OCTOBER 31, 1996
ANNUAL
REPORT
RETAIL CLASS
PORTICO
FUNDS
MICROCAP
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
PORTICO MICROCAP FUND................................................4-5
STATEMENT OF ASSETS AND LIABILITIES...................................6
STATEMENT OF OPERATIONS...............................................6
STATEMENT OF CHANGES IN NET ASSETS....................................7
FINANCIAL HIGHLIGHTS..................................................8
SCHEDULE OF INVESTMENTS..............................................9-10
NOTES TO THE FINANCIAL STATEMENTS...................................11-12
REPORT OF INDEPENDENT ACCOUNTANTS.....................................13
DEAR SHAREOWNER:
As you will recall, you received a Portico MicroCap Fund annual report back in
August. However, in an effort to align all Portico Funds on the same reporting
period, we have changed MicroCap Fund's fiscal year-end from June 30 to October
31. This explains this new annual report.
INVESTMENT REVIEW
The stock market continued its history-making climb over the past twelve months,
breaking the 6000 mark and leaving the question, "how far will it go?"
unanswerable. During this time period, Portico MicroCap Fund returned a very
impressive 54.4% (no-load) return. This compares very favorably against the
returns of both the Russell 2000 and the Standard & Poor's 500, the Fund's
benchmarks (see page 4 for comparisons and index explanations).
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.
IN SUMMARY
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
MICROCAP FUND
We are pleased to report excellent performance results for Portico MicroCap Fund
over the past twelve months. The Fund's outstanding record continues to catch
the eye of such national publications as The Wall Street Journal, Investors
Business Daily, The New York Times and USA Today. During this time period, stock
market volatility provided the Fund with many opportunities to invest in high-
quality microcap stocks at very reasonable prices.
Security recommendations from several members of our equity analyst team have
proven to be among our best performing stocks in the portfolio. Laurian Lytle
has provided excellent coverage of consumer staples companies (French
Fragrances) and finance companies (Granite Financial, Inc. and Southern Pacific
Funding Corporation). Tom Bolgert's expertise in professional services companies
has led us to some top performers such as Safeguard Health Enterprises, Inc. and
Pomeroy Computer Resources, Inc. Overall, the best performing sectors for the
Fund have been in the capital goods, healthcare, and technology areas. On the
other hand, the Fund has remained underinvested in the energy sector, which has
been a very strong sector for microcap stocks. See the schedule of investments
on pages 8-9 for full portfolio composition.
Over the past year, we have been often asked to reopen the Fund to new
investors. Currently, we believe it is still in the best interests of our
present shareowners to remain closed. However, we will continue to evaluate this
decision.
A decline in large company stock prices tend to drive down prices of small-cap
companies even further. As always, we caution shareowners of the inherent
volatility which occurs in the microcap segment. However, should the market
remain strong, we believe the Fund is very well positioned to take advantage of
the superior growth rates of microcap companies.
(PHOTO)
Mark D. Westman, CFA
PORTFOLIO MANAGER PROFILE
- --------------------------------------------------------------------------------
Mark D. Westman, CFA, CPA, Vice President and Senior Portfolio Manager has
managed the Fund since its inception on August 1, 1995. Mark has been with
Firstar since 1992 and has four years of investment management experience. He
received his BA from Augustana College in 1985 and his MBA from the University
of Chicago in 1993. Mark is a Chartered Financial Analyst and Certified Public
Accountant.
8/1/95 6/96 10/96
PORTICO MICROCAP FUND - A - NO LOAD $10,000 $16,352 $17,137
PORTICO MICROCAP FUND - A - LOAD<F1> $ 9,600 $15,693 $16,446
S&P 500 STOCK INDEX $10,000 $12,248 $12,975
RUSSELL 2000 $10,000 $11,709 $11,567
This chart assumes an initial investment of $10,000 made on 8/1/95 (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.
CUMULATIVE RATE OF RETURN (%)
FOR PERIOD ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
Fiscal Since Inception
Year-to-Date 1 Year 8/1/95
- --------------------------------------------------------------------------------
PORTICO MICROCAP FUND - A - NO LOAD 4.8 54.4 71.4
PORTICO MICROCAP FUND - A - LOAD<F1> 0.6 48.2 64.5
S&P 500 STOCK INDEX<F2> 5.9 24.1 29.8
RUSSELL 2000<F3> (1.2) 16.6 15.7
- --------------------------------------------------------------------------------
<F1> Reflects maximum sales charge of 4.0%.
<F2> The S&P500 Stock Index is an index of an unmanaged group of 500 selected
common stocks, most of which are listed on the New York Stock Exchange. The
Index is heavily weighted toward stocks with large market capitalizations
and represents approximately two-thirds of the total market value of all
domestic common stocks.
<F3> The Russell 2000, an unmanaged index, consists of the smallest 2,000
companies in a group of 3,000 U.S. companies in the Russell 3000 Index, as
ranked by total market capitalization.
An investment cannot be made directly in an index.
Series A shares, unlike the Series Institutional shares, have a 4% maximum sales
load and are subject to an annual 0.25% service organization fee. Performance
reflects fee waivers in effect. In the absence of fee waivers, total return
would be reduced.
TOP 5 HOLDINGS 10/31/96
- --------------------------------------------------------------------------------
SIPEX CORPORATION 6.2%
POMEROY COMPUTER RESOURCES, INC. 5.8%
EPIC DESIGN TECHNOLOGY, INC. 4.5%
UGLY DUCKLING CORPORATION 4.3%
MICREL, INC. 4.0%
- --------------------------------------------------------------------------------
Portfolio holdings are subject to change and are not a representation of the
Fund's entire portfolio holdings.
TOTAL FUND NET ASSETS 10/31/96
- --------------------------------------------------------------------------------
$75,640,521
- --------------------------------------------------------------------------------
MICROCAP FUND
STATEMENT OF ASSETS AND LIABILITIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
OCTOBER 31, 1996
ASSETS:
Investments, at value (Cost $63,366) $75,929
Income receivable 13
Organization costs, net of
accumulated amortization 18
Receivable for securities sold 580
Other assets 13
---------
Total Assets 76,553
---------
LIABILITIES:
Payable for securities purchased 780
Payable to affiliates 113
Accrued expenses and other liabilities 19
---------
Total Liabilities 912
---------
NET ASSETS $75,641
=========
NET ASSETS CONSIST OF:
Capital stock $50,508
Undistributed net investment (loss) (1)
Undistributed accumulated net realized gains 12,571
Unrealized net appreciation on investments 12,563
---------
Total Net Assets $75,641
=========
SERIES A:
Net assets $ 9,273
Shares authorized ($.0001 par value) 50,000
Shares issued and outstanding 574
Net asset value and redemption price per share <F4> $16.16
=========
Maximum offering price per share <F4> $16.83
=========
SERIES INSTITUTIONAL:
Net assets $66,368
Shares authorized ($.0001 par value) 50,000
Shares issued and outstanding 4,096
Net asset value, redemption price
and offering price per share <F4> $16.20
=========
<F4> Amounts may not recalculate due to rounding.
See notes to the financial statements.
STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS)
PERIOD ENDED OCTOBER 31, 1996
INVESTMENT INCOME:
Dividend income $ 6
Interest income 61
---------
67
---------
EXPENSES:
Investment advisory fees 356
Administration fees 24
Shareowner servicing and accounting costs 18
Service organization fees - Series A 7
Custody fees 10
Federal and state registration fees 3
Professional fees 7
Reports to shareowners 2
Amortization of organization costs 2
Directors' fees and expenses 1
Other 1
---------
Total expenses before waiver 431
Less: Waiver of expenses (12)
---------
Net Expenses 419
---------
NET INVESTMENT (LOSS) (352)
---------
REALIZED ANDUNREALIZEDGAIN:
Net realized gain on investments 5,738
Change in unrealized appreciation on investments (1,894)
---------
Net gain on investments 3,844
---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $3,492
=========
See notes to the financial statements.
MICROCAP FUND
STATEMENT OF CHANGES IN NET ASSETS
(AMOUNTS IN THOUSANDS)
July 1, 1996 Aug. 1, 1995<F5>
through through
October 31, 1996 June 30, 1996
----------------- -----------------
OPERATIONS:
Net investment (loss) $ (352) $ (85)
Net realized gain on investments 5,738 10,355
Change in unrealized appreciation
on investments (1,894) 14,457
--------- ---------
Net increase in net assets resulting
from operations 3,492 24,727
--------- ---------
CAPITAL SHARE TRANSACTIONS:
Shares sold 74 51,298
Shares issued to owners in
reinvestment of dividends - 1,616
Shares redeemed (556) (1,920)
--------- ---------
Net (decrease) increase (482) 50,994
--------- ---------
DISTRIBUTIONS TO
SERIES A SHAREOWNERS:
From net investment income - (22)
From net realized gains - (365)
--------- ---------
- (387)
--------- ---------
DISTRIBUTIONS TO
SERIES INSTITUTIONAL SHAREOWNERS:
From net investment income - (155)
From net realized gains - (2,548)
--------- ---------
- (2,703)
--------- ---------
TOTAL INCREASE IN NET ASSETS 3,010 72,631
NET ASSETS:
Beginning of period 72,631 - 0
--------- ---------
End of period (including undistributed
net investment loss of $<F5>
and $(262), respectively) $75,641 $72,631
========= =========
<F5> Commencement of operations.
See notes to the financial statements.
<TABLE>
<CAPTION>
MICROCAP FUND
FINANCIAL HIGHLIGHTS
July 1, 1996 August 1, 1995 <F6>
through through
October 31, 1996 June 30, 1996
---------------------------------------- ------------------------------------
Series A Series Institutional Series A Series Institutional
--------- --------------------- --------- ---------------------
<S> <C> <C> <C> <C>
Per Share Data:
Net asset value,
beginning of period $ 15.42 $ 15.45 $ 10.00 $ 10.00
Income from investment operations:
Net investment income (0.08)<F7> (0.07)<F7> (0.02) (0.02)
Net realized and unrealized
gains on securities 0.82 0.82 6.10 6.14
--------- --------- --------- ---------
Total from investment operations 0.74 0.75 6.08 6.12
--------- --------- --------- ---------
Less distributions:
Dividends from net investment income - - (0.04) (0.05)
Distributions from capital gains - - (0.62) (0.62)
--------- --------- --------- ---------
Total distributions - - (0.66) (0.67)
--------- --------- --------- ---------
Net asset value, end of period $ 16.16 $ 16.20 $ 15.42 $ 15.45
========= ========= ========= =========
Total return <F8><F9> 4.80% 4.85% 63.52% 63.93%
Supplemental data and ratios:
Net assets, in thousands, end of period $ 9,273 $66,368 $9,036 $ 63,595
Ratio of net expenses to average
net assets <F10> 1.97% 1.72% 1.99% 1.74%
Ratio of net investment (loss)
to average net assets <F10> (1.69)% (1.44)% (0.36)% (0.16)%
Portfolio turnover rate <F8><F11> 64.44% 64.44% 283.67% 283.67%
Average commission rate paid <F10> $0.0460 $0.0460 $ 0.0423 $ 0.0423
<FN>
<F6> Commencement of operations.
<F7> Net investment income per share is calculated using ending balances prior to consideration of adjustments for permanent book
and tax differences.
<F8> Not annualized.
<F9> The total return calculation does not reflect the 4% front-end sales charge for Series A.
<F10> Annualized.
<F11> Portfolio turnover and average commission rate paid are calculated on the basis of the Fund as a whole without distinguishing
between the classes of shares issued.
See notes to the financial statements.
</TABLE>
MICROCAP FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1996
Number Market
of Value
Shares (in thousands)
- ---------- ---------------
COMMON STOCKS 99.7%
BUILDING & HOUSING 9.6%
100,000 American Homestar Corporation <F12> $ 2,125
89,600 NCI Building Systems, Inc. <F12> 2,934
51,100 Palm Harbor Homes, Inc. <F12> 1,437
39,700 Watsco, Inc. 769
---------
7,265
---------
BUSINESS SERVICES 9.2%
10,400 Abacus Direct Corporation <F12> 273
108,500 Barrett Business Services, Inc. <F12> 1,790
56,900 Data Processing Resources Corporation <F12> 1,145
280,900 Richey Electronics <F12> 2,458
21,350 Right Management Consultants <F12> 470
49,500 Superior Services, Inc. <F12> 854
---------
6,990
---------
COMPUTER SOFTWARE & SERVICES 8.3%
17,500 CyberMedia, Inc. <F12> 389
140,300 EPIC Design Technology, Inc. <F12> 3,437
4,000 Industri-Matematik International Corp. <F12 39
31,800 SELECT Software Tools - ADR <F12> 700
4,800 Simulation Sciences, Inc. <F12> 53
72,900 Summit Design, Inc. <F12> 775
20,800 XLConnect Solutions, Inc. <F12> 608
22,500 Xionics Document Technologies, Inc. <F12 287
---------
6,288
---------
COMPUTER SYSTEMS 4.8%
115,300 Quickturn Design Systems, Inc. <F12> 1,686
178,300 Storm Technology, Inc. <F12> 1,984
---------
3,670
---------
COSMETICS & SOAP 5.3%
36,000 Carson, Inc. <F12> 585
233,300 French Fragrances, Inc. <F12> 2,071
315,800 Parlux Fragrances, Inc. <F12> 1,362
---------
4,018
---------
DATA PROCESSING 1.8%
70,800 CCC Information Services Group <F12> 1,328
---------
DISTRIBUTION 5.8%
189,000 Pomeroy Computer Resources, Inc. <F12> 4,394
---------
ELECTRICAL EQUIPMENT 3.1%
98,300 C.P. Clare Corporation <F12> 811
30,700 Cymer, Inc. <F12> 721
28,400 LeCroy Corporation <F12> 838
---------
2,370
---------
See notes to the financial statements.
Number Market
of Value
Shares (in thousands)
- ---------- ---------------
ELECTRONICS 13.1%
148,400 Micrel, Inc.<F12> $3,042
128,100 SDL, Inc. <F12> 2,178
176,400 Sipex Corporation <F12> 4,653
---------
9,873
---------
ENTERTAINMENT & LEISURE 0.5%
118,100 IndeNet, Inc. <F12> 369
---------
EQUIPMENT RENTAL 3.8%
161,300 Coinmach Laundry CORPORATION <F12> 2,903
---------
FOOD - DISTRIBUTION 0.9%
67,100 Unimark Group, Inc. <F12> 663
---------
FINANCIAL SERVICES 2.7%
51,500 Granite Financial, Inc. <F12> 444
51,200 Southern Pacific Funding Corporation <F12> 1,613
---------
2,057
---------
HOSPITAL SUPPLIES & SERVICES 5.0%
125,200 Safeguard Health Enterprises, INC. <F12> 2,254
56,000 Sterile Recoveries, Inc. <F12> 812
29,000 Xomed Surgical Products, INC. <F12> 750
---------
3,816
---------
HUMAN RESOURCES 1.9%
71,300 RemedyTemp, Inc. <F12> 1,426
---------
RESEARCH & DEVELOPMENT 0.4%
13,900 Applied Analytical INDUSTRIES, Inc. <F12> 302
---------
RETAIL SPECIALTY 5.2%
98,700 Moovies, Inc. <F12> 666
206,500 Ugly Duckling Corporation <F12> 3,252
---------
3,918
---------
RETIREMENT CARE 4.1%
107,500 Assisted Living CONCEPTS, Inc. <F12> 1,747
106,500 Atria Communities, INC. <F12> 1,345
---------
3,092
---------
RESTAURANT 1.3%
89,100 Blimpie International, Inc. 1,013
---------
SCHOOLS 0.4%
17,900 Education Management CORPORATION <F12> 293
---------
TECHNOLOGY - MISCELLANEOUS 1.8%
121,600 Pinnacle SYSTEMS, Inc. <F12> 1,322
---------
MICROCAP FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1996
Number Market
of Value
Shares (in thousands)
- ---------- ---------------
TELECOMMUNICATIONS 4.9%
44,000 Precision Response Corporation <F12> $ 1,573
22,000 RMH Teleservices, INC. <F12> 162
81,800 Rural Cellular CORPORATION <F12> 818
259,800 Syntellect, Inc. <F12> 1,169
---------
3,722
---------
TRANSPORTATION 5.8%
70,500 Atlas Air, Inc. <F12> 2,600
64,100 Coach USA, Inc. <F12> 1,747
---------
4,347
---------
Total Long-Term INVESTMENTS (Cost $62,876) 75,439
---------
Number
of Shares
(in thousands)
- ---------------
SHORT-TERM INVESTMENTS 0.7%
INVESTMENT COMPANIES 0.7%
1 Financial Square Prime ObLigation Fund 1
489 Short-Term Investments Co. Liquid Assets Portfolio 489
---------
Total Short-Term INVESTMENTS (Cost $490) 490
---------
Total Investments 100.4% (Cost $63,366) 75,929
---------
Liabilities, less Other ASSETS (0.4)% (288)
---------
TOTAL NET ASSETS 100.0% $75,641
=========
<F12> Non-income producing
See notes to the financial statements.
MICROCAP 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, as amended. The MicroCap Fund
(the "Fund") is a separate, diversified investment portfolio of the Company. The
Fund commenced operations on August 1, 1995. The objective of the MicroCap Fund
is capital appreciation through investments in securities of small companies.
The Fund's fiscal year end was changed from June 30 to October 31.
The costs, in thousands, incurred in connection with the organization, initial
registration and public offering of shares, aggregating $24, have been paid by
the Fund. These costs are being amortized over the period of benefit, but not to
exceed sixty months from the Fund's commencement of operations.
The Company has issued two classes of Fund shares: Series A and Series
Institutional. The Series A shares are subject to a 0.25% service organization
fee and an initial sales charge imposed at the time of purchase, in accordance
with the Fund's prospectus. The maximum sales charge is 4% of the offering price
or 4.16% of the net asset value. Each class of shares has identical rights and
privileges except with respect to service 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 Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
a) Investment Valuation - Securities which are traded on a recognized stock
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 a national
securities exchange. 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. Securities for which market quotations are not readily
available, and other assets are valued at fair value as determined 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 Fund has complied to date with the provisions of the Internal Revenue
Code available to regulated investment companies and intends to continue to so
comply in future years.
c) Income and Expenses - The Fund is charged for those expenses that are
directly attributable to it, 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 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 are
declared and paid annually. Distributions of net realized capital gains, if any,
will be declared at least annually.
e) When-Issued Securities - The Fund may purchase securities on a when-issued or
delayed delivery basis. Although the payment and interest terms of these
securities are established at the time the purchaser enters into the agreement,
these securities may be delivered and paid for at a future date, generally
within 45 days. The Fund records purchases of when-issued securities and
reflects the values of such securities in determining net asset value in the
same manner as other portfolio securities. The Fund segregates and maintains at
all times cash, cash equivalents, or other high-quality liquid debt securities
in an amount at least equal to the amount of outstanding commitments for when-
issued securities.
f) 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.
g) Other - Investment and shareowner transactions are recorded no later than the
first business day after the trade date. The Fund determines the gain or loss
realized from investment transactions by comparing the original cost of the
security lot sold with the net sale proceeds. Dividend income is recognized on
the ex-dividend date or as soon as information is available to the Fund and
interest income is recognized on an accrual basis. Generally accepted accounting
principles require that permanent reporting and tax differences be reclassified.
3. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Fund, in thousands, were as follows:
Period from July 1, 1996 to Oct. 31, 1996:
Series A Series Institutional
----------------- ---------------------
Amount Shares Amount Shares
------- ------- -------- --------
Shares sold $27 2 $47 3
Shares redeemed (210) (14) (346) (24)
------ ------ ------ ------
Net decrease $(183) (12) $(299) (21)
------ ------ ------ ------
Period from Aug. 1, 1995 (commencement of operations),
through June 30, 1996:
Series A Series Institutional
------------------- ---------------------
Amount Shares Amount Shares
------- -------- ------- -------
Shares sold $6,729 609 $44,569 4,105
Shares issued to owners in
reinvestment
of dividends 383 35 1,233 112
Shares redeemed (694) (58) (1,226) (100)
------- -------- -------- --------
Net increase $6,418 586 $44,576 4,117
======= ======== ======== ========
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities for the period ended October 31, 1996
(excluding short-term investments), in thousands, aggregated $47,376 and
$44,583, respectively.
At October 31, 1996, gross unrealized appreciation and depreciation of
investments for federal tax purposes, in thousands, were as follows:
Appreciation $18,321
(Depreciation) (5,918)
---------
Net unrealized appreciation on investments $12,403
=========
At October 31, 1996, the cost of investments, in thousands, for federal income
tax purposes was $63,526.
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Fund has 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 Fund, FIRMCO is entitled to receive a fee,
calculated daily and payable monthly, at the annual rate of 1.50% as applied to
the Fund's daily net assets.
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, computed 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 period ended October
31, 1996, $12 of administration fees, in thousands, were voluntarily waived for
the Fund.
The Company has 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 Fund up to an
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 Fund Series A Shares. These services
may include assisting customers in processing purchase, exchange and redemption
requests; processing dividend and distribution payments from the Fund; and
providing information periodically to customers showing their positions in Fund
Series A shares. Service Organization fees, in thousands, incurred by the Fund
aggregated $7 for the period 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 Fund maintains
its proportionate share of the Company's liability for deferred fees.
6. DISTRIBUTIONS
On November 12, 1996, a distribution of approximately $2.75 per share, taxable
to shareholders as ordinary income dividends, aggregating $12,769, in thousands,
was paid by the Fund to shareowners of record on November 11, 1996, of both the
Series A and Series Institutional Shares.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF THE PORTICO MICROCAP FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule 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 MicroCap Fund (one of
the portfolios of Portico Funds, Inc. (the "Fund")) at October 31, 1996, the
results of its operations for the period from July 1, 1996 through October 31,
1996, the changes in its net assets and its financial highlights for the period
from July 1, 1996 through October 31, 1996, and for the period from August 1,
1995 (commencement of operations) through June 30, 1996, 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 Fund's 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, WI53201-3011
NASD Ref #C96-1129-001
