OCTOBER 31, 1996
ANNUAL
REPORT
INSTITUTIONAL CLASS
PORTICO FUNDS
SHORT-TERM
BOND MARKET FUND
INTERMEDIATE
BOND MARKET FUND
TAX-EXEMPT
INTERMEDIATE BOND FUND
BOND
IMMDEX/TM FUND
NOTICE TO INVESTORS
- - Shares of Portico Funds:
- ARE NOT INSURED BY THE FDIC, the US Government or any other governmental
agency;
- are not bank deposits or obligations of or guaranteed by Firstar Bank, its
parent company or its affiliates;
- are subject to investment risks, including possible loss of principal; and
- are offered by B.C. Ziegler and Company, member NASD, SIPC, and an
independent third-party distributor.
- - Firstar Bank affiliates serve as investment adviser, custodian, transfer
agent, administrator, and accounting services agent and receive compensation
for such services as disclosed in the current prospectus.
TABLE OF CONTENTS
Page(s)
SHAREOWNER LETTER...................................................1-2
CONTROLLING THE ROLLER COASTER RIDE OF INTEREST RATES...............3-7
LOOKING AHEAD - THE FORECAST.........................................7
SHORT-TERM BOND MARKET FUND REVIEW..................................8-9
INTERMEDIATE BOND MARKET FUND REVIEW...............................10-11
TAX-EXEMPT INTERMEDIATE BOND FUND REVIEW...........................12-13
BOND IMMDEX/TM FUND REVIEW.........................................14-15
STATEMENT OF ASSETS AND LIABILITIES..................................16
STATEMENT OF OPERATIONS..............................................17
STATEMENT OF CHANGES IN NET ASSETS...................................18
FINANCIAL HIGHLIGHTS...............................................19-21
SCHEDULE OF INVESTMENTS............................................22-30
NOTES TO FINANCIAL STATEMENTS......................................31-34
REPORT OF INDEPENDENT ACCOUNTANTS....................................35
December 1996
DEAR SHAREOWNER:
INVESTMENT REVIEW
The stock market continued its history-making climb over the past fiscal year,
breaking the 6000 mark and leaving the question, "how far will it go?"
unanswerable. During this attractive environment for financial assets, all
Portico equity funds participated favorably, posting positive rates of return.
On the fixed-income side, the trend of interest rates was frustrating
and volatile for "interest rate anticipators" reinforcing our commitment to
"duration neutral" investing.
Given the roller coaster ride both the equity and fixed-income markets took over
the past year, we feel our growth at reasonable prices equity and structured
fixed-income management styles can provide our shareowners with a "smoother"
ride. We believe our goal of persistency, as we adhere to our twin investment
disciplines, eliminates undue surprises. And, as always, we are committed to
seeking above-average, risk-adjusted returns over complete market cycles.
The beginning of November witnessed one of the largest post-election stock
market rallies in U.S. history including the sixth biggest point increase ever -
- - and a .3% decline in long-term interest rates. With the election and the
uncertainty of how it would affect the markets behind us, it's time to focus on
what we think lies ahead.
MARKET OUTLOOK
Our economic and market outlook is predicated on the following trends:
1. The economic cycle is "muted" with LONGER, MORE MODERATE EXPANSIONS AND
SHORTER, LESS SEVERE RECESSIONS.
2. Historically, the shape of the yield curve is highly correlated with the
pace of future economic growth. The "steep" yield curve three years ago
accurately forecast 1994's pickup in economic activity while today's
"flat" difference between three-month and 10-year interest rates suggests
MORE MODERATE GROWTH AHEAD (2-3% real GDP for calendar 1997).
3. Divided government (Democratic administration and Republican congress)
improves our long standing outlook for a CYCLICALLY BALANCED FEDERAL BUDGET
AND CONTINUED SLOW GROWTH IN GOVERNMENT SPENDING.
4. The 40% of U.S. economic output (Gross Domestic Product or GDP)
representing government (24%) and healthcare (16%) will show MODERATE (2-
4%) 1997 GROWTH.
5. The "REBIRTH" OF THE AMERICAN CONSUMER, based on rising incomes, record
consumer confidence and favorable demographics, will offset weak government
and healthcare spending to produce steady GDP growth next year.
6. Despite limited pricing power, CORPORATE PROFITABILITY IS AT RECORD LEVELS
(Source: Ed Kerschner, PaineWebber) as wage increases are more than offset
by technology-based productivity enhancements. This leads to our forecast
of 4-7% S&P 500 earnings per share growth in 1997.
7. Kept in check by global competition, INFLATION, AS MEASURED BY THE CONSUMER
PRICE INDEX (CPI), HAS AVERAGED 3% SINCE 1991 AND WE EXPECT A 2-4% RANGE
FOR 1997.
8. Since 1926, the S&P 500 STOCK INDEX HAS PROVIDED A +15.4% annual return in
years when inflation was in the 2% to 5% range. The last negative calendar
year of S&P 500 return in a moderate (2-5%) inflation environment was 1966.
9. THE U.S. MARKETS ARE INCREASINGLY THE MARKETS OF CHOICE FOR GLOBAL
INVESTORS with foreign investment in the U.S. stock and bond markets again
on the rise.
10. With inflation running at a 3% rate, REAL, OR INFLATION-ADJUSTED, INTEREST
RATES RANGE FROM WELL OVER 2% FOR SHORT-TERM RATES TO ALMOST 4% FOR LONG-
TERM RATES.
To summarize, we believe a surprisingly resilient consumer will offset weakness
in the government and healthcare sectors allowing inflation-adjusted economic
growth to remain in its 2% to 4% trendline range. Inflation, restrained by
global competition and mitigated by technology-based productivity gains, should
remain subdued, increasing at a 2% to 4% annual rate. Moderate economic growth
and continued low inflation provide a favorable environment for financial
assets.
As always, we appreciate your confidence in the Portico Fund Family and
encourage you to read the portfolio reviews that follow.
(PHOTO) (PHOTO)
J. SCOTT HARKNESS, CFA MARY ELLEN STANEK, CFA
Chairman/Chief President
Investment Officer
Firstar Investment Research & Management Company
THE ROLLER COASTER RIDE CONTINUES
One word can describe the bond market over the last year - volatile. Concern
over prospects for higher inflation caused the 10-Year U.S. Treasury yield to
move from a low of 5.5% to a high of 7.1% before ending the fiscal year at 6.3%.
(See chart below.) Volatility can test the integrity of a bond fund, sometimes
exposing bond market risks that are not readily apparent. This can result in
diminished investment returns. However, at Portico our fixed-income management
approach is specifically designed to define, measure, and control bond fund
risks. A bond fund that performs as expected during volatile times distinguishes
itself with investors who appreciate a "what you see is what you get"
philosophy. At the Portico Funds, we strive to educate our investors about
realistic return expectations and the risk it takes to achieve those returns.
10-YEAR U.S. TREASURY NOTE
10/93 4/94 10/94 4/95 10/95 4/96 10/96
5.43% 7.04% 7.81% 7.05% 6.02% 6.67% 6.34%
Source: Bloomberg
Despite the fact that bond funds are often chosen over equity alternatives for
income and stability of returns, bond funds are not risk free. Our goal is to
help fixed-income investors educate themselves about risks common to many bond
funds. We believe that an investor who is knowledgeable about bond fund risks
can best choose a fund that meets his or her investment objectives. In this
year's annual report to shareowners we will take a closer look at three risks
common to bond fund investors: (1) interest rate volatility and the threat of an
increase in inflation, (2) the hidden risks of mutual funds which "masquerade"
as something they are not and, (3) the credit risk inherent in obligations
issued by entities other than the U.S. Treasury.
INTEREST RATE RISK AND INFLATION ANXIETY
The key component of risk in a bond fund is the fund's price sensitivity to
interest rate changes. Bond prices and bond fund values move inversely with
interest rates. As rates rise, prices fall and, conversely, as rates fall,
prices rise. Because inflation reduces one's purchasing power and the future
value of money invested, interest rates are extremely sensitive to the outlook
for inflation. Bond market yields adjust to compensate investors for anticipated
future levels of inflation. However, the market has not been particularly
successful in accurately predicting the level of inflation over the past three
years. As seen in the chart below, the yield on the 10-Year U.S. Treasury Note
has gyrated between 5.5% and 8.0% while the Consumer Price Index (inflation) has
remained stable in a range of 2.5% to 3.0%.
10-YEAR U.S. TREASURY NOTE AND
CONSUMER PRICE INDEX
10/93 4/94 10/94 4/95 10/95 4/96 10/96
U.S. Treasury 5.43% 7.04% 7.81% 7.05% 6.02% 6.67% 6.34%
CPI 2.75% 2.36% 2.68% 3.05% 2.74 2.83% 2.80%
Source: Bloomberg
Despite repeated periods of inflation anxiety, higher levels of inflation have
failed to materialize. Other bond fund managers that attempt to anticipate the
future level of inflation and interest rates have a "tough row to hoe": the
chart illustrates how difficult it is for these fund managers to guess
correctly. When they guess incorrectly and lengthen or shorten their funds'
average maturities (and durations) at the wrong time, the penalty is under-
performance. In today's environment of volatile interest rates, we believe their
probability of success is no better than the probability of correctly guessing
the outcome of a coin toss. We have a different investment philosophy: OUR
UNWAVERING APPROACH FOR THE PORTICO BOND FUNDS IS TO ADHERE TO OUR STRUCTURED
FIXED-INCOME MANAGEMENT STYLE. Our management approach does not change with the
market; we match the interest rate sensitivity (duration) of each fund to that
of its benchmark. Thus, keeping risks in line with objectives, our goal for each
fund is to outperform its benchmark on a consistent basis before fund expenses.
MASQUERADE RISK
Many fixed-income fund managers attempt to enhance performance of their funds by
purchasing non-investment grade securities (junk bonds), bonds denominated in
foreign currencies or equity hybrid securities such as convertible bonds or
preferred stock. These different types of securities may enhance the performance
of a fund; however, we believe they introduce risks which are not necessarily
commensurate with the objectives of domestic, investment-grade bond funds. As
volatility in the market exposes some of these "masquerading" funds, we
emphasize the importance of remaining true to objectives. We do not attempt to
"mask" the risk of any of our funds. Rather, we control the risks of our
portfolios by keeping them duration-neutral, or risk-matched, to their
benchmarks at all times. ADDITIONALLY, PORTICO BOND FUNDS, AS A PRACTICE,
PURCHASE ONLY INVESTMENT-GRADE FIXED-INCOME SECURITIES DENOMINATED IN U.S.
DOLLARS. We strive to offer our investors a "what you see is what you get"
family of mutual funds.
In the taxable funds, we offer a menu of bond fund choices, each targeted to a
particular maturity segment of the bond market. Portico Short-Term Bond Market
Fund is designed for investors with less tolerance for principal volatility.
Intermediate maturities are represented by Portico Intermediate Bond Market Fund
and for investors seeking tax-exempt income we offer Portico Tax-Exempt
Intermediate Bond Fund. Portico Bond IMMDEX/TM Fund utilizes investments in the
full maturity range (from cash investments to thirty-year bonds or longer) to
achieve total returns, which we expect will be higher than returns of either the
Short-Term Bond Market and Intermediate Bond Market Funds over complete market
cycles, but come with additional principal volatility.
PORTICO FAMILY OF FIXED-INCOME FUNDS
SHORT-TERM INTERMEDIATE-TERM BOND FUNDS LONG-TERM
BOND FUND BOND FUND
---------- ---------------------------- ---------
Portico Portico Portico Portico
Short-Term Intermediate Tax-Exempt Bond
Bond Market Bond Market Intermediate IMMDEX/TM
Fund Fund Bond Fund Fund
LEHMAN
LEHMAN LEHMAN BROTHERS
BROTHERS BROTHERS 5-YEAR LEHMAN
1-3 YEAR INTERMEDIATE GENERAL BROTHERS
BENCHMARK GOV'T./CORP. GOV'T./CORP. OBLIGATION GOV'T./CORP.
BOND INDEX BOND INDEX BOND INDEX BOND INDEX
AVERAGE QUALITY
OF HOLDINGS<F1> AA AA AAA AA
AVERAGE MATURITY 2.9 YEARS 4.7 YEARS 4.8 YEARS 9.6 YEARS
DURATION 1.7 YEARS 3.3 YEARS 4.0 YEARS 5.1 YEARS
PRINCIPAL VOLATILITY LOW MODERATE MODERATE HIGH
EXPECTED REAL OR
INFLATION-ADJUSTED 1.0-1.5% 1.5-2.0% 1.5-2.0% 2.5-3.0%
RATE OF RETURN
Lehman Brothers is neither a sponsor of nor affiliated with Portico Funds. An
investment cannot be made in an index.
Average quality, maturity and duration reflect the portfolio as of October 31,
1996, and will change from time to time in connection with the management of the
portfolios pursuant to the policies described in the current prospectus.
<F1> Dollar weighted average quality of portfolio securities held by the Funds.
CREDIT RISK...AVOIDING THE LAND MINES
A third type of risk in the bond market is credit or default risk. Credit risk
refers to the ability of an issuer (governments or corporations) to pay interest
and principal on a timely basis. Bond Rating agencies, such as Moody's and
Standard & Poor's, analyze the bond issuer's financial health and assign a
rating to reflect the bond's credit risk. The rating agencies continuously
update their rating to reflect the changes in the issuers' financial health.
Issuers take these ratings very seriously because an upgrade or downgrade can
save or cost the issuer a substantial amount in interest expense. The table
below illustrates the rating spectrum of Standard & Poor's:
SECURITY RATING
U.S. Treasury Investment Grade Securities
AAA
AA
A
BBB
Non-Investment Grade Securities
BB
B
CCC
CC
C
As a security moves down the rating spectrum, its risk of default increases and
its value falls on a relative basis, particularly when a security crosses into
non-investment grade. Non-investment grade securities can offer higher yields,
but with higher yields come higher risks. As a practice, PORTICO BOND FUNDS
PURCHASE ONLY INVESTMENT-GRADE RATED SECURITIES.
Corporate bonds can add value to portfolios, but must be carefully analyzed
before a decision to purchase the bond is reached. The risk must be in line with
the additional marginal expected return. As evidenced in the chart below, there
has been a noticeable decline in the credit quality of corporate bonds over the
past quarter century. The data for this chart (provided by Lehman Brothers,
since the inception of its corporate bond index) shows the number of downgrades
by rating agencies has decisively and consistently exceeded the number of
upgrades. This phenomenon has occurred during periods of both economic expansion
and recession, during periods of both rising and falling interest rates, and
during periods of both yield curve flattening and steepening. Looking at this
secular trend shows the difficulty of selecting the "winners" in the corporate
credit game. Our fixed-income research team diligently screens the marketplace
for opportunities in the corporate bond market that add value while controlling
the risk.
QUALITY ANALYSIS OF THE LEHMAN BROTHERS CORPORATE INDEX -
1973 THROUGH OCTOBER 31, 1996
% MARKET VALUE
1973 1975 1977 1979 1981 1983
AAA Index 27.26% 27.58% 25.95% 27.76% 21.58% 8.03%
AA Index 30.69% 27.44% 28.80% 25.46% 26.45% 34.87%
A Index 32.58% 33.27% 33.14% 36.29% 37.75% 37.72%
BBB Index 9.47% 11.70% 12.11% 10.50% 14.22% 19.38%
1985 1987 1989 1991 1993 1995 1996
AAA Index 5.61% 10.25% 15.13% 10.47% 6.66% 4.90% 4.44%
AA Index 36.05% 35.92% 27.26% 21.90% 16.26% 18.20% 19.16%
A Index 39.71% 32.04% 35.39% 44.73% 49.04% 52.48% 52.93%
BBB Index 18.62% 21.79% 22.22% 22.91% 28.03% 24.43% 23.47%
One sector of the corporate bond market where we have found value over the last
year is in asset-backed securities, particularly credit card asset-backed
securities. An asset-backed is a security that is collateralized by a pool of
assets. As an example, a credit card asset-backed security is collateralized by
the receivable balances of a specific credit card. These balances are pooled, or
grouped together, and sold to institutional investors. The financial press has
published numerous articles during 1996 concerning the deterioration of the
personal balance sheets of individuals. Headlines such as "Personal
Bankruptcies at Record Level" or "Credit Card Charge-offs Soar to Six Year
High" have been very misleading, if not outright inaccurate. Although
bankruptcies and credit card charge-offs have increased significantly over the
past year, those increases have risen from historically low levels in 1994 and
1995 (source: Moody's). Thus, in our opinion, today's absolute levels are only
moderate by historical standards. UNLIKE THE CORPORATE BOND MARKET WHERE CREDIT
DECLINES HAVE BEEN OCCURRING FOR YEARS, CREDIT CARD ASSET-BACKED SECURITY
DOWNGRADES ARE EXTREMELY RARE (source: Standard & Poor's and Moody's). We
believe asset-backed securities provide relative value in the debt market due to
their high quality and excellent liquidity. Some specific advantages of
purchasing asset-backed securities include:
- - Almost all senior credit card asset-backed securities are rated AAA.
- - Yields are comparable to lower-rated industrial corporate bonds.
- - In the unlikely event of severe credit deterioration, there is an "early
warning mechanism" - principal is paid early to protect holder from further
deterioration.
Asset-backed securities have been an important asset class in the Portico bond
funds for many years and we believe these asset-backed investments have
contributed favorably to our bond funds' performance.
CONSISTENCY IS THE HALLMARK OF THE PORTICO BOND FUNDS
In the world of bond fund investing, many risks can keep a fund manager from
delivering consistent performance: (1) interest rate risk and unanticipated
changes to the inflation outlook, (2) the risks inherent in foreign currency
movements, equity-like hybrid securities, and non-investment grade securities,
and (3) the risks of unanticipated credit quality deterioration. IN THE PORTICO
BOND FUNDS, WE STRIVE TO DEFINE, MEASURE AND CONTROL THESE AND OTHER BOND RISKS
RESULTING IN CONSISTENT INVESTMENT PERFORMANCE EVEN IN VOLATILE TIMES.
We believe that the bond market is efficient, meaning that over the long run,
investors will be rewarded with returns which are in direct proportion to the
level of risk they are willing to take. While expected returns are often what
attract an investor to an investment, full awareness of the type and magnitude
of risk taken to generate those returns is critical in determining if the
investment is truly suitable. At Portico, we attempt to calculate and control
risks, keeping our bond funds in line with objectives. By being upfront with
risks and return expectations, our goal is to produce competitive and consistent
investment performance which will help our investors achieve their investment
goals. We hope the information and illustrations provided are helpful, as it is
our goal to educate our investors so they can make better investment decisions.
LOOKING AHEAD - THE FORECAST
As we look to the year ahead, our expectation is for moderate GDP growth and low
inflation. Restrained by global competition and mitigated by technology-based
productivity gains, inflation should remain subdued in the 2-4% range. Real or
inflation-adjusted yields, at current levels, are attractive by historical
standards. While we expect continued volatility, we believe the next year will
be a more favorable one for our bond investors.
We appreciate your continued confidence in the Portico Bond Funds and look
forward to continuing to provide you with the benefits of our structured fixed-
income investment strategies.
MARY ELLEN STANEK, CFA
TERESA R. WESTMAN, CFA
DANIEL A. TRANCHITA, CFA
WARREN D. PIERSON, CFA
Portfolio Managers
Firstar Investment Research & Management Company
SHORT-TERM BOND MARKET FUND
---------------------------
Portico Short-Term Bond Market Fund seeks to provide an annual rate of total
return, comparable to the annual rate of total return of the Lehman Brothers 1-3
Year Government/Corporate Bond Index, before Fund expenses. Of Portico's three
taxable fund offerings, we expect the Short-Term Bond Market Bond Fund will have
the lowest volatility of principal and correspondingly lower expected total
returns over complete market cycles.
A key component of risk in a bond fund is the fund's price sensitivity to
interest rate changes. Currently, with a 1.7 year duration, Portico Short-Term
Bond Market Fund's interest rate risk is low relative to our other taxable fund
offerings and is equivalent to the Lehman Brothers 1-3 Year Government/Corporate
Bond Index. We keep the Fund's duration equivalent to its benchmark so that both
will react similarly to changes in interest rates. We think this is the best
approach as we believe no manager can consistently predict future interest
rates. We call this our structured fixed-income management style. Historically,
strict adherence to this discipline has resulted in FUND PERFORMANCE THAT IS
SIMILAR TO ITS BENCHMARK, EVEN IN VOLATILE MARKETS.
Another key to generating consistent performance over time is our practice of
limiting fund investments to dollar- denominated, investment-grade debt
securities. While the Fund does own some debt obligations of foreign entities
(currently 2%) all are denominated in U.S. dollars. Also, there are no "junk"
bonds in the Fund -- all securities in the portfolio are rated investment-grade
by Moody's or S&P. This gives the Fund an average quality rating of AA. Finally,
we strictly limit the Fund to debt securities only -- the Fund holds no
convertible bonds or preferred stock issues which may perform like equity
investments. We emphasize the importance of remaining true to the Fund's
objectives and strive to offer our investors a "WHAT YOU SEE IS WHAT YOU GET"
fixed-income fund.
Currently, corporate and asset-backed securities comprise a significant portion
of the Fund, representing 28% and 26%, respectively. Even so, over half of the
Fund is rated AAA or higher. We feel these investments offer a higher expected
return than U.S. Treasury securities. These investments, however, increase the
credit risk in the portfolio. To mitigate this risk, WE CAREFULLY ANALYZE EACH
BOND, making sure the risk is appropriate for the additional marginal expected
return.
Since Portico Short-Term Bond Market Fund's inception on 12/29/89, we have
adhered to the same, disciplined management approach. The past 6+ years have
brought us more volatility in the fixed-income markets than many would have
expected. THE HALLMARK OF OUR APPROACH HAS BEEN THE FUND'S CONSISTENT
PERFORMANCE IN ALL MARKET CLIMATES. Portico Short- Term Bond Market Fund's
returns have been in-line with its benchmark in periods of rising interest
rates and falling interest rates. Our goal is to continue to deliver this same
consistent performance in the future.
(PHOTO) (PHOTO)
MARY ELLEN STANEK, CFA DANIEL A. TRANCHITA, CFA
PORTFOLIO MANAGER PROFILE
- -------------------------
MARY ELLEN STANEK, CFA, President of Firstar Investment Research & Management
Company (FIRMCO) and DANIEL A. TRANCHITA, CFA, Vice President and Portfolio
Manager, co-manage the Fund - Mary Ellen since its inception on December 29,
1989 and Dan since January 1, 1993. Mary Ellen has 17 years of investment
management experience and was named a Director of FIRMCO in 1992. Prior to
joining FIRMCO, she headed the Fixed Income and Quantitative Investment
Management Department at Firstar Trust Company. Mary Ellen received her BA from
Marquette University in 1978 and her MBA from the University of Wisconsin-
Milwaukee in 1984. Dan has been with Firstar since 1989 and has eight years of
investment management experience. He received his BA in 1987 and his MBA in 1989
from Marquette University. Mary Ellen and Dan are both Chartered Financial
Analysts.
<TABLE>
12/29/89 10/90 10/91 10/92 10/93 10/94 10/95 10/96
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PORTICO SHORT-TERM
BOND MARKET FUND $10,000 $10,464 $11,865 $12,966 $13,833 $14,035 $15,290 $16,177
LEHMAN BROTHERS
1-3 YEAR
GOV'T/CORP.
BOND INDEX $10,000 10,738 $11,964 $12,943 $13,712 $13,879 $15,118 $16,030
This chart assumes an initial investment of $10,000 made on 12/29/89 (inception). Performance reflects fee waivers in effect.
In the absence of fee waivers, total return would be reduced. Returns shown include the reinvestment of all dividends and other
distributions. Past performance is not predictive of future performance. Investment return and principal value will fluctuate,
so that your shares, when redeemed, may be worth more or less than their original cost.
</TABLE>
AVERAGE ANNUAL RATE OF RETURN (%)
FOR PERIODS ENDED OCTOBER 31, 1996
Since Inception
1 Year 3 Years 5 Years 12/29/89
------ ------- ------- ---------------
PORTICO SHORT-TERM BOND
MARKET FUND 5.8 5.4 6.4 7.3
LEHMAN BROTHERS 1-3 YEAR
GOV'T./CORP. BOND INDEX<F2> 6.0 5.4 6.0 7.1
<F2> The Lehman Brothers 1-3 Year Gov't./Corp. Bond Index is an unmanaged market
value weighted index measuring both principal price changes of, and income pro-
vided by, the under lying universe of securities that comprise the index.
Securities included in the index must meet the following criteria: fixed as
opposed to variable rate; not less than one year to maturity; not more than
three years remaining to maturity; and minimum out standing par value of $100
million. An investment cannot be made directly in an index.
Effective at the close of business on January 9, 1995, Portico Funds began to
offer Series A (retail) shares and Series Institutional shares. Series A shares,
unlike the Series Institutional shares, have a 2% maximum sales load and are
subject to an annual 0.25% service organization fee. In addition, the purchase
price adjustment on the Fund no longer applies to either the Series A or Series
Institutional shares. The performance for the Series Institutional shares has
been restated to reflect the elimination of the purchase price adjustment.
Performance reflects fee waivers in effect. In the absence of fee waivers,
total return would be reduced.
SECTOR DISTRIBUTION
10/31/96
U.S. TREASURY 16%
U.S. GOVERNMENT AGENCY 13%
MORTGAGE-BACKED 9%
FINANCE, BANKING, BROKERAGE 15%
INDUSTRIAL 9%
UTILITY 4%
INTERNATIONAL/YANKEE 2%
ASSET-BACKED 26%
CASH 3%
TAXABLE MUNICIPAL 3%
TOTAL 100%
PORTFOLIO COMPOSITION
10/31/96
AVERAGE MATURITY 2.9 YEARS
AVERAGE DURATION 1.7 YEARS
QUALITY DISTRIBUTION
10/31/96
U.S. TREASURY 18%
U.S. GOVERNMENT AGENCY 14%
Aaa 33%
Aa 5%
A 26%
Baa 4%
TOTAL 100%
SEC 30-DAY YIELD
6.04%
TOTAL FUND NET ASSETS
10/31/96
$206,308,784
INTERMEDIATE BOND MARKET FUND
------------------------------
Portico Intermediate Bond Market Fund seeks to provide an annual rate of total
return comparable to the annual rate of total return of the Lehman Brothers
Intermediate Government/Corporate Bond Index, before Fund expenses. We expect
the Intermediate Bond Market Fund will have moderate volatility of principal and
correspondingly higher expected total returns over complete market cycles.
A key component of risk in a bond fund is the fund's price sensitivity to
interest rate changes. Currently, with a 3.3 year duration, Portico Intermediate
Bond Market Fund's interest rate risk is moderate relative to our other taxable
fund offerings and is equivalent to the Lehman Brothers Intermediate
Government/Corporate Bond Index. We keep the Fund's duration equivalent to its
benchmark so that both will react similarly to changes in interest rates. We
think this is the best approach as we believe no manager can consistently
predict future interest rates. We call this our structured fixed-income
management style. Historically, strict adherence to this discipline has resulted
in FUND PERFORMANCE THAT IS SIMILAR TO ITS BENCHMARK, EVEN IN VOLATILE MARKETS.
Another key to generating consistent performance over time is our practice of
limiting fund investments to dollar-denominated, investment-grade debt
securities. While the Fund does own some debt obligations of foreign entities
(currently 3%) all are denominated in U.S. dollars. Also, there are no "junk"
bonds in the Fund -- all securities in the portfolio are rated investment-grade
by Moody's or S&P. This gives the Fund an average quality rating of AA. Finally,
we strictly limit the Fund to debt securities only -- the Fund holds no
convertible bonds or preferred stock issues which may perform like equity
investments. We emphasize the importance of remaining true to the Fund's
objectives and strive to offer our investors a "WHAT YOU SEE IS WHAT YOU GET"
fixed-income fund.
Currently, corporate and asset-backed securities comprise a significant portion
of the Fund, representing 37% and 26%, respectively. Even so, over half of the
Fund is rated AAA or higher. We feel these investments offer a higher expected
return than U.S. Treasury securities. These investments, however, increase the
credit risk in the portfolio. To mitigate this risk, WE CAREFULLY ANALYZE EACH
BOND, making sure the risk is appropriate for the additional marginal expected
return.
Since Portico Intermediate Bond Market Fund's inception on 1/5/93, we have
adhered to the same, disciplined management approach. The past 3+ years have
brought us more volatility in the fixed-income markets than many would have
expected. THE HALLMARK OF OUR APPROACH HAS BEEN THE FUND'S CONSISTENT
PERFORMANCE IN ALL MARKET CLIMATES. Portico Intermediate Bond Market Fund's
returns have been in-line with it's benchmark in periods of rising interest
rates and falling interest rates. Our goal is to continue to deliver this same
consistent performance in the future.
(PHOTO) (PHOTO)
MARY ELLEN STANEK, CFA TERESA R. WESTMAN, CFA
PORTFOLIO MANAGER PROFILE
- -------------------------
MARY ELLEN STANEK, CFA, President of Firstar Investment Research & Management
Company (FIRMCO) and TERESA R. WESTMAN, CFA, Senior Vice President and Senior
Portfolio Manager have co-managed the Fund since its inception on January 5,
1993. Mary Ellen has 17 years of investment management experience and was named
a Director of FIRMCO in 1992. Prior to joining FIRMCO, she headed the Fixed
Income and Quantitative Investment Management Department at Firstar Trust
Company. Mary Ellen received her BA from Marquette University in 1978 and her
MBA from the University of Wisconsin-Milwaukee in 1984. Teresa has been with
Firstar since 1987 and has nine years of investment management experience.
Teresa received her BA from Augustana College in 1985 and her MBA from the
University of Chicago in 1991. Mary Ellen and Teresa are both Chartered
Financial Analysts.
1/5/93 10/93 10/94 10/95 10/96
PORTICO INTERMEDIATE
BOND MARKET FUND $10,000 $10,858 $10,670 $11,978 $12,669
LEHMAN BROTHERS
INTERMEDIATE GOV'T./
CORP. BOND INDEX $10,000 $10,844 $10,635 $11,968 $12,663
This chart assumes an initial investment of $10,000 made on 1/5/93 (inception).
Performance reflects fee waivers in effect. In the absence of fee waivers, total
return would be reduced. Returns shown include the reinvestment of all dividends
and other distributions. Past performance is not predictive of future
performance. Investment return and principal value will fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
AVERAGE ANNUAL RATE OF RETURN (%)
FOR PERIODS ENDED OCTOBER 31, 1996
Since Inception
1 Year 3 Years 1/5/93
------ ------- ---------------
PORTICO INTERMEDIATE
BOND MARKET FUND 5.8 5.3 6.4
LEHMAN BROTHERS INTERMEDIATE
GOV'T./CORP. BOND INDEX<F3> 5.8 5.3 6.4
<F3> The Lehman Brothers Intermediate Gov't./Corp. Bond Index is an unmanaged
market value weighted index measuring both principal price changes of, and
income provided by, the underlying universe of securities that comprise the
index. Securities included in the index must meet the following criteria: fixed
as opposed to variable rate; remaining maturity of one to ten years; minimum
out standing par value of $100 million; and rated investment grade or higher by
Moody's, Standard & Poor's, or Fitch, in that order. An investment cannot be
made directly in an index.
Effective at the close of business on January 9, 1995, Portico Funds began to
offer Series A (retail) shares and Series Institutional shares. Series A shares,
unlike the Series Institutional shares, have a 2% maximum sales load and are
subject to an annual 0.25% service organization fee. In addition, the purchase
price adjustment on the Fund no longer applies to either the Series A or Series
Institutional shares. The performance for the Series Institutional shares has
been restated to reflect the elimination of the purchase price adjustment.
Performance reflects fee waivers in effect. In the absence of fee waivers,
total return would be reduced.
SECTOR DISTRIBUTION
10/31/96
U.S. TREASURY 20%
U.S. GOVERNMENT AGENCY 11%
MORTGAGE-BACKED 1%
FINANCE, BANKING, BROKERAGE 33%
INDUSTRIAL 4%
INTERNATIONAL 3%
ASSET-BACKED 26%
TAXABLE MUNICIPAL 1%
CASH 1%
TOTAL 100%
PORTFOLIO COMPOSITION
10/31/96
AVERAGE MATURITY 4.7 YEARS
AVERAGE DURATION 3.3 YEARS
QUALITY DISTRIBUTION
10/31/96
U.S. TREASURY 21%
U.S. GOVERNMENT AGENCY 10%
Aaa 26%
A 38%
Baa 5%
TOTAL 100%
SEC 30-DAY YIELD
6.25%
TOTAL FUND NET ASSETS
10/31/96
$190,859,687
TAX-EXEMPT INTERMEDIATE BOND FUND
----------------------------------
Portico Tax-Exempt Intermediate Bond Fund seeks to provide current income exempt
from federal income taxes and emphasizes total return with relatively low
volatility of principal. The Fund currently has an average quality rating of AAA
with a 4.8 year average maturity. Thus, we expect it to display less principal
volatility than the typical municipal bond fund which, according to Lipper
Analytical Services, has an average maturity of 19 years. Currently, the Fund
does not buy any issues which are subject to the alternative minimum tax.
After a considerably volatile journey, the municipal bond market ended the last
twelve months surprisingly close to where it started. Five-year municipal bond
yields rose less than 20 basis points to 4.50% from 4.35%. Portico Tax-Exempt
Intermediate Bond Fund weathered the market's volatility with solid performance
resulting from its unique position in the short-to-intermediate-term sector of
the municipal bond market, careful security selection and strategic yield curve
positioning.
Emphasizing short and intermediate municipal securities helped the Fund maintain
a stable value relative to the municipal market and to the fixed-income market
as a whole.
Careful selection of securities has kept the Fund on track despite swift changes
in interest rates that tested the integrity of many bond funds over the past few
months. An emphasis on bonds with well-defined maturities and superior credit
quality has guided the Fund safely through the market's unease. As of October
31, 1996, less than 8% of the bonds held by the Fund were subject to call
features, while over 72% were secured with U.S. Treasury issues (prerefunded
bonds).
An "all weather" yield curve positioning strategy also played an important
part in the Fund's performance this year. Unlike the Treasury yield curve which
steepened over the past twelve months, the municipal yield curve flattened
modestly. We believe our concentration of maturities in the 4-5 year range,
along with selective holdings in the 10-15 year range, contributed significantly
to the Fund's performance.
(PHOTO)
WARREN D. PIERSON, CFA
PORTFOLIO MANAGER PROFILE
- -------------------------
WARREN D. PIERSON, CFA, Vice President and Portfolio Manager of Firstar
Investment Research & Management Company (FIRMCO) has managed the Fund since
June 22, 1993. Since joining Firstar in 1985, his responsibilities have included
trading government and government agency issues, as well as money market
instruments. His current portfolio management responsibilities focus on the tax-
exempt bond market. Warren received his BA from Lawrence University in 1984. He
is a Chartered Financial Analyst, as well as a member of the Association for
Investment Management and Research and the Milwaukee Investment Analysts
Society.
2/8/93 10/93 10/94 10/95 10/96
PORTICO TAX-EXEMPT
INTERMEDIATE BOND FUND $10,000 $10,536 $10,459 $11,440 $11,900
LEHMAN BROTHERS 5 YEAR
GENERAL OBLIGATION
BOND INDEX $10,000 $10,557 $10,499 $11,586 $12,143
This chart assumes an initial investment of $10,000 made on 2/8/93 (inception).
Performance reflects fee waivers in effect. In the absence of fee waivers, total
return would be reduced. Returns shown include the reinvestment of all dividends
and other distributions. Past performance is not predictive of future
performance. Investment return and principal value will fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
AVERAGE ANNUAL RATE OF RETURN (%)
FOR PERIODS ENDED OCTOBER 31, 1996
Since Inception
1 Year 3 Years 2/8/93
------ ------- ---------------
PORTICO TAX-EXEMPT
INTERMEDIATE BOND FUND 4.0 4.1 4.8
LEHMAN BROTHERS 5 YEAR
GENERAL OBLIGATION BOND INDEX<F4> 4.8 4.8 5.5
<F4> The Lehman Brothers 5 Year General Obligation Bond Index, an unmanaged
index, is a total return performance benchmark for the investment-grade
tax-exempt bond market. To be included in this index, a municipal bond must
be a state or local General Obligation bond; have a minimum credit rating
of at least Baa; have been issued as part of an offering of at least $50
million; have a maturity amount outstanding of at least $3 million; have
been issued within the last five years; and have a maturity of 4 to 6
years. An investment cannot be made directly in an index.
Effective at the close of business on January 9, 1995, Portico Funds began to
offer Series A (retail) shares and Series Institutional shares. Series A shares,
unlike the Series Institutional shares, have a 2% maximum sales load and are
subject to an annual 0.25% service organization fee. Performance reflects fee
waivers in effect. In the absence offee waivers, total return would be reduced.
SECTOR DISTRIBUTION
10/31/96
GENERAL OBLIGATIONS 5%
ESCROWED/PREREFUNDED 72%
INSURED 9%
REVENUE 10%
CASH 4%
TOTAL 100%
QUALITY DISTRIBUTION
10/31/96
Aaa 92%
Aa 5%
A 3%
TOTAL 100%
PORTFOLIO COMPOSITION
10/31/96
AVERAGE MATURITY 4.8 YEARS
AVERAGE DURATION 4.0 YEARS
SEC 30-DAY YIELD
4.26%
TOTAL FUND NET ASSETS
10/31/96
$47,341,982
BOND IMMDEX/TM FUND
-------------------
Portico Bond IMMDEX/TM Fund seeks to provide an annual rate of total return
comparable to the annual rate of total return of the Lehman Brothers
Government/Corporate Bond Index, before Fund expenses. Of Portico's three
taxable fund offerings, we expect Bond IMMDEX/TM Fund will have the highest
volatility of principal and commensurately higher expected total returns over
complete market cycles.
A key component of risk in a bond fund is the fund's price sensitivity to
interest rate changes. Currently, with a 5.1 year duration, Portico Bond
IMMDEX/TM Fund's interest rate risk is high relative to our other taxable fund
offerings, but is equivalent to the Lehman Brothers Government/Corporate Bond
Index. We keep the Fund's duration equivalent to its benchmark so that both will
react similarly to changes in interest rates. We think this is the best approach
as we believe no manager can consistently predict future interest rates. We call
this our structured fixed income management style. Historically, strict
adherence to this discipline has resulted in fund performance that is similar to
its benchmark, even in volatile markets.
Another key to generating consistent performance over time is our practice of
limiting fund investments to dollar-denominated, investment-grade debt
securities. While the Fund does own some debt obligations of foreign entities
(currently 3%) all are denominated in U.S. dollars. Also, there are no "junk"
bonds in the Fund -- all securities in the portfolio are rated investment-grade
by Moody's or S&P. This gives the Fund an average quality rating of AA. Finally,
we strictly limit the Fund to debt securities only -- the Fund holds no
convertible bonds or preferred stock issues which may perform like equity
investments. We emphasize the importance of remaining true to the Fund's
objectives and strive to offer our investors a "what you see is what you get"
fixed-income fund.
Currently, corporate and asset-backed securities comprise a significant portion
of the Fund, representing 42% and 20%, respectively. Even so, over half of the
Fund is rated AAA or higher. We feel these investments offer a higher expected
return than U.S. Treasury securities. These investments, however, increase the
credit risk in the portfolio. To mitigate this risk, we carefully analyze each
bond, making sure the risk is appropriate for the additional marginal expected
return.
Since Portico Bond IMMDEX/TM Fund's inception on 12/29/89, we have adhered to
the same, disciplined management approach. The past 6+ years have brought us
more volatility in the fixed-income markets than many would have expected. The
hallmark of our approach has been the Fund's consistent performance in all
market climates. Portico Bond IMMDEX's returns have been in-line with its
benchmark in periods of rising interest rates and falling interest rates. Our
goal is to continue to deliver this same consistent performance in the future.
(PHOTO) (PHOTO)
MARY ELLEN STANEK, CFA TERESA R. WESTMAN, CFA
PORTFOLIO MANAGER PROFILE
- -------------------------
MARY ELLEN STANEK, CFA, President of Firstar Investment Research & Management
Company (FIRMCO) and TERESA R. WESTMAN, CFA, Senior Vice President and Senior
Portfolio Manager have co-managed the Fund - Mary Ellen since its inception on
December 29, 1989 and Teresa since January 1, 1992. Mary Ellen has 17 years of
investment management experience and was named a Director of FIRMCO in 1992.
Prior to joining FIRMCO, she headed the Fixed Income and Quantitative Investment
Management Department at Firstar Trust Company. Mary Ellen received her BA from
Marquette University in 1978 and her MBA from the University of Wisconsin-
Milwaukee in 1984. Teresa has been with Firstar since 1987 and has nine years of
investment management experience. Teresa received her BA from Augustana College
in 1985 and her MBA from the University of Chicago in 1991. Mary Ellen and
Teresa are both Chartered Financial Analysts.
<TABLE>
12/29/89 10/90 10/91 10/92 10/93 10/94 10/95 10/96
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PORTICO BOND
IMMDEX/TM FUND $10,000 $10,421 $12,105 $13,376 $15,154 $14,565 $16,934 $17,840
LEHMAN BROTHERS
GOV'T/CORP.
BOND INDEX $10,000 $10,440 $12,045 $13,312 $15,126 $14,424 $16,755 $17,658
This chart assumes an initial investment of $10,000 made on 12/29/89 (inception). Performance reflects fee waivers in
effect. In the absence of fee waivers, total return would be reduced. Returns shown include the reinvestment of all
dividends and other distributions. Past performance is not predictive of future performance. Investment return and
principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost.
</TABLE>
AVERAGE ANNUAL RATE OF RETURN (%)
FOR PERIODS ENDED OCTOBER 31, 1996
Since Inception
1 Year 3 Years 5 Years 12/29/89
------ ------- ------- ---------------
PORTICO BOND
IMMDEX/TM FUND 5.4 5.6 8.1 8.8
LEHMAN BROTHERS
GOV'T/CORP. BOND
INDEX<F5> 5.4 5.3 8.0 8.7
<F5> The Lehman Brothers Gov't./Corp. Bond Index is an unmanaged market value
weighted index measuring both principal price changes of, and income provided
by, the underlying universe of securities that comprise the index. Securities
included in the index must meet the following criteria: fixed as opposed to
variable rate; not less than one year to maturity; minimum out standing par
value of $100 million; and rated investment grade or higher by Moody's, Standard
& Poor's, or Fitch, in that order. An investment cannot be made directly in an
index.
Effective at the close of business on January 9, 1995, Portico Funds began to
offer Series A (retail) shares and Series Institutional shares. Series A shares,
unlike the Series Institutional shares, have a 2% maximum sales load and are
subject to an annual 0.25% service organization fee. In addition, the purchase
price adjustment on the Fund no longer applies to either the Series A or Series
Institutional shares. The performance for the Series Institutional shares has
been restated to reflect the impact of the sales charge (and the elimination of
the purchase price adjustment). The performance for the Series Institutional
shares has been restated to reflect the elimination of the purchase price
adjustment. Prior to January 10, 1995, Series A performance does not reflect the
service organization fees. If service organization fees had been reflected,
performance would be reduced. Performance reflects fee waivers in effect. In the
absence of fee waivers, total return would be reduced.
SECTOR DISTRIBUTION
10/31/96
U.S. TREASURY 30%
U.S. GOVERNMENT AGENCY 2%
MORTGAGE-BACKED 1%
FINANCE, BANKING, BROKERAGE 34%
INDUSTRIAL 6%
UTILITY 2%
INTERNATIONAL 3%
ASSET-BACKED 20%
TAXABLE MUNICIPAL 1%
CASH 1%
TOTAL 100%
PORTFOLIO COMPOSITION
10/31/96
AVERAGE MATURITY 9.6 YEARS
AVERAGE DURATION 5.1 YEARS
QUALITY DISTRIBUTION
10/31/96
U.S. TREASURY 31%
U.S. GOVERNMENT AGENCY 2%
Aaa 21%
Aa 2%
A 35%
Baa 9%
TOTAL 100%
SEC 30-DAY YIELD
6.50%
TOTAL FUND NET ASSETS
10/31/96
$413,227,235
STATEMENT OF ASSETS AND LIABILITIES
(Amounts in thousands, except per share data)
October 31, 1996
SHORT-TERM INTERMEDIATE TAX-EXEMPT BOND
BOND MARKET BOND MARKET INTERMEDIATE IMMDEX/TM
FUND FUND BOND FUND FUND
----------- ----------- ----------- ---------
ASSETS:
Investments, at value (cost
$203,818, $185,963,
$46,020 and $395,854,
respectively) $203,527 $187,780 $ 46,530 $406,499
Interest receivable 2,707 3,194 807 6,777
Capital shares sold 353 14 51 215
Other assets 14 18 5 13
-------- -------- -------- --------
Total Assets 206,601 191,006 47,393 413,504
-------- -------- -------- --------
LIABILITIES:
Payable for securities purchased - - - 57
Capital shares redeemed 147 7 2 3
Payable to affiliates 92 85 31 150
Accrued expenses 53 54 18 67
-------- -------- -------- --------
Total Liabilities 292 146 51 277
-------- -------- -------- --------
NET ASSETS $206,309 $190,860 $ 47,342 $413,227
======== ======== ======== ========
NET ASSETS CONSIST OF:
Capital stock $208,043 $190,015 $ 46,916 $403,535
Undistributed net
investment income 92 89 15 197
Undistributed accumulated
net realized (losses) (1,535) (1,061) (99) (1,150)
Unrealized net appreciation
(depreciation) on
investments (291) 1,817 510 10,645
-------- -------- -------- --------
Total Net Assets $206,309 $190,860 $ 47,342 $413,227
======== ======== ======== ========
SERIES A:
Net assets $ 58,843 $ 17,392 $ 10,690 $ 42,671
Shares authorized
($.0001 par value) 500,000 500,000 500,000 500,000
Shares issued and outstanding 5,738 1,707 1,047 1,549
Net asset value and
redemption price
per share <F10> $10.25 $10.19 $10.21 $27.54
======== ======== ======== ========
Maximum offering price
per share <F10> $10.46 $10.40 $10.42 $28.10
======== ======== ======== ========
SERIES INSTITUTIONAL:
Net assets $147,466 $173,468 $ 36,652 $370,556
Shares authorized
($.0001 par value) 500,000 500,000 500,000 500,000
Shares issued and outstanding 14,381 17,030 3,589 13,452
Net asset value,
redemption price and
offering price per
share <F10> $10.25 $10.19 $10.21 $27.55
======== ======== ======== ========
<F10> Amounts may not recalculate due to rounding.
See notes to the financial statements.
STATEMENT OF OPERATIONS
(Amounts in thousands)
Year Ended October 31, 1996
SHORT-TERM INTERMEDIATE TAX-EXEMPT BOND
BOND MARKET BOND MARKET INTERMEDIATE IMMDEX/TM
FUND FUND BOND FUND FUND
----------- ----------- ------------ ---------
INVESTMENT INCOME:
Interest income $11,888 $10,798 $1,891 $23,909
-------- -------- -------- --------
EXPENSES:
Investment advisory fees 1,109 850 199 1,077
Administration fees 211 194 46 410
Shareowner servicing
and accounting costs 142 103 76 130
Service organization
fees - Series A 134 36 23 82
Custody fees 35 33 13 67
Federal and state
registration fees 37 30 12 54
Professional fees 26 21 18 24
Reports to shareowners 38 10 9 19
Amortization of
organization costs - 3 3 -
Directors' fees and expenses 6 6 5 6
Other 4 4 3 8
-------- -------- -------- --------
Total expenses before waiver 1,742 1,290 407 1,877
Less: Waiver of expenses (684) (404) (184) (253)
-------- -------- -------- --------
Net expenses 1,058 886 223 1,624
-------- -------- -------- --------
NET INVESTMENT INCOME 10,830 9,912 1,668 22,285
-------- -------- -------- --------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss)
on investment transactions 92 773 43 (167)
Change in unrealized
appreciation (depreciation)
on investments (1,102) (1,245) (88) (2,584)
-------- -------- -------- --------
Net loss on investments (1,010) (472) (45) (2,751)
-------- -------- -------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 9,820 $ 9,440 $1,623 $19,534
======== ======== ======== ========
See notes to the financial statements.
STATEMENT OF CHANGES IN NET ASSETS
(Amounts in thousands)
SHORT-TERM INTERMEDIATE
BOND MARKET BOND MARKET
FUND FUND
------------------- ------------------
Year Year Year Year
ended ended ended ended
Oct. 31, Oct. 31, Oct. 31, Oct. 31,
1996 1995 1996 1995
-------- -------- -------- --------
OPERATIONS:
Net investment income $ 10,830 $ 7,887 $ 9,912 $ 6,720
Net realized gain (loss)
on investments 92 (329) 773 (417)
Change in unrealized
appreciation
(depreciation) on
investments (1,102) 3,275 (1,245) 6,232
-------- -------- -------- --------
Net increase (decrease)
in net assets
resulting from operations 9,820 10,833 9,440 12,535
-------- -------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Shares sold 103,118 47,914 84,747 61,490
Shares issued to owners in
reinvestment of dividends 9,114 6,375 6,299 4,371
Shares redeemed (47,577) (37,051) (40,206) (19,569)
-------- -------- -------- --------
Net increase in net
assets resulting from
capital share transactions 64,655 17,238 50,840 46,292
-------- -------- -------- --------
DISTRIBUTIONS TO SHAREOWNERS <F11>:
From net investment income - (1,426) - (1,081)
From net realized gains - - - -
-------- -------- -------- --------
- (1,426) - (1,081)
-------- -------- -------- --------
DISTRIBUTIONS TO SERIES A
SHAREOWNERS F11>:
From net investment income (3,056) (2,191) (816) (475)
-------- -------- -------- --------
DISTRIBUTIONS TO SERIES
INSTITUTIONAL SHAREOWNERS <F11>:
From net investment income (7,799) (4,133) (9,121) (5,060)
-------- -------- -------- --------
TOTAL INCREASE IN NET ASSETS 63,620 20,321 50,343 52,211
NET ASSETS:
Beginning of year 142,689 122,368 140,517 88,306
-------- -------- -------- --------
End of year (including
undistributed net
investment income of $92,
$119, $89, $112, $15,
$20, $197 and
$261, respectively) $206,309 $142,689 $190,860 $140,517
======== ======== ======== ========
STATEMENT OF CHANGES IN NET ASSETS (continued)
(Amounts in thousands)
TAX-EXEMPT BOND
INTERMEDIATE BOND IMMDEX/TM
FUND FUND
------------------ ------------------
Year Year Year Year
ended ended ended ended
Oct. 31, Oct. 31, Oct. 31, Oct. 31,
1996 1995 1996 1995
-------- -------- -------- --------
OPERATIONS:
Net investment income $ 1,668 $ 1,332 $ 22,285 $ 18,025
Net realized gain (loss)
on investments 43 8 (167) (890)
Change in unrealized
appreciation (depreciation)
on investments (88) 1,367 (2,584) 24,964
-------- -------- -------- --------
Net increase (decrease)
in net assets
resulting from operations 1,623 2,707 19,534 42,099
-------- -------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Shares sold 24,183 16,278 142,933 72,259
Shares issued to owners in
reinvestment of dividends 738 676 19,366 17,191
Shares redeemed (12,833) (9,203) (58,472) (56,782)
-------- -------- -------- --------
Net increase in net
assets resulting from
capital share transactions 12,088 7,751 103,827 32,668
-------- -------- -------- --------
DISTRIBUTIONS TO SHAREOWNERS <F11>:
From net investment income - (228) - (3,950)
From net realized gains - - - (404)
-------- -------- -------- --------
- (228) - (4,354)
-------- -------- -------- --------
DISTRIBUTIONS TO SERIES A
SHAREOWNERS <F11>:
From net investment income (371) (238) (1,987) (910)
-------- -------- -------- --------
DISTRIBUTIONS TO SERIES
INSTITUTIONAL SHAREOWNERS <F11>:
From net investment income (1,304) (853) (20,296) (14,132)
-------- -------- -------- --------
TOTAL INCREASE IN NET ASSETS 12,036 9,139 101,078 55,371
NET ASSETS:
Beginning of year 35,306 26,167 312,149 256,778
-------- -------- -------- --------
End of year (including
undistributed net
investment income of
$92, $119, $89, $112,
$15, $20, $197 and
$261, respectively) $47,342 $35,306 $413,227 $312,149
======== ======== ======== ========
<F11>On January 9, 1995, all previously existing series of shares of each Fund
were reclassified as Series A shares. Effective on January 9, 1995,
Institutional shareowners exchanged their Series A shares for the Funds'
Institutional series shares. Distributions to shareowners from net
investment income and net realized gains reflect activity for the Funds for
the period November 1, 1994, through January 9, 1995, and for each Fund's
respective class of Shares for the period from January 10, 1995, through
October 31, 1996.
See notes to the financial statements.
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
SHORT-TERM BOND MARKET FUND
Year ended Year ended
October 31, 1996 October 31, 1995<F14> Year ended October 31,
Per Share Data: Series A Series Inst'l. Series A Series Inst'l. 1994 1993 1992<F13>
-------- ------------- -------- ------------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.28 $10.28 $10.03 $10.03 $10.56 $10.60 $10.33
Income from investment operations:
Net investment income <F15> 0.58<F20> 0.61<F20> 0.61 0.63 0.56 0.58 0.64
Net realized and unrealized
gains (losses) on securities (0.03) (0.03) 0.24 0.24 (0.41) 0.10 0.29
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations 0.55 0.58 0.85 0.87 0.15 0.68 0.93
-------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net
investment income (0.58) (0.61) (0.60) (0.62) (0.56) (0.58) (0.64)
Distributions from capital gains - - - - (0.12) (0.14) (0.02)
-------- -------- -------- -------- -------- -------- --------
Total distributions (0.58) (0.61) (0.60) (0.62) (0.68) (0.72) (0.66)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $10.25 $10.25 $10.28 $10.28 $10.03 $10.56 $10.60
======== ======== ======== ======== ======== ======== ========
Total return <F16><F17> 5.54% 5.80% 8.74% 8.95% 1.46% 6.70% 9.28%
Supplemental data and ratios:
Net assets, in thousands,
end of period $58,843 $147,466 $47,730 $94,959 $122,368 $142,518 $129,409
Ratio of net expenses
to average net assets <F18> 0.75% 0.50% 0.69% 0.50% 0.50% 0.52% 0.60%
Ratio of net investment income
to average net assets <F18> 5.67% 5.92% 6.04% 6.23% 5.43% 5.53% 6.00%
Portfolio turnover rate <F19> 59.62% 59.62% 100.58% 100.58% 76.13% 87.62% 82.20%
<FN>
<F12>Commencement of operations.
<F13>Effective February 3, 1992, FIRMCO assumed the investment advisory responsibilities of Firstar Trust Company.
<F14>On January 9, 1995, all previously existing series of shares of each Fund were reclassified as Series A shares. Effective on
January 9, 1995, Institutional shareowners exchanged their Series A shares for the Funds' Institutional series shares. For the
year ended October 31, 1995, the Financial Highlights ratios of net expenses to average net assets, ratios of net investment
income to average net assets, total return and the per share income from investment operations and distributions are presented
on a basis whereby the Fund's net investment income, net expenses, net realized and unrealized gains (losses) and
distributions for the period November 1, 1994 through January 9, 1995, were allocated to each class of shares based upon the
relative net assets of each class of shares as of the close of business on January 9, 1995, and the results thereof combined
with the results of operations and distributions for each applicable class for the period January 10, 1995 through October 31,
1995.
<F15>For the Tax-Exempt Intermediate Bond Fund, substantially all investment income is exempt from Federal income tax.
<F16>Not annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F17>The total return calculation does not reflect the 2% front end sales charge for Series A.
<F18>Annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F19>Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
<F20>Net investment income per share is calculated using ending balances prior to consideration of adjustments for permanent book
and tax differences.
See notes to the financial statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
<CAPTION>
INTERMEDIATE BOND MARKET FUND
Year ended Year ended
October 31, 1996 October 31, 1995<F23> Year ended Jan. 5, 1993<F21>
------------------------- ------------------------- Oct. 31, through
Per Share Data: Series A Series Inst'l. Series A Series Inst'l. 1994 Oct. 31, 1993
-------- -------------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.21 $10.21 $9.67 $9.67 $10.45 $10.00
Income from investment operations:
Net investment income <F24> 0.56<F29> 0.59<F29> 0.60 0.62 0.51 0.40
Net realized and unrealized
gains (losses) on securities (0.02) (0.02) 0.53 0.53 (0.69) 0.45
------- ------- ------- ------- ------- -------
Total from investment
operations 0.54 0.57 1.13 1.15 (0.18) 0.85
------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income (0.56) (0.59) (0.59) (0.61) (0.51) (0.40)
Distributions from capital gains - - - - (0.09) -
------- ------- ------- ------- ------- -------
Total distributions (0.56) (0.59) (0.59) (0.61) (0.60) (0.40)
------- ------- ------- ------- ------- -------
Net asset value, end of period $10.19 $10.19 $10.21 $10.21 $9.67 $10.45
======= ======= ======= ======= ======= =======
Total return <F25><F26> 5.51% 5.77% 12.04% 12.25% (1.73)% 8.58%
Supplemental data and ratios:
Net assets, in thousands,
end of period $17,392 $173,468 $11,576 $128,941 $88,306 $56,794
Ratio of net expenses
to average net assets <F27> 0.75% 0.50% 0.69% 0.50% 0.50% 0.50%
Ratio of net investment income
to average net assets <F27> 5.59% 5.84% 6.07% 6.26% 5.19% 4.65%
Portfolio turnover rate <F28> 59.29% 59.29% 66.69% 66.69% 56.25% 82.37%
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
<CAPTION>
TAX-EXEMPT INTERMEDIATE BOND FUND
Year ended Year ended
October 31, 1996 October 31, 1995<F23> Year ended Feb. 8, 1993<F21>
------------------------- ------------------------ Oct. 31, through
Per Share Data: Series A Series Inst'l. Series A Series Inst'l. 1994 Oct. 31, 1993
-------- ------------- -------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.23 $10.24 $9.78 $9.78 $10.26 $10.00
Income from investment operations:
Net investment income <F24> 0.40<F29> 0.43<F29> 0.42 0.44 0.41 0.27
Net realized and unrealized
gains (losses) on securities (0.01) (0.03) 0.45 0.46 (0.48) 0.26
------- ------- ------- ------- ------- -------
Total from investment
operations 0.39 0.40 0.87 0.90 (0.07) 0.53
------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income (0.41) (0.43) (0.42) (0.44) (0.41) (0.27)
Distributions from capital gains - - - - - -
------- ------- ------- ------- ------- -------
Total distributions (0.41) (0.43) (0.42) (0.44) (0.41) (0.27)
------- ------- ------- ------- ------- -------
Net asset value, end of period $10.21 $10.21 $10.23 $10.24 $9.78 $10.26
======= ======= ======= ======= ======= =======
Total return <F25><F26> 3.87% 4.02% 9.07% 9.38% (0.73)% 5.36%
Supplemental data and ratios:
Net assets, in thousands,
end of period $10,690 $36,652 $7,711 $27,595 $26,167 $23,866
Ratio of net expenses
to average net assets <F27> 0.75% 0.50% 0.71% 0.51% 0.60% 0.59%
Ratio of net investment income
to average net assets <F27> 3.99% 4.24% 4.25% 4.45% 4.04% 3.75%
Portfolio turnover rate <F28> 30.46% 30.46% 44.13% 44.13% 58.54% 3.23%\
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
<CAPTION>
BOND IMMDEX/TM FUND
Year ended Year ended
October 31, 1996 October 31, 1995<F23> Year ended October 31,
------------------------- ------------------------- -------------------------
Per Share Data: Series A Series Inst'l. Series A Series Inst'l. 1994 1993 1992<F22>
------- ------------- -------- ------------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $27.82 $27.82 $25.67 $25.67 $28.91 $27.31 $26.50
Income from investment operations:
Net investment income <F24> 1.61<F29> 1.70<F29> 1.68 1.74 1.65 1.68 1.75
Net realized and unrealized
gains (losses) on securities (0.26) (0.27) 2.30 2.29 (2.74) 1.83 0.96
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations 1.35 1.43 3.98 4.03 (1.09) 3.51 2.71
-------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net
investment income (1.63) (1.70) (1.79) (1.84) (1.65) (1.70) (1.76)
Distributions from capital gains - - (0.04) (0.04) (0.50) (0.21) (0.14)
-------- -------- -------- -------- -------- -------- --------
Total distributions (1.63) (1.70) (1.83) (1.88) (2.15) (1.91) (1.90)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $27.54 $27.55 $27.82 $27.82 $25.67 $28.91 $27.31
======== ======== ======== ======== ======== ======== ========
Total return <F25><F26> 5.06% 5.35% 16.05% 16.26% (3.89)% 13.30% 10.49%
Supplemental data and ratios:
Net assets, in thousands,
end of period $42,671 $370,556 $21,875 $290,274 $256,778 $260,468 $181,421
Ratio of net expenses
to average net assets <F27> 0.68% 0.43% 0.64% 0.44% 0.48% 0.50% 0.50%
Ratio of net investment income
to average net assets <F27> 5.98% 6.23% 6.31% 6.51% 6.14% 6.10% 6.92%
Portfolio turnover rate <F28> 33.38% 33.38% 41.67% 41.67% 49.70% 81.18% 37.72%
<FN>
<F21>Commencement of operations.
<F22>Effective February 3, 1992, FIRMCO assumed the investment advisory responsibilities of Firstar Trust Company.
<F23>On January 9, 1995, all previously existing series of shares of each Fund were reclassified as Series A shares. Effective on
January 9, 1995, Institutional shareowners exchanged their Series A shares for the Funds' Institutional series shares. For the
year ended October 31, 1995, the Financial Highlights ratios of net expenses to average net assets, ratios of net investment
income to average net assets, total return and the per share income from investment operations and distributions are presented
on a basis whereby the Fund's net investment income, net expenses, net realized and unrealized gains (losses) and
distributions for the period November 1, 1994 through January 9, 1995, were allocated to each class of shares based upon the
relative net assets of each class of shares as of the close of business on January 9, 1995, and the results thereof combined
with the results of operations and distributions for each applicable class for the period January 10, 1995 through October 31,
1995.
<F24>For the Tax-Exempt Intermediate Bond Fund, substantially all investment income is exempt from Federal income tax.
<F25>Not annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F26>The total return calculation does not reflect the 2% front end sales charge for Series A.
<F27>Annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F28>Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
<F29>Net investment income per share is calculated using ending balances prior to consideration of adjustments for permanent book
and tax differences.
See notes to the financial statements.
</TABLE>
SHORT-TERM BOND MARKET FUND
SCHEDULE OF INVESTMENTS
October 31, 1996
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- --------------
LONG-TERM INVESTMENTS 96.1%
ASSET-BACKED SECURITIES 25.9%
AUTO LOAN RECEIVABLES 3.0%
Banc One Auto Trust, Series 1995-A, Class A3,
$ 434 6.85%, 11/15/97 $ 435
Capital Auto Receivables Asset Trust, Series 1993-3,
3,741 4.60%, 10/15/98 3,703
Chase Manhattan Auto Grantor Trust,
1,609 Series 1995-B, Class A, 5.90%, 9/15/99 1,611
USAA Auto Loan Grantor Trust, Series 1994-1,
347 Class A, 5.00%, 11/15/99 346
-------
6,095
-------
CREDIT CARD RECEIVABLES 14.7%
Banc One Credit Card Master Trust:
2,450 1994-B, Class A, 7.55%, 11/15/97 2,497
3,500 1994-C, Class A, 7.80%, 12/15/00 3,614
Discover Card Master Trust I:
2,850 1992-B, Class A, 6.80%, 6/15/98 2,879
3,450 1993-2, Class A, 5.40%, 5/15/99 3,412
2,000 1993-B, Class A, 6.75%, 2/15/00 2,027
First Deposit Master Trust, Series 1995-2,
4,000 Class A, 6.05%, 6/15/98 4,014
NationsBank Credit Card Master Trust,
3,668 Series 1995-1, Class A, 6.45%, 8/15/00 3,699
Sears Credit Account Master Trust, Series 1994-1,
5,050 Class A, 7.00%, 8/15/00 5,171
Signet Master Trust, Series 1993-1, Class A,
3,000 5.20%, 10/15/98 2,959
-------
30,272
-------
HOME EQUITY LOAN RECEIVABLES 8.2%
EQCC Home Equity Loan Trust,
1,378 Series 1994-3, Class A2, 7.44%, 8/15/05 1,392
GE Home Equity Loan Asset-Backed Certificates:
543 Series 1991-1, Class A, 7.20%, 8/30/11 550
2,500 Series 1991-1, Class B, 8.70%, 9/15/11 2,606
Household Finance Corp.,
Home Equity Loan Asset-Backed Certificates:
2,944 Series 1992-2, Class A3, 5.25%, 10/20/07 2,933
983 Series 1992-2, Class A, 6.65%, 11/20/12 986
Security Pacific Home Equity Loan:
1,350 Series 1991-1, 8.85%, 5/15/98 1,398
3,220 Series 1991-2, 8.15%, 6/15/20 3,244
U.S. Home Equity Loan Certificates:
1,470 Series 1991-2, Class A, 8.50%, 4/15/21 1,490
2,200 Series 1991-2, Class B, 9.125%, 4/15/21 2,248
-------
16,847
-------
CORPORATE BONDS 27.7%
American Express Corporation Euro Notes,
2,000 11.625%, 12/12/00 2,153
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- -------------
CORPORATE BONDS 27.7% (CONT.)
Atlantic Richfield Notes,
$ 4,169 10.25%, 7/02/00 $ 4,340
Bear Stearns Company Senior Notes,
1,000 6.75%, 8/15/00 1,008
Big Rivers Electric Corporation
Coop Utility Trust Certificates,
1,500 9.50%, 2/15/17 1,627
BP America, Inc. Guaranteed Debentures,
2,000 10.00%, 7/01/18 2,201
Chase Manhattan Corp. Notes,
1,350 10.375%, 3/15/99 1,472
Chrysler Corp. Debentures,
2,250 10.95%, 8/01/17 2,433
Continental Bank Subordinated Notes,
1,840 11.25%, 7/01/01 1,966
Deseret Generation & Transmission Coop Debentures:
1,750 9.63%, 9/30/11 1,858
1,000 10.11%, 12/15/17 1,090
Ford Motor Credit Co. Notes:
500 8.875%, 6/15/99 531
750 8.375%, 1/15/00 793
General Motors Acceptance Corp. Notes,
3,600 7.75%, 1/15/99 3,716
GTE Corp. Debentures,
4,225 10.75%, 9/15/17 4,569
Heller Financial, Inc. Notes,
2,210 8.00%, 12/15/98 2,287
Lehman Brothers Holdings, Inc. Debentures:
3,000 8.875%, 11/01/98 3,142
1,000 9.875%, 10/15/00 1,099
Lehman Brothers Holdings, Inc. Notes,
1,755 8.375%, 2/15/99 1,827
Lehman Brothers Holdings, Inc.
Senior Subordinated Notes,
750 7.625%, 8/01/98 767
Lehman Brothers, Inc. Senior Subordinated Notes,
202 10.00%, 5/15/99 218
MONY Funding, Inc. Debentures,
700 8.125%, 4/07/97 706
Paine Webber Group, Inc. Medium Term Notes:
1,000 5.83%, 2/02/99 988
1,000 6.31%, 7/22/99 994
Salomon, Inc. Medium Term Notes:
2,000 7.87%, 12/30/96 2,006
1,500 10.125%, 6/01/99 1,625
Salomon, Inc. Senior Notes,
800 7.75%, 5/15/00 825
Smith Barney Holdings, Inc. Notes,
3,150 5.625%, 11/15/98 3,119
Soyland Power Coop., Inc. Debentures,
2,500 9.70%, 9/30/17 2,680
SHORT-TERM BOND MARKET FUND
SCHEDULE OF INVESTMENTS
October 31, 1996
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- -------------
CORPORATE BONDS 27.7% (CONT.)
Torchmark Corp. Debentures,
$ 1,900 9.625%, 5/01/98 $ 1,991
USF&G Corporation Senior Notes,
3,075 7.00%, 5/15/98 3,111
-------
57,142
-------
MORTGAGE-BACKED SECURITIES 8.6%
Citicorp Mortgage Securities, Inc.,
Real Estate Mortgage Investment Conduit (REMIC),
812 Series 1991-7, Class M, 8.75%, 5/25/21 821
Green Tree Financial Corp. Pass-Thru Certificates:
1,000 Series 1993-3, Class A4, 5.45%, 10/15/18 986
3,620 Series 1993-4, Class A2, 5.85%, 1/15/19 3,618
Marine Midland, Real Estate Mortgage Investment
Conduit (REMIC), Series 1992-3, Class A12,
2,115 8.00%, 10/25/23 2,151
Merrill Lynch Mortgage Investors, Inc.,
1,065 Series 1992-B, Class A, 7.85%, 4/15/12 1,088
Morgan Stanley Mortgage Trust,
318 Series 40, Class 6, 7.00%, 9/20/17 318
Prudential-Bache CMO Trust,
1,526 Series 8, Class E, 7.965%, 3/01/18 1,541
Prudential Home Mortgage Securities,
1,110 Series 1993-24, Class A1, 5.50%, 6/25/00 1,095
Prudential Securities Financial Asset FDG Corp.,
1,150 Series 1993-4, Class A3, 6.83%, 9/25/09 1,157
Resolution Trust Corp.:
39 Series 1992-MH1, Class A1, 7.00%, 4/15/97 39
250 Series 1992-MH2, Class B, 7.95%, 2/15/04 251
1,065 Series 1992-MH2, Class A1, 7.00%, 2/15/19 1,066
Security Pacific Acceptance Corp.,
1,095 Series 1992-2, Class A2, 7.10%, 6/15/12 1,102
2,500 Series 1992-2, Class A3, 7.50%, 6/15/12 2,562
-------
17,795
-------
INTERNATIONAL/YANKEE (U.S. $ DENOMINATED) 1.7%
Ford Capital B.V. Note,
2,010 9.00%, 8/15/98 2,106
Hydro-Quebec Debenture,
1,250 13.375%, 2/15/13 1,417
-------
3,523
-------
OTHER 3.4%
California State Water Department,
2,000 Series E, 9.875%, 12/01/24 2,193
Florida Housing Finance Agency:
450 Antigua Club-A-2, 8.625%, 8/01/01 478
425 Brittany Apartments-C-2, 8.625%, 8/01/02 454
550 Maitland Club-B-2, 8.625%, 8/01/01 584
St. Louis, Missouri Airport Revenue Bond,
3,250 Series 1993A, 5.50%, 7/01/98 3,221
-------
6,930
-------
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- -------------
U.S. GOVERNMENT AGENCY
AND AGENCY-BACKED ISSUES 12.8%
Federal Home Loan Mortgage Corporation (FHLMC)
Participation Certificates:
$ 75 7.00%, 12/01/01 $ 75
183 7.75%, 7/01/09 187
Federal Home Loan Mortgage Corporation (FHLMC)
Real Estate Mortgage Investment Conduits (REMIC):
1,959 Series 1153, Class F, 7.75%, 10/15/98 2,003
1,000 Series 1324, Class VB, 7.00%, 7/15/99 1,014
1,000 Series 1243, Class K, 7.50%, 8/15/01 1,026
1,500 Series 1697, Class PN, 5.60%, 6/15/02 1,496
1,253 Series 1733, Class PB, 6.45%, 1/15/11 1,250
Federal National Mortgage Association (FNMA)
Real Estate Mortgage Investment Conduits (REMIC):
1,000 Series 1993-173, Class D, 5.25%, 12/25/98 989
1,250 Series 1992-140, Class HB, 6.50%, 10/25/99 1,256
4,640 Series 1992-54, Class VB, 7.50%, 12/25/99 4,726
2,474 Series X-19A, Class A, 6.50%, 10/25/00 2,479
2,000 Series 1993-G06, Class K, 7.00%, 11/25/01 2,020
2,019 Series 1992-G4, Class D, 7.00%, 3/25/03 2,016
1,000 Series 1993-86, Class E, 6.00%, 1/25/07 993
1,521 Series 1992-93, Class G, 7.50%, 6/25/07 1,551
608 Series 1989-75, Principal Only, Class
C, 0.00%, 9/25/18 581
250 Series 1992-138, Class C, 6.00%, 12/25/18 248
1,000 Series 1991-154, Class PH, 7.50%, 9/25/20 1,020
Government Trust Certificates, Series 2-D,
548 9.25%, 11/15/96 549
U.S. Department of Veterans Affairs Mortgage Trust
1,000 (REMIC), Series 1992-1, Class J, 7.75%, 2/15/01 1,038
-------
26,517
-------
U.S. TREASURY OBLIGATIONS 16.0%
U.S. Treasury Notes:
2,200 6.75%, 5/31/99 2,246
4,500 7.50%, 10/31/99 4,688
19,750 8.50%, 2/15/00 21,213
5,000 5.50%, 4/15/00 4,921
-------
33,068
-------
Total Long-Term Investments (Cost $198,480) 198,189
-------
Number
of Shares
(in thousands)
--------------
SHORT-TERM INVESTMENTS 2.6%
INVESTMENT COMPANIES 2.6%
10 Financial Square Prime Obligation Fund 10
5,328 Short-Term Investments Co. Liquid Assets Portfolio 5,328
-------
Total Short-Term Investments (Cost $5,338) 5,338
-------
Total Investments 98.7% (Cost $203,818) 203,527
-------
Other Assets, less Liabilities 1.3% 2,782
-------
TOTAL NET ASSETS 100.0% $206,309
=======
See notes to the financial statements.
INTERMEDIATE BOND MARKET FUND
SCHEDULE OF INVESTMENTS
October 31, 1996
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- -------------
LONG-TERM INVESTMENTS 97.2%
ASSET-BACKED SECURITIES 25.4%
AUTO LOAN RECEIVABLES 3.2%
Ford Credit Grantor Trust, Series 1994-A,
$ 491 Class A, 6.35%, 5/15/99 $ 494
General Motors Acceptance Corp. Grantor,
1,192 Series 1995-A, Class A, 7.15%, 3/15/00 1,207
Keycorp Auto Grantor Trust, Series 1995-A,
1,801 Class A, 5.80%, 7/15/00 1,805
Premier Auto Trust:
694 Series 1993-5, Class A2, 4.22%, 3/02/99 685
1,504 Series 1994-1, Class A3, 4.75%, 2/02/00 1,494
397 Series 1994-2, Class A4, 6.00%, 5/02/00 399
-------
6,084
-------
CREDIT CARD RECEIVABLES 19.1%
AT&T Universal Card MasterTrust, Series 1995-2,
1,000 Class A, 5.95%, 10/17/00 991
American Express Master Trust, Series 1994-2,
2,000 Class A, 7.60%, 8/15/02 2,090
Banc One Credit Card Master Trust, Series 1995-B,
3,700 Class A, 6.30%, 9/15/00 3,712
Citibank Credit Card Master Trust, Principal Only,
3,000 Series 1996-1, 0.00%, 2/07/01 2,288
Discover Card Master Trust I:
1,000 Series 1993-2, Class A, 5.40%, 5/15/99 989
500 Series 1993-3, Class A, 6.20%, 5/16/06 488
First Chicago Master Trust II, Series 1994-L,
3,675 Class A, 7.15%, 2/15/00 3,768
HFC Private Label Credit Card Master Trust II,
2,000 Series 1994-2, Class A, 7.80%, 9/20/03 2,064
Household Affinity Credit Card Master Trust I,
2,900 Series 1993-2, Class A, 5.60%, 11/15/00 2,847
MBNA Master Credit Card Trust:
745 Series 1995-F, Class A, 6.60%, 8/15/00 755
1,200 Series 1995-D, Class A, 6.05%, 11/15/02 1,195
NationsBank Credit Card Master Trust,
2,500 Series 1995-1, Class A, 6.45%, 8/15/00 2,521
Sears Credit Account Master Trust:
5,900 Series 1994-1, Class A, 7.00%, 8/15/00 6,042
2,000 Series 1995-3, Class A, 7.00%, 10/15/04 2,053
Standard Credit Card Master Trust,
4,800 Series 1993-3, Class A, 5.50%, 1/07/99 4,746
-------
36,549
-------
HOME EQUITY LOAN RECEIVABLES 3.1%
EQCC Home Equity Loan Trust,
1,200 Series 1994-4, 8.68%, 10/15/08 1,273
Security Pacific Acceptance Corp.,
784 Series 1991-2, Class B, 8.55%, 9/15/11 809
Security Pacific Home Equity Loan:
1,000 Series 1991-1, 8.85%, 5/15/98 1,035
2,735 Series 1991-2, 8.15%, 6/15/20 2,755
-------
5,872
-------
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- -------------
CORPORATE BONDS 37.2%
American General Finance Corp. Notes,
$1,000 8.00%, 2/15/00 $1,049
BankAmerica Corporation Subordinated Notes,
1,500 10.00%, 2/01/03 1,745
Bankers Trust - NY, Subordinated Debentures,
1,000 9.50%, 6/14/00 1,094
Bear Stearns Company Senior Notes:
2,498 7.625%, 9/15/99 2,581
1,312 6.75%, 8/15/00 1,322
2,000 9.375%, 6/01/01 2,213
Caterpillar, Inc. Sinking Fund Debentures,
1,150 9.75%, 6/01/19 1,260
Chase Manhattan Corp. Medium Term Notes,
1,000 8.65%, 2/13/99 1,052
Chase Manhattan Corp. Debentures,
1,015 10.00%, 6/15/99 1,106
Chemical Banking Corp. Subordinated Capital Notes,
1,175 9.75%, 6/15/99 1,273
Chrysler Financial Corp. Debentures:
750 13.25%, 10/15/99 888
700 12.75%, 11/01/99 821
Consolidated Edison Co. Debentures,
100 7.60%, 1/15/00 104
Continental Cablevision, Inc. Debentures,
850 8.875%, 9/15/05 944
Deseret Generation & Transmission Coop Debentures,
750 9.375%, 1/02/11 785
Fleet Mortgage Group Notes,
2,280 6.50%, 6/15/00 2,285
Ford Motor Credit Co. Debentures,
1,000 9.50%, 4/15/00 1,092
General Motors Acceptance Corp. Debentures,
1,517 8.625%, 6/15/99 1,603
General Motors Acceptance Corp. Notes:
1,050 8.00%, 10/01/99 1,092
1,530 9.375%, 4/01/00 1,664
General Motors Corp. Debentures,
1,000 9.625%, 12/01/00 1,110
Georgia Pacific Corp. Debentures,
750 9.50%, 12/01/11 894
Goldman Sachs Group Notes,
5,000 6.25%, 2/01/03 (Acquired 2/01/96; Cost $4,988)* 4,825
Heller Financial, Inc. Notes,
1,300 9.375%, 3/15/98 1,355
Household Finance Corp. Senior Subordinated Notes,
2,468 9.55%, 4/01/00 2,697
Household Finance Corp. Subordinated Notes,
945 9.625%, 7/15/00 1,041
International Lease Finance Corp. Medium Term Notes:
2,000 5.92%, 1/15/98 2,001
500 8.25%, 10/19/98 520
See notes to the financial statements.
INTERMEDIATE BOND MARKET FUND
SCHEDULE OF INVESTMENTS
October 31, 1996
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- -------------
CORPORATE BONDS 37.2% (CONT.)
Lehman Brothers Holdings, Inc. Medium Term Notes,
$1,750 8.875%, 2/15/00 $1,859
Lehman Brothers Holdings, Inc. Notes:
1,585 8.375%, 2/15/99 1,650
2,000 6.90%, 7/15/99 2,014
Lehman Brothers, Inc. Senior Subordinated Notes,
1,715 10.00%, 5/15/99 1,852
Merrill Lynch Mortgage Investors, Inc. Notes,
124 8.375%, 2/09/00 131
Midland American Capital Corp. Debentures,
1,740 12.75%, 11/15/03 1,943
Midland Bank PLC Subordinated Notes,
2,050 6.95%, 3/15/11 2,001
MONY Funding, Inc. Debentures,
1,325 8.125%, 4/07/97 1,336
NCNB Corp. Subordinated Notes,
1,900 10.20%, 7/15/15 2,409
Paine Webber Group, Inc. Medium Term Notes,
1,000 7.70%, 2/11/00 1,030
SCE Capital Corp. Notes,
1,000 7.375%, 12/15/03 1,008
Salomon, Inc. Medium Term Notes:
1,000 7.87%, 12/30/96 1,003
1,300 10.125%, 6/01/99 1,408
Salomon, Inc. Senior Notes:
1,450 7.75%, 5/15/00 1,495
150 6.75%, 2/15/03 147
The Charles Schwab Corp. Medium Term Notes,
650 6.06%, 10/02/00 638
Security Pacific Corp. Subordinated Notes,
2,274 9.75%, 5/15/99 2,459
Smith Barney Holdings, Inc. Notes:
2,450 5.50%, 1/15/99 2,416
1,000 6.625%, 6/01/00 1,005
Tenneco Inc. Debentures,
1,000 10.00%, 3/15/08 1,220
Tennessee Gas Pipeline Co. Debentures,
1,775 6.00%, 12/15/11 1,583
-------
71,023
-------
MORTGAGE-BACKED SECURITIES 0.7%
MDC Asset Investors Trust,
Real Estate Mortgage Investment Conduit (REMIC),
1,297 Series VIII, Class 8, 7.75%, 9/25/17 1,334
-------
INTERNATIONAL/YANKEE (U.S. $ DENOMINATED) 2.7%
Ford Capital BV Debentures,
3,653 10.125%, 11/15/00 4,110
Nova Scotia (Province of),
1,000 11.50%, 5/15/13 1,116
-------
5,226
-------
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- -------------
TAXABLE MUNICIPAL 1.0%
St. Louis, Missouri Airport Revenue Notes,
$1,800 Series 1993A, 5.30%, 7/01/98 $ 1,775
-------
U.S. GOVERNMENT AGENCY
AND AGENCY-BACKED ISSUES 10.5%
Federal Home Loan Mortgage Corporation (FHLMC)
Real Estate Mortgage Investment Conduit (REMIC):
500 Series 1339, Class B, 8.00%, 6/15/99 512
1,000 Series 1289, Class PR, 7.50%, 2/15/03 1,030
1,226 Series 1456, Class LA, 7.50%, 5/15/03 1,263
1,000 Series 8, Class VB, 7.00%, 1/25/04 1,019
1,000 Series 1101, Class L, 6.95%, 9/15/20 1,007
1,000 Series 1167, Class E, 7.50%, 11/15/21 1,018
Federal National Mortgage Association (FNMA)
Real Estate Mortgage Investment Conduit (REMIC):
3,000 Series 1601-73, 6.642%, 10/01/98 3,030
800 Series 1993-23, Class PU, 7.50%, 1/25/00 817
500 Series 1992-73, Class L, 7.50%, 1/25/01 515
1,642 Series 1992-18, Class HB, 7.20%, 3/25/02 1,674
3,500 Series 1993-37, Class B, 7.00%, 7/25/02 3,568
1,000 Series 1992-103, Class L, 7.50%, 11/25/02 1,029
U.S. Department of Veterans Affairs Mortgage Trust (REMIC):
3,000 Series 1993-1, Class G, 7.00%, 2/15/00 3,048
500 Series 1992-2, Class J, 7.00%, 3/15/01 508
-------
20,038
-------
U.S. TREASURY OBLIGATIONS 19.7%
U.S. Treasury Bonds:
7,500 10.75%, 2/15/03 9,225
13,250 11.875%, 11/15/03 17,397
5,250 10.75%, 8/15/05 6,764
U.S. Treasury Notes,
4,200 5.50%, 4/15/00 4,134
-------
37,520
-------
Total Long-Term Investments (Cost $183,604) 185,421
=======
Number
of Shares
(in thousands)
- --------------
SHORT-TERM INVESTMENTS 1.2%
INVESTMENT COMPANIES 1.2%
10 Financial Square Prime Obligation Fund 10
2,349 Short-Term Investments Co. Liquid Assets Portfolio 2,349
-------
Total Short-Term Investments (Cost $2,359) 2,359
-------
Total Investments 98.4% (Cost $185,963) 187,780
-------
Other Assets, less Liabilities 1.6% 3,080
-------
TOTAL NET ASSETS 100.0% $190,860
=======
* Unregistered Security
TAX-EXEMPT INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 1996
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- -------------
GENERAL OBLIGATION 5.3%
Washington State:
$ 100 6.75%, 10/01/01 $ 107
1,000 6.30%, 9/01/02 1,079
Rocklin, California Unified School District,
1,235 6.70%, 9/01/04 1,342
-------
Total General Obligation (Cost $2,537) 2,528
-------
REVENUE BONDS 9.4%
HOUSING 4.4%
Saint Charles, Illinois, Industrial Development -
Covington Ct Project, Mandatory Put,
980 9/01/98, 5.50%, 12/01/09 995
South Dakota Housing Development Authority -
1,105 Homeownership Mortgage, 4.85%, 5/01/01 1,111
-------
2,106
-------
OTHER 4.2%
Georgia State Municipal Electric Authority,
200 4.50%, 1/01/00 199
Metropolitan Pier & Exposition Authority, Illinois
1,945 Dedicated State Tax Revenue, 0.00%, 12/15/98 1,775
-------
1,974
-------
UNIVERSITY 0.8%
New England Education Student Loan
Marketing Corporation,
360 5.80%, 3/01/02 375
-------
Total Revenue Bonds (Cost $4,423) 4,455
-------
PREREFUNDED AND ESCROWED
TO MATURITY 72.3%
Alaska State Housing Finance Corporation,
1,465 6.375%, 12/01/12, Prerefunded 12/01/02 1,582
Bucks County, Pennsylvania Industrial
Development Authority - Grand View Hospital Project,
1,000 7.00%, 7/01/21, Prerefunded 7/01/01 1,118
Chicago, Illinois Motor Fuel Tax Revenue,
1,000 7.05%, 1/01/07, Prerefunded 1/01/01 1,110
Chicago, Illinois Public Building, Community
College District No. 508-B, Escrowed to Maturity,
1,000 7.90%, 1/01/98 1,027
Clark County, Nevada School District,
345 7.00%, 6/01/09, Prerefunded 6/01/01 382
Cleveland, Ohio Packaging Facilities Revenue,
1,100 8.10%, 9/15/22, Prerefunded 9/15/02 1,303
Convention Center Authority - Rhode Island Revenue,
1,000 6.65%, 5/15/12, Prerefunded 5/15/01 1,102
Danville, Indiana Community Elementary School
Building Corp., First Mortgage,
1,000 6.90%, 1/15/10, Prerefunded 1/15/02 1,119
Elizabeth-Forward Pennsylvania School District,
1,000 7.25%, 1/15/10, Prerefunded 1/15/00 1,083
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- -------------
PREREFUNDED AND ESCROWED
TO MATURITY 72.3% (CONT.)
Farmington, New Mexico Power Revenue Bonds,
$ 775 9.875%, 1/01/13, Prerefunded 7/01/05 $1,035
Fruita, Colorado, Escrowed to Maturity:
500 9.25%, 10/01/01 571
500 9.25%, 4/01/03 609
Georgia Municipal Electric Authority Power Revenue,
1,000 8.125%, 1/01/17, Crossover Refunded 1/01/98 1,056
Hodgkins, Illinois,
1,500 9.50%, 12/01/09, Prerefunded 12/01/01 1,829
Illinois Educational Facilities Authority - Chicago
College Of Osteopathic Medicine, Escrowed
455 To Maturity, 8.75%, 7/01/99 485
Illinois Educational Facilities Authority - Loyola
3,355 University, 7.125%, 7/01/21, Prerefunded 7/01/01 3,768
Illinois Educational Facilities Authority -
Swedish-American Hospital, 7.40%, 4/01/20,
1,035 Prerefunded 4/01/00 1,149
Louisville, Kentucky Water & Sewer Revenue,
1,000 Escrowed to Maturity, 6.00%, 11/15/07 1,063
Maricopa County, Arizona School District No. 1, Phoenix
1,000 Elementary, 6.60%, 7/01/03, Prerefunded 7/01/01 1,093
Metropolitan Nashville Airport,
500 7.75%, 7/01/07, Prerefunded 7/01/01 575
Michigan State Hospital Financial Authority,
Sisters of Mercy Health Corp.,
870 7.50%, 2/15/18, Prerefunded 2/15/01 983
Nevada State Colorado River Community,
1,000 6.50%, 7/01/19, Prerefunded 7/01/04 1,115
New Jersey State Turnpike Authority Revenue
50 Refunding, Escrowed to Maturity, 6.75%, 1/01/09 54
Oklahoma State Industrial Authority Revenue,
St. Anthony Hospital, Escrowed to Maturity,
1,105 6.125%, 6/01/03 1,165
Philadelphia, Pennsylvania, Regional Port Authority,
Lease Revenue Bonds, 7.15%, 8/01/20,
1,000 Prerefunded 8/01/00 1,092
Rhode Island State Public Building Authority,
1,000 6.00%, 2/01/11, Prerefunded 2/01/01 1,055
Snohomish County, Washington - Public Hospital,
Stevens Memorial Hospital, 6.85%, 12/01/11,
1,000 Prerefunded 12/01/01 1,103
Tucson, Arizona Street & Highway User Revenue Bonds,
1,000 Escrowed to Maturity, 9.25%, 7/01/02 1,227
University of Illinois, Escrowed to Maturity,
1,005 6.10%, 10/01/03 1,092
Virginia State Residential Authority - Solid Waste
1,000 Disposal System, 7.30%, 4/01/15, Prerefunded 4/01/00 1,108
Wausau, Wisconsin School District,
1,000 6.50%, 4/01/10, Prerefunded 4/01/02 1,088
TAX-EXEMPT INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 1996
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- -------------
PREREFUNDED AND ESCROWED
TO MATURITY 72.3% (CONT.)
Williston, North Dakota, Escrowed To Maturity,
$ 80 6.00%, 6/01/98 $ 82
-------
Total Prerefunded and Escrowed to Maturity
(Cost $33,758) 34,223
-------
INSURED BONDS 8.8%
EDUCATION 0.5%
Merrillville, Indiana Multi-School Building Corporation,
200 6.375%, 7/01/03 217
-------
ELECTRIC 2.3%
Springfield, Illinois Electric Revenue,
1,000 6.00%, 3/01/04 1,063
-------
GENERAL OBLIGATION 3.8%
Camden, New Jersey,
900 6.15%, 2/15/00 948
Chicago, Illinois,
675 11.60%, 1/01/01 857
-------
1,805
-------
PUBLIC FACILITIES & IMPROVEMENTS 2.2%
Illinois State Certificates of Participation,
1,000 6.00%, 7/01/06 1,059
-------
Total Insured Municipal Bonds (Cost $4,122) 4,144
-------
Number Market
of Shares Value
(in thousands) (in thousands)
-------------- -------------
INVESTMENT COMPANIES 2.5%
1,179 Financial Square Tax-Exempt Money Market $ 1,179
1 Tax Free Investment Trust 1
-------
Total Investment Companies (Cost $1,180) 1,180
-------
Total Investments 98.3% (Cost $46,020) 46,530
-------
Other Assets, less Liabilities 1.7% 812
-------
TOTAL NET ASSETS 100.0% $47,342
=======
See notes to the financial statements.
BOND IMMDEX/TM FUND
SCHEDULE OF INVESTMENTS
October 31, 1996
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- -------------
LONG-TERM INVESTMENTS 97.8%
ASSET-BACKED SECURITIES 19.5%
AUTO LOAN RECEIVABLES 1.2%
General Motors Acceptance Corp. Grantor Trust,
$ 1,810 Series 1995-A, Class A, 7.15%, 3/15/00 $ 1,832
Premier Auto Trust:
610 Series 1993-3, Class A3, 4.90%, 12/15/98 608
727 Series 1993-4, Class A2, 4.65%, 2/02/99 725
1,019 Series 1993-5, Class A2, 4.22%, 3/02/99 1,007
646 Series 1993-6, Class B, 4.875%, 11/02/99 642
-------
4,814
-------
CREDIT CARD RECEIVABLES 18.3%
Advanta Credit Card Master Trust, Series 1995-F,
4,200 Class A1, 6.05%, 8/01/03 4,173
AT&T Universal Master Card Trust, Series 1995-2,
1,870 Class A, 5.95%, 10/17/00 1,852
Banc One Credit Card Master Trust, Series 1995-B,
8,000 Class A, 6.30%, 9/15/00 8,025
Citibank Credit Card Master Trust, Principal Only,
1,965 Series 1996-1, 0.00%, 2/07/01 1,499
Discover Card Master Trust I, Series 1993-2,
7,600 Class A, 5.40%, 5/15/99 7,517
First Chicago Master Trust II, Series 1994-L,
11,600 Class A, 7.15%, 2/15/00 11,893
HFC Private Label Credit Card Master Trust II:
2,600 Series 1994-2, Class A, 7.80%, 9/20/03 2,684
999 Series 1993-2, Class A3, 4.65%, 12/20/08 987
Household Affinity Credit Card Master Trust I,
3,750 Series 1993-2, Class A, 5.60%, 11/15/00 3,681
MBNA Master Credit Card Trust,
2,705 Series 1995-F, Class A, 6.60%, 8/15/00 2,742
NationsBank Credit Card Master Trust,
10,359 Series 1995-1, Class A, 6.45%, 8/15/00 10,446
Sears Credit Account Master Trust:
11,750 Series 1994-1, Class A, 7.00%, 8/15/00 12,032
5,300 Series 1995-3, Class A, 7.00%, 10/15/04 5,440
Standard Credit Card Master Trust,
2,585 Series 1993-3, Class A, 5.50%, 1/07/99 2,556
-------
75,527
-------
CORPORATE BONDS 41.8%
BankAmerica Corporation Subordinated Notes,
3,439 10.00%, 2/01/03 4,000
BarclaysAmericanCorp. Debentures,
1,500 9.75%, 5/15/21 1,726
Barnett Banks Inc. Subordinated Notes,
1,029 8.50%, 3/01/99 1,080
Bear Stearns Company Notes,
63 6.50%, 6/15/00 63
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- -------------
CORPORATE BONDS 41.8% (CONT.)
Bear Stearns Company Senior Notes:
$3,026 7.625%, 9/15/99 $3,126
500 6.75%, 8/15/00 504
Burlington Northern Railroad Company
Equipment Trust Certificates,
500 11.85%, 1/15/99 559
Chase Manhattan Corp. Medium Term Notes,
525 8.65%, 2/13/99 552
Chase Manhattan Corp. Notes,
6,835 10.00%, 6/15/99 7,450
Chemical Banking Corp. Subordinated Capital Notes,
4,614 9.75%, 6/15/99 5,000
Chrysler Financial Corp. Debentures:
7,648 13.25%, 10/15/99 9,058
1,875 12.75%, 11/01/99 2,200
Citicorp Subordinated Capital Notes:
1,429 9.00%, 4/15/99 1,514
3,370 9.75%, 8/01/99 3,657
2,265 10.75%, 12/15/15 2,329
Commonwealth Edison Co. Debentures,
3,500 9.50%, 5/01/16 3,672
Continental Bank Subordinated Notes,
683 12.50%, 4/01/01 834
Continental Cablevision, Inc. Debentures,
1,850 8.875%, 9/15/05 2,054
Deseret Generation & Transmission Coop Debentures,
2,275 9.375%, 1/02/11 2,381
Federal Express Corporation Debentures,
2,163 9.625%, 10/15/19 2,298
First Chicago Subordinated Notes:
3,844 9.00%, 6/15/99 4,097
560 9.875%, 8/15/00 623
First National Bank Chicago Debentures,
1,100 8.08%, 1/05/18 1,173
First National Bank Omaha Subordinated Notes,
3,000 7.32%, 12/01/10 2,908
First USA Bank Notes,
650 5.75%, 1/15/99 641
Ford Motor Credit Co. Debentures,
1,464 8.875%, 6/15/99 1,554
Ford Motor Credit Co. Notes:
5,000 8.45%, 12/30/98 5,229
700 7.50%, 11/15/99 723
911 8.375%, 1/15/00 963
GTE North Inc. Debentures,
1,100 9.60%, 1/01/21 1,241
General Motors Acceptance Corp. Medium
1,000 Term Notes, 7.50%, 7/22/99 1,031
General Motors Acceptance Corp. Notes,
1,375 8.00%, 10/01/99 1,430
BOND IMMDEX/TM FUND
SCHEDULE OF INVESTMENTS
October 31, 1996
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- -------------
CORPORATE BONDS 41.8% (CONT.)
General Motors Corp. Debentures,
$1,000 9.625%, 12/01/00 $ 1,110
Georgia Pacific Corp. Debentures:
1,011 9.50%, 12/01/11 1,205
1,500 9.50%, 2/15/18 1,607
975 9.50%, 5/15/22 1,080
Goldman Sachs Group Notes,
10,000 6.25%, 2/01/03 (Acquired 2/01/96; Cost $9,977)<F30> 9,649
Heller Financial Inc. Notes,
9,045 9.375%, 3/15/98 9,429
Household Finance Corp. Subordinated Notes,
4,327 9.625%, 7/15/00 4,766
International Lease Finance Medium Term Notes,
3,500 9.82%, 12/14/98 3,755
Lehman Brothers Holdings, Inc. Debentures,
1,980 9.875%, 10/15/00 2,177
Lehman Brothers Holdings, Inc. Medium Term Notes,
1,805 8.875%, 2/15/00 1,918
Lehman Brothers Holdings, Inc. Notes,
1,700 6.90%, 7/15/99 1,712
Lehman Brothers, Inc. Senior Subordinated Notes,
7,232 10.00%, 5/15/99 7,808
The May Department Stores Company Debentures,
1,650 9.875%, 6/15/21 1,903
Midland American Capital Corp. Debentures,
3,479 12.75%, 11/15/03 3,884
Midland Bank PLC Subordinated Notes,
4,300 6.95%, 3/15/11 4,198
Mobile Energy Services LLC Debentures,
733 8.665%, 1/01/17 758
MONY Funding, Inc. Debentures,
5,050 8.125%, 4/07/97 5,091
National Westminster Bancorp. Inc., Debentures,
1,000 9.375%, 11/15/03 1,146
NCNB Corp. Subordinated Notes,
5,105 10.20%, 7/15/15 6,472
J.C. Penney Company, Inc. Debentures,
800 9.75%, 6/15/21 894
SCE Capital Corp. Notes,
1,100 7.375%, 12/15/03 1,109
Salomon, Inc. Medium Term Notes,
600 7.87%, 12/30/96 602
Salomon, Inc. Notes,
2,150 7.00%, 6/15/03 2,124
Salomon, Inc. Senior Notes:
2,850 7.75%, 5/15/00 2,938
2,000 6.75%, 2/15/03 1,958
The Charles Schwab Corp. Medium Term Notes:
2,000 5.84%, 9/30/99 1,971
2,250 5.90%, 10/01/99 2,221
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- -------------
CORPORATE BONDS 41.8% (CONT.)
Security Pacific Corp. Subordinated Notes,
$ 492 9.75%, 5/15/99 $ 532
395 11.50%, 11/15/00 464
Tenneco, Inc. Debentures,
3,150 7.25%, 12/15/25 3,043
Tennessee Gas Pipeline Co. Debentures,
5,856 6.00%, 12/15/11 5,222
Union Camp Corp. Debentures,
850 10.00%, 5/01/19 938
Utilicorp United Senior Notes,
1,600 10.50%, 12/01/20 1,843
Westvaco Corp. Debentures,
1,200 10.125%, 6/01/19 1,335
-------
172,532
-------
MORTGAGE-BACKED SECURITIES 0.7%
Green Tree Financial Corp., Series 1993-4,
946 Class A1, 4.85%, 1/15/19 943
Prudential Home Mortgage Securities,
2,319 Series 1993-24, Class A2, 5.50%, 7/25/00 2,206
-------
3,149
-------
INTERNATIONAL/YANKEE (U.S. $ DENOMINATED) 3.0%
British Telecommunications Finance Debentures,
2,761 9.625%, 2/15/19 3,061
Hydro-Quebec Debentures:
1,000 11.75%, 2/01/12 1,401
750 9.75%, 1/15/18 860
Newfoundland (Providence of) Canada,
1,800 10.00%, 12/01/20 2,288
Norsk Hydro A/S Debentures,
2,900 9.00%, 4/15/12 3,382
Sweden (Kingdom of) Debentures,
1,100 11.125%, 6/01/15 1,554
-------
12,546
-------
TAXABLE MUNICIPAL 0.6%
New Jersey Economic Development Authority,
750 7.75%, 12/01/98 788
Orange County California Redevelopment Agency
Tax Allocation Bond,
1,295 6.50%, 10/01/03 1,262
Texas State Taxable Water Development,
450 Series E, 7.625%, 8/01/11 450
-------
2,500
-------
BOND IMMDEX/TM FUND
SCHEDULE OF INVESTMENTS
October 31, 1996
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- -------------
U.S. GOVERNMENT AGENCY AND
AGENCY-BACKED ISSUES 1.9%
Federal Home Loan Bank (FHLB),
$1,500 Structured Notes, 5.03%, 6/28/97 $1,483
Federal Home Loan Mortgage Corporation (FHLMC),
149 Participation Certificates, 7.50%, 4/01/07 150
Federal Home Loan Mortgage Corporation (FHLMC)
Real Estate Mortgage Investment Conduit (REMIC):
23 Series 1259, Interest Only, Class IC,
1007.05%, 10/15/05 277
498 Series 1169, Class D, 7.00%, 5/15/21 502
Federal National Mortgage Association (FNMA),
Participation Certificates:
550 7.50%, 8/01/07 562
167 7.75%, 6/01/08 169
Federal National Mortgage Association (FNMA)
Real Estate Mortgage Investment Conduit (REMIC):
8 Series 1992-29, Interest Only, Class K,
977.92%, 11/25/00 145
650 Series 1993-87, Class KD, 6.00%, 6/25/03 639
21 Series 1992-145N, Interest Only, 1010.06%, 1/25/06 700
896 Series 1989-39, Principal Only, Class C, 0.00%, 6/25/17 858
950 Series X-225C, Class TE, 5.45%, 10/25/18 926
430 Series 1989-90, Class E, 8.70%, 12/25/19 451
283 Series 1990-72, Class A, 9.00%, 7/25/20 292
538 Series 1990-72, Class B, 9.00%, 7/25/20 585
-------
7,739
-------
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- -------------
U.S. TREASURY OBLIGATIONS 30.3%
U.S. Treasury Bonds:
$12,200 10.75%, 2/15/03 $ 15,006
1,550 10.75%, 8/15/05 1,997
80,975 9.25%, 2/15/16 102,860
U.S. Treasury Notes,
2,000 6.875%, 3/31/00 2,053
U.S. Treasury Strip,
3,650 0.00%, 2/15/99 3,203
-------
125,119
-------
Total Long-Term Investments (Cost $393,281) 403,926
-------
Number
of Shares
(in thousands)
--------------
SHORT-TERM INVESTMENTS 0.6%
INVESTMENT COMPANIES 0.6%
11 Financial Square Prime Obligation Fund $ 11
2,562 Short-Term Investments Co. Liquid Assets Portfolio 2,562
-------
Total Short-Term Investments (Cost $2,573) 2,573
-------
Total Investments 98.4% (Cost $395,854) 406,499
-------
Other Assets, less Liabilities 1.6% 6,728
-------
TOTAL NET ASSETS 100.0% $413,227
=======
<F30> Unregistered Security
See notes to the financial statements.
SHORT-TERM BOND MARKET FUND
INTERMEDIATE BOND MARKET FUND
TAX-EXEMPT INTERMEDIATE BOND FUND
BOND IMMDEX/TM FUND
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION
Portico Funds, Inc. (the "Company") was incorporated on February 15, 1988,
as a Wisconsin Corporation and is registered as an open-end management
investment company under the Investment Company Act of 1940. The Short-Term Bond
Market, Intermediate Bond Market, Tax-Exempt Intermediate Bond and Bond
IMMDEX/TM Funds (the "Funds") are separate, diversified investment portfolios
of the Company. The Short-Term Bond Market Fund and Bond IMMDEX/TM Fund
commenced operations on December 29, 1989; the Intermediate Bond Market Fund
commenced operations on January 5, 1993; and the Tax-Exempt Inter mediate Bond
Fund commenced operations on February 8, 1993. The objective of the Short-Term
Bond Market Fund is to seek to provide an annual rate of total return, before
Fund expenses, comparable to the annual rate of total return of the Lehman
Brothers 1-3 year Government/Corporate Bond Index. The objective of the
Intermediate Bond Market Fund is to seek to provide an annual rate of total
return, before Fund expenses, comparable to the annual rate of total return of
the Lehman Brothers Intermediate Government/Corporate Bond Index. The objective
of the Tax-Exempt Intermediate Bond Fund is to seek to provide current income
that is substantially exempt from federal income tax and emphasize total return
with relatively low volatility of principal. The objective of the Bond IMMDEX/TM
Fund is to seek to provide an annual rate of total return, before Fund expenses,
comparable to the annual rate of total return of the Lehman Brothers
Government/Corporate Bond Index.
The costs, in thousands, incurred in connection with the organization,
initial registration and public offering of shares aggregating $44, $14, $11 and
$46 for the Short-Term Bond Market, Intermediate Bond Market, Tax-Exempt
Intermediate Bond and Bond IMMDEX/TM Funds, respectively, have been paid by the
Funds. These costs are being amortized over the period of benefit, but not to
exceed sixty months from each Fund's commencement of operations.
The Company has issued two classes of Fund shares in each of the Funds:
Series A and Series Institutional. The Series A shares are subject to a 0.25%
shareowner service fee and to an initial sales charge imposed at the time of
purchase, in accordance with the Funds' prospectus. The maximum sales charge is
2% of the offering price or 2.04% of the net asset value. Each class of shares
for each Fund has identical rights and privileges except with respect to
shareowner organization fees paid by Series A shares, voting rights on matters
affecting a single class of shares and the exchange privileges of each class of
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.
a) Investment Valuation - Securities which are traded on a recognized exchange
are valued at the last sale price on the securities exchange on which such
securities are primarily traded or at the last sale price on the national
securities market. Exchange-traded securities for which there were no
transactions are valued at the current bid prices. Securities traded on only
over-the-counter markets are valued on the basis of closing over-the-counter bid
prices. Instruments with a remaining maturity of 60 days or less are valued on
an amortized cost basis which approximates market value. Securities for which
quotations are not readily available and other assets are valued at fair value
as deter mined by the investment adviser under the supervision of the Board of
Directors.
b) Federal Income Taxes - No provision for federal income taxes has been made
since the Funds have complied to date with the provisions of the Internal
Revenue Code available to regulated investment companies and intend to continue
to so comply in future years.
c) Income and Expenses - The Funds are charged for those expenses that are
directly attributable to each portfolio, such as advisory, administration and
certain shareowner service fees. Expenses that are not directly attributable to
a portfolio are typically allocated among the Company's portfolios in proportion
to their respective net assets, number of shareowner accounts or net sales,
where applicable. Net investment income other than class specific expenses, and
realized and unrealized gains and losses are allocated daily to each class of
shares based upon the relative net asset value of outstanding shares (or the
value of dividend-eligible shares, as appropriate) of each class of shares at
the beginning of the day (after adjusting for the current day's capital share
activity of the respective class).
d) Distributions to Shareowners - Dividends from net investment income of the
Short-Term Bond Market, Intermediate Bond Market, Tax-Exempt Inter mediate Bond
and Bond IMMDEX/TM Funds are declared and paid monthly. Distributions of net
realized capital gains, if any, will be declared at least annually.
e) Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
f) Unregistered Security - The Intermediate Bond Market and
Bond IMMDEX/TM Funds own a certain investment security which is unregistered and
thus restricted to resale. This security is valued by the Funds after giving due
consideration to pertinent factors including recent private sales, market
conditions and the issuer's financial performance. Where future disposition of
this security requires registration under the Securities Act of 1933, the Funds
have the right to include their security in such registration, generally without
cost to the Funds. The Funds have no right to require registration of
unregistered securities.
g) Other - Investment and shareowner transactions are recorded no later than
the first business day after the trade date. The Funds determine the gain or
loss realized from investment transactions by comparing the original cost of the
security lot sold with the net sale proceeds. Interest income is recognized on
an accrual basis. Discounts and premiums on bonds are amortized over the life of
the respective bond. Generally accepted accounting principles require that
permanent financial reporting and tax differences be reclassified to capital
stock.
3. INVESTMENT TRANSACTIONS
The aggregate purchases and sales, in thousands, of securities, excluding
short-term investments, for the Funds for the period ended October 31, 1996,
were as follows:
SHORT-TERM INTERMEDIATE TAX-EXEMPT BOND
BOND MARKET BOND MARKET INTERMEDIATE IMMDEX/TM
FUND FUND BOND FUND FUND
----------- ----------- ----------- --------
Purchases:
U.S. Government $ 41,674 $ 46,100 - $ 49,914
Other 125,621 100,672 $24,612 174,972
Sales:
U.S. Government 22,552 63,977 - 30,314
Other 83,874 32,138 11,505 85,248
At October 31, 1996, gross unrealized appreciation and depreciation of
investments for federal income tax purposes, in thousands, were as follows:
SHORT-TERM INTERMEDIATE TAX-EXEMPT BOND
BOND MARKET BOND MARKET INTERMEDIATE IMMDEX/TM
FUND FUND BOND FUND FUND
----------- ----------- ----------- --------
Appreciation $1,032 $2,770 $561 $12,894
(Depreciation) (1,341) (953) (53) (2,387)
-------- --------- -------- --------
NET UNREALIZED
APPRECIATION
(DEPRECIATION)
ON INVESTMENTS $ (309) $1,817 $508 $10,507
======== ======== ======== ========
At October 31, 1996, the cost of investments, in thousands, for federal
income tax purposes was $203,836, $185,963, $46,021 and $395,992 for the Short-
Term Bond Market, Intermediate Bond Market, Tax-Exempt Intermediate Bond and
Bond IMMDEX/TM Funds, respectively. At October 31, 1996, the Short-Term Bond
Market, Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds had
accumulated net realized capital loss carryovers, in thousands, of $1,248, $493
and $97, respectively, expiring in 2002. The Short-Term Bond Market,
Intermediate Bond Market and Bond IMMDEX/TM Funds had accumulated net realized
capital loss carryovers, in thousands, of $189, $568 and $987, respectively,
expiring in 2003. The Short-Term Bond Market and Bond IMMDEX/TM Funds had
accumulated net realized capital loss carryovers, in thousands, of $79 and $24,
respectively, expiring in 2004. To the extent each Fund realizes future net
capital gains, taxable distributions to its respective shareowners will be
offset by any unused capital loss carryover.
4. CAPITAL SHARE TRANSACTIONS
On January 9, 1995, all previously existing series of shares of each Fund
were reclassified as Series A shares. Effective on January 9, 1995,
Institutional shareowners exchanged their Series A shares for the Funds'
Institutional series shares. Transactions in capital shares for the Funds, in
thousands, were as follows:
<TABLE>
<CAPTION>
SHORT-TERM INTERMEDIATE TAX-EXEMPT BOND
BOND MARKET BOND MARKET INTERMEDIATE IMMDEX/TM
FUND FUND BOND FUND FUND
---------------- ---------------- ---------------- ----------------
Amount Shares Amount Shares Amount Shares Amount Shares
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended October 31, 1996:
Series A shares:
Shares sold $ 27,710 2,697 $ 8,046 792 $ 5,857 573 $ 28,027 1,022
Shares issued to owners
in reinvestment
of dividends 2,698 264 504 50 320 31 1,636 60
Shares redeemed (19,105) (1,863) (2,722) (268) (3,177) (311) (8,685) (319)
-------- -------- -------- -------- -------- -------- -------- --------
Net increase $ 11,303 1,098 $ 5,828 574 $ 3,000 293 $ 20,978 763
======== ======== ======== ======== ======== ======== ======== ========
Series Institutional shares:
Shares sold $ 75,408 7,301 $ 76,701 7,539 $ 18,326 1,800 $ 114,906 4,180
Shares issued to owners
in reinvestment
of dividends 6,416 627 5,795 572 418 41 17,730 648
Shares redeemed (28,472) (2,781) (37,484) (3,704) (9,656) (948) (49,787) (1,809)
-------- -------- -------- -------- -------- -------- -------- --------
Net increase $ 53,352 5,147 $ 45,012 4,407 $ 9,088 893 $ 82,849 3,019
======== ======== ======== ======== ======== ======== ======== ========
Period from Jan. 10, to Oct. 31, 1995:
Series A shares:
Reclassification of
previous class $ 113,766 11,467 $ 90,367 9,487 $ 28,273 2,909 $ 250,315 9,893
Exchange out to Series
Institutional shares (67,630) (6,818) (82,619) (8,669) (21,916) (2,255) (236,263) (9,338)
Shares sold 10,062 985 5,347 537 2,477 246 8,406 311
Shares issued to owners
in reinvestment
of dividends 1,889 186 257 25 202 20 674 24
Shares redeemed (11,995) (1,179) (2,445) (247) (1,682) (167) (2,814) (104)
-------- -------- -------- -------- -------- -------- -------- --------
Net increase $ 46,092 4,641 $ 10,907 1,133 $ 7,354 753 $ 20,318 786
======== ======== ======== ======== ======== ======== ======== ========
Series Institutional shares:
Exchange in from Series
A shares $ 67,630 6,818 $ 82,619 8,669 $ 21,916 2,255 $ 236,263 9,338
Shares sold 35,067 3,449 50,608 5,053 7,707 762 55,322 2,049
Shares issued to owners
in reinvestment
of dividends 3,077 302 3,251 325 328 33 12,580 467
Shares redeemed (13,589) (1,336) (14,172) (1,422) (3,554) (354) (38,641) (1,421)
-------- -------- -------- -------- -------- -------- -------- --------
Net increase $ 92,185 9,233 $122,306 12,625 $ 26,397 2,696 $ 265,524 10,433
======== ======== ======== ======== ======== ======== ======== ========
Period from Nov. 1, 1994 to Jan. 9, 1995:
Previous Class:
Reclassification to Series
A shares $(113,766) (11,467) $ (90,367) (9,487) $(28,273) (2,909) $(250,315) (9,893)
Shares sold 2,785 279 5,535 577 6,094 629 8,531 333
Shares issued to owners
in reinvestment
of dividends 1,409 141 863 90 146 15 3,937 156
Shares redeemed (11,467) (1,153) (2,952) (308) (3,967) (410) (15,327) (600)
-------- -------- -------- -------- -------- -------- -------- --------
Net (decrease) $(121,039) (12,200) $ (86,921) (9,128) $(26,000) (2,675) $(253,174) (10,004)
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Funds have entered into an Investment Advisory Agreement with Firstar
Investment Research & Management Company ("FIRMCO"). FIRMCO is a subsidiary of
Firstar Corporation, a publicly held bank holding company. Pursuant to its
Advisory Agreement with the Funds, FIRMCO is entitled to receive a fee,
calculated daily and payable monthly, at the annual rates presented below as
applied to each Fund's daily net assets. For the year ended October 31, 1996,
FIRMCO voluntarily waived the following fees, in thousands, by Fund:
SHORT-TERM INTERMEDIATE TAX-EXEMPT BOND
BOND MARKET BOND MARKET INTERMEDIATE IMMDEX/TM
FUND FUND BOND FUND FUND
----------- ----------- ----------- --------
Annual rate 0.60% 0.50% 0.50% 0.30%
Fees waived $556 $288 $159 $2
Firstar Trust Company, an affiliate of FIRMCO, serves as custodian, transfer
agent and accounting services agent for the Funds.
The Company has entered into a Co-Administration Agreement with B.C. Ziegler
and Company and Firstar Trust Company (the "Co-Administrators") for certain
administrative services. Pursuant to the Co-Administration Agreement with the
Company, the Co-Administrators are entitled to receive a fee, calculated daily
and payable monthly, at the annual rate of 0.125% of the Company's first $2
billion of average aggregate daily net assets, plus 0.10% of the Company's
average aggregate daily net assets in excess of $2 billion. For the year ended
October 31, 1996, $128, $116, $25 and $251 of administration fees, in thousands,
were voluntarily waived for the Short Term Bond Market, Intermediate Bond
Market, Tax-Exempt Intermediate Bond and Bond IMMDEX/TM Funds, respectively.
The Company entered into Servicing Agreements with certain Service
Organizations, including FIRMCO affiliates, for the Series A class of shares.
The Service Organizations are entitled to receive fees from the Funds up to the
annual rate of 0.25% of the average daily net asset value of the Series A shares
for certain support and/or distribution services to customers of the Service
Organizations who are beneficial owners of Series A shares. These services may
include assisting customers in processing purchase, exchange and redemption
requests; processing dividend and distribution payments from the Funds; and
providing information periodically to customers showing their positions in
Series A shares. Service Organization fees, in thousands, incurred by the Short-
Term Bond Market, Intermediate Bond Market, Tax-Exempt Intermediate Bond and
Bond IMMDEX/TM Funds aggregated $134, $36, $23 and $82, respectively, for the
year ended October 31, 1996.
Each Director of the Company who is not affiliated with FIRMCO receives an
annual fee from the Company for service as a Director and is eligible to
participate in a deferred compensation plan with respect to these fees.
Participants in the plan may designate their deferred Director's fees as if
invested in any one of the Portico Funds (with the exception of the MicroCap
Fund) or in 90-day U.S. Treasury bills. The value of each Director's deferred
compensation account will increase or decrease as if it were invested in shares
of the selected Portico Funds or 90-day U.S. Treasury bills. The Funds maintain
their proportionate share of the Company's liability for deferred fees.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE PORTICO SHORT-TERM BOND MARKET
FUND, THE PORTICO INTERMEDIATE BOND MARKET FUND, THE PORTICO TAX-EXEMPT
INTERMEDIATE BOND FUND AND THE PORTICO BOND IMMDEX/TM FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Portico Short-Term Bond Market
Fund, the Portico Intermediate Bond Market Fund, the Portico Tax-Exempt
Intermediate Bond Fund and the Portico Bond IMMDEX/TM Fund (four of the
portfolios of Portico Funds, Inc. (the "Funds")) at October 31, 1996, the
results of each of their operations for the year then ended, the changes in each
of their net assets for each of the two years in the period then ended and each
of their financial highlights for the year ended October 31, 1996, and for each
of the other periods indicated, all in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1996 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
/s/Price Waterhouse, LLP
Milwaukee, Wisconsin
December 6, 1996
- - PORTICO FUNDS ARE AVAILABLE THROUGH:
- the Portico Funds Center,
- Investment Specialists who are registered representatives of Elan
Investment Services, Inc., a registered broker/dealer, NASD and SIPC
member,
- and through selected shareholder organizations.
This report is authorized for distribution only when preceded or accompanied by
a current prospectus.
TO OPEN AN ACCOUNT OR
REQUEST INFORMATION
1-800-982-8909
1-414-287-3710
FOR ACCOUNT BALANCES AND
INVESTOR SERVICES
1-800-228-1024
1-414-287-3808
PORTICO FUNDS CENTER
615 East Michigan Street
P.O. Box 3011
Milwaukee, WI 53201-3011
NASD Ref #C96-1129-001
