OCTOBER 31, 1997
ANNUAL
REPORT
RETAIL CLASS
EMERGING GROWTH
FUND
NOTICE TO INVESTORS
- -Shares of Portico Funds:
- ARE NOT INSURED BY THE FDIC, the US Government or any other governmental
agency;
- are not bank deposits or obligations of or guaranteed by Firstar Bank, its
parent company or its affiliates;
- are subject to investment risks, including possible loss of principal; and
- are offered by B.C. Ziegler and Company, member NASD, SIPC, and an
independent third-party distributor.
- -Firstar Bank affiliates serve as investment adviser, custodian, transfer
agent, administrator, and accounting services agent and receive compensation
for such services as disclosed in the current prospectus.
TABLE OF CONTENTS
Page(s)
SHAREOWNER LETTER...................................................1-2
PORTICO EMERGING GROWTH FUND........................................4-5
STATEMENT OF ASSETS AND LIABILITIES..................................6
STATEMENT OF OPERATIONS..............................................6
STATEMENT OF CHANGES IN NET ASSETS...................................7
FINANCIAL HIGHLIGHTS.................................................8
SCHEDULE OF INVESTMENTS.............................................9-10
NOTES TO THE FINANCIAL STATEMENTS..................................11-12
REPORT OF INDEPENDENT ACCOUNTANTS....................................13
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 large cap 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 small cap 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 large cap 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 web site 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 Stock 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
This page intentionally left blank.
EMERGING GROWTH FUND
The newest member of the Portico Family, Portico Emerging Growth Fund seeks
capital appreciation through investments in securities of small-sized companies
with stock market capitalizations between $250 million and $2 billion. The
Fund's current weighted average market capitalization is $920 million, in line
with its designated benchmark, the S&P SmallCap 600 Index. The Fund's +3.1% (no-
load) return since August 15, 1997, compares to a 5.6% return for the S&P
SmallCap 600 Index and a 5.6% return for the Wilshire Next 1750 index during the
same time period.
The Fund ended the fiscal year with a weighted average market value of $920
million and a 1998 price-to-earnings ratio of 18X. The estimated earnings growth
of the Fund's holdings is over 30% which is significantly higher than the
expected earnings growth for companies that comprise the S&P SmallCap 600 Index
despite the similar price-to-earnings ratios.
Portfolio holdings which have performed well thus far include Sofamor Danek (a
producer of spinal cage devices), Enhance Financial Services (a municipal bond
reinsurer), and Mastech (an information technology solutions provider). Laggards
include ECI Telecom (an Israeli based telecommunications equipment provider) and
National Data (a credit card processing company). See page 9 for a complete
listing of portfolio holdings.
As earnings growth slows for big companies, valuations should improve for small
and midcap stocks. As such, we are optimistic about Portico Emerging Growth Fund
and look forward to providing our shareowners with attractive growth
opportunities in the future. We appreciate your interest in Portico Emerging
Growth Fund.
PORTFOLIO MANAGER PROFILE
- -------------------------------------------------------------------------------
Todd Krieg, CFA, JD, Senior Vice President and Senior Portfolio Manager of
Firstar Investment Research & Management Company, LLC (FIRMCO) and Matthew
D'Attilio, CFA, Vice President and Portfolio Manager co-manage the Fund - since
its inception August 15, 1997. Todd has been with Firstar since 1992 and has
five years of investment management experience. He received his BA from Williams
College in 1983 and a JD from Georgetown University in 1989. Matt has been with
Firstar since 1993 and has four years of investment management experience. He
received his BA from Bowdoin College in 1993. Todd and Matt are both Chartered
Financial Analysts.
8/15/97 10/97
------- -----
PORTICO EMERGING GROWTH
FUND - A - NO LOAD 10,000 10,310
PORTICO EMERGING GROWTH
FUND - A - LOAD 9,600 9,894
S&P 500 STOCK INDEX 10,000 10,187
S&P SMALLCAP 600 INDEX 10,000 10,558
WILSHIRE NEXT 1750 INDEX 10,000 10,564
This chart assumes an initial investment of $10,000 made on 8/15/97 (inception).
Performance reflects fee waivers in effect. In the absence of fee waivers, total
return would be reduced. Returns shown include the reinvestment of all dividends
and other distributions. Past performance is not predictive of future
performance. Investment return and principal value will fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
CUMULATIVE RATE OF RETURN (%)
FOR PERIOD ENDED OCTOBER 31, 1997
Since Inception
8/15/97
-------
PORTICO EMERGING GROWTH FUND - A - NO LOAD 3.1
PORTICO EMERGING GROWTH FUND - A - LOAD (1.1)
S&P SMALLCAP 600 INDEX* 5.6
WILSHIRE NEXT 1750 INDEX** 5.6
S&P 500 STOCK INDEX*** 1.9
* The S&P SmallCap 600 Index is a capitalization weighted index that measures
the performance of selected U.S. stocks with small market capitalizations.
** The Wilshire Next 1750 Index is an unmanaged index which shows the next
largest 1,750 companies after the Top 750 of the Wilshire 5000 Stock Index.
*** The S&P 500 Stock Index is an index of an unmanaged group of 500 selected
common stocks, most of which are listed on the New York Stock Exchange. The
Index is heavily weighted toward stocks with large market capitalizations and
represents approximately two-thirds of the total market value of all domestic
common stocks.
An investment cannot be made directly in an index.
Series A shares, unlike the Series Institutional shares, have a 4% maximum sales
load and are subject to an annual 0.25% service organization fee. Performance
reflects fee waivers in effect. In the absence of fee waivers, total return
would be reduced.
TOP 5 HOLDINGS 10/31/97
- ----------------------------------------
SOFAMOR DANEK GROUP, INC. 4.4%
NATIONAL DATA CORPORATION 3.3%
ECI TELECOMMUNICATIONS, LIMITED 3.2%
PETCO ANIMAL SUPPLIES, INC. 3.2%
QUORUM HEALTH GROUP, INC. 3.2%
Portfolio holdings are subject to change
and are not a representation of the Fund's
entire portfolio holdings.
TOTAL FUND NET ASSETS 10/31/97
- ----------------------------------------
$53,398,972
EMERGING GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
OCTOBER 31, 1997
ASSETS:
Investments, at value (Cost $51,497) $ 52,370
Income receivable 44
Capital shares sold 605
Receivable for securities sold 562
Other assets 23
--------
Total Assets 53,604
--------
LIABILITIES:
Payable for securities purchased 100
Capital shares redeemed 22
Payable to affiliates 63
Accrued expenses and other liabilities 20
--------
Total Liabilities 205
--------
NET ASSETS $ 53,399
========
NET ASSETS CONSIST OF:
Capital stock $ 52,103
Undistributed net investment income 117
Undistributed accumulated net realized gains 306
Unrealized net appreciation on investments 873
--------
Total Net Assets $ 53,399
========
SERIES A:
Net assets $ 5,355
Shares authorized ($.0001 par value) 500,000
Shares issued and outstanding 519
Net asset value and redemption price
per share <F1> $10.31
======
Maximum offering price per share <F1> $10.74
======
SERIES INSTITUTIONAL:
Net assets $ 48,044
Shares authorized ($.0001 par value) 500,000
Shares issued and outstanding 4,659
Net asset value, redemption price
and offering price per share <F1> $10.31
======
<F1> Amounts may not recalculate due to rounding.
STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS)
AUGUST 15, 1997<F2> THROUGH OCTOBER 31, 1997
INVESTMENT INCOME:
Dividend income $ 5
Interest income 203
--------
208
--------
EXPENSES:
Investment advisory fees 74
Administration fees 11
Shareowner servicing and accounting costs 12
Service organization fees - Series A 2
Custody fees 6
Federal and state registration fees 14
Professional fees 4
Reports to shareowners 1
Amortization of organization costs 1
Directors' fees and expenses 1
Other 1
--------
Total expenses before waiver 127
Less: Waiver of expenses (36)
--------
Net Expenses 91
--------
NET INVESTMENT INCOME 117
--------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 306
Change in unrealized appreciation
on investments 873
--------
Net gain on investments 1,179
--------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,296
========
<F2> Commencement of operations.
See notes to the financial statements.
EMERGING GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
(AMOUNTS IN THOUSANDS)
August 15, 1997<F1>
through
October 31, 1997
----------------
OPERATIONS:
Net investment income $117
Net realized gain on investments 306
Change in unrealized appreciation
on investments 873
--------
Net increase in net assets resulting
from operations 1,296
--------
CAPITAL SHARE TRANSACTIONS:
Shares sold 52,281
Shares issued to owners in
reinvestment of dividends -
Shares redeemed (178)
--------
Net increase 52,103
--------
DISTRIBUTIONS TO
SERIES A SHAREOWNERS:
From net investment income -
From net realized gains -
--------
-
--------
DISTRIBUTIONS TO
SERIES INSTITUTIONAL SHAREOWNERS:
From net investment income -
From net realized gains -
--------
-
--------
TOTAL INCREASE IN NET ASSETS 53,399
NET ASSETS:
Beginning of period -
--------
End of period (including undistributed
net investment income of $117) $53,399
========
<F1> Commencement of operations.
See notes to the financial statements.
EMERGING GROWTH FUND
FINANCIAL HIGHLIGHTS
August 15, 1997<F1>
through
October 31, 1997
----------------
Series A Series Institutional
-------- --------------------
Per Share Data:
Net asset value,
beginning of period $10.00 $10.00
Income from investment operations:
Net investment income 0.02 0.02
Net realized and unrealized
gains on securities 0.29 0.29
------ ------
Total from investment operations 0.31 0.31
------ ------
Less distributions:
Dividends from net investment income - -
Distributions from capital gains - -
------ ------
Total distributions - -
------ ------
Net asset value, end of period $10.31 $10.31
====== ======
Total return <F2><F3> 3.10% 3.10%
Supplemental data and ratios:
Net assets, in thousands, end
of period $5,355 $48,044
Ratio of net expenses to average
net assets <F4> 1.15% 0.90%
Ratio of net investment income
to average net assets <F4> 0.93% 1.18%
Portfolio turnover rate <F2><F5> 14.51% 14.51%
Average commission rate paid <F5> $0.0493 $0.0493
<F1> Commencement of operations.
<F2> Not annualized.
<F3> The total return calculation does not reflect the 4% front-end sales charge
for Series A.
<F4> Annualized.
<F5> Portfolio turnover and average commission rate paid are calculated on the
basis of the Fund as a whole without distinguishing between the classes of
shares issued.
See notes to the financial statements.
EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Number Market
of Value
Shares (in thousands)
------ -------------
COMMON STOCKS 83.0%
BUSINESS MACHINES & SOFTWARE 1.3%
13,800 National Instruments Corporation* $ 628
1,500 Remedy Corporation* 71
-------
699
-------
BUSINESS SERVICES 10.2%
18,100 ABR Information Services, Inc.* 425
11,000 American Business Information, Inc. - Class A* 115
11,000 American Business Information, Inc. - Class B* 143
34,400 BA Merchant Services, Inc. - Class A* 514
13,500 Danka Business Systems PLC ADR 499
21,800 F.Y.I. Incorporated* 561
42,300 Mastech Corporation* 1,401
48,100 National Data Corporation 1,777
-------
5,435
-------
COMPUTERS 1.9%
16,800 CDW Computer Centers, Inc.* 1,042
-------
DATA PROCESSING 3.1%
83,400 Axciom Corporation* 1,371
5,400 CCC Information Services Group Inc.* 101
1,800 CSG Systems International, Inc.* 71
7,000 Metromail Corporation* 139
-------
1,682
-------
ELECTRICAL EQUIPMENT 1.8%
25,000 Cable Design Technologies* 981
-------
ELECTRONICS 4.0%
37,400 BMC Industries, Inc. 1,204
43,200 Gemstar International Group Limited* 956
-------
2,160
-------
ENTERTAINMENT & LEISURE 0.5%
6,300 Cinar Films, Inc. - Class B* 245
-------
FINANCIAL SERVICES 0.9%
11,800 Medallion Financial Corp. 248
5,100 SEI Investments Company 217
-------
465
-------
HEALTH CARE SERVICES & SUPPLIES 12.1%
57,000 Ballard Medical Products 1,286
7,400 Cooper Companies, Inc.* 265
28,800 Gulf South Medical Supply, Inc.* 950
3,000 National Surgery Centers, Inc.* 75
65,550 Quorum Health Group, Inc.* 1,590
41,500 Rural/Metro Corporation* 1,442
7,400 Henry Schein, Inc.* 243
32,400 Twinlab Corporation* 616
-------
6,467
-------
Number Market
of Value
Shares (in thousands)
------ -------------
INDUSTRIAL DISTRIBUTION 2.1%
10,600 Barnett, Inc.* $ 219
8,400 Hughes Supply, Inc. 293
14,200 MSC Industrial Direct Co., Inc. - Class A* 591
-------
1,103
-------
INSURANCE 9.0%
9,950 W.R. Berkley Corporation 409
34,900 Chartwell Re Corporation 1,130
9,300 CMAC Investment Corporation 509
8,400 Delphi Financial Group, Inc.* 346
20,000 Enhance Financial Services Group, Inc. 1,056
5,300 Financial Security Assurance Holdings Ltd. 231
13,600 Terra Nova (Bermuda) Holdings Ltd. 352
27,700 United Wisconsin Services, Inc. 770
-------
4,803
-------
MEDICAL INSTRUMENTS 8.0%
13,400 Hologic, Inc.* 343
22,600 Mentor Corporation 823
16,900 Physio-Control International Corporation* 269
34,100 Sofamor Danek Group, Inc.* 2,349
22,000 VISX, Inc.* 503
-------
4,287
-------
OIL & GAS - DOMESTIC 2.2%
13,800 Pogo Producing Company 499
26,060 Swift Energy Company* 676
-------
1,175
-------
OIL & GAS SERVICES 1.5%
16,700 Seitel, Inc.* 787
-------
POLLUTION CONTROL 4.3%
6,600 Newpark Resources, Inc.* 274
86,200 Philip Services Corp.* 1,509
21,400 Tetra Technologies, Inc.* 494
-------
2,277
-------
PUBLISHING-PERIODICALS 0.5%
12,600 The Petersen Companies, Inc.* 249
-------
RETAIL 11.9%
500 Casey's General Stores, Inc. 12
56,000 Eagle Hardware & Garden, Inc.* 952
52,900 Goody's Family Clothing, Inc.* 1,385
26,900 The Men's Wearhouse, Inc.* 1,042
54,700 Petco Animal Supplies, Inc.* 1,682
43,200 Stein Mart, Inc.* 1,264
-------
6,337
-------
See notes to the financial statements.
EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
(UNAUDITED)
Number Market
of Value
Shares (in thousands)
------ -------------
SCHOOLS 1.1%
13,500 Sylvan Learning Systems, Inc.* $ 568
-------
SOFTWARE 1.9%
28,100 HNC Software, Inc.* 1,040
-------
TELECOMMUNICATIONS EQUIPMENT 3.2%
61,900 ECI Telecommunications Limited 1,710
-------
TEXTILES & APPAREL 1.5%
36,500 Wolverine World Wide, Inc. 803
-------
Total Common Stock (Cost $43,509) 44,315
-------
PREFERRED STOCK 1.7%
COMMUNICATIONS COMPANIES 1.7%
19 US WEST Communications Group 888
-------
Total Preferred Stock (Cost $821) 888
-------
Number
of Shares
(in thousands)
------------
SHORT-TERM INVESTMENTS 13.4%
INVESTMENT COMPANIES 7.0%
1,657 Financial Square Prime Obligation Fund 1,657
2,110 Short-Term Investments Co. Liquid
Assets Portfolio 2,110
-------
Total Investment Companies (Cost $3,767) 3,767
-------
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
VARIABLE RATE DEMAND NOTES 6.4%
$1,700 Warner-Lambert Co. $ 1,700
1,700 Johnson Controls, Inc. 1,700
-------
Total Variable Rate Demand Notes (Cost $3,400) 3,400
-------
Total Short-Term Investments (Cost $7,167) 7,167
-------
Total Investments (Cost $51,497) 98.1% 52,370
-------
Other Assets, less Liabilities 1.9% 1,029
-------
TOTAL NET ASSETS 100.0% $53,399
=======
* Non-income producing
See notes to the financial statements.
EMERGING GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION
Portico Funds, Inc. (the "Company") was incorporated on February 15, 1988,
as a Wisconsin Corporation and is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended. The
Emerging Growth Fund (the "Fund") is a separate, diversified investment
portfolio of the Company. The Fund commenced operations on August 15, 1997. The
objective of the Emerging Growth Fund is capital appreciation through
investments in securities of small companies.
The costs, in thousands, incurred in connection with the organization,
initial registration and public offering of shares, aggregating $21, have been
paid by the Fund. These costs are being amortized over the period of benefit,
but not to exceed sixty months from the Fund's commencement of operations.
The Company has issued two classes of Fund shares: Series A and Series
Institutional. The Series A shares are subject to a 0.25% service organization
fee and an initial sales charge imposed at the time of purchase, in accordance
with the Fund's prospectus. The maximum sales charge is 4% of the offering price
or 4.16% of the net asset value. Each class of shares has identical rights and
privileges except with respect to service organization fees paid by Series A
shares, voting rights on matters affecting a single class of shares and the
exchange privileges of each class of shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
a) Investment Valuation - Securities which are traded on a recognized stock
exchange are valued at the last sale price on the securities exchange on which
such securities are primarily traded or at the last sale price on a national
securities exchange. Exchange-traded securities for which there were no
transactions are valued at the current bid prices. Securities traded on only
over-the-counter markets are valued on the basis of closing over-the-counter bid
prices. Instruments with a remaining maturity of 60 days or less are valued on
an amortized cost basis. Securities for which market quotations are not readily
available, and other assets are valued at fair value as determined by the
investment adviser under the supervision of the Board of Directors.
b) Federal Income Taxes - No provision for federal income taxes has been made
since the Fund has complied to date with the provisions of the Internal Revenue
Code available to regulated investment companies and intends to distribute
substantially all of its taxable income to shareowners. The Fund intends to
continue to so comply in future years.
c) Income and Expenses - The Fund is charged for those expenses that are
directly attributable to it, such as advisory, administration and certain
shareowner service fees. Expenses that are not directly attributable to a
portfolio are typically allocated among the Company's portfolios in proportion
to their respective net assets, number of shareowner accounts or net sales,
where applicable. Net investment income other than class specific expenses, and
realized and unrealized gains and losses are allocated daily to each class of
shares based upon the relative net asset value of outstanding shares of each
class of shares at the beginning of the day (after adjusting for the current
day's capital share activity of the respective class).
d) Distributions to Shareowners - Dividends from net investment income are
declared and paid annually. Distributions of net realized capital gains, if any,
will be declared at least annually.
e) When-Issued Securities - The Fund may purchase securities on a when-issued or
delayed delivery basis. Although the payment and interest terms of these
securities are established at the time the purchaser enters into the agreement,
these securities may be delivered and paid for at a future date, generally
within 45 days. The Fund records purchases of when-issued securities and
reflects the values of such securities in determining net asset value in the
same manner as other portfolio securities. The Fund segregates and maintains at
all times cash, cash equivalents, or other high-quality liquid securities in
an amount at least equal to the amount of outstanding commitments for when-
issued securities.
f) Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
g) Other - Investment and shareowner transactions are recorded on
the trade date. The Fund determines the gain or loss realized from investment
transactions by comparing the original cost of the security lot sold with the
net sale proceeds. Dividend income is recognized on the ex-dividend date or as
soon as information is available to the Fund and interest income is recognized
on an accrual basis. Generally accepted accounting principles require that
permanent reporting and tax differences be reclassified.
3. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Fund, in thousands, were as follows:
August 15, 1997 through October 31, 1997:
Series A Series Institutional
Amount Shares Amount Shares
------ ------ ------ ------
Shares sold $5,403 525 $46,878 4,670
Shares redeemed (60) (6) (118) (11)
------ --- ------- -----
Net increase $5,343 519 $46,760 4,659
====== === ======= =====
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities for the period August 15, 1997 through
October 31, 1997 (excluding short-term investments), in thousands, aggregated
$47,790 and $3,766, respectively.
At October 31, 1997, gross unrealized appreciation and depreciation of
investments for federal tax purposes, in thousands, were as follows:
Appreciation $2,754
(Depreciation) (1,889)
-------
Net unrealized appreciation on investments $865
====
At October 31, 1997, the cost of investments, in thousands, for federal income
tax purposes was $51,505.
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Fund has 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 Fund, the Adviser is entitled to
receive a fee, calculated daily and payable monthly, at the annual rate of 0.75%
as applied to the Fund's daily net assets. For the period ended October 31,
1997, $28 in advisory fees, in thousands, were voluntarily waived for the Fund.
Firstar Trust Company, an affiliate of FIRMCO, serves as custodian, transfer
agent and accounting services agent for the Funds.
The Company has entered into a Co-Administration Agreement with B.C. Ziegler
and Company and Firstar Trust Company (the "Co-Administrators") for certain
administrative services. Pursuant to the Co-Administration Agreement with the
Company, the Co-Administrators are entitled to receive a fee, computed daily and
payable monthly, at the annual rate of 0.125% of the Company's first $2 billion
of average aggregate daily net assets, plus 0.10% of the Company's average
aggregate daily net assets in excess of $2 billion. For the period ended October
31, 1997, $28 of administration fees, in thousands, were voluntarily waived for
the Fund.
The Company has entered into Servicing Agreements with certain Service
Organizations, including FIRMCO affiliates, for the Series A class of shares.
The Service Organizations are entitled to receive fees from the Fund up to an
annual rate of 0.25% of the average daily net asset value of the Series A Shares
for certain support and/or distribution services to customers of the Service
Organizations who are beneficial owners of Fund Series A Shares. These services
may include assisting customers in processing purchase, exchange and redemption
requests; processing dividend and distribution payments from the Fund; and
providing information periodically to customers showing their positions in Fund
Series A shares. Service Organization fees, in thousands, incurred by the Fund
aggregated $2 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 Fund maintains
its proportionate share of the Company's liability for deferred fees.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREOWNERS OF THE PORTICO EMERGING GROWTH FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Portico Emerging Growth Fund
(one of the portfolios of Portico Funds, Inc. (the "Fund")) at October 31,
1997, the results of its operations for the period from August 15, 1997
(commencement of operations) through October 31, 1997, the changes in its net
assets and its financial highlights for the period from August 15, 1997 through
October 31, 1997, all in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 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, WI 53201-3011
FORM 40-0204 12/97
xxxxx
OCTOBER 31, 1997
ANNUAL
REPORT
INSTITUTIONAL CLASS
EMERGING GROWTH
FUND
NOTICE TO INVESTORS
- -Shares of Portico Funds:
- ARE NOT INSURED BY THE FDIC, the US Government or any other governmental
agency;
- are not bank deposits or obligations of or guaranteed by Firstar Bank, its
parent company or its affiliates;
- are subject to investment risks, including possible loss of principal; and
- are offered by B.C. Ziegler and Company, member NASD, SIPC, and an
independent third-party distributor.
- -Firstar Bank affiliates serve as investment adviser, custodian, transfer
agent, administrator, and accounting services agent and receive compensation
for such services as disclosed in the current prospectus.
TABLE OF CONTENTS
Page(s)
SHAREOWNER LETTER...................................................1-2
PORTICO EMERGING GROWTH FUND........................................4-5
STATEMENT OF ASSETS AND LIABILITIES..................................6
STATEMENT OF OPERATIONS..............................................6
STATEMENT OF CHANGES IN NET ASSETS...................................7
FINANCIAL HIGHLIGHTS.................................................8
SCHEDULE OF INVESTMENTS.............................................9-10
NOTES TO THE FINANCIAL STATEMENTS..................................11-12
REPORT OF INDEPENDENT ACCOUNTANTS....................................13
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 large cap 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 small cap 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 large cap 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 web site 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 Stock 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
This page intentionally left blank.
EMERGING GROWTH FUND
The newest member of the Portico Family, Portico Emerging Growth Fund seeks
capital appreciation through investments in securities of small-sized companies
with stock market capitalizations between $250 million and $2 billion. The
Fund's current weighted average market capitalization is $920 million, in line
with its designated benchmark, the S&P SmallCap 600 Index. The Fund's +3.1%
return since August 15, 1997 compares to a 5.6% return for the S&P SmallCap 600
Index and a 5.6% return for the Wilshire Next 1750 index during the same time
period.
The Fund ended the fiscal year with a weighted average market value of $920
million and a 1998 price-to-earnings ratio of 18X. The estimated earnings growth
of the Fund's holdings is over 30% which is significantly higher than the
expected earnings growth for companies that comprise the S&P SmallCap 600 Index
despite the similar price-to-earnings ratios.
Portfolio holdings which have performed well thus far include Sofamor Danek (a
producer of spinal cage devices), Enhance Financial Services (a municipal bond
reinsurer), and Mastech (an information technology solutions provider). Laggards
include ECI Telecom (an Israeli based telecommunications equipment provider) and
National Data (a credit card processing company). See page 9 for a complete
listing of portfolio holdings.
As earnings growth slows for big companies, valuations should improve for small
and midcap stocks. As such, we are optimistic about Portico Emerging Growth Fund
and look forward to providing our shareowners with attractive growth
opportunities in the future. We appreciate your interest in Portico Emerging
Growth Fund.
<PHOTO> <PHOTO>
TODD KRIEG, CFA MATTHEW D'ATTILIO, CFA
PORTFOLIO MANAGER PROFILE
- ----------------------------------------------------------------------------
TODD KRIEG, CFA, JD, Senior Vice President and Senior Portfolio Manager of
Firstar Investment Research & Management Company, LLC (FIRMCO) and MATTHEW
D'ATTILIO, CFA, Vice President and Portfolio Manager co-manage the Fund - since
its inception August 15, 1997. Todd has been with Firstar since 1992 and has
five years of investment management experience. He received his BA from Williams
College in 1983 and a JD from Georgetown University in 1989. Matt has been with
Firstar since 1993 and has four years of investment management experience. He
received his BA from Bowdoin College in 1993. Todd and Matt are both Chartered
Financial Analysts.
8/15/97 10/97
------- -----
PORTICO EMERGING GROWTH FUND 10,000 10,310
S&P 500 STOCK INDEX 10,000 10,187
S&P SMALLCAP 600 INDEX 10,000 10,558
WILSHIRE NEXT 1750 INDEX 10,000 10,564
This chart assumes an initial investment of $10,000 made on 8/15/97 (inception).
Per form ance 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 perform ance is not predictive of future
performance. Investment return and principal value will fluc tuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
CUMULATIVE RATE OF RETURN (%)
FOR PERIOD ENDED OCTOBER 31, 1997
Since Inception
8/15/97
-------
PORTICO EMERGING GROWTH FUND 3.1
S&P SMALLCAP 600 INDEX* 5.6
WILSHIRE NEXT 1750 INDEX** 5.6
S&P 500 STOCK INDEX*** 1.9
* The S&P SmallCap 600 Index is a capitalization weighted index that measures
the performance of selected U.S. stocks with small market capitalizations.
** The Wilshire Next 1750 Index is an unmanaged index which shows the next
largest 1,750 companies after the Top 750 of the Wilshire 5000 Stock Index.
*** The S&P 500 Stock Index is an index of an unmanaged group of 500 selected
common stocks, most of which are listed on the New York Stock Exchange. The
Index is heavily weighted toward stocks with large market capitalizations and
represents approximately two-thirds of the total market value of all domestic
common stocks.
An investment cannot be made directly in an index.
Series A shares, unlike the Series Institutional shares, have a 4% maximum sales
load and are subject to an annual 0.25% service organization fee. Performance
reflects fee waivers in effect. In the absence of fee waivers, total return
would be reduced.
TOP 5 HOLDINGS 10/31/97
- ---------------------------------------------
SOFAMOR DANEK GROUP, INC. 4.4%
NATIONAL DATA CORPORATION 3.3%
ECI TELECOMMUNICATIONS, LIMITED 3.2%
PETCO ANIMAL SUPPLIES, INC. 3.2%
QUORUM HEALTH GROUP, INC. 3.2%
Portfolio holdings are subject to change and
are not a representation of the Fund's entire
portfolio holdings.
TOTAL FUND NET ASSETS 10/31/97
- ---------------------------------------------
$53,398,972
EMERGING GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
OCTOBER 31, 1997
ASSETS:
Investments, at value (Cost $51,497) $ 52,370
Income receivable 44
Capital shares sold 605
Receivable for securities sold 562
Other assets 23
--------
Total Assets 53,604
--------
LIABILITIES:
Payable for securities purchased 100
Capital shares redeemed 22
Payable to affiliates 63
Accrued expenses and other liabilities 20
--------
Total Liabilities 205
--------
NET ASSETS $ 53,399
========
NET ASSETS CONSIST OF:
Capital stock $ 52,103
Undistributed net investment income 117
Undistributed accumulated net realized gains 306
Unrealized net appreciation on investments 873
--------
Total Net Assets $ 53,399
========
SERIES A:
Net assets $ 5,355
Shares authorized ($.0001 par value) 500,000
Shares issued and outstanding 519
Net asset value and redemption price
per share <F1> $10.31
======
Maximum offering price per share <F1> $10.74
======
SERIES INSTITUTIONAL:
Net assets $ 48,044
Shares authorized ($.0001 par value) 500,000
Shares issued and outstanding 4,659
Net asset value, redemption price
and offering price per share <F1> $10.31
======
<F1> Amounts may not recalculate due to rounding.
STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS)
AUGUST 15, 1997<F2> THROUGH OCTOBER 31, 1997
INVESTMENT INCOME:
Dividend income $ 5
Interest income 203
--------
208
--------
EXPENSES:
Investment advisory fees 74
Administration fees 11
Shareowner servicing and accounting costs 12
Service organization fees - Series A 2
Custody fees 6
Federal and state registration fees 14
Professional fees 4
Reports to shareowners 1
Amortization of organization costs 1
Directors' fees and expenses 1
Other 1
--------
Total expenses before waiver 127
Less: Waiver of expenses (36)
--------
Net Expenses 91
--------
NET INVESTMENT INCOME 117
--------
REALIZED AND UNREALIZED GAIN:
Net realized gain on investments 306
Change in unrealized appreciation
on investments 873
--------
Net gain on investments 1,179
--------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,296
========
<F2> Commencement of operations.
See notes to the financial statements.
EMERGING GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
(AMOUNTS IN THOUSANDS)
August 15, 1997<F1>
through
October 31, 1997
----------------
OPERATIONS:
Net investment income $117
Net realized gain on investments 306
Change in unrealized appreciation
on investments 873
--------
Net increase in net assets resulting
from operations 1,296
--------
CAPITAL SHARE TRANSACTIONS:
Shares sold 52,281
Shares issued to owners in
reinvestment of dividends -
Shares redeemed (178)
--------
Net increase 52,103
--------
DISTRIBUTIONS TO
SERIES A SHAREOWNERS:
From net investment income -
From net realized gains -
--------
-
--------
DISTRIBUTIONS TO
SERIES INSTITUTIONAL SHAREOWNERS:
From net investment income -
From net realized gains -
--------
-
--------
TOTAL INCREASE IN NET ASSETS 53,399
NET ASSETS:
Beginning of period -
--------
End of period (including undistributed
net investment income of $117) $53,399
========
<F1> Commencement of operations.
See notes to the financial statements.
EMERGING GROWTH FUND
FINANCIAL HIGHLIGHTS
August 15, 1997<F1>
through
October 31, 1997
----------------
Series A Series Institutional
-------- --------------------
Per Share Data:
Net asset value,
beginning of period $10.00 $10.00
Income from investment operations:
Net investment income 0.02 0.02
Net realized and unrealized
gains on securities 0.29 0.29
------ ------
Total from investment operations 0.31 0.31
------ ------
Less distributions:
Dividends from net investment income - -
Distributions from capital gains - -
------ ------
Total distributions - -
------ ------
Net asset value, end of period $10.31 $10.31
====== ======
Total return <F2><F3> 3.10% 3.10%
Supplemental data and ratios:
Net assets, in thousands, end
of period $5,355 $48,044
Ratio of net expenses to average
net assets <F4> 1.15% 0.90%
Ratio of net investment income
to average net assets <F4> 0.93% 1.18%
Portfolio turnover rate <F2><F5> 14.51% 14.51%
Average commission rate paid <F5> $0.0493 $0.0493
<F1> Commencement of operations.
<F2> Not annualized.
<F3> The total return calculation does not reflect the 4% front-end sales charge
for Series A.
<F4> Annualized.
<F5> Portfolio turnover and average commission rate paid are calculated on the
basis of the Fund as a whole without distinguishing between the classes of
shares issued.
See notes to the financial statements.
EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Number Market
of Value
Shares (in thousands)
------ -------------
COMMON STOCKS 83.0%
BUSINESS MACHINES & SOFTWARE 1.3%
13,800 National Instruments Corporation* $ 628
1,500 Remedy Corporation* 71
-------
699
-------
BUSINESS SERVICES 10.2%
18,100 ABR Information Services, Inc.* 425
11,000 American Business Information, Inc. - Class A* 115
11,000 American Business Information, Inc. - Class B* 143
34,400 BA Merchant Services, Inc. - Class A* 514
13,500 Danka Business Systems PLC ADR 499
21,800 F.Y.I. Incorporated* 561
42,300 Mastech Corporation* 1,401
48,100 National Data Corporation 1,777
-------
5,435
-------
COMPUTERS 1.9%
16,800 CDW Computer Centers, Inc.* 1,042
-------
DATA PROCESSING 3.1%
83,400 Axciom Corporation* 1,371
5,400 CCC Information Services Group Inc.* 101
1,800 CSG Systems International, Inc.* 71
7,000 Metromail Corporation* 139
-------
1,682
-------
ELECTRICAL EQUIPMENT 1.8%
25,000 Cable Design Technologies* 981
-------
ELECTRONICS 4.0%
37,400 BMC Industries, Inc. 1,204
43,200 Gemstar International Group Limited* 956
-------
2,160
-------
ENTERTAINMENT & LEISURE 0.5%
6,300 Cinar Films, Inc. - Class B* 245
-------
FINANCIAL SERVICES 0.9%
11,800 Medallion Financial Corp. 248
5,100 SEI Investments Company 217
-------
465
-------
HEALTH CARE SERVICES & SUPPLIES 12.1%
57,000 Ballard Medical Products 1,286
7,400 Cooper Companies, Inc.* 265
28,800 Gulf South Medical Supply, Inc.* 950
3,000 National Surgery Centers, Inc.* 75
65,550 Quorum Health Group, Inc.* 1,590
41,500 Rural/Metro Corporation* 1,442
7,400 Henry Schein, Inc.* 243
32,400 Twinlab Corporation* 616
-------
6,467
-------
Number Market
of Value
Shares (in thousands)
------ -------------
INDUSTRIAL DISTRIBUTION 2.1%
10,600 Barnett, Inc.* $ 219
8,400 Hughes Supply, Inc. 293
14,200 MSC Industrial Direct Co., Inc. - Class A* 591
-------
1,103
-------
INSURANCE 9.0%
9,950 W.R. Berkley Corporation 409
34,900 Chartwell Re Corporation 1,130
9,300 CMAC Investment Corporation 509
8,400 Delphi Financial Group, Inc.* 346
20,000 Enhance Financial Services Group, Inc. 1,056
5,300 Financial Security Assurance Holdings Ltd. 231
13,600 Terra Nova (Bermuda) Holdings Ltd. 352
27,700 United Wisconsin Services, Inc. 770
-------
4,803
-------
MEDICAL INSTRUMENTS 8.0%
13,400 Hologic, Inc.* 343
22,600 Mentor Corporation 823
16,900 Physio-Control International Corporation* 269
34,100 Sofamor Danek Group, Inc.* 2,349
22,000 VISX, Inc.* 503
-------
4,287
-------
OIL & GAS - DOMESTIC 2.2%
13,800 Pogo Producing Company 499
26,060 Swift Energy Company* 676
-------
1,175
-------
OIL & GAS SERVICES 1.5%
16,700 Seitel, Inc.* 787
-------
POLLUTION CONTROL 4.3%
6,600 Newpark Resources, Inc.* 274
86,200 Philip Services Corp.* 1,509
21,400 Tetra Technologies, Inc.* 494
-------
2,277
-------
PUBLISHING-PERIODICALS 0.5%
12,600 The Petersen Companies, Inc.* 249
-------
RETAIL 11.9%
500 Casey's General Stores, Inc. 12
56,000 Eagle Hardware & Garden, Inc.* 952
52,900 Goody's Family Clothing, Inc.* 1,385
26,900 The Men's Wearhouse, Inc.* 1,042
54,700 Petco Animal Supplies, Inc.* 1,682
43,200 Stein Mart, Inc.* 1,264
-------
6,337
-------
See notes to the financial statements.
EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
(UNAUDITED)
Number Market
of Value
Shares (in thousands)
------ -------------
SCHOOLS 1.1%
13,500 Sylvan Learning Systems, Inc.* $ 568
-------
SOFTWARE 1.9%
28,100 HNC Software, Inc.* 1,040
-------
TELECOMMUNICATIONS EQUIPMENT 3.2%
61,900 ECI Telecommunications Limited 1,710
-------
TEXTILES & APPAREL 1.5%
36,500 Wolverine World Wide, Inc. 803
-------
Total Common Stock (Cost $43,509) 44,315
-------
PREFERRED STOCK 1.7%
COMMUNICATIONS COMPANIES 1.7%
19 US WEST Communications Group 888
-------
Total Preferred Stock (Cost $821) 888
-------
Number
of Shares
(in thousands)
------------
SHORT-TERM INVESTMENTS 13.4%
INVESTMENT COMPANIES 7.0%
1,657 Financial Square Prime Obligation Fund 1,657
2,110 Short-Term Investments Co. Liquid
Assets Portfolio 2,110
-------
Total Investment Companies (Cost $3,767) 3,767
-------
Principal Market
Amount Value
(in thousands) (in thousands)
------------ ------------
VARIABLE RATE DEMAND NOTES 6.4%
$1,700 Warner-Lambert Co. $ 1,700
1,700 Johnson Controls, Inc. 1,700
-------
Total Variable Rate Demand Notes (Cost $3,400) 3,400
-------
Total Short-Term Investments (Cost $7,167) 7,167
-------
Total Investments (Cost $51,497) 98.1% 52,370
-------
Other Assets, less Liabilities 1.9% 1,029
-------
TOTAL NET ASSETS 100.0% $53,399
=======
* Non-income producing
See notes to the financial statements.
EMERGING GROWTH FUND
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION
Portico Funds, Inc. (the "Company") was incorporated on February 15, 1988,
as a Wisconsin Corporation and is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended. The
Emerging Growth Fund (the "Fund") is a separate, diversified investment
portfolio of the Company. The Fund commenced operations on August 15, 1997. The
objective of the Emerging Growth Fund is capital appreciation through
investments in securities of small companies.
The costs, in thousands, incurred in connection with the organization,
initial registration and public offering of shares, aggregating $21, have been
paid by the Fund. These costs are being amortized over the period of benefit,
but not to exceed sixty months from the Fund's commencement of operations.
The Company has issued two classes of Fund shares: Series A and Series
Institutional. The Series A shares are subject to a 0.25% service organization
fee and an initial sales charge imposed at the time of purchase, in accordance
with the Fund's prospectus. The maximum sales charge is 4% of the offering price
or 4.16% of the net asset value. Each class of shares has identical rights and
privileges except with respect to service organization fees paid by Series A
shares, voting rights on matters affecting a single class of shares and the
exchange privileges of each class of shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
a) Investment Valuation - Securities which are traded on a recognized stock
exchange are valued at the last sale price on the securities exchange on which
such securities are primarily traded or at the last sale price on a national
securities exchange. Exchange-traded securities for which there were no
transactions are valued at the current bid prices. Securities traded on only
over-the-counter markets are valued on the basis of closing over-the-counter bid
prices. Instruments with a remaining maturity of 60 days or less are valued on
an amortized cost basis. Securities for which market quotations are not readily
available, and other assets are valued at fair value as determined by the
investment adviser under the supervision of the Board of Directors.
b) Federal Income Taxes - No provision for federal income taxes has been made
since the Fund has complied to date with the provisions of the Internal Revenue
Code available to regulated investment companies and intends to distribute
substantially all of its taxable income to shareowners. The Fund intends to
continue to so comply in future years.
c) Income and Expenses - The Fund is charged for those expenses that are
directly attributable to it, such as advisory, administration and certain
shareowner service fees. Expenses that are not directly attributable to a
portfolio are typically allocated among the Company's portfolios in proportion
to their respective net assets, number of shareowner accounts or net sales,
where applicable. Net investment income other than class specific expenses, and
realized and unrealized gains and losses are allocated daily to each class of
shares based upon the relative net asset value of outstanding shares of each
class of shares at the beginning of the day (after adjusting for the current
day's capital share activity of the respective class).
d) Distributions to Shareowners - Dividends from net investment income are
declared and paid annually. Distributions of net realized capital gains, if any,
will be declared at least annually.
e) When-Issued Securities - The Fund may purchase securities on a when-issued or
delayed delivery basis. Although the payment and interest terms of these
securities are established at the time the purchaser enters into the agreement,
these securities may be delivered and paid for at a future date, generally
within 45 days. The Fund records purchases of when-issued securities and
reflects the values of such securities in determining net asset value in the
same manner as other portfolio securities. The Fund segregates and maintains at
all times cash, cash equivalents, or other high-quality liquid securities in
an amount at least equal to the amount of outstanding commitments for when-
issued securities.
f) Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
g) Other - Investment and shareowner transactions are recorded on
the trade date. The Fund determines the gain or loss realized from investment
transactions by comparing the original cost of the security lot sold with the
net sale proceeds. Dividend income is recognized on the ex-dividend date or as
soon as information is available to the Fund and interest income is recognized
on an accrual basis. Generally accepted accounting principles require that
permanent reporting and tax differences be reclassified.
3. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Fund, in thousands, were as follows:
August 15, 1997 through October 31, 1997:
Series A Series Institutional
Amount Shares Amount Shares
------ ------ ------ ------
Shares sold $5,403 525 $46,878 4,670
Shares redeemed (60) (6) (118) (11)
------ --- ------- -----
Net increase $5,343 519 $46,760 4,659
====== === ======= =====
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities for the period August 15, 1997 through
October 31, 1997 (excluding short-term investments), in thousands, aggregated
$47,790 and $3,766, respectively.
At October 31, 1997, gross unrealized appreciation and depreciation of
investments for federal tax purposes, in thousands, were as follows:
Appreciation $2,754
(Depreciation) (1,889)
-------
Net unrealized appreciation on investments $865
====
At October 31, 1997, the cost of investments, in thousands, for federal income
tax purposes was $51,505.
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Fund has 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 Fund, the Adviser is entitled to
receive a fee, calculated daily and payable monthly, at the annual rate of 0.75%
as applied to the Fund's daily net assets. For the period ended October 31,
1997, $28 in advisory fees, in thousands, were voluntarily waived for the Fund.
Firstar Trust Company, an affiliate of FIRMCO, serves as custodian, transfer
agent and accounting services agent for the Funds.
The Company has entered into a Co-Administration Agreement with B.C. Ziegler
and Company and Firstar Trust Company (the "Co-Administrators") for certain
administrative services. Pursuant to the Co-Administration Agreement with the
Company, the Co-Administrators are entitled to receive a fee, computed daily and
payable monthly, at the annual rate of 0.125% of the Company's first $2 billion
of average aggregate daily net assets, plus 0.10% of the Company's average
aggregate daily net assets in excess of $2 billion. For the period ended October
31, 1997, $28 of administration fees, in thousands, were voluntarily waived for
the Fund.
The Company has entered into Servicing Agreements with certain Service
Organizations, including FIRMCO affiliates, for the Series A class of shares.
The Service Organizations are entitled to receive fees from the Fund up to an
annual rate of 0.25% of the average daily net asset value of the Series A Shares
for certain support and/or distribution services to customers of the Service
Organizations who are beneficial owners of Fund Series A Shares. These services
may include assisting customers in processing purchase, exchange and redemption
requests; processing dividend and distribution payments from the Fund; and
providing information periodically to customers showing their positions in Fund
Series A shares. Service Organization fees, in thousands, incurred by the Fund
aggregated $2 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 Fund maintains
its proportionate share of the Company's liability for deferred fees.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREOWNERS OF THE PORTICO EMERGING GROWTH FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Portico Emerging Growth Fund
(one of the portfolios of Portico Funds, Inc. (the "Fund")) at October 31,
1997, the results of its operations for the period from August 15, 1997
(commencement of operations) through October 31, 1997, the changes in its net
assets and its financial highlights for the period from August 15, 1997 through
October 31, 1997, all in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 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, WI 53201-3011
FORM 40-0205 12/97
XXXXX
OCTOBER 31, 1997
ANNUAL
REPORT
RETAIL CLASS
PORTICO FUNDS
MICROCAP
FUND NOTICE TO INVESTORS
- -Shares of Portico Funds:
- ARE NOT INSURED BY THE FDIC, the US Government or any other governmental
agency;
- are not bank deposits or obligations of or guaranteed by Firstar Bank, its
parent company or its affiliates;
- are subject to investment risks, including possible loss of principal; and
- are offered by B.C. Ziegler and Company, member NASD, SIPC, and an
independent third-party distributor.
- -Firstar Bank affiliates serve as investment adviser, custodian, transfer
agent, administrator, and accounting services agent and receive compensation
for such services as disclosed in the current prospectus.
TABLE OF CONTENTS
Page(s)
SHAREOWNER LETTER...................................................1-2
PORTICO MICROCAP FUND...............................................4-5
STATEMENT OF ASSETS AND LIABILITIES..................................6
STATEMENT OF OPERATIONS..............................................6
STATEMENT OF CHANGES IN NET ASSETS...................................7
FINANCIAL HIGHLIGHTS.................................................8
SCHEDULE OF INVESTMENTS.............................................9-10
NOTES TO THE FINANCIAL STATEMENTS..................................11-12
REPORT OF INDEPENDENT ACCOUNTANTS....................................13
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 large cap 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 small cap 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 large cap 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 web site 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 Stock 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
This page intentionally left blank.
MICROCAP FUND
After declining -10.9% (no-load) for the first six months of the fiscal year,
Portico MicroCap Fund finished with an impressive +45.6% (no-load) return in the
second half -- outperforming its benchmark, the Russell 2000, which returned
+27.3% for the same time period. This illustrates the inherent volatility of
microcap investing -- but also demonstrates its potential rewards.
Although the fiscal year started out calm, the market proved to be extremely
volatile. As the year progressed, the Fund, benefited from: 1) investors
shifting funds into the small cap market sector in search of companies which
have higher growth rates and cheaper valuations than many large cap stocks; 2)
the Asian economic crisis which helped favor investment in small cap stocks with
little international sales exposure and; 3) a strong initial public offering
market late in the fiscal year. Overall, microcap stock funds outperformed all
other sectors for the year.
Over the past 12 months, we made a concerted effort to buy stock in companies
with recurring revenues and persistent income statements. Some of these
purchases include QuadraMed Corporation (a healthcare information systems
provider with approximately 75% of its revenue base recurring); RemedyTemp (a
temporary employment agency with a loyal customer base and significant exposure
to the strong California economy); and Assisted Living Concepts (provides
residency for the elderly). Two fast growing domestic-focused companies which
helped the Fund's performance were Pomery Computers and Insight Enterprises --
both associated with reselling computers and related technology equipment. These
stocks contributed +1.4% and +3.1%, respectively to the portfolio's performance.
See page 9 for a complete listing of portfolio holdings.
We remain optimistic, although we believe the market will experience volatility
over the next several months. As the "Asian Contagion" crisis impacts large
multinational corporations, we believe small cap stocks should remain in favor
and outperform the S&P 500 Stock Index. In addition, valuations in the small cap
sector are relatively attractive when compared to large cap stocks. As such,
with conditions favorable for an an extended period of outperformance by small
cap stocks, we feel the Fund is well positioned.
We appreciate your confidence in Portico MicroCap Fund.
<PHOTO>
JOSEPH A. FROHNA, CFA
PORTFOLIO MANAGER PROFILE
- -------------------------------------------------------------------------------
JOSEPH A. FROHNA, CFA, CPA, Vice President and Portfolio Manager of Firstar
Investment Research & Management Company, LLC (FIRMCO) has managed the Fund
since September 9, 1997. Joe has been with Firstar since 1995 and has four years
of investment management experience. Joe received his BBA from the University of
Wisconsin in 1986 and his MBA from the University of Michigan in 1994. Joe is a
Chartered Financial Analyst.
8/1/95 6/96 10/96 10/97
------ ---- ----- -----
PORTICO MICROCAP FUND - A - NO LOAD 10,000 16,352 17,137 22,240
PORTICO MICROCAP FUND - A - LOAD 9,600 15,693 16,446 21,344
RUSSELL 2000 10,000 11,709 11,567 14,960
S&P 500 STOCK INDEX 10,000 12,248 12,975 17,142
This chart assumes an initial investment of $10,000 made on 8/1/95 (inception).
Performance reflects fee waivers in effect. In the absence of fee waivers, total
return would be reduced. Returns shown include the reinvestment of all dividends
and other distributions. Past performance is not predictive of future
performance. Investment return and principal value will fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
AVERAGE ANNUAL RATE OF RETURN (%)
FOR PERIODS ENDED OCTOBER 31, 1997
Since Inception
1 Year 8/1/95
------ ------
PORTICO MICROCAP FUND - A - NO LOAD 29.8 42.6
PORTICO MICROCAP FUND - A - LOAD* 24.6 40.8
S&P 500 STOCK INDEX** 32.1 27.0
RUSSELL 2000*** 29.3 19.6
* Reflects maximum sales charge of 4.0%
** The S&P 500 Stock Index is an index of an unmanaged group of 500 selected
common stocks, most of which are listed on the New York Stock Exchange. The
Index is heavily weighted toward stocks with large market capitalizations and
represents approximately two-thirds of the total market value of all domestic
common stocks.
*** The Russell 2000, an unmanaged index, consists of the smallest 2,000
companies in a group of 3,000 U.S. companies in the Russell 3000 Index, as
ranked by total market capitalization.
An investment cannot be made directly in an index.
Series A shares, unlike the Series Institutional shares, have a 4% maximum sales
load and are subject to an annual 0.25% service organization fee. Performance
reflects fee waivers in effect. In the absence of fee waivers, total return
would be reduced.
TOP 5 HOLDINGS 10/31/97
- ----------------------------------------
POMEROY COMPUTER RESOURCES, INC. 4.6%
ASSISTED LIVING CONCEPTS 4.2%
COINMACH LAUNDRY CORPORATION 3.9%
INSIGHT ENTERPRISES, INC. 3.7%
COACH USA, INC. 3.5%
Portfolio holdings are subject to change
and are not a representation of the Fund's
entire portfolio holdings.
TOTAL FUND NET ASSETS 10/31/97
- ----------------------------------------
$120,632,897
MICROCAP FUND
STATEMENT OF ASSETS AND LIABILITIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
OCTOBER 31, 1997
ASSETS:
Investments, at value (Cost $103,874) $130,341
Income receivable 65
Receivable for securities sold 218
Other assets 27
--------
Total Assets 130,651
--------
LIABILITIES:
Payable for securities purchased 9,721
Capital shares redeemed 100
Payable to affiliates 181
Accrued expenses and other liabilities 16
--------
Total Liabilities 10,018
--------
NET ASSETS $120,633
========
NET ASSETS CONSIST OF:
Capital stock $82,767
Undistributed net investment (loss) (2)
Undistributed accumulated net realized gains 11,401
Unrealized net appreciation on investments 26,467
--------
Total Net Assets $120,633
========
SERIES A:
Net assets $ 16,793
Shares authorized ($.0001 par value) 500,000
Shares issued and outstanding 961
Net asset value and redemption price per share <F1> $17.47
======
Maximum offering price per share <F1> $18.20
======
SERIES INSTITUTIONAL:
Net assets $103,840
Shares authorized ($.0001 par value) 500,000
Shares issued and outstanding 5,910
Net asset value, redemption price
and offering price per share <F1> $17.57
======
<F1> Amounts may not recalculate due to rounding.
STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS)
YEAR ENDED OCTOBER 31, 1997
INVESTMENT INCOME:
Dividend income $ 53
Interest income 386
--------
439
--------
EXPENSES:
Investment advisory fees 1,319
Administration fees 98
Shareowner servicing and accounting costs 64
Service organization fees - Series A 28
Custody fees 29
Federal and state registration fees 15
Professional fees 19
Reports to shareowners 11
Amortization of organization costs 5
Directors' fees and expenses 3
Other 2
--------
Total expenses before waiver 1,593
Less: Waiver of expenses (68)
--------
Net Expenses 1,525
--------
NET INVESTMENT (LOSS) (1,086)
--------
Realized AND UNREALIZED GAIN:
Net realized gain on investments 12,681
Change in unrealized appreciation on investments 13,904
--------
Net gain on investments 26,585
--------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $25,499
=======
See notes to the financial statements.
MICROCAP FUND
STATEMENT OF CHANGES IN NET ASSETS
(AMOUNTS IN THOUSANDS)
Year Ended July 1, 1996
October 31, through
1997 October 31, 1996
---- ----------------
OPERATIONS:
Net investment (loss) $ (1,086) $ (352)
Net realized gain on investments 12,681 5,738
Change in unrealized appreciation
on investments 13,904 (1,894)
------ -------
Net increase in net assets resulting
from operations 25,499 3,492
------ -------
CAPITAL SHARE TRANSACTIONS:
Shares sold 28,930 74
Shares issued to owners in
reinvestment of dividends 11,413 -
Shares redeemed (8,081) (556)
------ -------
Net increase (decrease) 32,262 (482)
------ -------
DISTRIBUTIONS TO
SERIES A SHAREOWNERS:
From net investment income - -
From net realized gains (1,540) -
------ -------
(1,540) -
------ -------
DISTRIBUTIONS TO
SERIES INSTITUTIONAL SHAREOWNERS:
From net investment income - -
From net realized gains (11,229) -
------- -------
(11,229) -
------- -------
TOTAL INCREASE IN NET ASSETS 44,992 3,010
NET ASSETS:
Beginning of period 75,641 72,631
------ -------
End of period (including undistributed
net investment loss of $(2) and
$(1), respectively) $120,633 $75,641
======== =======
See notes to the financial statements.
<TABLE>
MICROCAP FUND
FINANCIAL HIGHLIGHTS
<CAPTION>
Year July 1, 1996 August 1, 1995 <F1>
ended through through
October 31, 1997 October 31, 1996 June 30, 1996
--------------------------- -------------------------- -------------------------
Series Series Series
Series A Institutional Series A Institutional Series A Institutional
-------- ------------- -------- ------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value,
beginning of period $16.16 $16.20 $ 15.42 $ 15.45 $ 10.00 $ 10.00
Income from investment operations:
Net investment (loss) (0.18)<F2> (0.15)<F2> (0.08)<F2> (0.07)<F2> (0.02) (0.02)
Net realized and unrealized
gains on securities 4.24 4.27 0.82 0.82 6.10 6.14
------- ------ ------ ------ ------ ------
Total from investment operations 4.06 4.12 0.74 0.75 6.08 6.12
------- ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income - - - - (0.04) (0.05)
Distributions from capital gains (2.75) (2.75) - - (0.62) (0.62)
------- ------ ------ ------ ------ ------
Total distributions (2.75) (2.75) - - (0.66) (0.67)
------- ------ ------ ------ ------ ------
Net asset value, end of period $17.47 $17.57 $ 16.16 $ 16.20 $ 15.42 $ 15.45
====== ====== ====== ====== ====== ======
Total return <F3><F4> 29.78% 30.12% 4.80% 4.85% 63.52% 63.93%
Supplemental data and ratios:
Net assets, in thousands, end of period $16,793 $103,840 $ 9,273 $66,368 $9,036 $ 63,595
Ratio of net expenses to average
net assets <F5> 1.95% 1.70% 1.97% 1.72% 1.99% 1.74%
Ratio of net investment (loss)
to average net assets <F5> (1.45)% (1.20)% (1.69)% (1.44)% (0.36)% (0.16)%
Portfolio turnover rate <F3><F6> 158.39% 158.39% 64.44% 64.44% 283.67% 283.67%
Average commission rate paid <F6> $0.0475 $0.0475 $0.0460 $0.0460 $ 0.0423 $ 0.0423
<FN>
<F1> Commencement of operations.
<F2> Net investment income per share is calculated using ending balances prior to consideration of adjustments for permanent book
and tax differences.
<F3> Not annualized for the periods ended October 31, 1996 and June 30, 1996.
<F4> The total return calculation does not reflect the 4% front-end sales charge for Series A.
<F5> Annualized for periods ended October 31, 1996 and June 30, 1996.
<F6> Portfolio turnover and average commission rate paid are calculated on the basis of the Fund as a whole without distinguishing
between the classes of shares issued.
</TABLE>
See notes to the financial statements.
MICROCAP FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Number Market
of Value
Shares (in thousands)
------ -------------
COMMON STOCKS 100.1%
AIR TRANSPORTATION 0.5%
27,300 Atlantic Coast Airlines, Inc.* $ 577
------
AUTOS & TRUCKS 3.7%
142,000 Group 1 Automotive, Inc.* 1,855
219,700 Ugly Duckling Corporation* 2,609
------
4,464
------
COMMERCIAL SERVICES 1.9%
85,200 Advanced Health Corporation* 1,502
50,800 ProSoft Development, Inc.* 805
------
2,307
------
COMPUTER HARDWARE 4.2%
20,500 CHS Electronics, Inc.* 501
47,300 RadiSys Corporation* 2,199
83,300 SBS Technologies, Inc.* 2,416
------
5,116
------
COMPUTER SOFTWARE & SERVICES 5.8%
308,800 Elcom International, Inc.* 2,355
83,200 Phoenix International Ltd., Inc.* 1,456
61,400 Smallworldwide PLC - ADR* 1,596
157,000 Western Micro Technology, Inc.* 1,570
------
6,977
------
COSMETICS & SOAP 4.3%
259,800 Advanced Polymer Systems, Inc.* 1,835
319,600 French Fragrances, Inc.* 3,416
------
5,251
------
DATA PROCESSING 1.5%
100,400 INSpire Insurance Solutions, Inc.* 1,857
------
DISTRIBUTION 10.7%
114,000 Insight Enterprises, Inc.* 4,460
216,500 Pomeroy Computer Resources, Inc.* 5,521
91,900 Richey Electronics, Inc.* 896
116,600 U.S.A. Floral Products, Inc.* 2,041
------
12,918
------
ELECTRONICS 5.0%
38,400 Thermedics Detection, Inc.* 403
84,300 Eltron International, Inc.* 2,455
28,600 FARO Technologies, Inc.* 390
15,700 MMC Networks, Inc.* 344
36,000 Power-One, Inc.* 671
114,500 Trident International, Inc.* 1,746
------
6,009
------
Number Market
of Value
Shares (in thousands)
------- -------------
EQUIPMENT RENTAL 4.2%
223,400 Coinmach Laundry Corporation* $4,677
26,600 Mac-Gray Corporation* 392
------
5,069
------
FINANCIAL SERVICES 6.8%
94,200 American Capital Strategies, Ltd.* 1,696
129,200 Delta Financial Corporation* 2,358
150,300 First Sierra Financial, Inc.* 2,968
106,400 Granite Financial, Inc.* 1,144
------
8,166
------
FOOD, BEVERAGES & TOBACCO 0.6%
35,000 American Italian Pasta Company* 735
------
FOOTWEAR & RELATED APPAREL 1.4%
85,800 Rocky Shoes & Boots, Inc.* 1,703
------
FUNERAL SERVICES 0.5%
35,000 Rock of Ages Corporation* 665
------
HEALTH CARE SERVICES & SUPPLIES 1.4%
34,000 AmeriPath, Inc.* 561
98,700 EndoSonics Corporation* 1,135
------
1,696
------
HUMAN RESOURCES 3.4%
19,700 Lamalie Associates, Inc.* 394
161,300 RemedyTemp, Inc. - Class A* 3,710
------
4,104
------
INSURANCE 2.4%
136,400 Healthcare Recoveries, Inc.* 2,523
17,300 PAULA Financial* 437
------
2,960
------
MACHINERY 2.9%
275,500 ITEQ, Inc.* 3,444
------
MARINE SERVICES 0.6%
28,000 TransCoastal Marine Services, Inc.* 697
------
METALS 2.4%
195,100 Metals USA* 2,878
------
POLLUTION CONTROL 1.6%
89,400 Casella Waste Systems, Inc.* 1,978
------
PRIVATE CORRECTION FACILITIES 0.9%
60,000 Cornell Corrections, Inc.* 1,080
------
See notes to the financial statements.
MICROCAP FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Number Market
of Value
Shares (in thousands)
------ -------------
RECREATIONAL VEHICLES 0.7%
37,200 Monoco Coach Corporation* $ 888
------
RESTAURANTS 1.4%
82,900 Il Fornaio (America) Corporation* 1,104
36,500 Star Buffet, Inc.* 522
------
1,626
------
RETAIL 4.1%
153,500 A.C. Moore Arts & Crafts, Inc.* 2,331
72,000 DM Management Company* 1,080
161,100 Factory Card Outlet Corp.* 1,208
14,000 White Cap Industries, Inc.* 266
------
4,885
------
RETIREMENT CARE 8.2%
67,210 Alternative Living Services, Inc.* 1,647
246,900 Assisted Living Concepts, Inc.* 5,061
61,700 Centennial HealthCare Corporation* 1,280
104,000 Harborside Healthcare Corporation* 1,898
------
9,886
------
SECURITY SERVICES 0.8%
102,000 Securacom, Incorporated* 976
------
SOFTWARE 5.2%
21,000 Advantage Learning Systems, Inc.* 530
9,000 International Microcomputer Software, Inc.* 151
45,600 Omega Research, Inc.* 376
134,500 PSW Technologies, Inc.* 2,051
132,600 QuadraMed Corp.* 3,116
------
6,224
------
SPECIALTY FINANCE 1.1%
39,400 HealthCare Financial Partners, Inc.* 1,359
------
TELECOMMUNICATIONS 5.0%
134,800 Metromedia Fiber Network, Inc.* 3,235
42,000 NEXTLINK Communications, Inc.* 950
41,000 RSL Communications, Ltd.* 964
372,300 Syntellect, Inc.* 884
------
6,033
------
TELECOMMUNICATIONS EQUIPMENT 0.3%
14,200 REMEC, Inc.* 360
------
TRANSPORTATION 4.5%
140,700 Coach USA, Inc.* 4,186
70,600 Jevic Transportation, Inc.* 1,253
------
5,439
------
Number Market
of Value
Shares (in thousands)
------- -------------
VETERINARY HOSPITALS 1.7%
139,800 Veterinary Centers of America, Inc.* $ 2,027
------
WARRANTY & SERVICE CONTRACTS 0.3%
25,000 Warrantech Corporation* 410
------
Total Common Stock (Cost $94,297) 120,764
-------
Number
of Shares
(in thousands)
-------------
SHORT-TERM INVESTMENTS 7.9%
Investment Companies 3.2%
10 Financial Square Prime Obligation Fund 10
3,893 Short-Term Investments Co. Liquid
Assets Portfolio 3,893
------
Total Investment Companies (Cost $3,903) 3,903
------
Principal
Amount
(in thousands)
-------------
U.S. TREASURIES 0.1%
$ 174 U.S. Treasury Bill 174
------
Total U.S. Treasuries (Cost $174) 174
------
VARIABLE RATE DEMAND NOTES 4.6%
5,500 Warner-Lambert Co. 5,500
Total Variable Rate Demand Notes (Cost $5,500) 5,500
------
Total Short-Term Investments (Cost $9,577) 9,577
------
Total Investments (Cost $103,874) 108.0% 130,341
-------
Liabilities, less Other Assets (8.0)% (9,708)
-------
TOTAL NET ASSETS 100.0% $120,633
========
* Non-income producing
See notes to the financial statements.
MICROCAP FUND
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION
Portico Funds, Inc. (the "Company") was incorporated on February
15, 1988, as a Wisconsin Corporation and is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended. The
MicroCap Fund (the "Fund") is a separate, diversified investment portfolio of
the Company. The Fund commenced operations on August 1, 1995. The objective of
the MicroCap Fund is capital appreciation through investments in securities of
small companies.
The costs, in thousands, incurred in connection with the organization,
initial registration and public offering of shares, aggregating $24, have been
paid by the Fund. These costs are being amortized over the period of benefit,
but not to exceed sixty months from the Fund's commencement of operations.
The Company has issued two classes of Fund shares: Series A and Series
Institutional. The Series A shares are subject to a 0.25% service organization
fee and an initial sales charge imposed at the time of purchase, in accordance
with the Fund's prospectus. The maximum sales charge is 4% of the offering price
or 4.16% of the net asset value. Each class of shares has identical rights and
privileges except with respect to service organization fees paid by Series A
shares, voting rights on matters affecting a single class of shares and the
exchange privileges of each class of shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
a) Investment Valuation - Securities which are traded on a recognized stock
exchange are valued at the last sale price on the securities exchange on which
such securities are primarily traded or at the last sale price on a national
securities exchange. Exchange-traded securities for which there were no
transactions are valued at the current bid prices. Securities traded on only
over-the-counter markets are valued on the basis of closing over-the-counter bid
prices. Instruments with a remaining maturity of 60 days or less are valued on
an amortized cost basis. Securities for which market quotations are not readily
available, and other assets are valued at fair value as determined by the
investment adviser under the supervision of the Board of Directors.
b) Federal Income Taxes - No provision for federal income taxes has been made
since the Fund has complied to date with the provisions of the Internal Revenue
Code available to regulated investment companies and intends to distribute
substantially all of its taxable income to shareowners. The Fund intends to
continue to so comply in future years.
c) Income and Expenses - The Fund is charged for those expenses that are
directly attributable to it, such as advisory, administration and certain
shareowner organization fees. Expenses that are not directly attributable to a
portfolio are typically allocated among the Company's portfolios in proportion
to their respective net assets, number of shareowner accounts or net sales,
where applicable. Net investment income other than class specific expenses, and
realized and unrealized gains and losses are allocated daily to each class of
shares based upon the relative net asset value of outstanding shares of each
class of shares at the beginning of the day (after adjusting for the current
day's capital share activity of the respective class).
d) Distributions to Shareowners - Dividends from net investment income are
declared and paid annually. Distributions of net realized capital gains, if any,
will be declared at least annually.
e) When-Issued Securities - The Fund may purchase securities on a when-issued or
delayed delivery basis. Although the payment and interest terms of these
securities are established at the time the purchaser enters into the agreement,
these securities may be delivered and paid for at a future date, generally
within 45 days. The Fund records purchases of when-issued securities and
reflects the values of such securities in determining net asset value in the
same manner as other portfolio securities. The Fund segregates and maintains at
all times cash, cash equivalents, or other high-quality liquid securities in
an amount at least equal to the amount of outstanding commitments for when-
issued securities.
f) Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
g) Other - Investment and shareowner transactions are recorded on the trade
date. The Fund determines the gain or loss realized from investment transactions
by comparing the original cost of the security lot sold with the net sale
proceeds. Dividend income is recognized on the ex-dividend date or as soon as
information is available to the Fund and interest income is recognized on an
accrual basis. Generally accepted accounting principles require that permanent
reporting and tax differences be reclassified.
3. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Fund, in thousands, were as follows:
Year ended October 31, 1997:
Series A Series Institutional
-------------------- --------------------
Amount Shares Amount Shares
------ ------ ------ ------
Shares sold $6,446 421 $22,484 1,468
Shares issued
to owners in
reinvestment
of dividends 1,536 112 9,877 717
Shares redeemed (2,209) (146) (5,872) (371)
------- ----- ------- -----
Net increase $5,773 387 $26,489 1,814
====== === ======= =====
Year ended October 31, 1996:
Series A Series Institutional
-------------------- --------------------
Amount Shares Amount Shares
------ ------ ------ ------
Shares sold $27 2 $47 3
Shares redeemed (210) (14) (346) (24)
------- ----- ------- -----
Net decrease $(183) (12) $(299) (21)
======= ===== ======= =====
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities for the period ended October 31, 1997
(excluding short-term investments), in thousands, aggregated $150,710 and
$131,924, respectively.
At October 31, 1997, gross unrealized appreciation and depreciation of
investments for federal tax purposes, in thousands, were as follows:
Appreciation $30,092
(Depreciation) (3,637)
-------
Net unrealized appreciation on investments $26,455
=======
At October 31, 1997, the cost of investments, in thousands, for federal income
tax purposes was $103,886.
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Fund has 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 Fund, the Adviser is entitled to
receive a fee, calculated daily and payable monthly, at the annual rate of 1.50%
as applied to the Fund's daily net assets.
Firstar Trust Company, an affiliate of FIRMCO, serves as custodian, transfer
agent and accounting services agent for the Funds.
The Company has entered into a Co-Administration Agreement with B.C. Ziegler
and Company and Firstar Trust Company (the "Co-Administrators") for certain
administrative services. Pursuant to the Co-Administration Agreement with the
Company, the Co-Administrators are entitled to receive a fee, computed daily
and payable monthly, at the annual rate of 0.125% of the Company's first $2
billion of average aggregate daily net assets, plus 0.10% of the Company's
average aggregate daily net assets in excess of $2 billion. For the year
ended October 31, 1997, $68 of administration fees, in thousands, were
voluntarily waived for the Fund.
The Company has entered into Servicing Agreements with certain Service
Organizations, including FIRMCO affiliates, for the Series A class of shares.
The Service Organizations are entitled to receive fees from the Fund up to an
annual rate of 0.25% of the average daily net asset value of the Series A Shares
for certain support and/or distribution services to customers of the Service
Organizations who are beneficial owners of Fund Series A Shares. These services
may include assisting customers in processing purchase, exchange and redemption
requests; processing dividend and distribution payments from the Fund; and
providing information periodically to customers showing their positions in Fund
Series A shares. Service Organization fees, in thousands, incurred by the Fund
aggregated $28 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 Fund maintains
its proportionate share of the Company's liability for deferred fees.
6. DISTRIBUTIONS
On November 10, 1997, a distribution of approximately $1.67 per share,
(including $1.57 taxable to shareowners as ordinary income dividends and $0.10
applicable to long-term gains), aggregating $11,413, in thousands, was paid by
the Fund to shareowners of record on November 7, 1997, of both the Series A and
Series Institutional Shares.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREOWNERS OF THE PORTICO MICROCAP FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Portico MicroCap Fund (one of
the portfolios of Portico Funds, Inc. (the "Fund")) at October 31, 1997, the
results of its operations for the year ended October 31, 1997, the changes in
its net assets for the year ended October 31, 1997, and for the period from July
1, 1996 through October 31, 1996 and its 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 Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1997 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/S/ Price Waterhouse
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 pre ceded or accompanied by
a current prospectus.
TO OPEN AN ACCOUNT OR
REQUEST INFORMATION
1-800-982-8909
1-414-287-3710
FOR ACCOUNT BALANCES AND
INVESTOR SERVICES
1-800-228-1024
1-414-287-3808
PORTICO FUNDS CENTER
615 EAST MICHIGAN STREET
P.O. Box 3011
Milwaukee, WI 53201-3011
FORM #40-0201 12/97
xxxxx
OCTOBER 31, 1997
ANNUAL
REPORT
INSTITUTIONAL CLASS
PORTICO FUNDS
MICROCAP
FUND NOTICE TO INVESTORS
- -Shares of Portico Funds:
- ARE NOT INSURED BY THE FDIC, the US Government or any other governmental
agency;
- are not bank deposits or obligations of or guaranteed by Firstar Bank, its
parent company or its affiliates;
- are subject to investment risks, including possible loss of principal; and
- are offered by B.C. Ziegler and Company, member NASD, SIPC, and an
independent third-party distributor.
- -Firstar Bank affiliates serve as investment adviser, custodian, transfer
agent, administrator, and accounting services agent and receive compensation
for such services as disclosed in the current prospectus.
TABLE OF CONTENTS
Page(s)
SHAREOWNER LETTER...................................................1-2
PORTICO MICROCAP FUND...............................................4-5
STATEMENT OF ASSETS AND LIABILITIES..................................6
STATEMENT OF OPERATIONS..............................................6
STATEMENT OF CHANGES IN NET ASSETS...................................7
FINANCIAL HIGHLIGHTS.................................................8
SCHEDULE OF INVESTMENTS.............................................9-10
NOTES TO THE FINANCIAL STATEMENTS..................................11-12
REPORT OF INDEPENDENT ACCOUNTANTS....................................13
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 large cap 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 small cap 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 large cap 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 web site 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 Stock 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
MICROCAP FUND
After declining -10.8% for the first six months of the fiscal year, Portico
MicroCap Fund finished with an impressive +45.8% return in the second half --
outperforming its benchmark, the Russell 2000, which returned +27.3% for the
same time period. This illustrates the inherent volatility of microcap investing
- -- but also demonstrates its potential rewards.
Although the fiscal year started out calm, the market proved to be extremely
volatile. As the year progressed, the Fund, benefited from: 1) investors
shifting funds into the small cap market sector in search of companies which
have higher growth rates and cheaper valuations than many large cap stocks; 2)
the Asian economic crisis which helped favor investment in small cap stocks with
little international sales exposure and; 3) a strong initial public offering
market late in the fiscal year. Overall, microcap stock funds outperformed all
other sectors for the year.
Over the past 12 months, we made a concerted effort to buy stock in companies
with recurring revenues and persistent income statements. Some of these
purchases include QuadraMed Corporation (a healthcare information systems
provider with approximately 75% of its revenue base recurring); RemedyTemp (a
temporary employment agency with a loyal customer base and significant exposure
to the strong California economy); and Assisted Living Concepts (provides
residency for the elderly). Two fast growing domestic-focused companies which
helped the Fund's performance were Pomery Computers and Insight Enterprises --
both associated with reselling computers and related technology equipment. These
stocks contributed +1.4% and +3.1% of performance, respectively to the
portfolio's performance. See page 9 for a complete listing of portfolio
holdings.
We remain optimistic, although we believe the market will experience volatility
over the next several months. As the "Asian Contagion" crisis impacts large
multinational corporations, we believe small cap stocks should remain in favor
and outperform the S&P 500 Stock Index. In addition, valuations in the small cap
sector are relatively attractive when compared to large cap stocks. As such,
with conditions favorable for an extended period of outperformance by small cap
stocks, we feel the Fund is well positioned.
We appreciate your confidence in Portico MicroCap Fund.
<PHOTO>
JOSEPH A. FROHNA, CFA
PORTFOLIO MANAGER PROFILE
- ------------------------------------------------------------------------------
JOSEPH A. FROHNA, CFA, CPA, Vice President and Portfolio Manager of Firstar
Investment Research & Management Company, LLC (FIRMCO) has managed the Fund
since September 9, 1997. Joe has been with Firstar since 1995 and has four years
of investment management experience. Joe received his BBA from the University of
Wisconsin in 1986 and his MBA from the University of Michigan in 1994. Joe is a
Chartered Financial Analyst.
8/1/95 6/96 10/96 10/97
------ ---- ----- -----
PORTICO MICROCAP FUND 10,000 16,393 17,188 22,365
RUSSELL 2000 10,000 11,709 11,567 14,960
S&P 500 STOCK INDEX 10,000 12,248 12,975 17,142
This chart assumes an initial investment of $10,000 made on 8/1/95 (inception).
Per form ance 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 perform ance is not predictive of future
performance. Investment return and principal value will fluc tuate, 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 8/1/95
----- ------
PORTICO MICROCAP FUND 30.1 43.0
S&P 500 STOCK INDEX* 32.1 27.0
RUSSELL 2000** 29.3 19.6
* The S&P500 Stock Index is an index of an unmanaged group of 500 selected
common stocks, most of which are listed on the New York Stock Exchange. The
Index is heavily weighted toward stocks with large market capitalizations and
represents approximately two-thirds of the total market value of all domestic
common stocks.
** The Russell 2000, an unmanaged index, consists of the smallest 2,000
companies in a group of 3,000 U.S. companies in the Russell 3000 Index, as
ranked by total market capitalization.
An investment cannot be made directly in an index.
Series A shares, unlike the Series Institutional shares, have a 4% maximum sales
load and are subject to an annual 0.25% service organization fee. Performance
reflects fee waivers in effect. In the absence of fee waivers, total return
would be reduced.
TOP 5 HOLDINGS 10/31/97
- ----------------------------------------
POMEROY COMPUTER RESOURCES, INC. 4.6%
ASSISTED LIVING CONCEPTS 4.2%
COINMACH LAUNDRY CORPORATION 3.9%
INSIGHT ENTERPRISES, INC. 3.7%
COACH USA, INC. 3.5%
Portfolio holdings are subject to change
and are not a representation of the Fund's
entire portfolio holdings.
TOTAL FUND NET ASSETS 10/31/97
- ----------------------------------------
120,632,897
MICROCAP FUND
STATEMENT OF ASSETS AND LIABILITIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
OCTOBER 31, 1997
ASSETS:
Investments, at value (Cost $103,874) $130,341
Income receivable 65
Receivable for securities sold 218
Other assets 27
--------
Total Assets 130,651
--------
LIABILITIES:
Payable for securities purchased 9,721
Capital shares redeemed 100
Payable to affiliates 181
Accrued expenses and other liabilities 16
--------
Total Liabilities 10,018
--------
NET ASSETS $120,633
========
NET ASSETS CONSIST OF:
Capital stock $82,767
Undistributed net investment (loss) (2)
Undistributed accumulated net realized gains 11,401
Unrealized net appreciation on investments 26,467
--------
Total Net Assets $120,633
========
SERIES A:
Net assets $ 16,793
Shares authorized ($.0001 par value) 500,000
Shares issued and outstanding 961
Net asset value and redemption price per share <F1> $17.47
======
Maximum offering price per share <F1> $18.20
======
SERIES INSTITUTIONAL:
Net assets $103,840
Shares authorized ($.0001 par value) 500,000
Shares issued and outstanding 5,910
Net asset value, redemption price
and offering price per share <F1> $17.57
======
<F1> Amounts may not recalculate due to rounding.
STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS)
YEAR ENDED OCTOBER 31, 1997
INVESTMENT INCOME:
Dividend income $ 53
Interest income 386
--------
439
--------
EXPENSES:
Investment advisory fees 1,319
Administration fees 98
Shareowner servicing and accounting costs 64
Service organization fees - Series A 28
Custody fees 29
Federal and state registration fees 15
Professional fees 19
Reports to shareowners 11
Amortization of organization costs 5
Directors' fees and expenses 3
Other 2
--------
Total expenses before waiver 1,593
Less: Waiver of expenses (68)
--------
Net Expenses 1,525
--------
NET INVESTMENT (LOSS) (1,086)
--------
Realized AND UNREALIZED GAIN:
Net realized gain on investments 12,681
Change in unrealized appreciation on investments 13,904
--------
Net gain on investments 26,585
--------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $25,499
=======
See notes to the financial statements.
MICROCAP FUND
STATEMENT OF CHANGES IN NET ASSETS
(AMOUNTS IN THOUSANDS)
Year Ended July 1, 1996
October 31, through
1997 October 31, 1996
---- ----------------
OPERATIONS:
Net investment (loss) $ (1,086) $ (352)
Net realized gain on investments 12,681 5,738
Change in unrealized appreciation
on investments 13,904 (1,894)
------ -------
Net increase in net assets resulting
from operations 25,499 3,492
------ -------
CAPITAL SHARE TRANSACTIONS:
Shares sold 28,930 74
Shares issued to owners in
reinvestment of dividends 11,413 -
Shares redeemed (8,081) (556)
------ -------
Net increase (decrease) 32,262 (482)
------ -------
DISTRIBUTIONS TO
SERIES A SHAREOWNERS:
From net investment income - -
From net realized gains (1,540) -
------ -------
(1,540) -
------ -------
DISTRIBUTIONS TO
SERIES INSTITUTIONAL SHAREOWNERS:
From net investment income - -
From net realized gains (11,229) -
------- -------
(11,229) -
------- -------
TOTAL INCREASE IN NET ASSETS 44,992 3,010
NET ASSETS:
Beginning of period 75,641 72,631
------ -------
End of period (including undistributed
net investment loss of $(2) and
$(1), respectively) $120,633 $75,641
======== =======
See notes to the financial statements.
<TABLE>
MICROCAP FUND
FINANCIAL HIGHLIGHTS
<CAPTION>
Year July 1, 1996 August 1, 1995 <F1>
ended through through
October 31, 1997 October 31, 1996 June 30, 1996
--------------------------- -------------------------- -------------------------
Series Series Series
Series A Institutional Series A Institutional Series A Institutional
-------- ------------- -------- ------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:
Net asset value,
beginning of period $16.16 $16.20 $ 15.42 $ 15.45 $ 10.00 $ 10.00
Income from investment operations:
Net investment (loss) (0.18)<F2> (0.15)<F2> (0.08)<F2> (0.07)<F2> (0.02) (0.02)
Net realized and unrealized
gains on securities 4.24 4.27 0.82 0.82 6.10 6.14
------- ------ ------ ------ ------ ------
Total from investment operations 4.06 4.12 0.74 0.75 6.08 6.12
------- ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income - - - - (0.04) (0.05)
Distributions from capital gains (2.75) (2.75) - - (0.62) (0.62)
------- ------ ------ ------ ------ ------
Total distributions (2.75) (2.75) - - (0.66) (0.67)
------- ------ ------ ------ ------ ------
Net asset value, end of period $17.47 $17.57 $ 16.16 $ 16.20 $ 15.42 $ 15.45
====== ====== ====== ====== ====== ======
Total return <F3><F4> 29.78% 30.12% 4.80% 4.85% 63.52% 63.93%
Supplemental data and ratios:
Net assets, in thousands, end of period $16,793 $103,840 $ 9,273 $66,368 $9,036 $ 63,595
Ratio of net expenses to average
net assets <F5> 1.95% 1.70% 1.97% 1.72% 1.99% 1.74%
Ratio of net investment (loss)
to average net assets <F5> (1.45)% (1.20)% (1.69)% (1.44)% (0.36)% (0.16)%
Portfolio turnover rate <F3><F6> 158.39% 158.39% 64.44% 64.44% 283.67% 283.67%
Average commission rate paid <F6> $0.0475 $0.0475 $0.0460 $0.0460 $ 0.0423 $ 0.0423
<FN>
<F1> Commencement of operations.
<F2> Net investment income per share is calculated using ending balances prior to consideration of adjustments for permanent book
and tax differences.
<F3> Not annualized for the periods ended October 31, 1996 and June 30, 1996.
<F4> The total return calculation does not reflect the 4% front-end sales charge for Series A.
<F5> Annualized for periods ended October 31, 1996 and June 30, 1996.
<F6> Portfolio turnover and average commission rate paid are calculated on the basis of the Fund as a whole without distinguishing
between the classes of shares issued.
</TABLE>
See notes to the financial statements.
MICROCAP FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Number Market
of Value
Shares (in thousands)
------ -------------
COMMON STOCKS 100.1%
AIR TRANSPORTATION 0.5%
27,300 Atlantic Coast Airlines, Inc.* $ 577
------
AUTOS & TRUCKS 3.7%
142,000 Group 1 Automotive, Inc.* 1,855
219,700 Ugly Duckling Corporation* 2,609
------
4,464
------
COMMERCIAL SERVICES 1.9%
85,200 Advanced Health Corporation* 1,502
50,800 ProSoft Development, Inc.* 805
------
2,307
------
COMPUTER HARDWARE 4.2%
20,500 CHS Electronics, Inc.* 501
47,300 RadiSys Corporation* 2,199
83,300 SBS Technologies, Inc.* 2,416
------
5,116
------
COMPUTER SOFTWARE & SERVICES 5.8%
308,800 Elcom International, Inc.* 2,355
83,200 Phoenix International Ltd., Inc.* 1,456
61,400 Smallworldwide PLC - ADR* 1,596
157,000 Western Micro Technology, Inc.* 1,570
------
6,977
------
COSMETICS & SOAP 4.3%
259,800 Advanced Polymer Systems, Inc.* 1,835
319,600 French Fragrances, Inc.* 3,416
------
5,251
------
DATA PROCESSING 1.5%
100,400 INSpire Insurance Solutions, Inc.* 1,857
------
DISTRIBUTION 10.7%
114,000 Insight Enterprises, Inc.* 4,460
216,500 Pomeroy Computer Resources, Inc.* 5,521
91,900 Richey Electronics, Inc.* 896
116,600 U.S.A. Floral Products, Inc.* 2,041
------
12,918
------
ELECTRONICS 5.0%
38,400 Thermedics Detection, Inc.* 403
84,300 Eltron International, Inc.* 2,455
28,600 FARO Technologies, Inc.* 390
15,700 MMC Networks, Inc.* 344
36,000 Power-One, Inc.* 671
114,500 Trident International, Inc.* 1,746
------
6,009
------
Number Market
of Value
Shares (in thousands)
------- -------------
EQUIPMENT RENTAL 4.2%
223,400 Coinmach Laundry Corporation* $4,677
26,600 Mac-Gray Corporation* 392
------
5,069
------
FINANCIAL SERVICES 6.8%
94,200 American Capital Strategies, Ltd.* 1,696
129,200 Delta Financial Corporation* 2,358
150,300 First Sierra Financial, Inc.* 2,968
106,400 Granite Financial, Inc.* 1,144
------
8,166
------
FOOD, BEVERAGES & TOBACCO 0.6%
35,000 American Italian Pasta Company* 735
------
FOOTWEAR & RELATED APPAREL 1.4%
85,800 Rocky Shoes & Boots, Inc.* 1,703
------
FUNERAL SERVICES 0.5%
35,000 Rock of Ages Corporation* 665
------
HEALTH CARE SERVICES & SUPPLIES 1.4%
34,000 AmeriPath, Inc.* 561
98,700 EndoSonics Corporation* 1,135
------
1,696
------
HUMAN RESOURCES 3.4%
19,700 Lamalie Associates, Inc.* 394
161,300 RemedyTemp, Inc. - Class A* 3,710
------
4,104
------
INSURANCE 2.4%
136,400 Healthcare Recoveries, Inc.* 2,523
17,300 PAULA Financial* 437
------
2,960
------
MACHINERY 2.9%
275,500 ITEQ, Inc.* 3,444
------
MARINE SERVICES 0.6%
28,000 TransCoastal Marine Services, Inc.* 697
------
METALS 2.4%
195,100 Metals USA* 2,878
------
POLLUTION CONTROL 1.6%
89,400 Casella Waste Systems, Inc.* 1,978
------
PRIVATE CORRECTION FACILITIES 0.9%
60,000 Cornell Corrections, Inc.* 1,080
------
See notes to the financial statements.
MICROCAP FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
Number Market
of Value
Shares (in thousands)
------ -------------
RECREATIONAL VEHICLES 0.7%
37,200 Monoco Coach Corporation* $ 888
------
RESTAURANTS 1.4%
82,900 Il Fornaio (America) Corporation* 1,104
36,500 Star Buffet, Inc.* 522
------
1,626
------
RETAIL 4.1%
153,500 A.C. Moore Arts & Crafts, Inc.* 2,331
72,000 DM Management Company* 1,080
161,100 Factory Card Outlet Corp.* 1,208
14,000 White Cap Industries, Inc.* 266
------
4,885
------
RETIREMENT CARE 8.2%
67,210 Alternative Living Services, Inc.* 1,647
246,900 Assisted Living Concepts, Inc.* 5,061
61,700 Centennial HealthCare Corporation* 1,280
104,000 Harborside Healthcare Corporation* 1,898
------
9,886
------
SECURITY SERVICES 0.8%
102,000 Securacom, Incorporated* 976
------
SOFTWARE 5.2%
21,000 Advantage Learning Systems, Inc.* 530
9,000 International Microcomputer Software, Inc.* 151
45,600 Omega Research, Inc.* 376
134,500 PSW Technologies, Inc.* 2,051
132,600 QuadraMed Corp.* 3,116
------
6,224
------
SPECIALTY FINANCE 1.1%
39,400 HealthCare Financial Partners, Inc.* 1,359
------
TELECOMMUNICATIONS 5.0%
134,800 Metromedia Fiber Network, Inc.* 3,235
42,000 NEXTLINK Communications, Inc.* 950
41,000 RSL Communications, Ltd.* 964
372,300 Syntellect, Inc.* 884
------
6,033
------
TELECOMMUNICATIONS EQUIPMENT 0.3%
14,200 REMEC, Inc.* 360
------
TRANSPORTATION 4.5%
140,700 Coach USA, Inc.* 4,186
70,600 Jevic Transportation, Inc.* 1,253
------
5,439
------
Number Market
of Value
Shares (in thousands)
------- -------------
VETERINARY HOSPITALS 1.7%
139,800 Veterinary Centers of America, Inc.* $ 2,027
------
WARRANTY & SERVICE CONTRACTS 0.3%
25,000 Warrantech Corporation* 410
------
Total Common Stock (Cost $94,297) 120,764
-------
Number
of Shares
(in thousands)
-------------
SHORT-TERM INVESTMENTS 7.9%
Investment Companies 3.2%
10 Financial Square Prime Obligation Fund 10
3,893 Short-Term Investments Co. Liquid
Assets Portfolio 3,893
------
Total Investment Companies (Cost $3,903) 3,903
------
Principal
Amount
(in thousands)
-------------
U.S. TREASURIES 0.1%
$ 174 U.S. Treasury Bill 174
------
Total U.S. Treasuries (Cost $174) 174
------
VARIABLE RATE DEMAND NOTES 4.6%
5,500 Warner-Lambert Co. 5,500
Total Variable Rate Demand Notes (Cost $5,500) 5,500
------
Total Short-Term Investments (Cost $9,577) 9,577
------
Total Investments (Cost $103,874) 108.0% 130,341
-------
Liabilities, less Other Assets (8.0)% (9,708)
-------
TOTAL NET ASSETS 100.0% $120,633
========
* Non-income producing
See notes to the financial statements.
MICROCAP FUND
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION
Portico Funds, Inc. (the "Company") was incorporated on February
15, 1988, as a Wisconsin Corporation and is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended. The
MicroCap Fund (the "Fund") is a separate, diversified investment portfolio of
the Company. The Fund commenced operations on August 1, 1995. The objective of
the MicroCap Fund is capital appreciation through investments in securities of
small companies.
The costs, in thousands, incurred in connection with the organization,
initial registration and public offering of shares, aggregating $24, have been
paid by the Fund. These costs are being amortized over the period of benefit,
but not to exceed sixty months from the Fund's commencement of operations.
The Company has issued two classes of Fund shares: Series A and Series
Institutional. The Series A shares are subject to a 0.25% service organization
fee and an initial sales charge imposed at the time of purchase, in accordance
with the Fund's prospectus. The maximum sales charge is 4% of the offering price
or 4.16% of the net asset value. Each class of shares has identical rights and
privileges except with respect to service organization fees paid by Series A
shares, voting rights on matters affecting a single class of shares and the
exchange privileges of each class of shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
a) Investment Valuation - Securities which are traded on a recognized stock
exchange are valued at the last sale price on the securities exchange on which
such securities are primarily traded or at the last sale price on a national
securities exchange. Exchange-traded securities for which there were no
transactions are valued at the current bid prices. Securities traded on only
over-the-counter markets are valued on the basis of closing over-the-counter bid
prices. Instruments with a remaining maturity of 60 days or less are valued on
an amortized cost basis. Securities for which market quotations are not readily
available, and other assets are valued at fair value as determined by the
investment adviser under the supervision of the Board of Directors.
b) Federal Income Taxes - No provision for federal income taxes has been made
since the Fund has complied to date with the provisions of the Internal Revenue
Code available to regulated investment companies and intends to distribute
substantially all of its taxable income to shareowners. The Fund intends to
continue to so comply in future years.
c) Income and Expenses - The Fund is charged for those expenses that are
directly attributable to it, such as advisory, administration and certain
shareowner organization fees. Expenses that are not directly attributable to a
portfolio are typically allocated among the Company's portfolios in proportion
to their respective net assets, number of shareowner accounts or net sales,
where applicable. Net investment income other than class specific expenses, and
realized and unrealized gains and losses are allocated daily to each class of
shares based upon the relative net asset value of outstanding shares of each
class of shares at the beginning of the day (after adjusting for the current
day's capital share activity of the respective class).
d) Distributions to Shareowners - Dividends from net investment income are
declared and paid annually. Distributions of net realized capital gains, if any,
will be declared at least annually.
e) When-Issued Securities - The Fund may purchase securities on a when-issued or
delayed delivery basis. Although the payment and interest terms of these
securities are established at the time the purchaser enters into the agreement,
these securities may be delivered and paid for at a future date, generally
within 45 days. The Fund records purchases of when-issued securities and
reflects the values of such securities in determining net asset value in the
same manner as other portfolio securities. The Fund segregates and maintains at
all times cash, cash equivalents, or other high-quality liquid securities in
an amount at least equal to the amount of outstanding commitments for when-
issued securities.
f) Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
g) Other - Investment and shareowner transactions are recorded on the trade
date. The Fund determines the gain or loss realized from investment transactions
by comparing the original cost of the security lot sold with the net sale
proceeds. Dividend income is recognized on the ex-dividend date or as soon as
information is available to the Fund and interest income is recognized on an
accrual basis. Generally accepted accounting principles require that permanent
reporting and tax differences be reclassified.
3. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares for the Fund, in thousands, were as follows:
Year ended October 31, 1997:
Series A Series Institutional
-------------------- --------------------
Amount Shares Amount Shares
------ ------ ------ ------
Shares sold $6,446 421 $22,484 1,468
Shares issued
to owners in
reinvestment
of dividends 1,536 112 9,877 717
Shares redeemed (2,209) (146) (5,872) (371)
------- ----- ------- -----
Net increase $5,773 387 $26,489 1,814
====== === ======= =====
Year ended October 31, 1996:
Series A Series Institutional
-------------------- --------------------
Amount Shares Amount Shares
------ ------ ------ ------
Shares sold $27 2 $47 3
Shares redeemed (210) (14) (346) (24)
------- ----- ------- -----
Net decrease $(183) (12) $(299) (21)
======= ===== ======= =====
4. INVESTMENT TRANSACTIONS
Purchases and sales of securities for the period ended October 31, 1997
(excluding short-term investments), in thousands, aggregated $150,710 and
$131,924, respectively.
At October 31, 1997, gross unrealized appreciation and depreciation of
investments for federal tax purposes, in thousands, were as follows:
Appreciation $30,092
(Depreciation) (3,637)
-------
Net unrealized appreciation on investments $26,455
=======
At October 31, 1997, the cost of investments, in thousands, for federal income
tax purposes was $103,886.
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Fund has 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 Fund, the Adviser is entitled to
receive a fee, calculated daily and payable monthly, at the annual rate of 1.50%
as applied to the Fund's daily net assets.
Firstar Trust Company, an affiliate of FIRMCO, serves as custodian, transfer
agent and accounting services agent for the Funds.
The Company has entered into a Co-Administration Agreement with B.C. Ziegler
and Company and Firstar Trust Company (the "Co-Administrators") for certain
administrative services. Pursuant to the Co-Administration Agreement with the
Company, the Co-Administrators are entitled to receive a fee, computed daily
and payable monthly, at the annual rate of 0.125% of the Company's first $2
billion of average aggregate daily net assets, plus 0.10% of the Company's
average aggregate daily net assets in excess of $2 billion. For the year
ended October 31, 1997, $68 of administration fees, in thousands, were
voluntarily waived for the Fund.
The Company has entered into Servicing Agreements with certain Service
Organizations, including FIRMCO affiliates, for the Series A class of shares.
The Service Organizations are entitled to receive fees from the Fund up to an
annual rate of 0.25% of the average daily net asset value of the Series A Shares
for certain support and/or distribution services to customers of the Service
Organizations who are beneficial owners of Fund Series A Shares. These services
may include assisting customers in processing purchase, exchange and redemption
requests; processing dividend and distribution payments from the Fund; and
providing information periodically to customers showing their positions in Fund
Series A shares. Service Organization fees, in thousands, incurred by the Fund
aggregated $28 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 Fund maintains
its proportionate share of the Company's liability for deferred fees.
6. DISTRIBUTIONS
On November 10, 1997, a distribution of approximately $1.67 per share,
(including $1.57 taxable to shareowners as ordinary income dividends and $0.10
applicable to long-term gains), aggregating $11,413, in thousands, was paid by
the Fund to shareowners of record on November 7, 1997, of both the Series A and
Series Institutional Shares.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREOWNERS OF THE PORTICO MICROCAP FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Portico MicroCap Fund (one of
the portfolios of Portico Funds, Inc. (the "Fund")) at October 31, 1997, the
results of its operations for the year ended October 31, 1997, the changes in
its net assets for the year ended October 31, 1997, and for the period from July
1, 1996 through October 31, 1996 and its 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 Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1997 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
/S/ Price Waterhouse
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 pre ceded or accompanied by
a current prospectus.
TO OPEN AN ACCOUNT OR
REQUEST INFORMATION
1-800-982-8909
1-414-287-3710
FOR ACCOUNT BALANCES AND
INVESTOR SERVICES
1-800-228-1024
1-414-287-3808
PORTICO FUNDS CENTER
615 EAST MICHIGAN STREET
P.O. Box 3011
Milwaukee, WI 53201-3011
FORM #40-0203 12/97
