. ................................................. 82 1,131,477
Japan Radio................................................ 130,000 1,456,672
Nippon Telegraph & Telephone Corp. ........................ 58 1,038,704
NTT Mobile Communications Network, Inc. ................... 27 945,931
OKI Electric Industry Co. Ltd.(b).......................... 213,000 1,263,180
-----------
5,835,964
-----------
Textile/Apparel (1.2%):
World Co., Ltd. ........................................... 9,900 1,308,891
-----------
34,701,814
-----------
Netherlands (3.9%):
Banking (1.0%):
ING Groep NV............................................... 19,590 1,101,592
-----------
</TABLE>
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------- -----------
<S> <C> <C>
Netherlands, continued
Chemicals (1.1%):
Akzo Nobel................................................. 28,000 $ 1,198,148
-----------
Commercial Services (0.8%):
Randstad Holding NV........................................ 16,750 839,861
-----------
Insurance (1.0%):
Aegon NV................................................... 12,600 1,141,764
-----------
4,281,365
-----------
Singapore (0.9%):
Banking (0.5%):
DBS Group Holdings Ltd. ................................... 8,000 103,810
Oversea-Chinese Banking Corp .............................. 66,150 496,125
-----------
599,935
-----------
Telecommunications (0.4%):
Datacraft Asia Ltd. ....................................... 83,000 401,720
-----------
1,001,655
-----------
Spain (4.6%):
Advertising (1.4%):
Telefonica Publicidad E Informacion SA(b).................. 49,500 1,500,151
-----------
Computer Software (0.7%):
Terra Networks(b).......................................... 21,500 740,551
-----------
Telecommunications (2.5%):
Indra Sistemas SA.......................................... 106,000 1,430,125
Telefonica SA(b)........................................... 64,994 1,353,278
-----------
2,783,403
-----------
5,024,105
-----------
Sweden (1.4%):
Retail (1.4%):
Hennes & Mauritz AB........................................ 46,700 1,483,237
-----------
Switzerland (4.6%):
Banking (0.8%):
Credit Suisse Group........................................ 4,900 916,305
-----------
Commercial Services (1.4%):
Adecco SA.................................................. 2,270 1,451,122
-----------
Engineering & Construction (1.2%):
New ABB Ltd.(b)............................................ 13,399 1,324,403
-----------
Pharmaceuticals (1.2%):
Roche Holding AG........................................... 111 1,339,619
-----------
5,031,449
-----------
United Kingdom (11.5%):
Advertising (1.3%):
WPP Group PLC.............................................. 98,000 1,449,944
-----------
Automotive Parts & Equipment (1.0%):
GKN PLC.................................................... 72,400 1,132,871
-----------
</TABLE>
Continued
163
<PAGE>
MERCANTILE MUTUAL FUNDS, INC. Schedule of Portfolio Investments
International Equity Portfolio November 30, 1999
<TABLE>
<CAPTION>
Common Stocks, continued
Security Market
Description Shares Value
----------- ------- ------------
<S> <C> <C>
United Kingdom, continued
Banking (1.7%):
Abbey National PLC..................................... 52,000 $ 880,331
Lloyds TSB Group PLC................................... 74,000 945,773
------------
1,826,104
------------
Computer Software (1.2%):
Mysis PLC.............................................. 121,500 1,310,977
------------
Electrical & Electronic (1.2%):
Electrocomponents PLC.................................. 134,500 1,317,367
------------
Engineering & Construction (0.8%):
Invensys PLC........................................... 190,700 880,761
------------
Financial Services (1.0%):
Electra Investment Trust PLC(b)........................ 75,200 1,043,746
------------
Food Distributors (0.7%):
Compass Group PLC...................................... 60,000 727,664
------------
Oil & Gas Exploration, Production, & Services (0.9%):
BP Amoco PLC........................................... 95,600 975,184
------------
Pharmaceuticals (0.9%):
Smithkline Beecham PLC................................. 75,500 1,011,236
------------
Telecommunications (0.8%):
British Telecom PLC.................................... 41,500 830,132
------------
12,505,986
------------
United States (1.2%):
Telecommunications (1.2%):
Ericsson LM, Sponsored ADR............................. 26,800 1,331,625
------------
TOTAL COMMON STOCKS 103,200,121
------------
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Agencies (4.6%):
Shares
or
Security Principal Market
Description Amount Value
----------- ---------- -----------
<S> <C> <C>
Federal National Mortgage Assoc. (4.6%):
5.61%, 12/1/99.......................................... $4,989,000 $ 4,988,223
-----------
TOTAL U.S. GOVERNMENT AGENCIES 4,988,223
-----------
</TABLE>
<TABLE>
<S> <C> <C>
Short-Term Securities Held as Collateral* (5.8%):
Investment Companies (5.8%):
BT Institutional Daily Net Asset Fund................... 6,283,105 6,283,105
------------
TOTAL SHORT-TERM SECURITIES HELD AS COLLATERAL 6,283,105
------------
TOTAL INVESTMENTS
(Cost $87,076,744)(a)--105.2% 114,471,449
Liabilities in excess of other assets--(5.2%) (5,666,109)
------------
TOTAL NET ASSETS--100.0% $108,805,340
============
</TABLE>
- -----
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of mark to market
adjustment for passive foreign investment companies of $231,265. Cost for
federal income tax purposes differs from value by net unrealized
appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.. $28,552,306
Unrealized depreciation.. (1,388,866)
-----------
Net unrealized
appreciation............ $27,163,440
===========
</TABLE>
(b) Represents non-income producing securities.
ABAktiebolag (Swedish Stock Co.)
ADRAmerican Depositary Receipt
AGAktiengesellschaft (German Stock Co.)
NVNaamloze Vennootschaap (Dutch Corp.)
PLCPublic Limited Company
SASociete Anonyme (French Corp.)
SpASocieta per Azioni (Italian Corp.)
* Represents securities purchased with cash collateral received on securities
loaned.
See notes to financial statements
164
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
International Equity Portfolio
Statements of Assets and Liabilities
November 30, 1999
<TABLE>
<S> <C> <C>
Assets:
Investments, at value
(cost $87,076,744)................................... $114,471,449
Foreign currency, at value
(cost $1,207,533).................................... 1,207,378
Cash.................................................. 353
Interest and dividends receivable..................... 126,072
Receivable for investments sold....................... 166,258
Tax reclaim receivable................................ 92,629
Prepaid expenses and other assets..................... 7,206
------------
Total Assets......................................... 116,071,345
Liabilities:
Payable for investments purchased..................... $ 865,198
Payable for return of collateral received on
securities loaned.................................... 6,283,105
Accrued expenses and other liabilities:
Investment advisory fees............................. 85,244
Administration fees.................................. 2,663
Distribution and administrative services fees........ 4,228
Custodian fees....................................... 16,812
Other liabilities.................................... 8,755
----------
Total Liabilities.................................... 7,266,005
------------
Net Assets:
Capital............................................... 71,166,582
Distributions in excess of net investment income...... 607,838
Accumulated net realized gains from investment and
foreign currency transactions........................ 9,641,917
Net unrealized appreciation from investments and
translation of assets and liabilities in foreign
currencies........................................... 27,389,003
------------
Net Assets............................................ $108,805,340
============
Investor A Shares
Net Assets........................................... $ 3,939,197
Shares............................................... 231,329
Redemption price per share........................... $17.03
======
Maximum Sales Charge--Investor A Shares............... 5.50%
Maximum Offering Price
(100%/(100%--Maximum Sales
Charge) of net asset value adjusted to the nearest
cent) per share...................................... $18.02
======
Investor B Shares
Net Assets........................................... $ 780,905
Shares............................................... 47,214
Offering price per share*............................ $16.54
======
Trust Shares
Net Assets........................................... $ 92,777,778
Shares............................................... 5,387,441
Offering and redemption price per share.............. $17.22
======
Institutional Shares
Net Assets........................................... $ 11,307,460
Shares............................................... 665,077
Offering and redemption price per share.............. $17.00
======
</TABLE>
- -----
* Redemption price of Investor B shares varies based on length of time held.
Statement of Operations
For the year ended November 30, 1999
<TABLE>
<S> <C> <C>
Investment Income:
Interest income.......................................... $ 125,073
Dividend income (net of foreign tax withholding)......... 1,050,465
Income from securities lending........................... 38,305
-----------
Total Investment Income................................. 1,213,843
Expenses:
Investment advisory fees................................. $786,651
Administration fees...................................... 157,331
Distribution and services fees,
Investor A Shares....................................... 9,815
Distribution and services fees,
Investor B Shares....................................... 6,570
Administrative services fees,
Trust Shares............................................ 196,791
Administrative services fees,
Institutional Shares.................................... 27,419
Accounting fees.......................................... 1,051
Custodian fees........................................... 143,925
Transfer agent fees...................................... 18,245
Other.................................................... 34,951
--------
Total expenses before voluntary fee reductions.......... 1,382,749
Expenses voluntarily reduced............................ (348,450)
-----------
Net Expenses............................................ 1,034,299
-----------
Net Investment Income.................................... 179,544
-----------
Realized/Unrealized Gains from Investments:
Net realized gains from investment and foreign currency
transactions............................................ 10,400,951
Net change in unrealized appreciation from investments
and translation of assets and liabilities in foreign
currencies.............................................. 15,929,592
-----------
Net realized/unrealized gains from investments........... 26,330,543
-----------
Change in net assets resulting from operations........... $26,510,087
===========
</TABLE>
See notes to financial statements
165
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
International Equity Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
year ended year ended
November 30, November 30,
1999 1998
------------ ------------
<S> <C> <C>
From Investment Activities:
Operations:
Net investment income.............................. $ 179,544 $ 207,258
Net realized gains from investment and foreign
currency transactions............................. 10,400,951 4,276,064
Net change in unrealized appreciation from
investments and translation of assets and
liabilities in foreign currencies................. 15,929,592 5,453,398
------------ -----------
Change in net assets resulting from operations..... 26,510,087 9,936,720
------------ -----------
Distributions to Investor A Shareholders:
From net investment income......................... (7,717) (563)
In excess of net investment income................. (2,926) (15,934)
From net realized gains from investment
transactions...................................... (177,698) (102,677)
Distributions to Investor B Shareholders:
From net investment income......................... (474) --
In excess of net investment income................. (180) (1,057)
From net realized gains from investment
transactions...................................... (35,989) (20,585)
Distributions to Trust Shareholders:
From net investment income......................... (231,644) (329,516)
In excess of net investment income................. (87,838) (123,727)
From net realized gains from investment
transactions...................................... (3,384,840) (1,964,807)
Distributions to Institutional Shareholders:
From net investment income......................... (21,043) (4,462)
In excess of net investment income................. (7,979) (35,224)
From net realized gains from investment
transactions...................................... (458,068) (245,038)
------------ -----------
Change in net assets from shareholder
distributions...................................... (4,416,396) (2,843,590)
------------ -----------
Change in net assets from capital transactions...... 14,229,068 137,095
------------ -----------
Change in net assets................................ 36,322,759 7,230,225
Net Assets:
Beginning of period................................ 72,482,581 65,252,356
------------ -----------
End of period...................................... $108,805,340 $72,482,581
============ ===========
</TABLE>
See notes to financial statements
166
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
International Equity Portfolio
Financial Highlights, Investor A Shares
<TABLE>
<CAPTION>
For the years ended November 30,
---------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 13.27 $ 11.99 $ 12.05 $ 10.76 $ 9.90
-------- -------- -------- -------- ------
Investment Activities:
Net investment income
(loss)................ -- 0.01 (0.02) 0.02 0.02
Net realized and
unrealized gains from
investments and
foreign currency...... 4.55 1.77 0.32 1.27 0.86
-------- -------- -------- -------- ------
Total from Investment
Activities............ 4.55 1.78 0.30 1.29 0.88
-------- -------- -------- -------- ------
Distributions:
Net investment income
(loss)................ (0.03) -- -- -- --
In excess of net
investment income..... (0.01) (0.07) (0.05) -- --
Net realized gains..... (0.75) (0.43) (0.31) -- (0.01)
Tax return of capital.. -- -- -- -- (0.01)
-------- -------- -------- -------- ------
Total Distributions.... (0.79) (0.50) (0.36) -- (0.02)
-------- -------- -------- -------- ------
Net Asset Value, End of
Period................. $ 17.03 $ 13.27 $ 11.99 $ 12.05 $10.76
======== ======== ======== ======== ======
Total Return (excludes
sales charge).......... 36.62% 15.33% 2.58% 11.99% 8.89%
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 3,939 $ 3,154 $ 2,854 $ 2,573 $1,568
Ratio of expenses to
average net assets..... 1.56% 1.58% 1.59% 1.44% 1.45%
Ratio of net investment
income (loss) to
average net assets..... (0.01)% 0.02% (0.20)% 0.19% 0.07%
Ratio of expenses to
average net assets*.... 1.75% 1.75% 1.75% 1.75% 1.76%
Portfolio turnover**.... 93.73% 88.95% 75.18% 77.63% 62.78%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
<CAPTION>
Financial Highlights, Investor B Shares
March 1, 1995
For the years ended November 30, to
----------------------------------------- November 30,
1999 1998 1997 1996 1995(a)
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 12.97 $ 11.77 $ 11.90 $ 10.71 $ 9.26
-------- -------- -------- -------- ------
Investment Activities:
Net investment loss.... (0.10) (0.09) (0.09) (0.04) (0.03)
Net realized and
unrealized gains from
investments and
foreign currency...... 4.43 1.74 0.30 1.23 1.48
-------- -------- -------- -------- ------
Total from Investment
Activities............ 4.33 1.65 0.21 1.19 1.45
-------- -------- -------- -------- ------
Distributions:
Net investment income.. (0.01) -- -- -- --
In excess of net
investment income..... -- (0.02) (0.03) -- --
Net realized gains..... (0.75) (0.43) (0.31) -- --
-------- -------- -------- -------- ------
Total Distributions.... (0.76) (0.45) (0.34) -- --
-------- -------- -------- -------- ------
Net Asset Value, End of
Period................. $ 16.54 $ 12.97 $ 11.77 $ 11.90 $10.71
======== ======== ======== ======== ======
Total Return (excludes
redemption charge)..... 35.65% 14.48% 1.82% 11.11% 8.38%(b)
Ratios/Supplementary
Data:
Net Assets at end of
period (000)........... $ 781 $ 624 $ 562 $ 437 $ 102
Ratio of expenses to
average net assets..... 2.26% 2.28% 2.29% 2.14% 2.02%(c)
Ratio of net investment
loss to average net
assets................. (0.71)% (0.70)% (0.91)% (0.50)% (0.96)%(c)
Ratio of expenses to
average net assets*.... 2.45% 2.45% 2.45% 2.46% 2.44%(c)
Portfolio turnover**.... 93.73% 88.95% 75.18% 77.63% 62.78%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued. (a) Period from
commencement of operations. (b) Represents total return for the Investor A
Shares from December 1, 1994 to February 28, 1995 plus the total return for
the Investor B Shares from March 1, 1995 to November 30, 1995. (c) Annualized.
See notes to financial statements
167
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
International Equity Portfolio
Financial Highlights, Trust Shares
<TABLE>
<CAPTION>
For the years ended November 30,
--------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.......................... $ 13.40 $ 12.09 $ 12.12 $ 10.79 $ 9.92
------- ------- ------- ------- -------
Investment Activities:
Net investment income........... 0.06 0.04 0.01 0.06 0.03
Net realized and unrealized
gains from investments and
foreign currency............... 4.58 1.80 0.33 1.27 0.86
------- ------- ------- ------- -------
Total from Investment
Activities..................... 4.64 1.84 0.34 1.33 0.89
------- ------- ------- ------- -------
Distributions:
Net investment income........... (0.05) (0.03) (0.04) -- --
In excess of net investment
income......................... (0.02) (0.07) (0.02) -- --
Net realized gains.............. (0.75) (0.43) (0.31) -- (0.01)
Tax return of capital........... -- -- -- -- (0.01)
------- ------- ------- ------- -------
Total Distributions............. (0.82) (0.53) (0.37) -- (0.02)
------- ------- ------- ------- -------
Net Asset Value, End of Period... $ 17.22 $ 13.40 $ 12.09 $ 12.12 $ 10.79
======= ======= ======= ======= =======
Total Return..................... 36.98% 15.73% 2.91% 12.33% 8.97%
Ratios/Supplementary Data:
Net Assets at end of period
(000)........................... $92,778 $60,647 $55,038 $52,181 $36,096
Ratio of expenses to average net
assets.......................... 1.26% 1.28% 1.29% 1.14% 1.16%
Ratio of net investment income to
average net assets.............. 0.28% 0.34% 0.09% 0.51% 0.39%
Ratio of expenses to average net
assets*......................... 1.75% 1.75% 1.75% 1.45% 1.46%
Portfolio turnover**............. 93.73% 88.95% 75.18% 77.63% 62.78%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
Financial Highlights, Institutional Shares
<CAPTION>
For the years ended November 30,
--------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.......................... $ 13.25 $ 11.97 $ 12.03 $ 10.75 $ 9.90
------- ------- ------- ------- -------
Investment Activities:
Net investment income (loss).... (0.01) -- (0.03) 0.01 0.01
Net realized and unrealized
gains from investments and
foreign currency............... 4.55 1.78 0.33 1.27 0.86
------- ------- ------- ------- -------
Total from Investment
Activities..................... 4.54 1.78 0.30 1.28 0.87
------- ------- ------- ------- -------
Distributions:
Net investment income........... (0.03) (0.01) -- -- --
In excess of net investment
income......................... (0.01) (0.06) (0.05) -- --
Net realized gains.............. (0.75) (0.43) (0.31) -- (0.01)
Tax return of capital........... -- -- -- -- (0.01)
------- ------- ------- ------- -------
Total Distributions............. (0.79) (0.50) (0.36) -- (0.02)
------- ------- ------- ------- -------
Net Asset Value, End of Period... $ 17.00 $ 13.25 $ 11.97 $ 12.03 $ 10.75
======= ======= ======= ======= =======
Total Return..................... 36.61% 15.37% 2.59% 11.91% 8.78%
Ratios/Supplementary Data:
Net Assets at end of period
(000)........................... $11,307 $ 8,058 $ 6,798 $ 6,059 $ 2,159
Ratio of expenses to average net
assets.......................... 1.56% 1.58% 1.59% 1.44% 1.44%
Ratio of net investment income
(loss) to average net assets.... 0.00% 0.01% (0.21)% 0.16% 0.13%
Ratio of expenses to average net
assets*......................... 1.75% 1.75% 1.75% 1.76% 1.75%
Portfolio turnover**............. 93.73% 88.95% 75.18% 77.63% 62.78%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole
without distinguishing between the classes of shares issued.
See notes to financial statements
168
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements
November 30, 1999
1.Organization
Mercantile Mutual Funds, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. As of November 30, 1999, the Fund offered
shares in nineteen investment portfolios. The accompanying financial
statements and financial highlights are those of the Treasury Money Market,
Money Market, Tax-Exempt Money Market, U.S. Government Securities,
Intermediate Corporate Bond, Bond Index, Government & Corporate Bond, Short-
Intermediate Municipal, Missouri Tax-Exempt Bond, National Municipal Bond,
Balanced, Equity Income, Equity Index, Growth & Income Equity, Growth
Equity, Small Cap Equity, Small Cap Equity Index and International Equity
Portfolios (referred to individually as a "Portfolio" and collectively as
the "Portfolios") only. The Fund, which was formerly known as The ARCH Fund,
Inc., was organized as a Maryland corporation on September 9, 1982.
The Portfolios' investment objectives are as follows:
Treasury Money Market Portfolio -- To seek a high level of current income
exempt from state income tax consistent with liquidity and security of
principal. In pursuing its investment objective, the Portfolio invests in
selected money market obligations issued by the U.S. Government (or its
agencies and instrumentalities) that provide income that is generally not
subject to state income tax.
Money Market Portfolio -- To seek current income with liquidity and
stability of principal. In pursuing its investment objective, the Portfolio
invests substantially all (but not less than 80%) of its total assets in a
broad range of money market instruments.
Tax-Exempt Money Market Portfolio -- To seek as high a level of current
interest income exempt from federal income tax as is consistent with
liquidity and stability of principal. The Portfolio invests at least 80% of
its total assets in short-term obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia
and their respective political subdivisions, agencies, instrumentalities and
authorities ("Municipal Obligations").
U.S. Government Securities Portfolio -- To seek a high rate of current
income that is consistent with relative stability of principal. In pursuing
its investment objective, the Portfolio invests at least 65% of its total
assets in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities normally having remaining maturities of 1 to
30 years and repurchase agreements relating to such obligations.
Intermediate Corporate Bond Portfolio -- To seek as high a level of current
income as is consistent with preservation of capital. In pursuing its
investment objective, the Portfolio normally invests at least 65% of its
total assets in corporate debt obligations. Under normal market conditions,
the Portfolio's average weighted maturity will be between three and ten
years.
Bond Index Portfolio -- To seek to provide investment results that, before
deduction of operating expenses, approximate the price and yield performance
of U.S. Government, mortgage-backed, asset-backed and corporate debt
securities as represented by the Lehman Brothers Aggregate Bond Index (the
"Lehman Aggregate"). The Portfolio will invest substantially all (but not
less than 80%) of its total assets in securities listed in the Lehman
Aggregate.
Government & Corporate Bond Portfolio -- To seek the highest level of
current income consistent with conservation of capital. In pursuing its
investment objective, the Portfolio normally invests substantially all of
its assets in a broad range of investment grade debt securities, including
corporate obligations and U.S. Government obligations.
Short-Intermediate Municipal Portfolio -- To seek as high a level of current
income, exempt from regular federal income tax, as is consistent with
preservation of capital. The Portfolio seeks to achieve its objective by
investing at least 80% of its total assets in investment grade Municipal
Obligations. Under normal market conditions, the Portfolio's average
weighted maturity will be between two and five years.
Missouri Tax-Exempt Bond Portfolio -- To seek as high a level of interest
income exempt from federal income tax as is consistent with conservation of
capital. In pursuing its investment objective, the Portfolio invests at
least 80% of its total assets in investment grade Municipal Obligations and
at least 65% of its total assets in Missouri Municipal Obligations that are
also exempt, to the extent possible, from Missouri income tax.
National Municipal Bond Portfolio -- To seek as high a level of current
income exempt from regular federal income tax as is consistent with
conservation of capital. In pursuing its investment objective, the Portfolio
normally invests at least 80% of its total assets in investment grade
Municipal Obligations with a broad geographic diversification.
Continued
169
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
November 30, 1999
Balanced Portfolio -- To maximize total return through a combination of
growth of capital and current income consistent with the preservation of
capital. The Portfolio seeks to achieve its objective by using a disciplined
approach of allocating assets primarily among three major asset groups, i.e.
equity securities, fixed income securities and money market instruments.
Equity Income Portfolio -- To seek to provide an above-average level of
income consistent with long-term capital appreciation. In pursuing its
investment objective, the Portfolio invests primarily in the common stocks
of value companies with large market capitalizations (generally $5 billion
or higher). Under normal market conditions, the Portfolio invests at least
65% of its total assets in income-producing (dividend-paying) equity
securities, primarily common stock.
Equity Index Portfolio -- To seek to provide investment results that, before
the deduction of operating expenses, approximate the price and yield
performance of U.S. publicly traded common stocks with large stock market
capitalizations, as represented by the Standard & Poor's 500 Composite Stock
Price Index (the "S&P 500 Index"). The Portfolio invests substantially all
(at least 80%) of its total assets in securities listed in the S&P 500
Index.
Growth & Income Equity Portfolio -- To provide long-term capital growth,
with income a secondary consideration. In pursuing its investment objective,
the Portfolio normally invests primarily in common stock.
Growth Equity Portfolio -- To seek capital appreciation. In pursuing its
investment objective, the Portfolio invests primarily in the common stock of
growth companies.
Small Cap Equity Portfolio -- To seek capital appreciation. Current income
is an incidental consideration in the selection of portfolio securities. In
pursuing its investment objective, the Portfolio normally invests at least
65% of its total assets in common stock of small- to medium-sized companies
with market capitalizations from $100 million to $2 billion at the time of
purchase.
Small Cap Equity Index Portfolio -- To seek to provide investment results
that, before the deduction of operating expenses, approximate the price and
yield performance of U.S. common stocks with smaller stock market
capitalizations, as represented by the S&P SmallCap 600 Index. The Portfolio
will invest at least 80% of its total assets in securities listed in the S&P
SmallCap 600 Index.
International Equity Portfolio -- To provide capital growth consistent with
reasonable investment risk. The Portfolio seeks to achieve this objective by
investing primarily in foreign common stock, most of which will be
denominated in foreign currencies.
2.Significant Accounting Policies
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses for
the period. Actual results could differ from these estimates.
Securities valuation:
The securities of the Treasury Money Market, Money Market and Tax-Exempt
Money Market Portfolios (collectively, "the money market portfolios") are
valued at amortized cost. Amortized cost valuation involves valuing an
instrument at its cost initially and, thereafter, assuming a constant
amortization to maturity of any discount or premium, regardless of the
effect of fluctuating interest rates on the market value of the instrument.
The securities of the U.S. Government Securities, Intermediate Corporate
Bond, Bond Index, Government & Corporate Bond, Short-Intermediate Municipal,
Missouri Tax-Exempt Bond, National Municipal Bond, Balanced, Equity Income,
Equity Index, Growth & Income Equity, Growth Equity, Small Cap Equity, Small
Cap Equity Index and International Equity Portfolios (collectively, "the
variable net asset value portfolios") that are traded on a recognized
exchange are valued at the last sale price on the national securities
market. Securities traded only on over-the-counter markets are valued on the
basis of market value when available. Securities for which there were no
transactions are valued at the mean of the most recent bid and asked prices.
Securities maturing in 60 days or less are valued at amortized cost.
Securities, including restricted securities, for which market quotations are
not readily available, are valued at fair market value by the investment
adviser (or the sub-investment adviser) in accordance with guidelines
approved by the Fund's Board of Directors. Quotations of foreign securities
in foreign currency are converted to the U.S. dollar equivalent at the
prevailing exchange rate on the date of conversion. Investments in
investment companies are valued at their respective net asset values as
reported by such companies. The differences between cost and market values
of the investments of the variable net asset value portfolios are reflected
as unrealized appreciation or depreciation.
Continued
170
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
November 30, 1999
Repurchase agreements:
The Portfolios may engage in repurchase agreement transactions. Under the
terms of a typical repurchase agreement, a Portfolio takes possession of
collateral subject to an obligation of the seller to repurchase, and the
Portfolio to resell, the obligation at an agreed upon price and time,
thereby determining the yield during the Portfolio's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Portfolio's holding period. The value of the
collateral exceeds at all times the total amount of the repurchase
obligation, including accrued interest. In the event of counterparty
default, the Portfolio has the right to use the collateral to offset losses
incurred. There is potential for loss to the Portfolio in the event the
Portfolio is delayed or prevented from exercising its rights to dispose of
the collateral securities, including the risk of a possible decline in the
value of the underlying securities during the period while the Portfolio
seeks to assert its rights. The Portfolios' investment adviser (or the sub-
investment adviser), acting under the supervision of the Board of Directors,
reviews the value of the collateral and the creditworthiness of those banks
and dealers with which the Portfolios enter into repurchase agreements to
evaluate potential risks.
Securities transactions and investment income:
Securities transactions are recorded on the trade date. Realized gains and
losses on investments sold are recorded on the identified cost basis.
Interest income, including accretion of discount and amortization of premium
on investments (where applicable), is accrued on a daily basis. Dividend
income is recorded on the ex-dividend date. Income and realized and
unrealized gains and losses are allocated based upon the relative net assets
of each class of shares.
Foreign currency translation:
The market value of investment securities and other assets and liabilities
of the Equity Index, Growth Equity, Small Cap Equity Index and International
Equity Portfolios denominated in a foreign currency are translated into U.S.
dollars at the current exchange rate. Purchases and sales of securities,
income receipts and expense payments are translated into U.S. dollars at the
exchange rate on the dates of the transactions.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of foreign securities, sales of foreign currencies, currency
exchange fluctuations between the trade and settlement dates on securities
transactions, and the difference between the amount of assets and
liabilities recorded and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains and losses arise
from changes in the value of assets and liabilities, including investments
in securities, resulting from changes in exchange rates.
Risks associated with foreign securities and currencies:
Investments in securities of foreign issuers carry certain risks not
ordinarily associated with investments in securities of domestic issuers.
Such risks include future political and economic developments, and the
possible imposition of exchange controls or other foreign governmental laws
and restrictions. In addition, with respect to certain countries, there is
the possibility of expropriation of assets, confiscatory taxation, political
or social instability or diplomatic developments which could adversely
affect investments in those countries.
Certain countries may also impose substantial restrictions on investments in
their capital markets by foreign entities, including restrictions on
investments in issuers of industries deemed sensitive to relevant national
interests. These factors may limit the investment opportunities available to
the Equity Index, Growth Equity, Small Cap Equity Index and International
Equity Portfolios or result in a lack of liquidity and high price volatility
with respect to securities of issuers from developing countries.
Foreign currency exchange contracts:
The International Equity Portfolio may enter into forward foreign currency
exchange contracts ("forwards"). A forward is an agreement between two
parties to buy and sell a currency at a set price on a future date. The
market value of the forward fluctuates with changes in currency exchange
rates. The forward is marked-to-market daily and the change in market value
is recorded by the Portfolio as unrealized appreciation or depreciation.
When the forward is closed, the Portfolio records a realized gain or loss
equal to the fluctuation in value during the period the forward was opened.
The Portfolio could be exposed to risk if a counterparty is unable to meet
the terms of a forward or if the value of the currency changes unfavorably.
The International Equity Portfolio may buy and sell securities denominated
in currencies other than the U.S. dollar, and receive interest, dividends
and sale proceeds in currencies other than the U.S. dollar. The Portfolio
may from time to time enter into foreign currency exchange transactions to
convert to and from different foreign currencies and to convert foreign
currencies to and from the U.S. dollar. The Portfolio may enter into
currency exchange transactions on a spot (i.e., cash) basis at the spot
Continued
171
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
November 30, 1999
rate prevailing in the foreign currency exchange market, or use forward
currency contracts to purchase or sell foreign currencies. Losses may arise
from changes in the value of the foreign currency or if the counterparties
do not perform under the contracts' terms.
Securities lending:
To increase return, the Treasury Money Market, Money Market, U.S. Government
Securities, Intermediate Corporate Bond, Bond Index, Government & Corporate
Bond, Short-Intermediate Municipal, National Municipal Bond, Balanced,
Equity Income, Equity Index, Growth & Income Equity, Growth Equity, Small
Cap Equity, Small Cap Equity Index and International Equity Portfolios may,
from time to time, lend portfolio securities to broker-dealers, banks or
institutional borrowers of securities pursuant to agreements requiring that
the loans be continuously secured by collateral equal in value to at least
the market value of the securities loaned. Collateral for such loans may
include cash, securities of the U.S. Government or its agencies or
instrumentalities, irrevocable letters of credit, or any combination
thereof. The collateral must be valued daily and, should the market value of
the loaned securities exceed collateral value, the borrower must furnish
additional collateral to the lending Portfolio. By lending its securities, a
Portfolio can increase its income by continuing to receive interest or
dividends on the loaned securities as well as either investing the cash
collateral in short-term instruments or obtaining yield in the form of
interest paid by the borrower when non-cash collateral, such as U.S.
Government securities, are held by the Portfolio. Loans are subject to
termination by the Portfolio or the borrower at any time. The risks to the
Portfolios of lending securities are that the borrower may fail to provide
additional collateral when required, or fail to return the borrowed
securities when due. In addition, if cash collateral invested by a Portfolio
is less than the amount required to be returned to the borrower as a result
of a decrease in the value of the cash collateral investments, the Portfolio
must compensate the borrower for the deficiency. At November 30, 1999, the
following Portfolios had securities with the following market values on
loan:
<TABLE>
<CAPTION>
Market Value of Market Value of
Portfolio Collateral Loaned Securities
--------- --------------- -----------------
<S> <C> <C>
U.S. Government Securities Portfolio...... $ 2,052,000 $ 2,024,581
Intermediate Corporate Bond Portfolio..... 4,062,107 3,964,078
Bond Index Portfolio...................... 59,654,790 58,488,902
Government & Corporate Bond Portfolio..... 42,082,745 41,231,353
Balanced Portfolio........................ 17,568,712 17,042,236
Equity Income Portfolio................... 5,751,500 5,572,601
Equity Index Portfolio.................... 5,981,830 5,727,447
Growth & Income Equity Portfolio.......... 24,179,950 23,234,035
Growth Equity Portfolio................... 14,327,400 13,625,914
Small Cap Equity Portfolio................ 34,863,115 33,128,857
International Equity Portfolio............ 6,283,105 5,978,777
</TABLE>
The loaned securities were fully collateralized by cash and U.S. Government
securities.
Dividends and distributions to shareholders:
Dividends on each share of the Portfolios are determined in the same manner,
irrespective of class, except that shares of each class may bear separate
fees under either a Distribution and Services Plan or an Administrative
Services Plan adopted for that class and enjoy certain exclusive voting
rights on matters relating to these fees. It is the policy of the Treasury
Money Market, Money Market, Tax-Exempt Money Market, U.S. Government
Securities, Intermediate Corporate Bond, Bond Index, Government & Corporate
Bond, Short-Intermediate Municipal, Missouri Tax-Exempt Bond and National
Municipal Bond Portfolios to declare dividends daily from net investment
income and to pay such dividends no later than five business days after the
end of each month. Net investment income for the Balanced, Equity Income,
Equity Index, Growth & Income Equity and Growth Equity Portfolios is
declared and paid monthly as a dividend to shareholders of record. The Small
Cap Equity, Small Cap Equity Index and International Equity Portfolios
declare and pay dividends from net investment income quarterly. Net realized
capital gains for each Portfolio, if any, are distributed at least annually.
Additional distributions of net investment income and capital gains may be
made at the discretion of the Board of Directors in order to comply with
certain distribution requirements of the Internal Revenue Code.
Distributions from net investment income and from net realized capital gains
are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature (i.e. reclass of market
discounts, gain/loss, paydowns and distributions) such amounts are
reclassified within the composition of net assets based on
Continued
172
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
November 30, 1999
their federal tax-basis treatment; temporary differences do not require
reclassification. Distributions to shareholders which exceed net investment
income and net realized capital gains for financial reporting purposes but
not for tax purposes are reported as distributions in excess of net
investment income or net realized gains. To the extent such distributions
exceed net investment income and net realized gains for tax purposes, they
are reported as distributions of capital.
As of November 30, 1999, the following reclassifications have been made to
increase (decrease) such accounts with offsetting adjustments made to
capital:
<TABLE>
<CAPTION>
Accumulated
Undistributed Net Realized
Net Investment Gain/(Loss)
Income on Investments
-------------- --------------
<S> <C> <C>
Treasury Money Market Portfolio................ $ 14,371 $ (14,371)
U.S. Government Securities Portfolio........... 44,782 (44,782)
Intermediate Corporate Bond Portfolio.......... 9,844 (9,850)
Bond Index Portfolio........................... (53,038) 53,006
Government & Corporate Bond Portfolio.......... (316,381) 316,355
Short-Intermediate Municipal Portfolio......... -- (5)
National Municipal Bond Portfolio.............. 98 (133)
Balanced Portfolio............................. 13,266 (13,266)
Equity Income Portfolio........................ (2,120) 2,120
Growth & Income Equity Portfolio............... 562 (562)
Growth Equity Portfolio........................ 108,772 (109,595)
Small Cap Equity Portfolio..................... 401,224 (401,232)
Small Cap Equity Index Portfolio............... 13,332 --
International Equity Portfolio................. 758,624 (758,624)
</TABLE>
Federal income taxes:
It is the policy of each of the Portfolios to continue to qualify as a
regulated investment company by complying with the provisions available to
certain investment companies as defined in applicable sections of the
Internal Revenue Code, and to make distributions of net investment income
and net realized capital gains sufficient to relieve it from all, or
substantially all, federal income taxes.
For federal income tax purposes, the following Portfolios had capital loss
carryforwards as of November 30, 1999, which are available to offset future
capital gains, if any:
<TABLE>
<CAPTION>
Portfolio Amount Expires
--------- ---------- -------
<S> <C> <C>
Money Market Portfolio................................ $ 4,876 2003
==========
U.S. Government Securities Portfolio.................. $ 325,257 2004
279,506 2005
89,429 2006
444,492 2007
----------
$1,138,684
==========
Intermediate Corporate Bond Portfolio................. $ 270,126 2007
==========
Bond Index Portfolio.................................. $ 45,617 2007
==========
Government & Corporate Bond Portfolio................. $ 820,961 2007
==========
Short-Intermediate Municipal Portfolio................ $ 1,921 2007
==========
National Municipal Bond Portfolio..................... $ 343,363 2007
==========
</TABLE>
Organization costs:
The Portfolios bear all costs in connection with their organization,
including the fees and expenses of registering and qualifying shares for
distribution under federal and state securities laws. All such costs are
amortized using the straight-line method over a period of five years from
the date each Portfolio commenced operations: from February 10, 1997 for the
Intermediate Corporate Bond Portfolio and the Bond Index Portfolio, from
November 18, 1996 for the National Municipal Bond Portfolio, from
Continued
173
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
November 30, 1999
February 27, 1997 for the Equity Income Portfolio, and from May 1, 1997 for
the Equity Index Portfolio. As of November 30, 1999, all costs were fully
amortized for the Treasury Money Market, Money Market, Tax-Exempt Money
Market, U.S. Government Securities, Government & Corporate Bond, Short-
Intermediate Municipal, Missouri Tax-Exempt Bond, Balanced, Growth & Income
Equity, Growth Equity, Small Cap Equity and International Equity Portfolios.
On June 30, 1998, the Fund adopted Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities." Under the provisions of SOP
98-5, costs associated with organizing a portfolio which commences
operations subsequent to June 30, 1998 must be expensed as incurred and may
not be amortized over future periods. Accordingly, costs incurred in
connection with the organization of the Small Cap Equity Index Portfolio
were paid by the administrator. (BISYS Fund Services Ohio, Inc.)
Other:
Operating expenses of the Fund not directly attributable to a Portfolio or
to any class of shares of a Portfolio are prorated among the portfolios of
the Fund based on the relative net assets of each portfolio or another
appropriate basis. Operating expenses directly attributable to a Portfolio
or class are charged directly to that Portfolio's or class' operations. Fees
paid under either a Distribution and Services Plan or an Administrative
Services Plan are borne by the specific class of shares to which such a Plan
applies.
3.Shares of Common Stock
The Fund is authorized to issue five classes of shares in each Portfolio
(except as noted): Investor A Shares, Investor B Shares (except the Treasury
Money Market, Tax-Exempt Money Market, Intermediate Corporate Bond, Bond
Index, Short-Intermediate Municipal, Equity Index and Small Cap Equity Index
Portfolios), Trust Shares, Institutional Shares (except the Tax-Exempt Money
Market, Short-Intermediate Municipal, Missouri Tax-Exempt Bond and National
Municipal Bond Portfolios), and Trust II Shares (except the U.S. Government
Securities, Intermediate Corporate Bond, Bond Index, Government & Corporate
Bond, Short-Intermediate Municipal, Missouri Tax-Exempt Bond, National
Municipal Bond, Balanced, Equity Income, Equity Index, Growth & Income
Equity, Growth Equity, Small Cap Equity, Small Cap Equity Index and
International Equity Portfolios). Investor A Shares of the variable net
asset value portfolios are sold with front-end sales charges. Investor B
Shares of the variable net asset value portfolios and the Money Market
Portfolio may be subject to contingent deferred sales charges ("CDSC") on
redemption based on the lesser of the net asset value of the shares on the
redemption date or the original cost of the shares redeemed. The following
table sets forth the time schedule of redemptions of Investor B Shares
subject to CDSC:
<TABLE>
<CAPTION>
CDSC
(percentage of dollar
Number of Years amount subject
Elapsed Since Purchase to the charge)
---------------------- ---------------------
<S> <C>
One or less............................................ 5.0%
More than one, but less than two....................... 4.0%
Two, but less than three............................... 3.0%
Three, but less than four.............................. 3.0%
Four, but less than five............................... 2.0%
Five, and up to and including six...................... 1.0%
More than six.......................................... None
</TABLE>
Investor B Shares of the Money Market Portfolio are available for purchase
only by those investors participating in the Mercantile Asset Advisor
Program or through exchanges of Investor B Shares of the variable net asset
value portfolios.
Each class of shares in a Portfolio has identical rights and privileges
except with respect to the fees that may be paid by a class under either a
Distribution and Services Plan or an Administrative Services Plan, expenses
allocable exclusively to each class of shares, voting rights on matters
affecting a single class of shares, the exchange privilege of each class of
shares, and the automatic conversion of Investor B Shares of a Portfolio
into Investor A Shares of that Portfolio eight years after purchase.
4.Capital Share Transactions
As of November 30, 1999, the Fund's Articles of Incorporation authorize the
Board of Directors, in its discretion, to issue up to twenty billion full
and fractional shares of capital stock, $.001 par value per share, and to
classify or reclassify any unissued shares of the Fund into one or more
classes and to divide and classify shares of any class into one or more
series of such class. The Fund's shares are currently classified into twenty
classes of shares consisting of one or more series.
Continued
174
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
November 30, 1999
Shareholder transactions in the Portfolios were as follows:
<TABLE>
<CAPTION>
Treasury Money Market Money Market
Portfolio Portfolio
------------------------------ --------------------------------
For the For the For the For the
year ended year ended year ended year ended
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued................ $ 30,443,907 $ 48,161,504 $ 283,693,078 $ 369,131,165
Dividends reinvested... 872,425 585,498 10,526,552 8,108,346
Cost of shares
redeemed.............. (36,511,326) (31,490,665) (242,399,053) (338,433,452)
------------- --------------- --------------- ---------------
Investor A capital
transactions.......... $ (5,194,994) $ 17,256,337 $ 51,820,577 $ 38,806,059
------------- --------------- --------------- ---------------
Investor B Shares:
Proceeds from shares
issued................ $ -- $ -- $ 179,735 $ 28,315
Dividends reinvested... -- -- 2,595 2,973
Cost of shares
redeemed.............. -- -- (93,353) (19,653)
------------- --------------- --------------- ---------------
Investor B capital
transactions.......... $ -- $ -- $ 88,977 $ 11,635
------------- --------------- --------------- ---------------
Trust Shares:
Proceeds from shares
issued................ $ 876,646,783 $ 1,122,533,053 $ 2,336,460,126 $ 4,791,160,032
Dividends reinvested... 4,521,262 3,790,157 30,522,317 23,556,177
Cost of shares
redeemed.............. (929,695,038) (1,089,996,912) (2,453,643,058) (4,484,663,869)
Cost of shares
exchanged to Trust II
Class................. -- (74,019,033) -- (551,280,807)
------------- --------------- --------------- ---------------
Trust capital
transactions.......... $ (48,526,993) $ (37,692,735) $ (86,660,615) $ (221,228,467)
------------- --------------- --------------- ---------------
Institutional Shares:
Proceeds from shares
issued................ $ 385,016 $ 104,256 $ 132,547,410 $ 103,979,653
Dividends reinvested... -- -- 171,391 90,233
Cost of shares
redeemed.............. (559,162) (100,839) (125,166,745) (97,556,608)
------------- --------------- --------------- ---------------
Institutional capital
transactions.......... $ (174,146) $ 3,417 $ 7,552,056 $ 6,513,278
------------- --------------- --------------- ---------------
Trust II Shares:
Proceeds from shares
issued................ $ 382,045,888 $ 14,518,252 $ 1,694,221,061 $ 34,554,346
Proceeds from shares
exchanged from Trust
Class................. -- 74,019,033 -- 551,280,807
Cost of shares
redeemed.............. (375,986,113) (11,538,744) (1,632,122,813) (95,815,233)
------------- --------------- --------------- ---------------
Trust II capital
transactions.......... $ 6,059,775 $ 76,998,541 $ 62,098,248 $ 490,019,920
------------- --------------- --------------- ---------------
Total net increase
(decrease) from capital
transactions........... $ (47,836,358) $ 56,565,560 $ 34,899,243 $ 314,122,425
============= =============== =============== ===============
SHARE TRANSACTIONS:
Investor A Shares:
Issued................. 30,443,907 48,161,504 283,693,078 369,131,165
Reinvested............. 872,425 585,498 10,526,552 8,108,346
Redeemed............... (36,511,326) (31,490,665) (242,399,053) (338,433,452)
------------- --------------- --------------- ---------------
Change in Investor A
Shares................ (5,194,994) 17,256,337 51,820,577 38,806,059
------------- --------------- --------------- ---------------
Investor B Shares:
Issued................. -- -- 179,735 28,315
Reinvested............. -- -- 2,595 2,973
Redeemed............... -- -- (93,353) (19,653)
------------- --------------- --------------- ---------------
Change in Investor B
Shares................ -- -- 88,977 11,635
------------- --------------- --------------- ---------------
Trust Shares:
Issued................. 876,646,793 1,122,533,053 2,336,460,126 4,791,160,032
Reinvested............. 4,521,262 3,790,157 30,522,317 23,556,177
Redeemed............... (929,695,038) (1,089,996,912) (2,453,643,058) (4,484,663,869)
Exchanged to Trust II.. -- (74,019,033) -- (551,280,807)
------------- --------------- --------------- ---------------
Change in Trust
Shares................ (48,526,983) (37,692,735) (86,660,615) (221,228,467)
------------- --------------- --------------- ---------------
Institutional Shares:
Issued................. 385,016 104,256 132,547,543 103,979,653
Reinvested............. -- -- 171,392 90,233
Redeemed............... (559,162) (100,839) (125,166,745) (97,556,608)
------------- --------------- --------------- ---------------
Change in Institutional
Shares................ (174,146) 3,417 7,552,190 6,513,278
------------- --------------- --------------- ---------------
Trust II Shares:
Issued................. 382,045,888 14,518,252 1,694,221,061 34,554,346
Exchanged from Trust... -- 74,019,033 -- 551,280,807
Redeemed............... (375,986,113) (11,538,744) (1,632,122,813) (95,815,233)
------------- --------------- --------------- ---------------
Change in Trust II
Shares................ 6,059,775 76,998,541 62,098,248 490,019,920
------------- --------------- --------------- ---------------
Total net increase
(decrease) from share
transactions........... (47,836,348) 56,565,560 34,899,377 314,122,425
============= =============== =============== ===============
</TABLE>
Continued
175
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
November 30, 1999
<TABLE>
<CAPTION>
Tax-Exempt Money Market U.S. Government
Portfolio Securities Portfolio
---------------------------- --------------------------
For the For the For the For the
year ended year ended year ended year ended
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued................ $ 17,944,147 $ 12,090,297 $ 1,211,605 $ 598,045
Dividends reinvested... 305,450 377,754 205,148 216,677
Cost of shares
redeemed.............. (20,923,794) (14,276,326) (1,270,694) (1,384,902)
------------- ------------- ------------ ------------
Investor A capital
transactions.......... $ (2,674,197) $ (1,808,275) $ 146,059 $ (570,180)
------------- ------------- ------------ ------------
Investor B Shares:
Proceeds from shares
issued................ $ -- $ -- $ 151,752 $ 86,346
Dividends reinvested... -- -- 10,058 13,439
Cost of shares
redeemed.............. -- -- (19,888) (420,240)
------------- ------------- ------------ ------------
Investor B capital
transactions.......... $ -- $ -- $ 141,922 $ (320,455)
------------- ------------- ------------ ------------
Trust Shares:
Proceeds from shares
issued................ $ 103,788,947 $ 464,895,774 $ 26,458,097 $ 30,579,477
Dividends reinvested... 780,268 594,675 1,725,446 2,016,378
Cost of shares
redeemed.............. (103,695,404) (449,390,916) (45,843,109) (12,702,582)
Cost of shares
exchanged to Trust II
Class................. -- (122,075,517) -- --
------------- ------------- ------------ ------------
Trust capital
transactions.......... $ 873,811 $(105,975,984) $(17,659,566) $ 19,893,273
------------- ------------- ------------ ------------
Institutional Shares:
Proceeds from shares
issued................ $ -- $ -- $ 4,881,293 $ 914,079
Dividends reinvested... -- -- 307,605 350,232
Cost of shares
redeemed.............. -- -- (2,522,374) (2,247,540)
------------- ------------- ------------ ------------
Institutional capital
transactions.......... $ -- $ -- $ 2,666,524 $ (983,229)
------------- ------------- ------------ ------------
Trust II Shares:
Proceeds from shares
issued................ $ 225,115,901 $ 7,223,254 $ -- $ --
Proceeds from shares
exchanged from Trust
Class................. -- 122,075,517 -- --
Cost of shares
redeemed.............. (222,926,921) (7,188,947) -- --
------------- ------------- ------------ ------------
Trust II capital
transactions.......... $ 2,188,980 $ 122,109,824 $ -- $ --
------------- ------------- ------------ ------------
Total net increase
(decrease) from capital
transactions........... $ 388,594 $ 14,325,565 $(14,705,061) $ 18,019,409
============= ============= ============ ============
SHARE TRANSACTIONS:
Investor A Shares:
Issued................. 17,944,147 12,090,297 114,227 55,916
Reinvested............. 305,450 377,754 19,490 20,307
Redeemed............... (20,923,794) (14,276,326) (121,197) (130,027)
------------- ------------- ------------ ------------
Change in Investor A
Shares................ (2,674,197) (1,808,275) 12,520 (53,804)
------------- ------------- ------------ ------------
Investor B Shares:
Issued................. -- -- 14,272 8,112
Reinvested............. -- -- 958 1,262
Redeemed............... -- -- (1,909) (39,439)
------------- ------------- ------------ ------------
Change in Investor B
Shares................ -- -- 13,321 (30,065)
------------- ------------- ------------ ------------
Trust Shares:
Issued................. 103,788,947 464,895,774 2,514,836 2,865,536
Reinvested............. 780,268 594,675 163,563 188,932
Redeemed............... (103,695,404) (449,390,916) (4,392,152) (1,185,489)
Exchanged to Trust II.. -- (122,075,517) -- --
------------- ------------- ------------ ------------
Change in Trust
Shares................ 873,811 (105,975,984) (1,713,753) 1,868,979
------------- ------------- ------------ ------------
Institutional Shares:
Issued................. -- -- 469,739 85,774
Reinvested............. -- -- 29,315 32,938
Redeemed............... -- -- (239,886) (211,334)
------------- ------------- ------------ ------------
Change in Institutional
Shares................ -- -- 259,168 (92,622)
------------- ------------- ------------ ------------
Trust II Shares:
Issued................. 225,115,901 7,223,254 -- --
Exchanged from Trust... -- 122,075,517 -- --
Redeemed............... (222,926,921) (7,188,947) -- --
------------- ------------- ------------ ------------
Change in Trust II
Shares................ 2,188,980 122,109,824 -- --
------------- ------------- ------------ ------------
Total net increase
(decrease) from share
transactions........... 388,594 14,325,565 (1,428,744) 1,692,488
============= ============= ============ ============
</TABLE>
Continued
176
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
November 30, 1999
<TABLE>
<CAPTION>
Intermediate Corporate Bond Index
Bond Portfolio Portfolio
-------------------------- --------------------------
For the For the For the For the
year ended year ended year ended year ended
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued................ $ 346,722 $ 126,081 $ 1,690,114 $ 364,368
Dividends reinvested... 19,734 8,954 33,600 1,014
Cost of shares
redeemed.............. (183,899) (131,756) (929,824) (62,757)
------------ ----------- ----------- ------------
Investor A capital
transactions.......... $ 182,557 $ 3,279 $ 793,890 $ 302,625
------------ ----------- ----------- ------------
Trust Shares:
Proceeds from shares
issued................ $ 19,605,809 $15,273,048 $46,776,126 $ 43,217,137
Dividends reinvested... 427,501 226,772 568,030 194,002
Cost of shares
redeemed.............. (20,597,844) (5,668,388) (27,769,188) (16,708,602)
------------ ----------- ----------- ------------
Trust capital
transactions.......... $ (564,534) $ 9,831,432 $19,574,968 $ 26,702,537
------------ ----------- ----------- ------------
Institutional Shares:
Proceeds from shares
issued................ $ 20 $ 1,037,580 $18,928,304 $ 7,831,631
Dividends reinvested... 62,458 31,339 1,074,386 217,713
Cost of shares
redeemed.............. (112,143) -- (3,966,989) (1,189,468)
------------ ----------- ----------- ------------
Institutional capital
transactions.......... $ (49,665) $ 1,068,919 $16,035,701 $ 6,859,876
------------ ----------- ----------- ------------
Total net increase
(decrease) from capital
transactions........... $ (431,642) $10,903,630 $36,404,559 $ 33,865,038
============ =========== =========== ============
SHARE TRANSACTIONS:
Investor A Shares:
Issued................. 34,347 12,264 165,321 35,481
Reinvested............. 1,997 883 3,371 98
Redeemed............... (18,306) (12,956) (93,223) (6,103)
------------ ----------- ----------- ------------
Change in Investor A
Shares................ 18,038 191 75,469 29,476
------------ ----------- ----------- ------------
Trust Shares:
Issued................. 1,969,432 1,515,729 4,648,163 4,219,358
Reinvested............. 43,355 22,405 56,885 18,881
Redeemed............... (2,121,525) (559,371) (2,796,733) (1,627,721)
------------ ----------- ----------- ------------
Change in Trust
Shares................ (108,738) 978,763 1,908,315 2,610,518
------------ ----------- ----------- ------------
Institutional Shares:
Issued................. 2 103,447 1,845,607 765,633
Reinvested............. 6,289 3,075 107,301 21,111
Redeemed............... (11,328) -- (396,905) (116,316)
------------ ----------- ----------- ------------
Change in Institutional
Shares................ (5,037) 106,522 1,556,003 670,428
------------ ----------- ----------- ------------
Total net increase
(decrease) from share
transactions........... (95,737) 1,085,476 3,539,787 3,310,422
============ =========== =========== ============
</TABLE>
Continued
177
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
November 30, 1999
<TABLE>
<CAPTION>
Government & Corporate Short-Intermediate
Bond Portfolio Municipal Portfolio
-------------------------- --------------------------
For the For the For the For the
year ended year ended year ended year ended
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued................ $ 579,304 $ 1,073,322 $ 33,079 $ 91,194
Dividends reinvested... 247,252 195,042 543 695
Cost of shares
redeemed.............. (1,513,472) (1,272,958) (44,929) (76,439)
------------ ------------ ----------- -----------
Investor A capital
transactions.......... $ (686,916) $ (4,594) $ (11,307) $ 15,450
------------ ------------ ----------- -----------
Investor B Shares:
Proceeds from shares
issued................ $ 391,906 $ 263,150 $ -- $ --
Dividends reinvested... 40,550 23,945 -- --
Cost of shares
redeemed.............. (317,718) (192,748) -- --
------------ ------------ ----------- -----------
Investor B capital
transactions.......... $ 114,738 $ 94,347 $ -- $ --
------------ ------------ ----------- -----------
Trust Shares:
Proceeds from shares
issued................ $ 16,966,446 $ 24,828,565 $ 4,459,557 $17,180,260
Dividends reinvested... 5,442,614 4,210,194 38,600 41,199
Cost of shares
redeemed.............. (60,270,417) (29,074,053) (9,276,296) (5,386,222)
------------ ------------ ----------- -----------
Trust capital
transactions.......... $(37,861,357) $ (35,294) $(4,778,139) $11,835,237
------------ ------------ ----------- -----------
Institutional Shares:
Proceeds from shares
issued................ $ 2,446,371 $ 8,543,150 $ -- $ --
Dividends reinvested... 867,486 1,034,861 -- --
Cost of shares
redeemed.............. (18,511,446) (6,380,539) -- --
------------ ------------ ----------- -----------
Institutional capital
transactions.......... $(15,197,589) $ 3,197,472 $ -- $ --
------------ ------------ ----------- -----------
Total net increase
(decrease) from capital
transactions........... $(53,631,124) $ 3,251,931 $(4,789,446) $11,850,687
============ ============ =========== ===========
SHARE TRANSACTIONS:
Investor A Shares:
Issued................. 57,666 100,976 3,293 8,936
Reinvested............. 24,019 18,575 53 69
Redeemed............... (147,189) (121,166) (4,443) (7,537)
------------ ------------ ----------- -----------
Change in Investor A
Shares................ (65,504) (1,615) (1,097) 1,468
------------ ------------ ----------- -----------
Investor B Shares:
Issued................. 38,106 24,974 -- --
Reinvested............. 3,937 2,273 -- --
Redeemed............... (31,414) (18,261) -- --
------------ ------------ ----------- -----------
Change in Investor B
Shares................ 10,629 8,986 -- --
------------ ------------ ----------- -----------
Trust Shares:
Issued................. 1,668,841 2,368,897 440,029 1,690,577
Reinvested............. 527,726 400,135 3,809 4,053
Redeemed............... (6,020,087) (2,765,360) (920,729) (529,634)
------------ ------------ ----------- -----------
Change in Trust
Shares................ (3,823,520) 3,672 (476,891) 1,164,996
------------ ------------ ----------- -----------
Institutional Shares:
Issued................. 239,357 812,395 -- --
Reinvested............. 83,160 98,298 -- --
Redeemed............... (1,779,940) (606,407) -- --
------------ ------------ ----------- -----------
Change in Institutional
Shares................ (1,457,423) 304,286 -- --
------------ ------------ ----------- -----------
Total net increase
(decrease) from share
transactions........... (5,335,818) 315,329 (477,988) 1,166,464
============ ============ =========== ===========
</TABLE>
Continued
178
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
November 30, 1999
<TABLE>
<CAPTION>
Missouri Tax-Exempt National Municipal
Bond Portfolio Bond Portfolio
-------------------------- --------------------------
For the For the For the For the
year ended year ended year ended year ended
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued................ $ 2,825,509 $ 8,058,003 $ 2,101,921 $ 5,610,776
Dividends reinvested... 666,087 664,422 28,764 30,349
Cost of shares
redeemed.............. (4,348,245) (9,227,642) (1,548,428) (5,146,749)
------------ ------------ ------------ ------------
Investor A capital
transactions.......... $ (856,649) $ (505,217) $ 582,257 $ 494,376
------------ ------------ ------------ ------------
Investor B Shares:
Proceeds from shares
issued................ $ 1,418,456 $ 1,092,950 $ 409,172 $ 155,450
Dividends reinvested... 78,625 40,473 25,761 28,030
Cost of shares
redeemed.............. (239,483) (67,539) (123,041) (87,475)
------------ ------------ ------------ ------------
Investor B capital
transactions.......... $ 1,257,598 $ 1,065,884 $ 311,892 $ 96,005
------------ ------------ ------------ ------------
Trust Shares:
Proceeds from shares
issued................ $ 40,113,579 $ 29,963,656 $ 23,403,409 $ 50,829,327
Dividends reinvested... 297,076 293,425 65,959 66,825
Cost of shares
redeemed.............. (16,079,053) (12,739,018) (50,294,331) (32,039,465)
------------ ------------ ------------ ------------
Trust capital
transactions.......... $ 24,331,602 $ 17,518,063 $(26,824,963) $ 18,856,687
------------ ------------ ------------ ------------
Total net increase
(decrease) from capital
transactions........... $ 24,732,551 $ 18,078,730 $(25,930,814) $ 19,447,068
============ ============ ============ ============
SHARE TRANSACTIONS:
Investor A Shares:
Issued................. 237,056 670,226 210,237 546,540
Reinvested............. 56,396 55,450 2,917 3,011
Redeemed............... (371,114) (768,730) (158,981) (505,742)
------------ ------------ ------------ ------------
Change in Investor A
Shares................ (77,662) (43,054) 54,173 43,809
------------ ------------ ------------ ------------
Investor B Shares:
Issued................. 118,510 91,170 40,660 15,272
Reinvested............. 6,688 3,378 2,604 2,789
Redeemed............... (20,731) (5,627) (13,014) (8,630)
------------ ------------ ------------ ------------
Change in Investor B
Shares................ 104,467 88,921 30,250 9,431
------------ ------------ ------------ ------------
Trust Shares:
Issued................. 3,425,980 2,498,522 2,358,202 5,033,227
Reinvested............. 25,285 24,481 6,610 6,637
Redeemed............... (1,384,176) (1,061,071) (5,192,856) (3,162,200)
------------ ------------ ------------ ------------
Change in Trust
Shares................ 2,067,089 1,461,932 (2,828,044) 1,877,664
------------ ------------ ------------ ------------
Total net increase
(decrease) from share
transactions........... 2,093,894 1,507,799 (2,743,621) 1,930,904
============ ============ ============ ============
</TABLE>
Continued
179
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
November 30, 1999
<TABLE>
<CAPTION>
Balanced Equity Income
Portfolio Portfolio
-------------------------- --------------------------
For the For the For the For the
year ended year ended year ended year ended
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued................ $ 1,745,623 $ 1,952,086 $ 651,234 $ 1,761,480
Dividends reinvested... 956,559 1,321,383 242,076 18,088
Cost of shares
redeemed.............. (1,833,318) (2,087,639) (861,308) (250,017)
------------ ------------ ------------ ------------
Investor A capital
transactions.......... $ 868,864 $ 1,185,830 $ 32,002 $ 1,529,551
------------ ------------ ------------ ------------
Investor B Shares:
Proceeds from shares
issued................ $ 1,151,206 $ 896,972 $ 384,467 $ 390,433
Dividends reinvested... 75,247 63,058 95,427 11,692
Cost of shares
redeemed.............. (135,169) (168,036) (97,398) (1,176)
------------ ------------ ------------ ------------
Investor B capital
transactions.......... $ 1,091,284 $ 791,994 $ 382,496 $ 400,949
------------ ------------ ------------ ------------
Trust Shares:
Proceeds from shares
issued................ $ 6,929,227 $ 5,005,922 $ 38,630,573 $ 20,648,865
Dividends reinvested... 3,604,691 6,833,201 8,347,637 716,518
Cost of shares
redeemed.............. (18,438,984) (20,235,380) (35,989,585) (26,119,236)
------------ ------------ ------------ ------------
Trust capital
transactions.......... $ (7,905,066) $ (8,396,257) $ 10,988,625 $ (4,753,853)
------------ ------------ ------------ ------------
Institutional Shares:
Proceeds from shares
issued................ $ 16,249,818 $ 20,666,805 $ 98,332 $ 32,901
Dividends reinvested... 6,388,552 8,365,996 9,556 354
Cost of shares
redeemed.............. (37,201,074) (16,796,846) (37,129) (689)
------------ ------------ ------------ ------------
Institutional capital
transactions.......... $(14,562,704) $ 12,235,955 $ 70,759 $ 32,566
------------ ------------ ------------ ------------
Total net increase
(decrease) from capital
transactions........... $(20,507,622) $ 5,817,522 $ 11,473,882 $ (2,790,787)
============ ============ ============ ============
SHARE TRANSACTIONS:
Investor A Shares:
Issued................. 142,285 155,857 79,903 174,550
Reinvested............. 81,017 110,135 30,841 1,867
Redeemed............... (149,069) (170,222) (106,929) (24,476)
------------ ------------ ------------ ------------
Change in Investor A
Shares................ 74,233 95,770 3,815 151,941
------------ ------------ ------------ ------------
Investor B Shares:
Issued................. 95,495 71,467 46,893 38,340
Reinvested............. 6,433 5,311 12,178 1,215
Redeemed............... (11,491) (13,695) (11,874) (120)
------------ ------------ ------------ ------------
Change in Investor B
Shares................ 90,437 63,083 47,197 39,435
------------ ------------ ------------ ------------
Trust Shares:
Issued................. 563,040 405,688 5,817,239 2,045,276
Reinvested............. 304,797 569,093 1,064,662 74,222
Redeemed............... (1,504,806) (1,602,992) (4,428,499) (2,609,855)
------------ ------------ ------------ ------------
Change in Trust
Shares................ (636,969) (628,211) 2,453,402 (490,357)
------------ ------------ ------------ ------------
Institutional Shares:
Issued................. 1,319,890 1,641,322 11,894 3,338
Reinvested............. 543,741 699,538 1,213 37
Redeemed............... (3,014,109) (1,366,437) (4,437) (63)
------------ ------------ ------------ ------------
Change in Institutional
Shares................ (1,150,478) 974,423 8,670 3,312
------------ ------------ ------------ ------------
Total net increase
(decrease) from share
transactions........... (1,622,777) 505,065 2,513,084 (295,669)
============ ============ ============ ============
</TABLE>
Continued
180
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
November 30, 1999
<TABLE>
<CAPTION>
Equity Index Growth & Income Equity
Portfolio Portfolio
-------------------------- --------------------------
For the For the For the For the
year ended year ended year ended year ended
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued................ $ 2,449,563 $ 1,026,183 $ 5,528,602 $ 8,253,738
Dividends reinvested... 19,513 3,332 3,897,140 7,873,832
Cost of shares
redeemed.............. (295,082) (421,139) (9,590,735) (9,602,068)
----------- ----------- ------------ ------------
Investor A capital
transactions.......... $ 2,173,994 $ 608,376 $ (164,993) $ 6,525,502
----------- ----------- ------------ ------------
Investor B Shares:
Proceeds from shares
issued................ $ -- $ -- $ 1,664,116 $ 3,007,678
Dividends reinvested... -- -- 664,260 1,071,581
Cost of shares
redeemed.............. -- -- (1,695,227) (863,083)
----------- ----------- ------------ ------------
Investor B capital
transactions.......... $ -- $ -- $ 633,149 $ 3,216,176
----------- ----------- ------------ ------------
Trust Shares:
Proceeds from shares
issued................ $12,648,983 $11,679,817 $107,519,202 $ 33,917,244
Dividends reinvested... 946,828 429,831 16,387,558 32,021,641
Cost of shares
redeemed.............. (7,931,607) (1,325,214) (147,450,777) (61,216,142)
----------- ----------- ------------ ------------
Trust capital
transactions.......... $ 5,664,204 $10,784,434 $(23,544,017) $ 4,722,743
----------- ----------- ------------ ------------
Institutional Shares:
Proceeds from shares
issued................ $27,087,390 $12,290,722 $ 18,915,244 $ 23,093,110
Dividends reinvested... 259,925 36,633 8,791,810 16,261,081
Cost of shares
redeemed.............. (5,511,254) (2,130,758) (49,681,486) (16,890,600)
----------- ----------- ------------ ------------
Institutional capital
transactions.......... $21,836,061 $10,196,597 $(21,974,432) $ 22,463,591
----------- ----------- ------------ ------------
Total net increase
(decrease) from capital
transactions........... $29,674,259 $21,589,407 $(45,050,293) $ 36,928,012
=========== =========== ============ ============
SHARE TRANSACTIONS:
Investor A Shares:
Issued................. 151,894 76,360 291,432 436,393
Reinvested............. 1,314 257 223,012 439,721
Redeemed............... (18,215) (31,001) (495,216) (517,451)
----------- ----------- ------------ ------------
Change in Investor A
Shares................ 134,993 45,616 19,228 358,663
----------- ----------- ------------ ------------
Investor B Shares:
Issued................. -- -- 87,820 162,335
Reinvested............. -- -- 38,685 60,550
Redeemed............... -- -- (89,143) (47,550)
----------- ----------- ------------ ------------
Change in Investor B
Shares................ -- -- 37,362 175,335
----------- ----------- ------------ ------------
Trust Shares:
Issued................. 793,584 855,554 6,896,802 1,839,159
Reinvested............. 64,241 33,350 932,057 1,779,849
Redeemed............... (488,106) (98,535) (7,585,907) (3,254,921)
----------- ----------- ------------ ------------
Change in Trust
Shares................ 369,719 790,369 242,952 364,087
----------- ----------- ------------ ------------
Institutional Shares:
Issued................. 1,731,156 902,102 974,219 1,227,134
Reinvested............. 17,400 2,765 503,007 908,077
Redeemed............... (347,380) (152,943) (2,511,841) (915,773)
----------- ----------- ------------ ------------
Change in Institutional
Shares................ 1,401,176 751,924 (1,034,615) 1,219,438
----------- ----------- ------------ ------------
Total net increase
(decrease) from share
transactions........... 1,905,888 1,587,909 (735,073) 2,117,523
=========== =========== ============ ============
</TABLE>
Continued
181
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
November 30, 1999
<TABLE>
<CAPTION>
Growth Equity Small Cap Equity
Portfolio Portfolio
-------------------------- --------------------------
For the For the For the For the
year ended year ended year ended year ended
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued................ $ 4,717,061 $ 1,408,296 $ 748,304 $ 62,836,410
Dividends reinvested... 435,801 670 48,002 1,205,204
Cost of shares
redeemed.............. (2,135,589) (851,631) (5,009,993) (63,487,066)
------------ ------------ ------------ ------------
Investor A capital
transactions.......... $ 3,017,273 $ 557,335 $ (4,213,687) $ 554,548
------------ ------------ ------------ ------------
Investor B Shares:
Proceeds from shares
issued................ $ 1,653,080 $ 233,145 $ 75,079 $ 270,135
Dividends reinvested... 23,329 -- 5,404 121,308
Cost of shares
redeemed.............. (114,577) (672) (442,729) (238,491)
------------ ------------ ------------ ------------
Investor B capital
transactions.......... $ 1,561,832 $ 232,473 $ (362,246) $ 152,952
------------ ------------ ------------ ------------
Trust Shares:
Proceeds from shares
issued................ $ 22,148,211 $ 30,607,289 $ 24,124,376 $ 33,509,356
Dividends reinvested... 3,160,252 3,491 459,050 14,925,021
Cost of shares
redeemed.............. (22,946,327) (30,091,260) (60,237,058) (84,328,666)
------------ ------------ ------------ ------------
Trust capital
transactions.......... $ 2,362,136 $ 519,520 $(35,653,632) $(35,894,289)
------------ ------------ ------------ ------------
Institutional Shares:
Proceeds from shares
issued................ $ 333,697 $ 7,252,607 $ 2,214,047 $ 6,699,479
Dividends reinvested... 789,128 2,352 108,100 2,804,840
Cost of shares
redeemed.............. (8,545,317) (605,305) (26,972,870) (11,894,695)
------------ ------------ ------------ ------------
Institutional capital
transactions.......... $ (7,422,492) $ 6,649,654 $(24,650,723) $ (2,390,376)
------------ ------------ ------------ ------------
Total net increase
(decrease) from capital
transactions........... $ (481,251) $ 7,958,982 $(64,880,288) $(37,577,165)
============ ============ ============ ============
SHARE TRANSACTIONS:
Investor A Shares:
Issued................. 232,201 76,996 60,890 4,479,389
Reinvested............. 24,606 40 4,185 86,209
Redeemed............... (106,518) (47,765) (401,458) (4,532,914)
------------ ------------ ------------ ------------
Change in Investor A
Shares................ 150,289 29,271 (336,383) 32,684
------------ ------------ ------------ ------------
Investor B Shares:
Issued................. 81,971 12,745 6,078 19,015
Reinvested............. 1,326 -- 485 8,861
Redeemed............... (5,590) (12) (36,262) (18,329)
------------ ------------ ------------ ------------
Change in Investor B
Shares................ 77,707 12,733 (29,699) 9,547
------------ ------------ ------------ ------------
Trust Shares:
Issued................. 1,701,090 1,790,724 1,863,316 2,367,416
Reinvested............. 177,900 209 39,505 1,057,013
Redeemed............... (1,113,506) (1,667,394) (4,751,927) (6,589,617)
------------ ------------ ------------ ------------
Change in Trust
Shares................ 765,484 123,539 (2,849,106) (3,165,188)
------------ ------------ ------------ ------------
Institutional Shares:
Issued................. 17,111 420,420 177,910 497,497
Reinvested............. 44,583 141 9,458 201,352
Redeemed............... (442,191) (32,897) (2,128,233) (875,928)
------------ ------------ ------------ ------------
Change in Institutional
Shares................ (380,497) 387,664 (1,940,865) (177,079)
------------ ------------ ------------ ------------
Total net increase
(decrease) from share
transactions........... 612,983 553,207 (5,156,053) (3,300,036)
============ ============ ============ ============
</TABLE>
Continued
182
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
November 30, 1999
<TABLE>
<CAPTION>
Small Cap Equity Index International Equity
Portfolio Portfolio
---------------------- --------------------------
For the For the For the
period ended November year ended year ended
30, November, 30, November 30,
1999 (a) 1999 1998
---------------------- ------------- ------------
<S> <C> <C> <C>
CAPITAL TRANSACTIONS:
Investor A Shares:
Proceeds from shares
issued................... $ 140,184 $ 372,755 $ 669,346
Dividends reinvested...... 6 179,908 115,278
Cost of shares redeemed... (10,388) (637,040) (793,880)
------------ ----------- ------------
Investor A capital
transactions............. $ 129,802 $ (84,377) $ (9,256)
------------ ----------- ------------
Investor B Shares:
Proceeds from shares
issued................... $ -- $ 96,866 $ 82,490
Dividends reinvested...... -- 34,541 21,431
Cost of shares redeemed... -- (147,227) (103,597)
------------ ----------- ------------
Investor B capital
transactions............. $ -- $ (15,820) $ 324
------------ ----------- ------------
Trust Shares:
Proceeds from shares
issued................... $ 42,758,866 $19,315,911 $ 9,713,711
Dividends reinvested...... 12,647 1,910,107 1,287,283
Cost of shares redeemed... (210,866) (7,658,610) (11,380,648)
------------ ----------- ------------
Trust capital
transactions............. $ 42,560,647 $13,567,408 $ (379,654)
------------ ----------- ------------
Institutional Shares:
Proceeds from shares
issued................... $ 29,376,635 $ 2,901,231 $ 1,608,783
Dividends reinvested...... 5,933 487,089 284,724
Cost of shares redeemed... (14,109,032) (2,626,463) (1,367,826)
------------ ----------- ------------
Institutional capital
transactions............. $ 15,273,536 $ 761,857 $ 525,681
------------ ----------- ------------
Total net increase from
capital transactions...... $ 57,963,985 $14,229,068 $ 137,095
============ =========== ============
SHARE TRANSACTIONS:
Investor A Shares:
Issued.................... 14,234 26,524 53,156
Reinvested................ 1 14,633 9,678
Redeemed.................. (1,038) (47,451) (63,267)
------------ ----------- ------------
Change in Investor A
Shares................... 13,197 (6,294) (433)
------------ ----------- ------------
Investor B Shares:
Issued.................... -- 7,157 6,571
Reinvested................ -- 2,891 1,838
Redeemed.................. -- (10,913) (8,070)
------------ ----------- ------------
Change in Investor B
Shares................... -- (865) 339
------------ ----------- ------------
Trust Shares:
Issued.................... 4,466,244 1,262,038 735,639
Reinvested................ 1,376 153,250 106,889
Redeemed.................. (21,092) (555,023) (867,651)
------------ ----------- ------------
Change in Trust Shares.... 4,446,528 860,265 (25,123)
------------ ----------- ------------
Institutional Shares:
Issued.................... 2,968,898 208,496 123,011
Reinvested................ 646 39,662 23,946
Redeemed.................. (1,499,038) (191,272) (106,702)
------------ ----------- ------------
Change in Institutional
Shares................... 1,470,506 56,886 40,255
------------ ----------- ------------
Total net increase from
share transactions........ 5,930,231 909,992 15,038
============ =========== ============
</TABLE>
(a) For the period from December 30, 1998 (initial public investment) through
November 30, 1999.
Continued
183
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
November 30, 1999
5.Purchases and Sales of Investment Securities
Purchases and sales of securities (excluding short-term securities) during
the period ended November 30, 1999 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Purchases Sales
--------- --------
<S> <C> <C>
U.S. Government Securities Portfolio..................... $ 27,211 $ 41,886
Intermediate Corporate Bond Portfolio.................... 15,119 14,828
Bond Index Portfolio..................................... 76,306 42,483
Government & Corporate Bond Portfolio.................... 63,782 106,837
Short-Intermediate Municipal Portfolio................... -- 3,299
Missouri Tax-Exempt Bond Portfolio....................... 28,542 919
National Municipal Bond Portfolio........................ -- 29,425
Balanced Portfolio....................................... 38,384 65,811
Equity Income Portfolio.................................. 87,100 102,875
Equity Index Portfolio................................... 54,224 25,243
Growth & Income Equity Portfolio......................... 280,645 376,342
Growth Equity Portfolio.................................. 22,274 31,896
Small Cap Equity Portfolio............................... 87,777 147,491
Small Cap Equity Index Portfolio......................... 68,257 11,834
International Equity Portfolio........................... 71,495 89,787
</TABLE>
6.Related Party Transactions
Investment advisory services are provided to the Fund by Mississippi Valley
Advisors Inc. ("MVA"), a wholly-owned subsidiary of Mercantile Trust Company
National Association ("Mercantile") and formerly an indirect wholly-owned
subsidiary of Mercantile Bancorporation, Inc. On September 20, 1999,
Mercantile Bancorporation, Inc. was merged into Firstar Corporation. As a
result of this merger, MVA is now an indirect wholly-owned subsidiary of
Firstar Corporation. Under the terms of its investment advisory agreement,
MVA is entitled to receive fees from each Portfolio based on a percentage of
the average daily net assets of that Portfolio. Mercantile also serves as
custodian for the Fund. Under the terms of the custodian agreement,
Mercantile receives fees computed on the average daily net assets of each
Portfolio at an annual rate of 0.02% (0.0125% prior to February 1, 1999) for
the Treasury Money Market, Money Market and Tax-Exempt Money Market
Portfolios and at an annual rate of 0.05% (0.03% prior to February 1, 1999)
for the U.S. Government Securities, the Intermediate Corporate Bond, Bond
Index, Government & Corporate Bond, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond, National Municipal Bond, Balanced, Equity Income, Equity
Index, Growth & Income Equity, Growth Equity, Small Cap Equity and Small Cap
Equity Index Portfolios and at an annual rate of 0.19% of the first $50
million of the International Equity Portfolio's average daily net assets,
0.175% of the next $50 million of average daily net assets, 0.15% of the
next $150 million of average daily net assets, and 0.125% of average daily
net assets over $250 million (0.17%, 0.155%, 0.13% and 0.105% respectively,
prior to February 1, 1999).
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS")
is an Ohio limited partnership. BISYS Fund Services Ohio, Inc. ("BISYS
Ohio") and BISYS are subsidiaries of The BISYS Group, Inc.
BISYS Ohio, with whom certain officers of the Fund are affiliated, serves
the Fund as administrator. Such officers are paid no fees directly by the
Portfolios for serving as officers of the Fund. Under the terms of the
administration agreement, BISYS Ohio receives fees computed at an annual
rate of 0.20% (0.10% for the Tax-Exempt Money Market Portfolio) of the
average daily net assets of each Portfolio. BISYS Ohio also serves as
transfer agent to the Fund. BISYS serves as the Fund's distributor and is
entitled to receive commissions on sales of Investor A Shares and Investor B
Shares of the variable net asset value portfolios. For the period ended
November 30, 1999, BISYS received approximately $427,342 from commissions
earned on sales of Investor A Shares and $262,402 from commissions earned on
redemptions of Investor B Shares. BISYS reallowed $629,749 to dealers of the
Fund's shares.
With respect to Investor A Shares of the Portfolios, the Fund has adopted a
Distribution and Services Plan (the "Plan") pursuant to Rule 12b-1 under the
1940 Act. Under the Plan, each Portfolio may pay (i) up to an annual rate of
0.10% of the average daily net assets of each Portfolio's outstanding
Investor A Shares to BISYS or another organization for distribution services
performed and expenses assumed relating to the Portfolio's Investor A Shares
and (ii) up to an annual rate of 0.20% (0.15% for the money market
portfolios) of the average daily net assets of each Portfolio's outstanding
Investor A Shares to broker-dealers and other organizations for shareholder
administrative services provided pursuant to servicing agreements under the
Plan.
Continued
184
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
November 30, 1999
Similarly, with respect to Investor B Shares, the Fund has adopted a
Distribution and Services Plan (the "Plan B") pursuant to Rule 12b-1 under
the 1940 Act. Under Plan B, a Portfolio may pay (i) up to an annual rate of
0.75% of the average daily net assets of the Portfolio's outstanding
Investor B Shares to BISYS or another organization for distribution services
performed and expenses assumed relating to the Portfolio's Investor B Shares
and (ii) up to an annual rate of 0.25% of the average daily net assets of
the Portfolio's Investor B Shares to broker-dealers and other organizations
for shareholder administrative services provided pursuant to servicing
agreements under Plan B.
With respect to Trust and Institutional Shares of the Portfolios, the Fund
has adopted separate Administrative Services Plans pursuant to which a
Portfolio may pay banks and other financial institutions, which have agreed
to provide certain shareholder administrative services for their clients or
account holders, servicing fees of up to an annual rate of 0.30% (0.25% for
the money market portfolios) of the average daily net assets of the
Portfolio's outstanding Trust or Institutional Shares, respectively.
Fees may be voluntarily reduced to assist the Portfolios in maintaining more
competitive expense ratios. Information regarding fee reduction transactions
is as follows for the period ended November 30, 1999:
<TABLE>
<CAPTION>
Administrative
Services
Investment Advisory Administration Fees -- Trust Custody
Fees Fees Shares Fees
--------------------- -------------- -------------- ----------
Annual fee
before
voluntary Voluntary Voluntary
fee Fee Voluntary Voluntary Fee
reductions Reductions Fee Reductions Fee Reductions Reductions
---------- ---------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Treasury Money Market
Portfolio.............. 0.40% $159,812 $ 288,680 $ -- $ --
Money Market Portfolio.. 0.40% 762,438 1,452,668 -- --
Tax-Exempt Money Market
Portfolio.............. 0.40% 89,324 -- -- --
U.S. Government
Securities Portfolio... 0.45% -- 106,576 285,780 8,771
Intermediate Corporate
Bond Portfolio......... 0.55% -- 60,005 175,579 --
Bond Index Portfolio.... 0.30% -- 198,939 534,283 --
Government & Corporate
Bond Portfolio......... 0.45% -- 176,846 492,185 14,334
Short-Intermediate
Municipal Portfolio.... 0.55% -- 40,520 121,496 --
Missouri Tax-Exempt Bond
Portfolio.............. 0.45% -- 130,226 311,235 10,948
National Municipal Bond
Portfolio.............. 0.55% -- 366,848 1,092,983 23,980
Balanced Portfolio...... 0.75% -- 117,873 121,416 --
Equity Income
Portfolio.............. 0.75% -- 110,763 324,829 --
Equity Index Portfolio.. 0.30% -- 91,964 181,936 --
Growth & Income Equity
Portfolio.............. 0.55% -- 485,620 957,193 80,299
Growth Equity
Portfolio.............. 0.75% -- 105,218 287,804 --
Small Cap Equity
Portfolio.............. 0.75% -- 125,710 319,053 9,730
Small Cap Equity Index
Portfolio.............. 0.40% 22,754 29,759 46,955 --
International Equity
Portfolio.............. 1.00% 1,033 78,664 196,791 71,962
</TABLE>
Additionally, BISYS voluntarily waived distribution and services fees for
Investor A Shares in the amount of $11 for the Short-Intermediate Municipal
Portfolio, $23,102 for the Missouri Tax-Exempt Bond Portfolio and $1,752 for
the National Municipal Bond Portfolio.
Continued
185
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
November 30, 1999
7.Concentration of Credit Risk
The Missouri Tax-Exempt Bond Portfolio invests a substantial proportion of
its assets in Municipal Obligations issued by the State of Missouri and its
political subdivisions, agencies and public authorities. The Portfolio is
more susceptible to factors adversely affecting issuers of Missouri
Municipal Obligations than a portfolio that is not concentrated in these
issuers to the same extent.
The Tax-Exempt Money Market Portfolio, Short-Intermediate Municipal
Portfolio, Missouri Tax-Exempt Bond Portfolio and National Municipal Bond
Portfolio had the following concentrations by municipal funding source at
November 30, 1999 (as a percentage of total investments):
<TABLE>
<CAPTION>
Short- Missouri National
Tax-Exempt Intermediate Tax-Exempt Municipal
Money Market Municipal Bond Bond
Portfolio Portfolio Portfolio Portfolio
------------ ------------ ---------- ---------
<S> <C> <C> <C> <C>
Airport....................... 12.32% -- -- --
Bond Bank..................... -- 2.98% -- --
Commercial Paper.............. 8.06% -- -- --
Development................... 9.14% -- -- --
Education..................... 1.16% 1.39% 4.06% 2.49%
Facilities.................... -- 6.53% 5.92% 2.14%
General....................... -- -- -- 3.02%
General Obligation............ 14.94% 28.36% 20.86% 44.40%
Higher Education.............. 7.25% 5.38% 8.48% 4.28%
Investment Companies.......... 2.22% 2.05% 3.99% 1.07%
Medical....................... 12.61% 8.03% 23.36% 5.40%
Multifamily Housing........... -- -- 1.67% --
Nursing Homes................. -- -- 0.64% --
Pollution Control............. 26.91% -- 7.06% 3.13%
Power......................... -- 3.05% 1.44% 4.73%
School District............... 1.74% 19.93% 12.97% 8.42%
Single Family Housing......... -- -- 0.63% 0.31%
Student Loan.................. -- -- 0.76% --
Transportation................ 1.27% 13.24% -- 7.73%
Utilities..................... -- 5.17% 1.54% 10.15%
Water......................... 2.38% 3.89% 6.62% 2.73%
------ ------ ------ ------
100.00% 100.00% 100.00% 100.00%
====== ====== ====== ======
</TABLE>
Continued
186
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Notes to Financial Statements, Continued
November 30, 1999
8.Federal Income Tax Information (Unaudited)
During the year ended November 30, 1999, the Portfolios declared long-term
capital gain (20%) distributions in the following amounts.
<TABLE>
<S> <C>
Intermediate Corporate Bond Portfolio........................... $ 55,441
Bond Index Portfolio............................................ 836,338
Government & Corporate Bond Portfolio........................... 1,748,798
Short-Intermediate Municipal Portfolio.......................... 7,440
Missouri Tax-Exempt Bond Portfolio.............................. 163,029
National Municipal Bond Portfolio............................... 3,468,063
Balanced Portfolio.............................................. 7,251,237
Equity Income Portfolio......................................... 24,911,976
Equity Index Portfolio.......................................... 185,541
Growth & Income Equity Portfolio................................ 35,601,563
Growth Equity Portfolio......................................... 9,384,522
Small Cap Equity Portfolio...................................... 708,775
International Equity Portfolio.................................. 4,056,600
For the taxable year ended November 30, 1999, the following percentages of
income dividends paid by the Portfolios qualify for the dividends received
deduction available to corporations:
<CAPTION>
Qualified
Dividend
Income
-----------
<S> <C>
Balanced Portfolio.............................................. 18.35%
Equity Income Portfolio......................................... 75.94%
Equity Index Portfolio.......................................... 79.86%
Growth & Income Equity Portfolio................................ 80.65%
Growth Equity Portfolio......................................... 67.74%
Small Cap Equity Index Portfolio................................ 27.14%
During the year ended November 30, 1999, the following Portfolios declared
tax-exempt income in the following amounts:
Tax-Exempt Money Market Portfolio............................... $ 4,425,431
Short-Intermediate Municipal Bond Portfolio..................... 1,505,780
Missouri Tax-Exempt Portfolio................................... 5,726,736
National Municipal Bond Portfolio............................... 16,105,339
</TABLE>
9.Subsequent Event--Line of Credit (Unaudited)
The Portfolios and other affiliated funds participate in a $140 million
unsecured line of credit provided by a syndicate of banks pursuant to a
credit agreement dated as of December 29, 1999. Borrowings may be made under
the credit agreement only for temporary or emergency purposes, such as the
repurchase or redemption of shares of the Portfolios. Interest is charged to
each Portfolio, based on its borrowings, at a rate per annum equal to the
Federal Funds Rate (as defined in the credit agreement) plus 0.50%. In
addition, a commitment fee at the rate of 0.10% per annum, based on the
average daily unused portion of the line of credit, is allocated among the
Portfolios and the other participating funds at the end of each calendar
quarter.
10.Subsequent Event--Change in Certain Service Providers (Unaudited)
Effective January 1, 2000, BISYS Ohio and Firstar Mutual Fund Services, LLC
("FMFS"), an affiliate of Firstar Corporation, serve the Portfolios as co-
administrators. Under the terms of the co-administration agreement, BISYS
Ohio and FMFS jointly receive fees computed at an annual rate of 0.20%
(0.10% with respect to the Tax-Exempt Money Market Portfolio) of the average
daily net assets of each Portfolio. In addition, at a meeting held on
January 18, 2000, the Board of Directors of the Fund approved an agreement
whereby FMFS would replace BISYS Ohio as the Portfolios' transfer agent.
This change in transfer agent is expected to occur on or about March 20,
2000.
187
<PAGE>
Independent Auditors' Report
The Shareholders and Board of Directors of
Mercantile Mutual Funds, Inc.:
We have audited the accompanying statements of assets and liabilities of
Mercantile Mutual Funds, Inc.--Treasury Money Market Portfolio, Money Market
Portfolio, Tax-Exempt Money Market Portfolio, U.S. Government Securities
Portfolio, Intermediate Corporate Bond Portfolio, Bond Index Portfolio,
Government & Corporate Bond Portfolio, Short-Intermediate Municipal Portfolio,
Missouri Tax-Exempt Bond Portfolio, National Municipal Bond Portfolio,
Balanced Portfolio, Equity Income Portfolio, Equity Index Portfolio, Growth &
Income Equity Portfolio, Growth Equity Portfolio, Small Cap Equity Portfolio,
Small Cap Equity Index Portfolio and International Equity Portfolio, including
the schedules of portfolio investments, as of November 30, 1999, and the
related statements of operations, statements of changes in net assets and the
financial highlights for each of the periods indicated herein. These financial
statements and the financial highlights are the responsibility of Mercantile
Mutual Funds, Inc.'s management. Our responsibility is to express an opinion
on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included verification of securities
owned as of November 30, 1999, by examination, correspondence with brokers and
other appropriate audit procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the aforementioned portfolios comprising the Mercantile Mutual Funds, Inc.
at November 30, 1999, the results of their operations, the changes in their
net assets and the financial highlights for each of the periods indicated
herein, in conformity with generally accepted accounting principles.
KPMG LLP
Columbus, Ohio
January 21, 2000
188
<PAGE>
INVESTMENT ADVISER
Mississippi Valley Advisors Inc.
One Mercantile Center
Seventh & Washington Streets
St. Louis, Missouri 63101
DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
AUDITORS
KPMG 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
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219-3035
This report is submitted for the general information of the shareholders of the
Mercantile Mutual Funds, Inc. It is not authorized for distribution to
prospective investors unless accompanied or preceded by effective prospectuses
for the Funds, which contain information concerning the Funds' investment
policies and expenses as well as other pertinent information.
1/00
MERCANTILE
