WALNUT STREET FUNDS INC
N-30D, 1998-02-25
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<PAGE>
       PRESIDENT'S LETTER
 
Dear Shareholder:
 
The Walnut Street Funds, Inc. is pleased to present you with our 1997 annual
report. Over the last 12 months, your fund posted a 5.04% return compared with a
4.98% gain for the Lipper Money Market Funds Average. The portfolio remained
invested in Tier 1 commercial paper (87%) and high-grade short term bonds (13%).
The Walnut Street Prime Reserve Fund asset balance for the period ending
December 31, 1997 was $156,661,085. The seven-day current yield for the Prime
Reserve Fund was 5.43% on December 31, 1997, with an average maturity of 30
days.
 
Yields on money market securities ended 1997 at slightly higher levels than they
started last year. Fixed income investments with maturities greater than a year
saw their yields decline as the year progressed. Except for a single interest
rate hike in March, the Federal Reserve remained quiet for the rest of the year.
Inflation remained under control, reducing the need for the Fed to make an
additional interest rate hike.
 
In mid-August the Dow Jones Industrial Average took a 247 point nose dive in a
single day, its second largest point loss ever in its history, dropping 3% of
its value on that day. The currency crisis in Southeast Asia came to the
forefront in October, contributing to additional volatility to both the stock
and bond market. While stock and bond prices bounced up and down, money market
rates stayed within a narrow range during 1997.
 
Asia's difficulties will slow U.S. economic growth to some degree, but it should
not result in the Federal Reserve lowering interest rates. Looming wage pressure
from tight domestic labor markets leads us to believe that the Fed will be
confined to leaving rates unchanged for the next quarter or two.
 
Money market funds continue to provide an attractive haven for those investors
looking for some certainty in these volatile times. It is likely that yields on
money market instruments will remain within a narrow range in the coming months.
 
As you may know, we are planning to close The Walnut Street Funds. We have made
plans to move all shareholders who are using the Prime Reserve Fund as a
brokerage sweep vehicle to another fund and to ask the remaining shareholders to
authorize the Fund's termination. While the Prime Reserve Fund has performed
quite well over the past several years, it has not been a successful economic
proposition for Walnut Street. We are hopeful that the changes we are planning
will provide our customers with an attractive sweep fund and a high level of
service.
 
Thank you for your investment in the Prime Reserve Fund and your support of
Walnut Street Securities.
 
                                          Sincerely,
 
                                              [SIGNATURE]
                                          Richard J. Miller
                                          President & CEO
                                          The Walnut Street Funds, Inc.
 
     YIELDS WILL FLUCTUATE WITH MARKET CONDITIONS. PAST PERFORMANCE IS NO
     GUARANTEE OF FUTURE RETURNS. INVESTMENTS IN MONEY MARKETS ARE NOT INSURED
     OR GUARANTEED BY THE U.S. GOVERNMENT AND THERE IS NO ASSURANCE THAT THE
     FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
     THE INVESTMENT ADVISER IS CURRENTLY WAIVING CERTAIN FEES. HAD FEES NOT BEEN
     WAIVED, THE 7-DAY CURRENT YIELD WOULD HAVE BEEN 5.40% AND THE TOTAL RETURN
     WOULD HAVE BEEN LOWER. THE VOLUNTARY WAIVER OF FEES MAY BE MODIFIED OR
     TERMINATED AT ANY TIME, WHICH WOULD REDUCE THE FUND'S PERFORMANCE.
<PAGE>
       WALNUT STREET PRIME RESERVE FUND
 
       SCHEDULE OF INVESTMENTS
 
       DECEMBER 31, 1997
 
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL                                         VALUE
  AMOUNT                                        (NOTE 2A)
- ----------                                    -------------
<C>         <S>                               <C>
 
            COMMERCIAL PAPER-- 87.0%
 
            AUTOMOBILES--1.9%
$3,000,000  General Motors Acceptance Corp,
            6.50%,
            1/08/98.........................  $   2,996,208
                                              -------------
 
            BANKING & FINANCE--80.6%
 5,010,000  AGA Capital, 6.50%,
            1/12/98.........................      5,000,050
 1,000,000  Anchor Funding, 5.70%,
            1/27/98.........................        995,883
   550,000  APEX Funding, 6.35%,
            2/02/98.........................        546,896
 1,719,000  APEX Funding, 6.25%,
            4/30/98.........................      1,683,486
 2,062,000  APEX Funding, 6.25%,
            6/30/98.........................      1,997,562
 2,000,000  APEX Funding, 6.35%,
            4/30/98.........................      1,958,019
   500,000  APEX Funding, 7.00%,
            1/06/98.........................        499,514
 5,000,000  Atlas Funding Corp, 5.64%,
            1/16/98.........................      4,988,250
 4,000,000  Banner Receivables Corp, 5.70%,
            1/26/98.........................      3,984,167
 1,550,000  Banner Receivables Corp, 6.35%,
            2/17/98.........................      1,537,150
 1,000,000  Bridgestone/Firestone Inc.,
            7.00%, 1/14/98 (LOC: Dai-Ichi
            Kangyo) Bank....................        997,472
 1,000,000  Bridgestone/Firestone Inc.,
            7.25%, 1/05/98 (LOC: Dai-Ichi
            Kangyo) Bank....................        999,194
 2,000,000  Broadway Capital Corp, 6.65%,
            1/12/98.........................      1,995,936
 3,000,000  Broadway Capital Corp, 5.63%,
            2/11/98.........................      2,980,764
 
<CAPTION>
PRINCIPAL                                         VALUE
  AMOUNT                                        (NOTE 2A)
- ----------                                    -------------
<C>         <S>                               <C>
$2,000,000  Broadway Capital Corp, 6.00%,
            2/24/98.........................  $   1,982,000
 2,100,000  BTM Captial Corp, 5.67%,
            1/15/98.........................      2,095,369
   900,000  BTM Capital Corp, 5.64%,
            1/15/98.........................        898,026
 2,000,000  Countrywide Home Corp, 6.625%,
            1/02/98.........................      1,999,632
 4,000,000  Creative Capital Corp, 6.50%,
            2/05/98.........................      3,974,722
 1,800,000  Creative Capital Corp, 6.60%,
            1/20/98.........................      1,793,730
   805,000  Creative Capital Corp, 7.00%,
            1/16/98.........................        802,652
   775,000  Creative Capital Corp, 7.25%,
            1/23/98.........................        771,566
 1,000,000  Dynamic Funding Corp, 5.85%,
            1/05/98.........................        999,350
 2,000,000  Dynamic Funding Corp, 5.85%,
            1/05/98.........................      1,998,700
   950,000  Fayette Funding, 6.10%,
            1/30/98 (LOC: Dresdner Bank)....        945,332
 1,450,000  Frontier Funding Corp, 6.45%,
            2/06/98.........................      1,440,648
 2,000,000  Frontier Funding Corp, 6.50%,
            2/27/98.........................      1,979,417
 3,500,000  Frontier Funding Corp, 7.45%,
            1/22/98.........................      3,484,790
 7,750,000  Goldman Sachs Group, 7.75%,
            1/02/98.........................      7,748,332
 1,500,000  Gotham Funding Corp, 6.30%,
            2/09/98.........................      1,489,763
 1,233,000  Gotham Funding Corp, 6.35%,
            3/16/98.........................      1,216,906
   950,000  Gotham Funding Corp, 5.69%,
            1/15/98.........................        947,898
 1,000,000  Gotham Funding Corp, 6.25%,
            2/13/98.........................        992,535
</TABLE>
 
SEE NOTES TO FINANCIAL STATEMENTS.
 
                                       1
<PAGE>
       WALNUT STREET PRIME RESERVE FUND
 
       SCHEDULE OF INVESTMENTS (CONTINUED)
 
       DECEMBER 31, 1997
 
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL                                         VALUE
  AMOUNT                                        (NOTE 2A)
- ----------                                    -------------
<C>         <S>                               <C>
</TABLE>
 
         COMMERCIAL PAPER (CONTINUED)
          BANKING & FINANCE (CONTINUED)
<TABLE>
<C>         <S>                               <C>
$1,075,000  Gotham Funding Corp, 6.25%,
            3/16/98.........................  $   1,061,189
   725,000  Gotham Funding Corp, 6.60%
            2/17/98.........................        718,753
 2,000,000  Industrial Funding, 5.68%,
            1/21/98.........................      1,993,689
 2,116,000  Jet Funding Corp, 5.70%,
            1/05/98.........................      2,114,660
 1,800,000  JLUS Funding Corp, 6.50%,
            3/02/98 (LOC: Norinchukin
            Bank)...........................      1,780,500
 5,700,000  JLUS Funding Corp, 6.60%,
            2/20/98 (LOC: Norinchukin
            Bank)...........................      5,647,750
 2,000,000  Lehman Holding Company, 6.50%,
            1/09/98.........................      1,997,111
   250,000  Mitsubishi Motors Corp, 5.80%,
            1/12/98.........................        249,557
   400,000  Mitsubishi Motors Corp, 5.68%,
            1/12/98.........................        399,306
 1,000,000  Mitsui & Company, 7.10%,
            1/06/98.........................        999,014
 4,000,000  Mitsui & Company, 6.18%,
            2/13/98.........................      3,970,473
 2,000,000  Oak Funding Corp, 6.40%,
            1/13/98.........................      1,995,733
 2,000,000  Pacific Dunlop Holding, 6.50%,
            1/05/98.........................      1,998,556
 3,498,000  Pacific Dunlop Holding, 6.75%,
            1/05/98.........................      3,495,376
 1,906,000  Progress Funding Corp, 6.25%,
            2/12/98.........................      1,892,102
 2,600,000  Progress Funding Corp, 6.35%,
            1/22/98.........................      2,590,369
 1,000,000  Riverside Funding Inc., 7.00%,
            1/05/98 (LOC: Bank of Tokyo)....        999,222
<CAPTION>
PRINCIPAL                                         VALUE
  AMOUNT                                        (NOTE 2A)
- ----------                                    -------------
<C>         <S>                               <C>
$2,000,000  Riverside Funding Inc., 7.00%,
            1/05/98 (LOC: Bank of Tokyo)....  $   1,998,444
 1,975,000  Riverside Funding Inc., 5.72%,
            1/12/98 (LOC: Bank of Tokyo)....      1,971,548
 7,000,000  Seven Hill Funding Corp, 6.50%,
            1/09/98.........................      6,989,889
 2,552,000  Strategic Asset Funding Corp,
            7.00%, 1/20/98..................      2,542,572
   400,000  Strategic Asset Funding Corp,
            5.75%, 1/30/98..................        398,147
 2,500,000  Strategic Asset Funding Corp,
            7.00%, 1/29/98..................      2,486,389
   850,000  Tri-Lateral Capital, 5.75%,
            1/27/98.........................        846,470
 1,000,000  Tri-Lateral Capital, 7.00%,
            1/27/98.........................        994,944
 5,000,000  Wood Street Funding Corp, 6.30%,
            1/16/98.........................      4,986,875
 1,500,000  Working Capital Management
            Company, 5.70%,
            1/26/98.........................      1,494,063
                                              -------------
                                                126,338,412
                                              -------------
 
            INSURANCE--4.5%
 7,075,000  Triple-A One Funding, 8.00%,
            1/02/98.........................      7,073,428
                                              -------------
            TOTAL COMMERCIAL PAPER
            (Cost $136,408,048).............    136,408,048
                                              -------------
 
            FLOATING RATE NOTES-- 8.3%
 5,000,000  Federal Home Loan Mortgage
            Corporation Floating Rate Note,
            5.90%, payable quarterly, resets
            daily, next coupon 3/30/98
            (a).............................      4,999,519
</TABLE>
 
SEE NOTES TO FINANCIAL STATEMENTS.
 
                                       2
<PAGE>
       WALNUT STREET PRIME RESERVE FUND
 
       SCHEDULE OF INVESTMENTS (CONTINUED)
 
       DECEMBER 31, 1997
 
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL                                         VALUE
  AMOUNT                                        (NOTE 2A)
- ----------                                    -------------
<C>         <S>                               <C>
</TABLE>
 
         FLOATING RATE NOTES (CONTINUED)
<TABLE>
<C>         <S>                               <C>
$2,000,000  Student Loan Marketing
            Association Floating Rate
            Note, 5.63%, payable quarterly,
            resets weekly, next coupon
            2/22/98 (a).....................  $   2,000,000
 1,000,000  Student Loan Marketing
            Association Floating Rate Note,
            5.65%, payable quarterly,
            resets weekly, next coupon
            2/02/98 (a).....................        999,604
 5,000,000  General American Life Insurance
            -Cash Manager Plus 6.141%,
            payable monthly, resets monthly,
            next coupon
            1/01/98 (a).....................      5,000,000
                                              -------------
            TOTAL FLOATING RATE NOTES
            (Cost $12,999,123)..............     12,999,123
                                              -------------
 
            TIME DEPOSITS--4.5%
 1,000,000  Banco Espirito Santo, 5.8125%,
            1/05/98.........................      1,000,000
<CAPTION>
PRINCIPAL                                         VALUE
  AMOUNT                                        (NOTE 2A)
- ----------                                    -------------
<C>         <S>                               <C>
$1,000,000  Banco Espirito Santo, 5.8125%,
            1/07/98.........................  $   1,000,000
 2,000,000  Banco Espirito Santo, 6.0625%,
            6/12/98.........................      2,000,000
 1,000,000  Banco Espirito Santo, 6.00%,
            6/22/98.........................      1,000,000
 1,000,000  Banco Espirito Santo, 6.0625%,
            7/02/98.........................      1,000,000
 1,000,000  Banco Espirito Santo, 6.00%,
            12/10/98........................      1,000,000
                                              -------------
            TOTAL TIME DEPOSITS
            (Cost $7,000,000)...............      7,000,000
                                              -------------
            TOTAL INVESTMENTS--(Cost
            $156,407,171) (b)--99.8%........    156,407,171
            Other assets less
            liabilities--0.2%...............        253,914
                                              -------------
            NET ASSETS--100%................  $ 156,661,085
                                              -------------
</TABLE>
 
LOC LETTER OF CREDIT
(A) THE RATE STATED IS THE RATE IN EFFECT ON DECEMBER 31, 1997.
(B) THE COST STATED ALSO REPRESENTS THE AGGREGATE COST FOR FEDERAL INCOME TAX
    PURPOSES.
 
SEE NOTES TO FINANCIAL STATEMENTS.
 
                                       3
<PAGE>
 
                    STATEMENT OF ASSETS
                            AND
                        LIABILITIES
                     DECEMBER 31, 1997
 
- --------------------------------------------------------------------------------
 
<TABLE>
<S>                                                           <C>
ASSETS:
  Investments at value (Note 2A) (Identified cost
    $156,407,171)...........................................  $156,407,171
  Cash......................................................        25,866
  Receivables:
  Interest receivable.......................................       299,694
  Capital stock sold........................................         6,200
  Deferred organization costs and other assets (Note 2E)....       102,203
                                                              ------------
     TOTAL ASSETS...........................................   156,841,134
                                                              ------------
LIABILITIES:
  Payables:
    Advisory Fee (Note 3)...................................        78,755
    Distribution Fees (Note 3)..............................        43,402
  Accrued Expenses..........................................        57,892
                                                              ------------
 TOTAL LIABILITIES..........................................       180,049
                                                              ------------
NET ASSETS:
  (applicable to 156,669,954 shares issued and outstanding;
    1 billion shares of $.001 par value authorized).........  $156,661,085
                                                              ------------
  Net asset value, offering price and repurchase price per
    share ($156,661,085/156,669,954)........................  $       1.00
                                                              ------------
SOURCES OF NET ASSETS:
  Capital stock at par......................................  $    156,670
  Capital surplus...........................................   156,513,284
  Accumulated net realized loss on investments..............        (8,869)
                                                              ------------
NET ASSETS:.................................................  $156,661,085
                                                              ------------
</TABLE>
 
                            STATEMENT OF OPERATIONS
                               FOR THE YEAR ENDED
                               DECEMBER 31, 1997
 
<TABLE>
<S>                                                           <C>
INVESTMENT INCOME:
  Interest..................................................  $9,784,110
                                                              ----------
EXPENSES:
  Advisory (Note 3).........................................     423,432
  Administration and accounting (Note 3)....................     157,624
  Custodian (Note 3)........................................      27,552
  Transfer agent............................................      41,210
  Audit.....................................................      16,040
  Cash management...........................................      13,105
  Distribution (Note 3).....................................     592,805
  Directors (Note 4)........................................       4,852
  Reports to shareholders...................................      44,644
  Registration and filing...................................     101,981
  Organization..............................................      40,530
  Legal.....................................................      23,516
  Other.....................................................      10,433
                                                              ----------
   TOTAL EXPENSES...........................................   1,497,724
  Fees waived by adviser....................................     (58,140)
                                                              ----------
   NET EXPENSES.............................................   1,439,584
                                                              ----------
   NET INVESTMENT INCOME....................................   8,344,526
  Net realized gain on investments..........................          77
                                                              ----------
  Net increase in net assets resulting from operations......  $8,344,603
                                                              ----------
</TABLE>
 
SEE NOTES TO FINANCIAL STATEMENTS.
                                       4
<PAGE>
       STATEMENTS OF CHANGES IN NET ASSETS
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                                  FOR THE YEAR      FOR THE YEAR
                                                                                     ENDED             ENDED
                                                                                  DECEMBER 31,      DECEMBER 31,
                                                                                      1997              1996
                                                                                ----------------  ----------------
<S>                                                                             <C>               <C>
OPERATIONS:
  Net investment income.......................................................   $    8,344,526    $    7,744,486
  Net realized gain on investments............................................               77             1,621
                                                                                ----------------  ----------------
    Net increase in net assets resulting from operations......................        8,344,603         7,746,107
                                                                                ----------------  ----------------
DIVIDENDS TO SHAREHOLDERS:
  Dividends from net investment income........................................       (8,344,526)       (7,744,486)
                                                                                ----------------  ----------------
CAPITAL STOCK TRANSACTIONS:
  Proceeds from capital stock sold............................................      190,922,935       174,323,154
  Proceeds from shares issued on reinvestment of dividends....................        8,344,353         7,743,223
  Cost of capital stock repurchased...........................................     (212,661,421)     (168,929,181)
                                                                                ----------------  ----------------
    Increase (decrease) in net assets resulting from capital stock
      transactions............................................................      (13,394,133)       13,137,196
                                                                                ----------------  ----------------
      INCREASE (DECREASE) IN NET ASSETS.......................................      (13,394,056)       13,138,817
NET ASSETS:
  Beginning of year...........................................................      170,055,141       156,916,324
                                                                                ----------------  ----------------
  End of year.................................................................   $  156,661,085    $  170,055,141
                                                                                ----------------  ----------------
CHANGE IN CAPITAL STOCK OUTSTANDING:
  Shares sold.................................................................      190,922,935       174,323,154
  Shares issued on reinvestment of dividends..................................        8,344,353         7,743,223
  Shares repurchased..........................................................     (212,661,421)     (168,929,181)
                                                                                ----------------  ----------------
    Net increase (decrease)...................................................      (13,394,133)       13,137,196
  Shares outstanding, beginning of year.......................................      170,064,087       156,926,891
                                                                                ----------------  ----------------
  Shares outstanding, end of year.............................................      156,669,954       170,064,087
                                                                                ----------------  ----------------
</TABLE>
 
SEE NOTES TO FINANCIAL STATEMENTS.
                                       5
<PAGE>
       FINANCIAL HIGHLIGHTS
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                                                              FOR THE
                                                                                                              PERIOD
                                                  FOR THE        FOR THE        FOR THE        FOR THE       JULY 21,*
                                                YEAR ENDED     YEAR ENDED     YEAR ENDED     YEAR ENDED       THROUGH
                                               DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                   1997           1996           1995           1994           1993
                                               -------------  -------------  -------------  -------------  -------------
<S>                                            <C>            <C>            <C>            <C>            <C>
PER SHARE DATA:
Net asset value at beginning of period.......       $1.000         $1.000         $1.000         $1.000         $1.000
                                               -------------  -------------  -------------  -------------  -------------
INCOME FROM INVESTMENTS OPERATIONS
Net investment income........................        0.049          0.048          0.053          0.036          0.011
                                               -------------  -------------  -------------  -------------  -------------
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income.........       (0.049)        (0.048)        (0.053)        (0.036)        (0.011)
                                               -------------  -------------  -------------  -------------  -------------
Net asset value at end of period.............       $1.000         $1.000         $1.000         $1.000         $1.000
                                               -------------  -------------  -------------  -------------  -------------
TOTAL RETURN:................................         5.04%          4.88%          5.40%          3.62%          2.46%**
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000's
 omitted)....................................     $156,661       $170,055       $156,916        $89,533        $54,585
Ratio to average net assets of:
  Expenses, net of waiver from adviser
    (Note 3).................................         0.85%          0.85%          0.85%          0.85%          0.85%**
  Expenses, prior to waiver from adviser
    (Note 3).................................         0.88%          0.92%          0.93%          1.05%          1.07%**
  Net investment income net of waiver from
    adviser
    (Note 3).................................         4.93%          4.78%          5.25%          3.64%          2.46%**
</TABLE>
 
 *  COMMENCEMENT OF INVESTMENT OPERATIONS.
**  ANNUALIZED.
 
SEE NOTES TO FINANCIAL STATEMENTS.
                                       6
<PAGE>
       NOTES TO FINANCIAL STATEMENTS
 
1. ORGANIZATION AND BUSINESS
 
The Walnut Street Funds, Inc. (the "Company") was organized as a Maryland
Corporation on January 22, 1993 and is registered under the Investment Company
Act of 1940 as an open-end management investment company. The Company currently
consists of one series. The Walnut Street Prime Reserve Fund (the "Fund") plans
to terminate its operations during the first quarter of 1998.
 
2. SIGNIFICANT ACCOUNTING POLICIES
 
(A) SECURITY VALUATIONS
 
Securities are valued at amortized cost which approximates market value. This
method values a security at its cost at the time of purchase and thereafter
assumes a constant rate of accretion or amortization to maturity of any discount
or premium.
 
(B) FEDERAL INCOME TAXES
 
The Fund is treated as a separate entity for federal income tax purposes. The
Fund's policy is to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and distribute income to
shareholders within the allowable time limits. Therefore, no federal income tax
provision is required.
 
At December 31, 1997, the Portfolio had a capital loss carryover of
approximately $8,900 which is available to offset future net realized gains on
securities transactions. Such capital loss carryover will expire in fiscal year
2002.
 
(C) DIVIDENDS TO SHAREHOLDERS
 
Net investment income is declared daily and paid monthly.
 
Income and capital gains distributions, if any, are determined in accordance
with income tax regulations which may differ from methods used to determine the
corresponding income and capital gains amounts in accordance with generally
accepted accounting principles.
 
(D) SECURITY TRANSACTIONS AND INVESTMENT INCOME
 
Security transactions are recorded on the trade date and interest income is
accrued daily. Discounts and premiums on securities purchased are accreted and
amortized over the life of the respective securities.
 
(E) ORGANIZATION COSTS
 
Costs incurred in connection with the organization and initial registration of
the Fund are being amortized over the period not to exceed 60 months from the
date upon which the Fund commenced investment operations.
 
If any or all of the shares representing initial capital of the Fund are
redeemed by any holder thereof prior to the end of the amortization period, the
proceeds will be reduced by the unamortized organizational expense balance in
the same proportion as the number of such shares redeemed bears to the number of
initial shares outstanding immediately before the redemption.
 
(F) FINANCIAL STATEMENTS PREPARATION
 
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 at the date of the
financial statements and the reported amounts of revenues and expenses for the
 
                                       7
<PAGE>
       NOTES TO FINANCIAL STATEMENTS  (CONTINUED)
 
period. Actual results could differ from those estimates.
 
3. ADVISORY, ADMINISTRATION AND OTHER TRANSACTIONS WITH AFFILIATES
 
Conning Asset Management Company (formerly, General American Investment
Management Company) acts as the Fund's investment adviser (the "Adviser"). The
Adviser manages the investments of the Fund and is responsible for all purchases
and sales of the Fund's portfolio securities.
 
As compensation for its services, the Fund pays the Adviser a management fee,
accrued daily and payable monthly, that is equal, on an annual basis, to .25% of
the Fund's average daily net assets on the first $250,000,000 of the Fund's net
assets, .24% of the Fund's average daily net assets in excess of $250,000,000 up
to $500,000,000, .23% of the Fund's average daily net assets in excess of
$500,000,000 up to $750,000,000, .22% of the Fund's average daily net assets in
excess of $750,000,000 up to $1,000,000,000 and .21% of the Fund's average daily
net assets in excess of $1,000,000,000.
 
The Adviser has voluntarily agreed to waive fees to the extent that total
expenses exceed .85% of the average daily net assets of the Fund. For the year
ended December 31, 1997, the Adviser waived $58,140 of advisory fees.
 
The Bank of New York acts as the Fund's administrator (the "Administrator") and
assists in supervising the operations of the Fund. The Bank of New York also
serves as the Fund's custodian and accounting agent.
 
The Administrator has agreed to provide facilities, equipment and personnel to
carry out administrative services for the Fund, including, among other things,
monitoring the custodian, fund accounting, and administrative services.
 
The Administrator's fee is accrued daily and is payable monthly at the rate of
 .10% of the Fund's average daily net assets up to $100,000,000, .07% of the next
$400,000,000 of average daily net assets, and .03% of average daily net assets
in excess of $500,000,000, with a minimum fee of $6,000 per month.
 
The exclusive distributor of the Fund's shares is Walnut Street Securities, Inc.
(the "Distributor"), a registered broker dealer that is a wholly-owned
subsidiary of the Adviser.
 
The Fund has adopted a distribution plan ("12b-1 Plan") pursuant to which the
Distributor may be reimbursed for expenses incurred in connection with the
distribution of Fund shares. The aggregate annual amount payable by the Fund as
provided in the 12b-1 Plan may not exceed .35% of the Fund's average daily net
assets.
 
4. DIRECTORS' FEES
 
Unaffiliated directors are paid $500 for each board meeting attended, plus
reimbursement for travel and out-of-pocket expenses.
 
                                       8
<PAGE>
       INDEPENDENT AUDITORS' REPORT
 
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
WALNUT STREET PRIME RESERVE FUND:
 
    We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Walnut Street Prime Reserve Fund
as of December 31, 1997, and the related statement of operations for the year
then ended, the statements of changes in net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
in the four-year period then ended and for the period from July 21, 1993
(commencement of investment operations) through December 31, 1993. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, the financial statements and financial highlights referred
to above presents fairly, in all material respects, the financial position of
the Walnut Street Prime Reserve Fund as of December 31, 1997, the results of its
operations, the changes in its net assets and its financial highlights for the
periods presented, in conformity with generally accepted accounting principles.
 
                                          KPMG PEAT MARWICK LLP
 
New York, New York
January 24, 1998
 
SEE NOTES TO FINANCIAL STATEMENTS.
                                       9
<PAGE>
 
DIRECTORS AND OFFICERS
 
    RICHARD J. MILLER, PRESIDENT AND CHIEF EXECUTIVE OFFICER
    RICHARD A. LIDDY, CHAIRMAN
    THEODORE M. ARMSTRONG, DIRECTOR
    HARRY E. RICH, DIRECTOR
    ALAN C. HENDERSON, DIRECTOR
    E. THOMAS HUGHES, TREASURER
    DON P. WULLER, ASSISTANT TREASURER
    KENT P. ZIMMERMAN, ASSISTANT TREASURER
    MATTHEW P. MCCAULEY, SECRETARY
 
INVESTMENT ADVISER
 
    CONNING ASSET MANAGEMENT COMPANY
 
ADMINISTRATOR
 
    THE BANK OF NEW YORK
 
DISTRIBUTOR
 
    WALNUT STREET SECURITIES, INC.
 
TRANSFER AGENT
 
    BISYS FUND SERVICES, OHIO, INC.
 
CUSTODIAN
 
    THE BANK OF NEW YORK
 
INDEPENDENT AUDITORS
 
    KPMG PEAT MARWICK LLP
 
LEGAL COUNSEL
 
    HUSCH & EPPENBERGER
 
                                       10
<PAGE>
- -------------------------------------------
- ------- TABLE OF CONTENTS
 
<TABLE>
<S>                                <C>        <C>
SCHEDULE OF INVESTMENTS..........       PAGE          1
 
STATEMENT OF ASSETS AND
 LIABILITIES.....................                     4
 
STATEMENT OF OPERATIONS..........                     4
 
STATEMENTS OF CHANGES
 IN NET ASSETS...................                     5
 
FINANCIAL HIGHLIGHTS.............                     6
 
NOTES TO FINANCIAL STATEMENTS....                     7
 
INDEPENDENT AUDITORS' REPORT.....                     9
 
DIRECTORS AND OFFICERS...........                    10
</TABLE>
 
This report is not authorized for distribution to prospective investors
unless accompanied by a current prospectus for the Walnut Street Prime
Reserve Fund. Please read the prospectus carefully before sending money.
 
                            THE WALNUT STREET FUNDS
                                 PRIME RESERVE
                               MONEY MARKET FUND
 
                                     [LOGO]
 
                                 Annual Report
                               December 31, 1997
 
                                    ADVISER
                                 Conning Asset
                               Management Company
 
                                  DISTRIBUTOR
                         Walnut Street Securities, Inc.


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