<PAGE>
MONITOR FUNDS ANNUAL REPORT
May 31, 1998
TRUST SHARES AND INVESTMENT SHARES
*Monitor Michigan Tax-Free Fund
*Monitor Intermediate Government Income Fund
[GRAPHIC & LOGO OF MONITOR FUNDS]
<PAGE>
Message from the Investment Manager
Dear Shareholder,
I am pleased to present the Annual Report for The Monitor Michigan Tax-Free
Fund and The Monitor Intermediate Government Income Fund (formerly known as FMB
Michigan Tax-Free Bond Fund and FMB Intermediate Government Income Fund) for
the period ended May 31, 1998. Normally, at this time, you would be receiving a
semi-annual report, but for financial reporting purposes, the fiscal year-end
for these Funds was changed to May 31, 1998. Later in the summer, you will
receive a June 30, 1998 semi-annual report which will include all eleven
Monitor Funds. The format of this report is designed to provide you with easy
access to the information which is important to your financial decisions. The
"Management Discussion and Analysis" section is the prelude to this report, and
features comments by the Funds' investment manager. Following the "Management
Discussion and Analysis" are complete listings of the portfolio holdings and
the comprehensive financial statements and highlights.
During the first half of 1998, we saw the Treasury market trading in a narrow
range, with the 30 year bond trading at a high of 6.07% to a low of 5.80%. The
Treasury market started to rally sharply toward the end of May on flight-to-
quality buying brought on by sharp drops in Asian currency valuations and
downturns in the global equity markets. This trend could continue through the
second half of 1998. The municipal market appears to be held hostage to the
trends exhibited in the Treasury market, but may offer value for investors
compared to Treasuries.
It is with great pleasure that I report the successful completion of the
reorganization of The FMB Funds into The Monitor Funds which took place in late
March and early April of this year. We welcome you as an investor in The
Monitor Funds and we invite you to take a look at the complete array of our
funds, including three money market funds; two equity funds; and six fixed
income funds. Please call MONITORdirect at 1-800-253-0412 for a prospectus. As
with all mutual funds, read the prospectus carefully before investing.
On behalf of The Monitor Funds and The Huntington National Bank, I thank you
for your investment. We are pleased that you have chosen us to help you manage
your financial goals.
LOGO
/s/ Richard W. Stenberg
Richard W. Stenberg
Senior Vice President, Private Financial Group
The Huntington National Bank
July 17, 1998
1
<PAGE>
Michigan Tax-Free Fund As of 5/31/98
MANAGEMENT DISCUSSION AND ANALYSIS
Duane Carpenter, portfolio manager, is an Assistant Vice President of the
Trust division of The Huntington National Bank, and is responsible for the
investment management activities of the Monitor Michigan Tax-Free Fund and the
Monitor Intermediate Government Income Fund. Duane is a graduate of Hope
College in Holland, Michigan. Here are Duane's comments on the Monitor Michigan
Tax-Free Fund (the Fund):
"During the last six months, the U.S. Treasury yield curve continued to
flatten while rates declined 25 to 30 basis points. As of May 29, 1998, there
was only a 3 basis points increase between the two year and the ten year
Treasury issues. However, the Michigan municipal market continues to offer an
increase of 110 basis points over the same part of the curve. The supply of new
issues has kept yields of Michigan municipals from declining significantly,
which makes them more attractive on a taxable equivalent basis.
The Fund performed well against its benchmarks with a total return of 2.86%
(Trust Shares); and 2.75% (Investment Shares) for the six-month period ended
May 31, 1998, as compared to 2.82% for the Lehman 5-Year Municipal Bond Index,
and 3.29% for the Lehman 7-Year Municipal Bond Index.
Our current strategy is focused on maintaining the average maturity near the
short end of our stated target range of five to fifteen years. We see value for
new purchases in the 10-15 year area, with tax-exempt yields between 80% to 90%
of U.S. Treasury yields."
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE MONITOR
MICHIGAN TAX-FREE FUND, TRUST SHARES OF INVESTMENT SHARES, VERSUS THE LEHMAN
5-YEAR MUNICIPAL BOND INDEX (L5MB), AND THE
LEHMAN 7 YEAR MUNICIPAL BOND INDEX(L7MB)+
MONITOR MICHIGAN TAX-FREE BOND FUND, TRUST CLASS
Dec 91 10000
Nov 92 10636
Nov 93 11543
Nov 94 11372
Nov 95 12875
Nov 96 13490
Nov 97 14263
May 98 14671
MONITOR MICHIGAN TAX-FREE BOND FUND, INVESTMENT CLASS
Dec 91 9525
Nov 92 10118
Nov 93 10982
Nov 94 10819
Nov 95 12248
Nov 96 12813
Nov 97 13514
May 98 13885
LEHMAN 5-YEAR MUNICIPAL BOND INDEX
Dec 91 10000
Nov 92 10679
Nov 93 11530
Nov 94 11391
Nov 95 12793
Nov 96 13430
Nov 97 14138
May 98 14537
LEHMAN 7-YEAR MUNICIPAL BOND INDEX
Dec 91 10000
Nov 92 10718
Nov 93 11717
Nov 94 11427
Nov 95 13175
Nov 96 13886
Nov 97 14706
May 98 15190
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so that when shares are redeemed,
they may be worth or less than their original cost. Mutual funds are not
obligations of or guaranteed by any bank and are not federally insured.
+The L5MB and the L7MB have been adjusted to reflect reinvestment of dividends
on securities in the index. The L5MB and the L7MB are not adjusted to reflect
sales loads, expenses, or other fees that the Securities and Exchange
Commission requires to be reflected in the Fund's performance. These indices
are unmanaged.
The performance of the graph begins on 12/31/91. Effective April 3, 1998, the
Monitor Michigan Tax-Free Fund became the successor by reorganization to the
FMB Michigan Tax-Free Bond Fund.
* The Fund's performance assumes the reinvestment of all dividends and
distributions.
** Represents a hypothetical investment of $10,000 in the Fund after deducting
the sales load of 4.75% which was in effect as of 12/31/91 ($10,000 investment
minus $475 sales load = $9,525). The Fund's performance assumes the
reinvestment of all dividends and distributions. Beginning April 6, 1998 the
current sales load of 2.00% has been waived. The Distributor can modify or
terminate this voluntary waiver at any time at its sole discretion.
2
<PAGE>
Intermediate Government Income Fund As of 5/31/98
MANAGEMENT DISCUSSION AND ANALYSIS
Duane Carpenter, portfolio manager, is an Assistant Vice President of the
Trust division of The Huntington National Bank, and is responsible for the
investment management activities of the Monitor Michigan Tax-Free Fund and the
Monitor Intermediate Government Income Fund. Duane is a graduate of Hope
College in Holland, Michigan. Here are Duane's comments on the Monitor
Intermediate Government Income Fund (the Fund):
"The total return of the Fund for the six-month period ended May 31, 1998
was 3.33% (Trust Shares); and 3.31% (Investment Shares) as compared to 3.63%
for its benchmark, the Lehman Intermediate Government/Corporate Bond Index.
Lower inflation and concerns over the economic crisis in Asia have caused
taxable interest rates to decline over the last six months, while the Federal
Reserve has held short term rates steady at 5.50%. With a relatively flat
yield curve, there is not much yield incentive to extend the average maturity
of the portfolio.
The decline in rates caused some of our mortgage-backed issues to prepay
more quickly, and increased the likelihood that our callable issues would be
called prior to maturity. This activity has shortened the average maturity of
the Fund. Our current strategy is focused on maintaining our average maturity
near the short end of our stated target range of three to ten years. This will
allow the Fund to increase in value should rates continue to decline, but will
limit the negative effect on the Fund's net asset value should rates rebound
in the second half of the year."
COMPARISONS OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE MONITOR
INTERMEDIATE GOV'T INCOME FUND, TRUST SHARES OR INVESTMENT SHARES,
VERSUS THE LEHMAN INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX (LIGC)+
MONITOR INTERMEDIATE GOV'T. INCOME FUND, TRUST CLASS
Dec 91 10000
Nov 92 10519
Nov 93 11507
Nov 94 11269
Nov 95 12693
Nov 96 13324
Nov 97 14160
May 98 14631
MONITOR INTERMEDIATE GOV'T. INCOME FUND, INVESTMENT CLASS
Dec 91 9525
Nov 92 10006
Nov 93 10955
Nov 94 10718
Nov 95 12071
Nov 96 12651
Nov 97 13408
May 98 13852
LEHMAN INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX
Dec 91 10000
Nov 92 10575
Nov 93 11604
Nov 94 11393
Nov 95 13046
Nov 96 13807
Nov 97 14681
May 98 15214
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so that when shares are redeemed,
they may be worth or less than their original cost. Mutual funds are not
obligations of or guaranteed by any bank and are not obligations of or
guaranteed by any bank and are not federally insured.
+The LIGC has been adjusted to reflect reinvestment of dividends on securities
in the index. The LIGC is not adjusted to reflect sales loads, expenses, or
other fees that the Securities and Exchange Commission requires to be
reflected in the Fund's performance. This index is unmanaged.
The performance in the graph begins on 12/31/91. Effective April 3, 1998, the
Monitor Intermediate Government Income Fund became the successor by
reorganization to the FMB Intermediate Government Income Fund.
*The Fund's performance assumes the reinvestment of all dividends and
distributions.
**Represents a hypothetical investment of $10,000 in the Fund after deducting
the sales load of 4.75% in effect as of 12/31/91 ($10,000 investment minus
$475 sales load = $9,525). The Fund's performance assumes the reinvestment of
all dividends and distributions.
Beginning April 6, 1998 the current sales load of 2.00% has been waived. The
Distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
3
<PAGE>
Portfolio of Investments
---------
THE MONITOR MICHIGAN TAX-FREE FUND May 31, 1998
<TABLE>
- -------------------------------------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
- -------------------------------------------
<C> <S> <C>
MUNICIPAL SECURITIES - 98.0%
- -------------------------------------------
$335 Ann Arbor, Sewer
Disposal Project,
Series 12, RB, 6.950%,
07/01/03 $370
- -------------------------------------------
150 Bay County, West Side
Regional, Sewer
Disposal System, RB,
6.400%, 05/01/01 154
- -------------------------------------------
710 Ann Arbor, Water Supply
System, Series T,
MBIA, RB, 7.375%,
02/01/03 803
- -------------------------------------------
475 Bryon Center, Public
Schools, GO, 4.800%,
05/01/11 477
- -------------------------------------------
305 Bryon Center, Public
Schools, GO, 4.900%,
05/01/12 306
- -------------------------------------------
500 Cadillac, Public
Schools, FGIC, GO,
5.375%, 05/01/10 524
- -------------------------------------------
230 Cedar Springs,
Unlimited Tax, GO,
4.850%, 05/01/12 230
- -------------------------------------------
500 Chelsea, SDA, FGIC, GO,
5.500%, 05/01/08 533
- -------------------------------------------
200 Clio, SDA, GO, 7.200%,
05/01/01 207
- -------------------------------------------
250 Dearborn, EDA, Oakwood
Group Project, Series
A, MBIA, RB,
Pre-refunded at 102,
6.550%, 08/15/01 (a) 273
- -------------------------------------------
500 Dearborn, SDA, GO,
5.250%, 05/01/06 524
- -------------------------------------------
250 Detroit, SDA, AMBAC,
GO, Pre-refunded at
102, 7.100%, 05/01/01
(a) 275
- -------------------------------------------
500 Detroit, Sewer
Disposal, MBIA, RB,
5.000%, 07/01/11 525
- -------------------------------------------
500 Detroit, Sewer Disposal
Project, MBIA, RB,
Pre-refunded at 101.5,
7.125%, 07/01/99 (a) 507
- -------------------------------------------
500 Fowlerville, Community,
SDA, MBIA, GO, 5.350%,
05/01/10 526
- -------------------------------------------
500 Gaylord, Community
School Project, GO,
Pre-refunded at 102,
6.600%, 05/01/02 (a) 552
- -------------------------------------------
545 Grand Rapids, Downtown
Development Authority,
MBIA, TA, 6.600%,
06/01/08 615
- -------------------------------------------
500 Grand Rapids,
Sanitation and Sewer
Authority, Improvement
Project, RB, 6.875%,
01/01/10 531
- -------------------------------------------
500 Grand Rapids, Water
Supply Authority,
FGIC, RB, 6.625%,
01/01/08 536
- -------------------------------------------
310 Grandville, Public SDA,
FGIC, GO, 6.000%,
05/01/05 340
- -------------------------------------------
500 Grosse Ile Township,
SDA, FGIC, GO, 5.600%,
05/01/10 546
- -------------------------------------------
500 Harrison, Community
School Project, AMBAC,
GO, 5.800%, 05/01/05 543
- -------------------------------------------
400 Holland, Electric
Authority, RB, Pre-
refunded at 100,
6.500%, 07/01/99 (a) 411
- -------------------------------------------
655 Holland, Water Supply
System, Series A, RB,
5.250%, 07/01/12 675
- -------------------------------------------
500 Huron Valley, SDA,
FGIC, GO, 5.450%,
05/01/08 534
- -------------------------------------------
500 Jenison, Michigan
Public School
Authority, FGIC, GO,
5.400%, 05/01/08 533
- -------------------------------------------
500 Kalamazoo, HFA, Borgess
Medical Center
Project, Series A,
FGIC, RB, 6.250%,
07/01/04 512
- -------------------------------------------
500 Kenowa Hills, Public
Schools, MBIA, GO,
5.500%, 05/01/08 533
- -------------------------------------------
500 Kent County, Building
Authority, GO, 6.000%,
12/01/09 515
- -------------------------------------------
90 Kent, HFA, Blodgett
Memorial Medical
Center Project, Series
A, RB, 6.875%,
07/01/99 93
- -------------------------------------------
500 Kent, HFA, Blodgett
Memorial Hospital
Project, MBIA, RB,
5.750%, 07/01/09 508
- -------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
- -------------------------------------------
<C> <S> <C>
MUNICIPAL SECURITIES - (CONTINUED)
- -------------------------------------------
$200 Kent, HFA, Mary Free
Hospital Project,
Series A, RB, 6.500%,
04/01/05 $211
- -------------------------------------------
500 Kent, HFA, Pine Rest
Christian Hospital
Project, FGIC, RB,
6.500%, 11/01/10 544
- -------------------------------------------
780 Lake Orion, Community
School District, GO,
4.950%, 05/01/11 790
- -------------------------------------------
500 Lake Shore, Public
Schools, Macomb
County, GO, 5.400%,
05/01/12 522
- -------------------------------------------
525 Lansing, Building
Authority, GO, ETM,
7.150%, 06/01/03 565
- -------------------------------------------
350 Lenawee County,
Building Authority,
Human Services
Project, AMBAC, GO,
6.000%, 05/01/09 381
- -------------------------------------------
500 Lincoln Park, SDA,
FGIC, GO, 5.500%,
05/01/06 536
- -------------------------------------------
200 Macomb County, Waste
Water Disposal
Project, GO, 6.500%,
11/01/99 204
- -------------------------------------------
110 Mancelona, Public
Schools, GO, 5.200%,
05/01/12 112
- -------------------------------------------
500 Mattawan, SDA, GO,
6.400%, 05/01/09 542
- -------------------------------------------
500 Michigan State Building
Authority, AMBAC, GO,
6.750%, 10/01/07 545
- -------------------------------------------
1000 Michigan State
Environmental
Protection Program,
GO, Pre-refunded at
102, 6.250%, 11/01/02
(a) 1,100
- -------------------------------------------
350 Michigan State, HEA,
Hope College Project,
Series B, RB, 5.900%,
04/01/09 365
- -------------------------------------------
500 Michigan State, HEA,
Student Loan, Series
13, AMBAC, RB, 5.700%,
04/01/02 522
- -------------------------------------------
300 Michigan State, HFA,
Central Michigan
Community Hospital,
Series A, RB, 5.750%,
10/01/02 311
- -------------------------------------------
500 Michigan State, HFA,
Daughters Charity
Project, RB, 5.500%,
11/01/05 531
- -------------------------------------------
500 Michigan State, HFA,
Detroit Medical Center
Project, Series A, RB,
6.375%, 08/15/09 539
- -------------------------------------------
750 Michigan State, HFA,
Holland Community
Hospital Project, RB,
5.250%, 01/01/08 760
- -------------------------------------------
500 Michigan State, HFA,
Mercy Health Services,
Series Q, AMBAC, RB,
5.100%, 08/15/07 519
- -------------------------------------------
660 Michigan State, HFA,
Otsego Memorial
Hospital Project, RB,
6.000%, 01/01/09 700
- -------------------------------------------
615 Michigan State, HFA,
Sparrow Obligated
Group Project, MBIA,
RB, 6.300%, 11/15/03 664
- -------------------------------------------
200 Michigan State, HFA,
Saint John Hospital
Project, Series A,
AMBAC, RB, 5.750%,
05/15/04 214
- -------------------------------------------
420 Michigan State Housing
Development Authority,
Walled Lake Villa
Project, FSA, RB,
5.850%, 04/15/07 456
- -------------------------------------------
235 Michigan State Public
Power Agency, Campbell
Project, AMBAC, RB,
Pre-refunded at 100,
6.400%, 01/01/99 (a) 239
- -------------------------------------------
400 Michigan State
Strategic Fund,
Lutheran Social
Services Project, RB,
5.200%, 09/01/04 417
- -------------------------------------------
435 Northern Michigan
University, AMBAC, RB,
5.500%, 12/01/09 459
- -------------------------------------------
500 Oakland County, EDA,
Cranbrock Elderly
Community Project, RB,
6.375%, 11/01/14 558
- -------------------------------------------
500 Oakland County, Sewer
Revenue, 6.250%,
11/01/06 519
- -------------------------------------------
500 Ottawa County, Holland
Township Extension,
GO, 6.800%, 08/01/05 539
- -------------------------------------------
500 Paw Paw, Public School
District, FGIC, GO,
6.500%, 05/01/09 585
- -------------------------------------------
</TABLE>
4
<PAGE>
---------
THE MONITOR MICHIGAN TAX-FREE FUND May 31, 1998
<TABLE>
- -------------------------------------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
- -------------------------------------------
<C> <S> <C>
MUNICIPAL SECURITIES - (CONTINUED)
- -------------------------------------------
$150 Rochester Hills, SDA,
GO, Pre-refunded at
100, 6.500%, 05/01/07
(a) $163
- -------------------------------------------
465 Rochester Hills, Series
B, GO, Pre-refunded at
102, 6.600%, 11/01/98
(a) 480
- -------------------------------------------
200 Rochester Hills,
Transportation Fund,
GO, 6.250%, 08/01/05 205
- -------------------------------------------
500 Rockford, Public School
Authority, GO, 5.600%,
05/01/05 531
- -------------------------------------------
640 Saginaw Valley State
University, RB,
5.000%, 07/01/12 645
- -------------------------------------------
865 Saginaw Water
Authority, RB, 6.000%,
07/01/07 900
- -------------------------------------------
500 Saint Joseph, Mercy
Memorial Medical
Center, AMBAC, RB,
5.125%, 01/01/09 514
- -------------------------------------------
230 Saranac, SDA, GO,
5.700%, 05/01/07 246
- -------------------------------------------
400 Troy Downtown
Development Authority,
Series A, TA, RB,
6.100%, 11/01/10 444
- -------------------------------------------
250 University of Michigan,
Series A, HRB, 5.700%,
12/01/04 267
- -------------------------------------------
300 University of Michigan,
Series A-1, HRB,
5.250%, 12/01/10 310
- -------------------------------------------
</TABLE>
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
- -------------------------------------------
<C> <S> <C>
MUNICIPAL SECURITIES - (CONTINUED)
- -------------------------------------------
$500 University of
Michigan, Major
Capital Projects, RB,
5.800%, 04/01/10 $534
- -------------------------------------------
500 Utica, Community
Schools Project, GO,
5.700%, 05/01/06 537
- -------------------------------------------
200 Walled Lake, SDA, GO,
Pre-refunded, at 102,
6.500%, 05/01/99 (a) 209
- -------------------------------------------
500 Warren, SDA, GO, Pre-
refunded at 102,
6.700%, 05/01/01 (a) 545
- -------------------------------------------
405 Warren, Transportation
Fund, GO, 5.000%,
06/01/07 414
- -------------------------------------------
500 West Ottawa, Public
School District,
FGIC, GO, 5.400%,
05/01/09 531
- -------------------------------------------
TOTAL MUNICIPAL SECURITIES
(IDENTIFIED COST $34,842) 36,635
- -------------------------------------------
CASH EQUIVALENT - 1.0%
- -------------------------------------------
403 Federated Michigan
Municipal Cash Trust
(identified cost
$403) 403
- -------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED
COST $35,245) $37,038
- -------------------------------------------
</TABLE>
See Notes To Portfolios of Investments.
- -------------------------------------------
---------
THE MONITOR INTERMEDIATE GOVERNMENT INCOME FUND May 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
- -------------------------------------------
<C> <S> <C>
GOVERNMENT MORTGAGE-BACKED AGENCIES -
13.1%
- -------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. - 0.9%
$89 Pool# 214693, 9.000%,
12/01/01 $92
889 Pool# C90005, 8.000%,
01/01/13 923
- -------------------------------------------
1,015
- -------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. -
REMIC - 6.0%
301 Series 1183, 7.338%,
01/15/99 300
188 Series 1204, 7.000%,
11/15/05 188
1,000 Series 23, 5.500%,
08/25/16 991
658 Series 1290, 7.500%,
11/15/17 663
989 Series 1199, 7.150%,
07/15/18 991
4,060 Series 1502, 6.250%,
01/15/19 4,031
- -------------------------------------------
7,164
- -------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -
1.3%
75 Pool# 50469, 8.000%,
07/01/98 76
20 Pool# 50598, 8.500%,
10/01/98 21
42 Pool# 50509, 8.500%,
11/01/98 44
1,323 Pool# 124308, 7.500%,
05/01/07 1,363
- -------------------------------------------
1,504
- -------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -
REMIC - 4.9%
1,029 Series 1992-113,
7.500%, 07/25/02 1,047
659 Series 1992-78, 7.500%,
12/25/05 662
652 Series 1992-417,
6.750%, 06/25/18 652
1,000 Series 1993-56, 6.350%,
07/25/18 1,001
13 Series 1992-79, 7.000%,
10/25/18 13
2,475 Series 1992-210,
6.500%, 03/25/19 2,472
- -------------------------------------------
5,847
- -------------------------------------------
TOTAL GOVERNMENT MORTGAGE-BACKED
AGENCIES
(IDENTIFIED COST $15,514) 15,530
- -------------------------------------------
GOVERNMENT AGENCIES - 38.9%
- -------------------------------------------
FEDERAL HOME LOAN BANK - 10.1%
2,000 6.125%, 09/20/00 2,017
2,000 6.020%, 09/06/01 2,000
1,000 6.480%, 01/08/02 1,009
3,000 6.330%, 12/03/02 3,014
</TABLE>
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
- ------------------------------------
<C> <S> <C>
GOVERNMENT AGENCIES (CONTINUED)
- ------------------------------------
$2,000 6.030%, 04/17/03 $2,001
2,000 5.880%, 04/15/08 2,010
- ------------------------------------
12,051
- ------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. -
11.8%
1,000 6.600%, 11/12/99 1,012
1,000 6.550%, 01/04/00 1,013
1,500 7.140%, 07/31/02 1,503
2,500 6.120%, 01/21/03 2,500
1,000 6.550%, 04/02/03 1,000
2,000 6.830%, 06/15/05 2,029
2,000 7.000%, 07/06/05 2,037
3,000 6.540%, 11/06/07 3,041
- ------------------------------------
14,135
- ------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIA-
TION - 4.3%
2,000 7.000%, 05/10/01 2,023
2,000 7.550%, 04/22/02 2,125
1,000 6.330%, 10/02/02 1,007
- ------------------------------------
5,155
- ------------------------------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION - MEDIUM TERM
NOTES - 12.7%
3,000 6.330%, 11/03/00 3,003
2,000 5.790%, 01/22/01 1,990
1,000 6.630%, 06/05/01 1,012
1,000 6.500%, 12/27/01 1,010
2,000 7.090%, 10/13/05 2,003
4,000 6.880%, 11/20/06 4,099
1,000 6.240%, 01/14/08 1,001
1,120 6.170%, 01/15/08 1,115
- ------------------------------------
15,233
- ------------------------------------
TOTAL GOVERNMENT AGENCIES
(IDENTIFIED COST $46,104) 46,574
- ------------------------------------
</TABLE>
5
<PAGE>
---------
THE MONITOR INTERMEDIATE GOVERNMENT INCOME FUND May 31, 1998
<TABLE>
- ------------------------------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
- ------------------------------------
<C> <S> <C>
U.S. TREASURY NOTES - 45.2%
- ------------------------------------
U.S. TREASURY NOTES
$4,000 8.250%, 07/15/98 $4,016
2,000 6.375%, 01/15/99 2,011
2,000 6.875%, 08/31/99 2,032
1,000 7.875%, 11/15/99 1,032
2,000 6.250%, 05/31/00 2,027
2,000 5.625%, 11/30/00 2,004
2,000 8.000%, 05/15/01 2,131
2,000 7.875%, 08/15/01 2,132
1,000 6.250%, 10/31/01 1,020
1,000 7.500%, 11/15/01 1,059
1,000 6.250%, 02/28/02 1,022
2,000 5.750%, 08/15/03 2,016
3,000 5.875%, 02/15/04 3,044
2,000 7.250%, 05/15/04 2,165
2,000 7.875%, 11/15/04 2,241
2,000 7.500%, 02/15/05 2,207
2,000 6.500%, 05/15/05 2,100
2,000 6.500%, 08/15/05 2,102
2,000 5.875%, 11/15/05 2,028
</TABLE>
<TABLE>
- -------------------------------------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
(000) (000)
- -------------------------------------------
<C> <S> <C>
U.S. TREASURY NOTES (CONTINUED)
- -------------------------------------------
$4,000 5.625%, 02/15/06 $3,996
2,000 6.875%, 05/15/06 2,154
2,000 7.000%, 07/15/06 2,172
1,000 6.500%, 10/15/06 1,055
2,000 6.250%, 02/15/07 2,082
2,000 6.625%, 05/15/07 2,133
2,000 6.125%, 08/15/07 2,066
- -------------------------------------------
TOTAL U.S. TREASURY NOTES
(IDENTIFIED COST $52,359) 54,047
- -------------------------------------------
REPURCHASE AGREEMENT - 1.6%
1,889 Morgan Stanley & Co.
Inc., dated 5/29/98,
5.500%, due
06/01/98, repurchase
price $1,889,100
(collateralized by
U.S. Treasury
obligations, total
par value
$1,685,000, 8.375%,
08/15/08; total
market value
$1,932,355) 1,889
- -------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED
COST $115,866) $118,040
- -------------------------------------------
</TABLE>
See Notes To Portfolios of Investments.
6
<PAGE>
Notes to Portfolios of Investments
(a) Pre-refunded Security--The maturity date shown represents the pre-refunded
date.
The following abbreviations are used in these Portfolios of Investments:
AMBAC--American Municipal Bond Assurance Corporation
HRB--Hospital Revenue Bonds
ETM--Escrowed to Maturity MBIA--Municipal Bond Investors
EDA--Economic Development Authority Assurance
FGIC--Financial Guaranty Insurance Company RB--Revenue Bond
FSA--Financial Security Assurance REMIC--Real Estate Mortgage
GO--General Obligation Investment Conduit
HEA--Higher Education Authority SDA--School District Authority
HFA--Hospital Finance Authority TA--Tax Allocation
The categories of investments are shown as a percentage of net assets.
The following is a summary of investment information as of May 31, 1998. (000)
<TABLE>
<CAPTION>
COST OF
INVESTMENTS NET UNREALIZED GROSS GROSS
FOR FEDERAL TAX APPRECIATION/ UNREALIZED UNREALIZED TOTAL
MONITOR FUNDS PURPOSES DEPRECIATION APPRECIATION DEPRECIATION NET ASSETS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Michigan Tax-Free Fund.. $35,245 1,793 1,793 -- 37,386
Intermediate Government
Income Fund............ 115,866 2,174 2,240 (66) 119,534
- --------------------------------------------------------------------------------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CONCENTRATION OF CREDIT RISK
The Monitor Michigan Tax-Free Fund invests in debt instruments of primarily
Michigan Municipal issuers. The issuers' abilities to meet their obligations
may be affected by economic developments in a specific state or region.
The Fund invests in securities which include revenue bonds, tax exempt
commercial paper, tax and revenue anticipation notes, and general obligation
bonds. At May 31, 1998, the percentage of portfolio investments by each revenue
source were as follows:
THE MONITOR MICHIGAN TAX-FREE FUND
<TABLE>
<S> <C>
Revenue Bonds:
Health Care Bonds.................. 22.8%
Higher Education Bonds............. 6.8%
Housing Bonds...................... 1.2%
Industrial Bonds................... 3.9%
Transportation Bonds............... 0.6%
Utility Bonds...................... 16.6%
General Obligations................. 47.0%
Cash Equivalents.................... 1.1%
</TABLE>
7
<PAGE>
Statements of Assets & Liabilities
MAY 31, 1998
(All numbers in thousands except net asset values)
<TABLE>
<CAPTION>
MONITOR MONITOR
MICHIGAN INTERMEDIATE
TAX-FREE GOVERNMENT INCOME
FUND FUND
- ---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments at value.............................. $37,038 $116,151
Investments in repurchase agreements.............. -- 1,889
Cash.............................................. 4 --
Dividends and interest receivable................. 447 1,602
Receivable for investments sold................... -- 4
Deferred expenses................................. 1 1
- ---------------------------------------------------------------------------------
Total assets..................................... 37,490 119,647
- ---------------------------------------------------------------------------------
LIABILITIES:
Payable for Fund shares redeemed.................. -- 19
ACCRUED EXPENSES:
Investment advisory fees.......................... 14 46
Administrative personnel and services............. 3 10
Custodian and recordkeeping fees and expenses..... 13 12
Distribution service fees -- Investment Shares.... 5 2
Other............................................. 69 24
- ---------------------------------------------------------------------------------
Total liabilities................................ 104 113
- ---------------------------------------------------------------------------------
NET ASSETS:
Paid-in-capital................................... 35,600 118,799
Net unrealized appreciation of investments........ 1,793 2,174
Accumulated net realized (loss) on investments.... (71) (1,712)
Undistributed net investment income............... 64 273
- ---------------------------------------------------------------------------------
Total Net Assets................................. 37,386 119,534
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
NET ASSETS:
Trust Shares...................................... 27,440 116,317
Investment Shares................................. 9,946 3,217
- ---------------------------------------------------------------------------------
NET ASSET VALUE AND REDEMPTION PROCEEDS PER SHARE:
Trust Shares...................................... $ 10.97 $ 10.23
Investment Shares................................. $ 10.97 $ 10.24
- ---------------------------------------------------------------------------------
OFFERING PRICE PER SHARE:
Trust Shares...................................... $ 10.97 $ 10.23
Investment Shares................................. $ 11.19** $ 10.45**
- ---------------------------------------------------------------------------------
SHARES OUTSTANDING:
Trust Shares...................................... 2,502 11,367
Investment Shares................................. 907 314
- ---------------------------------------------------------------------------------
Total shares outstanding ($0.001 par value)....... 3,409 11,681
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Investments, at identified cost................... $35,245 $115,866
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
**Computation of Offering price: 100/98 of net asset value.
(See Notes which are an integral part of the Financial Statements)
8
<PAGE>
Statements of Operations
<TABLE>
<CAPTION>
MONITOR MICHIGAN MONITOR INTERMEDIATE
TAX-FREE FUND GOVERNMENT INCOME FUND
*SIX MONTHS *SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
MAY 31, NOV. 30, MAY 31, NOV. 30,
1998 1997 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income................ $944 $1,825 $3,803 $7,646
- -------------------------------------------------------------------------------
Total income................... 944 1,825 3,803 7,646
- -------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees....... 93 186 276 514
Administrative personnel and
services...................... 31 68 102 228
Custodian and recordkeeping
fees and expenses............. 3 10 20 8
Transfer and dividend
disbursing agent fees and
expenses...................... 16 38 34 77
Fund share registration costs.. 1 5 2 5
Auditing fees.................. 1 7 -- 23
Legal fees..................... 5 5 -- 18
Trustees' fees................. 3 2 7 6
Printing and postage........... 1 7 12 14
Insurance premiums............. 2 2 1 1
Distribution services fees --
Investment Shares............ 16 32 5 15
Miscellaneous.................. 3 8 5 4
- -------------------------------------------------------------------------------
Total expenses................. 175 370 464 913
- -------------------------------------------------------------------------------
Deduct--
Waiver of investment advisory
fees.......................... (26) (89) (9) --
Waiver of distribution services
fees.......................... (3) (9) (1) (4)
- -------------------------------------------------------------------------------
NET EXPENSES.................... 146 272 454 909
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME........... 798 1,553 3,349 6,737
- -------------------------------------------------------------------------------
Realized and Unrealized Gain
(Loss) on Investments:
Net realized gain (loss) on in-
vestments (identified cost ba-
sis)........................... -- 31 (4) 51
Net change in unrealized appre-
ciation on investments......... 191 297 528 258
- -------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS.......... 191 328 524 309
- -------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS................ $989 $1,881 $3,873 $7,046
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
*This period reflects combined operations for the period prior to and
subsequent to the reorganization referred to in Note (1) Organization.
9
<PAGE>
Statements of Changes In Net Assets
(All numbers in thousands)
<TABLE>
<CAPTION>
MONITOR MICHIGAN MONITOR INTERMEDIATE
TAX-FREE FUND GOVERNMENT INCOME FUND
*SIX MONTHS YEAR YEAR *SIX MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MAY 31, NOV. 30, NOV. 30, MAY 31, NOV. 30, NOV. 30,
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS--
Net investment income $ 798 $ 1,553 $ 1,496 $ 3,349 $ 6,737 $ 6,868
Net realized gain (loss)
on investment
transactions -- 31 13 (4) 51 43
Change in net unrealized
appreciation of
investments 191 297 (28) 528 258 (1,236)
- -----------------------------------------------------------------------------------------
Change in net assets
resulting from
operations 989 1,881 1,481 3,873 7,046 5,675
- -----------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM--
Net investment income:
Trust Shares (541) (1,147) (1,010) (2,988) (6,370) (6,645)
Investment Shares (193) (408) (484) (84) (244) (351)
- -----------------------------------------------------------------------------------------
Change in net assets
from distributions to
shareholders (734) (1,555) (1,494) (3,072) (6,614) (6,996)
- -----------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS--
Trust Shares:
Proceeds from Shares
Issued 4,477 4,758 4,811 12,229 24,530 22,554
Reinvestment of
Distributions 7 -- -- 83 4 --
Cost of Shares Redeemed (2,184) (3,128) (2,469) (11,835) (17,950) (27,917)
- -----------------------------------------------------------------------------------------
Total Trust Shares
Transactions 2,300 1,630 2,342 477 6,584 (5,363)
- -----------------------------------------------------------------------------------------
Investment Shares:
Proceeds from Shares
Issued 1,116 1,729 1,348 22 104 203
Reinvestment of
Distributions 172 301 373 78 193 276
Cost of Shares Redeemed (837) (1,738) (5,237) (426) (2,008) (2,774)
- -----------------------------------------------------------------------------------------
Total Investment Shares
Transactions 451 292 (3,516) (326) (1,711) (2,295)
- -----------------------------------------------------------------------------------------
Change in net assets
from Fund shares
transactions 2,751 1,922 (1,174) 151 4,873 (7,658)
- -----------------------------------------------------------------------------------------
Total change in Net
Assets 3,006 2,248 (1,187) 952 5,305 (8,979)
- -----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 34,380 32,132 33,319 118,582 113,277 122,256
- -----------------------------------------------------------------------------------------
End of period $37,386 $34,380 $32,132 $119,534 $118,582 $113,277
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
SHARES ISSUED AND
REDEEMED--
Trust Shares:
Shares issued 409 443 453 1,198 2,439 2,234
Reinvestment of
Distributions 1 0 -- 8 0 --
Shares redeemed (200) (290) (232) (1,160) (1,784) (2,767)
- -----------------------------------------------------------------------------------------
Total Trust Shares
Transactions 210 153 221 46 655 (533)
- -----------------------------------------------------------------------------------------
Investment Shares:
Shares issued 101 161 126 2 10 22
Reinvestment of
Distributions 16 28 37 8 19 27
Shares redeemed (76) (162) (493) (42) (200) (275)
- -----------------------------------------------------------------------------------------
Total Investment Shares
Transactions 41 27 (330) (32) (171) (226)
- -----------------------------------------------------------------------------------------
Net change in Fund share
transactions 251 180 (109) 14 484 (759)
- -----------------------------------------------------------------------------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
*This period reflects combined operations for the period prior to and
subsequent to the reorganization referred to in Note (1) Organization.
10
<PAGE>
[This Page Intentionally Left Blank]
11
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
DISTRIBUTIONS TO
NET REALIZED DISTRIBUTIONS TO SHAREHOLDERS
NET ASSET AND SHAREHOLDERS FROM NET
VALUE, NET UNREALIZED TOTAL FROM FROM NET REALIZED GAIN
YEAR ENDED BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT INVESTMENT ON INVESTMENT
NOVEMBER 30, OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME TRANSACTIONS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TRUST SHARES
THE MONITOR MICHIGAN TAX-FREE FUND
1998(a) $10.89 0.25 0.06 0.31 (0.23) --
1997 $10.79 0.50 0.10 0.60 (0.50) --
1996 $10.79 0.50 -- 0.50 (0.50) --
1995 $ 9.97 0.49 0.82 1.31 (0.49) --
1994 $10.61 0.47 (0.63) (0.16) (0.47) (0.01)
1993 $10.24 0.49 0.37 0.86 (0.49) --
THE MONITOR INTERMEDIATE GOVERNMENT INCOME FUND
1998(a) $10.16 0.29 0.04 0.33 (0.26) --
1997 $10.13 0.59 0.02 0.61 (0.58) --
1996 $10.24 0.59 (0.10) 0.49 (0.60) --
1995 $ 9.66 0.61 0.58 1.19 (0.61) --
1994 $10.46 0.57 (0.80) (0.23) (0.57) --
1993 $10.10 0.59 0.36 0.95 (0.59) --
INVESTMENT SHARES
THE MONITOR MICHIGAN TAX-FREE FUND
1998(a) $10.89 0.24 0.06 0.30 (0.22) --
1997 $10.79 0.47 0.10 0.57 (0.47) --
1996 $10.79 0.48 -- 0.48 (0.48) --
1995 $ 9.97 0.49 0.82 1.31 (0.49) --
1994 $10.61 0.47 (0.63) (0.16) (0.47) (0.01)
1993 $10.24 0.49 0.37 0.86 (0.49) --
THE MONITOR INTERMEDIATE GOVERNMENT INCOME FUND
1998(a) $10.16 0.28 0.05 0.33 (0.25) --
1997 $10.13 0.57 0.02 0.59 (0.56) --
1996 $10.24 0.57 (0.10) 0.47 (0.58) --
1995 $ 9.66 0.61 0.58 1.19 (0.61) --
1994 $10.46 0.57 (0.80) (0.23) (0.57) --
1993 $10.10 0.59 0.36 0.95 (0.59) --
- ----------------------------------------------------------------------------------------------
</TABLE>
(a) Six months ended May 31, 1998.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Expense ratios reflect the operating expenses in effect during the period
prior to and subsequent to the reorganization referred to in Notes (1)
Organization.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios.
(e) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
12
<PAGE>
<TABLE>
<CAPTION>
RATIO TO AVERAGE NET ASSETS
NET ASSET ---------------------------------------- NET ASSETS,
VALUE, NET EXPENSE WAIVER END OF PORTFOLIO
TOTAL END OF TOTAL INVESTMENT REDUCTION/ PERIOD TURNOVER
DISTRIBUTIONS PERIOD RETURN(B) EXPENSES(C) INCOME REIMBURSEMENT(D) (000 OMITTED) RATE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(0.23) $10.97 2.86% 0.75%(e) 4.55%(e) 0.14%(e) $ 27,440 2%
(0.50) $10.89 5.73% 0.73% 4.66% 0.27% $ 24,954 7%
(0.50) $10.79 4.78% 0.68% 4.72% 0.37% $ 23,082 16%
(0.49) $10.79 13.21% 0.70% 4.62% 0.48% $ 20,700 35%
(0.48) $ 9.97 (1.49%) 0.51% 4.50% 0.68% $ 15,495 22%
(0.49) $10.61 8.53% 0.35% 4.59% 1.03% $ 11,779 13%
(0.26) $10.23 3.33% 0.76%(e) 5.67%(e) 0.02%(e) $116,317 14%
(0.58) $10.16 6.27% 0.79% 5.91% -- % $115,064 28%
(0.60) $10.13 4.97% 0.79% 5.89% -- % $108,047 16%
(0.61) $10.24 12.64% 0.78% 6.09% -- % $114,646 27%
(0.57) $ 9.66 (2.23%) 0.83% 6.45% 0.02% $115,449 20%
(0.59) $10.46 9.60% 0.50% 5.66% 0.28% $105,820 17%
(0.22) $10.97 2.75% 1.00%(e) 4.30%(e) 0.21%(e) $ 9,946 2%
(0.47) $10.89 5.47% 0.98% 4.41% 0.37% $ 9,426 7%
(0.48) $10.79 4.61% 0.84% 4.55% 0.56% $ 9,050 16%
(0.49) $10.79 13.21% 0.70% 4.62% 0.48% $ 12,619 35%
(0.48) $ 9.97 (1.49%) 0.51% 4.50% 0.68% $ 12,249 22%
(0.49) $10.61 8.53% 0.35% 4.59% 1.03% $ 14,771 13%
(0.25) $10.24 3.31% 1.01%(e) 5.42%(e) 0.09%(e) $ 3,217 14%
(0.56) $10.16 5.99% 1.04% 5.66% 0.10% $ 3,518 28%
(0.58) $10.13 4.80% 0.95% 5.73% 0.19% $ 5,230 16%
(0.61) $10.24 12.64% 0.78% 6.09% -- % $ 7,610 27%
(0.57) $ 9.66 (2.23%) 0.83% 6.45% 0.02% $ 9,718 20%
(0.59) $10.46 9.60% 0.50% 5.66% 0.28% $ 10,872 17%
- ---------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Combined Notes to Financial Statements
MAY 31, 1998
(1) ORGANIZATION
The Monitor Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company.
The Trust consists of eight diversified and three non-diversified portfolios.
The following Portfolios comprise the Trust:
The Monitor Money Market Fund ("Money Market")
The Monitor Ohio Municipal Money Market Fund ("Ohio Municipal Money Market")*
The Monitor U.S. Treasury Money Market Fund ("U.S. Treasury Money Market")
The Monitor Growth Fund ("Growth")
The Monitor Income Equity Fund ("Income Equity")
The Monitor Michigan Tax-Free Fund ("Michigan Tax-Free")*+
The Monitor Ohio Tax-Free Fund ("Ohio Tax-Free")*
The Monitor Fixed Income Securities Fund ("Fixed Income")
The Monitor Mortgage Securities Fund ("Mortgage Securities")
The Monitor Short/Intermediate Fixed Income Securities Fund
("Short/Intermediate Fixed Income")
The Monitor Intermediate Government Income Fund
("Intermediate Government Income")+
*non-diversified portfolio
This annual report only pertains to Michigan Tax-Free and Intermediate
Government Income (each individually referred to as the "Fund" or collectively
as the "Funds").
The Funds each offer two classes of shares ("Trust Shares" and "Investment
Shares"). Investment Shares are identical in all respects to Trust Shares,
except that Investment Shares are sold pursuant to a distribution plan adopted
in accordance with Rule 12b-1 under the Act and are subject to a sales charge.
Beginning on April 6, 1998 the sales charge has been waived. The Distributor
can modify or terminate this voluntary waiver at any time at its sole
discretion. Trust Shares are only offered in connection with the requirements
of fiduciary, advisory, agency and other similar accounts maintained by or on
behalf of customers of The Huntington National Bank or its affiliates or
correspondent banks. The objectives of the Funds can be found in the current
prospectus.
The assets of each Fund are segregated, and a shareholder's interest is
limited to the Fund and to the class in which shares are held.
+A merger of Huntington Bancshares Incorporated and First Michigan Bank
Corporation occurred on October 1, 1997. Effective April 3, 1998, FMB Michigan
Tax-Free Bond Fund and FMB Intermediate Government Income Fund were
reorganized on a tax-free basis, respectively, into Michigan Tax-Free and
Intermediate Government Income pursuant to an Agreement and Plan of
Reorganization dated as of February 1, 1998, by and between FMB Funds and The
Monitor Funds, which was approved by shareholders of the FMB Funds at a
meeting convened on March 24, 1998. At the time of the reorganization, FMB
Michigan Tax-Free Bond Fund had net assets of $35,807,092 and Michigan Tax-
Free received net assets of $35,807,092. FMB Intermediate Government Income
Fund had net assets of $119,115,527 and Intermediate Government Income
received net assets of $119,115,527. As a result of the reorganization,
holders of Institutional Shares received Trust Shares, and holders of Consumer
Service Shares received Investment Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles
(GAAP). The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the Financial Statements. The actual results could
differ from those estimates.
A. INVESTMENT VALUATIONS
Bonds and other fixed income securities which may trade on a national
securities exchange and/or over the counter are valued at the last sale price
on that day, if available; otherwise, they are valued at the bid price by an
independent pricing service, approved by the Trustees, that takes into
consideration yield, stability, risk, credit quality, coupon, maturity, type
of issue, trading characteristics, special circumstances of security or
trading market, and any other factors or market data the independent pricing
service deems relevant in determining valuations for normal institutional size
trading units of debt securities, and does not rely exclusively on quoted
prices.
Short-term securities with remaining maturities of sixty days or less at the
time of purchase may be valued at amortized cost, which approximates fair
market value. Investments in other open-end investment companies are valued at
net asset value.
B. REPURCHASE AGREEMENTS
It is the policy of the Funds to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry
System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, it's the policy of the Trust to monitor, on a daily basis, the
market value of each repurchase agreement's collateral to ensure that the
value of collateral at least equals the repurchase price to be paid under the
repurchase agreement transaction.
14
<PAGE>
The Funds will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Funds' adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Trustees. Risks may arise from the
potential inability of counterparties to honor the terms of these agreements.
Accordingly, the Funds could receive less than the repurchase price on the sale
of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Dividend income and distributions to shareholders are recorded on the ex-
dividend date. Interest income and expenses are accrued daily. Bond premium and
discount, if applicable, are amortized, as required by the Internal Revenue
Code, as amended (the "Code") which does not differ materially from GAAP.
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses for the Funds are allocated daily to each class of
shares based upon the relative proportion of net assets represented by such
class. Distribution fees are charged directly to such class.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from GAAP. These
differences are primarily due to the tax nature of distributions.
D. FEDERAL TAXES
It is the Funds' policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of their income. Accordingly, no provisions for federal tax
are necessary.
At May 31, 1998, Michigan Tax-Free had remaining capital loss carryforwards of
$70,561 available through the year 2003 and Intermediate Government Income had
remaining capital loss carryforwards of $341,004 available through the year
2002 and $1,366,912 available through the year 2003. Capital loss carryforwards
will reduce each Fund's taxable income arising from future net realized gain on
investments, if any, to the extent permitted by the Code, and thus will reduce
the amount of the distributions to shareholders which would otherwise be
necessary to relieve each Fund of any liability for federal tax.
E. OTHER
Investment transactions are accounted for on the trade date.
Gains or losses realized from the sale of securities are determined by
comparing the identified cost of the security sold with the net sales proceeds.
(3) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--The Huntington National Bank, the Funds' investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee for the Funds at the following annual rates: Prior to April 6,
1998: For FMB Michigan Tax-Free Bond Fund and FMB Intermediate Government
Income Fund, 0.55%, and 0.45% of the Funds' average daily net assets,
respectively. The Adviser voluntarily waived 0.20% for FMB Michigan Tax-Free
Bond Fund. Commencing on April 6, 1998: For Michigan Tax-Free and Intermediate
Government Income, 0.50% of the Funds' average daily net assets. The Adviser
voluntarily waived 0.07%, and 0.05%, respectively.The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATION FEE AND DISTRIBUTION AGREEMENTS--Prior to April 6, 1998, SEI
Fund Resources ("SFR") served as the administrator for FMB Funds, Inc. under an
Administration Agreement between the FMB Funds, Inc. and SFR dated March 23,
1998. SFR received an annual fee of 0.20% on the daily average net assets of
FMB Michigan Tax-Free Bond Fund and FMB Intermediate Government Income Fund,
paid monthly for services performed under this agreement.
Commencing on April 6, 1998, The Huntington National Bank ("Huntington") began
serving as the administrator for the Funds under an Administration Agreement
between Huntington and the Funds dated January 12, 1998. Huntington receives an
annual fee of 0.11% of each Fund's average net assets, paid monthly, for
services performed under this agreement. Huntington has entered into an
agreement with SFR pursuant to which SFR provides certain administrative
services to the Funds. SFR receives from Huntington, an annual fee of 0.05% of
each Fund's average net assets, paid monthly, for services performed under this
agreement. For the period from April 6, 1998 to May 31, 1998, Huntington
received fees of $14,148 and SFR received fees of $11,920.
Prior to April 6, 1998, SEI Investments Distribution Co. ("SIDCO") acted as the
Distributor for FMB Michigan Tax-Free Bond Fund and FMB Intermediate Government
Income Fund pursuant to a Distribution Agreement between the FMB Funds, Inc and
SIDCO, dated March 23, 1996.
Commencing on April 6, 1998, SIDCO began acting as the Funds' Distributor
pursuant to a distribution agreement. SEI Investment Management Corporation, a
wholly-owned subsidiary of SEI Investment Company, is owner of all beneficial
interests in SFR. SIDCO is a wholly-owned subsidiary of SEI Investment Company.
DISTRIBUTION PLAN--Prior to April 6, 1998, the Distribution Plan for FMB Funds,
Inc. provided for the payment by the FMB Funds to the Distributor of up to
0.35% for the FMB Michigan-Tax Free Bond Fund and FMB Intermediate Government
Income Fund per annum of each Fund's
15
<PAGE>
Consumer Service Shares average daily net assets for costs and expenses of the
Distributor in connection with the distribution of Fund shares of the Consumer
Service Class. The Distributor voluntarily waived 0.10% of the distribution
fee for the period from December 1, 1997 to April 6, 1998 for FMB Michigan
Tax-Free Bond Fund and FMB Intermediate Government Income Fund.
Commencing on April 6, 1998, Michigan Tax-Free and Intermediate Government
Income began operating under the Monitor Funds' Distribution Plan. The Monitor
Funds have adopted a Distribution Plan pursuant to Rule 12b-1 under the 1940
Act (the "Distribution Plan"). The Distribution Plan provides for payments to
be made to the Distributor (SIDCO) in connection with the provision of certain
services (described below) with respect to the Funds' Investment Shares.
In accordance with the Distribution Plan, the Distributor may enter into
agreements with brokers and dealers relating to distribution and/or
administrative services with respect to the Investment Shares of the Funds.
The Distributor may also enter into agreements with administrators (including
financial institutions, fiduciaries, custodians for public funds, and
investment advisers) to provide administrative services with respect to
Investment Shares.
In connection with the provision of the distribution and administrative
services described above, the Distributor will pay brokers, dealers and
administrators (including The Huntington Investment Company) a fee based on
the amount of Investment Shares owned by their customers. Amounts paid by the
Distributor for services rendered with respect to a Fund's Investment Shares
will be reimbursed by the Fund in an amount which may not exceed an annual
rate of 0.25 of 1% of the average daily net assets attributable to the Fund's
Investment Shares held in customer accounts for which brokers, dealers, and
administrators provide such services.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES, PORTFOLIO ACCOUNTING
AND CUSTODIAN FEES--Prior to April 6, 1998:
SFR served as transfer and dividend disbursing agent for FMB Michigan Tax-
Free Bond Fund and FMB Intermediate Government Income Fund for which it
received a fee based on the size, type and number of accounts and
transactions made by shareholders.
Bankers Trust Company served as the custodian of the investments and other
assets of the FMB Michigan Tax-Free Bond Fund and FMB Intermediate Government
Income Fund for which it received a fee based on the level of net assets.
Commencing on April 6, 1998:
State Street Bank and Trust, Co. began serving as transfer and dividend
disbursing agent for Michigan Tax-Free and Intermediate Government Income for
which it receives a fee based on the size, type and number of accounts and
transactions made by the shareholders.
Huntington began serving as the custodian of the investments and other assets
of the Funds for which it receives a fee. The fee is based on the level of
each Fund's average daily net assets. For the period from April 6, 1998 to
May 31, 1998, Huntington received fees of $6,248.
Huntington began providing certain accounting and recordkeeping services for
the Funds. Huntington receives an annual fee based on the level of each
Funds' average daily net assets. For the period from April 6, 1998 to May 31,
1998, Huntington received fees of $7,209.
For the six-month period ended May 31, 1998, certain Officers of FMB Funds and
the Trust were Officers of SFR and SIDCO. Such Officers received no
compensation from the FMB Funds, Inc. or the Trust.
For the six-month period ended May 31, 1998, Huntington received $5,282 from
commissions earned on sales of Investment Shares of the Funds, which was paid
to affiliate broker/dealers of the Funds.
(4) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
six-month period ended May 31, 1998 were as follows:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
---------------------
INTERMEDIATE
MICHIGAN GOVERNMENT
TAX-FREE INCOME
- --------------------------------------
<S> <C> <C> <C>
Purchases $3,143,674 --
Sales $800,000 --
- --------------------------------------
</TABLE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT OBLIGATIONS
---------------------------
INTERMEDIATE
MICHIGAN GOVERNMENT
TAX-FREE INCOME
- ------------------------------------
<S> <C> <C> <C>
Purchases -- $14,730,923
Sales -- $19,107,216
- ------------------------------------
</TABLE>
(5) INVESTMENT CONCENTRATION
Michigan Tax-Free invests substantially all of its assets in a portfolio of
debt obligations issued by the State of Michigan and its authorities and
agencies. The issuers' abilities to meet their obligations may be affected by
economic or political developments in the State of Michigan.
16
<PAGE>
Report of Independent Accountants
The Shareholders and
Board of Trustees of
The Monitor Funds:
We have audited the accompanying statements of assets and liabilities of The
Monitor Funds--Michigan Tax-Free Fund and Intermediate Government Income Fund,
including the portfolio of investments, as of May 31, 1998, and the related
statements of operations, statements of changes in net assets and the financial
highlights for the six months ended May 31, 1998. These financial statements
and financial highlights are the responsibility of The Monitor Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The accompanying
statement of operations for the year ended November 30, 1997, and the
statements of changes in net assets and financial highlights for the year ended
November 30, 1997 and prior periods as indicated herein, were audited by other
auditors whose report thereon dated January 13, 1998 expressed an unqualified
opinion on those statements and financial highlights.
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 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 May 31, 1998, by
confirmation with the custodian and 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 The
Monitor Funds--Michigan Tax-Free Fund and Intermediate Government Income Fund
at May 31, 1998, the results of their operations, the changes in their net
assets and the financial highlights for the six months ended May 31, 1998, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
July 7, 1998
17
<PAGE>
Notice to Shareholders of The Monitor Funds (Unaudited)
For the fiscal year ended May 31, 1998, each fund is designating long-term and
mid-term capital gains, qualifying dividends, and exempt income with regard to
distributions paid during the year as follows:
<TABLE>
<CAPTION>
(A) (B) (C)
Long-Term Mid-Term Ordinary (D) (F)
Capital Gains Capital Gains Income Total (E) Tax
Distributions Distributions Distributions Distributions Qualifying Exempt
Fund Tax Basis Tax Basis Tax Basis Tax Basis Dividends(1) Interest
- ---- ------------- ------------- ------------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Michigan Tax-Free 0% 0% 100% 100% 0% 99%
Intermediate Government
Income 0% 0% 100% 100% 0% 0%
</TABLE>
Please consult your tax advisor for proper treatment of this information.
(1) Qualifying dividends represent dividends which qualify for the dividends
received deduction
* Items (A), (B) and (C) are based on a percentage of the Funds' total
distributions.
** Items (E) and (F) are based on a percentage of the Funds' ordinary income
distributions.
18
<PAGE>
Trustees Officers
David S. Schoedinger Mark Nagle
John M. Shary President and Chief Executive Officer
William R. Wise Robert DellaCroce
Controller, Treasurer and Chief Financial Officer
Kathryn L. Stanton
Vice President and Secretary
Joseph O'Donnell
Vice President and Assistant Secretary
Todd Cipperman
Vice President and Assistant Secretary
Kevin P. Robins
Vice President and Assistant Secretary
Bradley J. Schram
Secretary
MUTUAL FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS, ARE NOT GUARANTEED BY ANY
BANK, AND ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN MUTUAL FUNDS INVOLVES INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Funds' prospectus, which contains facts
concerning the Funds' objectives and policies, management fees, expenses and
other information.
<PAGE>
[LOGO OF MONITOR FUNDS]
THE HUNTINGTON
NATIONAL BANK
a subsidiary of
Huntington Bancshares
Incorporated, is the
Investment Advisor,
Custodian, and
Recordkeeper of
The Monitor Funds.
SEI Investments
Distribution Co. is
the Distributor and is
not affiliated with The
Huntington National Bank.
[GRAPHIC AND LOGO OF MONITOR FUNDS]
(800) 253-0412
