OCTOBER 31, 1997
ANNUAL
REPORT
RETAIL 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
RISK REAPPEARS...REVEALS OPPORTUNITY.....................................3-6
LOOKING AHEAD.............................................................6
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....................................................19-22
SCHEDULE OF INVESTMENTS.................................................23-32
NOTES TO THE FINANCIAL STATEMENTS.......................................33-36
REPORT OF INDEPENDENT ACCOUNTANTS.........................................37
December, 1997
DEAR SHAREOWNER:
INVESTMENT REVIEW
Investors enjoyed strong financial market returns over the past year. Inflation
was subdued, unemployment fell to its lowest level in a generation and consumer
confidence soared. We witnessed a change in stock market leadership during the
year as small and midcap stocks outperformed largecap stocks in the second half.
This trend should continue as earnings growth slows for big companies and
valuations improve for small and midcap stocks.
The year's stock market advance was bumpy, with significant declines in March,
August and October. For the year, the Dow Jones Industrial Average rose over
1400 points, rewarding those investors who "stayed the course." The market's
roller coaster ride was most unsettling in October. Responding to financial
turmoil in Southeast Asia, the Dow plunged 556 points on October 27th, the
largest single-day point decline in history. Then, to make things interesting,
the market set another record the next day, rising 337 points. The bond market
also got into the volatility act as the yield on the 30-year U.S. Treasury bond
gyrated between 6.13% and 7.17% during the year.
IT'S TIME, NOT TIMING
We believe the best advice for times like these is "it's time, not timing._ In
volatile markets, our consistent approach to investing, featuring our structured
fixed income and growth-at-a-reasonable-price equity management styles, is
especially attractive. For our investors, it's reassuring to know we offer
investment strategies with no hidden surprises.
Along with an eventful year in the markets, we were busy evaluating the Portico
Family of Funds. We made several enhancements to the Portico lineup during the
year. These enhancements include:
- - A pure midcap stock focus for Portico Special Growth Fund.
- - A new smallcap stock fund, Portico Emerging Growth Fund, launched August 15,
1997.
- - A name change for Portico MidCore Growth Fund. The new name, Portico Growth
Fund, reflects the Fund's new focus on largecap stocks.
- - A new sub-adviser and a move from passive to active management for Portico
International Equity Fund.
- - A new balanced fund, Portico Balanced Income Fund, launched December 1, 1997.
For more complete information about these funds, please obtain a prospectus and
read it carefully before you invest or send money.
A NAME CHANGE FOR PORTICO FUNDS: FIRSTAR FUNDS
As previously announced, we will change our name to Firstar Funds on February 1,
1998. Changing our name allows us to take advantage of the Firstar identity in
markets where Firstar has a presence. This also eliminates confusion over the
relationship between Firstar and Portico. Again, we want to emphasize, THIS IN
NO WAY AFFECTS HOW YOUR FUNDS ARE MANAGED. It's a change in name only. Once the
name change takes effect, you can expect all sales materials, shareowner
communications, newspaper listings and our website to carry the new Firstar
Funds name.
MARKET OUTLOOK
Before looking ahead, let's revisit our economic and market forecast from last
year's annual report. We're pleased to report we got most of the important
trends right. We correctly anticipated a sooner-than-expected balanced Federal
budget and we accurately forecast a stronger-than-expected American consumer.
While our forecast of 5% nominal growth for the U.S. economy was right on, we
underestimated "real" (inflation-adjusted) growth and overestimated inflation.
Corporate profits were better than we expected, especially for the "mega"
companies that dominate the S&P 500 Index. We underestimated Corporate America's
ability to continuously improve productivity, enabling profit margins to expand
despite today's competitive, no-pricing-power, global marketplace. Strong profit
growth and low inflation led to higher stock returns than we expected, although
at the time, we felt rather bold forecasting an above-average year for the
market. Bond market total returns were below our forecast, although investors
earned historically high real yields, thanks to low inflation.
Looking ahead, our forecast for 1998 includes the following:
- - Pacific Rim economic activity will decline while their devalued currencies
make their exports cheaper and limit the ability of U.S. firms to raise
prices.
- - The Asian "wave of deflation" will offset inflation pressures from rising
wages and higher capacity utilization in the U.S.
- - Further U.S. economic expansion will require strong job and consumer spending
growth to offset weakness in the government, healthcare and foreign trade
sectors.
- - The Federal budget will be balanced in 1998 due to higher-than-forecast tax
receipts and continued spending restraint.
- - Moderate economic growth and low inflation will persist through 1998 with a
3% inflation-adjusted gain in gross domestic product (GDP) and a 2% rise in
consumer prices (CPI).
- - Despite solid economic underpinnings, the financial markets will experience
above-average volatility.
- - Due to lower-than-expected inflation, real yields for fixed income
investments will remain at the upper end of their historical range.
- - Long-term interest rates will decline gradually as a balanced Federal budget
reduces the supply of bonds and high real yields attract investors whipsawed
by stock market volatility.
- - With household liquidity at a record $1.6 trillion, cash flow into the stock
market will be robust.
- - The U.S. stock market will be the world's market of choice in 1998.
- - Stock market returns will be above-average in 1998. History shows a 15%
average annual return for stocks in years when inflation is low (+2-5% gain
in CPI) with 1966 the last year the market declined in a low inflation
environment.
- - S&P 500 companies will earn $48 per share in profits for 1998, yielding a
twelve month price target for the Index in the 1000 to 1100 range, up 10-20%
from October 31, 1997 levels.
- - Small and midcap stocks will outperform as earnings gains for large and mega-
sized multinational companies slow, prompting investors to place higher
valuations on faster growing small and medium-sized domestically-focused
companies.
IN SUMMARY
Inflation is the single most important variable in the outlook for stock and
bond market returns. Intense global competition, improved productivity through
technology and restrained growth in government should keep the inflation genie
"bottled up." Prospects for further financial market gains are bright. Just
remember, patience and perseverance win the investment marathon.
We appreciate your continued confidence in the Portico Family of Funds and urge
you to read the following portfolio reviews.
<PHOTO> <PHOTO>
J. SCOTT HARKNESS, CFA MARY ELLEN STANEK, CFA
CHAIRMAN/CHIEF PRESIDENT
INVESTMENT OFFICER
Firstar Investment Research & Management Company, LLC
RISK REAPPEARS...REVEALS OPPORTUNITY
With the generous returns offered by the equity market over the last several
years, many investors became accustomed to handsome rewards with diminishing
appreciation for the underlying risks they had assumed. The volatility in the
financial markets in October, however, gave cause for investors to reassess the
risk in their portfolios and re-evaluate their tolerance thereof. As a result of
this recent "soul searching", we have seen positive cash-flow into the bond
market as investors re-balance their portfolios.
VOLATILITY OFTEN BRINGS WITH IT OPPORTUNITY. Currently, we see good relative
value in the bond market for investors. Real yields (nominal yields less
inflation) are still high by historical standards and our outlook for inflation
continues to be favorable. The bond market, over the long run, is efficient and
will reward investors with returns which are in direct proportion to the level
of risk they are willing to take. The key is to maintain risk at levels
commensurate with your investment objectives. While most investors are clear on
their investment objectives, clearly identifying the risks of their investments
presents a greater challenge. As many investors seek to reduce their overall
portfolio volatility by emphasizing bonds, we think it is an appropriate time to
review some of the risks of investing in bonds and bond mutual funds.
Portico's fixed-income management approach is specifically designed to DEFINE,
MEASURE, AND CONTROL bond fund risks. 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. Our "WHAT YOU SEE IS WHAT YOU GET" philosophy
guides us in providing bond funds that will perform as expected, even during
volatile times. We strive to educate our investors about realistic return
expectations and the risk it takes to achieve those returns. Following, we focus
on three risks we feel are especially important for investors to understand when
investing in a bond fund: INTEREST RATE RISK, CREDIT RISK AND FOREIGN EXPOSURE
RISK.
INTEREST RATE RISK
The key component of risk in a bond fund is the fund's price sensitivity to
interest rate changes. It's a "seesaw" effect--bond prices and bond fund values
move inversely with interest rates: as rates rise, prices fall and, conversely,
as rates fall, prices rise.
We select an appropriate benchmark for each fund by examining the benchmark's
long-term returns relative to its risk (interest rate sensitivity). After
selecting the benchmark, we then keep the interest rate sensitivity of each fund
equal to that of its benchmark at all times.
We build from the concept of duration which defines the level of price
volatility, or risk of a bond fund or benchmark index. While related to a bond's
maturity, duration can be more accurately thought of as THE AVERAGE TIME TO
RECEIPT OF ALL OF A BOND'S CASH FLOWS. As such, it is a very effective measure
of the interest rate sensitivity of an individual bond or an entire fixed-income
portfolio, and thus, describes the key component of the level of risk to be
assumed in the management of fixed-income assets.
UNDERSTANDING DURATION
Rule of Thumb
- -------------
Duration x Interest Rate Change = Approximate Price Change
Consider the following two bonds which are identical except in regard to their
coupon.
1)U.S. Treasury zero coupon bond due 8/15/07. Investor receives principal
payment equal to the full face amount when the bond matures.
Maturity = 10 years
Duration = 10 years
2)U.S. Treasury 6 1/8% due 8/15/07. Investor receives semi-annual interest
payments until maturity. At maturity investor also receives principal payment
equal to the full face amount.
Maturity = 10 years
Duration = 7.2 years
Since the first bond's only cash flow is at maturity, its duration is equal to
its maturity. Because the second bond pays interest regularly, the average time
to receipt of its cash flows is less than that of the first bond. Hence, its
duration is shorter.
Now, if interest rates rise 1.0% (for example, from 6.0% to 7.0%) over a short
period of time, the approximate price change for each asset is as follows:
APPROXIMATE PRICE CHANGE
------------------------
U.S. Treasury 0% due 8/15/07 -10.0%
U.S. Treasury 6 1/8% due 8/15/07 -7.2%
If interest rates fall 1.0% (for example, from 6.0% to 5.0%) over a short period
of time, the approximate price change for each asset is as follows:
APPROXIMATE PRICE CHANGE
------------------------
U.S. Treasury 0% due 8/15/07 +10.0%
U.S. Treasury 6 1/8% due 8/15/07 +7.2%
We feel this simple example demonstrates how duration, rather than maturity,
best measures the interest rate sensitivity of a bond or bond fund.
Our STRUCTURED, OR DURATION-MATCHED management approach remains constant
regardless of changes in interest rates. Because we can effectively measure and
control the price risk of a portfolio so that the return mirrors the selected
index, it is possible to enhance the return without measurably increasing the
risk of the portfolio. Keeping risks in line with objectives, our goal for each
fund is to outperform its benchmark on a consistent basis before fund expenses.
Our approach is applied consistently across the various maturity segments of the
bond market. For example, 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. The table below provides a simple comparison of
Portico bond funds.
PORTICO FAMILY OF FIXED-INCOME FUNDS
- ----------------------------------------------------------------------------
SHORT-TERM LONG-TERM
BOND FUND INTERMEDIATE-TERM BOND FUNDS BOND FUND
--------- ---------------------------- ---------
PORTICO PORTICO PORTICO PORTICO
SHORT-TERM INTERMEDIATE TAX-EXEMPT BOND
BOND BOND INTERMEDIATE IMMDEX/TM
MARKET FUND MARKET FUND BOND FUND FUND
----------- ----------- ----------- -----------
LEHMAN LEHMAN LEHMAN
BROTHERS BROTHERS BROTHERS LEHMAN
1-3 YEAR INTERMEDIATE 5-YEAR 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* AA AA AAA AA
AVERAGE MATURITY 2.5 YEARS 5.2 YEARS 5.1 YEARS 10.3 YEARS
DURATION 1.7 YEARS 3.3 YEARS 4.2 YEARS 5.2 YEARS
PRINCIPAL VOLATILITY LOW MODERATE MODERATE HIGH
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,
1997, and will change from time to time in connection with the management of the
portfolios pursuant to the policies described in the current prospectus.
*Dollar weighted average quality of portfolio securities held by the Funds.
CREDIT RISK
In addition to interest rate risk, bonds (and bond funds) are subject to varying
degrees of credit risk. U.S. Treasury issues, which are considered to represent
minimal credit risk, serve as the baseline for bond yields. All other bonds
trade in the market at some yield "spread" to U.S. Treasury yields. Generally
speaking, bonds with higher perceived credit risk trade with larger, or wider
spreads. During the past few years, many investors have been reaching for higher
yields in their bond investments. Many bond funds, in their quest for higher
yields, have also taken on more credit risk by purchasing lower quality bonds.
As a result of this demand and because of the overall improvement in the
economy, yield spreads have narrowed significantly over the last several years.
The charts below show the compression of yield spreads for investment grade
bonds since the end of 1991.
Credit Spreads 12/31/91
1 2 3 5 10 30
----- ----- ----- ----- ----- -----
AAA 0.25% 0.30% 0.33% 0.36% 0.40% 0.69%
AA 0.10% 0.10% 0.10% 0.11% 0.14% 0.03%
A 0.20% 0.20% 0.20% 0.19% 0.15% 0.13%
BBB 0.55% 0.55% 0.57% 0.59% 0.58% 0.72%
Credit Spreads 10/31/91
1 2 3 5 10 30
----- ----- ----- ----- ----- -----
AAA 0.37% 0.28% 0.32% 0.35% 0.40% 0.44%
AA 0.02% 0.04% 0.04% 0.04% 0.03% 0.11%
A 0.12% 0.04% 0.07% 0.07% 0.12% 0.09%
BBB 0.11% 0.09% 0.05% 0.16% 0.20% 0.31%
As seen in the charts above, the reward for taking on the same risk with
investment grade bonds has declined over the last several years. The spread on
10-year corporate bonds rated AA has declined modestly from 0.54% in 1991 to
0.43%. The spread on 10-year corporate bonds rated BBB, however, has fallen
dramatically from 1.27% in 1991 to 0.75%. Lower quality spreads, which started
out much wider, tightened more dramatically, giving lower quality bonds a
significant boost in performance relative to higher quality bonds over this time
period.
The quest for wider spreads of years-gone-by has recently led many bond funds,
which traditionally invested only in investment-grade bonds, to venture into
below-investment-grade bonds, commonly known as "high yield" or "junk bonds." As
a result, investors in these bond funds have, often unwittingly, exposed
themselves to considerably higher levels of credit risk. While junk bonds offer
wider spreads than investment grade bonds, their spreads too have tightened over
the last several years and are presently narrow by historical standards. The
following table compares the yield-to-maturity on the Lehman Brothers High Yield
Bond Index (non-investment grade) and the Lehman Brothers Government/Corporate
Bond Index (investment-grade) over the same time period as above.
12/31/91 10/31/97
-------- --------
Lehman Brothers High Yield Bond Index 13.37% 8.82%
Lehman Brothers Government/Corporate Bond Index 6.38% 6.09%
The dramatic narrowing of junk bond spreads since 1991 has caused junk bonds to
outperform investment-grade bonds considerably. With spreads at historically
narrow levels, however, we believe there is considerable risk of spread
widening, which could cause junk bonds to underperform dramatically. PORTICO
BOND FUNDS PURCHASE ONLY INVESTMENT-GRADE SECURITIES. Our fixed-income research
team diligently screens the marketplace for opportunities in the investment
grade corporate bond market that add value while controlling the risk.
FOREIGN EXPOSURE RISK
As markets become increasingly "global," investing in foreign securities is
becoming more widely accepted. The recent volatility in the overseas markets,
however, has renewed the interest and highlighted the risks of investing in
foreign countries. Currency devaluations and sharp changes in economic policies
of several Pacific Rim countries have caused gyrations in the value of many
foreign bonds. These securities, like domestic corporate bonds, also trade at
various and often wide "spreads" to U.S. Treasury issues. The wider spreads of
foreign bonds incorporate the added dimensions of credit risk, industry risk,
sovereign or country risk and especially currency risk. In search of yield, many
bond funds have added foreign issues to their portfolios--often with foreign
currency risk. Currency risk overshadows the other risks in terms of magnitude
and is particularly difficult to define and control in a cost effective manner.
Accordingly, we believe the assumption of currency risk to be inconsistent with,
and outside the investment objectives of domestic, investment-grade bond funds.
While we do not expose Portico bond funds to foreign currency risk, we do
believe foreign bonds that are denominated in U.S. dollars--"Yankee" bonds as
they're called--can offer significant investment opportunities. Yankee bonds are
obligations of foreign governments and corporations but are issued in the United
States and denominated in U.S. dollars. Although these issues often have similar
or higher credit ratings than a typical U.S. corporate bond, they typically
trade with significantly higher yields and are NOT subject to currency risk.
Yankee bonds are currently the fastest growing sector of the U.S. domestic
corporate bond market. In fact, three of the six largest corporate issuers
represented in the Lehman Brothers Government/Corporate Bond Index are foreign
entities. Investing in Yankee issues has enabled us to seize the opportunity in
foreign bonds without exposing our investors to the perils of currency risk.
CONSISTENCY IS THE HALLMARK OF PORTICO BOND FUNDS
Investment in a domestic, investment-grade bond fund is the "anchor in the wind"
in an overall portfolio. Portico bond funds attempt to be a strong anchor for
your portfolios. Many risks can keep a fund manager from delivering consistent
performance. We have discussed interest rate risk, credit risk and foreign
exposure risk. PORTICO BOND FUNDS STRIVE TO DEFINE, MEASURE AND CONTROL THESE
AND OTHER RISKS RESULTING IN CONSISTENT INVESTMENT PERFORMANCE EVEN IN VOLATILE
TIMES. 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.
LOOKING AHEAD
Looking ahead, we continue to forecast moderate economic growth, low levels of
inflation, and attractive real, or inflation-adjusted, rates of returns.
Although we expect volatility to continue in the bond market, we believe it
presents opportunity. As always, we remain commited to adhearing to our
structured fixed-income management style which we feel provides the best value
for shareowners.
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, LLC
This page intentionally left blank.
SHORT-TERM BOND MARKET FUND
PORTICO SHORT-TERM BOND MARKET FUND seeks to provide an annual rate of total
return comparable to that of the Lehman Brothers 1-3 Year Government/Corporate
Bond Index, before Fund expenses. In order to achieve its objective, the Fund
may invest in securities with short to intermediate remaining maturities.
INTEREST RATE RISK
This Fund's maturity mix gives it an overall AVERAGE PORTFOLIO MATURITY OF 2.5
YEARS, and a DURATION OF 1.7 YEARS. Because Short-Term Bond Market Fund's
duration of just under two years is the shortest of all the Portico taxable bond
funds, it will display the least downward price movement when interest rates
increase, but will also exhibit the least upward price appreciation when
interest rates decrease. This Fund will exhibit a more stable NAV when compared
to Portico's other taxable bond fund offerings.
In fact, this Fund's short average maturity and duration is reflected in its
performance for the year ended October 31, 1997. A slight decrease in interest
rates, (2-year U.S. Treasury rates decreased by approximately 0.15% to 5.6%),
RESULTED IN A ONE-YEAR TOTAL RETURN FOR THE FUND OF +6.21% (NO-LOAD). THIS
COMPARES TO THE FUND'S BENCHMARK, THE LEHMAN BROTHERS 1-3 YEAR GOVERNMENT
CORPORATE BOND INDEX, WHICH HAD A TOTAL RETURN OF +6.51% FOR THE SAME PERIOD.
ADDITIONALLY, THIS REPRESENTS A HIGH REAL RATE OF RETURN WHEN COMPARED TO THE
CONSUMER PRICE INDEX, WHICH OVER THE SAME PERIOD INCREASED ONLY +2.1%.
CREDIT RISK
While the Fund's duration is the single most significant determinant of its
return, other factors are important, too. The Fund's exposure to credit-
sensitive issues including corporate bonds and notes and asset-backed securities
is one determinant of its relative performance. CORPORATE BONDS AND NOTES ARE
SELECTED FOR THE FUND IN A RESEARCH-INTENSIVE PROCESS FROM THE FIXED INCOME
INVESTMENT GRADE UNIVERSE. (PORTICO BOND FUNDS DO NOT INVEST IN "HIGH-YIELD" OR
"JUNK" BONDS.) Sectors that we currently favor include finance, banking and
brokerage. We are currently underweighted in the utility sector. Asset-backed
securities in the Fund are all highly rated by Moody's or Standard & Poor's.
OVER HALF OF THE FUND, (68%), IS INVESTED IN OBLIGATIONS RATED AAA/AAA OR
HIGHER.
FOREIGN EXPOSURE RISK
The Fund does not invest in securities denominated in foreign currencies. As
such, it has no direct exposure to foreign currency fluctuations. The Fund does,
however, invest in Yankee securities. Yankees are obligations of foreign
entities denominated in U.S. dollars. Yankee investments total 4% of the Fund
and include credits of: Ford Capital BV (guaranteed by Ford Motor Company),
Hydro-Quebec, Quebec, and Sumitomo Bank. Currently, Yankee bond obligations are
the fastest growing sector of the U.S. domestic corporate bond market. Investing
in Yankee issues has enabled us to capitalize on opportunities in foreign bonds
without exposing our investors to currency risk. With recent market turmoil
originating in the Pacific Rim countries, spreads on some Yankee issues have
widened. This has resulted in negative relative performance on these securities.
At current yield levels, we feel Yankee bonds represent exceptional value. We
anticipate that they will outperform similarly rated investments in the coming
year. SEE PAGE 23 FOR A COMPLETE LISTING OF PORTFOLIO HOLDINGS.
CONSISTENCY IS THE HALLMARK OF OUR APPROACH
Since Portico Short-Term Bond Market Fund's inception on 12/29/89, we have
adhered to the same, disciplined management approach. The past-seven plus 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. Short-term Bond Market Fund's returns have
been comparable to the 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. We look forward to continuing to serve you as Portico
Fund shareowners.
PORTFOLIO MANAGER PROFILE
- -----------------------------------------------------------------------------
Mary Ellen Stanek, CFA, President of Firstar Investment Research & Management
Company, LLC (FIRMCO) and Daniel A. Tranchita, CFA, Vice President and Senior
Portfolio Manager, co-manage the Fund - Mary Ellen since its inception on
December 29, 1989 and Dan since January 1, 1993. Mary Ellen has 18 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.
<PHOTO> <PHOTO>
Mary Ellen Stanek, CFA Daniel A. Tranchita, CFA
<TABLE>
<CAPTION>
12/29/89 10/90 10/91 10/92 10/93 10/94 10/95 10/96 10/97
-------- ------ ------ ------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PORTICO SHORT-TERM
BOND MARKET FUND -
A - NO LOAD 10,000 10,464 11,865 12,966 13,835 14,037 15,264 16,109 17,109
PORTICO SHORT-TERM
BOND MARKET FUND -
A - LOAD* 9,800 10,259 11,632 12,713 13,567 13,769 14,972 15,801 16,782
LEHMAN 1-3 YEAR
GOV'T./CORP.
BOND INDEX 10,000 10,738 11,964 12,943 13,712 13,879 15,118 16,030 17,073
<FN> 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, 1997
Since
Inception
1 Year 3 Years 5 Years 12/29/89
------ ------- ------- --------
PORTICO SHORT-TERM BOND
MARKET FUND - A NO LOAD 6.2 6.8 5.7 7.1
PORTICO SHORT-TERM BOND
MARKET FUND - A LOAD* 4.1 6.1 5.3 6.8
LEHMAN BROTHERS 1-3 YEAR
GOV'T./CORP. BOND INDEX** 6.5 7.2 5.7 7.1
** Reflects maximum sales charge of 2.0%.
** 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 outstanding 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 load performance for the Series A shares has been
restated to reflect the impact of the sales charge (and the elimination of the
purchase price adjustment). The no-load performance for the Series A 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.
A = Series A (retail class)
SECTOR DISTRIBUTION
10/31/97
- -----------------------------------
U.S. TREASURY 17%
U.S. GOVERNMENT AGENCY 14%
MORTGAGE-BACKED 11%
FINANCE, BANKING, BROKERAGE 16%
INDUSTRIAL 5%
UTILITY 2%
INTERNATIONAL/YANKEE 4%
ASSET-BACKED 28%
CASH 1%
TAXABLE MUNICIPAL 2%
TOTAL 100%
PORTFOLIO COMPOSITION
10/31/97
- -----------------------------------
AVERAGE MATURITY 2.5 YEARS
AVERAGE DURATION 1.7 YEARS
QUALITY DISTRIBUTION
10/31/97
- -----------------------------------
U.S. TREASURY 17%
U.S. GOVERNMENT AGENCY 14%
Aaa 37%
Aa 6%
A 20%
Baa 6%
TOTAL 100%
SEC 30-DAY YIELD
- -----------------------------------
5.65%
TOTAL FUND NET ASSETS
10/31/97
- -----------------------------------
$201,651,006
INTERMEDIATE BOND MARKET FUND
PORTICO INTERMEDIATE BOND MARKET FUND seeks to provide an annual rate of total
return comparable to that of the Lehman Brothers Intermediate
Government/Corporate Bond Index, before Fund expenses. In order to achieve its
objective, the Fund may invest in securities with long remaining maturities, (10
years or longer), in addition to shorter bonds and notes.
INTEREST RATE RISK
This Fund's maturity mix gives it an overall AVERAGE PORTFOLIO MATURITY OF 5.2
YEARS, and a DURATION OF 3.3 YEARS. Because Intermediate Bond Market Fund's
duration of just over three years is between the durations of the other Portico
taxable bond funds, when interest rates increase it will display more downward
price movement than the Short-Term Bond Market Fund and less than the Bond
IMMDEX/TM Fund. But, when interest rates decrease, this Fund will exhibit more
upward price appreciation than Short-Term Bond Market Fund and less than the
Bond IMMDEX/TM Fund.
In fact, this Fund's intermediate average maturity and duration is reflected in
its performance for the year ended October 31, 1997. A decrease in interest
rates, (5-year U.S. Treasury rates decreased by over 0.35% to 5.7%), RESULTED IN
A ONE YEAR-TOTAL RETURN FOR THE FUND OF +7.09% (NO-LOAD). THIS COMPARES TO THE
FUND'S BENCHMARK, THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT CORPORATE BOND
INDEX, WHICH HAD A TOTAL RETURN OF +7.49% FOR THE SAME PERIOD. ADDITIONALLY,
THIS REPRESENTS A HIGH REAL RATE OF RETURN WHEN COMPARED TO THE CONSUMER PRICE
INDEX, WHICH OVER THE SAME PERIOD INCREASED ONLY +2.1%.
CREDIT RISK
While the Fund's duration is the single most significant determinant of its
return, other factors are important, too. The Fund's exposure to credit-
sensitive issues including corporate bonds and notes and asset-backed securities
is one determinant of its relative performance. CORPORATE BONDS AND NOTES ARE
SELECTED FOR THE FUND IN A RESEARCH-INTENSIVE PROCESS FROM THE FIXED INCOME
INVESTMENT GRADE UNIVERSE. (THE PORTICO BOND FUNDS DO NOT INVEST IN "HIGH-YIELD"
OR "JUNK" BONDS.) Sectors that we currently favor include finance, banking and
brokerage. We are currently underweighted in the utility sector. Asset-backed
securities in the Fund are all rated Aaa/AAA by Moody's or Standard & Poor's.
They represent the highest credit quality of non-U.S. Government investments
available. OVER HALF OF THE FUND, (62%), IS INVESTED IN OBLIGATIONS RATED
AAA/AAA OR HIGHER.
FOREIGN EXPOSURE RISK
The Fund does not invest in securities denominated in foreign currencies. As
such, it has no direct exposure to foreign currency fluctuations. The Fund does,
however, invest in Yankee securities. Yankees are obligations of foreign
entities denominated in U.S. dollars. Yankee investments total 8% of the Fund
and include credits of: Ford Capital BV (guaranteed by Ford Motor Company),
Hydro-Quebec, Korea Development Bank and Korea Electric Power, Midland Bank,
National Bank of Hungary, Pohang Iron & Steel, Quebec, and Wharf International.
Currently, Yankee bond obligations are the fastest growing sector of the U.S.
domestic corporate bond market. Investing in Yankee issues has enabled us to
capitalize on opportunities in foreign bonds without exposing our investors to
currency risk. With recent market turmoil originating in the Pacific Rim
countries, spreads on some of the Fund's Yankee issues have widened. This has
resulted in negative relative performance on these securities. At current yield
levels, we feel the Fund's Yankee bonds represent exceptional value. We
anticipate that they will outperform similarly rated investments in the coming
year. SEE PAGE 25 FOR A COMPLETE LISTING OF PORTFOLIO HOLDINGS.
CONSISTENCY IS THE HALLMARK OF OUR APPROACH
Since Portico Intermediate Bond Market Fund's inception on 1/5/93, we have
adhered to the same, disciplined management approach. The past four-plus 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. Intermediate Bond Market Fund's returns have
been comparable to the 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. We look forward to continuing to serve you as Portico
Fund shareowners.
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 18 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 ten 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.
<PHOTO> <PHOTO>
Mary Ellen Stanek, CFA Teresa R. Westman, CFA
1/5/93 10/93 10/94 10/95 10/96 10/97
------ ----- ----- ----- ----- -----
PORTICO INTERMEDIATE
BOND MARKET FUND -
A - NO LOAD 10,000 10,858 10,671 11,956 12,614 13,508
PORTICO INTERMEDIATE
BOND MARKET FUND -
A - LOAD* 9,800 10,646 10,463 11,723 12,369 13,246
LEHMAN INTERMEDIATE
GOV'T./CORP.
BOND INDEX 10,000 10,844 10,635 11,968 12,663 13,612
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, 1997
Since Inception
1 Year 3 Years 1/5/93
----- ------- ------
PORTICO INTERMEDIATE
BOND MARKET FUND -
A - NO LOAD 7.1 8.2 6.4
PORTICO INTERMEDIATE
BOND MARKET FUND -
A - LOAD* 4.9 7.4 6.0
LEHMAN BROTHERS INTERMEDIATE
GOV'T./CORP. BOND INDEX** 7.5 8.6 6.6
** Reflects maximum sales charge of 2.0%.
** 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 under lying universe of securities that comprise the
index. Securities included in the index must meet the following critieria: fixed
as opposed to variable rate; remaining maturity of one to ten years; minimum
outstanding 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 load performance for the Series A shares has been
restated to reflect the impact of the sales charge (and the elimination of the
purchase price adjustment). The no-load performance for the Series A 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.
A = Series A (retail class)
SECTOR DISTRIBUTION
10/31/97
- -----------------------------------
U.S. TREASURY 30%
U.S. GOVERNMENT AGENCY 7%
MORTGAGE-BACKED 2%
FINANCE, BANKING, BROKERAGE 21%
INDUSTRIAL 8%
INTERNATIONAL/YANKEE 8%
ASSET-BACKED 20%
CASH 4%
TOTAL 100%
PORTFOLIO COMPOSITION
10/31/97
- -----------------------------------
AVERAGE MATURITY 5.2 YEARS
AVERAGE DURATION 3.3 YEARS
QUALITY DISTRIBUTION
10/31/97
- -----------------------------------
U.S. TREASURY 30%
U.S. GOVERNMENT AGENCY 7%
Aaa 25%
Aa 2%
A 27%
Baa 9%
TOTAL 100%
SEC 30-DAY YIELD
- -----------------------------------
5.58%
TOTAL FUND NET ASSETS
10/31/97
- -----------------------------------
$275,212,112
TAX-EXEMPT INTERMEDIATE BOND FUND
PORTICO TAX-EXEMPT INTERMEDIATE BOND FUND seeks to provide current income exempt
from federal taxes and emphasizes total return with relatively low volatility of
principal. Currently, the Fund does not purchase any issues which are subject to
the alternative minimum tax.
INTEREST RATE RISK
This Fund's maturity mix gives it an overall AVERAGE PORTFOLIO MATURITY OF 5.1
YEARS, and a DURATION OF 4.2 YEARS. Because Tax-Exempt Intermediate Bond Fund's
duration is just over four years, its NAV will be less sensitive to changes in
interest rates than the typical municipal debt fund which, according to Lipper
Analytical Services, has an average duration of 7.7 years. A slight decrease in
intermediate municipal bond market yields (5-year rates fell approximately 0.20%
to 4.25%) resulted in a ONE-YEAR TOTAL RETURN FOR THE FUND OF +5.60% (NO-LOAD).
CREDIT RISK
While the Fund's duration is the single most significant determinant of its
return, exposure to credit risk can significantly affect performance as well. As
of October 31, 1997, the Fund has an AVERAGE QUALITY RATING OF AAA. In
particular, OVER 69% OF THE FUND'S HOLDINGS ARE INVESTED IN PREREFUNDED
MUNICIPAL BONDS, WHICH ARE SECURED WITH U.S. TREASURY ISSUES. With credit
spreads remaining tight by historical standards, the Fund's focus on superior
quality issues will help minimize the effects of any widening of credit spreads.
FOREIGN EXPOSURE RISK
The Fund invests only in U.S. domestic municipal bonds and has no exposure to
foreign bonds or foreign currency risk.
CONSISTENCY IS THE HALLMARK OF OUR APPROACH
Since Portico Tax-Exempt Intermediate Bond Fund's inception on 2/8/93, we have
adhered to the same, disciplined management approach. The past four-plus years
have brought us more volatility in the fixed income markets than we would have
expected. The hallmark of our performance has been consistent performance in all
markets. Our goal is to continue to deliver this same consistent performance. We
look forward to continuing to serve you as Portico Fund shareowners.
<PHOTO>
Warren D. Pierson, CFA
PORTFOLIO MANAGER PROFILE
- -----------------------------------------------------------------------------
Warren D. Pierson, CFA, Vice President and Portfolio Manager of Firstar
Investment Research &Management Company, LLC (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, and
has 12 years of investment management experience. 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 10/97
------ ----- ----- ----- ----- -----
PORTICO TAX-EXEMPT
INTERMEDIATE BOND FUND -
A - NO LOAD 10,000 10,536 10,459 11,408 11,849 12,513
PORTICO TAX-EXEMPT
INTERMEDIATE BOND FUND -
A - LOAD* 9,800 10,329 10,254 11,184 11,616 12,266
LEHMAN 5-YR GENERAL
OBLIGATION BOND INDEX 10,000 10,557 10,499 11,586 12,143 12,934
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, 1997
Since Inception
1 Year 3 Years 2/8/93
------ ------ ------
PORTICO TAX-EXEMPT
INTERMEDIATE BOND FUND 5.6 6.2 4.9
PORTICO TAX-EXEMPT
INTERMEDIATE BOND FUND* 3.5 5.4 4.4
LEHMAN BROTHERS 5 YEAR
GENERAL OBLIGATION BOND INDEX** 6.5 7.2 5.6
** Reflects maximum sales charge of 2.0%.
** 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. The load performance for
the Series A shares has been restated to reflect the impact of the sales charge.
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.
A = Series A (retail class)
SECTOR DISTRIBUTION
10/31/97
- -----------------------------------
GENERAL OBLIGATIONS 2%
ESCROWED/PREREFUNDED 69%
INSURED 23%
REVENUE 5%
CASH 1%
TOTAL 100%
QUALITY DISTRIBUTION
10/31/97
- -----------------------------------
Aaa 95%
Aa 3%
A 2%
TOTAL 100%
PORTFOLIO COMPOSITION
10/31/97
- -----------------------------------
AVERAGE MATURITY 5.1 YEARS
AVERAGE DURATION 4.2 YEARS
SEC 30-DAY YIELD
- -----------------------------------
3.76%
TOTAL FUND NET ASSETS
10/31/97
- -----------------------------------
$71,406,581
BOND IMMDEX/TM FUND
PORTICO BOND IMMDEX/TM FUND seeks to provide an annual rate of total return
comparable to that of the Lehman Brothers Government/Corporate Bond Index,
before Fund expenses. In order to achieve its objective, the Fund may invest in
securities with very long remaining maturities, (30 years or longer), in
addition to shorter bonds and notes.
INTEREST RATE RISK
This Fund's maturity mix gives it an overall AVERAGE PORTFOLIO MATURITY OF 10.3
YEARS, and a DURATION OF 5.2 YEARS. Because Bond IMMDEX/TM Fund's duration of
just over five years is the longest of all the Portico taxable bond funds, it
will display the greatest downward price movement when interest rates increase,
but will exhibit the greatest upward price appreciation when interest rates
decrease.
In fact, the longer average maturity and duration of this Fund helped its
performance, relative to shorter funds, for the year ended October 31, 1997. A
decrease in interest rates, (10-year U.S. Treasury rates decreased by over 0.5%
to 5.8%), RESULTED IN A ONE-YEAR TOTAL RETURN FOR THE FUND OF +8.68% (NO-LOAD).
THIS COMPARES TO THE FUND'S BENCHMARK, THE LEHMAN BROTHERS GOVERNMENT CORPORATE
BOND INDEX, WHICH HAD A TOTAL RETURN OF +8.81% FOR THE SAME PERIOD.
ADDITIONALLY, THIS REPRESENTS A HIGH REAL RATE OF RETURN WHEN COMPARED TO THE
CONSUMER PRICE INDEX, WHICH OVER THE SAME PERIOD INCREASED ONLY +2.1%.
CREDIT RISK
While the Fund's duration is the single most significant determinant of its
return, other factors are important, too. The Fund's exposure to credit-
sensitive issues including corporate bonds and notes and asset-backed securities
is one determinant of its relative performance. CORPORATE BONDS AND NOTES ARE
SELECTED FOR THE FUND IN A RESEARCH-INTENSIVE PROCESS FROM THE FIXED INCOME
INVESTMENT GRADE UNIVERSE. (THE PORTICO BOND FUNDS DO NOT INVEST IN "HIGH-YIELD"
OR "JUNK" BONDS.) Sectors that we currently favor include finance, banking and
brokerage. We are currently underweighted in the utility sector. Asset-backed
securities in the Fund are all rated Aaa/AAA by Moody's or Standard & Poor's.
They represent the highest credit quality of non-U.S. Government investments
available. OVER HALF OF THE FUND, (52%), IS INVESTED IN OBLIGATIONS RATED
AAA/AAA OR HIGHER.
FOREIGN EXPOSURE RISK
The Fund does not invest in securities denominated in foreign currencies. As
such, it has no direct exposure to foreign currency fluctuations. The Fund does,
however, invest in Yankee securities. Yankees are obligations of foreign
entities denominated in U.S. dollars. Yankee investments total 9% of the Fund
and include credits of: British Telecommunications, Ford Capital BV (guaranteed
by Ford Motor Company), Hydro-Quebec, Korea Development Bank and Korea Electric
Power, Midland Bank, National Bank of Hungary, Newfoundland, Norsk Hydro, Pohang
Iron & Steel, Quebec, Kingdom of Sweden, and Wharf International. Currently,
Yankee bond obligations are the fastest growing sector of the U.S. domestic
corporate bond market. Investing in Yankee issues has enabled us to capitalize
on opportunities in foreign bonds without exposing our investors to currency
risk. With recent market turmoil originating in the Pacific Rim countries,
spreads on some of the Fund's Yankee issues have widened. This has resulted in
negative relative performance on these securities. At current yield levels, we
feel the Fund's Yankee bonds represent exceptional value. We anticipate that
they will outperform similarly rated investments in the coming year. SEE PAGE 30
FOR A COMPLETE LISTING OF PORTFOLIO HOLDINGS.
CONSISTENCY IS THE HALLMARK OF OUR APPROACH
Since Portico Bond IMMDEX/TM Fund's inception on 12/29/89, we have adhered to
the same, disciplined management approach. The past seven-plus 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. Bond IMMDEX/TM's returns have been
comparable to the 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. We look forward to continuing to serve you as Portico
Fund shareowners.
PORTFOLIO MANAGER PROFILE
- -----------------------------------------------------------------------------
Mary Ellen Stanek, CFA, President of Firstar Investment Research &Management
Company, LLC (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
18 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 ten
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.
<PHOTO> <PHOTO>
Mary Ellen Stanek, CFA Teresa R. Westman, CFA
<TABLE>
<CAPTION>
12/29/89 10/90 10/91 10/92 10/93 10/94 10/95 10/96 10/97
-------- ------ ------ ------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PORTICO BOND IMMDEX/TM
FUND - A- NO LOAD 10,000 10,421 12,105 13,375 15,154 14,565 16,903 17,758 19,300
PORTICO BOND IMMDEX/TM
FUND - A- LOAD*A 9,800 10,213 11,863 13,108 14,851 14,274 16,565 17,403 18,914
LEHMAN GOV'T./CORP.
BOND INDEX 10,000 10,440 12,045 13,312 15,126 14,424 16,755 17,658 19,214
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.
AVERAGE ANNUAL RATE OF RETURN (%)
FOR PERIODS ENDED OCTOBER 31, 1997
Since Inception
1 Year 3 Years 5 Years 12/29/89
------ ------- ------- --------
PORTICO BOND IMMDEX/TM
FUND - A - NO LOAD 8.7 9.8 7.6 8.7
PORTICO BOND IMMDEX/TM
FUND - A - LOAD* 6.5 9.1 7.2 8.5
LEHMAN BROTHERS GOV'T./CORP.
BOND INDEX** 8.8 10.0 7.6 8.7
** Reflects maximum sales charge of 2.0%.
** 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 under lying universe of securities that comprise the index. Securities
included in the index must meet the following critieria: fixed as opposed to
variable rate; not less than one year to maturity; minimum outstanding 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 load performance for the Series A shares has been
restated to reflect the impact of the sales charge (and the elimination of the
purchase price adjustment). The no-load performance for the Series A 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.
A = Series A (retail class)
SECTOR DISTRIBUTION
10/31/97
- -----------------------------------
U.S. TREASURY 29%
U.S. GOVERNMENT AGENCY 7%
MORTGAGE-BACKED 1%
FINANCE, BANKING, BROKERAGE 26%
INDUSTRIAL 11%
UTILITY 2%
INTERNATIONAL/YANKEE 9%
ASSET-BACKED 13%
CASH 2%
TOTAL 100%
PORTFOLIO COMPOSITION
10/31/97
- -----------------------------------
AVERAGE MATURITY 10.3 YEARS
AVERAGE DURATION 5.2 YEARS
QUALITY DISTRIBUTION
10/31/97
- -----------------------------------
U.S. TREASURY 29%
U.S. GOVERNMENT AGENCY 7%
Aaa 16%
Aa 3%
A 31%
Baa 14%
TOTAL 100%
SEC 30-DAY YIELD
- -----------------------------------
5.86%
TOTAL FUND NET ASSETS
10/31/97
- -----------------------------------
$472,161,798
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
OCTOBER 31, 1997
<CAPTION>
SHORT-TERM INTERMEDIATE TAX-EXEMPT BOND
BOND MARKET BOND MARKET INTERMEDIATE IMMDEX/TM
FUND FUND BOND FUND FUND
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value
(cost $201,429, $266,899,
$70,894 and $447,268,
respectively) $202,564 $271,732 $72,209 $467,886
Interest receivable 2,433 3,988 1,221 7,540
Capital shares sold 1,123 377 24 505
Receivable for securities sold -- -- -- 496
Other assets 12 11 14 20
-------- -------- ------- --------
Total Assets 206,132 276,108 73,468 476,447
-------- -------- ------- --------
LIABILITIES:
Payable for securities purchased 3,138 -- 1,935 2,980
Capital shares redeemed 1,161 621 40 1,045
Payable to affiliates 153 162 57 237
Accrued expenses and other liabilities 29 113 29 23
-------- -------- ------- --------
Total Liabilities 4,481 896 2,061 4,285
-------- -------- ------- --------
NET ASSETS $201,651 $275,212 $71,407 $472,162
======== ======== ======= ========
NET ASSETS CONSIST OF:
Capital stock $203,087 $271,103 $70,130 $452,083
Undistributed net investment income 62 96 13 158
Undistributed accumulated net realized
(losses) (2,633) (820) (51) (697)
Unrealized net appreciation (depreciation)
on investments 1,135 4,833 1,315 20,618
-------- -------- ------- --------
Total Net Assets $201,651 $275,212 $71,407 $472,162
======== ======== ======= ========
SERIES A:
Net assets $ 65,567 $20,691 $19,199 $64,144
Shares authorized ($.0001 par value) 500,000 500,000 500,000 500,000
Shares issued and outstanding 6,383 2,007 1,854 2,278
Net asset value and redemption price
per share <F1> $10.27 $10.31 $10.35 $28.16
====== ====== ====== ======
Maximum offering price per share <F1> $10.48 $10.52 $10.56 $28.73
====== ====== ====== ======
SERIES INSTITUTIONAL:
Net assets $136,084 $254,521 $52,208 $408,018
Shares authorized ($.0001 par value) 500,000 500,000 500,000 500,000
Shares issued and outstanding 13,248 24,686 5,042 14,487
Net asset value, redemption price
and offering price per share <F1> $10.27 $10.31 $10.36 $28.16
====== ====== ====== ======
<FN>
<F1> Amounts may not recalculate due to rounding.
</TABLE>
See notes to the financial statements.
<TABLE>
STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS)
YEAR ENDED OCTOBER 31, 1997
<CAPTION>
SHORT-TERM INTERMEDIATE TAX-EXEMPT BOND
BOND MARKET BOND MARKET INTERMEDIATE IMMDEX/TM
FUND FUND BOND FUND FUND
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $13,889 $14,551 $2,782 $29,161
EXPENSES:
Investment advisory fees 1,275 1,124 286 1,295
Administration fees 236 251 64 480
Shareowner servicing and accounting costs 168 134 78 175
Service organization fees - Series A 155 48 36 130
Custody fees 42 42 14 84
Federal and state registration fees 26 47 17 29
Professional fees 21 21 24 22
Reports to shareowners 39 10 12 28
Amortization of organization costs -- 2 2 --
Directors' fees and expenses 5 5 5 9
Other 5 5 2 9
------- ------- ------- ------
Total expenses before waiver 1,972 1,689 540 2,261
Less: Waiver of expenses (755) (517) (218) (318)
------- ------- ------- ------
Net expenses 1,217 1,172 322 1,943
------- ------- ------- ------
NET INVESTMENT INCOME 12,672 13,379 2,460 27,218
------- ------- ------- ------
REALIZED AND UNREALIZED Gain (LOSS):
Net realized gain (loss)on
investment transactions (1,101) 242 48 447
Change in unrealized appreciation
(depreciation) on investments 1,426 3,016 805 9,973
------- ------- ------- ------
Net gain on investments 325 3,258 853 10,420
------- ------- ------- ------
NET INCREASEIN NET ASSETS
RESULTING FROM OPERATIONS $12,997 $16,637 $3,313 $37,638
======= ======= ====== =======
</TABLE>
See notes to the financial statements.
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(AMOUNTS IN THOUSANDS)
<CAPTION>
SHORT-TERM INTERMEDIATE TAX-EXEMPT BOND
BOND MARKET BOND MARKET INTERMEDIATE IMMDEX/TM
FUND FUND BOND FUND FUND
----------- ------------ ---------- ----------
Year Ended Year Ended Year Ended Year Ended
October 31, October 31, October 31, October 31,
----------- ------------ ---------- ----------
1997 1996 1997 1996 1997 1996 1997 1996
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 12,672 $ 10,830 $13,379 $ 9,912 $ 2,460 $ 1,668 $ 27,218 $ 22,285
Net realized gain (loss) on investments (1,101) 92 242 773 48 43 447 (167)
Change in unrealized appreciation
(depreciation) on investments 1,426 (1,102) 3,016 (1,245) 805 (88) 9,973 (2,584)
------- ------- ------- ------- ------- ------- ------- ------
Net increase in net assets
resulting from operations 12,997 9,820 16,637 9,440 3,313 1,623 37,638 19,534
------- ------- ------- ------- ------- ------- ------- -------
CAPITAL SHARE TRANSACTIONS:
Shares sold 71,621 103,118 116,096 84,747 35,199 24,183 130,202 142,933
Shares issued to owners in
reinvestment of dividends 10,918 9,114 8,255 6,299 993 738 23,217 19,366
Shares redeemed (87,494) (47,577) (43,261) (40,206) (12,976)(12,833) (104,870) (58,472)
------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease) in net
assets resulting from capital
share transactions (4,955) 64,655 81,090 50,840 23,216 12,088 48,549 103,827
------- ------- ------- ------- ------- ------- ------- -------
DISTRIBUTIONS TO SERIES A
SHAREOWNERS:
From net investment income <F1> (3,625) (3,056) (1,090) (816) (589) (371) (3,214) (1,987)
------- ------- ------- ------- ------- ------- ------- -------
DISTRIBUTIONS TO SERIES
INSTITUTIONAL SHAREOWNERS:
From net investment income <F1> (9,075) (7,799) (12,285) (9,121) (1,875) (1,304) (24,038) (20,296)
------- ------- ------- ------- ------- ------- ------- -------
TOTAL INCREASE (DECREASE)IN NET ASSETS (4,658) 63,620 84,352 50,343 24,065 12,036 58,935 101,078
NET ASSETS:
Beginning of year 206,309 142,689 190,860 140,517 47,342 35,306 413,227 312,149
------- ------- ------- ------- ------- ------- ------- -------
End of year (including undistributed
net investment income of $62, $92,
$96, $89, $13, $15, $158 and
$197, respectively) $201,651 $206,309 $275,212 $190,860 $71,407 $47,342 $472,162 $413,227
======== ======== ======== ======== ======= ======= ======== ========
<FN>
<F1> For the Tax-Exempt Intermediate Bond Fund, substantially all distributions from net investment income are exempt from federal
income tax.
</TABLE>
See notes to the financial statements.
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
SHORT-TERM BOND MARKET FUND
-----------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended
October 31, 1997 October 31, 1996 October 31, 1995<F2> October 31,
-------------------- ----------------- ------------------- -------------------
Series Series Series
Per Share Data: Series A Inst'l. Series A Inst'l. Series A Inst'l. 1994 1993
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.25 $10.25 $10.28 $10.28 $10.03 $10.03 $10.56 $10.60
Income from investment operations:
Net investment income <F3> 0.60 0.62 0.58(8) 0.61(8) 0.61 0.63 0.56 0.58
Net realized and unrealized
gains (losses) on securities 0.02 0.02 (0.03) (0.03) 0.24 0.24 (0.41) 0.10
------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.62 0.64 0.55 0.58 0.85 0.87 0.15 0.68
------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income (0.60) (0.62) (0.58) (0.61) (0.60) (0.62) (0.56) (0.58)
Distributions from capital gains -- -- -- -- -- -- (0.12) (0.14)
------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.60) (0.62) (0.58) (0.61) (0.60) (0.62) (0.68) (0.72)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $10.27 $10.27 $10.25 $10.25 $10.28 $10.28 $10.03 $10.56
====== ====== ====== ====== ====== ====== ====== ======
Total return <F4><F5> 6.21% 6.47% 5.54% 5.80% 8.74% 8.95% 1.46% 6.70%
Supplemental data and ratios:
Net assets, in thousands,
end of period $65,567 $136,084 $58,843 $147,466 $47,730 $94,959 $122,368 $142,518
Ratio of net expenses
to average net assets <F6> 0.75% 0.50% 0.75% 0.50% 0.69% 0.50% 0.50% 0.52%
Ratio of net investment income
to average net assets <F6> 5.79% 6.04% 5.67% 5.92% 6.04% 6.23% 5.43% 5.53%
Portfolio turnover rate <F7> 77.12% 77.12% 59.62% 59.62% 100.58% 100.58% 76.13% 87.62%
<FN>
<F1> Commencement of operations.
<F2>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.
<F3> For the Tax-Exempt Intermediate Bond Fund, substantially all investment income is exempt from Federal income tax.
<F4> Not annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F5> The total return calculation does not reflect the 2% front end sales charge for Series A.
<F6> Annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F7> Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
<F8> Net investment income per share is calculated using ending balances prior to consideration of adjustments for permanent book
and tax differences.
</TABLE>
See notes to the financial statements.
<TABLE>
FINANCIAL HIGHLIGHTS
INTERMEDIATE BOND MARKET FUND
<CAPTION>
INTERMEDIATE BOND MARKET FUND
---------------------------------------------------------------------------------------------
Year ended Year ended Year ended Jan. 5,
October 31, 1997 October 31, 1996 October 31, 1995<F2> 1993<F1>
-------------------- ----------------- ------------------- Year ended through
Series Series Series Oct. 31, Oct. 31
Per Share Data: Series A Inst'l. Series A Inst'l. Series A Inst'l. 1994 1993
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value,
beginning of period $10.19 $10.19 $10.21 $10.21 $9.67 $9.67 $10.45 $10.00
Income from investment operations:
Net investment income <F3> 0.58 0.60 0.56<F8> 0.59<F8> 0.60 0.62 0.51 0.40
Net realized and unrealized
gains (losses) on securities 0.12 0.12 (0.02) (0.02) 0.53 0.53 (0.69) 0.45
------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.70 0.72 0.54 0.57 1.13 1.15 (0.18) 0.85
------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income (0.58) (0.60) (0.56) (0.59) (0.59) (0.61) (0.51) (0.40)
Distributions from capital gains -- -- -- -- -- -- (0.09) --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.58) (0.60) (0.56) (0.59) (0.59) (0.61) (0.60) (0.40)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $10.31 $10.31 $10.19 $10.19 $10.21 $10.21 $9.67 $10.45
====== ====== ====== ====== ====== ====== ====== ======
Total return <F4><F5> 7.09% 7.36% 5.51% 5.77% 12.04% 12.25% (1.73)% 8.58%
Supplemental data and ratios:
Net assets, in thousands,
end of period $20,691 $254,521 $17,392 $173,468 $11,576 $128,941 $88,306 $56,794
Ratio of net expenses
to average net assets <F6> 0.75% 0.50% 0.75% 0.50% 0.69% 0.50% 0.50% 0.50%
Ratio of net investment income
to average net assets <F6> 5.71% 5.96% 5.59% 5.84% 6.07% 6.26% 5.19% 4.65%
Portfolio turnover rate <F7> 40.61% 40.61% 59.29% 59.29% 66.69% 66.69% 56.25% 82.37%
<FN>
<F1> Commencement of operations.
<F2> 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.
<F3> For the Tax-Exempt Intermediate Bond Fund, substantially all investment income is exempt from Federal income tax.
<F4> Not annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F5> The total return calculation does not reflect the 2% front end sales charge for Series A.
<F6> Annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F7> Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
<F8> Net investment income per share is calculated using ending balances prior to consideration of adjustments for permanent book
and tax differences.
</TABLE>
See notes to the financial statements.
<TABLE>
FINANCIAL HIGHLIGHTS
TAX-EXEMPT INTERMEDIATE BOND MARKET FUND
<CAPTION>
TAX-EXEMPT INTERMEDIATE BOND MARKET FUND
---------------------------------------------------------------------------------------------
Year ended Year ended Year ended Feb. 8,
October 31, 1997 October 31, 1996 October 31, 1995<F2> 1993<F1>
-------------------- ----------------- ------------------- Year ended through
Series Series Series Oct. 31, Oct. 31
Per Share Data: Series A Inst'l. Series A Inst'l. Series A Inst'l. 1994 1993
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value,
beginning of period $10.21 $10.21 $10.23 $10.24 $9.78 $9.78 $10.26 $10.00
Income from investment operations:
Net investment income <F3> 0.42 0.44 0.40<F8> 0.43<F8> 0.42 0.44 0.41 0.27
Net realized and unrealized
gains (losses) on securities 0.14 0.15 (0.01) (0.03) 0.45 0.46 (0.48) 0.26
------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.56 0.59 0.39 0.40 0.87 0.90 (0.07) 0.53
------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income (0.42) (0.44) (0.41) (0.43) (0.42) (0.44) (0.41) (0.27)
Distributions from capital gains -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.42) (0.44) (0.41) (0.43) (0.42) (0.44) (0.41) (0.27)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $10.35 $10.36 $10.21 $10.21 $10.23 $10.24 $9.78 $10.26
====== ====== ====== ====== ====== ====== ===== ======
Total return <F4><F5> 5.60% 5.96% 3.87% 4.02% 9.07% 9.38% (0.73)% 5.36%
Supplemental data and ratios:
Net assets, in thousands,
end of period $19,199 $52,208 $10,690 $36,652 $7,711 $27,595 $26,167 $23,866
Ratio of net expenses
to average net assets <F6> 0.75% 0.50% 0.75% 0.50% 0.71% 0.51% 0.60% 0.59%
Ratio of net investment income
to average net assets <F6> 4.11% 4.36% 3.99% 4.24% 4.25% 4.45% 4.04% 3.75%
Portfolio turnover rate <F7> 11.22% 11.22% 30.46% 30.46% 44.13% 44.13% 58.54% 3.23%
<FN>
<F1> Commencement of operations.
<F2> 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.
<F3> For the Tax-Exempt Intermediate Bond Fund, substantially all investment income is exempt from Federal income tax.
<F4> Not annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F5> The total return calculation does not reflect the 2% front end sales charge for Series A.
<F6> Annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F7> Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
<F8> Net investment income per share is calculated using ending balances prior to consideration of adjustments for permanent book
and tax differences.
</TABLE>
See notes to the financial statements.
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
BOND IMMDEX/TM FUND
------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended
October 31, 1997 October 31, 1996 October 31, 1995<F2> October 31,
-------------------- ----------------- ------------------- -------------------
Series Series Series
Per Share Data: Series A Inst'l. Series A Inst'l. Series A Inst'l. 1994 1993
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value,
beginning of period $27.54 $27.55 $27.82 $27.82 $25.67 $25.67 $28.91 $27.31
Income from investment operations:
Net investment income <F3> 1.66 1.75 1.61<F8> 1.70<F8> 1.68 1.74 1.65 1.68
Net realized and unrealized
gains (losses) on securities 0.64 0.61 (0.26) (0.27) 2.30 2.29 (2.74) 1.83
------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 2.30 2.36 1.35 1.43 3.98 4.03 (1.09) 3.51
------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income (1.68) (1.75) (1.63) (1.70) (1.79) (1.84) (1.65) (1.70)
Distributions from capital gains -- -- -- -- (0.04) (0.04) (0.50) (0.21)
------ ------ ------ ------ ------ ------ ------ ------
Total distributions (1.68) (1.75) (1.63) (1.70) (1.83) (1.88) (2.15) (1.91)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $28.16 $28.16 $27.54 $27.55 $27.82 $27.82 $25.67 $28.91
====== ====== ====== ====== ====== ====== ====== ======
Total return <F4><F5> 8.68% 8.90% 5.06% 5.35% 16.05% 16.26% (3.89)% 13.30%
Supplemental data and ratios:
Net assets, in thousands,
end of period $64,144 $408,018 $42,671 $370,556 $21,875 $290,274 $256,778 $260,468
Ratio of net expenses
to average net assets <F6> 0.67% 0.42% 0.68% 0.43% 0.64% 0.44% 0.48% 0.50%
Ratio of net investment income
to average net assets <F6> 6.08% 6.33% 5.98% 6.23% 6.31% 6.51% 6.14% 6.10%
Portfolio turnover rate <F7> 35.12% 35.12% 33.38% 33.38% 41.67% 41.67% 49.70% 81.18%
<FN>
<F1> Commencement of operations.
<F2> 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.
<F3> For the Tax-Exempt Intermediate Bond Fund, substantially all investment income is exempt from Federal income tax.
<F4> Not annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F5> The total return calculation does not reflect the 2% front end sales charge for Series A.
<F6> Annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F7> Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
<F8> Net investment income per share is calculated using ending balances prior to consideration of adjustments for permanent book
and tax differences.
</TABLE>
See notes to the financial statements.
SHORT-TERM BOND MARKET FUND
SCHEDULE OF INVESTMENTS
October 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
- -------------- -------------
LONG-TERM INVESTMENTS 98.6%
ASSET-BACKED SECURITIES 28.1%
AUTO LOAN RECEIVABLES 0.7%
General Motors Acceptance Corp. Grantor,
$1,237 Series 1991-A1, Class A, 8.17%, 1/02/00 $ 1,259
USAA Auto Loan Grantor Trust,
96 Series 1994-1, Class A, 5.00%, 11/15/99 96
-------
1,355
-------
CREDIT CARD RECEIVABLES 20.6%
Banc One Credit Card Master Trust:
1,500 Series 1995-B, Class A, 6.30%, 9/15/00 1,516
6,500 Series 1994-C, Class A, 7.80%, 12/15/00 6,632
1,250 Series 1995-A, Class A, 6.15%, 7/15/02 1,259
Chase Manhattan Grantor Trust:
849 Series 1995-B, Class A, 5.90%, 9/15/99 850
3,600 Series 1996-4, Class A, 6.73%, 2/15/02 3,649
Chemical Master Credit Card Trust I,
3,000 Series 1995-2, Class A, 6.23%, 6/15/03 3,027
Citibank Credit Card Master Trust I, Principal Only,
5,000 Series 1996-1, Class A, 0.00%, 2/07/01 4,123
Discover Card Master Trust I,
2,000 Series 1993-B, Class A, 6.75%, 2/15/00 2,030
First Chicago Master Trust II,
3,500 Series 1994-L,Class A, 7.15%, 4/15/01 3,571
Household Affinity Credit Card Master Trust I,
1,550 Series 1993-2, Class A, 5.60%, 11/15/00 1,540
NationsBank Credit Card Master Trust,
3,938 Series 1995-1, Class A, 6.45%, 8/15/00 3,996
Sears Credit Account Master Trust,
5,050 Series 1994-1, Class A, 7.00%, 8/15/00 5,151
Spiegel Credit Card Master Trust:
2,000 Series 1994-B, Class A, 8.15%, 6/15/04 2,088
2,000 Series 1995-A, Class A, 7.50%, 9/15/04 2,069
-------
41,501
-------
HOME EQUITY LOAN RECEIVABLES 6.8%
Advanta Home Equity Loan Trust,
2,544 Series 1993-2, Class A2, 6.15%, 10/25/09 2,533
EQCC Home Equity Loan Trust,
306 Series 1994-3, Class A2, 7.44%, 8/15/05 306
GE Home Equity Loan Asset-Backed Certificates:
315 Series 1991-1, Class A, 7.20%, 8/30/11 317
2,500 Series 1991-1, Class B, 8.70%, 9/15/11 2,619
Household Finance Corp:
498 Series 1992-2, Class A3, 5.25%, 10/20/07 498
2,164 Series 1992-2, Class A, 6.65%, 11/20/12 2,171
Security Pacific Home Equity Loan:
1,336 Series 1991-1, Class B, 8.85%, 5/15/98 1,356
2,181 Series 1991-2, Class B, 8.15%, 6/15/20 2,201
UCFC Home Equity Loan,
1,667 Series 1995-A2, Class A7, 8.30%, 2/10/26 1,749
-------
13,750
-------
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- -------------
CORPORATE BONDS 21.7%
Bear Stearns Company Senior Notes:
$1,000 6.75%, 8/15/00 $ 1,015
500 9.375%, 6/01/01 549
Big Rivers Electric Corporation Coop Utility
1,500 Trust Certificates, 9.50%, 2/15/17 1,587
BP America, Inc. Guaranteed Debentures,
2,000 10.00%, 7/01/18 2,141
Chase Manhattan Corp. Subordinated Notes:
1,487 10.375%, 3/15/99 1,570
700 10.00%, 6/15/99 742
Consumers Energy Company,
2,400 7.50%, 6/01/02 2,437
Continental Bank Subordinated Notes,
1,840 11.25%, 7/01/01 1,890
Deseret Generation & Transmission Coop Debentures,
1,000 10.11%, 12/15/17 1,055
Jack Eckerd Corporation Senior Subordinated Notes,
1,153 9.25%, 02/15/04 1,234
Ford Motor Credit Co., Notes:
630 8.875%, 6/15/99 658
750 8.375%, 1/15/00 786
General Motors Acceptance Corp. Notes,
922 9.625%, 5/15/00 997
Heller Financial, Inc. Notes,
2,790 8.00%, 12/15/98 2,847
Lehman Brothers Holdings, Inc. Debentures,
1,000 9.875%, 10/15/00 1,083
Lehman Brothers Holdings, Inc. Notes:
3,000 8.875%, 2/15/00 3,168
2,386 7.625%, 7/15/99 2,443
1,100 6.65%, 11/08/99 1,111
Lehman Brothers, Inc. Senior Subordinated Notes:
750 7.625%, 8/01/98 759
2,544 10.00%, 5/15/99 2,686
Mississippi Power & Light Notes,
1,000 8.80%, 4/01/05 1,009
Paine Webber Group, Inc. Medium Term Notes:
1,000 5.83%, 2/02/99 997
1,000 6.31%, 7/22/99 1,003
Salomon, Inc. Medium Term Notes,
1,500 10.125%, 6/01/99 1,591
Salomon, Inc. Senior Notes:
206 7.25%, 1/15/00 211
800 7.75%, 5/15/00 829
Security Pacific Corporation Subordinate Notes,
1,008 11.50%, 11/15/00 1,146
Smith Barney Holdings, Inc. Notes,
3,150 5.625%, 11/15/98 3,138
USF&G Corporation Senior Notes,
3,075 7.00%, 5/15/98 3,091
-------
43,773
-------
See notes to the financial statements.
SHORT-TERM BOND MARKET FUND
SCHEDULE OF INVESTMENTS
October 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
------------- -------------
MORTGAGE-BACKED SECURITIES 11.5%
Citicorp Mortgage Securities, Inc.,
Real Estate Mortgage Investment Conduit (REMIC),
$ 1 Series 1991-7, Class M, 8.75%, 5/25/21 $ 1
Collateralized Mortgage Securities Corp.,
899 Series 1991-6, Class PH, 7.00%, 5/20/20 901
Green Tree Financial Corp. Pass-Thru Certificates:
1,001 Series 1992-2, Class A4, 8.15%, 1/15/18 1,046
1,000 Series 1993-3, Class A4, 5.45%, 10/15/18 996
1,000 Series 1993-3, Class A5, 5.75%, 10/15/18 989
2,385 Series 1993-4, Class A2, 5.85%, 1/15/19 2,385
2,500 Series 1994-8, Class A4, 8.50%, 4/15/25 2,638
Marine Midland, Real Estate Mortgage Investment
Conduit (REMIC), Series 1992-3, Class A12,
1,196 8.00%, 10/25/23 1,213
Merrill Lynch Mortgage Investors, Inc.:
1,275 Series 1992-B, Class A, 7.85%, 4/15/12 1,290
1,650 Series 1994-M1, Class B, 8.1029%, 6/25/22 1,702
Morgan Stanley Mortgage Trust,
1,566 Series 40, Class 6, 7.00%, 2/20/20 1,578
Prudential Bache CMO Trust,
481 Series 8, Class E, 7.965%, 3/01/18 481
Prudential Home Mortgage Securities:
755 Series 1993-24, Class A1, 5.50%, 6/25/00 751
2,319 Series 1993-24, Class A2, 5.50%, 7/25/00 2,270
Prudential Securities Financial Asset FDG Corp.,
1,150 Series 1993-4, Class A3, 6.83%, 9/25/09 1,158
Resolution Trust Corp.:
137 Series 1992-MH2, Class B, 7.95%, 2/15/04 138
31 Series 1992-MH2, Class A1, 7.00%, 2/15/19 31
Security Pacific Acceptance Corp.:
221 Series 1992-2, Class A2, 7.10%, 5/15/12 221
3,250 Series 1992-2, Class A3, 7.50%, 6/15/12 3,294
-------
23,083
-------
INTERNATIONAL/YANKEE (U.S. $ DENOMINATED) 4.3%
Ford Capital BV Notes,
638 10.125%, 11/15/00 707
Hydro-Quebec Debentures,
1,250 13.375%, 2/15/13 1,334
Quebec Province CDA Debentures,
1,000 13.25%, 9/15/14 1,162
Sumitomo Bank International Notes,
5,000 9.55%, 7/15/00 5,376
-------
8,579
-------
OTHER 1.8%
California State Water Department,
2,000 Series E, 9.875%, 12/01/24 2,222
Florida Housing Finance Agency:
415 Antigua Club-A-2, 8.625%, 8/01/01 442
405 Brittany Apartments-C-2, 8.625%, 8/01/02 436
510 Maitland Club-B-2, 8.625%, 8/01/01 543
-------
3,643
-------
Principal Market
Amount Value
(in thousands) (in thousands)
------------- --------------
U.S. GOVERNMENT AGENCY-BACKED
MORTGAGE ISSUES 14.5%
Federal Home Loan Mortgage Corporation (FHLMC)
Participation Certificates:
$ 39 7.00%, 12/01/01 $ 39
155 7.75%, 7/01/09 160
Federal Home Loan Mortgage Corporation (FHLMC)
Real Estate Mortgage Investment Conduit (REMIC):
888 Series 1243, Class K, 7.50%, 8/15/01 903
577 Series 153, Class F, 7.75%, 8/15/15 581
1,885 Series 1149, Class K, 7.50%, 7/15/20 1,906
2,365 Series 1101, Class L, 6.95%, 9/15/20 2,386
59 Series 1169, Class D, 7.00%, 5/15/21 59
1,182 Series 1286, Class E, 7.00%, 10/15/21 1,192
Federal National Mortgage Association (FNMA)
Real Estate Mortgage Investment Conduit (REMIC):
1,913 Series X-19A, Class A, 6.50%, 10/25/00 1,922
2,000 Series 1993-G06, Class K, 7.00%, 11/25/01 2,022
1,479 Series 1991-63, Class G, 6.95%, 5/25/06 1,494
1,000 Series 1993-86, Class E, 6.00%, 1/25/07 1,000
1,377 Series 1992-93, Class G, 7.50%, 6/25/07 1,394
63 Series 1989-75, Principal Only, Class C,
0.00%, 9/25/18 62
211 Series 1992-138, Class C, 6.00%, 12/25/18 211
2,000 Series G92-11, Class HB, 7.00%, 11/25/19 2,015
990 Series G92-35, Class C, 7.50%, 7/25/20 1,005
1,078 Series 1991-154, Class PH, 7.50%, 9/25/20 1,090
4,692 Series 1991-82, Class PL, 7.00%, 12/15/20 4,727
4,000 Series G92-53, Class H, 7.00%, 7/25/21 4,030
U.S. Department of Veterans Affairs Mortgage Trust
1,000 (REMIC), Series 1992-1, Class J, 7.75%, 2/15/01 1,015
-------
29,213
-------
U.S. TREASURY OBLIGATIONS 16.7%
U.S. Treasury Notes:
4,900 6.875%, 3/31/00 5,030
6,100 5.50%, 4/15/00 6,077
22,000 6.625%, 7/31/01 22,638
-------
33,745
-------
Total Long-Term Investments (Cost $197,507) 198,642
-------
Number
of Shares
(in thousands)
-------------
SHORT-TERM INVESTMENTS 1.9%
INVESTMENT COMPANIES 1.9%
1 Financial Square Prime Obligation Fund 1
3,921 Short-Term Investments Co. Liquid Assets Portfolio 3,921
-------
Total Short-Term Investments (Cost $3,922) 3,922
-------
Total Investments (Cost $201,429) 100.5% 202,564
-------
Liabilities, less Other Assets (0.5)% (913)
-------
TOTAL NET ASSETS 100.0% $201,651
========
See notes to the financial statements.
INTERMEDIATE BOND MARKET FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- --------------
LONG-TERM INVESTMENTS 94.1%
ASSET-BACKED SECURITIES 19.8%
AUTO LOAN RECEIVABLES 1.0%
General Motors Acceptance Corp. Grantor,
$ 547 Series 1995-A, Class A, 7.15%, 3/15/00 $ 549
Keycorp Auto Grantor Trust,
828 Series 1995-A, Class A, 5.80%, 7/15/00 828
Premier Auto Trust:
996 Series 1993-5, Class A2, 4.22%, 3/02/99 988
323 Series 1994-1, Class A3, 4.75%, 2/02/00 321
131 Series 1994-2, Class A4, 6.00%, 5/02/00 131
-------
2,817
-------
CREDIT CARD RECEIVABLES 17.1%
AT&T Universal Card MasterTrust,
3,000 Series 1995-2, Class A, 5.95%, 10/17/00 3,005
Advanta Credit Card Master Trust,
1,000 Series 1995-F, Class A1, 6.05%, 8/01/03 1,004
American Express Master Trust,
2,000 Series 1994-2, Class A, 7.60%, 8/15/02 2,099
Banc One Credit Card Master Trust:
7,375 Series 1995-B, Class A, 6.30%, 9/15/00 7,455
1,000 Series 1995-A, Class A, 6.15%, 7/15/02 1,007
Citibank Credit Card Master Trust, Principal Only,
11,900 Series 1996-1, 0.00%, 2/07/01 9,812
Discover Card Master Trust I,
500 Series 1993-3, Class A, 6.20%, 5/16/06 501
First Chicago Master Trust II,
4,075 Series 1994-L, Class A, 7.15%, 2/15/00 4,158
HFC Private Label Credit Card Master Trust II,
2,000 Series 1994-2, Class A, 7.80%, 9/20/03 2,038
Household Affinity Credit Card Master Trust I,
3,300 Series 1993-2, Class A, 5.60%, 11/15/00 3,279
MBNA Master Credit Card Trust,
745 Series 1995-F, Class A, 6.60%, 8/15/00 759
NationsBank Credit Card Master Trust,
2,500 Series 1995-1, Class A, 6.45%, 8/15/00 2,537
Sears Credit Account Master Trust
5,900 Series 1994-1, Class A, 7.00%, 8/15/00 6,018
2,400 Series 1995-3, Class A, 7.00%, 10/15/04 2,464
Speigel Credit Card Master Trust,
950 Series 1994-B, Class A, 8.15%, 6/15/04 992
-------
47,128
-------
HOME EQUITY LOAN RECEIVABLES 1.7%
EQCC Home Equity Loan Trust,
1,200 Series 1994-4, 8.68%, 10/15/08 1,268
Security Pacific Acceptance Corp.,
686 Series 1991-2, Class B, 8.55%, 9/15/11 698
Security Pacific Home Equity Loan
882 Series 1991-1, 8.85%, 5/15/98 895
1,853 Series 1991-2, 8.15%, 6/15/20 1,870
-------
4,731
-------
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
CORPORATE BONDS 28.5%
American General Finance Corp. Debentures,
$ 650 9.625%, 7/15/00 $ 706
American General Finance Corp. Notes,
1,000 8.00%, 2/15/00 1,040
BankAmerica Corporation Subordinated Notes,
465 9.75%, 7/01/00 506
2,000 10.00%, 2/01/03 2,315
Bankers Trust - NY, Subordinated Debentures,
1,000 9.50%, 6/14/00 1,081
Bear Stearns Company Senior Notes:
1,312 6.75%, 8/15/00 1,332
2,000 9.375%, 6/01/01 2,197
Caterpillar, Inc. Sinking Fund Debentures,
2,112 9.75%, 6/01/19 2,291
Chase Manhattan Corp. Debentures,
1,015 10.00%, 6/15/99 1,077
Chrysler Financial Corp. Debentures:
750 13.25%, 10/15/99 848
700 12.75%, 11/01/99 787
Commonwealth Edison First Mortgage,
850 9.75%, 2/15/20 948
Consolidated Edison Co. Debentures,
100 7.60%, 1/15/00 103
Continental Bank N.A. Subordinated Notes,
2,875 12.50%, 4/01/01 3,401
Continental Cablevision, Inc. Debentures:
1,050 8.875%, 9/15/05 1,167
2,975 9.50%, 8/01/13 3,477
Deseret Generation & Transmission Coop Debentures,
745 9.375%, 1/02/11 776
Jack Eckerd Corporation Senior Subordinated Notes,
2,449 9.25%, 2/15/04 2,620
Federal Express Corporation Notes,
1,500 9.65%, 6/15/12 1,917
Federal Express Sinking Fund Pass-Thru Certificates,
1,000 7.89%, 9/23/08 1,063
First Chicago Corp. Subordinated Notes,
236 11.25%, 2/20/01 271
First National Bank of Omaha Subordinated Notes,
1,600 7.32%, 12/01/10 1,648
First USA Bank Senior Notes,
1,000 5.85%, 2/22/01 992
Fleet Mortgage Group Notes,
2,405 6.50%, 6/15/00 2,427
Ford Motor Company Debentures,
850 9.50%, 9/15/11 1,068
Ford Motor Credit Co. Debentures,
1,097 9.50%, 4/15/00 1,180
Ford Motor Credit Co. Notes,
375 6.375%, 4/15/00 378
General Motors Acceptance Corp. Debentures,
1,602 8.625%, 6/15/99 1,666
See notes to the financial statements.
INTERMEDIATE BOND MARKET FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
------------- -------------
CORPORATE BONDS 28.5% (CONT.)
General Motors Acceptance Corp. Notes
$1,050 8.00%, 10/01/99 $ 1,079
2,097 9.375%, 4/01/00 2,249
General Motors Corp. Debentures,
1,355 9.625%, 12/01/00 1,486
Georgia Pacific Corp. Debentures,
1,150 9.50%, 12/01/11 1,433
775 9.50%, 5/15/22 884
Goldman Sachs Group Notes,
5,000 6.25%, 2/01/03 (Acquired 2/01/96; Cost $4,988)* 4,931
Heller Financial, Inc. Notes,
1,300 9.375%, 3/15/98 1,316
Household Finance Corp. Senior Subordinated Notes,
2,468 9.55%, 4/01/00 2,657
Household Finance Corp. Subordinated Notes,
1,445 9.625%, 7/15/00 1,570
International Lease Finance Corp. Medium Term Notes,
500 8.25%, 10/19/98 511
Lehman Brothers Holdings, Inc. Medium Term Notes,
1,750 8.875%, 2/15/00 1,848
Lehman Brothers Holdings, Inc. Notes:
2,000 6.90%, 7/15/99 2,024
1,500 6.65%, 11/08/99 1,514
400 8.875%, 3/01/02 435
Lehman Brothers, Inc. Senior Subordinated Notes,
2,280 10.00%, 5/15/99 2,407
NCNB Corp. Subordinated Notes,
2,055 10.20%, 7/15/15 2,706
News America Holdings Debentures,
750 10.125%, 10/15/12 874
Paine Webber Group, Inc. Medium Term Notes,
1,000 7.70%, 2/11/00 1,031
J.C. Penney Company, Inc. Debentures,
1,950 9.75%, 6/15/21 2,178
SCE Capital Corp. Notes,
1,000 7.375%, 12/15/03 1,030
Salomon, Inc. Medium Term Notes,
1,300 10.125%, 6/01/99 1,379
Salomon, Inc. Senior Notes:
1,450 7.75%, 5/15/00 1,503
150 6.75%, 2/15/03 152
The Charles Schwab Corp. Medium Term Notes,
650 6.06%, 10/02/00 647
Smith Barney Holdings, Inc. Notes,
1,400 6.625%, 6/01/00 1,416
-------
78,542
-------
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
MORTGAGE-BACKED SECURITIES 2.1%
Green Tree Financial Corp. Pass-Thru Certificates,
$ 350 Series 1993-4, Class A3, 6.25%, 1/15/19 $ 352
MDC Asset Investors Trust,
Real Estate Mortgage Investment Conduit (REMIC),
1,021 Series VIII, Class 8, 7.75%, 9/25/17 1,052
Merrill Lynch Mortgage Investors, Inc. Notes,
124 8.375%, 2/09/00 130
Salomon Brothers Mortgage Securities,
1,567 Series 1986-1, Class A, 6.00%, 12/25/11 1,546
Westam Mortgage Financial Corporation,
2,500 Series 11, Class A, 6.36%, 8/26/20 2,563
-------
5,643
-------
INTERNATIONAL/YANKEE (U.S. $ DENOMINATED) 7.6%
Ford Capital BV Debentures,
600 9.50%, 6/01/10 740
Ford Capital BV Notes,
4,153 10.125%, 11/15/00 4,605
Hydro-Quebec Corporation Debentures,
2,250 11.75%, 2/01/12 3,245
Korea Development Bank Bonds,
1,075 7.125%, 9/17/01 1,043
Korea Electric Power Debentures:
820 7.75%, 4/01/13 772
750 6.75%, 8/01/27 691
Midland Bank PLC Subordinated Notes,
4,225 6.95%, 3/15/11 4,286
National Bank of Hungary Debentures,
1,350 8.875%, 11/01/13 1,489
Pohang Iron & Steel Notes,
875 7.125%, 7/15/04 878
Quebec Province Local Government Guarantee,
400 13.25%, 9/15/14 465
Wharf Capital International Ltd. Notes:
800 8.875%, 11/01/04 883
1,725 7.625%, 3/13/07 1,758
-------
20,855
-------
See notes to the financial statements.
INTERMEDIATE BOND MARKET FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
U.S. GOVERNMENT AGENCY-BACKED
MORTGAGE ISSUES 7.0%
Federal Home Loan Mortgage Corporation (FHLMC)
Real Estate Mortgage Investment Conduit (REMIC):
$ 208 Series 1624, Class KE, 6.00%, 10/15/02 $ 208
947 Series 1289, Class PR, 7.50%, 2/15/03 973
1,076 Series 1456, Class LA, 7.50%, 5/15/03 1,107
600 Series 1496, Class KA, 6.00%, 12/15/03 598
999 Series 8, Class VB, 7.00%, 1/25/04 1,018
300 Series 1551, Class E, 6.50%, 9/15/07 304
1,200 Series 1101, Class L, 6.95%, 9/15/20 1,211
969 Series 1167, Class E, 7.50%, 11/15/21 995
2,826 Series 1286, Class A, 6.00%, 5/15/22 2,781
Federal National Mortgage Association (FNMA)
Real Estate Mortgage Investment Conduit (REMIC):
800 Series 1993-23, Class PU, 7.50%, 1/25/00 810
500 Series 1992-73, Class L, 7.50%, 1/25/01 513
1,386 Series 1992-18, Class HB, 7.20%, 3/25/02 1,406
3,500 Series 1993-37, Class B, 7.00%, 7/25/02 3,560
941 Series 1992-103, Class L, 7.50%, 11/25/02 966
2,000 Series 1991-77, Class PH, 7.00%, 11/25/20 2,017
250 Series 1991-82, Class PL, 7.00%, 12/15/20 252
U.S. Department of Veterans Affairs Mortgage Trust
500 (REMIC), Series 1992-2, Class J, 7.00%, 3/15/01 502
-------
19,221
-------
U.S. TREASURY OBLIGATIONS 29.1%
U.S. Treasury Bonds:
29,850 10.75%, 2/15/03 36,492
1,025 11.875%, 11/15/03 1,336
10,000 13.75%, 8/15/04 14,359
5,250 10.75%, 8/15/05 6,814
U.S. Treasury Inflation-Indexed Notes,
2,639 3.375%, 1/15/07 2,603
U.S. Treasury Notes:
18,075 6.625%, 7/31/01 18,600
-------
80,204
-------
Total Long-Term Investments (Cost $254,308) 259,141
-------
Number Market
of Shares Value
(in thousands) (in thousands)
------------- ------------
SHORT-TERM INVESTMENTS 4.6%
Investment Companies 4.6%
5 Financial Square Prime Obligation Fund $ 5
12,586 Short-Term Investments Co. Liquid Assets Portfolio 12,586
-------
Total Short-Term Investments (Cost $12,591) 12,591
-------
Total Investments (Cost $266,899) 98.7% 271,732
-------
Other Assets, less Liabilities 1.3% 3,480
-------
TOTAL NET ASSETS 100.0% $275,212
========
* Unregistered security
See notes to the financial statements.
TAX-EXEMPT INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
GENERAL OBLIGATION 1.7%
Washington State:
$ 100 6.75%, 10/01/01 $ 105
1,000 6.30%, 9/01/02 1,080
-------
Total General Obligation (Cost $1,173) 1,185
-------
REVENUE BONDS 4.9%
HOUSING 2.9%
Saint Charles, Illinois, Industrial Development -
Covington Ct Project, Mandatory Put,
960 9/01/98, 5.50%, 12/01/09 974
South Dakota Housing Development Authority -
1,105 Homeownership Mortgage, 4.85%, 5/01/01 1,113
-------
2,087
-------
OTHER 1.5%
Georgia Municipal Electric Authority Power Revenue,
1,000 8.125%, 1/01/17, Crossover Refunded 1/01/98 1,026
-------
UNIVERSITY 0.5%
New England Education Student Loan Marketing
360 Corporation, 5.80%, 3/01/02 375
-------
Total Revenue Bonds (Cost $3,466) 3,488
-------
PREREFUNDED AND ESCROWED
TO MATURITY 66.5%
Alaska State Housing Finance Corporation,
1,465 6.375%, 12/01/12, Prerefunded 12/01/02 1,595
Anniston, Alabama Regional Medical Center Board Project
1,160 8.00%, 7/01/11, Escrowed to Maturity 1,492
Arizona State Municipal Funding Program,
1,500 8.75%, 8/01/07, Escrowed to Maturity 1,964
Cherokee County, Oklahoma
1,340 0.00%, 11/01/11, Escrowed to Maturity 660
Chicago, Illinois Motor Fuel Tax Revenue,
1,000 7.05%, 1/01/07, Prerefunded 1/01/01 1,101
Clark County, Nevada School District,
345 7.00%, 6/01/09, Prerefunded 6/01/01 380
Cleveland, Ohio Packaging Facilities Revenue,
1,125 8.10%, 9/15/22, Prerefunded 9/15/02 1,336
Convention Center Authority - Rhode Island Revenue,
1,000 6.65%, 5/15/12, Prerefunded 5/15/01 1,097
Danville, Indiana Community Elementary School Building
1,000 Corp., First Mortgage, 6.90%, 1/15/10,
Prerefunded 1/15/021,116
Delaware County, Pennsylvania, - Elwyn Inc. Project,
1,000 8.35%, 6/01/15, Prerefunded 6/01/00 1,121
Des Plaines, Illionois Hospital Facilities - Holy Family
Hospital Project,
560 10.75%, 1/01/14, Prerefunded 7/01/02 711
Elizabeth-Forward Pennsylvania School District,
1,000 7.25%, 1/15/10, Prerefunded 1/15/00 1,066
Principal Market
Amount Value
(in thousands) (in thousands)
------------- ------------
PREREFUNDED AND ESCROWED
TO MATURITY 66.5% (cont.)
Farmington, New Mexico Power Revenue Bonds,
$1,185 9.875%, 1/01/13, Prerefunded 7/01/05 $1,571
Fruita, Colorado, Escrowed to Maturity:
500 9.25%, 10/01/01 569
500 9.25%, 4/01/03 609
Fulco, Georgia Hospital Authority Anticipation
Certificates,
1,090 6.25%, 9/01/13, Prerefunded 9/01/02 1,202
Hodgkins, Illinois,
1,400 9.50%, 12/01/09, Prerefunded 12/01/01 1,687
Houston, Texas Arpt Sys Rev
950 8.20%, 7/01/05, Escrowed to Maturity 1,127
Illinois Educational Facilities Authority - Chicago
College Of Osteopathic Medicine, Escrowed To Maturity,
310 8.75%, 7/01/99 324
Illinois Educational Facilities Authority - Loyola
University,
3,355 7.125%, 7/01/21, Prerefunded 7/01/01 3,742
Intermountain Power Agency, Utah Supply Revenue
2,500 0.00%, 7/01/21, Prerefunded 7/01/00 257
Louisiana Public Facilities Authority Hospital Revenue
1,915 7.25%, 10/01/22, Prerefunded 10/01/02 2,194
Louisville, Kentucky Water & Sewer Revenue,
1,000 6.00%, 11/15/07, Escrowed to Maturity 1,094
Maricopa County, Arizona School District No. 1, Phoenix
1,000 Elementary, 6.60%, 7/01/03, Prerefunded 7/01/01 1,089
Metropolitan Nashville Airport,
500 7.75%, 7/01/07, Prerefunded 7/01/01 568
Metropolitan Government Nashville & Davidson
County, Tennessee Water & Sewer
6,000 0.00%, 12/01/13, Prerefunded 12/01/02 1,538
Michigan State Hospital Financial Authority,
Sisters of Mercy Health Corp.,
870 7.50%, 2/15/18, Prerefunded 2/15/01 972
Milwaukee County, Wisconsin
1,000 6.20%, 12/01/01, Prerefunded 12/01/98 1,025
Nevada State Colorado River Community,
1,130 6.50%, 7/01/19, Prerefunded 7/01/04 1,271
Oklahoma State Industrial Authority Revenue,
St. Anthony Hospital, Escrowed to Maturity,
1,030 6.125%, 6/01/03 1,098
Peninsula Ports Authority Virginia Health Care
Facilities - Mary Immaculate Project,
2,000 7.00%, 8/01/17, Prerefunded to 8/01/04 & 8/01/06 2,304
Pennsylvania State Industrial Development Authority -
1,000 Series A, 7.00%, 1/01/11, Prerefunded 7/01/01 1,112
Philadelphia, Pennsylvania Regional Port Authority,
1,000 Lease Revenue Bonds, 7.15%, 8/01/20,
Prerefunded 8/01/00 1,079
Phoenix, Arizona Street & Highway Users,
1,000 6.50%, 7/01/02 1,104
Rhode Island State Public Building Authority,
1,000 6.00%, 2/01/11, Prerefunded 2/01/01 1,054
See notes to the financial statements.
TAX-EXEMPT INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
PREREFUNDED AND ESCROWED
TO MATURITY 66.5% (cont.)
San Marcos, California Certificate Participation,
$1,085 0.00%, 2/15/06, Escrowed to Maturity $ 738
Tucson, Arizona Street & Highway User Revenue Bonds,
1,000 9.25%, 7/01/02, Escrowed to Maturity 1,196
University of Illinois,
1,005 6.10%, 10/01/03, Escrowed to Maturity 1,089
Virginia State Residential Authority - Solid Waste
Disposal
1,000 System, 7.30%, 4/01/15, Prerefunded 4/01/00 1,092
Wausau, Wisconsin School District,
1,000 6.50%, 4/01/10, Prerefunded 4/01/02 1,088
Williston, North Dakota,
80 6.00%, 6/01/98, Escrowed to Maturity 81
-------
Total Prerefunded and Escrowed to Maturity
(Cost $46,539) 47,513
-------
INSURED BONDS 24.3%
EDUCATION 0.3%
Merrillville, Indiana Multi-School Building
Corporation,
200 6.375%, 7/01/03 219
-------
ELECTRIC 3.1%
Springfield, Illinois Electric Revenue,
1,000 6.00%, 3/01/04 1,078
1,050 6.00%, 3/01/06 1,149
-------
2,227
-------
GENERAL OBLIGATION 13.7%
Amarillo, Texas Independent School District,
1,035 7.00%, 2/01/06 1,182
Bolingbrook, Illinois
1,080 0.00%, 1/01/05 767
Chicago, Illinois,
675 11.60%, 1/01/01 824
Chicago, Illinois Park District,
2,770 6.00%, 1/01/07 3,031
Maricopa County, Arizona Elementary School District
No. 068, Alhambra,
1,000 5.625%, 7/01/03, Partially Prerefunded 1,045
Palatine, Illinois
1,405 9.90%, 1/01/16, Crossover Refunded 1/01/00 1,598
Rocklin, California Unified School District,
1,235 6.70%, 9/01/04 1,334
-------
9,781
-------
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
PUBLIC FACILITIES & IMPROVEMENTS 7.2%
Illinois State Certificates of Participation,
$1,000 6.00%, 7/01/06 $ 1,093
Metropolitan Pier & Exposition Authority, Illinois
1,945 Dedicated State Tax Revenue, 0.00%, 12/15/98 1,860
Mun-Del Building Corp., Indiana
1,000 7.00%, 1/05/05 1,073
Texas State Turnpike Authority, Dallas
1,000 6.50%, 1/01/08 1,141
-------
5,167
-------
Total Insured Municipal Bonds (Cost $17,087) 17,394
-------
Number
of Shares
(in thousands)
-------------
INVESTMENT COMPANIES 3.7%
131 Financial Square Tax-Exempt Money Market 131
2,498 Tax Free Investment Trust 2,498
-------
Total Investment Companies (Cost $2,629) 2,629
-------
Total Investments (Cost $70,894) 101.1% 72,209
-------
Liabilities, less Other Assets (1.1)% (802)
-------
TOTAL NET ASSETS 100.0% $71,407
=======
See notes to the financial statements.
BOND IMMDEX/TM FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
------------- ------------
LONG-TERM INVESTMENTS 96.8%
ASSET-BACKED SECURITIES 13.2%
AUTO LOAN RECEIVABLES 0.8%
Ford Credit Grantor Trust,
$ 931 Series 1995-A, Class A, 5.90%, 5/15/00 $ 932
General Motors Acceptance Corp. Grantor Trust,
1,044 Series 1995-A, Class A, 7.15%, 3/15/00 1,049
Premier Auto Trust:
313 Series 1993-3, Class A3, 4.90%, 12/15/98 313
542 Series 1993-4, Class A2, 4.65%, 2/02/99 542
337 Series 1993-5, Class A2, 4.22%, 3/02/99 335
675 Series 1993-6, Class B, 4.875%, 11/02/99 674
-------
3,845
-------
CREDIT CARD RECEIVABLES 12.3%
Advanta Credit Card Master Trust,
4,200 Series 1995-F, Class A1, 6.05%, 8/01/03 4,218
Banc One Credit Card Master Trust,
8,000 Series 1995-B, Class A, 6.30%, 9/15/00 8,087
Citibank Credit Card Master Trust, Principal Only,
6,465 Series 1996-1, 0.00%, 2/07/01 5,331
First Chicago Master Trust II,
1,800 Series 1994-L, Class A, 7.15%, 2/15/00 1,837
HFC Private Label Credit Card Master Trust II:
2,600 Series 1994-2, Class A, 7.80%, 9/20/03 2,649
487 Series 1993-2, Class A3, 4.65%, 12/20/08 484
Household Affinity Credit Card Master Trust I,
3,750 Series 1993-2, Class A, 5.60%, 11/15/00 3,727
MBNA Master Credit Card Trust,
2,780 Series 1995-F, Class A, 6.60%, 8/15/00 2,831
NationsBank Credit Card Master Trust,
9,660 Series 1995-1, Class A, 6.45%, 8/15/00 9,802
Sears Credit Account Master Trust:
11,750 Series 1994-1, Class A, 7.00%, 8/15/00 11,984
1,700 Series 1995-2, Class A, 8.10%, 1/15/01 1,774
5,300 Series 1995-3, Class A, 7.00%, 10/15/04 5,441
-------
58,165
-------
HOME EQUITY LOAN RECEIVABLES 0.1%
IMC Home Equity Loan Trust,
373 Series 1996-3, Class A1, 7.00%, 4/25/11 372
-------
CORPORATE BONDS 37.5%
Alabama Power Company First Mortgage Bond,
1,000 9.00%, 12/01/24 1,113
American Airline Equipment Pass-Thru Certificates,
1,500 10.21%, 1/01/10 1,862
BankAmerica Corporation Subordinated Notes,
3,539 10.00%, 2/01/03 4,096
BarclaysAmericanCorp. Debentures,
925 9.75%, 5/15/21 1,054
Principal Market
Amount Value
(in thousands) (in thousands)
------------ -------------
CORPORATE BONDS 37.5% (CONT.)
Barnett Banks Inc. Subordinated Notes,
$1,155 8.50%, 3/01/99 $1,191
Bear Stearns Company Notes,
63 6.50%, 6/15/00 63
Bear Stearns Company Senior Notes,
500 6.75%, 8/15/00 508
Burlington Northern Railroad Company Equipment
Trust Certificates,
500 11.85%, 1/15/99 533
Chase Manhattan Corp. Notes,
7,802 10.00%, 6/15/99 8,276
Chrysler Financial Corp. Debentures:
7,648 13.25%, 10/15/99 8,647
1,927 12.75%, 11/01/99 2,167
Citicorp Subordinated Capital Notes,
3,836 9.75%, 8/01/99 4,055
Commonwealth Edison Co. First Mortgage,
6,050 9.75%, 2/15/20 6,745
Continental Bank Subordinated Notes,
1,963 12.50%, 4/01/01 2,322
Continental Cablevision, Inc. Debentures:
2,050 8.875%, 9/15/05 2,279
6,075 9.50%, 8/01/13 7,099
Deseret Generation & Transmission Coop Debentures,
2,383 9.375%, 1/02/11 2,483
Federal Express Corporation Debentures,
2,163 9.625%, 10/15/19 2,340
Federal Express Corporation Notes,
4,200 9.65%, 6/15/12 5,367
First Chicago Corp. Subordinated Notes:
3,844 9.00%, 6/15/99 4,018
970 9.875%, 8/15/00 1,061
First National Bank Chicago Debentures,
1,100 8.08%, 1/05/18 1,253
First National Bank Omaha Subordinated Notes,
3,100 7.32%, 12/01/10 3,193
First USA Bank Notes,
1,125 5.85%, 2/22/01 1,116
Ford Motor Company Notes,
2,650 9.50%, 9/15/11 3,331
Ford Motor Credit Co. Notes,
911 8.375%, 1/15/00 954
GTE North, Inc. Debentures,
1,100 9.60%, 1/01/21 1,235
Geico Corporation Debentures,
2,000 9.15%, 9/15/21 2,266
General Motors Acceptance Corp. Medium Term Notes,
1,000 7.50%, 7/22/99 1,025
General Motors Acceptance Corp. Notes:
1,375 8.00%, 10/01/99 1,413
1,037 9.625%, 5/15/00 1,122
See notes to the financial statements.
BOND IMMDEX/TM FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
CORPORATE BONDS 37.5% (CONT.)
General Motors Corp. Debentures,
$1,699 9.625%, 12/01/00 $1,864
Georgia Pacific Corp. Debentures:
1,511 9.50%, 12/01/11 1,883
1,500 9.50%, 2/15/18 1,557
4,125 9.875%, 11/01/21 4,619
975 9.50%, 5/15/22 1,112
Goldman Sachs Group Notes,
10,000 6.25%, 2/01/03 (Acquired 2/01/96; Cost $9,974) * 9,863
Heller Financial, Inc. Notes,
9,045 9.375%, 3/15/98 9,157
Household Finance Corp. Subordinated Notes,
4,327 9.625%, 7/15/00 4,700
Lehman Brothers Holdings, Inc. Debentures,
2,365 9.875%, 10/15/00 2,562
Lehman Brothers Holdings, Inc. Medium Term Notes:
3,825 6.65%, 11/08/99 3,862
1,805 8.875%, 2/15/00 1,906
Lehman Brothers Holdings, Inc. Notes,
1,700 6.90%, 7/15/99 1,720
Lehman Brothers, Inc. Senior Subordinated Notes,
7,232 10.00%, 5/15/99 7,634
The May Department Stores Company Debentures,
1,650 9.875%, 6/15/21 1,893
Mississippi Power & Light Notes,
1,000 8.80%, 4/01/05 1,009
Mobile Energy Services LLC Debentures,
711 8.665%, 1/01/17 756
National Westminster Bancorp. Inc., Debentures,
1,000 9.375%, 11/15/03 1,149
NCNB Corp. Subordinated Notes,
5,155 10.20%, 7/15/15 6,788
News America Holdings Debentures,
2,200 10.125%, 10/15/12 2,564
Paine Webber Group Medium Term Notes,
2,450 6.73%, 1/20/04 2,471
Parker Hannifin Debentures,
400 9.75%, 2/15/21 445
J.C. Penney Company, Inc. Debentures,
4,000 9.75%, 6/15/21 4,469
SCE Capital Corp. Notes,
1,100 7.375%, 12/15/03 1,133
Salomon, Inc. Notes,
2,150 7.00%, 6/15/03 2,202
Salomon, Inc. Senior Notes:
2,850 7.75%, 5/15/00 2,955
2,100 6.75%, 2/15/03 2,127
The Charles Schwab Corp. Medium Term Notes:
2,000 5.84%, 9/30/99 1,991
2,250 5.90%, 10/01/99 2,242
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
CORPORATE BONDS 37.5% (CONT.)
Security Pacific Corp. Subordinated Notes,
$ 455 11.50%, 11/15/00 $ 517
Tenneco, Inc. Debentures,
3,150 7.45%, 12/15/25 3,276
Union Camp Corp. Debentures,
850 10.00%, 5/01/19 923
Westvaco Corp. Debentures,
1,200 10.125%, 6/01/19 1,311
-------
176,847
-------
MORTGAGE-BACKED SECURITIES 0.2%
Prudential Securities Secured Financing Corp.,
1,050 Series 1993-1, Class A, 6.44%, 2/16/21 1,011
-------
INTERNATIONAL/YANKEE (U.S. $ DENOMINATED) 9.7%
British Telecommunications Finance Debentures,
2,761 9.625%, 2/15/19 3,001
Ford Capital BV Notes:
3,296 10.125%, 11/15/00 3,655
2,821 9.375%, 5/15/01 3,099
1,400 9.50%, 6/01/10 1,726
Hydro-Quebec Debentures:
3,500 11.75%, 2/01/12 5,047
750 9.75%, 1/15/18 851
Korea Development Bank Bonds,
1,800 7.125%, 9/17/01 1,747
Korea Electric Power Debentures:
1,955 7.75%, 4/01/13 1,841
1,350 6.75%, 8/01/27 1,244
Midland Bank PLC Subordinated Notes,
5,000 6.95%, 3/15/11 5,073
National Bank of Hungary Debentures,
2,350 8.875%, 11/01/13 2,592
Newfoundland (Province of) Canada,
1,800 10.00%, 12/01/20 2,416
Norsk Hydro A/S Debentures,
2,900 9.00%, 4/15/12 3,448
Pohang Iron & Steel Notes,
1,575 7.125%, 7/15/04 1,580
Quebec Province Debentures,
2,000 11.00%, 6/15/15 2,290
Sweden (Kingdom of) Debentures,
1,100 11.125%, 6/01/15 1,603
Wharf Capital International Ltd. Notes:
1,625 8.875%, 11/01/04 1,794
2,675 7.625%, 3/13/07 2,726
-------
45,733
-------
See notes to the financial statements.
BOND IMMDEX/TM FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
U.S. GOVERNMENT AGENCY-BACKED
MORTGAGE ISSUES 7.5%
Federal Home Loan Mortgage Corporation (FHLMC),
$ 113 Participation Certificates, 7.50%, 4/01/07 $ 115
Federal Home Loan Mortgage Corporation (FHLMC)
Real Estate Mortgage Investment Conduit (REMIC):
1,065 Series 1022, Class J, 6.00%, 12/15/20 1,044
3,180 Series 1118, Class Z, 8.25%, 7/15/21 3,315
429 Series 1169, Class D, 7.00%, 5/15/21 433
18 Series 1259, Interest Only, Class IC,
1007.05%, 10/15/05 126
2,956 Series 1790-A, Class A, 7.00%, 4/15/22 2,990
739 Series 6, Class C, 9.05%, 6/15/19 782
2,150 Series 188, Class H, 7.00%, 9/15/21 2,175
1,905 Series 1201, Class E, 7.40%, 12/15/21 1,944
Federal National Mortgage Association (FNMA),
Participation Certificates:
495 7.50%, 8/01/07 508
142 7.75%, 6/01/08 147
Federal National Mortgage Association (FNMA)
Real Estate Mortgage Investment Conduit (REMIC):
500 Series 1990-61, Class H, 7.00%, 6/25/20 507
1,056 Series 1990-102, Class J, 6.50%, 8/25/20 1,049
3,100 Series 1991-56, Class M, 6.75%, 6/25/21 3,111
Series 1992-29, Interest Only, Class K,
6 977.92%, 11/25/00 79
650 Series 1993-87, Class KD, 6.00%, 6/25/03 645
Series 1992-145, Interest Only, Class N,
19 1010.06%, 1/25/06 575
172 Series 1989-39, Principal Only, Class C, 0.00%,
6/25/17 169
950 Series X-225C, Class TE, 5.45%, 10/25/18 938
1,568 Series 1988-24, Class G, 7.00%, 10/25/18 1,581
1,467 Series 1989-44, Class H, 9.00%, 7/25/19 1,560
365 Series 1989-90, Class E, 8.70%, 12/25/19 387
1,701 Series 1990-30, Class E, 6.50%, 3/25/20 1,699
183 Series 1990-72, Class A, 9.00%, 7/25/20 187
538 Series 1990-72, Class B, 9.00%, 7/25/20 589
5,697 Series 1990-105, Class J, 6.50%, 9/25/20 5,664
1,092 Series 1990-106, Class J, 8.50%, 9/25/20 1,145
1,876 Series 1992-120, Class C, 6.50%, 7/25/22 1,866
-------
35,330
-------
U.S. TREASURY OBLIGATIONS 28.7%
U.S. Treasury Bonds,
96,580 9.25%, 2/15/16 128,668
U.S. Treasury Inflation-Indexed Notes,
3,121 3.375%, 1/15/07 3,079
U.S. Treasury Notes,
3,725 6.625%, 7/31/01 3,833
-------
135,580
-------
Total Long-Term Investments (Cost $436,264) 456,883
-------
Number Market
of Shares Value
(in thousands) (in thousands)
------------ ------------
SHORT-TERM INVESTMENTS 2.3%
INVESTMENT COMPANIES 2.3%
10 Financial Square Prime Obligation Fund $ 10
10,994 Short-Term Investments Co. Liquid Assets Portfolio 10,994
-------
Total Short-Term Investments (Cost $11,004) 11,004
-------
Total Investments (Cost $447,268) 99.1% 467,887
-------
Other Assets, less Liabilities 0.9% 4,275
-------
TOTAL NET ASSETS 100.0% $472,162
========
*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
Dec ember 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 $14 and $11 for
the Intermediate Bond Market and Tax-Exempt Intermediate Bond 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%
service organization 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 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 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 to distribute
substantially all of their taxable income to shareowners. The Funds 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 on 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 year ended October 31, 1997, 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 $ 56,459 $84,834 --00 $ 47,504
Other 102,046 75,439 $30,106 141,825
Sales:
U.S. Government 55,418 42,178 --00 42,620
Other 104,401 45,658 6,115 103,714
At October 31, 1997, 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 $1,477 $5,230 $1,332 $21,804
(Depreciation) (381) (397) (18) (1,356)
------ ------ ------ -------
Net unrealized
appreciation
on investments $1,096 $4,833 $1,314 $20,448
====== ====== ====== =======
At October 31, 1997, the cost of investments, in thousands, for federal income
tax purposes was $201,468, $266,899, $70,895 and $447,438 for the Short-Term
Bond Market, Intermediate Bond Market, Tax-Exempt Intermediate Bond and Bond
IMMDEX/TM Funds, respectively. At October 31, 1997, 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, $252 and $50,
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 $503, 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. The Short-Term Bond Market Fund had accumulated net realized
capital loss carryovers, in thousands, of $1,078, expiring in 2005. 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.
During the year ended October 31, 1997, the Intermediate Bond Market, Tax-Exempt
Intermediate Bond and Bond IMMDEX/TM Funds utilized accumulated net realized
capital loss carryovers, in thousands, of $242, $48 and $485, respectively.
4.CAPITAL SHARE TRANSACTIONS
Transactions, in thousands, of shares of the Funds 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
------- ------ ------- ------ ------ ------ ------- -------
YEAR ENDED OCTOBER 31, 1997:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Series A shares:
Shares sold $ 30,209 2,949 $ 7,985 784 $13,524 1,317 $ 30,638 1,111
Shares issued to owners
in reinvestment
of dividends 3,315 325 739 73 561 55 2,728 99
Shares redeemed (26,932) (2,629) (5,689) (557) (5,799) (564) (13,274) (482)
-------- ------- -------- -------- -------- ------- -------- -------
Net increase $ 6,592 645 $ 3,035 300 $ 8,286 808 $ 20,092 728
======== ======= ======== ======== ======== ======= ======== =======
Series Institutional shares:
Shares sold $ 41,412 4,034 $108,111 10,593 $21,675 2,110 $ 99,564 3,611
Shares issued to owners
in reinvestment
of dividends 7,603 744 7,516 740 432 42 20,489 746
Shares redeemed (60,562) (5,912) (37,572) (3,678) (7,177) (699) (91,596) (3,322)
-------- ------- -------- -------- -------- ------- -------- -------
Net increase (decrease) $(11,547) (1,134) $ 78,055 7,655 $14,930 1,453 $ 28,457 1,035
======== ======= ======== ======== ======== ======= ======== =======
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
======== ======= ======== ======== ======== ======= ======== =======
</TABLE>
5.INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Funds have entered into an Investment Advisory Agreement with Firstar
Investment Research & Management Company, LLC ("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, 1997,
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 $605 $346 $177 --
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 period ended
October 31, 1997, $150, $171, $41 and $318 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 $155, $48, $36 and $130, respectively, for the
period ended October 31, 1997.
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, 1997, 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, 1997, 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, 1997 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Milwaukee, Wisconsin
December 9, 1997
Portico Funds are available through:
- - the Portico Funds Center,
- - Investment Specialists who are registered
representatives of Firstar 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
Form #40-0197 12/97
xxxxx
OCTOBER 31, 1997
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
RISK REAPPEARS...REVEALS OPPORTUNITY.....................................3-6
LOOKING AHEAD.............................................................6
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....................................................19-22
SCHEDULE OF INVESTMENTS.................................................23-32
NOTES TO THE FINANCIAL STATEMENTS.......................................33-36
REPORT OF INDEPENDENT ACCOUNTANTS.........................................37
December, 1997
DEAR SHAREOWNER:
INVESTMENT REVIEW
Investors enjoyed strong financial market returns over the past year. Inflation
was subdued, unemployment fell to its lowest level in a generation and consumer
confidence soared. We witnessed a change in stock market leadership during the
year as small and midcap stocks outperformed largecap stocks in the second half.
This trend should continue as earnings growth slows for big companies and
valuations improve for small and midcap stocks.
The year's stock market advance was bumpy, with significant declines in March,
August and October. For the year, the Dow Jones Industrial Average rose over
1400 points, rewarding those investors who "stayed the course." The market's
roller coaster ride was most unsettling in October. Responding to financial
turmoil in Southeast Asia, the Dow plunged 556 points on October 27th, the
largest single-day point decline in history. Then, to make things interesting,
the market set another record the next day, rising 337 points. The bond market
also got into the volatility act as the yield on the 30-year U.S. Treasury bond
gyrated between 6.13% and 7.17% during the year.
IT'S TIME, NOT TIMING
We believe the best advice for times like these is "it's time, not timing." In
volatile markets, our consistent approach to investing, featuring our structured
fixed income and growth-at-a-reasonable-price equity management styles, is
especially attractive. For our investors, it's reassuring to know we offer
investment strategies with no hidden surprises.
Along with an eventful year in the markets, we were busy evaluating the Portico
Family of Funds. We made several enhancements to the Portico lineup during the
year. These enhancements include:
- -A pure midcap stock focus for Portico Special Growth Fund.
- -A new smallcap stock fund, Portico Emerging Growth Fund, launched August 15,
1997.
- -A name change for Portico MidCore Growth Fund. The new name, Portico Growth
Fund, reflects the Fund's new focus on largecap stocks.
- -A new sub-adviser and a move from passive to active management for Portico
International Equity Fund.
- -A new balanced fund, Portico Balanced Income Fund, launched December 1, 1997.
For more complete information about these funds, please obtain a prospectus and
read it carefully before you invest or send money.
A NAME CHANGE FOR PORTICO FUNDS: FIRSTAR FUNDS
As previously announced, we will change our name to Firstar Funds on February 1,
1998. Changing our name allows us to take advantage of the Firstar identity in
markets where Firstar has a presence. This also eliminates confusion over the
relationship between Firstar and Portico. Again, we want to emphasize, THIS IN
NO WAY AFFECTS HOW YOUR FUNDS ARE MANAGED. It's a change in name only. Once the
name change takes effect, you can expect all sales materials, shareowner
communications, newspaper listings and our website to carry the new Firstar
Funds name.
MARKET OUTLOOK
Before looking ahead, let's revisit our economic and market forecast from last
year's annual report. We're pleased to report we got most of the important
trends right. We correctly anticipated a sooner-than-expected balanced Federal
budget and we accurately forecast a stronger-than-expected American consumer.
While our forecast of 5% nominal growth for the U.S. economy was right on, we
underestimated "real" (inflation-adjusted) growth and overestimated inflation.
Corporate profits were better than we expected, especially for the "mega"
companies that dominate the S&P 500 Index. We underestimated Corporate America's
ability to continuously improve productivity, enabling profit margins to expand
despite today's competitive, no-pricing-power, global marketplace. Strong profit
growth and low inflation led to higher stock returns than we expected, although
at the time, we felt rather bold forecasting an above-average year for the
market. Bond market total returns were below our forecast, although investors
earned historically high real yields, thanks to low inflation.
Looking ahead, our forecast for 1998 includes the following:
- -Pacific Rim economic activity will decline while their devalued currencies
make their exports cheaper and limit the ability of U.S. firms to raise
prices.
- -The Asian "wave of deflation" will offset inflation pressures from rising
wages and higher capacity utilization in the U.S.
- -Further U.S. economic expansion will require strong job and consumer spending
growth to offset weakness in the government, healthcare and foreign trade
sectors.
- -The Federal budget will be balanced in 1998 due to higher-than-forecast tax
receipts and continued spending restraint.
- -Moderate economic growth and low inflation will persist through 1998 with a 3%
inflation-adjusted gain in gross domestic product (GDP) and a 2% rise in
consumer prices (CPI).
- -Despite solid economic underpinnings, the financial markets will experience
above-average volatility.
- -Due to lower-than-expected inflation, real yields for fixed income investments
will remain at the upper end of their historical range.
- -Long-term interest rates will decline gradually as a balanced Federal budget
reduces the supply of bonds and high real yields attract investors whipsawed
by stock market volatility.
- -With household liquidity at a record $1.6 trillion, cash flow into the stock
market will be robust.
- -The U.S. stock market will be the world's market of choice in 1998.
- -Stock market returns will be above-average in 1998. History shows a 15%
average annual return for stocks in years when inflation is low (+2-5% gain in
CPI) with 1966 the last year the market declined in a low inflation
environment.
- -S&P 500 companies will earn $48 per share in profits for 1998, yielding a
twelve month price target for the Index in the 1000 to 1100 range, up 10-20%
from October 31, 1997 levels.
- -Small and midcap stocks will outperform as earnings gains for large and mega-
sized multinational companies slow, prompting investors to place higher
valuations on faster growing small and medium-sized domestically-focused
companies.
IN SUMMARY
Inflation is the single most important variable in the outlook for stock and
bond market returns. Intense global competition, improved productivity through
technology and restrained growth in government should keep the inflation genie
"bottled up." Prospects for further financial market gains are bright. Just
remember, patience and perseverance win the investment marathon.
We appreciate your continued confidence in the Portico Family of Funds and urge
you to read the following portfolio reviews.
<PHOTO> <PHOTO>
J. SCOTT HARKNESS, CFA MARY ELLEN STANEK, CFA
Chairman & Chief President
Investment Officer
Firstar Investment Research & Management Company, LLC
RISK REAPPEARS...REVEALS OPPORTUNITY
With the generous returns offered by the equity market over the last several
years, many investors became accustomed to handsome rewards with diminishing
appreciation for the underlying risks they had assumed. The volatility in the
financial markets in October, however, gave cause for investors to reassess the
risk in their portfolios and re-evaluate their tolerance thereof. As a result of
this recent "soul searching", we have seen positive cash-flow into the bond
market as investors re-balance their portfolios.
VOLATILITY OFTEN BRINGS WITH IT OPPORTUNITY. Currently, we see good relative
value in the bond market for investors. Real yields (nominal yields less
inflation) are still high by historical standards and our outlook for inflation
continues to be favorable. The bond market, over the long run, is efficient and
will reward investors with returns which are in direct proportion to the level
of risk they are willing to take. The key is to maintain risk at levels
commensurate with your investment objectives. While most investors are clear on
their investment objectives, clearly identifying the risks of their investments
presents a greater challenge. As many investors seek to reduce their overall
portfolio volatility by emphasizing bonds, we think it is an appropriate time to
review some of the risks of investing in bonds and bond mutual funds.
Portico's fixed-income management approach is specifically designed to define,
measure, and control bond fund risks. 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. Our "what you see is what you get" philosophy
guides us in providing bond funds that will perform as expected, even during
volatile times. We strive to educate our investors about realistic return
expectations and the risk it takes to achieve those returns. Following, we focus
on three risks we feel are especially important for investors to understand when
investing in a bond fund: INTEREST RATE RISK, CREDIT RISK AND FOREIGN EXPOSURE
RISK.
INTEREST RATE RISK
The key component of risk in a bond fund is the fund's price sensitivity to
interest rate changes. It's a "seesaw" effect -- bond prices and bond fund
values move inversely with interest rates: as rates rise, prices fall and,
conversely, as rates fall, prices rise.
We select an appropriate benchmark for each fund by examining the benchmark's
long-term returns relative to its risk (interest rate sensitivity). After
selecting the benchmark, we then keep the interest rate sensitivity of each fund
equal to that of its benchmark at all times.
We build from the concept of duration which defines the level of price
volatility, or risk of a bond fund or benchmark index. While related to a bond's
maturity, duration can be more accurately thought of as the average time to
receipt of all of a bond's cash flows. As such, it is a very effective measure
of the interest rate sensitivity of an individual bond or an entire fixed-income
portfolio, and thus, describes the key component of the level of risk to be
assumed in the management of fixed-income assets.
UNDERSTANDING DURATION
Rule of Thumb
- -------------
Duration x Interest Rate Change = Approximate Price Change
Consider the following two bonds which are identical except in regard to their
coupon.
1)U.S. Treasury zero coupon bond due 8/15/07. Investor receives principal
payment equal to the full face amount when the bond matures.
Maturity = 10 years
Duration = 10 years
2) U.S. Treasury 6 1/8% due 8/15/07. Investor receives semi-annual interest
payments until maturity. At maturity investor also receives principal payment
equal to the full face amount.
Maturity = 10 years
Duration = 7.2 years
Since the first bond's only cash flow is at maturity, its duration is equal to
its maturity. Because the second bond pays interest regularly, the average time
to receipt of its cash flows is less than that of the first bond. Hence, its
duration is shorter.
Now, if interest rates rise 1.0% (for example, from 6.0% to 7.0%) over a short
period of time, the approximate price change for each asset is as follows:
Approximate Price Change
------------------------
U.S. Treasury 0% due 8/15/07 -10.0%
U.S. Treasury 6 1/8% due 8/15/07 -7.2%
If interest rates fall 1.0% (for example, from 6.0% to 5.0%) over a short period
of time, the approximate price change for each asset is as follows:
Approximate Price Change
------------------------
U.S. Treasury 0% due 8/15/07 +10.0%
U.S. Treasury 6 1/8% due 8/15/07 +7.2%
We feel this simple example demonstrates how duration, rather than maturity,
best measures the interest rate sensitivity of a bond or bond fund.
Our structured, or duration-matched management approach remains constant
regardless of changes in interest rates. Because we can effectively measure and
control the price risk of a portfolio so that the return mirrors the selected
index, it is possible to enhance the return without measurably increasing the
risk of the portfolio. Keeping risks in line with objectives, our goal for each
fund is to outperform its benchmark on a consistent basis before fund expenses.
Our approach is applied consistently across the various maturity segments of the
bond market. For example, 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. The table below provides a simple comparison of
Portico bond funds.
PORTICO FAMILY OF FIXED-INCOME FUNDS
- ----------------------------------------------------------------------------
SHORT-TERM LONG-TERM
BOND FUND INTERMEDIATE-TERM BOND FUNDS BOND FUND
--------- ---------------------------- ---------
PORTICO PORTICO PORTICO PORTICO
SHORT-TERM INTERMEDIATE TAX-EXEMPT BOND
BOND BOND INTERMEDIATE IMMDEX/TM
MARKET FUND MARKET FUND BOND FUND FUND
----------- ----------- ----------- -----------
LEHMAN LEHMAN LEHMAN
BROTHERS BROTHERS BROTHERS LEHMAN
1-3 YEAR INTERMEDIATE 5-YEAR 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* AA AA AAA AA
AVERAGE MATURITY 2.5 YEARS 5.2 YEARS 5.1 YEARS 10.3 YEARS
DURATION 1.7 YEARS 3.3 YEARS 4.2 YEARS 5.2 YEARS
PRINCIPAL VOLATILITY LOW MODERATE MODERATE HIGH
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,
1997, and will change from time to time in connection with the management of the
portfolios pursuant to the policies described in the current prospectus.
*Dollar weighted average quality of portfolio securities held by the Funds.
CREDIT RISK
In addition to interest rate risk, bonds (and bond funds) are subject to varying
degrees of credit risk. U.S. Treasury issues, which are considered to represent
minimal credit risk, serve as the baseline for bond yields. All other bonds
trade in the market at some yield "spread" to U.S. Treasury yields. Generally
speaking, bonds with higher perceived credit risk trade with larger, or wider
spreads. During the past few years, many investors have been reaching for higher
yields in their bond investments. Many bond funds, in their quest for higher
yields, have also taken on more credit risk by purchasing lower quality bonds.
As a result of this demand and because of the overall improvement in the
economy, yield spreads have narrowed significantly over the last several years.
The charts below show the compression of yield spreads for investment grade
bonds since the end of 1991.
Credit Spreads 12/31/91
1 2 3 5 10 30
----- ----- ----- ----- ----- -----
AAA 0.25% 0.30% 0.33% 0.36% 0.40% 0.69%
AA 0.10% 0.10% 0.10% 0.11% 0.14% 0.03%
A 0.20% 0.20% 0.20% 0.19% 0.15% 0.13%
BBB 0.55% 0.55% 0.57% 0.59% 0.58% 0.72%
Credit Spreads 10/31/91
1 2 3 5 10 30
----- ----- ----- ----- ----- -----
AAA 0.37% 0.28% 0.32% 0.35% 0.40% 0.44%
AA 0.02% 0.04% 0.04% 0.04% 0.03% 0.11%
A 0.12% 0.04% 0.07% 0.07% 0.12% 0.09%
BBB 0.11% 0.09% 0.05% 0.16% 0.20% 0.31%
As seen in the charts above, the reward for taking on the same risk with
investment grade bonds has declined over the last several years. The spread on
10-year corporate bonds rated AA has declined modestly from 0.54% in 1991 to
0.43%. The spread on 10-year corporate bonds rated BBB, however, has fallen
dramatically from 1.27% in 1991 to 0.75%. Lower quality spreads, which started
out much wider, tightened more dramatically, giving lower quality bonds a
significant boost in performance relative to higher quality bonds over this time
period.
The quest for wider spreads of years-gone-by has recently led many bond funds,
which traditionally invested only in investment-grade bonds, to venture into
below-investment-grade bonds, commonly known as "high yield" or "junk bonds."
As a result, investors in these bond funds have, often unwittingly, exposed
themselves to considerably higher levels of credit risk. While junk bonds offer
wider spreads than investment grade bonds, their spreads too have tightened over
the last several years and are presently narrow by historical standards. The
following table compares the yield-to-maturity on the Lehman Brothers High Yield
Bond Index (non-investment grade) and the Lehman Brothers Government/Corporate
Bond Index (investment-grade) over the same time period as above.
12/31/91 10/31/97
-------- --------
Lehman Brothers High Yield Bond Index 13.37% 8.82%
Lehman Brothers Government/Corporate Bond Index 6.38% 6.09%
The dramatic narrowing of junk bond spreads since 1991 has caused junk bonds to
outperform investment-grade bonds considerably. With spreads at historically
narrow levels, however, we believe there is considerable risk of spread
widening, which could cause junk bonds to underperform dramatically. PORTICO
BOND FUNDS PURCHASE ONLY INVESTMENT-GRADE SECURITIES. Our fixed-income research
team diligently screens the marketplace for opportunities in the investment
grade corporate bond market that add value while controlling the risk.
FOREIGN EXPOSURE RISK
As markets become increasingly "global," investing in foreign securities is
becoming more widely accepted. The recent volatility in the overseas markets,
however, has renewed the interest and highlighted the risks of investing in
foreign countries. Currency devaluations and sharp changes in economic policies
of several Pacific Rim countries have caused gyrations in the value of many
foreign bonds. These securities, like domestic corporate bonds, also trade at
various and often wide "spreads" to U.S. Treasury issues. The wider spreads of
foreign bonds incorporate the added dimensions of credit risk, industry risk,
sovereign or country risk and especially currency risk. In search of yield, many
bond funds have added foreign issues to their portfolios -- often with foreign
currency risk. Currency risk overshadows the other risks in terms of magnitude
and is particularly difficult to define and control in a cost effective manner.
Accordingly, we believe the assumption of currency risk to be inconsistent with,
and outside the investment objectives of domestic, investment-grade bond funds.
While we do not expose Portico bond funds to foreign currency risk, we do
believe foreign bonds that are denominated in U.S. dollars -- "Yankee" bonds
as they're called -- can offer significant investment opportunities. Yankee
bonds are obligations of foreign governments and corporations but are issued in
the United States and denominated in U.S. dollars. Although these issues often
have similar or higher credit ratings than a typical U.S. corporate bond, they
typically trade with significantly higher yields and are not subject to currency
risk. Yankee bonds are currently the fastest growing sector of the U.S. domestic
corporate bond market. In fact, three of the six largest corporate issuers
represented in the Lehman Brothers Government/Corporate Bond Index are foreign
entities. Investing in Yankee issues has enabled us to seize the opportunity in
foreign bonds without exposing our investors to the perils of currency risk.
CONSISTENCY IS THE HALLMARK OF PORTICO BOND FUNDS
Investment in a domestic, investment-grade bond fund is the "anchor in the
wind" in an overall portfolio. Portico bond funds attempt to be a strong anchor
for your portfolios. Many risks can keep a fund manager from delivering
consistent performance. We have discussed interest rate risk, credit risk and
foreign exposure risk. PORTICO BOND FUNDS STRIVE TO DEFINE, MEASURE AND CONTROL
THESE AND OTHER RISKS RESULTING IN CONSISTENT INVESTMENT PERFORMANCE EVEN IN
VOLATILE TIMES. 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.
LOOKING AHEAD
Looking ahead, we continue to forecast moderate economic growth, low levels of
inflation, and attractive real, or inflation-adjusted, rates of returns.
Although we expect volatility to continue in the bond market, we believe it
presents opportunity. As always, we remain commited to adhearing to our
structured fixed-income management style which we feel provides the best value
for shareowners.
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, LLC
This page intentionally left blank.
SHORT-TERM BOND MARKET FUND
PORTICO SHORT-TERM BOND MARKET FUND seeks to provide an annual rate of total
return comparable to that of the Lehman Brothers 1-3 Year Government/Corporate
Bond Index, before Fund expenses. In order to achieve its objective, the Fund
may invest in securities with short to intermediate remaining maturities.
INTEREST RATE RISK
This Fund's maturity mix gives it an overall average PORTFOLIO MATURITY OF 2.5
YEARS, and a DURATION OF 1.7 YEARS. Because Short-Term Bond Market Fund's
duration of just under two years is the shortest of all the Portico taxable bond
funds, it will display the least downward price movement when interest rates
increase, but will also exhibit the least upward price appreciation when
interest rates decrease. This Fund will exhibit a more stable NAV when compared
to Portico's other taxable bond fund offerings.
In fact, this Fund's short average maturity and duration is reflected in its
performance for the year ended October 31, 1997. A slight decrease in interest
rates, (2-year U.S. Treasury rates decreased by approximately 0.15% to 5.6%),
RESULTED IN A ONE-YEAR TOTAL RETURN FOR THE FUND OF +6.47%. THIS COMPARES TO THE
FUND'S BENCHMARK, THE LEHMAN BROTHERS 1-3 YEAR GOVERNMENT CORPORATE BOND INDEX,
WHICH HAD A TOTAL RETURN OF +6.51% FOR THE SAME PERIOD. ADDITIONALLY, THIS
REPRESENTS A HIGH REAL RATE OF RETURN WHEN COMPARED TO THE CONSUMER PRICE INDEX,
WHICH OVER THE SAME PERIOD INCREASED ONLY +2.1%.
CREDIT RISK
While the Fund's duration is the single most significant determinant of its
return, other factors are important, too. The Fund's exposure to credit-
sensitive issues including corporate bonds and notes and asset-backed securities
is one determinant of its relative performance. CORPORATE BONDS AND NOTES ARE
SELECTED FOR THE FUND IN A RESEARCH-INTENSIVE PROCESS FROM THE FIXED INCOME
INVESTMENT GRADE UNIVERSE. (THE PORTICO BOND FUNDS DO NOT INVEST IN "HIGH-
YIELD" OR "JUNK" BONDS.) Sectors that we currently favor include finance,
banking and brokerage. We are currently underweighted in the utility sector.
Asset-backed securities in the Fund are all highly rated by Moody's or Standard
& Poor's. OVER HALF OF THE FUND, (68%), IS INVESTED IN OBLIGATIONS RATED AAA/AAA
OR HIGHER.
FOREIGN EXPOSURE RISK
THE FUND DOES NOT INVEST IN SECURITIES DENOMINATED IN FOREIGN CURRENCIES. AS
SUCH, IT HAS NO DIRECT EXPOSURE TO FOREIGN CURRENCY FLUCTUATIONS. The Fund does,
however, invest in Yankee securities. Yankees are obligations of foreign
entities denominated in U.S. dollars. Yankee investments total 4% of the Fund
and include credits of: Ford Capital BV (guaranteed by Ford Motor Company),
Hydro-Quebec, Quebec, and Sumitomo Bank. Currently, Yankee bond obligations are
the fastest growing sector of the U.S. domestic corporate bond market. Investing
in Yankee issues has enabled us to capitalize on opportunities in foreign bonds
without exposing our investors to currency risk. With recent market turmoil
originating in the Pacific Rim countries, spreads on some Yankee issues have
widened. This has resulted in negative relative performance on these securities.
AT CURRENT YIELD LEVELS, WE FEEL YANKEE BONDS REPRESENT EXCEPTIONAL VALUE. We
anticipate that they will outperform similarly rated investments in the coming
year. See page 23 for a complete listing of portfolio holdings.
CONSISTENCY IS THE HALLMARK OF OUR APPROACH
Since Portico Short-Term Bond Market Fund's inception on 12/29/89, we have
adhered to the same, disciplined management approach. The past seven-plus 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. Short-term Bond Market Fund's returns have
been comparable to the 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. We look forward to continuing to serve you as Portico
Fund shareowners.
PORTFOLIO MANAGER PROFILE
- ----------------------------------------------------------------------------
MARY ELLEN STANK, CFA, President of Firstar Investment Research & Management
Company, LLC (FIRMCO) and DANIEL A. TRANCHITA, CFA, Vice President and Senior
Portfolio Manager, co-manage the Fund - Mary Ellen since its inception on
December 29, 1989 and Dan since January 1, 1993. Mary Ellen has 18 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 BAfrom
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 BAin 1987 and his MBAin 1989
from Marquette University. Mary Ellen and Dan are both Chartered Financial
Analysts.
<PHOTO> <PHOTO>
MARY ELLEN STANK, CFA DANIEL A. TRANCHITA, CFA
XXXXX
<TABLE>
<CAPTION>
12/29/89 10/90 10/91 10/92 10/93 10/94 10/95 10/96 10/97
-------- ------ ------ ------ ------ ----- ----- ----- -----
<S> <C> <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 17,223
LEHMAN 1-3 YEAR
GOV'T./CORP.
BOND INDEX 10,000 10,738 11,964 12,943 13,712 13,879 15,118 16,030 17,073
<FN> 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, 1997
Since
Inception
1 Year 3 Years 5 Years 12/29/89
------ ------- ------- --------
PORTICO SHORT-TERM BOND
MARKET FUND 6.5 7.1 5.8 7.2
LEHMAN BROTHERS 1-3 YEAR
GOV'T./CORP. BOND INDEX* 6.5 7.2 5.7 7.1
* 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 outstanding 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
10/31/97
- -----------------------------------
U.S. TREASURY 17%
U.S. GOVERNMENT AGENCY 14%
MORTGAGE-BACKED 11%
FINANCE, BANKING, BROKERAGE 16%
INDUSTRIAL 5%
UTILITY 2%
INTERNATIONAL/YANKEE 4%
ASSET-BACKED 28%
CASH 1%
TAXABLE MUNICIPAL 2%
TOTAL 100%
PORTFOLIO COMPOSITION
10/31/97
- -----------------------------------
AVERAGE MATURITY 2.5 YEARS
AVERAGE DURATION 1.7 YEARS
QUALITY DISTRIBUTION
10/31/97
- -----------------------------------
U.S. TREASURY 17%
U.S. GOVERNMENT AGENCY 14%
Aaa 37%
Aa 6%
A 20%
Baa 6%
TOTAL 100%
SEC 30-DAY YIELD
- -----------------------------------
6.02%
TOTAL FUND NET ASSETS
10/31/97
- -----------------------------------
$201,651,006
INTERMEDIATE BOND MARKET FUND
PORTICO INTERMEDIATE BOND MARKET FUND seeks to provide an annual rate of total
return comparable to that of the Lehman Brothers Intermediate
Government/Corporate Bond Index, before Fund expenses. In order to achieve its
objective, the Fund may invest in securities with long remaining maturities, (10
years or longer), in addition to shorter bonds and notes.
INTEREST RATE RISK
This Fund's maturity mix gives it an overall AVERAGE PORTFOLIO MATURITY OF 5.2
YEARS, and a DURATION OF 3.3 YEARS. Because Intermediate Bond Market Fund's
duration of just over three years is between the durations of the other Portico
taxable bond funds, when interest rates increase it will display more downward
price movement than the Short-Term Bond Market Fund and less than the Bond
IMMDEX/TM Fund. But, when interest rates decrease, this Fund will exhibit more
upward price appreciation than Short-Term Bond Market Fund and less than the
Bond IMMDEX/TM Fund.
In fact, this Fund's intermediate average maturity and duration is reflected in
its performance for the year ended October 31, 1997. A decrease in interest
rates, (5-year U.S. Treasury rates decreased by over 0.35% to 5.7%), RESULTED IN
A ONE-YEAR TOTAL RETURN FOR THE FUND OF +7.36%. THIS COMPARES TO THE FUND'S
BENCHMARK, THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT CORPORATE BOND INDEX,
WHICH HAD A TOTAL RETURN OF +7.49% FOR THE SAME PERIOD. ADDITIONALLY, THIS
REPRESENTS A HIGH REAL RATE OF RETURN WHEN COMPARED TO THE CONSUMER PRICE INDEX,
WHICH OVER THE SAME PERIOD INCREASED ONLY +2.1%.
CREDIT RISK
While the Fund's duration is the single most significant determinant of its
return, other factors are important, too. The Fund's exposure to credit-
sensitive issues including corporate bonds and notes and asset-backed securities
is one determinant of its relative performance. CORPORATE BONDS AND NOTES ARE
SELECTED FOR THE FUND IN A RESEARCH-INTENSIVE PROCESS FROM THE FIXED INCOME
INVESTMENT GRADE UNIVERSE. (THE PORTICO BOND FUNDS DO NOT INVEST IN "HIGH-
YIELD" OR "JUNK" BONDS.) Sectors that we currently favor include finance,
banking and brokerage. We are currently underweighted in the utility sector.
Asset-backed securities in the Fund are all rated Aaa/AAA by Moody's or Standard
& Poor's. They represent the highest credit quality of non-U.S. Government
investments available. OVER HALF OF THE FUND, (62%), IS INVESTED IN OBLIGATIONS
RATED AAA/AAA OR HIGHER.
FOREIGN EXPOSURE RISK
THE FUND DOES NOT INVEST IN SECURITIES DENOMINATED IN FOREIGN CURRENCIES. AS
SUCH, IT HAS NO DIRECT EXPOSURE TO FOREIGN CURRENCY FLUCTUATIONS. The Fund does,
however, invest in Yankee securities. Yankees are obligations of foreign
entities denominated in U.S. dollars. Yankee investments total 8% of the Fund
and include credits of: Ford Capital BV (guaranteed by Ford Motor Company),
Hydro-Quebec, Korea Development Bank and Korea Electric Power, Midland Bank,
National Bank of Hungary, Pohang Iron & Steel, Quebec, and Wharf International.
Currently, Yankee bond obligations are the fastest growing sector of the U.S.
domestic corporate bond market. Investing in Yankee issues has enabled us to
capitalize on opportunities in foreign bonds without exposing our investors to
currency risk. With recent market turmoil originating in the Pacific Rim
countries, spreads on some of the Fund's Yankee issues have widened. This has
resulted in negative relative performance on these securities. AT CURRENT YIELD
LEVELS, WE FEEL THE FUND'S YANKEE BONDS REPRESENT EXCEPTIONAL VALUE. We
anticipate that they will outperform similarly rated investments in the coming
year. See page 25 for a complete listing of portfolio holdings.
CONSISTENCY IS THE HALLMARK OF OUR APPROACH
Since Portico Intermediate Bond Market Fund's inception on 1/5/93, we have
adhered to the same, disciplined management approach. The past four-plus 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. Intermediate Bond Market Fund's returns have
been comparable to the 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. We look forward to continuing to serve you as Portico
Fund shareowners.
PORTFOLIO MANAGER PROFILE
- -------------------------------------------------------------------------------
MARY ELLEN STANEK, CFA, President of Firstar Investment Research &Management
Company, LLC (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 18 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 BAfrom Marquette University in 1978 and her MBA
from the University of Wisconsin-Milwaukee in 1984. Teresa has been with Firstar
since 1987 and has ten years of investment management experience. Teresa
received her BAfrom Augustana College in 1985 and her MBA from the University of
Chicago in 1991. Mary Ellen and Teresa are both Chartered Financial Analysts.
<PHOTO> <PHOTO>
MARY ELLEN STANEK, CFA TERESA R. WESTMAN, CFA
1/5/93 10/93 10/94 10/95 10/96 10/97
------ ----- ----- ----- ----- -----
PORTICO INTERMEDIATE
BOND MARKET FUND 10,000 10,858 10,670 11,978 12,669 13,602
LEHMAN INTERMEDIATE
GOV'T./CORP.
BOND INDEX 10,000 10,844 10,635 11,968 12,663 13,612
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, 1997
Since Inception
1 Year 3 Years 1/5/93
----- ------- ------
PORTICO INTERMEDIATE
BOND MARKET FUND 7.4 8.4 6.6
LEHMAN BROTHERS INTERMEDIATE
GOV'T./CORP. BOND INDEX* 7.5 8.6 6.6
* 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 under lying universe of securities that comprise the
index. Securities included in the index must meet the following critieria: fixed
as opposed to variable rate; remaining maturity of one to ten years; minimum
outstanding 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
10/31/97
- -----------------------------------
U.S. TREASURY 30%
U.S. GOVERNMENT AGENCY 7%
MORTGAGE-BACKED 2%
FINANCE, BANKING, BROKERAGE 21%
INDUSTRIAL 8%
INTERNATIONAL/YANKEE 8%
ASSET-BACKED 20%
CASH 4%
TOTAL 100%
PORTFOLIO COMPOSITION
10/31/97
- -----------------------------------
AVERAGE MATURITY 5.2 YEARS
AVERAGE DURATION 3.3 YEARS
QUALITY DISTRIBUTION
10/31/97
- -----------------------------------
U.S. TREASURY 30%
U.S. GOVERNMENT AGENCY 7%
Aaa 25%
Aa 2%
A 27%
Baa 9%
TOTAL 100%
SEC 30-DAY YIELD
- -----------------------------------
5.94%
TOTAL FUND NET ASSETS
10/31/97
- -----------------------------------
$275,212,112
TAX-EXEMPT INTERMEDIATE BOND FUND
Portico Tax-Exempt Intermediate Bond Fund seeks to provide current income exempt
from federal taxes and emphasizes total return with relatively low volatility of
principal. Currently, the Fund does not purchase any issues which are subject to
the alternative minimum tax.
INTEREST RATE RISK
This Fund's maturity mix gives it an overall AVERAGE PORTFOLIO MATURITY OF 5.1
YEARS, and a DURATION OF 4.2 YEARS. Because Tax-Exempt Intermediate Bond Fund's
duration is just over four years, its NAV will be less sensitive to changes in
interest rates than the typical municipal debt fund which, according to Lipper
Analytical Services, has an average duration of 7.7 years. A slight decrease in
intermediate municipal bond market yields (5-year rates fell approximately 0.20%
to 4.25%) resulted in a ONE-YEAR TOTAL RETURN FOR THE FUND OF +5.96%.
CREDIT RISK
While the Fund's duration is the single most significant determinant of its
return, exposure to credit risk can significantly affect performance as well. As
of October 31, 1997, the Fund has an AVERAGE QUALITY RATING OF AAA. In
particular, OVER 69% OF THE FUND'S HOLDINGS ARE INVESTED IN PREREFUNDED
MUNICIPAL BONDS, WHICH ARE SECURED WITH U.S. TREASURY ISSUES. With credit
spreads remaining tight by historical standards, the Fund's focus on superior
quality issues will help minimize the effects of any widening of credit spreads.
FOREIGN EXPOSURE RISK
The Fund invests only in U.S. domestic municipal bonds and has no exposure to
foreign bonds or foreign currency risk.
CONSISTENCY IS THE HALLMARK OF OUR APPROACH
Since Portico Tax-Exempt Intermediate Bond Fund's inception on 2/8/93, we have
adhered to the same, disciplined management approach. The past four-plus years
have brought us more volatility in the fixed income markets than we would have
expected. The hallmark of our performance has been consistent performance in all
markets. Our goal is to continue to deliver this same consistent performance. We
look forward to continuing to serve you as Portico Fund shareowners.
<PHOTO>
WARREN D. PIERSON, CFA
PORTFOLIO MANAGER PROFILE
- --------------------------------------------------------------------------------
WARREN D. PIERSON, CFA, Vice President and Portfolio Manager of Firstar
Investment Research &Management Company, LLC (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 BAfrom Lawrence University in 1984, and
has 12 years of investment management experience. 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 10/97
------ ----- ----- ----- ----- -----
PORTICO TAX-EXEMPT
INTERMEDIATE BOND FUND 10,000 10,536 10,459 11,440 11,900 12,609
LEHMAN 5-YR GENERAL
OBLIGATION BOND INDEX 10,000 10,557 10,499 11,586 12,143 12,934
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, 1997
Since Inception
1 Year 3 Years 2/8/93
------ ------ ------
PORTICO TAX-EXEMPT
INTERMEDIATE BOND FUND 6.0 6.4 5.0
LEHMAN BROTHERS 5 YEAR
GENERAL OBLIGATION BOND INDEX** 6.5 7.2 5.6
* 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 of fee waivers, total return would be reduced.
SECTOR DISTRIBUTION
10/31/97
- -----------------------------------
GENERAL OBLIGATIONS 2%
ESCROWED/PREREFUNDED 69%
INSURED 23%
REVENUE 5%
CASH 1%
TOTAL 100%
QUALITY DISTRIBUTION
10/31/97
- -----------------------------------
Aaa 95%
Aa 3%
A 2%
TOTAL 100%
PORTFOLIO COMPOSITION
10/31/97
- -----------------------------------
AVERAGE MATURITY 5.1 YEARS
AVERAGE DURATION 4.2 YEARS
SEC 30-DAY YIELD
- -----------------------------------
4.09%
TOTAL FUND NET ASSETS
10/31/97
- -----------------------------------
$71,406,581
BOND IMMDEX/TM FUND
PORTICO BOND IMMDEX/TM FUND seeks to provide an annual rate of total return
comparable to that of the Lehman Brothers Government/Corporate Bond Index,
before Fund expenses. In order to achieve its objective, the Fund may invest in
securities with very long remaining maturities, (30 years or longer), in
addition to shorter bonds and notes.
INTEREST RATE RISK
This Fund's maturity mix gives it an overall AVERAGE PORTFOLIO MATURITY OF 10.3
YEARS, and a DURATION OF 5.2 YEARS. Because Bond IMMDEX/TM Fund's duration of
just over five years is the longest of all the Portico taxable bond funds, it
will display the greatest downward price movement when interest rates increase,
but will exhibit the greatest upward price appreciation when interest rates
decrease.
In fact, the longer average maturity and duration of this Fund helped its
performance, relative to shorter funds, for the year ended October 31, 1997. A
decrease in interest rates, (10-year U.S. Treasury rates decreased by over 0.5%
to 5.8%), RESULTED IN A ONE-YEAR TOTAL RETURN FOR THE FUND OF +8.90%. THIS
COMPARES FAVORABLY TO THE FUND'S BENCHMARK, THE LEHMAN BROTHERS GOVERNMENT
CORPORATE BOND INDEX, WHICH HAD A TOTAL RETURN OF +8.81% FOR THE SAME PERIOD.
ADDITIONALLY, THIS REPRESENTS A HIGH REAL RATE OF RETURN WHEN COMPARED TO THE
CONSUMER PRICE INDEX, WHICH OVER THE SAME PERIOD INCREASED ONLY +2.1%.
CREDIT RISK
While the Fund's duration is the single most significant determinant of its
return, other factors are important, too. The Fund's exposure to credit-
sensitive issues including corporate bonds and notes and asset-backed securities
is one determinant of its relative performance. CORPORATE BONDS AND NOTES ARE
SELECTED FOR THE FUND IN A RESEARCH-INTENSIVE PROCESS FROM THE FIXED INCOME
INVESTMENT GRADE UNIVERSE. (THE PORTICO BOND FUNDS DO NOT INVEST IN "HIGH-
YIELD" OR "JUNK" BONDS.) Sectors that we currently favor include finance,
banking and brokerage. We are currently underweighted in the utility sector.
Asset-backed securities in the Fund are all rated Aaa/AAA by Moody's or Standard
& Poor's. They represent the highest credit quality of non-U.S. Government
investments available. OVER HALF OF THE FUND, (52%), IS INVESTED IN OBLIGATIONS
RATED AAA/AAA OR HIGHER.
FOREIGN EXPOSURE RISK
THE FUND DOES NOT INVEST IN SECURITIES DENOMINATED IN FOREIGN CURRENCIES. AS
SUCH, IT HAS NO DIRECT EXPOSURE TO FOREIGN CURRENCY FLUCTUATIONS. The Fund does,
however, invest in Yankee securities. Yankees are obligations of foreign
entities denominated in U.S. dollars. Yankee investments total 9% of the Fund
and include credits of: British Telecommunications, Ford Capital BV (guaranteed
by Ford Motor Company), Hydro-Quebec, Korea Development Bank and Korea Electric
Power, Midland Bank, National Bank of Hungary, Newfoundland, Norsk Hydro, Pohang
Iron & Steel, Quebec, Kingdom of Sweden, and Wharf International. Currently,
Yankee bond obligations are the fastest growing sector of the U.S. domestic
corporate bond market. Investing in Yankee issues has enabled us to capitalize
on opportunities in foreign bonds without exposing our investors to currency
risk. With recent market turmoil originating in the Pacific Rim countries,
spreads on some of the Fund's Yankee issues have widened. This has resulted in
negative relative performance on these securities. AT CURRENT YIELD LEVELS, WE
FEEL THE FUND'S YANKEE BONDS REPRESENT EXCEPTIONAL VALUE. We anticipate that
they will outperform similarly rated investments in the coming year. See page 30
for a complete listing of portfolio holdings.
CONSISTENCY IS THE HALLMARK OF OUR APPROACH
Since Portico Bond IMMDEX/TM Fund's inception on 12/29/89, we have adhered to
the same, disciplined management approach. The past seven-plus 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. Bond IMMDEX/TM's returns have been
comparable to the 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. We look forward to continuing to serve you as
Portico Fund shareowners.
PORTFOLIO MANAGER PROFILE
- ------------------------------------------------------------------------------
MARY ELLEN STANEK, CFA, President of Firstar Investment Research &Management
Company, LLC (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
18 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 BAfrom Marquette University in 1978 and her MBA from the University of
Wisconsin-Milwaukee in 1984. Teresa has been with Firstar since 1987 and has ten
years of investment management experience. Teresa received her BAfrom Augustana
College in 1985 and her MBA from the University of Chicago in 1991. Mary Ellen
and Teresa are both Chartered Financial Analysts.
<PHOTO> <PHOTO>
MARY ELLEN STANEK, CFA TERESA R. WESTMAN, CFA
<TABLE>
<CAPTION>
12/29/89 10/90 10/91 10/92 10/93 10/94 10/95 10/96 10/97
-------- ------ ------ ------ ------ ----- ----- ----- -----
<S> <C> <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 19,428
LEHMAN GOV'T./CORP.
BOND INDEX 10,000 10,440 12,045 13,312 15,126 14,424 16,755 17,658 19,214
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.
AVERAGE ANNUAL RATE OF RETURN (%)
FOR PERIODS ENDED OCTOBER 31, 1997
Since Inception
1 Year 3 Years 5 Years 12/29/89
------ ------- ------- --------
PORTICO BOND IMMDEX/TM
FUND 8.9 10.1 7.8 8.8
LEHMAN BROTHERS GOV'T./CORP.
BOND INDEX* 8.8 10.0 7.6 8.7
* 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 under lying universe of securities that comprise the index. Securities
included in the index must meet the following critieria: fixed as opposed to
variable rate; not less than one year to maturity; minimum outstanding 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
10/31/97
- -----------------------------------
U.S. TREASURY 29%
U.S. GOVERNMENT AGENCY 7%
MORTGAGE-BACKED 1%
FINANCE, BANKING, BROKERAGE 26%
INDUSTRIAL 11%
UTILITY 2%
INTERNATIONAL/YANKEE 9%
ASSET-BACKED 13%
CASH 2%
TOTAL 100%
PORTFOLIO COMPOSITION
10/31/97
- -----------------------------------
AVERAGE MATURITY 10.3 YEARS
AVERAGE DURATION 5.2 YEARS
QUALITY DISTRIBUTION
10/31/97
- -----------------------------------
U.S. TREASURY 29%
U.S. GOVERNMENT AGENCY 7%
Aaa 16%
Aa 3%
A 31%
Baa 14%
TOTAL 100%
SEC 30-DAY YIELD
- -----------------------------------
6.24%
TOTAL FUND NET ASSETS
10/31/97
- -----------------------------------
$472,161,798
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
OCTOBER 31, 1997
<CAPTION>
SHORT-TERM INTERMEDIATE TAX-EXEMPT BOND
BOND MARKET BOND MARKET INTERMEDIATE IMMDEX/TM
FUND FUND BOND FUND FUND
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value
(cost $201,429, $266,899,
$70,894 and $447,268,
respectively) $202,564 $271,732 $72,209 $467,886
Interest receivable 2,433 3,988 1,221 7,540
Capital shares sold 1,123 377 24 505
Receivable for securities sold -- -- -- 496
Other assets 12 11 14 20
-------- -------- ------- --------
Total Assets 206,132 276,108 73,468 476,447
-------- -------- ------- --------
LIABILITIES:
Payable for securities purchased 3,138 -- 1,935 2,980
Capital shares redeemed 1,161 621 40 1,045
Payable to affiliates 153 162 57 237
Accrued expenses and other liabilities 29 113 29 23
-------- -------- ------- --------
Total Liabilities 4,481 896 2,061 4,285
-------- -------- ------- --------
NET ASSETS $201,651 $275,212 $71,407 $472,162
======== ======== ======= ========
NET ASSETS CONSIST OF:
Capital stock $203,087 $271,103 $70,130 $452,083
Undistributed net investment income 62 96 13 158
Undistributed accumulated net realized
(losses) (2,633) (820) (51) (697)
Unrealized net appreciation (depreciation)
on investments 1,135 4,833 1,315 20,618
-------- -------- ------- --------
Total Net Assets $201,651 $275,212 $71,407 $472,162
======== ======== ======= ========
SERIES A:
Net assets $ 65,567 $20,691 $19,199 $64,144
Shares authorized ($.0001 par value) 500,000 500,000 500,000 500,000
Shares issued and outstanding 6,383 2,007 1,854 2,278
Net asset value and redemption price
per share <F1> $10.27 $10.31 $10.35 $28.16
====== ====== ====== ======
Maximum offering price per share <F1> $10.48 $10.52 $10.56 $28.73
====== ====== ====== ======
SERIES INSTITUTIONAL:
Net assets $136,084 $254,521 $52,208 $408,018
Shares authorized ($.0001 par value) 500,000 500,000 500,000 500,000
Shares issued and outstanding 13,248 24,686 5,042 14,487
Net asset value, redemption price
and offering price per share <F1> $10.27 $10.31 $10.36 $28.16
====== ====== ====== ======
<FN>
<F1> Amounts may not recalculate due to rounding.
</TABLE>
See notes to the financial statements.
<TABLE>
STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS)
YEAR ENDED OCTOBER 31, 1997
<CAPTION>
SHORT-TERM INTERMEDIATE TAX-EXEMPT BOND
BOND MARKET BOND MARKET INTERMEDIATE IMMDEX/TM
FUND FUND BOND FUND FUND
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $13,889 $14,551 $2,782 $29,161
EXPENSES:
Investment advisory fees 1,275 1,124 286 1,295
Administration fees 236 251 64 480
Shareowner servicing and accounting costs 168 134 78 175
Service organization fees - Series A 155 48 36 130
Custody fees 42 42 14 84
Federal and state registration fees 26 47 17 29
Professional fees 21 21 24 22
Reports to shareowners 39 10 12 28
Amortization of organization costs -- 2 2 --
Directors' fees and expenses 5 5 5 9
Other 5 5 2 9
------- ------- ------- ------
Total expenses before waiver 1,972 1,689 540 2,261
Less: Waiver of expenses (755) (517) (218) (318)
------- ------- ------- ------
Net expenses 1,217 1,172 322 1,943
------- ------- ------- ------
NET INVESTMENT INCOME 12,672 13,379 2,460 27,218
------- ------- ------- ------
REALIZED AND UNREALIZED Gain (LOSS):
Net realized gain (loss)on
investment transactions (1,101) 242 48 447
Change in unrealized appreciation
(depreciation) on investments 1,426 3,016 805 9,973
------- ------- ------- ------
Net gain on investments 325 3,258 853 10,420
------- ------- ------- ------
NET INCREASEIN NET ASSETS
RESULTING FROM OPERATIONS $12,997 $16,637 $3,313 $37,638
======= ======= ====== =======
</TABLE>
See notes to the financial statements.
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(AMOUNTS IN THOUSANDS)
<CAPTION>
SHORT-TERM INTERMEDIATE TAX-EXEMPT BOND
BOND MARKET BOND MARKET INTERMEDIATE IMMDEX/TM
FUND FUND BOND FUND FUND
----------- ------------ ---------- ----------
Year Ended Year Ended Year Ended Year Ended
October 31, October 31, October 31, October 31,
----------- ------------ ---------- ----------
1997 1996 1997 1996 1997 1996 1997 1996
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 12,672 $ 10,830 $13,379 $ 9,912 $ 2,460 $ 1,668 $ 27,218 $ 22,285
Net realized gain (loss) on investments (1,101) 92 242 773 48 43 447 (167)
Change in unrealized appreciation
(depreciation) on investments 1,426 (1,102) 3,016 (1,245) 805 (88) 9,973 (2,584)
------- ------- ------- ------- ------- ------- ------- ------
Net increase in net assets
resulting from operations 12,997 9,820 16,637 9,440 3,313 1,623 37,638 19,534
------- ------- ------- ------- ------- ------- ------- -------
CAPITAL SHARE TRANSACTIONS:
Shares sold 71,621 103,118 116,096 84,747 35,199 24,183 130,202 142,933
Shares issued to owners in
reinvestment of dividends 10,918 9,114 8,255 6,299 993 738 23,217 19,366
Shares redeemed (87,494) (47,577) (43,261) (40,206) (12,976)(12,833) (104,870) (58,472)
------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease) in net
assets resulting from capital
share transactions (4,955) 64,655 81,090 50,840 23,216 12,088 48,549 103,827
------- ------- ------- ------- ------- ------- ------- -------
DISTRIBUTIONS TO SERIES A
SHAREOWNERS:
From net investment income <F1> (3,625) (3,056) (1,090) (816) (589) (371) (3,214) (1,987)
------- ------- ------- ------- ------- ------- ------- -------
DISTRIBUTIONS TO SERIES
INSTITUTIONAL SHAREOWNERS:
From net investment income <F1> (9,075) (7,799) (12,285) (9,121) (1,875) (1,304) (24,038) (20,296)
------- ------- ------- ------- ------- ------- ------- -------
TOTAL INCREASE (DECREASE)IN NET ASSETS (4,658) 63,620 84,352 50,343 24,065 12,036 58,935 101,078
NET ASSETS:
Beginning of year 206,309 142,689 190,860 140,517 47,342 35,306 413,227 312,149
------- ------- ------- ------- ------- ------- ------- -------
End of year (including undistributed
net investment income of $62, $92,
$96, $89, $13, $15, $158 and
$197, respectively) $201,651 $206,309 $275,212 $190,860 $71,407 $47,342 $472,162 $413,227
======== ======== ======== ======== ======= ======= ======== ========
<FN>
<F1> For the Tax-Exempt Intermediate Bond Fund, substantially all distributions from net investment income are exempt from federal
income tax.
</TABLE>
See notes to the financial statements.
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
SHORT-TERM BOND MARKET FUND
-----------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended
October 31, 1997 October 31, 1996 October 31, 1995<F2> October 31,
-------------------- ----------------- ------------------- -------------------
Series Series Series
Per Share Data: Series A Inst'l. Series A Inst'l. Series A Inst'l. 1994 1993
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $10.25 $10.25 $10.28 $10.28 $10.03 $10.03 $10.56 $10.60
Income from investment operations:
Net investment income <F3> 0.60 0.62 0.58(8) 0.61(8) 0.61 0.63 0.56 0.58
Net realized and unrealized
gains (losses) on securities 0.02 0.02 (0.03) (0.03) 0.24 0.24 (0.41) 0.10
------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.62 0.64 0.55 0.58 0.85 0.87 0.15 0.68
------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income (0.60) (0.62) (0.58) (0.61) (0.60) (0.62) (0.56) (0.58)
Distributions from capital gains -- -- -- -- -- -- (0.12) (0.14)
------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.60) (0.62) (0.58) (0.61) (0.60) (0.62) (0.68) (0.72)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $10.27 $10.27 $10.25 $10.25 $10.28 $10.28 $10.03 $10.56
====== ====== ====== ====== ====== ====== ====== ======
Total return <F4><F5> 6.21% 6.47% 5.54% 5.80% 8.74% 8.95% 1.46% 6.70%
Supplemental data and ratios:
Net assets, in thousands,
end of period $65,567 $136,084 $58,843 $147,466 $47,730 $94,959 $122,368 $142,518
Ratio of net expenses
to average net assets <F6> 0.75% 0.50% 0.75% 0.50% 0.69% 0.50% 0.50% 0.52%
Ratio of net investment income
to average net assets <F6> 5.79% 6.04% 5.67% 5.92% 6.04% 6.23% 5.43% 5.53%
Portfolio turnover rate <F7> 77.12% 77.12% 59.62% 59.62% 100.58% 100.58% 76.13% 87.62%
<FN>
<F1> Commencement of operations.
<F2>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.
<F3> For the Tax-Exempt Intermediate Bond Fund, substantially all investment income is exempt from Federal income tax.
<F4> Not annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F5> The total return calculation does not reflect the 2% front end sales charge for Series A.
<F6> Annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F7> Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
<F8> Net investment income per share is calculated using ending balances prior to consideration of adjustments for permanent book
and tax differences.
</TABLE>
See notes to the financial statements.
<TABLE>
FINANCIAL HIGHLIGHTS
INTERMEDIATE BOND MARKET FUND
<CAPTION>
INTERMEDIATE BOND MARKET FUND
---------------------------------------------------------------------------------------------
Year ended Year ended Year ended Jan. 5,
October 31, 1997 October 31, 1996 October 31, 1995<F2> 1993<F1>
-------------------- ----------------- ------------------- Year ended through
Series Series Series Oct. 31, Oct. 31
Per Share Data: Series A Inst'l. Series A Inst'l. Series A Inst'l. 1994 1993
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value,
beginning of period $10.19 $10.19 $10.21 $10.21 $9.67 $9.67 $10.45 $10.00
Income from investment operations:
Net investment income <F3> 0.58 0.60 0.56<F8> 0.59<F8> 0.60 0.62 0.51 0.40
Net realized and unrealized
gains (losses) on securities 0.12 0.12 (0.02) (0.02) 0.53 0.53 (0.69) 0.45
------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.70 0.72 0.54 0.57 1.13 1.15 (0.18) 0.85
------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income (0.58) (0.60) (0.56) (0.59) (0.59) (0.61) (0.51) (0.40)
Distributions from capital gains -- -- -- -- -- -- (0.09) --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.58) (0.60) (0.56) (0.59) (0.59) (0.61) (0.60) (0.40)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $10.31 $10.31 $10.19 $10.19 $10.21 $10.21 $9.67 $10.45
====== ====== ====== ====== ====== ====== ====== ======
Total return <F4><F5> 7.09% 7.36% 5.51% 5.77% 12.04% 12.25% (1.73)% 8.58%
Supplemental data and ratios:
Net assets, in thousands,
end of period $20,691 $254,521 $17,392 $173,468 $11,576 $128,941 $88,306 $56,794
Ratio of net expenses
to average net assets <F6> 0.75% 0.50% 0.75% 0.50% 0.69% 0.50% 0.50% 0.50%
Ratio of net investment income
to average net assets <F6> 5.71% 5.96% 5.59% 5.84% 6.07% 6.26% 5.19% 4.65%
Portfolio turnover rate <F7> 40.61% 40.61% 59.29% 59.29% 66.69% 66.69% 56.25% 82.37%
<FN>
<F1> Commencement of operations.
<F2> 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.
<F3> For the Tax-Exempt Intermediate Bond Fund, substantially all investment income is exempt from Federal income tax.
<F4> Not annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F5> The total return calculation does not reflect the 2% front end sales charge for Series A.
<F6> Annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F7> Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
<F8> Net investment income per share is calculated using ending balances prior to consideration of adjustments for permanent book
and tax differences.
</TABLE>
See notes to the financial statements.
<TABLE>
FINANCIAL HIGHLIGHTS
TAX-EXEMPT INTERMEDIATE BOND MARKET FUND
<CAPTION>
TAX-EXEMPT INTERMEDIATE BOND MARKET FUND
---------------------------------------------------------------------------------------------
Year ended Year ended Year ended Feb. 8,
October 31, 1997 October 31, 1996 October 31, 1995<F2> 1993<F1>
-------------------- ----------------- ------------------- Year ended through
Series Series Series Oct. 31, Oct. 31
Per Share Data: Series A Inst'l. Series A Inst'l. Series A Inst'l. 1994 1993
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value,
beginning of period $10.21 $10.21 $10.23 $10.24 $9.78 $9.78 $10.26 $10.00
Income from investment operations:
Net investment income <F3> 0.42 0.44 0.40<F8> 0.43<F8> 0.42 0.44 0.41 0.27
Net realized and unrealized
gains (losses) on securities 0.14 0.15 (0.01) (0.03) 0.45 0.46 (0.48) 0.26
------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.56 0.59 0.39 0.40 0.87 0.90 (0.07) 0.53
------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income (0.42) (0.44) (0.41) (0.43) (0.42) (0.44) (0.41) (0.27)
Distributions from capital gains -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.42) (0.44) (0.41) (0.43) (0.42) (0.44) (0.41) (0.27)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $10.35 $10.36 $10.21 $10.21 $10.23 $10.24 $9.78 $10.26
====== ====== ====== ====== ====== ====== ===== ======
Total return <F4><F5> 5.60% 5.96% 3.87% 4.02% 9.07% 9.38% (0.73)% 5.36%
Supplemental data and ratios:
Net assets, in thousands,
end of period $19,199 $52,208 $10,690 $36,652 $7,711 $27,595 $26,167 $23,866
Ratio of net expenses
to average net assets <F6> 0.75% 0.50% 0.75% 0.50% 0.71% 0.51% 0.60% 0.59%
Ratio of net investment income
to average net assets <F6> 4.11% 4.36% 3.99% 4.24% 4.25% 4.45% 4.04% 3.75%
Portfolio turnover rate <F7> 11.22% 11.22% 30.46% 30.46% 44.13% 44.13% 58.54% 3.23%
<FN>
<F1> Commencement of operations.
<F2> 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.
<F3> For the Tax-Exempt Intermediate Bond Fund, substantially all investment income is exempt from Federal income tax.
<F4> Not annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F5> The total return calculation does not reflect the 2% front end sales charge for Series A.
<F6> Annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F7> Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
<F8> Net investment income per share is calculated using ending balances prior to consideration of adjustments for permanent book
and tax differences.
</TABLE>
See notes to the financial statements.
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
BOND IMMDEX/TM FUND
------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended
October 31, 1997 October 31, 1996 October 31, 1995<F2> October 31,
-------------------- ----------------- ------------------- -------------------
Series Series Series
Per Share Data: Series A Inst'l. Series A Inst'l. Series A Inst'l. 1994 1993
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value,
beginning of period $27.54 $27.55 $27.82 $27.82 $25.67 $25.67 $28.91 $27.31
Income from investment operations:
Net investment income <F3> 1.66 1.75 1.61<F8> 1.70<F8> 1.68 1.74 1.65 1.68
Net realized and unrealized
gains (losses) on securities 0.64 0.61 (0.26) (0.27) 2.30 2.29 (2.74) 1.83
------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 2.30 2.36 1.35 1.43 3.98 4.03 (1.09) 3.51
------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income (1.68) (1.75) (1.63) (1.70) (1.79) (1.84) (1.65) (1.70)
Distributions from capital gains -- -- -- -- (0.04) (0.04) (0.50) (0.21)
------ ------ ------ ------ ------ ------ ------ ------
Total distributions (1.68) (1.75) (1.63) (1.70) (1.83) (1.88) (2.15) (1.91)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $28.16 $28.16 $27.54 $27.55 $27.82 $27.82 $25.67 $28.91
====== ====== ====== ====== ====== ====== ====== ======
Total return <F4><F5> 8.68% 8.90% 5.06% 5.35% 16.05% 16.26% (3.89)% 13.30%
Supplemental data and ratios:
Net assets, in thousands,
end of period $64,144 $408,018 $42,671 $370,556 $21,875 $290,274 $256,778 $260,468
Ratio of net expenses
to average net assets <F6> 0.67% 0.42% 0.68% 0.43% 0.64% 0.44% 0.48% 0.50%
Ratio of net investment income
to average net assets <F6> 6.08% 6.33% 5.98% 6.23% 6.31% 6.51% 6.14% 6.10%
Portfolio turnover rate <F7> 35.12% 35.12% 33.38% 33.38% 41.67% 41.67% 49.70% 81.18%
<FN>
<F1> Commencement of operations.
<F2> 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.
<F3> For the Tax-Exempt Intermediate Bond Fund, substantially all investment income is exempt from Federal income tax.
<F4> Not annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F5> The total return calculation does not reflect the 2% front end sales charge for Series A.
<F6> Annualized for the period ended October 31, 1993, for the Intermediate Bond Market and Tax-Exempt Intermediate Bond Funds.
<F7> Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares
issued.
<F8> Net investment income per share is calculated using ending balances prior to consideration of adjustments for permanent book
and tax differences.
</TABLE>
See notes to the financial statements.
SHORT-TERM BOND MARKET FUND
SCHEDULE OF INVESTMENTS
October 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
- -------------- -------------
LONG-TERM INVESTMENTS 98.6%
ASSET-BACKED SECURITIES 28.1%
AUTO LOAN RECEIVABLES 0.7%
General Motors Acceptance Corp. Grantor,
$1,237 Series 1991-A1, Class A, 8.17%, 1/02/00 $ 1,259
USAA Auto Loan Grantor Trust,
96 Series 1994-1, Class A, 5.00%, 11/15/99 96
-------
1,355
-------
CREDIT CARD RECEIVABLES 20.6%
Banc One Credit Card Master Trust:
1,500 Series 1995-B, Class A, 6.30%, 9/15/00 1,516
6,500 Series 1994-C, Class A, 7.80%, 12/15/00 6,632
1,250 Series 1995-A, Class A, 6.15%, 7/15/02 1,259
Chase Manhattan Grantor Trust:
849 Series 1995-B, Class A, 5.90%, 9/15/99 850
3,600 Series 1996-4, Class A, 6.73%, 2/15/02 3,649
Chemical Master Credit Card Trust I,
3,000 Series 1995-2, Class A, 6.23%, 6/15/03 3,027
Citibank Credit Card Master Trust I, Principal Only,
5,000 Series 1996-1, Class A, 0.00%, 2/07/01 4,123
Discover Card Master Trust I,
2,000 Series 1993-B, Class A, 6.75%, 2/15/00 2,030
First Chicago Master Trust II,
3,500 Series 1994-L,Class A, 7.15%, 4/15/01 3,571
Household Affinity Credit Card Master Trust I,
1,550 Series 1993-2, Class A, 5.60%, 11/15/00 1,540
NationsBank Credit Card Master Trust,
3,938 Series 1995-1, Class A, 6.45%, 8/15/00 3,996
Sears Credit Account Master Trust,
5,050 Series 1994-1, Class A, 7.00%, 8/15/00 5,151
Spiegel Credit Card Master Trust:
2,000 Series 1994-B, Class A, 8.15%, 6/15/04 2,088
2,000 Series 1995-A, Class A, 7.50%, 9/15/04 2,069
-------
41,501
-------
HOME EQUITY LOAN RECEIVABLES 6.8%
Advanta Home Equity Loan Trust,
2,544 Series 1993-2, Class A2, 6.15%, 10/25/09 2,533
EQCC Home Equity Loan Trust,
306 Series 1994-3, Class A2, 7.44%, 8/15/05 306
GE Home Equity Loan Asset-Backed Certificates:
315 Series 1991-1, Class A, 7.20%, 8/30/11 317
2,500 Series 1991-1, Class B, 8.70%, 9/15/11 2,619
Household Finance Corp:
498 Series 1992-2, Class A3, 5.25%, 10/20/07 498
2,164 Series 1992-2, Class A, 6.65%, 11/20/12 2,171
Security Pacific Home Equity Loan:
1,336 Series 1991-1, Class B, 8.85%, 5/15/98 1,356
2,181 Series 1991-2, Class B, 8.15%, 6/15/20 2,201
UCFC Home Equity Loan,
1,667 Series 1995-A2, Class A7, 8.30%, 2/10/26 1,749
-------
13,750
-------
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- -------------
CORPORATE BONDS 21.7%
Bear Stearns Company Senior Notes:
$1,000 6.75%, 8/15/00 $ 1,015
500 9.375%, 6/01/01 549
Big Rivers Electric Corporation Coop Utility
1,500 Trust Certificates, 9.50%, 2/15/17 1,587
BP America, Inc. Guaranteed Debentures,
2,000 10.00%, 7/01/18 2,141
Chase Manhattan Corp. Subordinated Notes:
1,487 10.375%, 3/15/99 1,570
700 10.00%, 6/15/99 742
Consumers Energy Company,
2,400 7.50%, 6/01/02 2,437
Continental Bank Subordinated Notes,
1,840 11.25%, 7/01/01 1,890
Deseret Generation & Transmission Coop Debentures,
1,000 10.11%, 12/15/17 1,055
Jack Eckerd Corporation Senior Subordinated Notes,
1,153 9.25%, 02/15/04 1,234
Ford Motor Credit Co., Notes:
630 8.875%, 6/15/99 658
750 8.375%, 1/15/00 786
General Motors Acceptance Corp. Notes,
922 9.625%, 5/15/00 997
Heller Financial, Inc. Notes,
2,790 8.00%, 12/15/98 2,847
Lehman Brothers Holdings, Inc. Debentures,
1,000 9.875%, 10/15/00 1,083
Lehman Brothers Holdings, Inc. Notes:
3,000 8.875%, 2/15/00 3,168
2,386 7.625%, 7/15/99 2,443
1,100 6.65%, 11/08/99 1,111
Lehman Brothers, Inc. Senior Subordinated Notes:
750 7.625%, 8/01/98 759
2,544 10.00%, 5/15/99 2,686
Mississippi Power & Light Notes,
1,000 8.80%, 4/01/05 1,009
Paine Webber Group, Inc. Medium Term Notes:
1,000 5.83%, 2/02/99 997
1,000 6.31%, 7/22/99 1,003
Salomon, Inc. Medium Term Notes,
1,500 10.125%, 6/01/99 1,591
Salomon, Inc. Senior Notes:
206 7.25%, 1/15/00 211
800 7.75%, 5/15/00 829
Security Pacific Corporation Subordinate Notes,
1,008 11.50%, 11/15/00 1,146
Smith Barney Holdings, Inc. Notes,
3,150 5.625%, 11/15/98 3,138
USF&G Corporation Senior Notes,
3,075 7.00%, 5/15/98 3,091
-------
43,773
-------
See notes to the financial statements.
SHORT-TERM BOND MARKET FUND
SCHEDULE OF INVESTMENTS
October 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
------------- -------------
MORTGAGE-BACKED SECURITIES 11.5%
Citicorp Mortgage Securities, Inc.,
Real Estate Mortgage Investment Conduit (REMIC),
$ 1 Series 1991-7, Class M, 8.75%, 5/25/21 $ 1
Collateralized Mortgage Securities Corp.,
899 Series 1991-6, Class PH, 7.00%, 5/20/20 901
Green Tree Financial Corp. Pass-Thru Certificates:
1,001 Series 1992-2, Class A4, 8.15%, 1/15/18 1,046
1,000 Series 1993-3, Class A4, 5.45%, 10/15/18 996
1,000 Series 1993-3, Class A5, 5.75%, 10/15/18 989
2,385 Series 1993-4, Class A2, 5.85%, 1/15/19 2,385
2,500 Series 1994-8, Class A4, 8.50%, 4/15/25 2,638
Marine Midland, Real Estate Mortgage Investment
Conduit (REMIC), Series 1992-3, Class A12,
1,196 8.00%, 10/25/23 1,213
Merrill Lynch Mortgage Investors, Inc.:
1,275 Series 1992-B, Class A, 7.85%, 4/15/12 1,290
1,650 Series 1994-M1, Class B, 8.1029%, 6/25/22 1,702
Morgan Stanley Mortgage Trust,
1,566 Series 40, Class 6, 7.00%, 2/20/20 1,578
Prudential Bache CMO Trust,
481 Series 8, Class E, 7.965%, 3/01/18 481
Prudential Home Mortgage Securities:
755 Series 1993-24, Class A1, 5.50%, 6/25/00 751
2,319 Series 1993-24, Class A2, 5.50%, 7/25/00 2,270
Prudential Securities Financial Asset FDG Corp.,
1,150 Series 1993-4, Class A3, 6.83%, 9/25/09 1,158
Resolution Trust Corp.:
137 Series 1992-MH2, Class B, 7.95%, 2/15/04 138
31 Series 1992-MH2, Class A1, 7.00%, 2/15/19 31
Security Pacific Acceptance Corp.:
221 Series 1992-2, Class A2, 7.10%, 5/15/12 221
3,250 Series 1992-2, Class A3, 7.50%, 6/15/12 3,294
-------
23,083
-------
INTERNATIONAL/YANKEE (U.S. $ DENOMINATED) 4.3%
Ford Capital BV Notes,
638 10.125%, 11/15/00 707
Hydro-Quebec Debentures,
1,250 13.375%, 2/15/13 1,334
Quebec Province CDA Debentures,
1,000 13.25%, 9/15/14 1,162
Sumitomo Bank International Notes,
5,000 9.55%, 7/15/00 5,376
-------
8,579
-------
OTHER 1.8%
California State Water Department,
2,000 Series E, 9.875%, 12/01/24 2,222
Florida Housing Finance Agency:
415 Antigua Club-A-2, 8.625%, 8/01/01 442
405 Brittany Apartments-C-2, 8.625%, 8/01/02 436
510 Maitland Club-B-2, 8.625%, 8/01/01 543
-------
3,643
-------
Principal Market
Amount Value
(in thousands) (in thousands)
------------- --------------
U.S. GOVERNMENT AGENCY-BACKED
MORTGAGE ISSUES 14.5%
Federal Home Loan Mortgage Corporation (FHLMC)
Participation Certificates:
$ 39 7.00%, 12/01/01 $ 39
155 7.75%, 7/01/09 160
Federal Home Loan Mortgage Corporation (FHLMC)
Real Estate Mortgage Investment Conduit (REMIC):
888 Series 1243, Class K, 7.50%, 8/15/01 903
577 Series 153, Class F, 7.75%, 8/15/15 581
1,885 Series 1149, Class K, 7.50%, 7/15/20 1,906
2,365 Series 1101, Class L, 6.95%, 9/15/20 2,386
59 Series 1169, Class D, 7.00%, 5/15/21 59
1,182 Series 1286, Class E, 7.00%, 10/15/21 1,192
Federal National Mortgage Association (FNMA)
Real Estate Mortgage Investment Conduit (REMIC):
1,913 Series X-19A, Class A, 6.50%, 10/25/00 1,922
2,000 Series 1993-G06, Class K, 7.00%, 11/25/01 2,022
1,479 Series 1991-63, Class G, 6.95%, 5/25/06 1,494
1,000 Series 1993-86, Class E, 6.00%, 1/25/07 1,000
1,377 Series 1992-93, Class G, 7.50%, 6/25/07 1,394
63 Series 1989-75, Principal Only, Class C,
0.00%, 9/25/18 62
211 Series 1992-138, Class C, 6.00%, 12/25/18 211
2,000 Series G92-11, Class HB, 7.00%, 11/25/19 2,015
990 Series G92-35, Class C, 7.50%, 7/25/20 1,005
1,078 Series 1991-154, Class PH, 7.50%, 9/25/20 1,090
4,692 Series 1991-82, Class PL, 7.00%, 12/15/20 4,727
4,000 Series G92-53, Class H, 7.00%, 7/25/21 4,030
U.S. Department of Veterans Affairs Mortgage Trust
1,000 (REMIC), Series 1992-1, Class J, 7.75%, 2/15/01 1,015
-------
29,213
-------
U.S. TREASURY OBLIGATIONS 16.7%
U.S. Treasury Notes:
4,900 6.875%, 3/31/00 5,030
6,100 5.50%, 4/15/00 6,077
22,000 6.625%, 7/31/01 22,638
-------
33,745
-------
Total Long-Term Investments (Cost $197,507) 198,642
-------
Number
of Shares
(in thousands)
-------------
SHORT-TERM INVESTMENTS 1.9%
INVESTMENT COMPANIES 1.9%
1 Financial Square Prime Obligation Fund 1
3,921 Short-Term Investments Co. Liquid Assets Portfolio 3,921
-------
Total Short-Term Investments (Cost $3,922) 3,922
-------
Total Investments (Cost $201,429) 100.5% 202,564
-------
Liabilities, less Other Assets (0.5)% (913)
-------
TOTAL NET ASSETS 100.0% $201,651
========
See notes to the financial statements.
INTERMEDIATE BOND MARKET FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
-------------- --------------
LONG-TERM INVESTMENTS 94.1%
ASSET-BACKED SECURITIES 19.8%
AUTO LOAN RECEIVABLES 1.0%
General Motors Acceptance Corp. Grantor,
$ 547 Series 1995-A, Class A, 7.15%, 3/15/00 $ 549
Keycorp Auto Grantor Trust,
828 Series 1995-A, Class A, 5.80%, 7/15/00 828
Premier Auto Trust:
996 Series 1993-5, Class A2, 4.22%, 3/02/99 988
323 Series 1994-1, Class A3, 4.75%, 2/02/00 321
131 Series 1994-2, Class A4, 6.00%, 5/02/00 131
-------
2,817
-------
CREDIT CARD RECEIVABLES 17.1%
AT&T Universal Card MasterTrust,
3,000 Series 1995-2, Class A, 5.95%, 10/17/00 3,005
Advanta Credit Card Master Trust,
1,000 Series 1995-F, Class A1, 6.05%, 8/01/03 1,004
American Express Master Trust,
2,000 Series 1994-2, Class A, 7.60%, 8/15/02 2,099
Banc One Credit Card Master Trust:
7,375 Series 1995-B, Class A, 6.30%, 9/15/00 7,455
1,000 Series 1995-A, Class A, 6.15%, 7/15/02 1,007
Citibank Credit Card Master Trust, Principal Only,
11,900 Series 1996-1, 0.00%, 2/07/01 9,812
Discover Card Master Trust I,
500 Series 1993-3, Class A, 6.20%, 5/16/06 501
First Chicago Master Trust II,
4,075 Series 1994-L, Class A, 7.15%, 2/15/00 4,158
HFC Private Label Credit Card Master Trust II,
2,000 Series 1994-2, Class A, 7.80%, 9/20/03 2,038
Household Affinity Credit Card Master Trust I,
3,300 Series 1993-2, Class A, 5.60%, 11/15/00 3,279
MBNA Master Credit Card Trust,
745 Series 1995-F, Class A, 6.60%, 8/15/00 759
NationsBank Credit Card Master Trust,
2,500 Series 1995-1, Class A, 6.45%, 8/15/00 2,537
Sears Credit Account Master Trust
5,900 Series 1994-1, Class A, 7.00%, 8/15/00 6,018
2,400 Series 1995-3, Class A, 7.00%, 10/15/04 2,464
Speigel Credit Card Master Trust,
950 Series 1994-B, Class A, 8.15%, 6/15/04 992
-------
47,128
-------
HOME EQUITY LOAN RECEIVABLES 1.7%
EQCC Home Equity Loan Trust,
1,200 Series 1994-4, 8.68%, 10/15/08 1,268
Security Pacific Acceptance Corp.,
686 Series 1991-2, Class B, 8.55%, 9/15/11 698
Security Pacific Home Equity Loan
882 Series 1991-1, 8.85%, 5/15/98 895
1,853 Series 1991-2, 8.15%, 6/15/20 1,870
-------
4,731
-------
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
CORPORATE BONDS 28.5%
American General Finance Corp. Debentures,
$ 650 9.625%, 7/15/00 $ 706
American General Finance Corp. Notes,
1,000 8.00%, 2/15/00 1,040
BankAmerica Corporation Subordinated Notes,
465 9.75%, 7/01/00 506
2,000 10.00%, 2/01/03 2,315
Bankers Trust - NY, Subordinated Debentures,
1,000 9.50%, 6/14/00 1,081
Bear Stearns Company Senior Notes:
1,312 6.75%, 8/15/00 1,332
2,000 9.375%, 6/01/01 2,197
Caterpillar, Inc. Sinking Fund Debentures,
2,112 9.75%, 6/01/19 2,291
Chase Manhattan Corp. Debentures,
1,015 10.00%, 6/15/99 1,077
Chrysler Financial Corp. Debentures:
750 13.25%, 10/15/99 848
700 12.75%, 11/01/99 787
Commonwealth Edison First Mortgage,
850 9.75%, 2/15/20 948
Consolidated Edison Co. Debentures,
100 7.60%, 1/15/00 103
Continental Bank N.A. Subordinated Notes,
2,875 12.50%, 4/01/01 3,401
Continental Cablevision, Inc. Debentures:
1,050 8.875%, 9/15/05 1,167
2,975 9.50%, 8/01/13 3,477
Deseret Generation & Transmission Coop Debentures,
745 9.375%, 1/02/11 776
Jack Eckerd Corporation Senior Subordinated Notes,
2,449 9.25%, 2/15/04 2,620
Federal Express Corporation Notes,
1,500 9.65%, 6/15/12 1,917
Federal Express Sinking Fund Pass-Thru Certificates,
1,000 7.89%, 9/23/08 1,063
First Chicago Corp. Subordinated Notes,
236 11.25%, 2/20/01 271
First National Bank of Omaha Subordinated Notes,
1,600 7.32%, 12/01/10 1,648
First USA Bank Senior Notes,
1,000 5.85%, 2/22/01 992
Fleet Mortgage Group Notes,
2,405 6.50%, 6/15/00 2,427
Ford Motor Company Debentures,
850 9.50%, 9/15/11 1,068
Ford Motor Credit Co. Debentures,
1,097 9.50%, 4/15/00 1,180
Ford Motor Credit Co. Notes,
375 6.375%, 4/15/00 378
General Motors Acceptance Corp. Debentures,
1,602 8.625%, 6/15/99 1,666
See notes to the financial statements.
INTERMEDIATE BOND MARKET FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
------------- -------------
CORPORATE BONDS 28.5% (CONT.)
General Motors Acceptance Corp. Notes
$1,050 8.00%, 10/01/99 $ 1,079
2,097 9.375%, 4/01/00 2,249
General Motors Corp. Debentures,
1,355 9.625%, 12/01/00 1,486
Georgia Pacific Corp. Debentures,
1,150 9.50%, 12/01/11 1,433
775 9.50%, 5/15/22 884
Goldman Sachs Group Notes,
5,000 6.25%, 2/01/03 (Acquired 2/01/96; Cost $4,988)* 4,931
Heller Financial, Inc. Notes,
1,300 9.375%, 3/15/98 1,316
Household Finance Corp. Senior Subordinated Notes,
2,468 9.55%, 4/01/00 2,657
Household Finance Corp. Subordinated Notes,
1,445 9.625%, 7/15/00 1,570
International Lease Finance Corp. Medium Term Notes,
500 8.25%, 10/19/98 511
Lehman Brothers Holdings, Inc. Medium Term Notes,
1,750 8.875%, 2/15/00 1,848
Lehman Brothers Holdings, Inc. Notes:
2,000 6.90%, 7/15/99 2,024
1,500 6.65%, 11/08/99 1,514
400 8.875%, 3/01/02 435
Lehman Brothers, Inc. Senior Subordinated Notes,
2,280 10.00%, 5/15/99 2,407
NCNB Corp. Subordinated Notes,
2,055 10.20%, 7/15/15 2,706
News America Holdings Debentures,
750 10.125%, 10/15/12 874
Paine Webber Group, Inc. Medium Term Notes,
1,000 7.70%, 2/11/00 1,031
J.C. Penney Company, Inc. Debentures,
1,950 9.75%, 6/15/21 2,178
SCE Capital Corp. Notes,
1,000 7.375%, 12/15/03 1,030
Salomon, Inc. Medium Term Notes,
1,300 10.125%, 6/01/99 1,379
Salomon, Inc. Senior Notes:
1,450 7.75%, 5/15/00 1,503
150 6.75%, 2/15/03 152
The Charles Schwab Corp. Medium Term Notes,
650 6.06%, 10/02/00 647
Smith Barney Holdings, Inc. Notes,
1,400 6.625%, 6/01/00 1,416
-------
78,542
-------
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
MORTGAGE-BACKED SECURITIES 2.1%
Green Tree Financial Corp. Pass-Thru Certificates,
$ 350 Series 1993-4, Class A3, 6.25%, 1/15/19 $ 352
MDC Asset Investors Trust,
Real Estate Mortgage Investment Conduit (REMIC),
1,021 Series VIII, Class 8, 7.75%, 9/25/17 1,052
Merrill Lynch Mortgage Investors, Inc. Notes,
124 8.375%, 2/09/00 130
Salomon Brothers Mortgage Securities,
1,567 Series 1986-1, Class A, 6.00%, 12/25/11 1,546
Westam Mortgage Financial Corporation,
2,500 Series 11, Class A, 6.36%, 8/26/20 2,563
-------
5,643
-------
INTERNATIONAL/YANKEE (U.S. $ DENOMINATED) 7.6%
Ford Capital BV Debentures,
600 9.50%, 6/01/10 740
Ford Capital BV Notes,
4,153 10.125%, 11/15/00 4,605
Hydro-Quebec Corporation Debentures,
2,250 11.75%, 2/01/12 3,245
Korea Development Bank Bonds,
1,075 7.125%, 9/17/01 1,043
Korea Electric Power Debentures:
820 7.75%, 4/01/13 772
750 6.75%, 8/01/27 691
Midland Bank PLC Subordinated Notes,
4,225 6.95%, 3/15/11 4,286
National Bank of Hungary Debentures,
1,350 8.875%, 11/01/13 1,489
Pohang Iron & Steel Notes,
875 7.125%, 7/15/04 878
Quebec Province Local Government Guarantee,
400 13.25%, 9/15/14 465
Wharf Capital International Ltd. Notes:
800 8.875%, 11/01/04 883
1,725 7.625%, 3/13/07 1,758
-------
20,855
-------
See notes to the financial statements.
INTERMEDIATE BOND MARKET FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
U.S. GOVERNMENT AGENCY-BACKED
MORTGAGE ISSUES 7.0%
Federal Home Loan Mortgage Corporation (FHLMC)
Real Estate Mortgage Investment Conduit (REMIC):
$ 208 Series 1624, Class KE, 6.00%, 10/15/02 $ 208
947 Series 1289, Class PR, 7.50%, 2/15/03 973
1,076 Series 1456, Class LA, 7.50%, 5/15/03 1,107
600 Series 1496, Class KA, 6.00%, 12/15/03 598
999 Series 8, Class VB, 7.00%, 1/25/04 1,018
300 Series 1551, Class E, 6.50%, 9/15/07 304
1,200 Series 1101, Class L, 6.95%, 9/15/20 1,211
969 Series 1167, Class E, 7.50%, 11/15/21 995
2,826 Series 1286, Class A, 6.00%, 5/15/22 2,781
Federal National Mortgage Association (FNMA)
Real Estate Mortgage Investment Conduit (REMIC):
800 Series 1993-23, Class PU, 7.50%, 1/25/00 810
500 Series 1992-73, Class L, 7.50%, 1/25/01 513
1,386 Series 1992-18, Class HB, 7.20%, 3/25/02 1,406
3,500 Series 1993-37, Class B, 7.00%, 7/25/02 3,560
941 Series 1992-103, Class L, 7.50%, 11/25/02 966
2,000 Series 1991-77, Class PH, 7.00%, 11/25/20 2,017
250 Series 1991-82, Class PL, 7.00%, 12/15/20 252
U.S. Department of Veterans Affairs Mortgage Trust
500 (REMIC), Series 1992-2, Class J, 7.00%, 3/15/01 502
-------
19,221
-------
U.S. TREASURY OBLIGATIONS 29.1%
U.S. Treasury Bonds:
29,850 10.75%, 2/15/03 36,492
1,025 11.875%, 11/15/03 1,336
10,000 13.75%, 8/15/04 14,359
5,250 10.75%, 8/15/05 6,814
U.S. Treasury Inflation-Indexed Notes,
2,639 3.375%, 1/15/07 2,603
U.S. Treasury Notes:
18,075 6.625%, 7/31/01 18,600
-------
80,204
-------
Total Long-Term Investments (Cost $254,308) 259,141
-------
Number Market
of Shares Value
(in thousands) (in thousands)
------------- ------------
SHORT-TERM INVESTMENTS 4.6%
Investment Companies 4.6%
5 Financial Square Prime Obligation Fund $ 5
12,586 Short-Term Investments Co. Liquid Assets Portfolio 12,586
-------
Total Short-Term Investments (Cost $12,591) 12,591
-------
Total Investments (Cost $266,899) 98.7% 271,732
-------
Other Assets, less Liabilities 1.3% 3,480
-------
TOTAL NET ASSETS 100.0% $275,212
========
* Unregistered security
See notes to the financial statements.
TAX-EXEMPT INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
GENERAL OBLIGATION 1.7%
Washington State:
$ 100 6.75%, 10/01/01 $ 105
1,000 6.30%, 9/01/02 1,080
-------
Total General Obligation (Cost $1,173) 1,185
-------
REVENUE BONDS 4.9%
HOUSING 2.9%
Saint Charles, Illinois, Industrial Development -
Covington Ct Project, Mandatory Put,
960 9/01/98, 5.50%, 12/01/09 974
South Dakota Housing Development Authority -
1,105 Homeownership Mortgage, 4.85%, 5/01/01 1,113
-------
2,087
-------
OTHER 1.5%
Georgia Municipal Electric Authority Power Revenue,
1,000 8.125%, 1/01/17, Crossover Refunded 1/01/98 1,026
-------
UNIVERSITY 0.5%
New England Education Student Loan Marketing
360 Corporation, 5.80%, 3/01/02 375
-------
Total Revenue Bonds (Cost $3,466) 3,488
-------
PREREFUNDED AND ESCROWED
TO MATURITY 66.5%
Alaska State Housing Finance Corporation,
1,465 6.375%, 12/01/12, Prerefunded 12/01/02 1,595
Anniston, Alabama Regional Medical Center Board Project
1,160 8.00%, 7/01/11, Escrowed to Maturity 1,492
Arizona State Municipal Funding Program,
1,500 8.75%, 8/01/07, Escrowed to Maturity 1,964
Cherokee County, Oklahoma
1,340 0.00%, 11/01/11, Escrowed to Maturity 660
Chicago, Illinois Motor Fuel Tax Revenue,
1,000 7.05%, 1/01/07, Prerefunded 1/01/01 1,101
Clark County, Nevada School District,
345 7.00%, 6/01/09, Prerefunded 6/01/01 380
Cleveland, Ohio Packaging Facilities Revenue,
1,125 8.10%, 9/15/22, Prerefunded 9/15/02 1,336
Convention Center Authority - Rhode Island Revenue,
1,000 6.65%, 5/15/12, Prerefunded 5/15/01 1,097
Danville, Indiana Community Elementary School Building
1,000 Corp., First Mortgage, 6.90%, 1/15/10,
Prerefunded 1/15/021,116
Delaware County, Pennsylvania, - Elwyn Inc. Project,
1,000 8.35%, 6/01/15, Prerefunded 6/01/00 1,121
Des Plaines, Illionois Hospital Facilities - Holy Family
Hospital Project,
560 10.75%, 1/01/14, Prerefunded 7/01/02 711
Elizabeth-Forward Pennsylvania School District,
1,000 7.25%, 1/15/10, Prerefunded 1/15/00 1,066
Principal Market
Amount Value
(in thousands) (in thousands)
------------- ------------
PREREFUNDED AND ESCROWED
TO MATURITY 66.5% (cont.)
Farmington, New Mexico Power Revenue Bonds,
$1,185 9.875%, 1/01/13, Prerefunded 7/01/05 $1,571
Fruita, Colorado, Escrowed to Maturity:
500 9.25%, 10/01/01 569
500 9.25%, 4/01/03 609
Fulco, Georgia Hospital Authority Anticipation
Certificates,
1,090 6.25%, 9/01/13, Prerefunded 9/01/02 1,202
Hodgkins, Illinois,
1,400 9.50%, 12/01/09, Prerefunded 12/01/01 1,687
Houston, Texas Arpt Sys Rev
950 8.20%, 7/01/05, Escrowed to Maturity 1,127
Illinois Educational Facilities Authority - Chicago
College Of Osteopathic Medicine, Escrowed To Maturity,
310 8.75%, 7/01/99 324
Illinois Educational Facilities Authority - Loyola
University,
3,355 7.125%, 7/01/21, Prerefunded 7/01/01 3,742
Intermountain Power Agency, Utah Supply Revenue
2,500 0.00%, 7/01/21, Prerefunded 7/01/00 257
Louisiana Public Facilities Authority Hospital Revenue
1,915 7.25%, 10/01/22, Prerefunded 10/01/02 2,194
Louisville, Kentucky Water & Sewer Revenue,
1,000 6.00%, 11/15/07, Escrowed to Maturity 1,094
Maricopa County, Arizona School District No. 1, Phoenix
1,000 Elementary, 6.60%, 7/01/03, Prerefunded 7/01/01 1,089
Metropolitan Nashville Airport,
500 7.75%, 7/01/07, Prerefunded 7/01/01 568
Metropolitan Government Nashville & Davidson
County, Tennessee Water & Sewer
6,000 0.00%, 12/01/13, Prerefunded 12/01/02 1,538
Michigan State Hospital Financial Authority,
Sisters of Mercy Health Corp.,
870 7.50%, 2/15/18, Prerefunded 2/15/01 972
Milwaukee County, Wisconsin
1,000 6.20%, 12/01/01, Prerefunded 12/01/98 1,025
Nevada State Colorado River Community,
1,130 6.50%, 7/01/19, Prerefunded 7/01/04 1,271
Oklahoma State Industrial Authority Revenue,
St. Anthony Hospital, Escrowed to Maturity,
1,030 6.125%, 6/01/03 1,098
Peninsula Ports Authority Virginia Health Care
Facilities - Mary Immaculate Project,
2,000 7.00%, 8/01/17, Prerefunded to 8/01/04 & 8/01/06 2,304
Pennsylvania State Industrial Development Authority -
1,000 Series A, 7.00%, 1/01/11, Prerefunded 7/01/01 1,112
Philadelphia, Pennsylvania Regional Port Authority,
1,000 Lease Revenue Bonds, 7.15%, 8/01/20,
Prerefunded 8/01/00 1,079
Phoenix, Arizona Street & Highway Users,
1,000 6.50%, 7/01/02 1,104
Rhode Island State Public Building Authority,
1,000 6.00%, 2/01/11, Prerefunded 2/01/01 1,054
See notes to the financial statements.
TAX-EXEMPT INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
PREREFUNDED AND ESCROWED
TO MATURITY 66.5% (cont.)
San Marcos, California Certificate Participation,
$1,085 0.00%, 2/15/06, Escrowed to Maturity $ 738
Tucson, Arizona Street & Highway User Revenue Bonds,
1,000 9.25%, 7/01/02, Escrowed to Maturity 1,196
University of Illinois,
1,005 6.10%, 10/01/03, Escrowed to Maturity 1,089
Virginia State Residential Authority - Solid Waste
Disposal
1,000 System, 7.30%, 4/01/15, Prerefunded 4/01/00 1,092
Wausau, Wisconsin School District,
1,000 6.50%, 4/01/10, Prerefunded 4/01/02 1,088
Williston, North Dakota,
80 6.00%, 6/01/98, Escrowed to Maturity 81
-------
Total Prerefunded and Escrowed to Maturity
(Cost $46,539) 47,513
-------
INSURED BONDS 24.3%
EDUCATION 0.3%
Merrillville, Indiana Multi-School Building
Corporation,
200 6.375%, 7/01/03 219
-------
ELECTRIC 3.1%
Springfield, Illinois Electric Revenue,
1,000 6.00%, 3/01/04 1,078
1,050 6.00%, 3/01/06 1,149
-------
2,227
-------
GENERAL OBLIGATION 13.7%
Amarillo, Texas Independent School District,
1,035 7.00%, 2/01/06 1,182
Bolingbrook, Illinois
1,080 0.00%, 1/01/05 767
Chicago, Illinois,
675 11.60%, 1/01/01 824
Chicago, Illinois Park District,
2,770 6.00%, 1/01/07 3,031
Maricopa County, Arizona Elementary School District
No. 068, Alhambra,
1,000 5.625%, 7/01/03, Partially Prerefunded 1,045
Palatine, Illinois
1,405 9.90%, 1/01/16, Crossover Refunded 1/01/00 1,598
Rocklin, California Unified School District,
1,235 6.70%, 9/01/04 1,334
-------
9,781
-------
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
PUBLIC FACILITIES & IMPROVEMENTS 7.2%
Illinois State Certificates of Participation,
$1,000 6.00%, 7/01/06 $ 1,093
Metropolitan Pier & Exposition Authority, Illinois
1,945 Dedicated State Tax Revenue, 0.00%, 12/15/98 1,860
Mun-Del Building Corp., Indiana
1,000 7.00%, 1/05/05 1,073
Texas State Turnpike Authority, Dallas
1,000 6.50%, 1/01/08 1,141
-------
5,167
-------
Total Insured Municipal Bonds (Cost $17,087) 17,394
-------
Number
of Shares
(in thousands)
-------------
INVESTMENT COMPANIES 3.7%
131 Financial Square Tax-Exempt Money Market 131
2,498 Tax Free Investment Trust 2,498
-------
Total Investment Companies (Cost $2,629) 2,629
-------
Total Investments (Cost $70,894) 101.1% 72,209
-------
Liabilities, less Other Assets (1.1)% (802)
-------
TOTAL NET ASSETS 100.0% $71,407
=======
See notes to the financial statements.
BOND IMMDEX/TM FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
------------- ------------
LONG-TERM INVESTMENTS 96.8%
ASSET-BACKED SECURITIES 13.2%
AUTO LOAN RECEIVABLES 0.8%
Ford Credit Grantor Trust,
$ 931 Series 1995-A, Class A, 5.90%, 5/15/00 $ 932
General Motors Acceptance Corp. Grantor Trust,
1,044 Series 1995-A, Class A, 7.15%, 3/15/00 1,049
Premier Auto Trust:
313 Series 1993-3, Class A3, 4.90%, 12/15/98 313
542 Series 1993-4, Class A2, 4.65%, 2/02/99 542
337 Series 1993-5, Class A2, 4.22%, 3/02/99 335
675 Series 1993-6, Class B, 4.875%, 11/02/99 674
-------
3,845
-------
CREDIT CARD RECEIVABLES 12.3%
Advanta Credit Card Master Trust,
4,200 Series 1995-F, Class A1, 6.05%, 8/01/03 4,218
Banc One Credit Card Master Trust,
8,000 Series 1995-B, Class A, 6.30%, 9/15/00 8,087
Citibank Credit Card Master Trust, Principal Only,
6,465 Series 1996-1, 0.00%, 2/07/01 5,331
First Chicago Master Trust II,
1,800 Series 1994-L, Class A, 7.15%, 2/15/00 1,837
HFC Private Label Credit Card Master Trust II:
2,600 Series 1994-2, Class A, 7.80%, 9/20/03 2,649
487 Series 1993-2, Class A3, 4.65%, 12/20/08 484
Household Affinity Credit Card Master Trust I,
3,750 Series 1993-2, Class A, 5.60%, 11/15/00 3,727
MBNA Master Credit Card Trust,
2,780 Series 1995-F, Class A, 6.60%, 8/15/00 2,831
NationsBank Credit Card Master Trust,
9,660 Series 1995-1, Class A, 6.45%, 8/15/00 9,802
Sears Credit Account Master Trust:
11,750 Series 1994-1, Class A, 7.00%, 8/15/00 11,984
1,700 Series 1995-2, Class A, 8.10%, 1/15/01 1,774
5,300 Series 1995-3, Class A, 7.00%, 10/15/04 5,441
-------
58,165
-------
HOME EQUITY LOAN RECEIVABLES 0.1%
IMC Home Equity Loan Trust,
373 Series 1996-3, Class A1, 7.00%, 4/25/11 372
-------
CORPORATE BONDS 37.5%
Alabama Power Company First Mortgage Bond,
1,000 9.00%, 12/01/24 1,113
American Airline Equipment Pass-Thru Certificates,
1,500 10.21%, 1/01/10 1,862
BankAmerica Corporation Subordinated Notes,
3,539 10.00%, 2/01/03 4,096
BarclaysAmericanCorp. Debentures,
925 9.75%, 5/15/21 1,054
Principal Market
Amount Value
(in thousands) (in thousands)
------------ -------------
CORPORATE BONDS 37.5% (CONT.)
Barnett Banks Inc. Subordinated Notes,
$1,155 8.50%, 3/01/99 $1,191
Bear Stearns Company Notes,
63 6.50%, 6/15/00 63
Bear Stearns Company Senior Notes,
500 6.75%, 8/15/00 508
Burlington Northern Railroad Company Equipment
Trust Certificates,
500 11.85%, 1/15/99 533
Chase Manhattan Corp. Notes,
7,802 10.00%, 6/15/99 8,276
Chrysler Financial Corp. Debentures:
7,648 13.25%, 10/15/99 8,647
1,927 12.75%, 11/01/99 2,167
Citicorp Subordinated Capital Notes,
3,836 9.75%, 8/01/99 4,055
Commonwealth Edison Co. First Mortgage,
6,050 9.75%, 2/15/20 6,745
Continental Bank Subordinated Notes,
1,963 12.50%, 4/01/01 2,322
Continental Cablevision, Inc. Debentures:
2,050 8.875%, 9/15/05 2,279
6,075 9.50%, 8/01/13 7,099
Deseret Generation & Transmission Coop Debentures,
2,383 9.375%, 1/02/11 2,483
Federal Express Corporation Debentures,
2,163 9.625%, 10/15/19 2,340
Federal Express Corporation Notes,
4,200 9.65%, 6/15/12 5,367
First Chicago Corp. Subordinated Notes:
3,844 9.00%, 6/15/99 4,018
970 9.875%, 8/15/00 1,061
First National Bank Chicago Debentures,
1,100 8.08%, 1/05/18 1,253
First National Bank Omaha Subordinated Notes,
3,100 7.32%, 12/01/10 3,193
First USA Bank Notes,
1,125 5.85%, 2/22/01 1,116
Ford Motor Company Notes,
2,650 9.50%, 9/15/11 3,331
Ford Motor Credit Co. Notes,
911 8.375%, 1/15/00 954
GTE North, Inc. Debentures,
1,100 9.60%, 1/01/21 1,235
Geico Corporation Debentures,
2,000 9.15%, 9/15/21 2,266
General Motors Acceptance Corp. Medium Term Notes,
1,000 7.50%, 7/22/99 1,025
General Motors Acceptance Corp. Notes:
1,375 8.00%, 10/01/99 1,413
1,037 9.625%, 5/15/00 1,122
See notes to the financial statements.
BOND IMMDEX/TM FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
CORPORATE BONDS 37.5% (CONT.)
General Motors Corp. Debentures,
$1,699 9.625%, 12/01/00 $1,864
Georgia Pacific Corp. Debentures:
1,511 9.50%, 12/01/11 1,883
1,500 9.50%, 2/15/18 1,557
4,125 9.875%, 11/01/21 4,619
975 9.50%, 5/15/22 1,112
Goldman Sachs Group Notes,
10,000 6.25%, 2/01/03 (Acquired 2/01/96; Cost $9,974) * 9,863
Heller Financial, Inc. Notes,
9,045 9.375%, 3/15/98 9,157
Household Finance Corp. Subordinated Notes,
4,327 9.625%, 7/15/00 4,700
Lehman Brothers Holdings, Inc. Debentures,
2,365 9.875%, 10/15/00 2,562
Lehman Brothers Holdings, Inc. Medium Term Notes:
3,825 6.65%, 11/08/99 3,862
1,805 8.875%, 2/15/00 1,906
Lehman Brothers Holdings, Inc. Notes,
1,700 6.90%, 7/15/99 1,720
Lehman Brothers, Inc. Senior Subordinated Notes,
7,232 10.00%, 5/15/99 7,634
The May Department Stores Company Debentures,
1,650 9.875%, 6/15/21 1,893
Mississippi Power & Light Notes,
1,000 8.80%, 4/01/05 1,009
Mobile Energy Services LLC Debentures,
711 8.665%, 1/01/17 756
National Westminster Bancorp. Inc., Debentures,
1,000 9.375%, 11/15/03 1,149
NCNB Corp. Subordinated Notes,
5,155 10.20%, 7/15/15 6,788
News America Holdings Debentures,
2,200 10.125%, 10/15/12 2,564
Paine Webber Group Medium Term Notes,
2,450 6.73%, 1/20/04 2,471
Parker Hannifin Debentures,
400 9.75%, 2/15/21 445
J.C. Penney Company, Inc. Debentures,
4,000 9.75%, 6/15/21 4,469
SCE Capital Corp. Notes,
1,100 7.375%, 12/15/03 1,133
Salomon, Inc. Notes,
2,150 7.00%, 6/15/03 2,202
Salomon, Inc. Senior Notes:
2,850 7.75%, 5/15/00 2,955
2,100 6.75%, 2/15/03 2,127
The Charles Schwab Corp. Medium Term Notes:
2,000 5.84%, 9/30/99 1,991
2,250 5.90%, 10/01/99 2,242
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
CORPORATE BONDS 37.5% (CONT.)
Security Pacific Corp. Subordinated Notes,
$ 455 11.50%, 11/15/00 $ 517
Tenneco, Inc. Debentures,
3,150 7.45%, 12/15/25 3,276
Union Camp Corp. Debentures,
850 10.00%, 5/01/19 923
Westvaco Corp. Debentures,
1,200 10.125%, 6/01/19 1,311
-------
176,847
-------
MORTGAGE-BACKED SECURITIES 0.2%
Prudential Securities Secured Financing Corp.,
1,050 Series 1993-1, Class A, 6.44%, 2/16/21 1,011
-------
INTERNATIONAL/YANKEE (U.S. $ DENOMINATED) 9.7%
British Telecommunications Finance Debentures,
2,761 9.625%, 2/15/19 3,001
Ford Capital BV Notes:
3,296 10.125%, 11/15/00 3,655
2,821 9.375%, 5/15/01 3,099
1,400 9.50%, 6/01/10 1,726
Hydro-Quebec Debentures:
3,500 11.75%, 2/01/12 5,047
750 9.75%, 1/15/18 851
Korea Development Bank Bonds,
1,800 7.125%, 9/17/01 1,747
Korea Electric Power Debentures:
1,955 7.75%, 4/01/13 1,841
1,350 6.75%, 8/01/27 1,244
Midland Bank PLC Subordinated Notes,
5,000 6.95%, 3/15/11 5,073
National Bank of Hungary Debentures,
2,350 8.875%, 11/01/13 2,592
Newfoundland (Province of) Canada,
1,800 10.00%, 12/01/20 2,416
Norsk Hydro A/S Debentures,
2,900 9.00%, 4/15/12 3,448
Pohang Iron & Steel Notes,
1,575 7.125%, 7/15/04 1,580
Quebec Province Debentures,
2,000 11.00%, 6/15/15 2,290
Sweden (Kingdom of) Debentures,
1,100 11.125%, 6/01/15 1,603
Wharf Capital International Ltd. Notes:
1,625 8.875%, 11/01/04 1,794
2,675 7.625%, 3/13/07 2,726
-------
45,733
-------
See notes to the financial statements.
BOND IMMDEX/TM FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
U.S. GOVERNMENT AGENCY-BACKED
MORTGAGE ISSUES 7.5%
Federal Home Loan Mortgage Corporation (FHLMC),
$ 113 Participation Certificates, 7.50%, 4/01/07 $ 115
Federal Home Loan Mortgage Corporation (FHLMC)
Real Estate Mortgage Investment Conduit (REMIC):
1,065 Series 1022, Class J, 6.00%, 12/15/20 1,044
3,180 Series 1118, Class Z, 8.25%, 7/15/21 3,315
429 Series 1169, Class D, 7.00%, 5/15/21 433
18 Series 1259, Interest Only, Class IC,
1007.05%, 10/15/05 126
2,956 Series 1790-A, Class A, 7.00%, 4/15/22 2,990
739 Series 6, Class C, 9.05%, 6/15/19 782
2,150 Series 188, Class H, 7.00%, 9/15/21 2,175
1,905 Series 1201, Class E, 7.40%, 12/15/21 1,944
Federal National Mortgage Association (FNMA),
Participation Certificates:
495 7.50%, 8/01/07 508
142 7.75%, 6/01/08 147
Federal National Mortgage Association (FNMA)
Real Estate Mortgage Investment Conduit (REMIC):
500 Series 1990-61, Class H, 7.00%, 6/25/20 507
1,056 Series 1990-102, Class J, 6.50%, 8/25/20 1,049
3,100 Series 1991-56, Class M, 6.75%, 6/25/21 3,111
Series 1992-29, Interest Only, Class K,
6 977.92%, 11/25/00 79
650 Series 1993-87, Class KD, 6.00%, 6/25/03 645
Series 1992-145, Interest Only, Class N,
19 1010.06%, 1/25/06 575
172 Series 1989-39, Principal Only, Class C, 0.00%,
6/25/17 169
950 Series X-225C, Class TE, 5.45%, 10/25/18 938
1,568 Series 1988-24, Class G, 7.00%, 10/25/18 1,581
1,467 Series 1989-44, Class H, 9.00%, 7/25/19 1,560
365 Series 1989-90, Class E, 8.70%, 12/25/19 387
1,701 Series 1990-30, Class E, 6.50%, 3/25/20 1,699
183 Series 1990-72, Class A, 9.00%, 7/25/20 187
538 Series 1990-72, Class B, 9.00%, 7/25/20 589
5,697 Series 1990-105, Class J, 6.50%, 9/25/20 5,664
1,092 Series 1990-106, Class J, 8.50%, 9/25/20 1,145
1,876 Series 1992-120, Class C, 6.50%, 7/25/22 1,866
-------
35,330
-------
U.S. TREASURY OBLIGATIONS 28.7%
U.S. Treasury Bonds,
96,580 9.25%, 2/15/16 128,668
U.S. Treasury Inflation-Indexed Notes,
3,121 3.375%, 1/15/07 3,079
U.S. Treasury Notes,
3,725 6.625%, 7/31/01 3,833
-------
135,580
-------
Total Long-Term Investments (Cost $436,264) 456,883
-------
Number Market
of Shares Value
(in thousands) (in thousands)
------------ ------------
SHORT-TERM INVESTMENTS 2.3%
INVESTMENT COMPANIES 2.3%
10 Financial Square Prime Obligation Fund $ 10
10,994 Short-Term Investments Co. Liquid Assets Portfolio 10,994
-------
Total Short-Term Investments (Cost $11,004) 11,004
-------
Total Investments (Cost $447,268) 99.1% 467,887
-------
Other Assets, less Liabilities 0.9% 4,275
-------
TOTAL NET ASSETS 100.0% $472,162
========
*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
Dec ember 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 $14 and $11 for
the Intermediate Bond Market and Tax-Exempt Intermediate Bond 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%
service organization 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 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 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 to distribute
substantially all of their taxable income to shareowners. The Funds 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 on 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 year ended October 31, 1997, 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 $ 56,459 $84,834 --00 $ 47,504
Other 102,046 75,439 $30,106 141,825
Sales:
U.S. Government 55,418 42,178 --00 42,620
Other 104,401 45,658 6,115 103,714
At October 31, 1997, 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 $1,477 $5,230 $1,332 $21,804
(Depreciation) (381) (397) (18) (1,356)
------ ------ ------ -------
Net unrealized
appreciation
on investments $1,096 $4,833 $1,314 $20,448
====== ====== ====== =======
At October 31, 1997, the cost of investments, in thousands, for federal income
tax purposes was $201,468, $266,899, $70,895 and $447,438 for the Short-Term
Bond Market, Intermediate Bond Market, Tax-Exempt Intermediate Bond and Bond
IMMDEX/TM Funds, respectively. At October 31, 1997, 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, $252 and $50,
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 $503, 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. The Short-Term Bond Market Fund had accumulated net realized
capital loss carryovers, in thousands, of $1,078, expiring in 2005. 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.
During the year ended October 31, 1997, the Intermediate Bond Market, Tax-Exempt
Intermediate Bond and Bond IMMDEX/TM Funds utilized accumulated net realized
capital loss carryovers, in thousands, of $242, $48 and $485, respectively.
4.CAPITAL SHARE TRANSACTIONS
Transactions, in thousands, of shares of the Funds 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
------- ------ ------- ------ ------ ------ ------- -------
YEAR ENDED OCTOBER 31, 1997:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Series A shares:
Shares sold $ 30,209 2,949 $ 7,985 784 $13,524 1,317 $ 30,638 1,111
Shares issued to owners
in reinvestment
of dividends 3,315 325 739 73 561 55 2,728 99
Shares redeemed (26,932) (2,629) (5,689) (557) (5,799) (564) (13,274) (482)
-------- ------- -------- -------- -------- ------- -------- -------
Net increase $ 6,592 645 $ 3,035 300 $ 8,286 808 $ 20,092 728
======== ======= ======== ======== ======== ======= ======== =======
Series Institutional shares:
Shares sold $ 41,412 4,034 $108,111 10,593 $21,675 2,110 $ 99,564 3,611
Shares issued to owners
in reinvestment
of dividends 7,603 744 7,516 740 432 42 20,489 746
Shares redeemed (60,562) (5,912) (37,572) (3,678) (7,177) (699) (91,596) (3,322)
-------- ------- -------- -------- -------- ------- -------- -------
Net increase (decrease) $(11,547) (1,134) $ 78,055 7,655 $14,930 1,453 $ 28,457 1,035
======== ======= ======== ======== ======== ======= ======== =======
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
======== ======= ======== ======== ======== ======= ======== =======
</TABLE>
5.INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Funds have entered into an Investment Advisory Agreement with Firstar
Investment Research & Management Company, LLC ("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, 1997,
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 $605 $346 $177 --
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 period ended
October 31, 1997, $150, $171, $41 and $318 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 $155, $48, $36 and $130, respectively, for the
period ended October 31, 1997.
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, 1997, 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, 1997, 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, 1997 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Milwaukee, Wisconsin
December 9, 1997
Portico Funds are available through:
- - the Portico Funds Center,
- - Investment Specialists who are registered
representatives of Firstar 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
Form #40-0198 12/97
