<PAGE>
THE COMMERCE FUNDS
LETTER TO SHAREHOLDERS
Dear Shareholders:
We are pleased to provide you this annual report for The Commerce Funds
family.
This past year has been a good one for the financial markets. Inflation
and interest rates have remained low, employment is up, and wages have remained
steady. Housing starts were robust this spring, only recently tapering off.
While retail sales have been sluggish this fall, consumers appear to be paying
down debt in spite of the recent publicity about personal bankruptcies and
defaults on credit card payments.
The real story this year, however, has been the growth in capital
investments. The increase in non-residential investments in buildings, equipment
and inventory has been a significant contributor to 1996 economic growth.
Our outlook for 1997 remains positive. Inflation has remained in the 2% to
2.5% range and we see no reason for that to change in the near term. This bodes
well for the financial markets. We expect modest economic growth as we look
forward to 1997.
Each of the Commerce Funds is highlighted in the pages that follow. We are
most pleased to have you as a Commerce Funds' shareholder.
Short-Term Government Fund
This Fund had a total return for the 12 month period ended October 31,
1996 of 5.02% based on net asset value ("NAV") versus the Lipper Short U.S.
Government Funds Index return of 5.63% and the Salomon Brothers 1-5 Year
Treasury/Government Sponsored Index return of 5.89%. The Fund distributed $1.09
per share from net investment income during the period.
Commerce Investment Management Group's expectation for a continued
interest rate rally in early 1996 did not materialize and our longer average
maturity and duration relative to our peer group dampened performance in the
beginning of 1996. As the year continued, the economic outlook became more
difficult to predict as economic indicators gave widely varying signals. By
mid-year, the Fund's duration was targeted closer to neutral and our higher
incremental yield helped us add relative return over the second half of the
fiscal year.
Recent investments have largely been concentrated in higher yielding
mortgage-backed securities with short, stable average lives. Going forward, we
expect the recent strong rally in interest rates to begin to wane as the strong
employment growth in 1996, coupled with the stimulative nature of today's lower
interest rates, keeps economic growth on a moderate to brisk track. Accordingly,
the Fed will have little need to ease interest rates. With interest rates and
the yield curve at a level we consider to be fairly valued, we will likely add
relative returns by maintaining our higher yielding mortgage sector exposure,
while keeping the average maturity of the Fund near its benchmark.
Bond Fund
This Fund had a total return for the 12 month period ended October 31,
1996 of 4.71% based on NAV versus the Lipper Intermediate Investment Grade Debt
Funds Index return of 5.34% and the Lehman Brothers Aggregate Bond Index return
of 5.83%. The Fund distributed $1.16 per share from net investment income during
the period.
Commerce Investment Management Group's expectation for a continued
interest rate rally in early 1996 did not materialize and our longer average
maturity and duration relative to our peer group dampened performance in the
beginning of 1996. As the year continued, the economic outlook became more
difficult to predict as economic indicators gave widely varying signals. By
mid-year, the Fund's duration was targeted closer to neutral and our higher
incremental yield and intermediate concentration helped us add relative return
over the second half of the fiscal year.
Recent investments have been in mortgage-backed securities, select
asset-backed securities and intermediate Treasuries. Going forward, we expect
the recent brisk rally in interest rates to begin to wane as strong employment
growth in 1996, coupled with the stimulative nature of today's lower interest
rates, keeps growth on a moderate to strong track. Accordingly, the Fed will
have little need to ease interest rates. With interest rates and the yield curve
at a level we consider to be fairly valued, we expect to add relative returns by
maintaining our higher yielding sector's exposure, while keeping the average
maturity of the Fund near its
1
<PAGE>
THE COMMERCE FUNDS
LETTER TO SHAREHOLDERS--(Continued)
benchmark. The Fund continues to maintain exceptional credit quality, with
an average quality rating of AAA.
Balanced Fund
The Fund had a total return based on NAV for the last 12 months of 14.45%
as compared with the return of the Lipper Balanced Fund Index of 14.19%, and the
60% S & P /40% Lehman Brothers Aggregate Bond Index of 16.50%.
The expectation for a continued interest rate rally in early 1996 for the
fixed-income side of the fund did not evolve as expected. The Fund had longer
average maturity and duration relative to the Lipper Intermediate Investment
Grade Debt Funds Index which dampened performance at the start of 1996. This
made predictions for the remainder of the year more challenging. However, by
mid-year the Fund's duration moved more toward neutral.
The equity portion of the Fund enjoyed a steady bull market this year.
Strong corporate earnings have helped to maintain high but not out of range
valuation levels for the market. The equity side continues to be overweighted in
the financial and technology sectors.
In November 1995, the fund was 10% overweighted, and in April 1996 it
moved back to a neutral weighting. A move in June 1996 was made to underweight
by 10%, which avoided the July downturn in the market. In August 1996 the
weighting was shifted back to neutral.
Growth Fund
The Fund had a total return based on NAV of 23.43% for the 12 months ended
October 31, 1996. This compares with a 24.02% return for the S&P 500 and a
16.87% return for the Lipper Growth Funds Index.
The bull market, which began in late 1994, continued to surge to one
record high after another over the past year with only a brief interruption in
July. Strong corporate earnings gains have helped maintain high but not
unreasonable valuation levels for the broad market. Heavy cash flows into mutual
funds continue to be the fuel driving stock prices higher.
The Fund continues to overweight the financial and technology sectors. We
believe the financial sector has just begun a cycle of outperformance that will
last for the rest of the decade. Factors contributing to the financial sector's
success have been increased savings to manage from the baby boom generation,
increased industry consolidation, and increased industry efficiencies leading to
strong earnings growth. Conseco, SunAmerica, Travelers, and BankAmerica have
appreciated over 50% since 1995.
The technology sector has also been a favorite of ours. While the
individual company stocks prices can be volatile and diversification is
extremely important in companies with short product cycles, the technology
revolution is still in it's early stages. Intel and Sun Microsystems both posted
gains over 50% last year.
The Fund ended the year with a balanced and diversified portfolio roughly
comparable with the major economic sectors of the S&P 500.
Aggressive Growth Fund
For the year ended October 31, 1996, this Fund had a total return of
13.78%, based on NAV. This is slightly behind the total return of 17.30% for the
S&P Mid Cap Index, and 16.68% for the Lipper Mid Cap Funds Index.
During the past 12 months, the markets have exhibited increased volatility
as sentiment swung from concerns of an overheated economy, to pessimism on the
level of corporate earnings, to election jitters, and finally to euphoria
regarding inflation and status quo politics. Through it all, money continued to
pour into equity mutual funds. By far, the best performing sectors this year
were financial services, oil services and large blue chip stocks. Bringing up
the rear were the medical services sector and small cap stocks.
While facing a short term setback in terms of relative performance this
year, we continue to focus our investment efforts on unique companies exhibiting
strong financial criteria and above average earnings growth. We are especially
excited by growth areas such as computer software (BMC Software and McAfee
Associates) and services (American Management Systems). The world wide growth in
telecommunications services is also an attractive sector (ADC Telecommunications
and Andrew Corporation). The aging baby boomer has given rise to greater savings
and investment, and as such we are heavily invested in the financial services
sector (SunAmerica and United Asset Management). While
2
<PAGE>
THE COMMERCE FUNDS
LETTER TO SHAREHOLDERS--(Continued)
lagging this year, we believe the medical technology and services sectors will
eventually come back to favor as the demographic trend of increasing consumption
of medical services becomes too powerful to ignore (Elan Pharmaceuticals and
Medic Computer Systems).
The overall backdrop for financial assets remains positive as inflation
remains low, global markets continue to be competitive and government policy
benign. Economic activity appears to have settled for the time being to a slow
but manageable rate of growth. Given what has been an almost unprecedented cycle
of corporate spending on productivity-enhancing equipment, this economic
expansion may continue to confound the experts in duration. A lengthened
economic cycle should be positive for profits and stock market valuations.
International Equity Fund
For the year ended October 31, 1996, the Fund produced a total return
based on NAV of 13.25%, versus 10.74% for the Morgan Stanley Capital
International Europe, Australia and Far East (EAFE) Index, and 11.81% for the
Lipper International Equity Funds Index.
This year to date has been a good period for investments in foreign equity
markets, with a few exceptions. Local market investors have experienced
double-digit returns, while U.S. dollar-based investors have experienced lower
returns, due to the strength of the U.S. dollar relative to other major
currencies. The Japanese stock market has experienced recent weakness, which
combined with dollar strength relative to the Japanese yen, has produced a
negative return for dollar-based investors.
While Japan continues to represent the largest country weighting in the
portfolio at nearly 22%, the portfolio is underweighted in Japan (the EAFE Index
weighting for Japan is 37%). This underweighting has helped the Fund outperform
the EAFE Index this year to date.
Exposure to the emerging markets of Asia and Latin America has also helped
the portfolio to outperform the EAFE Index. Emerging markets, which are not
represented in the EAFE Index, account for about 11% of the Fund.
The economic and financial market outlook remains fairly positive on a
world-wide basis. Economic recovery is now expected in both Japan and
continental Europe. Corporate profit growth is reasonable, and seems likely to
surprise positively in a number of equity markets. Selectively, investment
opportunities appear to be attractive in both Japan and Europe, while the
smaller markets of Asia and Latin America are expected to make further progress.
The portfolio continues to be biased toward the fast growing economies of the
Pacific and Latin America, at the expense of Japan. Consumer goods and services
remains the largest sector commitment in the Fund.
Tax-Exempt Market
In the 12 months ended October 31, 1996, tax exempt investors experienced
a trading range market. This was a distinct change compared to the rather
consistent decline in rates (increase in share values) in fiscal year 1995. A 90
basis point (.90%) difference between the high and low rates contained the
year's activity. The range was over 150 basis points (1.50%) in the previous
period. This smaller range masked a more volatile trading pattern. Early on
rates continued the rally of the 1995 fiscal year and reached a two-year low in
February when 10-year Aa rated general obligation bonds yielded 4.50%. From that
point, rates reversed course eventually reaching 5.40% this summer. There
followed an irregular rally to a year-ending yield near 5.00%.
The election cycle has been completed. In early 1996, the success of Steve
Forbes raised fears that the tax advantage of municipal bonds would be
eliminated as talk of a flat tax gained popularity. Later, the question of how a
15% tax cut would impact the progress made toward a balanced budget, concerned
the entire fixed income market. The final election results were received
positively by fixed income investors: the goal of fiscal balance was affirmed by
the electorate and proposed tax code changes seem unlikely to negatively impact
tax exempt investing.
Supply has run ahead of last year's levels as voters appear more
willing to authorize spending programs. Several tax limitation ballot
initiatives were passed, however, indicating that the tax revolt is far from
3
<PAGE>
THE COMMERCE FUNDS
LETTER TO SHAREHOLDERS--(Continued)
over. Restrictions imposed by voters on their government's ability to issue debt
make credit evaluations a continuous process. In the coming year, the
responsibilities imposed by welfare reform will present additional challenges to
state and local governments. In general, credit quality has continued to
improve. The economic expansion, though far from robust, has reduced the need
for social spending at the same time that tax revenues have increased due to
rising profits and incomes.
National Tax-Free Bond Fund
For the year ended October 31, 1996, the NAV of the Fund declined to
$18.46 from $18.54, reflecting the slightly higher yields. Distributions totaled
$.74 per share bringing the total return to 3.60%. The Lipper General Municipal
Debt Funds Index and the Merrill Lynch Municipal Intermediate Index had returns
of 5.29% and 5.77%, respectively. During the year we broadened representation in
the market with housing and education issues. The quality of the portfolio has
been maintained at an extremely high level. The majority of securities in the
Fund are rated AA or higher based on ratings by Standard & Poors
Missouri Tax-Free Bond Fund
The change in NAV for the one year period ended October 31, 1996 was from
$18.40 to $18.26. When combined with the per share distribution of $.76 the
total return was 3.43%. The Lipper General Municipal Debt Funds Index and the
Merrill Lynch Municipal Intermediate Index had returns of 5.29% and 5.77%,
respectively. Supply was less a problem this year because of the school
intercept program which resulted in many smaller issuers becoming eligible for
nationally acceptable ratings. Issuers representing the housing and education
sectors were added to the portfolio this year. The Commerce tradition of quality
continues.
In conclusion, we appreciate your support and look forward to helping you
meet your investment objectives.
Sincerely,
/s/ Peter F. Mackie
Peter F. Mackie
Executive Vice President
Commerce Bank, N.A.
December 6, 1996
Total return figures include expense waivers and reimbursements. Without such
waivers and reimbursements, total return would be reduced. Total return based on
NAV does not include sales charges.
4
<PAGE>
THE COMMERCE FUNDS
PERFORMANCE COMPARISON
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the periods ended October 31, 1996. Each of
the following Commerce Fund's performance, based on an initial investment of
$10,000 (assuming both the maximum sales charge of 3.50% and no sales charge) is
compared to the following:
<TABLE>
<CAPTION>
Fund Compare to:
- ------------------------------------------------- --------------------------------------------------------------------
<S> <C>
Short-Term Government Fund ("ST Gov't"): The Salomon Brothers 1-5 Year Treasury/Government Sponsored
Index ("Salomon Bros. Treas./Gov't") and the Lipper Short US
Government ("Gov't") Funds Index.
Bond Fund ("Bond"): The Lehman Brothers Aggregate Bond Index ("Lehman Agg Bond
Index") and the Lipper Intermediate Investment Grade Debt Funds
Index ("Lipper Interm Debt Funds Index").
Balanced Fund ("Balanced"): The composite of the Standard & Poor's 500 Index with Income
(weighted at 60%) and the Lehman Brothers Aggregate Bond Index
(weighted at 40%) ("Combined S&P and Lehman Bond Index") and the
Lipper Balanced Funds Index.
Growth Fund ("Growth"): The S&P 500 with Income ("S&P 500") and the Lipper Growth Funds
Index.
Aggressive Growth Fund ("Agg Growth"): The S&P Mid Cap 400 Index with Income ("S&P Mid Cap 400") and the
Lipper Mid Cap Funds Index.
International Equity Fund ("Int'l Equity"): The Morgan Stanley Gross Europe Asia Far East Index ("Morgan
Stanley Gross EAFE") and the Lipper International Equity Funds
Index ("Lipper Int'l Funds Index").
National Tax-Free Bond Fund ("Nat'l Tax-Free"): The Merrill Lynch Municipal Intermediate Index ("Merrill Lynch
Muni Interm Index") and the Lipper General Municipal Debt Funds
Index ("Lipper General Muni Debt Funds Index").
Missouri Tax-Free Bond Fund ("Missouri Tax-Free"): The Merrill Lynch Muni Interm Index and the Lipper General Muni
Debt Funds Index.
</TABLE>
Each of the indicies mentioned above is an unmanaged index in which investors
cannot invest. Results for the indicies do not reflect the expenses and
investment management fees incurred by the Funds. All performance data shown
represents past performance and should not be considered indicative of future
performance which will fluctuate as market conditions change. The investment
return and principal value of an investment will fluctuate with changes in
market conditions so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
5
<PAGE>
THE COMMERCE FUNDS
PERFORMANCE COMPARISON--(Continued)
Short-Term Government Fund
<TABLE>
<CAPTION>
ST Gov't (no sales charge) ST Gov't(w/sales charge) Salomon Bros. Treas./Gov't Lipper Short US Gov't Funds Index
<S> <C> <C> <C> <C>
12/12/95 $10,000 $9,650 $10,000 $10,000
10/31/95 $11,072 $10,684 $11,082 $10,972
10/31/96 $11,629 $11,222 $11,736 $11,592
</TABLE>
-----------------------------------
Average Annual Total Return
-----------------------------------
Since Inception/a/ One Year
- ----------------------------------------------------------------------
ST Gov't (no sales charge) 8.31% 5.02%
- ----------------------------------------------------------------------
ST Gov't (w/sales charge) 6.30% 1.37%
- ----------------------------------------------------------------------
Balanced Fund
<TABLE>
<CAPTION>
Balanced (no sales charge) Balanced (w\sales charge) Combined S&P 500 and Lehman Bond Index Lipper Balanced Funds Index
<S> <C> <C> <C> <C>
12/12/94 $10,000 $9,650 $10,000 $10,000
10/31/95 $12,614 $12,173 $12,577 $12,139
10/31/96 $14,442 $13,936 $14,658 $13,866
</TABLE>
-----------------------------------
Average Annual Total Return
-----------------------------------
Since Inception/a/ One Year
- ----------------------------------------------------------------------
Balanced (no sales charge) 21.46% 14.45%
- ----------------------------------------------------------------------
Balanced (w/sales charge) 19.20% 10.46%
- ----------------------------------------------------------------------
Bond Fund
<TABLE>
<CAPTION>
Bond (no sales charge) Bond (w/sales charge) Lehman Agg Bond Index Lipper Interm Debt Funds Index
<S> <C> <C> <C> <C>
12/12/94 $10,000 $9,650 $10,000 $10,000
10/31/95 $11,559 $11,154 $11,542 $11,364
10/31/96 $12,106 $11,682 $12,216 $11,973
</TABLE>
-----------------------------------
Average Annual Total Return
-----------------------------------
Since Inception/a/ One Year
-----------------------------------
Bond (no sales charge) 10.64% 4.71%
- ----------------------------------------------------------------------
Bond (w/sales charge) 8.58% 1.06%
- ----------------------------------------------------------------------
Growth Fund
<TABLE>
<CAPTION>
Growth (no sales charge) Growth (w/sales charge) S&P 500 Lipper Growth Funds Index
<S> <C> <C> <C> <C>
12/12/94 $10,000 $9,650 $10,000 $10,000
10/31/95 $13,806 $13,323 $13,306 $13,269
10/31/96 $17,050 $16,454 $16,511 $15,514
</TABLE>
-----------------------------------
Average Annual Total Return
-----------------------------------
Since Inception/a/ One Year
- ----------------------------------------------------------------------
Growth (no sales charge) 32.61% 23.43%
- ----------------------------------------------------------------------
Growth (w/sales charge) 30.15% 19.10%
- ----------------------------------------------------------------------
(a) Commencement of operations was on December 12, 1994
(b) For comparative purposes, initial investments are assumed to be made on the
first day of the month following the International Equity Fund's inception.
(c) Commencement of operations was on February 21, 1995.
6
<PAGE>
THE COMMERCE FUNDS
PERFORMANCE COMPARISON--(Continued)
Aggressive Growth Fund
[GRAPH OF AGGRESSIVE GROWTH FUND APPEARS HERE]
<TABLE>
<CAPTION>
Agg Growth Agg Growth S&P Lipper Mid Cap
(no sales charge) (w/sales charge) Mid Cap 400 Funds Index
<S> <C> <C> <C> <C>
12/12/94 $10,000 $9,650 $10,000 $10,000
10/31/95 $14,056 $13,564 $13,116 $13,558
10/31/96 $15,999 $15,439 $15,392 $15,826
</TABLE>
--------------------
Average Annual
Total Return
--------------------
Since One
Inception/a/ Year
----------------------------------------
Agg Growth (no 28.22% 13.78%
sales charge)
----------------------------------------
Agg Growth 25.84% 9.80%
(w/sales charge)
----------------------------------------
National Tax-Free Bond Fund
[GRAPH OF NATIONAL TAX-FREE BOND FUND APPEARS HERE]
<TABLE>
<CAPTION>
Nat'l Tax-Free Nat'l Tax-Free Merrill Lynch Muni Lipper General
(no sales charge) (w/sales charge) Interm Index Muni Debt
Funds Index
<S> <C> <C> <C> <C>
2/21/95 $10,000 $9,650 $10,000 $10,000
10/31/95 $10,606 $10,235 $10,765 $10,783
10/31/96 $10,989 $10,604 $11,387 $11,356
</TABLE>
-------------------
Average Annual
Total Return
-------------------
Since One
Inception/c/ Year
---------------------------------------
Nat'l Tax Free 5.72% 3.60%
(no sales charge)
---------------------------------------
Nat'l Tax Free 3.53% (.01%)
(w/sales charge)
---------------------------------------
International Equity Fund
[GRAPH OF INTERNATIONAL EQUITY FUND APPEARS HERE]
<TABLE>
<CAPTION>
Int'l Equity Int'l Equity Morgan Stanley Lipper Int'l
(no sales charge) (w/sales charge) Gross EAFE Funds Index
<S> <C> <C> <C> <C>
1/1/95 $10,000 $9,650 $10,000 $10,000
10/31/95 $10,264 $9,905 $10,428 $10,584
10/31/96 $11,628 $11,221 $11,551 $11,837
</TABLE>
--------------------
Average Annual
Total Return
--------------------
Since One
Inception Year
----------------------------------------
Int'l Equity (no 8.91% 13.25%
sales charge)
----------------------------------------
Int'l Equity 6.89% 9.28%
(w/sales charge)
----------------------------------------
Missouri Tax-Free Bond Fund
[GRAPH OF MISSOURI TAX-FREE BOND FUND APPEARS HERE]
<TABLE>
<CAPTION>
Lipper General
Missouri Tax-Free Missouri Tax-Free Merrill Lynch Muni Mumi Debt
(no sales charge) (w/sales charge) Interm Index Funds Index
<S> <C> <C> <C> <C>
2/21/95 $10,000 $9,650 $10,000 $10,000
10/31/95 $10,545 $10,176 $10,765 $10,783
10/31/96 $10,907 $10,525 $11,387 $11,356
</TABLE>
---------------------
Average Annual
Total Return
---------------------
Since One Year
Inception/c/
-----------------------------------------
Missouri Tax Free 5.25% 3.43%
(no sales charge)
-----------------------------------------
Missouri Tax Free 3.07% (.20%)
(w/sales charge)
-----------------------------------------
(a) Commencement of operations was on December 12, 1994.
(b) For comparative purposes, initial investments are assumed to be made on
the first day of the month following the International Equity Fund's
inception.
(c) Commencement of operations was on February 21, 1995.
7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of
The Commerce Funds
We have audited the accompanying statements of assets and liabilities of
Short-Term Government Fund, Bond Fund, Balanced Fund, Growth Fund, Aggressive
Growth Fund, International Equity Fund, National Tax-Free Bond Fund and Missouri
Tax-Free Bond Fund, portfolios of The Commerce Funds, (collectively, The
Commerce Funds) including the statements of investments, as of October 31, 1996,
the related statements of operations for the year ended October 31, 1996 and the
statements of changes in net assets and financial highlights for the year ended
October 31, 1996 and the period from December 12, 1994 (commencement of
operations) to October 31, 1995 for the Short-Term Government Fund, Bond Fund,
Balanced Fund, Growth Fund, Aggressive Growth Fund and International Equity Fund
and the period from February 21, 1995 (commencement of operations) to October
31, 1995 for the National Tax-Free Bond Fund and the Missouri Tax-Free Bond
Fund. These financial statements and financial highlights are the responsibility
of The Commerce Funds' 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
October 31, 1996 by correspondence with the custodian and brokers. 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 present fairly, in all material respects, the financial position of The
Commerce Funds as of October 31, 1996, the results of their operations, the
changes in their net assets and the financial highlights for the periods
specified in the first paragraph above, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Kansas City, Missouri
December 6, 1996
8
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
SHORT-TERM GOVERNMENT FUND
October 31, 1996
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ------------- -------- -------- -----------
<S> <C> <C> <C>
Collateralized Mortgage Obligations 14.6%
Federal Home Loan Mortgage Corp.
Series 1255, Class G
$ 455,000 7.50% 07/15/21 $ 462,963
Federal Home Loan Mortgage Corp.
Series 180, Class G
1,146,105 8.00 09/15/21 1,162,929
Federal National Mortgage Assn.
Series 1993-140, Class D
1,160,000 5.50 08/25/07 1,148,400
Westam Mortgage Financial Corp.
Series 7, Class F
2,090,959 9.30 10/01/15 2,160,860
-----------
Total Collateralized
Mortgage Obligations
(cost $4,910,973) ......... $4,935,152
-----------
Mortgage-Backed Pass-Through Obligations
8.7% Federal Home Loan Mortgage Corp.
$ 57,702 8.75% 02/01/01 $ 59,072
115,655 8.75 04/01/01 118,402
852,405 8.25 08/01/01 879,836
990,414 7.00 05/01/26 973,696
Government National Mortgage Assn.
306,720 8.00 10/15/16 318,068
560,948 8.00 07/15/17 580,929
----------
Total Mortgage-Backed
Pass-Through
Obligations (cost $2,871,073) .... $2,930,003
----------
U.S. Government Agency Obligations 64.9%
Federal Agriculture Mortgage Corp.
$ 500,000 6.69% 02/10/00 $ 508,130
Federal Farm Credit Bank
1,000,000 7.17 04/03/00 1,031,870
Federal Home Loan Bank
530,000 7.13 03/27/00 546,478
1,000,000 6.63 08/28/01 1,014,660
965,000 7.56 02/27/02 1,018,075
Federal Home Loan Mortgage Corp.
$ 4,000,000 5.18% 11/26/96 $3,985,625
1,000,000 7.93 01/20/98 1,025,470
1,000,000 7.82 01/27/98 1,024,530
500,000 7.90 01/27/00 526,170
1,000,000 6.52 08/25/00 1,012,030
500,000 6.70 07/25/01 508,360
Federal Land Bank
1,000,000 7.35 01/20/97 1,003,440
Federal National Mortgage Assn.
1,500,000 6.36 08/16/00 1,510,305
1,000,000 9.20 09/11/00 1,102,810
500,000 6.63 04/18/01 507,760
Israel Aid Series 5A
2,000,000 7.75 11/15/99 2,089,860
Tennessee Valley Authority 1989, Series D
2,000,000 8.38 10/01/99 2,122,180
U.S. Department of Housing & Urban
Development Series 1994-A
100,000 6.44 08/01/02 98,991
U.S. Department of Housing & Urban
Development Series 1995-A
1,250,000 8.15 08/01/00 1,325,375
----------
Total U.S. Government
Agency Obligations
(cost $21,678,221) ........ $21,962,119
------------
U.S. Treasury Obligations
11.8% United States Treasury Notes
$ 1,000,000 5.63% 08/31/97 $ 1,000,780
1,000,000 5.38 05/31/98 995,310
1,000,000 6.88 07/31/99 1,024,370
1,000,000 5.75 10/31/00 990,160
-----------
Total U.S. Treasury
Obligations
(cost $4,064,141) ......... $4,010,620
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
SHORT-TERM GOVERNMENT FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
------------- --------- ---------- ------------
<S> <C> <C> <C>
Repurchase Agreements 2.1%
State Street Bank & Trust Company,
dated 10/31/96, repurchase price
$716,097 (U.S. Treasury Note:
$734,944, 5.75%, 09/30/97)
$ 716,000 4.90% 11/01/96 $ 716,000
------------
Total Repurchase
Agreements
(cost $716,000) ............ $ 716,000
------------
Total Investments
(cost $34,240,408/(a)/) ... $ 34,553,894
============
- -------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost ................
$ 463,728
Gross unrealized loss for investments in
which cost exceeds value ................ (150,242)
============
Net unrealized gain ....................... $ 313,486
============
- -------------------------------------------------------------------
</TABLE>
The percentage shown for each investment category reflects the
value of investments in that category as a percentage of total net
assets.
/(a)/ The cost stated also represents aggregate cost for federal income
tax purposes.
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
BOND FUND
October 31, 1996
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ---------------- --------- ----------- -----------
Asset-Backed Securities--26.1%
<S> <C> <C> <C>
AUTO--1.3%
NationsBank Auto Owner Trust
Series 1996-A, Class A4
$ 2,000,000 6.63% 12/15/00 $ 2,025,000
-----------
CREDIT CARD--12.5%
American Express Master Trust
Series 1994-3, Class A
$ 2,000,000 7.85% 08/15/05 $ 2,105,000
Chemical Master Credit Card Trust 1
Series 1995-3, Class A
2,000,000 6.23 04/15/05 1,973,740
Choice Credit Card Master Trust
Series 1992, Class 2B
2,000,000 7.20 04/15/99 2,031,680
Discover Card Master Trust Series
1993-3, Class A
2,000,000 6.20 05/16/06 1,945,620
Discover Card Trust Series 1991-F,
Class B
2,000,000 8.35 11/21/00 2,068,120
MBNA Master Credit Card Trust
Series 1995-C, Class A
2,000,000 6.45 02/15/08 1,963,120
Standard Credit Card Master Trust
Series 1993-2, Class A
2,000,000 5.95 10/07/04 1,926,760
Standard Credit Card Master Trust
Series 1995-1, Class A
2,000,000 8.25 01/07/07 2,187,020
Standard Credit Card Master Trust
Series 1995-1, Class B
2,500,000 8.45 01/07/07 2,748,400
-----------
$18,949,460
-----------
HOME EQUITY-2.9%
Advanta Mortgage Loan Trust
Series 1994-4, Class A2
$ 4,000,000 8.92% 01/25/26 $ 4,310,360
------------
MANUFACTURED HOUSING--9.4%
Green Tree Financial Corp. Series
1993-4,Class A4
$ 2,000,000 6.60% 01/15/19 $ 1,993,120
Green Tree Financial Corp. Series
1993-4, Class A5
4,000,000 7.05 01/15/19 3,931,240
Green Tree Financial Corp. Series
1994-2, Class A4
4,000,000 7.90 05/15/19 4,181,240
Green Tree Financial Corp. Series
1996-4, Class A7
4,000,000 7.90 06/15/27 4,043,720
------------
$ 14,149,320
------------
Total Asset-Backed
Securities
(cost $37,857,666) ........ $ 39,434,140
------------
Corporate Obligations--14.9%
FINANCIAL--10.6%
American Express Credit Corp.
$ 2,000,000 6.13% 11/15/01 $ 1,969,180
BankAmerica Corp.
2,000,000 6.88 06/01/03 2,008,660
Chemical Bank
2,000,000 6.70 08/15/08 1,941,760
Chubb Capital Corp.
2,000,000 6.00 02/01/98 1,999,080
General Motors Acceptance Corp.
2,000,000 6.63 10/15/05 1,953,420
Morgan Stanley Group, Inc.
2,000,000 6.75 03/04/03 1,969,860
PNC Bank N.A.
2,000,000 7.88 04/15/05 2,101,660
Smith Barney Holdings, Inc.
2,000,000 6.63 06/01/00 2,011,360
------------
$ 15,954,980
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
BOND FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ---------------- --------- ----------- -----------------
<S> <C> <C> <C>
Corporate Obligations--Continued
INDUSTRIAL--3.0%
Hanson Overseas BV
$ 2,500,000 6.75% 09/15/05 $ 2,466,325
Shell Oil Co.
1,000,000 6.95 12/15/98 1,016,060
Union Pacific Railroad Corp.
1,000,000 6.44 01/15/98 1,005,120
-----------------
$ 4,487,505
-----------------
UTILITIES--1.3%
Duke Power Corp.
$ 1,000,000 7.37% 02/02/04 $ 1,025,930
Union Electric Co.
1,000,000 6.75 10/15/99 1,011,040
-----------------
$ 2,036,970
-----------------
Total Corporate Obligations
(cost $21,505,742) ......
$ 22,479,455
-----------------
Foreign Bonds--0.7%
Hydro Quebec Medium--Term Note
$ 1,000,000 7.96% 12/17/01 $ 1,060,080
-----------------
Total Foreign Bonds
(cost $971,660) ......... $ 1,060,080
-----------------
Mortgage-Backed Pass-Through Obligations--30.1%
Federal Home Loan Mortgage Corp.
$ 2,605,642 8.50% 02/01/19 $ 2,724,355
2,935,303 8.50 03/01/21 3,067,568
11,884,969 7.00 05/01/26 11,684,351
Federal National Mortgage Assn.
4,073,805 7.00 07/01/09 4,092,015
2,187,962 9.00 11/01/21 2,320,006
Government National Mortgage Assn.
4,190,333 8.00 02/15/22 4,305,525
5,104,522 7.00 09/15/23 5,035,969
2,361,414 7.50 08/20/25 2,366,562
9,970,844 7.50% 07/20/26 9,961,372
-----------------
Total Mortgage-Backed
Pass-Through Obligations
(cost $43,782,350) ....... $ 45,557,723
-----------------
U.S. Government Agency Obligations--1.3%
Federal Home Loan Bank
$ 1,000,000 6.32% 02/01/00 $ 1,005,400
Federal Home Loan Mortgage Corp.
1,000,000 6.20 04/15/03 990,470
-----------------
Total U.S. Government
Agency Obligations
(cost $1,863,696) ....... $ 1,995,870
-----------------
U.S. Treasury Obligations--17.0%
United States Treasury Bonds
$ 5,000,000 7.25% 05/15/16 $ 5,290,600
5,000,000 7.50 11/15/16 5,422,650
United States Treasury Notes
5,000,000 5.75 10/31/00 4,950,800
5,000,000 5.88 11/15/05 4,837,500
5,000,000 7.00 07/15/06 5,220,300
-----------------
Total U.S. Treasury
Obligations
(cost $25,554,141) ...... $ 25,721,850
-----------------
Short-Term Obligations--9.9%
Eaton Corp. Commercial Paper
$ 5,000,000 5.26% 11/05/96 $ 4,997,078
Great West Life & Annuity Insurance
Commercial Paper
3,000,000 5.26 11/25/96 2,989,480
Merrill Lynch & Co., Inc. Commercial Paper
7,000,000 5.26 11/14/96 6,986,704
-----------------
Total Short-Term Obligations
(cost $14,973,262) ......
$ 14,973,262
-----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
BOND FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ---------------- --------- ----------- ----------
Repurchase Agreements--1.4%
<S> <C> <C> <C>
State Street Bank & Trust Company,
dated 10/31/96, repurchase price
$2,131,290 (U.S. Treasury Note:
$2,174,051, 9.88%, 11/15/15)
$ 2,131,000 4.90% 11/01/96 $ 2,131,000
------------
Total Repurchase
Agreements
(cost $2,131,000) ........ $ 2,131,000
------------
Total Investments
(cost $148,639,517/(a)/) . $153,353,380
============
==================================================================
Federal Income Tax Information:
Gross unrealized gain for
investments in which value
exceeds cost ............................ $ 5,179,900
Gross unrealized loss for
investments in which cost
exceeds value ........................... (466,037)
============
Net unrealized gain ....................... $ 4,713,863
============
==================================================================
</TABLE>
The percentage shown for each investment category reflects the
value of investments in that category as a percentage of total net
assets.
/(a)/The cost stated also represents aggregate cost for federal income
tax purposes.
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
BALANCED FUND
October 31, 1996
<TABLE>
<CAPTION>
Shares Description Value
- ----------- -------------- -----------
<S> <C> <C>
Common Stocks--56.4%
AEROSPACE/DEFENSE--1.1%
8,800 Lockheed Martin Corp. $ 788,700
-----------
AUTOMOTIVE PRODUCTS--1.1%
23,500 Chrysler Corp. $ 790,181
-----------
BASIC INDUSTRIES--1.0%
11,600 Aluminum Company of America $ 680,050
-----------
BIOTECHNOLOGY--1.0%
11,400 Amgen, Inc./(a)/ $ 698,963
-----------
BUILDING MATERIALS & CONSTRUCTION--0.7%
27,900 Clayton Homes, Inc. $ 470,813
-----------
BUSINESS SERVICES--3.4%
1,400 Automatic Data Processing, Inc. $ 58,275
22,600 Equifax, Inc. 672,350
7,700 First Data Corp. 614,075
7,600 Omnicom Group 378,100
24,000 Reynolds & Reynolds Co. 633,000
-----------
$ 2,355,800
-----------
CHEMICAL PRODUCTS--1.8%
12,000 Bio-Rad Laboratories, Inc./(a)/ $ 291,000
7,000 OM Group, Inc. 287,000
38,000 Terra Industries, Inc. 560,500
5,000 Thermo Instrument Systems, Inc./(a)/ 151,250
-----------
$ 1,289,750
-----------
COMMUNICATIONS--0.3%
3,900 SBC Communications, Inc. $ 189,638
-----------
COMPUTER SERVICES/SOFTWARE--5.0%
10,000 American Management Systems, Inc./(a)/ $ 316,250
7,700 Cisco Systems, Inc./(a)/ 476,438
12,000 Cognos, Inc./(a)/ 376,500
7,500 McAfee Associates, Inc./(a)/ 341,250
8,000 Medic Computer Systems, Inc./(a)/ 226,000
4,700 Microsoft Corp./(a)/ 645,075
10,400 Network General Corp./(a)/ 250,900
6,000 Parametric Technology Corp./(a)/ 293,250
16,300 Verifone, Inc./(a)/ 548,088
-----------
$ 3,473,751
-----------
CONSUMER GOODS--1.0%
12,400 Nike, Inc. $ 730,050
-----------
DIVERSIFIED MANUFACTURING--5.3%
9,200 Allied Signal, Inc. $ 602,600
11,600 Dover Corp. 595,950
10,000 DT Industries, Inc. 395,000
30,500 Federal Signal Corp. 785,375
8,000 Helix Technology Corp. 213,000
15,500 Illinois Tool Works, Inc. 1,088,875
-----------
$ 3,680,800
-----------
ELECTRICAL SERVICES--1.0%
17,500 Union Electric Co. $ 675,938
-----------
ELECTRONICS & OTHER ELECTRICAL
EQUIPMENT--7.7%
9,300 Adaptec, Inc./(a)/ $ 566,138
6,600 ADC Telecommunications, Inc./(a)/ 451,275
14,000 Belden, Inc. 402,500
2,500 Emerson Electric Co. 222,500
13,900 General Electric Co. 1,344,825
8,100 Intel Corp. 889,988
12,900 Linear Technology Corp. 432,150
10,000 Logicon, Inc./(b)/ 413,750
8,000 Symbol Technologies, Inc./(a)/ 359,000
8,000 Xilinx, Inc./(a)/ 262,000
-----------
$ 5,344,126
-----------
FINANCIAL SERVICES--7.7%
8,100 BankAmerica Corp. $ 741,150
14,000 Fair Isaac & Co., Inc. 526,750
24,100 Federal National Mortgage Assn. 942,913
9,700 Franklin Resources, Inc. 683,850
14,600 Green Tree Financial Corp. 578,525
15,400 Norwest Corp. 675,675
17,850 Synovus Financial Corp. 533,269
13,500 Travelers Group, Inc. 732,375
-----------
$ 5,414,507
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
BALANCED FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Shares Description Value
- ----------- ----------- -----------
<S> <C> <C>
Common Stocks--Continued
FOOD & BEVERAGES--0.8%
3,000 CPC International, Inc. $ 236,625
11,400 Pepsico, Inc. 337,725
-----------
$ 574,350
-----------
HEALTH & MEDICAL SERVICES--4.4%
9,100 Abbott Laboratories $ 460,688
24,000 Ballard Medical Products 423,000
9,400 Dentsply International, Inc. 395,975
11,600 Invacare Corp. 324,800
14,700 Johnson & Johnson 723,975
26,200 Nellcor Puritan Bennett, Inc./(a)/ 510,900
10,000 Physician Sales & Service, Inc./(a)/ 212,500
-----------
$ 3,051,838
-----------
HOTELS & RESTAURANTS--0.2%
3,500 McDonalds Corp. $ 155,313
-----------
HOUSEHOLD PRODUCTS--0.4%
3,500 Gillette Co. $ 261,625
-----------
INDUSTRIAL MACHINERY--0.3%
5,000 Lindsay Manufacturing Co. $ 215,000
-----------
INSURANCE SERVICES--3.9%
7,000 Allied Group, Inc. $ 295,750
10,000 American Bankers Insurance Group, Inc.
480,000
11,600 Conseco, Inc. 620,600
8,500 Orion Capital Corp. 462,188
5,000 Protective Life Corp./(b)/ 172,500
18,100 SunAmerica, Inc. 678,750
-----------
$ 2,709,788
-----------
OFFICE & BUSINESS EQUIPMENT--0.2%
2,800 Sun Microsystems, Inc./(a)/ $ 170,800
-----------
OIL & GAS--3.6%
10,300 Mobil Corp. $ 1,202,525
33,800 Nabors Industries, Inc./(a)/ 561,925
4,700 Royal Dutch Petroleum ADR 777,263
-----------
$ 2,541,713
-----------
RECREATIONAL SERVICES--0.4%
9,000 Mattel, Inc. $ 259,875
-----------
RETAIL TRADE--1.8%
9,800 Consolidated Stores Corp./(a)/ $ 378,525
5,000 Global Directmail Corp./(a)/ 246,250
8,900 MSC Industrial Direct, Inc./(a)/ 329,300
7,900 Walgreen Co. 298,225
-----------
$ 1,252,300
-----------
RETAIL-DEPARTMENT STORES--0.8%
20,000 Gap, Inc. $ 580,000
-----------
TEXTILES--0.3%
8,000 G & K Services, Inc. $ 232,000
-----------
TRANSPORTATION/STORAGE--0.7%
16,000 Air Express International Corp. $ 484,000
-----------
UTILITIES--0.5%
10,000 Century Telephone Enterprises,
Inc./(b)/ $ 321,250
-----------
Total Common Stocks
(cost $30,938,499) ........ $39,392,919
-----------
<CAPTION>
Principal Interest Maturity
Amount Rate Date
- --------------- --------- ----------
Asset-Backed Securities--9.5%
<S> <C> <C> <C>
AUTO--0.7%
NationsBank Auto Owner Trust
Series 1996-A, Class A4
$ 500,000 6.63% 12/15/00 $ 506,250
---------
CREDIT CARD--5.1%
American Express Master Trust
Series 1994-3, Class A
$ 500,000 7.85% 08/15/05 $ 526,250
Choice Credit Card Master Trust
Series 1992, Class 2B
500,000 7.20 04/15/99 507,920
Discover Card Master Trust Series
1993-3, Class A
500,000 6.20 05/16/06 486,405
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
BALANCED FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- --------------- -------- ---------- ------------
<S> <C> <C> <C>
Asset-Backed Securities--Continued
CREDIT CARD--CONTINUED
J.C. Penney Master Credit Card Trust
Series B, Class A
$ 500,000 8.95% 10/15/01 $ 529,260
MBNA Master Credit Card Trust Series
1995-C, Class A
500,000 6.45 02/15/08 490,780
Standard Credit Card Master Trust Series
1993-2, Class A
500,000 5.95 10/07/04 481,690
Standard Credit Card Master Trust Series
1995-1, Class B
500,000 8.45 01/07/07 549,680
------------
$ 3,571,985
------------
HOME EQUITY--0.8%
Advanta Mortgage Loan Trust Series 1994-4,
Class A2
$ 500,000 8.92% 01/25/26 $ 538,795
------------
MANUFACTURED HOUSING--2.9%
Green Tree Financial Corp. Series 1993-4,
Class A4
$ 500,000 6.60% 01/15/19 $ 498,280
Green Tree Financial Corp. Series 1993-4,
Class A5
500,000 7.05 01/15/19 491,405
Green Tree Financial Corp. Series 1994-2,
Class A4
500,000 7.90 05/15/19 522,655
Green Tree Financial Corp. Series 1996-4,
Class A7
500,000 7.90 06/15/27 505,465
------------
$ 2,017,805
------------
Total Asset-Backed Securities
(cost $6,404,041) ......... $ 6,634,835
------------
Corporate Obligations--6.5%
FINANCIAL--4.4%
BankAmerica Corp.
$ 500,000 6.88% 06/01/03 $ 502,165
Chemical Bank
500,000 6.70 08/15/08 485,440
General Electric Capital Corp.
500,000 8.30 09/20/09 563,400
Morgan Stanley Group, Inc.
500,000 6.75 03/04/03 492,465
PNC Bank N.A.
500,000 7.88 04/15/05 525,415
Smith Barney Holdings, Inc.
500,000 6.63 06/01/00 502,840
------------
$ 3,071,725
------------
INDUSTRIAL--1.4%
Gannett, Inc.
$ 500,000 5.25% 03/01/98 $ 496,005
Hanson Overseas BV
500,000 6.75 09/15/05 493,265
------------
$ 989,270
------------
UTILITIES--0.7%
AT & T Corp.
$ 500,000 7.13% 01/15/02 $ 513,780
------------
Total Corporate Obligations
(cost $4,256,658) .........
$ 4,574,775
------------
Mortgage-Backed Pass-Through Obligations--13.2%
Federal Home Loan Mortgage Corp.
$1,980,828 7.00% 05/01/26 $ 1,947,392
Federal National Mortgage Assn.
1,629,522 7.00 07/01/09 1,636,806
Government National Mortgage Assn.
1,047,583 8.00 02/15/22 1,076,381
1,676,830 7.00 09/15/23 1,654,310
944,566 7.50 08/20/25 946,625
1,994,169 7.50 07/20/26 1,992,274
------------
Total Mortgage-Backed
Pass-Through Obligations
(cost $8,904,298) ......... $ 9,253,788
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
BALANCED FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ---------------- --------- ----------- ----------------
<S> <C> <C> <C>
U.S. Government Agency Obligations--1.1%
Federal Home Loan Bank
$ 750,000 6.63% 08/28/01 $ 760,995
--------------
Total U.S. Government Agency
Obligations
(cost $695,325) ........... $ 760,995
--------------
U.S. Treasury Obligations--5.9%
United States Treasury Bonds
$ 1,000,000 7.25% 05/15/16 $ 1,058,120
1,000,000 7.50 11/15/16 1,084,530
United States Treasury Notes
1,000,000 5.88 11/15/05 967,500
1,000,000 7.00 07/15/06 1,044,060
--------------
Total U.S. Treasury
Obligations
(cost $4,096,875) ......... $ 4,154,210
--------------
Short-Term Obligations--2.9%
Great West Life & Annuity Insurance
Commercial Paper
$ 2,000,000 5.26% 11/25/96 $ 1,992,987
--------------
Total Short-Term
Obligations
(cost $1,992,987) ......... $ 1,992,987
--------------
Repurchase Agreements--4.3%
State Street Bank & Trust Company, dated
10/31/96, repurchase price $3,001,408
(U.S. Treasury Note: $3,064,259, 6.75%,
04/30/00)
$ 3,001,000 4.90% 11/01/96 $ 3,001,000
--------------
Total Repurchase
Agreements
(cost $3,001,000) ......... $ 3,001,000
--------------
Total Investments
(cost $60,289,683/(c)/) ... $ 69,765,509
==============
- ---------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost ............... $ 9,743,281
Gross unrealized loss for
investments in which cost
exceeds value .......................... (357,920)
---------------
Net unrealized gain ....................... $ 9,385,361
===============
</TABLE>
- --------------------------------------------------------------------
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
/(a)/Non-income producing security.
/(b)/There are common stock rights attached to these securities.
/(c)/The aggregate cost for federal income tax purposes is $60,380,148.
- --------------------------------------------------------------------
Investment Abbreviations:
ADR--American Depository Receipts
- --------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
GROWTH FUND
October 31, 1996
<TABLE>
<CAPTION>
Shares Description Value
- ---------- -------------- ------------
Common Stocks--92.7%
<S> <C> <C>
AEROSPACE/DEFENSE--2.3%
55,000 Lockheed Martin Corp. $ 4,929,375
------------
AUTOMOTIVE PRODUCTS--2.6%
158,600 Chrysler Corp. $ 5,332,925
------------
BASIC INDUSTRIES--2.3%
83,400 Aluminum Company of America
$ 4,889,325
------------
BIOTECHNOLOGY--2.3%
78,200 Amgen, Inc./(a)/ $ 4,794,638
------------
BUILDING MATERIALS & CONSTRUCTION--1.3%
166,000 Clayton Homes, Inc. $ 2,801,250
------------
BUSINESS SERVICES--6.6%
34,000 Automatic Data Processing, Inc. $ 1,415,250
147,100 Equifax, Inc. 4,376,225
49,000 First Data Corp. 3,907,750
156,000 Reynolds & Reynolds Co. 4,114,500
------------
$ 13,813,725
------------
CHEMICAL PRODUCTS--1.5%
216,000 Terra Industries, Inc. $ 3,186,000
------------
COMMUNICATIONS--1.0%
43,000 SBC Communications, Inc. $ 2,090,875
------------
COMPUTER SERVICES/SOFTWARE--5.6%
49,000 Cisco Systems, Inc./(a)/ $ 3,031,875
30,000 Microsoft Corp./(a)/ 4,117,500
48,000 Parametric Technology Corp./(a)/ 2,346,000
68,000 Verifone, Inc./(a)/ 2,286,500
------------
$ 11,781,875
------------
CONSUMER GOODS--1.9%
66,000 Nike, Inc. $ 3,885,750
------------
DIVERSIFIED MANUFACTURING--10.0%
64,400 Allied Signal, Inc. $ 4,218,200
79,000 Dover Corp. 4,058,625
200,000 Federal Signal Corp. 5,150,000
106,000 Illinois Tool Works, Inc. 7,446,500
------------
$ 20,873,325
------------
ELECTRICAL SERVICES--2.2%
117,600 Union Electric Co. $ 4,542,300
------------
ELECTRONICS & OTHER ELECTRICAL
EQUIPMENT--11.3%
54,800 Adaptec, Inc./(a)/ $ 3,335,950
18,800 Emerson Electric Co. 1,673,200
87,500 General Electric Co. 8,465,625
49,000 Intel Corp. 5,383,875
83,000 Linear Technology Corp. 2,780,500
60,000 Xilinx, Inc./(a)/ 1,965,000
------------
$ 23,604,150
------------
FINANCIAL SERVICES--13.7%
54,400 BankAmerica Corp. $ 4,977,600
155,000 Federal National Mortgage Assn. 6,064,375
67,000 Franklin Resources, Inc. 4,723,500
103,000 Green Tree Financial Corp. 4,081,375
98,000 Norwest Corp. 4,299,750
82,000 Travelers Group, Inc. 4,448,500
------------
$ 28,595,100
------------
FOOD & BEVERAGES--2.2%
25,000 CPC International, Inc. $ 1,971,875
90,000 Pepsico, Inc. 2,666,250
------------
$ 4,638,125
------------
HEALTH & MEDICAL SERVICES--5.5%
61,400 Abbott Laboratories $ 3,108,375
96,800 Johnson & Johnson 4,767,400
181,000 Nellcor Puritan Bennett, Inc./(a)/ 3,529,500
------------
$ 11,405,275
------------
HOTELS & RESTAURANTS--0.5%
22,000 McDonalds Corp. $ 976,250
------------
HOUSEHOLD PRODUCTS--1.0%
28,200 Gillette Co. $ 2,107,950
------------
INSURANCE SERVICES--4.3%
81,500 Conseco, Inc. $ 4,360,250
122,000 SunAmerica, Inc. 4,575,000
------------
$ 8,935,250
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
GROWTH FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Shares Description Value
- ------------ --------------- -----------------
<S> <C> <C>
Common Stocks--Continued
OFFICE & BUSINESS EQUIPMENT--1.1%
38,000 Sun Microsystems, Inc./(a)/ $ 2,318,000
----------------
OIL & GAS--8.4%
70,000 Mobil Corp. $ 8,172,500
250,000 Nabors Industries, Inc./(a)/ 4,156,250
32,000 Royal Dutch Petroleum ADR 5,292,000
----------------
$ 17,620,750
----------------
RECREATIONAL SERVICES--0.9%
62,600 Mattel, Inc. $ 1,807,575
----------------
RETAIL TRADE--2.3%
60,000 Consolidated Stores Corp./(a)/ $ 2,317,500
65,000 Walgreen Co. 2,453,750
----------------
$ 4,771,250
----------------
RETAIL-DEPARTMENT STORES--1.9%
140,000 Gap, Inc. $ 4,060,000
----------------
Total Common Stocks
(cost $143,247,852) ..... $ 193,761,038
----------------
Principal Interest Maturity
Amount Rate Date
- --------------- -------- ----------
Repurchase Agreements--7.0%
State Street Bank & Trust Company, dated
10/31/96, repurchase price $14,611,989
(U.S. Treasury Note: $14,906,931, 6.75%,
04/30/00)
$14,610,000 4.90% 11/01/96 $ 14,610,000
----------------
Total Repurchase
Agreements
(cost $14,610,000) ...... $ 14,610,000
----------------
Total Investments
(cost $157,857,852/(b)/). $ 208,371,038
================
- --------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost ............. $ 51,422,529
Gross unrealized loss for investments in
which cost exceeds value ............. (909,343)
----------------
Net unrealized gain ..................... $ 50,513,186
================
</TABLE>
- --------------------------------------------------------------------
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
/(a)/Non-income producing security.
/(b)/The cost stated also represents aggregate cost for federal income tax
purposes.
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
AGGRESSIVE GROWTH FUND
October 31, 1996
<TABLE>
<CAPTION>
Shares Description Value
- ---------- ----------- --------------
<S> <C> <C>
Common Stocks--99.4%
AEROSPACE/DEFENSE--2.5%
26,000 Litton Industries, Inc./(a)/ $ 1,166,750
15,000 Precision Castparts Corp./(b)/ 701,250
--------------
$ 1,868,000
--------------
AGRICULTURE--1.8%
36,500 Delta & Pine Land Company $ 1,314,000
--------------
BROADCAST MEDIA--1.4%
26,700 A.H. Belo Corp. $ 1,041,300
--------------
BUILDING MATERIALS & CONSTRUCTION--1.0%
42,397 Clayton Homes, Inc. $ 715,449
--------------
BUSINESS SERVICES--5.4%
29,000 Devry, Inc./(a)/ $ 1,446,375
22,100 Paychex, Inc. 1,259,700
51,000 Reynolds & Reynolds Co. 1,345,125
--------------
$ 4,051,200
--------------
CHEMICAL PRODUCTS--4.3%
34,500 Bio-Rad Laboratories, Inc./(a)/ $ 836,625
29,500 OM Group, Inc. 1,209,500
78,900 Terra Industries, Inc. 1,163,775
--------------
$ 3,209,900
--------------
COMMERCIAL SERVICES--0.5%
8,500 APAC Teleservices, Inc./(a)/ $ 392,063
--------------
COMPUTER SERVICES/SOFTWARE--14.3%
48,000 American Management Systems, Inc./(a)/ $ 1,518,000
12,000 BMC Software, Inc./(a)/ 996,000
41,800 Cognos, Inc./(a)/ 1,311,475
32,000 Electronic Arts, Inc./(a)/ 1,200,000
9,400 HCIA, Inc./(a)/ 260,850
23,250 McAfee Associates, Inc./(a)/ 1,057,875
40,000 Medic Computer Systems, Inc./(a)/ 1,130,000
46,800 Network General Corp./(a)/ 1,129,050
21,770 SunGard Data Systems, Inc./(a)/ 930,668
33,000 Verifone, Inc./(a)/ 1,109,625
--------------
$ 10,643,543
--------------
DIVERSIFIED MANUFACTURING--4.8%
45,000 DT Industries, Inc. $ 1,777,500
16,000 Helix Technology Corp. 426,000
32,500 Lindsay Manufacturing Co. 1,397,500
--------------
$ 3,601,000
--------------
ELECTRONICS & OTHER ELECTRICAL
EQUIPMENT--11.3%
22,400 ADC Telecommunications, Inc./(a)/ $ 1,531,600
26,000 Andrew Corp./(a)/ 1,267,500
43,900 Belden, Inc. 1,262,125
20,300 Charter Power Systems, Inc. 502,425
35,500 Logicon, Inc./(b)/ 1,468,813
31,200 Maxim Integrated Products, Inc./(a)/ 1,092,000
29,800 Symbol Technologies, Inc./(a)/ 1,337,275
--------------
$ 8,461,738
--------------
ENERGY--2.4%
33,800 Input/Output, Inc./(a)/ $ 1,005,550
25,000 Thermo Instruments Systems, Inc./(a)/ 756,250
--------------
$ 1,761,800
--------------
FINANCIAL SERVICES--10.4%
42,000 A. G. Edwards, Inc. $ 1,254,750
46,000 Concord EFS, Inc./(a)/ 1,334,000
43,000 Fair Isaac & Co., Inc. 1,617,875
57,600 Synovus Financial Corp. 1,720,800
25,000 TCF Financial Corp. 968,750
34,000 United Asset Management Corp. 833,000
--------------
$ 7,729,175
--------------
HEALTH & MEDICAL SERVICES--12.9%
62,000 Ballard Medical Products $ 1,092,750
24,800 ClinTrials Research, Inc./(a)/ 920,700
21,600 Dentsply International, Inc. 909,900
45,000 Elan Corp. PLC/(a)/ 1,248,750
27,000 Idexx Laboratories, Inc./(a)/ 1,059,750
38,700 Invacare Corp. 1,083,600
24,200 Lincare Holdings, Inc. 907,500
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
AGGRESSIVE GROWTH FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Shares Description Value
- ---------- ----------- ------------
<S> <C> <C>
Common Stocks--Continued
HEALTH & MEDICAL SERVICES--CONTINUED
57,000 Physician Sales & Service, Inc./(a)/ $ 1,211,250
62,500 Rotech Medical Corp./(a)/ 1,000,000
37,000 Strategic Distribution, Inc./(a)/ 212,750
--------------
$ 9,646,950
--------------
INSURANCE SERVICES--10.9%
35,000 Allied Group, Inc. $ 1,478,750
29,000 American Bankers Insurance
Group, Inc. 1,392,000
34,300 American Travellers Corp. 1,179,063
24,875 Orion Capital Corp. 1,352,578
30,000 Protective Life Corp./(b)/ 1,035,000
20,000 SunAmerica, Inc. 750,000
13,800 Transatlantic Holdings, Inc. 993,600
--------------
$ 8,180,991
--------------
MANUFACTURING-MISCELLANEOUS--1.7%
31,800 Danaher Corp. $ 1,299,825
--------------
OIL & GAS--0.5%
23,000 Nabors Industries, Inc./(a)/ $ 382,375
--------------
PRINTING & PUBLISHING--2.0%
20,500 Scholastic Corp./(a)/ $ 1,501,625
--------------
RECREATIONAL SERVICES--1.0%
33,800 K2, Inc. $ 777,400
--------------
RETAIL TRADE--4.5%
27,000 Eckerd Corp. $ 759,401
28,300 Global Directmail Corp./(a)/ 1,393,775
31,900 MSC Industrial Direct, Inc./(a)/ 1,180,300
--------------
$ 3,333,476
--------------
TELECOMMUNICATIONS EQUIPMENT--0.6%
7,000 Aspect Telecommunications Corp./(a)/
$ 416,500
--------------
TEXTILES--1.9%
48,800 G & K Services, Inc. $ 1,415,200
--------------
TRANSPORTATION/ STORAGE--1.8%
43,800 Air Express International Corp. $ 1,324,950
--------------
UTILITIES--1.5%
34,000 Century Telephone Enterprises,
Inc./(b)/ $ 1,092,250
--------------
Total Common Stocks
(cost $61,299,221) ........ $ 74,160,710
==============
<CAPTION>
Principal Interest Maturity
Amount Rate Date
- ------------- -------- ----------
<S> <C> <C>
Repurchase Agreements--2.9%
State Street Bank & Trust Company,
dated 10/31/96, repurchase price
$2,148,292 (U.S. Treasury Note:
$2,194,603, 6.75%, 04/30/00)
$2,148,000 4.90% 11/01/96 $ 2,148,000
--------------
Total Repurchase Agreements
(cost $2,148,000) ......... $ 2,148,000
--------------
Total Investments
(cost $63,447,221/(c)/) ... $ 76,308,710
==============
- -------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost ............... $ 14,493,480
Gross unrealized loss for
investments in which cost
exceeds value .......................... (1,830,455)
--------------
Net unrealized gain ....................... $ 12,663,025
==============
</TABLE>
- -------------------------------------------------------------------
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
/(a)/ Non-income producing security.
/(b)/ There are common stock rights attached to these securities.
/(c)/ The aggregate cost for federal income tax purposes is $63,645,685.
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND
October 31, 1996
<TABLE>
<CAPTION>
Shares Description Value
- -------------- ------------- ---------------
Common Stocks--94.8%
<S> <C> <C>
ARGENTINE PESO--0.6%
2,039 Banco de Galicia Buenos Aires SA
ADR (Financial Services) $ 36,957
1,604 Banco Frances del Rio de la Plata
ADR (Financial Services) 42,105
1,750 Comercial de Plata ADR /(c)/ 144A (Oil
& Gas) 4,130
13,105 Perez Compac SA (Diversified
Industrial Manufacturing) 83,225
360 Sociedad Comercial del Plata ADR
(Oil & Gas) 8,389
2,230 Telecom Argentina (Utilities) 8,419
170 Telecom Argentina ADR
(Utilities) 6,417
3,250 Telefonica de Argentina ADR
(Utilities) 75,563
400 Transportadora de Gas del Sur ADR
(Utilities) 4,650
2,168 YPF Sociedad Anonima ADR (Oil &
Gas) 49,322
---------------
$ 319,177
---------------
AUSTRALIAN DOLLAR--1.6%
3,000 Amcor (Paper & Forest
Products) $ 18,639
9,000 Australia & New Zealand Bank Group
(Financial Services) 52,564
17,150 Australian Gas Light Co.
(Utilities) 94,047
8,294 Broken Hill Proprietary Co.
(Mining - Metals/Minerals) 110,091
1,200 Coca-Cola Amatil (Beverages/
Tobacco) 16,499
4,135 Howard Smith (Diversified
Industrial Manufacturing) 32,440
3,051 Lend Lease Corp. (Building
Materials & Construction) 51,716
5,189 National Australia Bank (Financial
Services) 56,952
11,033 News Corp. (Broadcast Media) 62,776
10,000 Publishing & Broadcasting, Ltd.
(Broadcast Media) 45,011
21,000 Tab Corp. Holdings, Ltd.
(Recreational Services) 99,017
14,000 TNT, Ltd. (Transportation/
Storage) 26,959
7,500 Western Mining Corp. Holdings,
Ltd. (Mining - Metals/
Minerals) 47,131
10,000 Westpac Banking Corp. (Financial
Services) 57,057
11,000 Woodside Petroleum, Ltd. (Oil &
Gas) 77,581
---------------
$ 848,480
---------------
AUSTRIAN SCHILLING--0.0%
84 EVN Energie Versorgung Neider
(Utilities) $ 11,400
280 Flughafen Wien AG (Transportation/
Storage) 13,811
---------------
$ 25,211
---------------
BELGIAN FRANC--1.0%
368 Generale de Banque /(a)/ (Financial
Services) $ 128,605
33 Generale de Banque - Warrants/(a)/
(Financial Services) 21
960 Kredietbank (Financial Services) 310,099
29 UCB (Chemical Products) 63,923
---------------
$ 502,648
---------------
BRAZILIAN REAL--3.0%
141,959 Brahma (Food/Grocery
Products) $ 87,740
3,200 Brazil Fund, Inc. (Financial
Services) 67,200
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Shares Description Value
-------------- ------------- ---------------
<S> <C> <C>
Common Stocks--Continued
BRAZILIAN REAL--CONTINUED
500 Cemig - CIA Energetica
Minas Gerais ADR/(c)/ 144A
(Utilities) $ 16,062
4,947 Cemig - CIA Energetica
Minas Gerais ADR (Non-
Voting) (Utilities) 158,922
118,176 Cim Port Itau (Cia) (Utilities) 31,057
2,070 Companhia Brasileira
(Utilities) 40,656
330 Companhia Energetica de Sao Paolo
ADR/(a)/ (Utilities) 3,279
370 Companhia Energetica de Sao Paolo
ADR/(a)//(c)/ 144A (Non-Voting)
(Utilities) 3,749
4,285 Electrobas-Centrais Eletricas
Brasileiras ADR (Utilities) 66,940
1,680 Electrobas-Centrais Eletricas
Brasileiras ADR (B Shares)
(Utilities) 27,390
1,568,226 Telebras (Broadcast Media) 116,464
9,103 Telecomunicacoes Brasileiras ADR
(Utilities) 678,174
602,623 Telesp Tel Sao Paolo (Utilities) 110,272
14,530 Usinas Siderurgicas de Minas ADR
(Building Materials &
Construction) 151,324
--------------
$ 1,559,229
--------------
BRITISH POUND STERLING--16.1%
40,000 Abbey National (Financial
Services) $ 415,365
22,800 Argos (Retail Trade) 286,299
90,000 Asda Group (Retail Trade) 171,387
19,000 British Gas (Oil & Gas) 59,066
14,000 British Petroleum (Oil & Gas) 150,448
39,000 Cable & Wireless (Utilities) 309,766
24,744 Cadbury Schweppes (Food/Grocery
Products) 206,200
45,000 Caradon (Building Materials &
Construction) $ 176,880
13,000 Coats Viyella (Textiles) 32,373
14,000 Compass Group (Recreational
Services) 139,225
6,600 East Midlands Electricity
(Utilities) 58,545
15,000 Electrocomponents (Electronics &
Other Electrical Equipment) 100,952
3,000 GKN (Automobiles & Automobile
Parts) 56,396
25,000 Glaxo Wellcome (Health/Personal
Care) 392,659
43,000 Grand Metropolitan (Beverages/Tobacco) 324,390
34,000 Guinness (Beverages/ Tobacco) 243,490
4,000 Heywood Williams Group (Building
Materials & Construction) 16,081
15,000 Hillsdown Holdings (Food/Grocery
Products) 42,480
37,000 Kingfisher (Retail Trade) 394,450
23,000 Ladbroke Group (Recreational
Services) 74,683
11,000 Laing (John) (Building Materials &
Construction) 47,803
12,714 London Electricity (Utilities) 125,195
18,092 National Grid Group (Utilities) 53,004
71,400 National Westminster Bank
(Financial Services) 815,220
26,500 Rank Organisation (Recreational
Services) 176,192
34,000 Reed International (Broadcast
Media) 633,073
11,000 Rolls-Royce (Aerospace/Defense) 45,565
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Shares Description Value
------------ ------------- -----------
<S> <C> <C>
Common Stocks--Continued
BRITISH POUND STERLING--CONTINUED
18,000 RTZ Corp. (Mining - Metals/
Minerals) $ 287,988
31,000 Safeway (Retail Trade) 183,911
9,000 Sears Holdings (Retail Trade) 12,744
31,500 Shell Transport & Trading Co.
(Oil & Gas) 516,284
22,000 Smith (David S.) Holdings
(Textiles) 111,719
62,000 SmithKline Beecham/S'Kline
Beckman (Health/Personal
Care) 765,918
30,000 T & N (Automobiles &
Automobile Parts) 62,988
27,000 Tesco (Retail Trade) 146,338
75,500 Tomkins (Diversified Industrial
Manufacturing) 317,041
31,000 United News & Media (Broadcast
Media) 340,072
------------
$ 8,292,190
------------
CANADIAN DOLLAR--0.3%
3,120 Alcan Aluminum, Ltd. (Mining
- Metals/Minerals) $ 102,387
1,020 Royal Bank of Canada
(Financial Services) 33,587
------------
$ 135,974
------------
CHILEAN PESO--0.6%
123 AFP Providia ADR (Financial
Services) $ 2,860
590 Cervecerias Unidas (CCU) ADR
(Beverages/Tobacco) 11,947
1,580 Chile Fund, Inc. (Financial
Services) 34,365
550 Chilectra SA ADR (Utilities) 28,982
749 Chilgener SA ADR (Utilities) 16,946
391 Companhia de
Telecomunicaciones Chile
ADR (Utilities) 38,562
2,312 Empresa Nacional de
Electricidad SA ADR
(Utilities) $ 42,483
1,551 Enersis SA ADR (Utilities) 45,561
11,110 Five Arrows Chile Investment
Trust (Financial Services) 32,219
1,160 Genesis Chile Fund (Financial
Services) 46,980
------------
$ 300,905
------------
CHINESE YUAN--0.4%
6,900 Huaneng Power International,
Inc. ADR/(a)/ (Energy) $ 105,225
258,000 Shanghai Petrochemical
(Chemical Products) 69,236
186,000 Yizheng Chemical Fibre
(Chemical Products) 43,059
------------
$ 217,520
------------
CZECH KORUNA--0.0%
190 SPT Telecom (Utilities) $ 20,347
------------
DANISH KRONE--0.2%
825 Den Danske Bank AB
(Financial Services) $ 59,187
290 Teledanmark (Utilities) 14,618
690 Unidanmark (Financial
Services) 31,814
------------
$ 105,619
------------
DEUTSCHEMARK--4.1%
107 Allianz AG Holdings
(Insurance Services) $ 192,155
30 Altana (Health/Personal Care) 23,984
9,949 Bayer AG (Chemical Products) 376,136
1,500 Bilfinger & Berger Bauag
(Building Materials &
Construction) 60,753
102 Buderus AG (Industrial
Machinery) 46,164
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
<TABLE>
<CAPTION>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND--(Continued)
October 31, 1996
Shares Description Value
- ------------ ----------- ----------
Common Stocks--Continued
<S> <C> <C>
DEUTSCHEMARK--CONTINUED
2,190 Deutsche Bank AG (Financial
Services) $ 101,491
464 Fielmann AG (Health/
Personal Care) 19,314
7,320 Gehe AG (Health/
Personal Care) 493,320
1,340 Hoechst AG (Chemical
Products) 50,421
200 Hornbach Baumarkt (Retail
Trade) 6,475
630 Hornbach Holdings AG (Retail
Trade) 39,544
240 Mannesmann AG (Industrial
Machinery) 93,241
503 Praktiker Bau Und
Heimwerker Markte/(a)/
(Retail Trade) 10,303
1,002 Rhoen-Klinikum AG (Health/
Personal Care) 120,492
310 Sap AG (Computer Services/
Software) 41,989
540 Schering AG (Chemical
Products) 43,475
841 Siemens AG (Electronics &
Other Electrical Equipment) 43,481
4,990 Veba AG (Utilities) 266,298
130 Veba AG - Warrants /(a)/ (Utilities) 36,848
116 Volkswagen AG (Automobiles &
Automobile Parts) 45,699
----------
$2,111,583
----------
FINNISH MARKKA--0.2%
1,920 Nokia (AB) OY (Electronics &
Other Electrical Equipment) $ 88,680
-----------
FRENCH FRANC--8.3%
565 Accor (Recreational Services) $ 70,959
1,120 Alcatel Alsthom (Cie Gen El)
(Electronics & Other
Electrical Equipment) 95,528
1,070 Assurances Generales de
France (Insurance Services) 31,565
580 Canal Plus (Broadcast Media) 143,644
737 Carrefour (Retail Trade) 409,028
360 Chargeurs/(a)/ (Diversified
Industrial Manufacturing) 15,634
580 Credit Local de France
(Financial Services) 49,901
268 Credit Local de France (non
tradeable) (Financial
Services) 23,058
5,560 Eaux (Cie Generale Des)
(Utilities) 664,572
731 Ecco Ste (Business Services) 175,464
1,940 Elf Aquitaine (Energy) 155,145
490 GTM Entrepose (Building
Materials & Construction) 23,245
517 Guilbert SA (Business
Services) 82,226
410 Havas SA (Broadcast Media) 26,933
205 L'Oreal (Health/Personal
Care) 69,419
1,160 Lapeyre (Building Materials &
Construction) 56,777
455 Legrand (Electronics & Other
Electrical Equipment) 78,952
1,460 LVMH Moet-Hennessy Louis
Vuitton (Beverages/
Tobacco) 334,739
360 Pathe/(a)/ (Broadcast Media) 97,116
1,140 Pinault Printemps Redoute
(Retail Trade) 429,970
780 Primagaz (Cie Des Gaz
Petrole) (Oil & Gas) 80,566
25 Primagaz (Cie Des Gaz
Petrole) - Warrants (Oil &
Gas) 484
255 Rexel (Retail Trade) 75,575
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Shares Description Value
- -------------- ------------- ---------------
<S> <C> <C>
Common Stocks--Continued
FRENCH FRANC--CONTINUED
1,510 Saint Gobain (Chemical
Products) $ 203,822
582 Sanofi (Health/Personal Care) 52,726
2,040 Schneider SA (Electronics & Other
Electrical Equipment) 99,769
240 Societe Generale (Financial
Services) 25,870
490 Sodexho (Food/Grocery
Products) 236,287
1,410 Television Francaise (Broadcast
Media) 150,053
4,224 Total (Oil & Gas) 330,447
---------------
$ 4,289,474
---------------
HONG KONG DOLLAR--4.7%
47,000 Cathay Pacific Air
(Transportation/Storage) $ 73,550
30,000 Dao Heng Bank Group (Financial
Services) 131,916
114,573 First Pacific Co. (Financial
Services) 157,808
134,000 Guangdong Investments, Ltd. (Real
Estate) 96,182
303,000 Guangzhou Investments (Real
Estate) 97,967
36,000 Guoco Group (Financial
Services) 190,424
173,380 Hong Kong Land Holdings (Real
Estate) 386,637
254,000 Hopewell Holdings (Real
Estate) 170,818
45,000 Hutchison Whampoa
(Conglomerates) 314,270
58,299 New World Development Co. (Real
Estate) 339,290
25,000 Swire Pacific, Ltd. (Diversified
Holding Companies) 220,668
61,000 Wharf Holdings (Diversified
Holding Companies) 251,662
---------------
$ 2,431,192
---------------
ITALIAN LIRA--1.7%
2,435 Assicurazioni Generali Spa
(Insurance Services) $ 47,049
48,430 Banca Fideuram (Financial
Services) 102,678
10,000 ENI (Ente Nazionale Idrocarburi)/(a)/
(Oil & Gas) 47,909
2,526 Finanziaria Autogrill Spa/(a)/
(Recreational Services) 2,579
10,840 IMI Spa (Financial Services) 85,817
370 Industrie Natuzzi Spa (Household
Durables) 16,789
13,000 Instituto National Assicurazioni
(Insurance Services) 17,960
12,000 Italgas (Societa Italiana II Gas)
Spa (Utilities) 44,315
5,150 Mediolanum /(a)/ (Insurance
Services) 51,061
3,000 Rinascente (Retail Trade) 17,746
150 Rinascente - Warrants /(a)/
(Retail Trade) 64
5,415 Sasib (Di Risp Shares) (Building
Materials & Construction) 9,374
39,000 STET (Utilities) 134,765
16,000 STET (Di Risp Shares) (Utilities) 42,627
63,443 Telecom Italia Mobile /(a)/
(Utilities) 131,161
15,887 Telecom Italia Mobile /(a)/ (Di Risp
Shares) (Utilities) 18,125
33,013 Telecom Italia Spa (Utilities) 73,584
2,000 Unicem (Union-CEM-March Emil) Spa
(Chemical Products) 13,321
---------------
$ 856,924
---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Shares Description Value
- -------------- ----------- ----------
<S> <C> <C>
Common Stocks--Continued
JAPANESE YEN--21.8%
1,100 Advantest (Electronics & Other
Electrical Equipment) $ 41,571
7,000 Alps Electric Co. (Electronics &
Other Electrical Equipment) 86,746
16,000 Amada Co, Ltd. (Industrial
Machinery) 137,810
21,000 Canon, Inc. (Electronics & Other
Electrical Equipment) 402,355
10,000 Citizen Watch Co. (Electronics &
Other Electrical Equipment) 76,024
13,000 Dai Nippon Screen Manufacturing
(Electronics & Other Electrical
Equipment) 102,716
3,000 Daifuku Co., Ltd. (Industrial
Machinery) 36,913
14,000 Daiichi Pharmaceutical Co.
(Health/Personal Care) 201,793
20,000 Daiwa House Industry Co. (Building
Materials & Construction) 277,729
21 DDI Corp.
(Computers/Communication) 157,805
44 East Japan Railway
(Transportation/Storage) 202,250
4,000 Fanuc Co., Ltd. (Electronics &
Other Electrical Equipment) 128,318
24,000 Hitachi (Electronics & Other
Electrical Equipment) 213,043
22,000 Hitachi Zosen Corp. (Heavy
Engineering) 107,506
2,000 Honda Motor Co., Ltd. (Automobiles
& Automobile Parts) 47,812
7,000 Inax Corp. (Building Materials &
Construction) 59,553
6,000 Ishihara Sangyo Kaisha (Chemical
Products) 17,982
6,000 Ito-Yokado Co. (Retail Trade) 299,525
7,000 Kao Corp. (Cosmetics) 82,440
8,000 Kokuyo Co., Ltd.
(Computers/Communication) 198,277
19,000 Komatsu, Ltd. (Industrial
Machinery) 155,634
6,000 Komori Corp. (Industrial
Machinery) 134,997
14,000 Kumagai Gumi Co. (Building
Materials & Construction) 44,296
19,000 Kuraray Co. (Chemical Products) 183,688
7,000 Kyocera Corp. (Electronics & Other
Electrical Equipment) 462,032
10,000 Makita Corp. (Industrial
Machinery) 137,107
14,000 Marui Co., Ltd. (Retail Trade) 259,624
20,000 Matsushita Electric Industrial Co.
(Household Durables) 319,916
10,000 Mitsubishi Corp. (Wholesale
Trade) 111,619
58,000 Mitsubishi Heavy Industries, Ltd.
(Heavy Engineering) 446,036
9,000 Mitsubishi Paper Mills, Ltd.
(Paper & Forest Products) 43,347
30,000 Mitsui Fudosan Co. (Financial
Services) 371,770
6,000 Mitsui Petrochemical Industries
(Oil & Gas) 36,439
7,000 Murata Manufacturing Co.
(Electronics & Other Electrical
Equipment) 225,171
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Shares Description Value
- ------------ ----------- ---------------
<S> <C> <C>
Common Stocks--Continued
JAPANESE YEN--CONTINUED
4,000 National House Industrial
(Building Materials &
Construction) $ 57,655
38,000 NEC Corp. (Electronics & Other
Electrical Equipment) 414,133
4,000 Nippon Hodo (Building Materials &
Construction) 55,897
97,000 Nippon Steel Corp. (Mining -
Metals/Minerals) 283,037
20 Nippon Telephone & Telegraph Corp.
(Computers/Communication) 139,743
19,000 Nippondenso Co. (Transportation/
Storage) 394,094
19,000 Nomura Securities Co., Ltd.
(Financial Services) 313,939
10,000 Pioneer Electronic Corp.
(Household Durables) 197,750
2,000 Sangetsu Co., Ltd. (Building
Materials & Construction) 42,714
14,000 Sankyo Co. (Health/Personal Care) 346,985
2,000 SEGA Enterprises (Diversified
Industrial Manufacturing) 80,858
23,000 Sekisui Chemical Co., Ltd.
(Building Materials &
Construction) 256,723
13,000 Sekisui House (Building Materials
& Construction) 137,107
2,000 Seven Eleven Japan Co., Ltd.
(Retail Trade) 116,365
18,000 Sharp Corp. (Household Durables) 273,686
13,000 Shinetsu Chemical Co., Ltd.
(Chemical Products) 222,798
5,000 Sony Corp. (Household Durables) 300,141
30,000 Sumitomo Corp. (Wholesale
Trade) 242,310
29,000 Sumitomo Electric Industries, Ltd.
(Electrical Equipment) 382,317
9,000 Sumitomo Forestry Co., Ltd. (Paper
& Forest Products) 127,351
5,000 TDK Corp. (Household Durables) 293,549
39,000 Teijin (Chemical Products) 180,638
7,000 Tokio Marine & Fire Insurance Co.
(Insurance Services) 76,903
3,000 Tokyo Electron (Electronics &
Other Electrical Equipment) 77,254
8,000 Tokyo Steel Manufacturing (Mining
- Metals/Minerals) 123,748
12,000 Toppan Printing Co. (Broadcast
Media) 146,599
5,000 Uny Co. (Retail Trade) 86,571
3,150 Yurtec Corp. (Building Materials &
Construction) 45,957
---------------
$ 11,226,666
---------------
KOREAN WON--0.7%
3,700 Hanil Bank (Financial
Services) $ 34,602
3,200 Korea Electric Power Corp. ADR
(Utilities) 94,112
323 Korea Fund, Inc. (Financial
Services) 5,451
850 Samsung Electronics (Electronics &
Other Electrical Equipment) 59,770
210 Samsung Electronics (rfd 03/13/96)
(Electronics & Other Electrical
Equipment) 14,360
339 Samsung Electronics Co. GDR
/(a)(c)/144A (Electronics & Other
Electrical Equipment) 11,860
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Shares Description Value
- ------------ ----------- ------------
<S> <C> <C>
Common Stocks--Continued
KOREAN WON--CONTINUED
180 Samsung Electronics, Ltd. GDR
(Non-Voting) 144A/(c)/
(Electronics & Other
Electrical Equipment) $ 6,297
1,130 Samsung Electronics, Ltd. GDR
(Voting) Bonus 144A/(a)//(c)/
(Electronics & Other
Electrical Equipment) 51,415
1,600 Samsung Electronics, Ltd. GDS
(Non-Voting) 144A/(c)/
(Electronics & Other
Electrical Equipment) 34,160
2,740 Shinhan Bank (Financial
Services) 44,105
1,189 Yukong (Oil & Gas) 27,773
------------
$ 383,905
------------
MALAYSIAN RINGGIT--3.0%
95,000 Affin Holdings Berhad
(Financial Services) $ 244,409
18,000 Affin Holdings Berhad -
Warrants/a/
(Financial Services) 19,236
42,000 Berjaya Sports Toto Berhad
(Business Services) 157,926
18,000 Commerce Asset Holdings Berhad
(Financial Services) 117,554
64,000 MBF Capital Berhad
(Financial Services) 88,154
96,000 Multi-Purpose Holding
(Financial Services) 164,148
83,000 Renong Berhad (Diversified
Industrial Manufacturing) 130,750
11,200 Renong Berhad - Rights/(a)/
(Diversified Industrial
Manufacturing) 41
7,000 Renong Berhad - Warrants/(a)/
(Diversified Industrial
Manufacturing) 2,854
13,000 Resorts World Berhad
(Recreational Services) 74,609
38,000 Tanjong (Mining - Metals/
Minerals) 147,398
50,000 Technology Resources
Industries
(Business
Services) 119,731
34,000 United Engineers Malaysia
(Industrial Machinery) 269,147
------------
$ 1,535,957
------------
MEXICAN PESO--1.5%
14,062 Cemex SA (Building Materials
& Construction) $ 47,720
9,860 Cemex SA (B Shares)
(Building Materials &
Construction) 35,486
7,860 Cemex SA ADR (Building
Materials & Construction) 54,234
67,641 CIFRA SA de CV ADR (Retail Trade) 82,184
6,752 Fomento Economico
Mexicano SA (Beverages/Tobacco) 20,517
18,158 Groupo Financiero Banamex-Accivl
(B Shares) (Financial Services) 38,442
499 Groupo Financiero Banamex-Accivl
(L Shares) (Financial Services) 1,019
12,324 Gruma SA (Diversified
Holding Companies) 61,236
37,450 Grupo Industrial Maseca SA
(Household Durables) 45,612
7,058 Grupo Modelo SA (Beverages/
Tobacco) 36,608
722 Grupo Televisa GDR (Broadcast
Media) 18,952
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Shares Description Value
- -------------- ----------- ---------------
<S> <C> <C>
Common Stocks--Continued
MEXICAN PESO--CONTINUED
3,151 Kimberly Clark de Mexico (Health/
Personal Care) $ 60,823
2,020 Panamerica Beverages (Beverages/
Tobacco) 88,123
6,145 Telefonos de Mexico SA ADR
(Utilities) 187,423
---------------
$ 778,379
---------------
NETHERLANDS GUILDER--10.4%
4,647 ABN AMRO Holdings NV (Financial
Services) $ 262,671
3,207 Ahold NV (Retail Trade) 187,135
208 Akzo Nobel NV (Chemical Products) 26,211
5,070 CSM CVA (Food/Grocery Products) 267,456
62,086 Elsevier NV (Broadcast Media) 1,031,961
4,975 Fortis AMEV NV (Insurance
Services) 148,669
1,110 Hagemeyer (Wholesale Trade) 83,417
12,382 ING Groep NV (Financial Services) 386,071
11,849 ING Groep NV - Warrants/(a)/
(Financial Services) 64,602
1,678 Koninklijke Ptt Nederland
(Utilities) 60,727
790 Nutricia (Verenigde Bedrijven) NV
(Food/Grocery Products) 110,822
950 Otra NV (Electronics & Other
Electrical Equipment) 17,806
6,107 Polygram (Recreational Services) 286,884
6,360 Royal Dutch Petroleum Co. (Oil &
Gas) 1,050,378
1,690 Unilever NV (Food/Grocery
Products) 256,996
8,792 Wolters Kluwer (Publishing) 1,130,222
---------------
$ 5,372,028
---------------
NEW ZEALAND DOLLAR--0.6%
8,909 Air New Zealand, Ltd.
(Transportation/Storage) $ 21,745
16,000 Carter Holt Harvey (Paper & Forest
Products) 35,996
7,000 Fernz Corp. (Chemical Products) 24,514
8,750 Fletcher Challenge Building
(Building Materials &
Construction) 23,709
1,750 Fletcher Challenge Energy (Oil &
Gas) 4,989
40,709 Fletcher Challenge Forest Division
(Paper & Forest Products) 67,968
3,500 Fletcher Challenge Paper (Paper &
Forest Products) 6,339
28,000 New Zealand Telecom (Utilities) 145,596
---------------
$ 330,856
---------------
NORWEGIAN KRONE--1.5%
1,170 Bergesen D-Y ASA (Transportation/
Storage) $ 25,588
8,110 Norsk Hydro (Energy) 373,803
5,510 Orkla AS (Diversified Industrial
Manufacturing) 352,441
1,390 Saga Petroleum (Oil & Gas) 21,792
---------------
$ 773,624
---------------
PERUVIAN SOL--0.0%
802 Telefonica del Peru SA ADS
(Utilities) $ 16,541
---------------
PORTUGUESE ESCUDO--0.5%
2,570 Jeronimo Martins SGPS (Food/
Grocery Products) $ 234,415
---------------
RUSSIAN RUBLE--0.0%
840 Rao Gazprom ADS/(a)/ (Energy) $ 15,750
---------------
SINGAPORE DOLLAR--1.9%
21,000 DBS Land (Real Estate) $ 66,184
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Shares Description Value
-------------- ------------- ---------------
<S> <C> <C>
Common Stocks--Continued
SINGAPORE DOLLAR--CONTINUED
6,000 Development Bank of Sing-
apore (Financial Services) $ 71,976
7,000 Far East-Levingston Shipbuliding
(Heavy Engineering) 32,297
3,600 Fraser & Neave (Beverages/Tobacco) 35,775
4,000 Keppel Corp. (Transportation/Storage) 29,813
32,000 Overseas Union Bank - Alien Market
(Financial Services) 218,058
2,000 Singapore Airlines
(Transportation/Storage) 17,604
25,000 Singapore Land (Real Estate) 138,416
5,200 Singapore Press Holdings
(Broadcast Media) 86,371
32,000 United Industrial Corp. (Real
Estate) 26,576
22,800 United Overseas Bank (Financial
Services) 221,721
3,200 United Overseas Bank - Warrants
/(a)/ (Financial Services) 11,357
--------------
$ 956,148
--------------
SPANISH PESETA--2.3%
596 Aguas de Barcelona (Utilities) $ 24,383
1,579 Argentaria (Financial Services) 61,875
2,629 Banco de Santander SA (Financial
Services) 134,958
740 Banco Popular Espanol (Financial
Services) 141,452
2,011 Centros Comerciales Pryca (Retail
Trade) 46,179
890 Continente Co. (Building Materials
& Construction) 18,066
3,785 Empresa Nacional de Endesa
(Utilities) 231,677
181 Fomento de Construcciones Y
Constra (Utilities) 14,696
777 Gas Natural Sdg SA (Utilities) 135,919
12,450 Iberdrola SA (Utilities) 132,213
5,595 Repsol SA (Oil & Gas) 182,634
70 Repsol SA ADR (Oil & Gas) 2,284
2,670 Telefonica de Espana (Utilities) 53,569
--------------
$ 1,179,905
--------------
SWEDISH KRONA--2.7%
860 ASEA AB (Electronics & Other
Electrical Equipment) $ 97,538
12,660 Astra AB (Health/Personal Care) 578,197
4,930 Atlas Copco AB (Industrial
Machinery) 101,697
3,250 Electrolux Co. (Household
Durables) 181,086
670 Esselte (Broadcast Media) 14,994
1,540 Hennes & Mauritz AB (Retail Trade) 204,202
860 Sandvik AB (Industrial Machinery) 20,293
5,570 Sandvik AB (B Shares) (Industrial
Machinery) 131,434
660 Scribona AB (Broadcast Media) 7,285
3,570 Stora Kopparbergs Bergsl AB (Paper
& Forest Products) 45,925
--------------
$ 1,382,651
--------------
SWISS FRANC--4.6%
719 Adia SA (Business Services) $ 202,094
300 BBC AG Brown, Boveri & Cie
(Electronics & Other Electrical
Equipment) 371,021
201 Ciba Geigy AG (Chemical Products) 247,789
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Shares Description Value
- -------------- ----------- --------------
<S> <C> <C>
Common Stocks--Continued
SWISS FRANC--CONTINUED
880 CS Holdings (Financial Services) $ 87,965
395 Nestle SA (Food/Grocery Products) 429,402
73 Roche Holdings AG (Health/
Personal Care) 552,557
290 Sandoz AG (Health/Personal Care) 335,463
720 Schweizerischer Bankverein
(Financial Services) 138,812
--------------
$ 2,365,103
--------------
THAI BAHT--0.5%
2,900 Advanced Information Services
(Computers/Communication) $ 39,357
7,150 Bangkok Bank (Financial Services) 76,282
6,962 Bank of Ayudhya (Financial
Services) 19,934
600 Siam Cement Public Co. (Building
Materials & Construction) 20,522
5,700 Siam Commercial Bank Public Co.
(Financial Services) 51,869
5,900 Thai Farmers Bank Public
(Financial Services) 45,126
1,900 Total Access Communication
(Computers/Communication) 13,110
--------------
$ 266,200
--------------
UNITED STATES DOLLAR--0.0%
190 Enron Global Power & Pipelines,
LLC. (Energy) $ 5,344
--------------
Total Common Stocks
(cost $45,307,097) ........ $ 48,928,625
--------------
Preferred Stocks--0.2%
AUSTRALIAN DOLLAR--0.1%
26,000 Sydney Harbour Casino
(Recreational Services) $ 37,087
--------------
DEUTSCHEMARK--0.1%
60 Krones AG (Industrial Machinery) $ 21,209
340 Sap AG (Computer Services/
Software) 45,783
--------------
$ 66,992
--------------
Total Preferred Stocks
(cost $110,406) ........... $ 104,079
--------------
<CAPTION>
Principal Interest Maturity
Amount Rate Date
- --------------- -------- --------
<S> <C> <C>
Corporate Obligations--0.0%
BELGIAN FRANC--0.0%
Kredietbank
$ 1,000 5.75% 11/30/03 $ 3,270
--------------
Total Corporate
Obligations
(cost $2,557) ............. $ 3,270
--------------
Repurchase Agreements--4.3%
State Street Bank & Trust Company, dated
10/31/96, repurchase price $2,193,298
(U.S. Treasury Note: $2,240,644, 6.75%,
04/30/00)
$2,193,000 4.90% 11/01/96 $ 2,193,000
--------------
Total Repurchase
Agreements
(cost $2,193,000) ......... $ 2,193,000
--------------
Total Investments
(cost $47,613,060/(b)/) ... $ 51,228,974
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
Federal Income Tax Information:
Gross unrealized gain for
investments in which value exceeds cost ................... $ 5,361,848
Gross unrealized loss for
investments in which cost
exceeds value ............................................. (1,836,693)
------------
Net unrealized gain ......................................... $ 3,525,155
------------
- --------------------------------------------------------------------------------
</TABLE>
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
/(a)/ Non-income producing security.
/(b)/ The aggregate cost for federal income tax purposes is $47,703,819.
/(c)/ Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration normally to qualified institutional investors.
- --------------------------------------------------------------------------------
Investment Abbreviations:
ADR--American Depository Receipts
ADS--American Depository Shares
GDR--Global Depository Receipts
GDS--Global Depository Shares
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
================================================================================
Common and Preferred Stock Industry Concentrations
================================================================================
<S> <C>
Financial Services 12.6%
Utilities 8.9%
Health/Personal Care 7.8%
Retail Trade 6.7%
Electronics & Other Electrical Equipment 6.6%
Broadcast Media 5.7%
Oil & Gas 5.1%
Food/Grocery Products 3.6%
Building Materials & Construction 3.4%
Chemical Products 3.4%
Household Durables 3.2%
Real Estate 2.6%
Industrial Machinery 2.5%
Publishing 2.2%
Beverages/Tobacco 2.2%
Mining - Metals/Minerals 2.1%
Diversified Industrial Manufacturing 2.0%
Recreational Services 1.9%
Transportation/Storage 1.6%
Business Services 1.4%
Energy 1.2%
Heavy Engineering 1.1%
Insurance Services 1.1%
Computers/Communication 1.1%
Diversified Holding Companies 1.0%
Wholesale Trade 0.8%
Electrical Equipment 0.7%
Paper & Forest Products 0.7%
Conglomerates 0.6%
Automobiles & Automobile Parts 0.4%
Textiles 0.3%
Computer Services/Software 0.2%
Cosmetics 0.2%
Aerospace/Defense 0.1%
================================================================================
Total Common and Preferred Stocks 95.0%
================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
NATIONAL TAX-FREE BOND FUND
October 31, 1996
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ------------ --------- ------------ ---------------
Municipal Bond Obligations--100.6%
<S> <C> <C> <C>
ARIZONA--2.8%
Salt River Project Arizona
Agricultural Improvements
Revenue Bonds Series C (AA/Aa)
$500,000 4.50% 01/01/04 $ 488,315
--------------
FLORIDA--1.2%
Florida State Board of Education
Capital Outlay GO Bonds Series A
(AA/Aa)
$200,000 5.25% 01/01/04 $ 205,260
--------------
GEORGIA--1.2%
Georgia State GO Bonds Series D
(AA+/Aaa)
$200,000 5.40% 11/01/10 $ 204,338
--------------
ILLINOIS--4.3%
Chicago Metropolitan Water
Reclamation GO Bonds (Aa/AA)
$500,000 4.90% 12/01/01 $ 507,830
Evanston GO Bonds (NR/Aaa)
250,000 5.30 12/01/99 257,185
--------------
$ 765,015
--------------
INDIANA--4.3%
Indianapolis Sanitation District
Bonds (AA+/NR)
$500,000 5.70% 01/01/98 $ 509,475
Purdue University Revenue Bonds
(AMBAC)(AAA/Aaa)
250,000 5.25 07/01/10 244,503
--------------
$ 753,978
--------------
IOWA--4.3%
Bettendorf GO Bonds Series A
(AMBAC)(NR/Aaa)
$250,000 4.70% 06/01/03 $ 251,817
Iowa City Sewer Revenue Bonds
(AMBAC)(AAA/Aaa)
250,000 6.00 07/01/08 259,050
Polk County GO Bonds (FGIC)
(AAA/Aaa)
$250,000 5.50% 12/01/10 $ 249,745
--------------
$ 760,612
--------------
KENTUCKY--1.2%
Louisville Water Works Board Water
System Revenue Bonds (AA/Aa)
$200,000 5.63% 11/15/06 $ 208,014
--------------
MARYLAND--4.3%
Maryland State GO Bonds
(AAA/Aaa)
$250,000 4.80% 04/15/01 $ 254,193
Washington Suburban Sanitation
District GO Revenue Bonds
(AA/Aa1)
500,000 4.75 06/01/02 504,365
--------------
$ 758,558
--------------
MICHIGAN--1.2%
Greenville Public Schools GO
Bonds (MBIA)(AAA/Aaa)
$200,000 5.75% 05/01/07 $ 207,850
--------------
MINNESOTA--7.4%
Minneapolis GO Bonds (AAA/Aaa)
$500,000 5.30% 10/01/98 $ 511,700
Minnesota State Housing and
Finance Agency Series D
AMT(AA+/Aa)
390,000 5.35 01/01/05 395,889
St. Paul Independent School District
#625 GO Bonds Series C (AA/Aa)
400,000 5.20 02/01/07 399,336
--------------
$ 1,306,925
--------------
NEBRASKA--6.9%
Douglas County Juvenile Detention
Facility GO Bonds (AA+/Aa)
$250,000 4.80% 07/01/02 $ 252,697
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
NATIONAL TAX-FREE BOND FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ------------ --------- ------------ ---------------
Municipal Bond Obligations--Continued
<S> <C> <C> <C>
NEBRASKA--CONTINUED
Nebraska Public Power District Revenue
Bonds Series A (A+/A1)
$250,000 5.10% 01/01/06 $ 249,983
200,000 6.00 01/01/06 210,662
Omaha Public Power Revenue Bonds Series A
(AA/Aa)
500,000 5.00 02/01/01 509,320
---------------
$ 1,222,662
---------------
NEVADA--1.2%
Clark County School District GO Bonds
Series B (FGIC) (AAA/Aaa)
$200,000 5.30% 05/01/04 $ 204,710
---------------
NORTH DAKOTA--1.4%
Fargo Water Revenue Bonds (MBIA) (AAA/Aaa)
$250,000 4.90% 01/01/03 $ 251,170
---------------
OHIO--3.8%
Columbus GO Bonds Series A (AAA/Aaa)
$250,000 4.50% 07/01/01 $ 250,922
Euclid GO Bonds (NR/Aa)
415,000 4.40 12/01/01 414,054
---------------
$ 664,976
---------------
OREGON--2.8%
Oregon State Housing & Community Services
Department Revenue Bonds Series D AMT
(NR/Aa)
$500,000 5.55% 07/01/06 $ 502,925
---------------
PENNSYLVANIA--2.9%
Pennsylvania State GO Bonds
(AA-/A1)
$500,000 5.25% 06/15/06 $ 507,510
---------------
SOUTH CAROLINA--1.4%
South Carolina State Capital Improvement
GO Bonds Series A (AA+/Aaa)
$250,000 5.00% 03/01/05 $ 252,355
---------------
TENNESSEE--5.8%
Shelby County GO Bonds Series A (AA+/Aa)
$500,000 5.63% 06/01/08 $ 518,895
Sullivan County Industrial Development
Revenue Bonds (Union Bank of
Switzerland LOC) (AAA/A-1+/NR)
500,000 3.55/(a)/ 10/01/16 500,000
---------------
$ 1,018,895
---------------
TEXAS--13.6%
Channelview Independent School District
GO Bonds (PSFG) (NR/Aaa)
$250,000 4.75% 08/15/05 $ 246,805
Collin County GO Bonds (AA-/Aa)
400,000 5.40 02/15/09 397,128
Grapevine Industrial Development Revenue
Bonds (Morgan Guarantee Trust Co. LOC)
(NR/Aa1/P-1)
100,000 3.55/(a)/ 12/01/24 100,000
Houston Independent School District GO
Bonds (AA+/Aa)
250,000 4.40 07/15/01 248,937
Lone Star Airport Improvement Authority
Revenue Bonds (Royal Bank of Canada
LOC) (NR/VMIG1)
200,000 3.55/(a)/ 12/01/14 200,000
200,000 3.55/(a)/ 12/01/14 200,000
San Antonio GO Bonds (AA/Aa)
200,000 5.20 08/01/02 205,166
Tarrant County GO Bonds (AA+/Aa1)
400,000 4.80 07/15/06 389,388
Texas A&M University Revenue Bonds (AA/Aa)
200,000 5.55 05/15/01 208,014
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
NATIONAL TAX-FREE BOND FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ------------ ---------- ----------- -------------
<S> <C> <C> <C>
Municipal Bond Obligations--Continued
TEXAS--CONTINUED
Texas State GO Bonds Series A
(AA/Aa)
$200,000 5.65% 10/01/08 $ 205,506
-----------
$ 2,400,944
-----------
UTAH--2.9%
Alpine School District GO Bonds
(FGIC-TCRS) (AAA/Aaa)
$250,000 5.40% 03/15/05 $ 254,870
Salt Lake City School District
Revenue Bonds Series A
(NR/Aaa)
250,000 5.80 03/01/07 261,380
-----------
$ 516,250
-----------
VIRGINIA--4.0%
Virginia Beach GO Bonds (AA/Aa)
$200,000 5.20% 07/15/06 $ 204,570
Virginia State Public School
Authority Revenue Bonds (AA/Aa)
500,000 4.50 01/01/00 500,700
-----------
$ 705,270
-----------
WASHINGTON--14.8%
King County GO Bonds Series D
(AA+/Aa1)
$500,000 6.20% 12/01/00 $ 528,810
King County School District #412
GO Bonds (MBIA) (AAA/Aaa)
250,000 5.75 06/01/08 258,005
Pierce County Sewer Improvements
Revenue Bonds (A+/A1)
290,000 5.45 02/01/08 291,035
Port Seattle Revenue Bonds Series
A (AMBAC) (AAA/Aaa)
500,000 6.00 02/01/99 517,270
Seattle Municipal Light & Power
Revenue Bonds Series A (AA/Aa)
250,000 5.75 08/01/09 255,450
Snohomish County GO Bonds
(MBIA) (AAA/Aaa)
$250,000 5.75% 12/01/10 $ 251,268
Vancouver Water & Sewer Revenue
Bonds (FGIC) (AAA/Aaa)
250,000 4.70 06/01/01 251,113
Washington State GO Bonds Series
DD-12 & CC-9 (AA/Aa)
250,000 5.38 03/01/08 252,835
-----------
$ 2,605,786
-----------
WISCONSIN--6.9%
Green Bay Public School District
GO Bonds (NR/Aa)
$500,000 4.90% 04/01/05 $ 501,000
Waukesha County GO Bonds
(NR/Aaa)
500,000 4.40 12/01/98 503,130
Wisconsin State GO Bonds Series 3
(AA/Aa)
200,000 5.25 11/01/02 206,842
-----------
$ 1,210,972
-----------
Total Municipal Bond
Obligations
(cost $17,547,625) ........ $17,723,290
-----------
Total Investments
(cost $17,547,625/(b)/) ... $17,723,290
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
NATIONAL TAX-FREE BOND FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
Federal Income Tax Information:
Gross unrealized gain for
investments in which value
exceeds cost ............................................ $ 212,690
Gross unrealized loss for
investments in which cost
exceeds value ......................................... (37,025)
-------------
Net unrealized gain ...................................... $ 175,665
=============
</TABLE>
- --------------------------------------------------------------------------------
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
/(a)/Variable rate security. Coupon rate disclosed is that which is
in effect at October 31, 1996.
/(b)/The cost stated also represents aggregate cost for federal income tax
purposes.
- --------------------------------------------------------------------------------
Investment Abbreviations:
AMBAC-- Insured by American Municipal Bond Assurance
Corporation
AMT -- Subject to Alternative Minimum Tax
FGIC -- Insured by Financial Guaranty Insurance Company
GO -- General Obligation
LOC -- Letter of Credit
MBIA -- Insured by Municipal Bond Investors Assurance
Corporation
NR -- Not Rated
PSFG -- Permanent School Fund Guaranteed
TCRS -- Transferable Custodial Receipts
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
MISSOURI TAX-FREE BOND FUND
October 31, 1996
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ----------- -------- ---------- ------------
<S> <C> <C> <C>
Missouri Municipal Bond Obligations--97.9%
Belton School District #124 GO Bonds
(NR/A)
$300,000 5.60% 03/01/10 $ 301,890
Benton County School District GO Bonds
(AA/NR)
300,000 4.90 03/01/04 298,338
Cass County School District #R-2 GO Bonds
(AA/NR)
725,000 4.80 03/01/02 725,232
Cass County School District #R-9 GO Bonds
(NR/A)
200,000 6.25 03/01/00 207,172
Cass County School District GO Bonds
(AA/NR)
400,000 4.75 03/01/03 396,956
Columbia School District GO Bonds (AA/Aa)
375,000 4.75 03/01/05 374,719
Columbia Water & Electricity Revenue
Bonds Series A (AA/A1)
300,000 5.40 10/01/02 312,747
Hazelwood School District GO Bonds (NR/Aa)
150,000 5.15 03/01/04 153,570
Jackson County Longview Recreation
Project (NR/A1)
350,000 8.00 11/01/07 370,874
Jackson County School District GO Bonds
(NR/A1)
250,000 5.60 03/01/08 256,120
Jasper County School District #R-9 GO
Bonds (AA/NR)
500,000 5.00 09/01/03 508,925
Kansas City GO Bonds (AA/Aa)
200,000 4.50 06/01/04 194,120
Kansas City Sewer Special Assessment GO
Bonds Series A (AA/Aa)
410,000 7.40 05/15/99 440,533
Kansas City Water Revenue Bonds Series A
(AA/Aa)
750,000 4.85 12/01/06 744,075
Lafayette County School District GO Bonds
(AA/NR)
350,000 5.20 03/01/07 347,217
Lees Summit GO Bonds Series B (AMBAC)
(AAA/Aaa)
400,000 4.20 04/01/04 380,140
Missouri State Economic Development
Export & Infrastructure Board Revenue
Bonds (A/NR)
200,000 5.38/(a)/ 05/01/03 200,848
Missouri State Environmental Improvement
& Energy Resources Authority Pollution
Control Revenue Bonds (AA/A1)
500,000 4.25 12/01/98 502,545
250,000 5.50 12/01/04 262,097
Missouri State Environmental Improvement
& Energy Resources Authority Water
Pollution Control Revenue Bonds Series
A (AA/NR)
150,000 5.25 07/01/02 155,024
Missouri State Environmental Improvement
& Energy Resources Authority Water
Pollution Control Revenue Bonds Series
C (NR/Aa)
205,000 4.75 01/01/01 207,530
500,000 4.90 01/01/02 507,470
Missouri State Environmental Improvement
& Energy Resources Authority Water
Pollution Control Revenue Bonds Series
D (NR/Aa)
400,000 5.50 01/01/08 409,008
</TABLE>
The accompanying notes are an integral part of these financial statements
39
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
MISSOURI TAX-FREE BOND FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ----------- -------- ---------- --------------
<S> <C> <C> <C>
Missouri Municipal Bond Obligations--Continued
Missouri State Environmental Improvement
& Energy Resources Authority Water
Pollution Control Revenue Bonds Series
E (NR/Aa)
$390,000 4.38% 07/01/00 $ 391,349
Missouri State Fourth State Building GO
Bonds Series A (AAA/Aaa)
500,000 5.30% 08/01/08 506,790
500,000 5.40 08/01/09 506,755
Missouri State GO Bonds Series A (AAA/Aaa)
300,000 6.00 04/01/00 315,786
500,000 4.50 08/01/02 499,465
Missouri State Health & Educational
Facility Jefferson Memorial Hospital
Revenue Bonds (NR/Baa)
600,000 3.60/(a)/ 06/01/26 600,000
Missouri State Health & Educational
Facility Revenue Bonds (Barnes-Jewish,
Inc.) (AA/Aa)
150,000 6.00 05/15/11 157,280
Missouri State Health & Educational
Facility Revenue Bonds (prerefunded to
06/01/01) (MBIA) (AAA/Aaa)
300,000 6.63 06/01/11 331,620
Missouri State Health & Educational
Facility Revenue Bonds Series B
(Health Midwest) (MBIA) (AAA/Aaa)
150,000 6.10 06/01/11 157,532
Missouri State Health & Educational
Facility Washington University
Revenue Bonds Series A (NR/Aa1)
450,000 4.75 08/15/05 441,423
Missouri State Housing Development
Community Revenue Bonds Series B AMT
(GNMA/FNMA) (AAA/NR)
250,000 5.50 03/01/06 253,802
Missouri State Housing Development
Community Revenue Bonds Series C AMT
(GNMA/FNMA) (AAA/NR)
245,000 4.80 09/01/01 246,029
Missouri State Office Building Special
Obligation Revenue Bonds (AA/Aa)
150,000 5.50 12/01/98 154,366
Platte County School District #R-3 GO
Bonds (AA/NR)
265,000 4.90 03/01/05 261,423
Springfield GO Bonds (NR/Aa)
220,000 4.30 03/01/00 219,987
St. Charles School District GO Bonds
Series A (AMBAC) (AAA/Aaa)
150,000 5.75 03/01/11 152,249
St. Francois County School District GO
Bonds (CGIC) (AAA/Aaa)
280,000 4.80 03/01/04 279,980
St. Louis County GO Bonds Series B (NR/Aa1)
200,000 5.25 02/01/07 201,356
750,000 5.30 02/01/08 753,090
St. Louis County Rockwood School District
#R-6 GO Bonds (NR/Aaa)
300,000 5.80 02/01/99 310,131
St. Louis County School District GO Bonds
Lindbergh (NR/Aa)
715,000 6.60 02/15/03 788,859
200,000 5.40 02/15/10 200,114
St. Louis County School District GO Bonds
Parkway (NR/Aa)
300,000 7.00 02/01/00 323,841
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
MISSOURI TAX-FREE BOND FUND--(Continued)
October 31, 1996
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
- ----------- -------- -------- -----------
<S> <C> <C> <C>
Missouri Municipal Bond Obligations--Continued
St. Louis School District GO Bonds
(FGIC) (AAA/Aaa)
$200,000 5.40% 04/01/03 $ 207,880
St. Peters GO Bonds (NR/A1)
150,000 5.80 01/01/10 153,957
-----------
Total Missouri Municipal
Bond Obligations
(cost $16,603,354) ........ $16,672,214
-----------
Repurchase Agreements--0.8%
State Street Bank & Trust Company,
dated 10/31/96, repurchase price
$136,019 (U.S. Treasury Bond:
$144,391, 10.75%, 08/15/05)
$136,000 4.90% 11/01/96 $ 136,000
-----------
Total Repurchase
Agreements
(cost $136,000) ........... $ 136,000
-----------
Total Investments
(cost $16,739,354/(b)/) ... $16,808,214
===========
- --------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in
which value exceeds cost ............... $ 122,395
Gross unrealized loss for investments in
which cost exceeds value ............... (53,535)
===========
Net unrealized gain ....................... $ 68,860
===========
</TABLE>
- --------------------------------------------------------------------
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
/(a)/Variable rate security. Coupon rate disclosed is that which is
in effect at October 31, 1996.
/(b)/The cost stated also represents aggregate cost for federal income tax
purposes.
- --------------------------------------------------------------------
Investment Abbreviations:
AMBAC--Insured by American Municipal Bond Assurance Corporation
AMT --Subject to Alternative Minimum Tax
CGIC --Insured by Capital Guaranty Insurance Corporation
FGIC --Insured by Financial Guaranty Insurance Company
FNMA --Federal National Mortgage Association
GNMA --Government National Mortgage Association
GO --General Obligation
MBIA --Insured by Municipal Bond Investors Assurance Corporation
NR --Not Rated
- --------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
THE COMMERCE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1996
<TABLE>
<CAPTION>
Short-Term
Government Bond
Fund Fund
---------- ------------
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $34,240,408, $148,639,517, $60,289,683, $157,857,852, $63,447,221,
$47,613,060, $17,547,625, and $16,739,354, respectively) ........................... $34,553,894 $153,353,380
Cash ................................................................................. 500 253
Receivables:
Investment securities sold ......................................................... -- --
Interest ........................................................................... 492,729 1,712,486
Dividends .......................................................................... -- --
Fund shares sold ................................................................... 68,830 526,189
Deferred organization expenses, net .................................................. 30,967 32,859
Other ................................................................................ 32,862 25,596
----------- ------------
Total assets ..................................................................... 35,179,782 155,650,763
----------- ------------
LIABILITIES:
Payables:
Investment securities purchased .................................................... 1,234,473 4,079,044
Fund shares redeemed ............................................................... 20,850 88,518
Dividends and distributions ........................................................ 46,011 121,588
Advisory fees ...................................................................... 8,405 62,525
Administration fees ................................................................ 4,203 18,757
Accrued expenses and other liabilities ............................................... 27,329 75,615
----------- ------------
Total liabilities ................................................................ 1,341,271 4,446,047
----------- ------------
NET ASSETS:
Paid-in capital ...................................................................... 33,517,340 146,229,515
Accumulated undistributed net investment income ...................................... 16,269 76,707
Accumulated net realized gain (loss) on investment transactions ...................... (8,584 184,631
Accumulated net realized loss on foreign currency related transactions ............... -- --
Net unrealized gain on investments ................................................... 313,486 4,713,863
Net unrealized loss on translation of assets and liabilities denominated in foreign
currencies ......................................................................... -- --
----------- ------------
Net assets ....................................................................... $33,838,511 $151,204,716
=========== ============
Net asset value per share
(net assets/shares outstanding) .................................................. $ 18.43 $ 19.07
=========== ============
Maximum public offering price per share (NAV per share X 1.0363) ................... $ 19.10 $ 19.76
=========== ============
SHARES OUTSTANDING:
Total shares outstanding, no par value (unlimited number of shares authorized) ....... 1,835,731 7,929,698
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
THE COMMERCE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1996
<TABLE>
<CAPTION>
Balanced Growth
Fund Fund
-------------- ---------------
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $34,240,408, $148,639,517, $60,289,683, $157,857,852, $63,447,221,
$47,613,060, $17,547,625, and $16,739,354, respectively) .......................... $ 69,765,509 $ 208,371,038
Cash ................................................................................. 462 476
Receivables:
Investment securities sold ......................................................... -- --
Interest ........................................................................... 318,157 1,989
Dividends .......................................................................... 18,802 114,383
Fund shares sold ................................................................... 391,941 846,970
Deferred organization expenses, net .................................................. 31,651 33,561
Other ................................................................................ 30,595 26,508
------------- ---------------
Total assets ..................................................................... 70,557,117 209,394,925
------------- ---------------
LIABILITIES:
Payables:
Investment securities purchased .................................................... 509,881 --
Fund shares redeemed ............................................................... 72,414 226,301
Dividends and distributions ........................................................ -- --
Advisory fees ...................................................................... 43,915 131,291
Administration fees ................................................................ 8,783 26,258
Accrued expenses and other liabilities ............................................... 41,876 103,290
------------- ---------------
Total liabilities ................................................................ 676,869 487,140
------------- ---------------
NET ASSETS:
Paid-in capital ...................................................................... 56,643,940 144,206,308
Accumulated undistributed net investment income ...................................... 142,448 16,344
Accumulated net realized gain (loss) on investment transactions ...................... 3,618,034 14,171,947
Accumulated net realized loss on foreign currency related transactions ............... -- --
Net unrealized gain on investments ................................................... 9,475,826 50,513,186
Net unrealized loss on translation of assets and liabilities denominated in foreign
currencies ........................................................................ -- --
============= ===============
Net assets ....................................................................... $ 69,880,248 $ 208,907,785
============= ===============
Net asset value per share
(net assets/shares outstanding) ................................................. $ 24.00 $ 28.95
============= ===============
Maximum public offering price per share (NAV per share X 1.0363) ................... $ 24.87 $ 30.00
============= ===============
SHARES OUTSTANDING:
Total shares outstanding, no par value (unlimited number of shares authorized) ....... 2,911,427 7,217,198
============= ===============
<CAPTION>
Aggressive International
Growth Equity
Fund Fund
-------------- ---------------
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $34,240,408, $148,639,517, $60,289,683, $157,857,852, $63,447,221,
$47,613,060, $17,547,625, and $16,739,354, respectively) .......................... $ 76,308,710 $ 51,228,974
Cash ................................................................................. 605 253,960
Receivables:
Investment securities sold ......................................................... 954,212 21,249
Interest ........................................................................... 292 379
Dividends .......................................................................... 7,589 127,760
Fund shares sold ................................................................... 206,612 247,557
Deferred organization expenses, net .................................................. 30,783 30,574
Other ................................................................................ 19,467 19,483
------------- --------------
Total assets ..................................................................... 77,528,270 51,929,936
------------- --------------
LIABILITIES:
Payables:
Investment securities purchased .................................................... 2,751,640 106,837
Fund shares redeemed ............................................................... 22,359 82,458
Dividends and distributions ........................................................ -- --
Advisory fees ...................................................................... 48,189 35,026
Administration fees ................................................................ 9,638 6,519
Accrued expenses and other liabilities ............................................... 55,004 110,070
------------- --------------
Total liabilities ................................................................ 2,886,830 340,910
------------- --------------
NET ASSETS:
Paid-in capital ...................................................................... 61,196,740 47,198,355
Accumulated undistributed net investment income ...................................... -- 245,502
Accumulated net realized gain (loss) on investment transactions ...................... 583,211 568,016
Accumulated net realized loss on foreign currency related transactions .............. -- (37,493)
Net unrealized gain on investments ................................................... 12,861,489 4,968,095
Net unrealized loss on translation of assets and liabilities denominated in foreign
currencies ........................................................................ -- (1,353,449)
============= ==============
Net assets ....................................................................... $ 74,641,440 $ 51,589,026
============= ==============
Net asset value per share
(net assets/shares outstanding) ................................................. $ 28.06 $ 20.96
============= ==============
Maximum public offering price per share (NAV per share X 1.0363) ................... $ 29.08 $ 21.72
============= ==============
SHARES OUTSTANDING:
Total shares outstanding, no par value (unlimited number of shares authorized) ....... 2,660,099 2,461,373
============= ==============
<CAPTION>
National Missouri
Tax-Free Tax-Free
Bond Fund Bond Fund
------------- -------------
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $34,240,408, $148,639,517, $60,289,683, $157,857,852, $63,447,221,
$47,613,060, $17,547,625, and $16,739,354, respectively) .......................... $ 17,723,290 $ 16,808,214
Cash ................................................................................. 57,542 830
Receivables:
Investment securities sold ......................................................... -- --
Interest ........................................................................... 281,555 231,821
Dividends .......................................................................... -- --
Fund shares sold ................................................................... 82,500 35,974
Deferred organization expenses, net .................................................. 35,348 35,270
Other ................................................................................ 14,017 14,266
------------- --------------
Total assets ..................................................................... 18,194,252 17,126,375
------------- --------------
LIABILITIES:
Payables:
Investment securities purchased .................................................... 503,131 --
Fund shares redeemed ............................................................... -- 19,540
Dividends and distributions ........................................................ 45,843 47,357
Advisory fees ...................................................................... 7,332 4,309
Administration fees ................................................................ 2,199 2,154
Accrued expenses and other liabilities ............................................... 22,462 18,601
------------- --------------
Total liabilities ................................................................ 580,967 91,961
------------- --------------
NET ASSETS:
Paid-in capital ...................................................................... 17,434,072 16,940,241
Accumulated undistributed net investment income ...................................... 9,525 10,626
Accumulated net realized gain (loss) on investment transactions ...................... (5,977) 14,687
Accumulated net realized loss on foreign currency related transactions ............... -- --
Net unrealized gain on investments ................................................... 175,665 68,860
Net unrealized loss on translation of assets and liabilities denominated in foreign
currencies ........................................................................ -- --
============= ==============
Net assets ....................................................................... $ 17,613,285 $ 17,034,414
============= ==============
Net asset value per share
(net assets/shares outstanding) ................................................. $ 18.46 $ 18.26
============= ==============
Maximum public offering price per share (NAV per share X 1.0363) ................... $ 19.13 $ 18.92
============= ==============
SHARES OUTSTANDING:
Total shares outstanding, no par value (unlimited number of shares authorized) ....... 954,201 932,652
============= ==============
</TABLE>
43
<PAGE>
THE COMMERCE FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended October 31, 1996
<TABLE>
<CAPTION>
Short-Term
Government Bond
Fund Fund
--------------- --------------
<S> <C> <C>
INVESTMENT INCOME:
Interest ............................................................................. $ 1,799,938 $ 8,339,699
Dividends/a/.......................................................................... -- --
------------ -------------
Total income ...................................................................... 1,799,938 8,339,699
------------ -------------
EXPENSES:
Advisory fees ........................................................................ 136,716 600,758
Administration fees .................................................................. 41,015 180,227
Transfer agent fees .................................................................. 36,910 50,108
Custodian fees ....................................................................... 38,372 43,619
Professional fees .................................................................... 8,903 50,410
Trustee fees ......................................................................... 1,087 5,887
Registration fees .................................................................... 19,467 32,530
Amortization of deferred organization expenses ....................................... 9,995 10,607
Other ................................................................................ 11,316 36,144
------------ -------------
Total expenses .................................................................... 303,781 1,010,290
Less-- Investment advisory fees waived and expense reimbursements .................... (117,847) --
------------ -------------
Net expenses ...................................................................... 185,934 1,010,290
------------ -------------
Net investment income (loss)....................................................... 1,614,004 7,329,409
------------ -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain (loss) on investment transactions .................................. (2,446) 250,806
Net realized loss on foreign currency related transactions ........................... -- --
Net change in unrealized gain (loss) on investments .................................. (219,238) (1,214,248)
Net change in unrealized loss on translation of assets and liabilities denominated in
foreign currencies ................................................................. -- --
------------- -------------
Net realized and unrealized gain (loss) on investments and foreign currency
transactions ................................................................. (221,684) (963,442)
------------ -------------
Net increase in net assets resulting from operations ............................ $ 1,392,320 $ 6,365,967
============ =============
</TABLE>
- ---------------
/a/For the Balanced, Growth, Aggressive Growth and International Equity Funds,
amount is net of $4,020, $22,380, $1,540 and $125,675 in foreign withholding
taxes, respectively.
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
THE COMMERCE FUNDS
STATEMENTS OF OPERATIONS
For the Year Ended October 31, 1996
<TABLE>
<CAPTION>
Balanced Growth
Fund Fund
------------ -------------
<S> <C> <C>
INVESTMENT INCOME:
Interest ............................................................................. $ 1,666,765 $ 584,717
Dividends/(a)/........................................................................ 438,362 2,443,254
------------ -------------
Total income ....................................................................... 2,105,127 3,027,971
------------ -------------
EXPENSES:
Advisory fees ........................................................................ 584,632 1,262,077
Administration fees .................................................................. 87,695 252,415
Transfer agent fees .................................................................. 42,501 76,258
Custodian fees ....................................................................... 58,181 44,699
Professional fees .................................................................... 22,138 76,403
Trustee fees ......................................................................... 2,637 8,950
Registration fees .................................................................... 19,536 21,449
Amortization of deferred organization expenses ....................................... 10,215 10,830
Other ................................................................................ 22,813 58,945
------------ -------------
Total expenses ..................................................................... 850,348 1,812,026
Less -- Investment advisory fees waived and expense reimbursements ................... (189,714) --
------------ -------------
Net expenses ....................................................................... 660,634 1,812,026
------------ -------------
Net investment income (loss)........................................................ 1,444,493 1,215,945
------------ -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain (loss) on investment transactions .................................. 3,633,059 14,171,671
Net realized loss on foreign currency related transactions ........................... -- --
Net change in unrealized gain (loss) on investments .................................. 2,979,254 20,413,669
Net change in unrealized loss on translation of assets and liabilities denominated in
foreign currencies ................................................................ -- --
------------ -------------
Net realized and unrealized gain (loss) on investments and foreign currency
transactions ................................................................. 6,612,313 34,585,340
------------ -------------
Net increase in net assets resulting from operations ............................ $ 8,056,806 $ 35,801,285
============ =============
<CAPTION>
Aggressive International
Growth Equity
Fund Fund
------------ -------------
<S> <C> <C>
INVESTMENT INCOME:
Interest ............................................................................. $ 102,331 $ 148,113
Dividends/(a)/........................................................................ 411,873 789,401
------------ ------------
Total income ....................................................................... 514,204 937,514
------------ ------------
EXPENSES:
Advisory fees ........................................................................ 453,655 571,175
Administration fees .................................................................. 90,731 57,118
Transfer agent fees .................................................................. 63,422 39,159
Custodian fees ....................................................................... 50,517 278,118
Professional fees .................................................................... 25,679 14,846
Trustee fees ......................................................................... 2,963 1,649
Registration fees .................................................................... 24,359 25,143
Amortization of deferred organization expenses ....................................... 9,933 9,867
Other ................................................................................ 18,115 9,988
------------ ------------
Total expenses ..................................................................... 739,374 1,007,063
Less -- Investment advisory fees waived and expense reimbursements ................... -- (352,110)
------------ ------------
Net expenses ....................................................................... 739,374 654,953
------------ ------------
Net investment income (loss)........................................................ (225,170) 282,561
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain (loss) on investment transactions .................................. 583,211 606,179
Net realized loss on foreign currency related transactions ........................... -- (60,783)
Net change in unrealized gain (loss) on investments .................................. 6,869,864 4,232,406
Net change in unrealized loss on translation of assets and liabilities denominated in
foreign currencies ................................................................ -- (1,006,981)
------------ ------------
Net realized and unrealized gain (loss) on investments and foreign currency
transactions ................................................................. 7,453,075 3,770,821
------------ ------------
Net increase in net assets resulting from operations ............................ $ 7,227,905 $ 4,053,382
============ ============
<CAPTION>
National Missouri
Tax-Free Tax-Free
Bond Fund Bond Fund
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Interest ............................................................................. $ 656,626 $ 585,700
Dividends/(a)/........................................................................ -- --
---------- ----------
Total income ....................................................................... 656,626 585,700
---------- ----------
EXPENSES:
Advisory fees ........................................................................ 68,740 61,184
Administration fees .................................................................. 20,622 18,355
Transfer agent fees .................................................................. 27,419 26,011
Custodian fees ....................................................................... 42,777 38,790
Professional fees .................................................................... 10,041 8,013
Trustee fees ......................................................................... 977 699
Registration fees .................................................................... 19,391 19,184
Amortization of deferred organization expenses ....................................... 10,717 10,695
Other ................................................................................ 11,896 10,990
---------- ----------
Total expenses ..................................................................... 212,580 193,921
Less -- Investment advisory fees waived and expense reimbursements ................... (95,722) (114,381)
---------- ----------
Net expenses ....................................................................... 116,858 79,540
---------- ----------
Net investment income (loss)........................................................ 539,768 506,160
---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain (loss) on investment transactions .................................. (5,961) 20,856
Net realized loss on foreign currency related transactions ........................... -- --
Net change in unrealized gain (loss) on investments .................................. (25,939) (54,709)
Net change in unrealized loss on translation of assets and liabilities denominated in
foreign currencies ................................................................ -- --
---------- ----------
Net realized and unrealized gain (loss) on investments and foreign currency
transactions ................................................................. (31,900) (33,853)
---------- ----------
Net increase in net assets resulting from operations ............................ $ 507,868 $ 472,307
========== ==========
</TABLE>
____________________
/(a)/For the Balanced, Growth, Aggressive Growth and International Equity
Funds, amount is net of $4,020, $22,380, $1,540 and $125,675 in foreign
withholding taxes, respectively.
45
<PAGE>
THE COMMERCE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended October 31, 1996
<TABLE>
<CAPTION>
Short-Term
Government Bond
Fund Fund
--------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ....................................................... $ 1,614,004 $ 7,329,409
Net realized gain (loss) on investment transactions ................................ (2,446) 250,806
Net realized loss from foreign currency related transactions ....................... -- --
Net change in unrealized gain (loss) on investments ................................ (219,238) (1,214,248)
Net change in unrealized loss on translation of assets and liabilities denominated
in foreign currencies ........................................................... -- --
-------------- --------------
Net increase in net assets resulting from operations ............................. 1,392,320 6,365,967
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ......................................................... (1,614,004) (7,329,409)
From net realized gain on investment transactions .................................. (246,010) (1,391,915)
-------------- --------------
Total distributions to shareholders .............................................. (1,860,014) (8,721,324)
-------------- --------------
FROM SHARE TRANSACTIONS:
Net proceeds from sale of shares ................................................... 24,924,994 78,675,112
Reinvestment of dividends and distributions ........................................ 1,295,008 7,491,166
Cost of shares redeemed ............................................................ (12,125,108) (31,110,483)
-------------- --------------
Net increase in net assets resulting from share transactions ..................... 14,094,894 55,055,795
-------------- --------------
Total increase ................................................................... 13,627,200 52,700,438
NET ASSETS:
Beginning of year .................................................................. 20,211,311 98,504,278
-------------- ---------------
End of year......................................................................... $ 33,838,511 $ 151,204,716
============== ===============
ACCUMULATED UNDISTRIBUTED
NET INVESTMENT INCOME ............................................................... $ 16,269 $ 76,707
============== ==============
SUMMARY OF SHARE TRANSACTIONS:
Sold ............................................................................... 1,348,707 4,132,922
Issued on reinvestment of dividends and distributions .............................. 70,101 391,702
Redeemed ........................................................................... (656,586) (1,619,214)
-------------- --------------
Increase in shares outstanding ..................................................... 762,222 2,905,410
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
THE COMMERCE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended October 31, 1996
<TABLE>
<CAPTION>
Balanced Growth
Fund Fund
--------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ....................................................... $ 1,444,493 $ 1,215,945
Net realized gain (loss) on investment transactions ................................ 3,633,059 14,171,671
Net realized loss from foreign currency related transactions ....................... -- --
Net change in unrealized gain (loss) on investments ................................ 2,979,254 20,413,669
Net change in unrealized loss on translation of assets and liabilities denominated
in foreign currencies ........................................................... -- --
-------------- --------------
Net increase in net assets resulting from operations ............................. 8,056,806 35,801,285
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ......................................................... (1,422,102) (1,233,937)
From net realized gain on investment transactions .................................. (1,461,563) (6,627,050)
-------------- --------------
Total distributions to shareholders .............................................. (2,883,665) (7,860,987)
-------------- --------------
FROM SHARE TRANSACTIONS:
Net proceeds from sale of shares ................................................... 29,373,815 93,709,847
Reinvestment of dividends and distributions ........................................ 2,865,066 7,452,682
Cost of shares redeemed ............................................................ (15,860,466) (61,930,178)
-------------- --------------
Net increase in net assets resulting from share transactions ..................... 16,378,415 39,232,351
-------------- --------------
Total increase ................................................................... 21,551,556 67,172,649
NET ASSETS:
Beginning of year .................................................................. 48,328,692 141,735,136
============== ==============
End of year......................................................................... $ 69,880,248 $208,907,785
============== ==============
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME ........................................ $ 142,448 $ 16,344
============== ==============
SUMMARY OF SHARE TRANSACTIONS:
Sold ............................................................................... 1,297,097 3,571,900
Issued on reinvestment of dividends and distributions .............................. 126,879 296,637
Redeemed ........................................................................... (699,003) (2,393,934)
============== ==============
Increase in shares outstanding ..................................................... 724,973 1,474,603
============== ==============
<CAPTION>
Aggressive International
Growth Equity
Fund Fund
------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ....................................................... $ (225,170) $ 282,561
Net realized gain (loss) on investment transactions ................................ 583,211 606,179
Net realized loss from foreign currency related transactions ....................... -- (60,783)
Net change in unrealized gain (loss) on investments ................................ 6,869,864 4,232,406
Net change in unrealized loss on translation of assets and liabilities denominated
in foreign currencies ........................................................... -- (1,006,981)
------------- -------------
Net increase in net assets resulting from operations ............................. 7,227,905 4,053,382
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ......................................................... -- (107,021)
From net realized gain on investment transactions .................................. (1,205,033) (85,792)
------------- -------------
Total distributions to shareholders .............................................. (1,205,033) (192,813)
------------- -------------
FROM SHARE TRANSACTIONS:
Net proceeds from sale of shares ................................................... 41,229,162 33,783,562
Reinvestment of dividends and distributions ........................................ 1,073,165 156,566
Cost of shares redeemed ............................................................ (15,348,445) (7,225,443)
------------- -------------
Net increase in net assets resulting from share transactions ..................... 26,953,882 26,714,685
------------- -------------
Total increase ................................................................... 32,976,754 30,575,254
NET ASSETS:
Beginning of year .................................................................. 41,664,686 21,013,772
============= =============
End of year......................................................................... $ 74,641,440 $ 51,589,026
============== =============
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME ........................................ -- $ 245,502
============== ==============
SUMMARY OF SHARE TRANSACTIONS:
Sold ............................................................................... 1,537,748 1,685,034
Issued on reinvestment of dividends and distributions .............................. 41,581 8,234
Redeemed ........................................................................... (566,313) (359,077)
============= =============
Increase in shares outstanding ..................................................... 1,013,016 1,334,191
============= =============
<CAPTION>
National Missouri
Tax-Free Tax-Free
Bond Fund Bond Fund
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ....................................................... $ 539,768 $ 506,160
Net realized gain (loss) on investment transactions ................................ (5,961) 20,856
Net realized loss from foreign currency related transactions ....................... -- --
Net change in unrealized gain (loss) on investments ................................ (25,939) (54,709)
Net change in unrealized loss on translation of assets and liabilities denominated
in foreign currencies ........................................................... -- --
------------- -------------
Net increase in net assets resulting from operations ............................. 507,868 472,307
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ......................................................... (539,768) (506,160)
From net realized gain on investment transactions .................................. (5,570) --
------------- -------------
Total distributions to shareholders .............................................. (545,338) (506,160)
------------- -------------
FROM SHARE TRANSACTIONS:
Net proceeds from sale of shares ................................................... 10,518,564 10,435,951
Reinvestment of dividends and distributions ........................................ 54,574 71,819
Cost of shares redeemed ............................................................ (3,643,702) (2,328,641)
------------- -------------
Net increase in net assets resulting from share transactions ..................... 6,929,436 8,179,129
------------- -------------
Total increase ................................................................... 6,891,966 8,145,276
NET ASSETS:
Beginning of year .................................................................. 10,721,319 8,889,138
============= =============
End of year......................................................................... $ 17,613,285 $ 17,034,414
============= =============
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME ....................................... $ 9,525 $ 10,626
============= =============
SUMMARY OF SHARE TRANSACTIONS:
Sold ............................................................................... 570,941 572,789
Issued on reinvestment of dividends and distributions .............................. 2,968 3,935
Redeemed ........................................................................... (197,928) (127,110)
============= =============
Increase in shares outstanding ..................................................... 375,981 449,614
============= =============
</TABLE>
47
<PAGE>
THE COMMERCE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended October 31, 1995/(a)/
<TABLE>
<CAPTION>
Short-Term
Government Bond
Fund Fund
--------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ...................................................... $ 1,000,936 $ 5,126,430
Net realized gain (loss) on investment transactions ............................... 246,022 1,391,744
Net realized loss on foreign currency related transactions ........................ -- --
Net change in unrealized gain on investments ...................................... 532,724 5,928,111
Net change in unrealized loss on translation of assets and liabilities denominated
in foreign currencies .......................................................... -- --
--------------- ---------------
Net increase in net assets resulting from operations ............................ 1,779,682 12,446,285
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ........................................................ (1,000,936) (5,126,430)
--------------- ---------------
Total distributions to shareholders ............................................. (1,000,936) (5,126,430)
--------------- ---------------
FROM SHARE TRANSACTIONS:
Net proceeds from sale of shares .................................................. 29,493,841 109,057,120
Reinvestment of dividends and distributions ....................................... 916,748 4,978,504
Cost of shares redeemed ........................................................... (10,978,024) (22,851,201)
--------------- ---------------
Net increase in net assets resulting from share transactions .................... 19,432,565 91,184,423
--------------- ---------------
Total increase .................................................................. 20,211,311 98,504,278
NET ASSETS:
Beginning of period ............................................................... -- --
=============== ===============
End of period ..................................................................... $ 20,211,311 $ 98,504,278
=============== ===============
ACCUMULATED UNDISTRIBUTED
NET INVESTMENT INCOME ............................................................... -- --
=============== ===============
SUMMARY OF SHARE TRANSACTIONS:
Sold .............................................................................. 1,615,040 5,978,187
Issued on reinvestment of dividends and distributions ............................. 49,473 263,196
Redeemed .......................................................................... (591,004) (1,217,095)
--------------- ---------------
Increase in shares outstanding .................................................... 1,073,509 5,024,288
=============== ===============
</TABLE>
- ---------------
(a) The Short-Term Government, Bond, Balanced, Growth, Aggressive Growth, and
International Equity Funds commenced operations on December 12, 1994; the
National Tax-Free Bond and the Missouri Tax-Free Bond Funds commenced
operations on February 21, 1995.
The accompanying notes are an integral part of these financial statements.
48
<PAGE>
THE COMMERCE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended October 31, 1995/(a)/
<TABLE>
<CAPTION>
Aggressive
Balanced Growth Growth
Fund Fund Fund
--------------- --------------- --------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ......................................... $ 1,186,399 $ 858,158 $ (64,482)
Net realized gain (loss) on investment transactions .................. 1,461,539 6,627,326 1,264,973
Net realized loss on foreign currency related transactions ........... -- -- --
Net change in unrealized gain on investments ......................... 6,496,572 30,099,517 5,991,625
Net change in unrealized loss on translation of assets and
liabilities denominated in foreign currencies ..................... -- -- --
--------------- --------------- --------------
Net increase in net assets resulting from operations ............... 9,144,510 37,585,001 7,192,116
--------------- --------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ........................................... (1,091,605) (834,749) --
--------------- --------------- --------------
Total distributions to shareholders ................................ (1,091,605) (834,749) --
--------------- --------------- --------------
FROM SHARE TRANSACTIONS:
Net proceeds from sale of shares ..................................... 51,759,622 134,640,655 38,077,462
Reinvestment of dividends and distributions .......................... 1,089,482 821,867 --
Cost of shares redeemed .............................................. (12,573,317) (30,477,638) (3,604,892)
--------------- --------------- --------------
Net increase in net assets resulting from share transactions ....... 40,275,787 104,984,884 34,472,570
--------------- --------------- --------------
Total increase ..................................................... 48,328,692 141,735,136 41,664,686
NET ASSETS:
Beginning of period .................................................. -- -- --
--------------- --------------- --------------
End of period ........................................................ $ 48,328,692 $ 141,735,136 $ 41,664,686
=============== =============== ==============
ACCUMULATED UNDISTRIBUTED
NET INVESTMENT INCOME .................................................. $ 94,794 $ 23,409 --
=============== =============== ==============
SUMMARY OF SHARE TRANSACTIONS:
Sold ................................................................. 2,769,352 7,111,443 1,805,561
Issued on reinvestment of dividends and distributions ................ 53,465 37,669 --
Redeemed ............................................................. (636,363) (1,406,517) (158,478)
--------------- --------------- --------------
Increase in shares outstanding ....................................... 2,186,454 5,742,595 1,647,083
=============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
International National Missouri
Equity Tax-Free Tax-Free
Fund Bond Fund Bond Fund
--------------- --------------- --------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ......................................... $ 108,874 $ 201,460 $ 171,461
Net realized gain (loss) on investment transactions .................. 48,937 5,554 (5,147)
Net realized loss on foreign currency related transactions ........... (19,098) -- --
Net change in unrealized gain on investments ......................... 735,689 201,604 123,569
Net change in unrealized loss on translation of assets and
liabilities denominated in foreign currencies ..................... (346,468) -- --
-------------- -------------- -------------
Net increase in net assets resulting from operations .............. 527,934 408,618 289,883
-------------- -------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ........................................... (7,832) (201,460) (171,461)
-------------- -------------- -------------
Total distributions to shareholders ................................ (7,832) (201,460) (171,461)
-------------- -------------- -------------
FROM SHARE TRANSACTIONS:
Net proceeds from sale of shares ..................................... 23,593,942 11,045,591 9,349,674
Reinvestment of dividends and distributions .......................... 7,832 8,485 17,030
Cost of shares redeemed .............................................. (3,108,104) (539,915) (595,988)
-------------- -------------- -------------
Net increase in net assets resulting from share transactions ....... 20,493,670 10,514,161 8,770,716
-------------- -------------- -------------
Total increase ..................................................... 21,013,772 10,721,319 8,889,138
NET ASSETS:
Beginning of period .................................................. -- -- --
-------------- -------------- -------------
End of period ........................................................ $ 21,013,772 $ 10,721,319 $ 8,889,138
============== ============== =============
ACCUMULATED UNDISTRIBUTED
NET INVESTMENT INCOME .................................................. $ 64,814 -- --
============== ============== =============
SUMMARY OF SHARE TRANSACTIONS:
Sold ................................................................. 1,301,494 607,436 514,879
Issued on reinvestment of dividends and distributions ................ 435 463 933
Redeemed ............................................................. (174,747) (29,679) (32,774)
-------------- -------------- -------------
Increase in shares outstanding ........................................ 1,127,182 578,220 483,038
============== ============== =============
</TABLE>
- ---------------
/(a)/ The Short-Term Government, Bond, Balanced, Growth, Aggressive Growth, and
International Equity Funds commenced operations on December 12, 1994; the
National Tax-Free Bond and the Missouri Tax-Free Bond Funds commenced
operations on February 21, 1995.
The accompanying notes are an integral part of these financial statements.
49
<PAGE>
THE COMMERCE FUNDS
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Income from Distributions to
investment operations shareholders
--------------------------------------------------
Net
realized Ratio
and Net Ratio of net
unrealized asset of net investment
Net asset gain value, expenses income
value, Net (loss) on From net From net end to average to average
beginning investment invest- investment realized gain of Total net net
of period income ments /(b)/ income on investments period return/(c)/ assets assets
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM GOVERNMENT FUND
- -----------------------------------------------------------------------------------------------------------------------------
Year ended: 10/31/96 $18.83 $1.09 $(0.18) $(1.09) $(0.22) $18.43 5.02% 0.68% 5.90%
12/12/94/(a)/ to 10/31/95 18.00 1.06 0.83 (1.06) -- 18.83 10.72 0.68/(d)/ 6.38/(d)/
BOND FUND
- -----------------------------------------------------------------------------------------------------------------------------
Year ended: 10/31/96 19.61 1.16 (0.28) (1.16) (0.26) 19.07 4.71 0.84 6.10
12/12/94/(a)/ to 10/31/95 18.00 1.12 1.61 (1.12) -- 19.61 15.59 0.88/(d)/ 6.64/(d)/
BALANCED FUND
- -----------------------------------------------------------------------------------------------------------------------------
Year ended: 10/31/96 22.10 0.54 2.56 (0.54) (0.66) 24.00 14.45 1.13 2.47
12/12/94/(a)/ to 10/31/95 18.00 0.59 4.06 (0.55) -- 22.10 26.14 1.13/(d)/ 3.28/(d)/
<CAPTION>
Ratios assuming
no waiver of
investment advisory
fees or expense
reimbursements
---------------------------
Ratio
Ratio of net
Net of investment
Average assets at expenses income to
Portfolio commis- end to average average
turnover sion of period net net
rate rate/(e)/ (in 000's) assets assets
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SHORT-TERM GOVERNMENT FUND
- -------------------------------------------------------------------------------------------
Year ended: 10/31/96 12% -- $33,839 1.11% 5.47%
12/12/94/(a)/ to 10/31/95 158 -- 20,211 1.14/(d)/ 5.92/(d)/
BOND FUND
- -------------------------------------------------------------------------------------------
Year ended: 10/31/96 31 -- 151,205 0.84 6.10
12/12/94/(a)/ to 10/31/95 58 -- 98,504 0.88/(d)/ 6.64/(d)/
BALANCED FUND
- -------------------------------------------------------------------------------------------
Year ended: 10/31/96 58 $0.7640 69,880 1.45 2.15
12/12/94/(a)/ to 10/31/95 59 -- 48,329 1.45/(d)/ 2.96/(d)/
</TABLE>
- ---------------
(a) Commencement of operations.
(b) Includes the balancing effect of calculating per share amounts.
(c) Assumes investment at the net asset value at the begining of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no sales
charges. Total return would be reduced if sales charges were taken into
account.
(d) Annualized.
(e) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged.
This rate may vary due to various types of transactions and number of
security trades executed.
The accompanying notes are an integral part of these financial statements.
50
<PAGE>
THE COMMERCE FUNDS
FINANCIAL HIGHLIGHTS --(Continued)
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Income from Distributions to
investment operations shareholders
---------------------------------------------------------
Net
realized
and
Net unrealized
realized loss on Net Ratio
and foreign asset of net
Net asset Net unrealized currency value, expenses
value, investment gain on related From net From net end to average
beginning income invest- trans- investment realized gain of Total net
of period (loss) ments/(b)/ actions/(b)/ income on investments period return/(c)/ assets
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GROWTH FUND
- --------------------- --------------------------------------------------------------------------------------------------------
Year ended: 10/31/96 $24.68 $0.19 $5.40 -- $(0.19) $(1.13) $28.95 23.43% 1.08%
12/12/94/(a)/ to 10/31/95 18.00 0.15 6.68 -- (0.15) -- 24.68 38.06 1.11/(d)/
AGGRESSIVE GROWTH FUND
- -----------------------------------------------------------------------------------------------------------------------------
Year ended: 10/31/96 25.30 (0.07) 3.51 -- -- (0.68) 28.06 13.78 1.22
12/12/94/(a)/ to 10/31/95 18.00 (0.04) 7.34 -- -- -- 25.30 40.56 1.32/(d)/
INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------
Year ended: 10/31/96 18.64 0.11 3.02 (0.67) (0.07) (0.07) 20.96 13.25 1.72
12/12/94/(a)/ to 10/31/95 18.00 0.12 0.95 (0.40) (0.03) -- 18.64 3.73 1.81/(d)/
<CAPTION>
Ratios assuming
no waiver of
investment advisory
fees or expense
reimbursements
---------------------
Ratio Ratio
of net Ratio of net
investment Net of investment
income Average assets at expenses income
(loss) Portfolio commiss- end to average (loss) to
to average turnover ion of period net average
net assets rate rate(e) (in 000's) assets net assets
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GROWTH FUND
- -------------------------------------------------------------------------------------------------------
Year ended: 10/31/96 0.72% 36% $0.0654 $208,908 1.08% 0.72%
12/12/94/(a)/ to 10/31/95 0.81/(d)/ 33 -- 141,735 1.11/(d)/ 0.81/(d)/
AGGRESSIVE GROWTH FUND
- ---------------------------------------------------------------------------------------------------
Year ended: 10/31/96 (0.37) 71 0.0692 74,641 1.22 (0.37)
12/12/94/(a)/ to 10/31/95 (0.29)/(d)/ 59 -- 41,665 1.32/(d)/ (0.29)/(d)/
INTERNATIONAL EQUITY FUND
- ---------------------------------------------------------------------------------------------------
Year ended: 10/31/96 0.74 21 0.0147 51,589 2.64 (0.18)
12/12/94/(a)/ to 10/31/95 1.06/(d)/ 25 -- 21,014 3.50/(d)/ (0.63)/(d)/
</TABLE>
- ---------------
/(a)/ Commencement of operations.
/(b)/ Includes the balancing effect of calculating per share amounts.
/(c)/ Assumes investment of the net asset value at the begining of the period,
reinvestment of all dividends and distributions, a complete redemption of
the investment at the net asset value at the end of the period and no
sales charges. Total return would be reduced if a sales charge were taken
into account.
/(d)/ Annualized.
/(e)/ For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate on security transactions
on which commissions are charged. This rate may vary due to various types
of transactions and number of security trades executed.
The accompanying notes are an integral part of these financial statements.
51
<PAGE>
THE COMMERCE FUNDS
FINANCIAL HIGHLIGHTS--(Continued)
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Income from Distributions to
investment operations shareholders
---------------------- ------------------------
Net
realized
and Net Ratio
unrealized asset of net
Net asset gain From net value, expenses
value, Net (loss) on From net realized gain end to average
beginning investment invest- investment on of Total net
of period income ments/(b)/ income investments period return/(c)/ assets
--------- ---------- --------- ---------- ------------- ------- ---------- -----------
NATIONAL TAX-FREE BOND FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended: 10/31/96 $18.54 $0.73 $(0.07) $(0.73) $(0.01) $18.46 3.60% 0.85%
2/21/95/(a)/ to 10/31/95 18.00 0.54 0.54 (0.54) -- 18.54 6.06 0.85/(d)/
<CAPTION>
MISSOURI TAX-FREE BOND FUND
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended: 10/31/96 18.40 0.76 (0.14) (0.76) -- $18.26 3.43% 0.65
2/21/95/(a)/ to 10/31/95 18.00 0.57 0.40 (0.57) -- 18.40 5.45 0.65/(d)/
</TABLE>
<TABLE>
<CAPTION>
Ratios assuming
no waiver of
investment advisory
fees or expense
reimbursements
-------------------------
Ratio Ratio
of net Net Ratio of net
investment assets at of investment
income Portfolio end expenses income to
to average turnover of period to average average
net assets rate (in 000's) net assets net assets
---------- --------- ---------- ---------- ----------
NATIONAL TAX-FREE BOND FUND
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended: 10/31/96 3.93% 34% $17,613 1.55% 3.23%
2/21/95/(a)/to 10/31/95 4.19/(d)/ 19 10,721 1.90/(d)/ 3.14/(d)/
- ----------------------------------------------------------------------------------------------
<CAPTION>
MISSOURI TAX-FREE BOND FUND
<S> <C> <C> <C> <C> <C>
Year ended: 10/31/96 4.14% 49% 17,034 1.58 3.21
2/21/95/(a)/to 10/31/95 4.41/(d)/ 52 8,889 2.12/(d)/ 2.94/(d)/
- ---------------
</TABLE>
/(a)/ Commencement of operations.
/(b)/ Includes the balancing effect of calculating per share amounts.
/(c)/ Assumes investment at the beginning of the period, reinvestment of all
dividends and distributions, a complete redemption of the investment at
the net asset value at the end of the period and no sales charges. Total
return would be reduced if a sales charge were taken into account.
/(d)/ Annualized.
The accompanying notes are an integral part of these financial statements.
52
<PAGE>
THE COMMERCE FUNDS
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
1. ORGANIZATION
The Commerce Funds (the "Trust") is a Delaware business trust registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end, management investment company. The Trust consists of eight portfolios
(individually, a "Fund" and collectively, the "Funds"): Short-Term Government
Fund, Bond Fund, Balanced Fund, Growth Fund, Aggressive Growth Fund,
International Equity Fund, National Tax-Free Bond Fund and Missouri Tax-Free
Bond Fund. Each Fund is registered as a diversified management investment
company under the 1940 Act, other than the Missouri Tax-Free Bond Fund, which is
registered as non-diversified under the 1940 Act.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds which are in conformity with those generally accepted in
the investment company industry.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that may affect the reported amounts.
A. Investment Valuation
Investments in securities traded on a U.S. exchange or the NASDAQ system
are valued at their last sale or closing price on the principal exchange on
which they are traded or NASDAQ, on the valuation day; if no sale occurs,
securities traded on a U.S. exchange or NASDAQ are valued at the mean between
the closing bid and asked prices. The value of a Fund's portfolio securities
that are traded on stock exchanges outside the U.S. are based upon the price on
the exchange as of the close of business of the exchange immediately preceding
the time of valuation, except when an occurrence subsequent to the time a value
was so established is likely to have changed such value; then the fair value of
those securities will be determined through consideration of other factors by or
under the direction of the Board of Trustees. Unlisted equity and debt
securities for which market quotations are available are valued at the mean
between the most recent bid and asked prices. Fixed-income securities are valued
at prices supplied by an independent pricing service, which reflect
broker/dealer-supplied valuations and matrix pricing systems. Short-term debt
obligations maturing in sixty days or less are valued at amortized cost.
Restricted securities, and other securities for which quotations are not
available, are valued at fair value using methods approved by the Board of
Trustees.
B. Securities Transactions and Investment Income
Securities transactions are recorded on the trade date. Realized gains and
losses on sales of investments are calculated on the identified cost basis.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis.
C. Premiums and Discounts on Debt Securities Owned
The National Tax-Free Bond and the Missouri Tax-Free Bond Funds amortize
premiums on debt securities on the effective yield basis, and do not accrete
market discounts on debt securities. The Growth, Aggressive Growth and
International Equity Funds accrete market discounts and amortize premiums on a
yield to maturity basis. The Short-Term Government, Bond and Balanced Funds do
not accrete market discounts or amortize premiums on long-term debt securities.
The Short-Term Government, Bond and Balanced Funds invest in mortgage-backed
securities. Certain mortgage security paydown gains and losses are taxable as
ordinary income. Such paydown gains and losses increase or decrease taxable
ordinary income available for distributions and are included in interest income
in the accompanying Statements of Operations. For all Funds, original issue
discount on debt securities is amortized to interest income over the life of the
security with a corresponding increase in the cost basis of that security.
53
<PAGE>
THE COMMERCE FUNDS
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. SIGNIFICANT ACCOUNTING POLICIES--(Continued)
D. Foreign Currency Translations
The books and records of the Funds are maintained in U.S. dollars. Amounts
denominated in foreign currencies are translated into U.S. dollars on the
following basis: (i) investment valuations, other assets and liabilities
initially expressed in foreign currencies are converted each business day into
U.S. dollars based on current exchange rates; and (ii) purchases and sales of
foreign investments, income and expenses are converted into U.S. dollars based
upon currency exchange rates prevailing on the respective dates of such
transactions.
Net realized gain (loss) on foreign currency transactions will represent:
(i) foreign exchange gains and losses from the sale of foreign currencies and
investments; (ii) foreign exchange gains and losses between trade date and
settlement date on investment securities transactions and foreign exchange
contracts; and (iii) foreign exchange gains and losses from the difference
between amounts of dividends and interest recorded and the amounts actually
received. Net unrealized gain (loss) on translation of assets and liabilities
denominated in foreign currencies arises from changes in the value of assets and
liabilities, including investments in securities, resulting from changes in the
exchange rate.
E. Forward Foreign Currency Exchange Contracts
The International Equity Fund is authorized to enter into forward foreign
currency exchange contracts for the purchase of a specific foreign currency at a
fixed price on a future date as a hedge or cross-hedge against either specific
transactions or portfolio positions as a means to manage its foreign exchange
rate risk. All commitments are "marked-to-market" daily at the applicable
exchange rates and any resulting unrealized gains or losses are recorded in the
Fund's financial statements. The Fund records realized gains and losses at the
time the forward contract is offset by entry into a closing transaction or
extinguished by delivery of the currency. Risks may arise upon entering these
contracts as a result of the potential inability of counterparties to meet the
terms of their contracts and unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
F. Federal Taxes
Each Fund intends to comply with the requirements of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and to
distribute each year substantially all of its investment company taxable and
tax-exempt income to its shareholders. Accordingly, no federal income tax
provisions are required. The characterization of distributions to shareholders
for financial reporting purposes is determined in accordance with income tax
rules.
As of the Trust's most recent tax year-end, the following Funds had
capital loss carryforwards for U.S. federal income tax purposes:
<TABLE>
<CAPTION>
Fund Amount Year of Expiration
---------------------------- ----------------- ------------------------
<S> <C> <C>
Short-Term Government Fund $8,584 2004
National Tax-Free Bond Fund $5,961 2004
</TABLE>
These amounts are available to be carried forward to offset future capital
gains of the Funds to the extent permitted by applicable laws or regulations.
54
<PAGE>
THE COMMERCE FUNDS
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. SIGNIFICANT ACCOUNTING POLICIES--(Continued)
G. Deferred Organization Expenses
Organization-related costs are being amortized on a straight-line basis
over a period of five years beginning with the commencement of each of the
Fund's operations. If any or all of the shares held by Goldman, Sachs & Co.
representing initial capital of the Funds are redeemed during the amortization
period, the redemption proceeds will be reduced by the pro rata portion of the
unamortized organizational cost balance.
H. Expenses
Expenses incurred by the Funds which do not specifically relate to an
individual Fund are allocated to the Funds based on each Fund's relative average
net assets for the period.
I. Repurchase Agreements
During the term of a repurchase agreement, the market value of the
underlying collateral, including accrued interest, is required to equal or
exceed the value of the repurchase agreement. The underlying collateral for all
repurchase agreements is held in safekeeping in the customer-only account of
State Street Bank & Trust Company, the Funds' custodian, or at sub-custodians.
The market value of the underlying collateral is monitored by daily pricing.
In connection with transactions in repurchase agreements, if the seller
defaults and the value of the security declines, or if the seller enters an
insolvency proceeding, realization of the collateral by the Trust may be delayed
or limited.
J. Dividends and Distributions to Shareholders
Dividends from net investment income are declared daily and paid monthly
by the Short-Term Government, Bond, National Tax-Free Bond and Missouri Tax-Free
Bond Funds; declared and paid quarterly by the Balanced and Growth Funds; and
declared and paid annually by the Aggressive Growth and International Equity
Funds. Each Fund's net realized capital gains (including net short-term capital
gains), if any, are declared and distributed at least annually. Distributions to
shareholders are recorded on the ex-dividend date.
3. AGREEMENTS
The Funds have entered into an Advisory Agreement with Commerce Bank, N.A.
(St. Louis) and Commerce Bank, N.A. (Kansas City) (the "Advisor"). Pursuant to
the terms of the Advisory Agreement, the Advisor is responsible for managing the
investments and making investment decisions for each of the Funds. For these
services and for assuming related expenses, the Advisor is entitled to a fee,
computed daily and payable monthly, at the following annual rate of the
corresponding Fund's average daily net assets:
<TABLE>
<S> <C>
Short-Term Government Fund..................... .50%
Bond Fund...................................... .50%
Balanced Fund.................................. 1.00%
Growth Fund.................................... .75%
Aggressive Growth Fund......................... .75%
International Equity Fund...................... 1.50%
National Tax-Free Bond Fund.................... .50%
Missouri Tax-Free Bond Fund.................... .50%
</TABLE>
55
<PAGE>
THE COMMERCE FUNDS
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. AGREEMENTS--(Continued)
As authorized by the Advisory Agreement, the Advisor has entered into a
Sub-Advisory Agreement with Rowe-Price Fleming International, Inc. (the
"Sub-Advisor") whereby the Sub-Advisor manages the investment assets of the
International Equity Fund. As compensation for services rendered under the
Sub-Advisory Agreement, the Sub-Advisor is entitled to a fee from the Advisor at
the following annual rate:
<TABLE>
<CAPTION>
Average Daily Net Assets Annual Rate
------------------------ -----------
<S> <C>
First $20 million........................... .75%
Next $30 million............................ .60%
Over $50 million............................ .50%
</TABLE>
For the year ended October 31, 1996, the Advisor has voluntarily agreed to
waive a portion of its advisory fee for certain portfolios. The resulting
advisory fees are .30% for the Short-Term Government Fund, .75% for the Balanced
Fund, .83% for the International Equity Fund and .30% for the Missouri Tax-Free
Bond Fund. The effect of these waivers by the Advisor for the year ended October
31, 1996 was to reduce advisory fees by $54,686, $146,158, $255,695 and $24,474
for the Short-Term Government, Balanced, International Equity and Missouri
Tax-Free Bond Funds, respectively.
In addition, for the year ended October 31, 1996, the Advisor has
voluntarily agreed to reimburse expenses (excluding interest, taxes, and
extraordinary expenses) to the extent that such expenses exceed, on an
annualized basis, .68%, .88%, 1.13%, 1.13%, 1.72%, .85% and .65% of average net
assets of the Short-Term Government, Bond, Balanced, Growth, International
Equity, National Tax-Free Bond and Missouri Tax-Free Bond Funds, respectively.
The effect of these reimbursements by the Advisor for the year ended October 31,
1996 was to reduce expenses by $63,161, $43,556, $96,415, $95,722 and $89,907
for the Short-Term Government, Balanced, International Equity, National Tax-Free
Bond and Missouri Tax-Free Bond Funds, respectively. The amount reimbursable to
the Short-Term Government, Balanced, National Tax-Free Bond and Missouri
Tax-Free Bond Funds at October 31, 1996 was approximately $9,900, $8,500,
$13,300 and $13,400, respectively, and are reflected in "Other Assets" in the
accompanying Statements of Assets and Liabilities. Included in "Accrued expenses
and other liabilities" in the accompanying Statements of Assets and Liabilities
of the International Equity Fund is approximately $34,500 related to excess
reimbursements payable to the Advisor.
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co., serves as the Trust's administrator, pursuant to an
Administration Agreement. Under the Administration Agreement, GSAM administers
the Trust's business affairs. As compensation for the services rendered under
the Administration Agreement and its assumption of related expenses, GSAM is
entitled to a fee, computed daily and payable monthly, at an annual rate of .15%
of the average daily net assets of each Fund.
Goldman, Sachs & Co. serves as Distributor of shares of the Funds pursuant
to a Distribution Agreement and may receive a portion of the sales load imposed
on the sale of shares of the Funds. The maximum sales load imposed on sale of
shares of the Funds is 3.50%. Goldman Sachs has advised the Trust that it has
retained approximately $31,000 for the year ended October 31, 1996.
Pursuant to a Shareholder Administrative Services Plan adopted by its
Board of Trustees, the Funds may enter into agreements with service
organizations such as banks and financial institutions, which may include the
Advisor and its affiliates ("Service Organizations"), under which they will
render shareholder administration support services. For these services, the
Service Organizations are entitled to receive fees from a Fund at an annual rate
of up to .25% of the average daily net asset value of Fund shares beneficially
owned by clients of such Service Organizations. The Shareholder Servicing
expense for the year ended October 31, 1996 was approximately $4,400, $17,200,
$8,000,
56
<PAGE>
THE COMMERCE FUNDS
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. AGREEMENTS--(Continued)
$25,300, $5,100 and $2,300 for the Short-Term Government, Bond, Balanced,
Growth, Aggressive Growth and International Equity Funds, respectively, and are
reflected in "Other Expenses" in the accompanying Statements of Operations.
4. INVESTMENT TRANSACTIONS
Purchases and proceeds from sales or maturities of long-term securities
for the year ended October 31, 1996 were as follows:
<TABLE>
<S> <C>
Short-Term Government Fund
Purchases (excluding U.S. Government securities).............. $ --
Sales (excluding U.S. Government securities).................. --
Purchases of U.S. Government securities....................... 15,909,159
Sales of U.S. Government securities........................... 2,763,432
Bond Fund
Purchases (excluding U.S. Government securities).............. $ 18,419,319
Sales (excluding U.S. Government securities).................. 5,517,744
Purchases of U.S. Government securities....................... 55,569,061
Sales of U.S. Government securities........................... 28,972,358
Balanced Fund
Purchases (excluding U.S. Government securities).............. $ 28,608,357
Sales (excluding U.S. Government securities).................. 21,643,425
Purchases of U.S. Government securities....................... 16,339,451
Sales of U.S. Government securities........................... 9,680,583
Growth Fund
Purchases (excluding U.S. Government securities).............. $ 84,942,389
Sales (excluding U.S. Government securities).................. 56,464,090
Purchases of U.S. Government securities....................... --
Sales of U.S. Government securities........................... --
Aggressive Growth Fund
Purchases (excluding U.S. Government securities).............. $ 69,707,716
Sales (excluding U.S. Government securities).................. 41,962,522
Purchases of U.S. Government securities....................... --
Sales of U.S. Government securities........................... --
International Equity Fund
Purchases (excluding U.S. Government securities).............. $ 33,888,437
Sales (excluding U.S. Government securities).................. 7,614,312
Purchases of U.S. Government securities....................... --
Sales of U.S. Government securities........................... --
National Tax-Free Bond Fund
Purchases (excluding U.S. Government securities).............. $ 12,638,655
Sales (excluding U.S. Government securities).................. 4,601,069
Purchases of U.S. Government securities....................... --
Sales of U.S. Government securities........................... --
Missouri Tax-Free Bond Fund
Purchases (excluding U.S. Government securities).............. $ 14,037,467
Sales (excluding U.S. Government securities).................. 5,834,031
Purchases of U.S. Government securities....................... --
Sales of U.S. Government securities........................... --
</TABLE>
57
<PAGE>
THE COMMERCE FUNDS
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. CONCENTRATION OF CREDIT RISK
The Missouri Tax-Free Bond Fund invests substantially all of its assets in
debt obligations of issuers located in the State of Missouri. The issuers'
abilities to meet their obligations may be affected by Missouri economic or
political developments.
6. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Short-Term Government,
Bond, Balanced, Growth, Aggressive Growth, International Equity, National
Tax-Free Bond and Missouri Tax-Free Bond Funds have reclassified $10,119,
$10,703, $10,262, $10,927, $5,377, $10,000, $9,525 and $9,604, respectively,
from paid-in capital to accumulated undistributed net investment income. The
Short-Term Government, Bond, Balanced and Missouri Tax-Free Bond Funds have
reclassified $6,150, $66,004, $15,001 and $1,022, respectively, of accumulated
net realized gain to accumulated undistributed net investment income. The
Aggressive Growth Fund has reclassified $219,793 of accumulated net investment
loss to paid-in capital, and has reclassified $59,940 of accumulated net
realized gain to paid-in capital. The International Equity Fund has reclassified
$6,160 of accumulated net realized loss on foreign currency related transactions
to accumulated undistributed net investment income and has reclassified $1,308
of accumulated net realized gain on investments to accumulated undistributed net
investment income. These reclassifications have no impact on the net asset value
of the Funds and are designed to present the Funds' capital accounts on a tax
basis.
- --------------------------------------------------------------------------------
(unaudited)
The Commerce Funds
During the year ended October 31, 1996, 97.46% and 97.38% of the distributions
paid by the National Tax-Free Bond Fund and the Missouri Tax-Free Bond Fund
respectively, were exempt-interest dividends and as such, are not subject to
U.S. federal income tax. The remaining distributions were taxable ordinary
income dividends.
During the year ended October 31, 1996, 2.26% and 0.91% of the exempt-interest
dividends paid by the National Tax-Free Bond Fund and the Missouri Tax-Free Bond
Fund, respectively, were derived from Private Activity Bonds or Alternative
Minimum Tax Bonds ("AMT" Bonds).
During the year ended October 31, 1996, 20.97% and 100.00% of the dividends paid
from net investment income by the Balanced Fund and Growth Fund respectively,
qualify for the dividends received deduction available to corporations.
- --------------------------------------------------------------------------------
58
<PAGE>
The Commerce Funds
====================
Trustees
J. Eric Helsing, Chairman
Randall D. Barron
David L. Bodde
John J. Holland
Warren Weaver
Officers
Warren Weaver
President
Scott M. Gilman
Vice President
Paul Klug
Vice President
Nancy L. Mucker
Vice President
John M. Perlowski
Vice President
Pauline Taylor
Vice President
Randall D. Barron
Treasurer
W. Bruce McConnel, III
Secretary
Michael J. Richman
Assistant Secretary
Howard B. Surloff
Assistant Secretary
This Annual Report is authorized for distribution to prospective investors
only when preceded or accompanied by a Commerce Funds Prospectus which contains
facts concerning The Commerce Funds' objectives and policies, management,
expenses and other information. Shares of the Funds are not deposits or
obligations of, or guaranteed, endorsed or otherwise supported by, Commerce
Bank, N.A. (St. Louis), Commerce Bank, N.A. (Kansas City), their parent or
affiliates, and the shares are not federally insured or guaranteed by the U.S.
Government, the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other governmental agency. An investment in the Funds involves investment
risks, including possible loss of principal.
<PAGE>
THE COMMERCE FUNDS
922 Walnut Street
Kansas City, Missouri 64106
INVESTMENT ADVISORS
Commerce Bank, N.A.
922 Walnut Street
Kansas City, Missouri 64106
Commerce Bank, N.A.
8000 Forsyth Boulevard
St. Louis, Missouri 63105
INVESTMENT SUB-ADVISOR
Rowe-Price Fleming International, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
DISTRIBUTOR
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
ADMINISTRATOR
Goldman Sachs Asset Management
One New York Plaza
New York, New York 10004
CUSTODIAN
State Street Bank & Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT
National Financial Data Services, Inc.
1004 Baltimore Street
Kansas City, Missouri 64105
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP
1000 Walnut Street
Kansas City, Missouri 64106
LEGAL COUNSEL
Drinker Biddle & Reath
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
COM-ANN96
[LOGO OF COMMERCE FUNDS APPEARS HERE]
The Short-Term Government Fund
The Bond Fund
The Balanced Fund
The Growth Fund
The Aggressive Growth Fund
The International Equity Fund
The National Tax-Free Bond Fund
The Missouri Tax-Free Bond Fund
Annual Report
October 31, 1996
