<PAGE>
THE COMMERCE FUNDS
LETTER TO SHAREHOLDERS
DEAR SHAREHOLDERS:
We are pleased to provide you this annual report for the Commerce Funds
family.
Investors have shown their understanding of the importance of investing for
the long-term, as they stood by their Investment decisions through the October
1997 roller-coaster ride in the stock market. Our economic outlook has been
favorable throughout 1997, and we see no reason to change that view as we head
in to 1998.
EQUITY MARKET COMMENTARY
We've seen the bull market for equities has continue for the last fiscal
year, with the S & P 500 rising 32.12% on a total return basis. Stocks began
the year on a strong note, rising into March before encountering a brief
setback when the Federal Reserve increased short term interest rates in an
effort to slow the economy. The market quickly shrugged off rising interest
rates and exploded again on the upside. In August, stocks were rattled by Alan
Greenspan's comments of "excessive exuberance" in stock prices. As has been so
characteristic of the bull market that began in early 1995, buyers jumped to
buy at lower prices, sending stocks higher. In October, the market experienced
its first 10% correction since 1990, as many Far East stock markets collapsed.
U.S. markets recovered nearly half of the decline by month end.
FIXED-INCOME MARKET COMMENTARY
The theme in the bond market over the past year has change. Just when it
looked as if a trend was developing in the direction of interest rates, the
market changed its mind and headed the opposite direction. Rates peaked in the
spring as the Federal Reserve raised the overnight borrowing rate by 25 (.25%)
basis points. The market feared more increases as economic growth was strong.
When inflation failed to appear, despite tight labor markets, the market
started to rally. The Asian market crises during the late summer and fall
helped quell fears that the economy would overheat and the treasury market
continued to rally. Credit spreads widened during the fall as issuance of
asset backed securities increased and the overseas crises caused the market to
reevaluate credit risk. With the decline in inflation, the curve has continued
to flatten. Because economic growth is reasonably good, the Fed remains
vigilant, ready to increase rates if this growth translates into inflation.
The bond market remains optimistic, but with an uneasy Fed, the market is
keeping its eye on the exits.
TAX-EXEMPT MARKET COMMENTARY
For the tax-exempt market it was an "inside" year. Tax-exempt bonds traded
inside a range established in the previous 12 months. As measured by the Aa
rated general obligation bonds, the highest yield of the year occurred in late
April at 5.24%, while the lowest was registered in late July and again in
early October at 4.61%. This 63 basis point (.63%) top to bottom range was
smaller than the 85 basis point (.85%) range of fiscal year 1996. And it was
entirely contained by the high and low of that year, which were 5.39% and
4.54%, respectively. The market rallied sharply and continuously for three
months in the spring and early summer. The high and low for the year were the
end points for this advance. Such a concentrated and lengthy move is quite
unusual for the municipal market. Late in the year the range narrowed even
further and interest rates closed the year near their lows.
For a welcome change, the 1997 tax bill did not target the tax-exempt
market. This year, with revenues still flowing in from the previous tax
increases and expenditures held down by the smoothly performing economy, new
taxes were not needed. Indeed, the tax-exempt market was given some latitude
to expand issuance.
The move to lower rates mentioned above brought forth a torrent of supply in
the last quarter. For the 1997 fiscal year, volume is more than 15% greater
than in 1996. In part it was this supply that slowed the price advance. Lower
rates permit attractive refinancing opportunities. Credit quality continued to
improve. The high level of employment in the economy reduced spending on
support programs at the same time revenues continued to flow. Rainy Day Funds
have been funded, where allowed, and balance sheets are stronger than in many
years. Several states have instituted tax cuts or approved rebates to deal
with this welcomed "problem."
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
The Institutional Shares had a total return for the 12 month period ending
October 31, 1997 of 6.45% based on net asset value ("NAV") as compared to the
Lipper Short U.S. Government Funds Index return of 5.79% and the Salomon
Brothers 1-5 Year Treasury/Government Sponsored Index return of 6.79%. The
Fund distributed $1.11 per share from net investment income during the period.
The Service Shares recorded a total return of 5.81%, based on NAV, since
inception (January 2, 1997) through October 31, 1997. The Lipper Short U.S.
Government Funds Index and the Salomon Brothers 1-5
1
<PAGE>
THE COMMERCE FUNDS
LETTER TO SHAREHOLDERS--(CONTINUED)
Year Treasury/Government Sponsored Index recorded returns of 5.16% and 6.09%,
respectively, for the same time period.
The Short-Term Government Fund was positioned with a neutral duration target
versus its benchmark over the first half of 1997. As the year continued, our
outlook for continuing modest growth, with no signs of inflation caused us to
push our duration target to 105% of our benchmark. We currently maintain that
position with a slightly longer average maturity and look to add value to our
shareholders by investing in higher yielding securities, including mortgage
backed securities with short, stable average lives. We expect well structured
mortgage securities will continue to provide good risk adjusted incremental
returns.
BOND FUND
The Institutional Shares had a total return for the 12 month period ending
October 31, 1997 of 8.50% based on NAV versus the Lipper Intermediate
Investment Grade Debt Funds Index return of 8.04% and the Lehman Brothers
Aggregate Bond Index return of 8.89%. The Institutional Shares distributed
$1.18 per share from net investment income during the period. The Service
Shares recorded a total return of 7.48%, based on NAV, since inception,
(January 2, 1997) through October 31, 1997. The Lipper Intermediate Investment
Grade Debt Funds Index and the Lehman Brothers Aggregate Bond Index recorded a
7.23% and 8.06%, respectively, since inception (January 2, 1997), through
October 31, 1997.
The Bond Fund was positioned with a neutral duration target versus it
benchmark over the first half of 1997. As the year continued, our outlook for
continuing modest growth along with no signs of inflation caused us to push
our duration target to 105% of our benchmark. We currently maintain that
position with a slightly longer average maturity and look to add value for our
shareholders by investing in higher yielding securities including, mortgage
and asset backed securities. Going forward, we expect to add relative returns
by maintaining our higher yielding sector's exposure, while keeping the
average maturity of our fund near or slightly longer than our benchmark. With
yields at multi-year lows, dramatic declines in rates, and therefore
significant capital gains are probably limited unless the economy weakens more
than we expect over the next several quarters. The Fund increased its treasury
holdings during the third quarter to maintain duration during the rally in
September and October. With the recent widening of spreads, especially in
asset backed securities and corporates, the Fund is well positioned to take
advantage of these opportunities and increase our exposure to these sectors.
The repricing of the corporate sector was long overdue as credit spreads have
remained tight for the past several years. The fund continues to maintain
exceptional credit quality, with an average quality rating of AAA.
BALANCED FUND
The Institutional Shares had a total return based on NAV for the last 12
months of 19.92% as compared with the Lipper Balanced Funds Index of 20.09%
and the 60% S&P 500/40% Lehman Brothers Aggregate Bond Index of 22.60%. The
Service Shares recorded a total return of 16.53%, based on NAV, since
inception (January 2, 1997) through October 31, 1997. The Lipper Balanced
Funds Index and the 60% S&P 500/40% Lehman Brothers Aggregate Bond Index
recorded a 16.17% and 18.37%, respectively, for the same time period.
In the fixed-income portion of the Fund, we currently maintain a position
with a slightly longer average maturity and look to add value for our
shareholders by investing in higher yielding securities, including mortgage
and asset backed securities. Going forward, we expect to add relative returns
by maintaining our higher yielding sector's exposure, while keeping the
average maturity of our Fund near or slightly longer than our benchmark.
As for the equity portion of the Fund over the last year, financial issues
have taken the leadership role in this bull market. Banks, insurance, and
brokerage firms have been awarded higher valuation levels by investors. The
technology sector has also been a favorite of ours. Volatility among stocks in
this sector remains high as many of their product life cycles remain short,
causing upside and downside surprises in quarterly earnings. The equity side
continues to overweight in the financial and technology sectors.
GROWTH AND INCOME FUND
The Commerce Growth and Income Fund has gotten off to a sound start. The
Institutional Shares had a total return of 22.00% since its inception on March
3, 1997 through October 31, 1997, based on NAV. The Service Shares recorded a
total return of 21.81%, based on NAV, since March 3, 1997 through October 31,
1997. By comparison, the S&P 500 with Income Index gained 17.03%, and the
Lipper Growth & Income Funds Index gained 15.29%.
From The Fund's launch, now eight months old, it has proceeded smoothly from
an operational point. From assets at zero on March 2, 1997, we have
successfully invested
2
<PAGE>
THE COMMERCE FUNDS
LETTER TO SHAREHOLDERS--(CONTINUED)
approximately $44,000,000 cash flow in a timely manner into a well diversified
equity portfolio utilizing our proprietary selection process and sound
fundamental analysis.
The Fund continues to be well diversified across the major economic sectors
as represented by the Russell 1000 Value Index, and this has not changed
materially from six months ago. The financial sector continues to command the
highest allocation, approximately 31% of the total portfolio. Our analysis
continues to point us in this direction on the basis of valuation as well as
fundamental trends within the industry. Merger activity has been an important
factor in performance of this sector. This benefited our portfolio directly in
the case of Salomon, Inc., which was acquired by Travelers Group in September.
The utility sector is the next largest, representing approximately 10% of
the portfolio. This sector provides much of the portfolio's above market (S&P
500 Stock Index) yield. In addition, we believe this group is poised to
attract greater investor attention as interest rates move lower.
As mentioned in the previous Letter to Shareholders, our value-based
investment process led us to the middle capitalization sector of the market,
consistent with the general consensus that the large capitalization stocks
were overvalued. In fact, over the six months ending October 31, 1997, the
midcap sector provided superior returns relative to the large cap stocks.
Given the structure of the Fund, this contributed to our strong relative
performance. Today, we still maintain that midcap bias, although the average
market cap has risen from $6.6 billion to approximately $9.6 billion.
Given our value bias and above average yield, we continue to believe the
fund is well positioned for the turbulent market environment we have witnessed
in recent weeks and which may continue over the near term.
GROWTH FUND
The Institutional Shares had a total return of 28.12% based on NAV for the
twelve months ending October 31,1997. This compares with a 32.12% return for
the S&P 500 and a 28.43% return for the Lipper Growth Funds Index. The Service
Shares recorded a total return of 22.47% on NAV, since their inception on
January 2, 1997 through October 31, 1997. The S&P 500 and the Lipper Growth
Funds Index recorded a return of 25.31% and 23.12%, respectively, for the same
time period.
Over the last year, financial issues have taken the leadership role in this
bull market. Banks, insurance, and brokerage firms have been awarded higher
valuation levels by investors. The financial industry has been our heaviest
weighted sector throughout most of the year. At year end the fund had
approximately a 25% representation in financials. The outlook remains bright,
as earnings show strong growth and the consolidation trend in the industry
will continue for the rest of the decade. Our two best-performing issues were
Travelers Group and Franklin Resources, gaining over 70% last year.
The technology sector has also been a favorite of ours. Volatility among
stocks in this sector remains high as many of their product life cycles remain
short, causing upside and downside surprises in quarterly earnings. To combat
the product volatility, we have assembled a well diversified group of
companies that are leaders in their respective industries. Compaq Computer and
Microsoft both posted gains of over 90% last year.
Another sector of concentration in the fund is producer manufacturing
companies. Examples of producer manufacturing companies are General Electric,
Caterpillar and Deere & Co. Over the last several years, these companies have
benefited from the industrial expansion in South America and Asia. In October,
a domino effect in many of the Asian countries collapsed into financial and
economic disarray. While the effects of the Far East financial turmoil will
not be known for several months or longer, investors quickly drove their stock
prices lower. We continue to be optimistic on world growth and have not
reduced our exposure to this sector. The fund ended the year with a balanced
and diversified portfolio.
MIDCAP FUND
For the year ended October 31, 1997, the Institutional Shares had a total
return of 18.88%, based on NAV. By comparison, the S&P Mid Cap 400 Index
gained 32.69%, and the Lipper Mid Cap Funds Index gained 20.80%. The Service
Shares recorded a total return of 15.01%, based on NAV, since inception
(January 2, 1997) to October 31, 1997. The S&P Mid Cap 400 Index and the
Lipper Mid Cap Funds Index recorded a return of 25.46% and 16.96%,
respectively, for the same time period.
Since the Presidential election last year, the US stock market has recorded
non-stop, record breaking highs. What has been masked by the action of the
market in general has been a distinct shift in investor preference within the
market. Perhaps anticipating the impact of slowing international growth, the
large supercap companies, which led the market advance of the previous two
years, faltered. Since the middle of April, the extreme differences in
valuation which were found in favor of midcap companies have begun to be
recognized and rewarded.
We think this trend will continue. Aside from the valuation perspective,
which has considerable room to improve before parity is reached, our
enthusiasm is
3
<PAGE>
THE COMMERCE FUNDS
LETTER TO SHAREHOLDERS--(CONTINUED)
bolstered by several other factors. We expect, as foreign economies slow their
rates of expansion, that relative earnings momentum will switch to companies
not as far along the overseas trading curve. Additionally, robust economic
growth in the U.S. the past two years has boosted the earnings of many second
tier companies. As this growth slows, we believe investors will turn their
attention toward higher quality companies, with sustainable prospects for
growth.
We have, at the heart of our investment process, a penchant for such
companies. Thus, you may hear the theme of "recurring revenue streams"
mentioned in our reviews of investments. The majority of these companies have
been sidelined by relative under-performance for quite sometime now. We
suspect that their continued growth maybe about to be rewarded.
Notably included in the portfolio are computer software and service
companies (BMC Software and Peoplesoft) which benefit from the continued
proliferation of productivity enhancing tools. The theme of outsourcing
continues in many sectors, including payroll processing and services
(Paychex), and human resources (Personnel Group of America). Certain sectors
of health care, such as distribution, continue to be attractive, driven by
consolidation (McKesson and Cardinal Health) and demographics (Arbor Drugs and
Elan Corp. PLC).
INTERNATIONAL EQUITY FUND
The Institutional Shares produced a total return of 7.15% for the year
ending October 31, 1997, based on NAV. This return substantially exceeded that
of the Morgan Stanley Capital International Europe, Australia and Far East
(EAFE) Index for the same time period, which was 4.91%. The Lipper
International Equity Funds Index return was 13.35% for the one year period
ended October 31, 1997. On an inception (December 12, 1994) to date basis, the
Institutional Shares' 8.30% annualized total return is ahead of the EAFE Index
at 7.01%. The Fund is ranked in the 52nd percentile of the Lipper
International Equity Universe on an inception to date basis. The Service
Shares recorded a total return of 1.66%, based on NAV, since inception
(January 2, 1997) through October 31, 1997. The EAFE and the Lipper
International Equity Funds Index recorded a return of 2.17% and 7.32%,
respectively, for the same time period.
Unlike 1996, calendar year to date 1997 has not been a good year for
investments in foreign equity markets. Although local market investors in
select countries (especially, developed Europe and Latin America) have
experienced attractive double digit returns; many of those returns have been
reduced (to a US-based investor) due to the strength of the US dollar. In
addition, both the developed and emerging markets of Asia have experienced
tremendous weakness in 1997, which has produced large negative local market
returns, and has been further exacerbated by US dollar strength.
The portfolio has remained underweighted in Japan (at approximately 21% of
the portfolio versus 33% in the EAFE Index), which has added value. Country
allocation overall has been a positive, while stock selection has not added
value recently. The manager's growth orientation has not worked well in
certain areas such as Europe, where the large, cyclical companies which are
viewed as "turnaround stories" have performed well.
The outlook is seen as positive for the Continental European markets, with
corporate earnings likely to come through strongly due to corporate
restructuring and better than expected, although still moderate, economic
growth. The outlook for Asia is not as encouraging. The Japanese economy is
expected to gradually pick up in 1998. However, the emerging economies of Asia
are expected to experience slower growth as a result of the deflation of the
speculative asset bubble which has occurred.
4
<PAGE>
THE COMMERCE FUNDS
LETTER TO SHAREHOLDERS--(CONTINUED)
NATIONAL TAX-FREE BOND FUND
The Fund's NAV increased from $18.46 to $18.85. This represents a 2.11%
appreciation and is a result of the lower level of interest rates.
Distributions totaled $.72 per share, bringing the total return to 6.16% for
the one year period. The Lipper General Municipal Debt Funds Index and the
Merrill Lynch Municipal Intermediate Index had returns of 8.03% and 7.06%,
respectively. The Funds' asset growth of over 40% has permitted further
diversification by sector and state. We continue to examine new areas of
investments in order to add return at an acceptable cost.
MISSOURI TAX-FREE BOND FUND
For the year ended October 31, 1997, the NAV of the Fund increased 1.92% to
$18.61 from $18.26, reflecting the lower yields. The total return was 6.31%
which combines the NAV increase with the per share distribution of $.76. The
Lipper General Municipal Debt Funds Index and the Merrill Lynch Municipal
Intermediate Index had returns of 8.03% and 7.06%, respectively. As compared
to last year, the volume declined. In a large part, this is due to the backlog
of school finance being exhausted. The Funds' asset has grown over 40% this
year, we have been able to continue sector diversification. The eleven sectors
that are represented though the portfolio is heavily weighted toward school
district and general obligation debt.
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.
October 31, 1997
5
<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, 1997.
Performance for the Commerce Institutional Shares ("Institutional") and
Service Shares ("Service"), are based on an initial investment of $10,000
(assuming both the maximum sales charge of 3.50% for all Funds except Short-
Term Government Fund which is 2.00% and no sales charge) is compared to the
following:
<TABLE>
<CAPTION>
FUND COMPARE TO:
- ------------------------------------------------ ------------------------------------------------
<S> <C>
Short-Term Government Fund: 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: The Lehman Brothers Aggregate Bond Index ("Leh-
man Agg Bond Index") and the Lipper Intermediate
Investment Grade Debt Funds Index ("Lipper
Interm Debt Funds Index").
Balanced Fund: The composite of the Standard & Poor's 500 Index
with Income ("S&P 500") (weighted at 60%) and
the Lehman Brothers Aggregate Bond Index
(weighted at 40%) ("Combined S&P 500 and Lehman
Bond Index") and the Lipper Balanced Funds In-
dex.
Growth and Income Fund: The S&P 500 and the Lipper Growth & Income Funds
Index.
Growth Fund: The S&P 500 and the Lipper Growth Funds Index.
MidCap Fund: The S&P Mid Cap 400 Index with Income ("S&P Mid
Cap 400") and the Lipper Mid Cap Funds Index.
International Equity Fund: The Morgan Stanley Gross EAFE and the Lipper In-
ternational ("Int'l") Funds Index.
National Tax-Free Bond Fund: The Merrill Lynch Municipal Intermediate Index
("Merrill Lynch Muni Interm Index") and the
Lipper General Municipal Debt Funds Index
("Lipper Gen Muni Debt Funds Index").
Missouri Tax-Free Bond Fund: The Merrill Lynch Muni Interm Index and the
Lipper Gen Muni Debt Funds Index.
</TABLE>
Each of the indices mentioned above is an unmanaged index in which investors
cannot invest. Results for the indices 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.
6
<PAGE>
THE COMMERCE FUNDS
PERFORMANCE COMPARISON--(CONTINUED)
SHORT-TERM GOVERNMENT FUND
INSTITUTIONAL SHARES
[CHART]
Institutional Institutional Salomon Bros. Lipper Short US
(no sales charge) (w/sales charge) Treas./Gov't Gov't Funds Index
----------------- ---------------- ------------ -----------------
12/12/94(a) $10,000 $ 9,800 $10,000 $10,000
10/31/95 $11,072 $10,851 $11,082 $10,972
10/31/96 $11,629 $11,396 $11,736 $11,568
10/31/97 $12,379 $12,131 $12,533 $12,238
-----------------------------------
Average Annual Total Return
-----------------------------------
Since Inception(a) One Year
- ---------------------------------------------------------------------
Institutional (No Sales Charge) 7.66% 6.45%
- ---------------------------------------------------------------------
Institutional (w/ Sales Charge) 6.91% 4.30%
- ---------------------------------------------------------------------
SERVICE SHARES
[CHART]
Service Service Salomon Bros. Lipper Short US
(no sales charge) (w/sales charge) Treas./Gov't Gov't Funds Index
----------------- ---------------- ------------- -----------------
1/2/97(b) $10,000 $ 9,800 $10,000 $10,000
10/31/97 $10,581 $10,372 $10,609 $10,516
-----------------------------------
Aggregate Total Return
-----------------------------------
Since Inception(b)
- ---------------------------------------------------------------------
Service (No Sales Charge) 5.81%
- ---------------------------------------------------------------------
Service (w/Sales Charge) 3.72%
- ---------------------------------------------------------------------
BOND FUND
INSTITUTIONAL SHARES
[CHART]
Institutional Institutional Lehman Agg Lipper Interm
(no sales charge) (w/sales charge) Bond Index Debt Funds Index
----------------- ---------------- ---------- ----------------
12/12/94(a) $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
10/31/97 $13,135 $12,675 $13,302 $12,936
-----------------------------------
Average Annual Total Return
-----------------------------------
Since Inception(a) One Year
- ---------------------------------------------------------------------
Institutional (No Sales Charge) 9.89% 8.50%
- ---------------------------------------------------------------------
Institutional (w/ Sales Charge) 8.55% 4.71%
- ---------------------------------------------------------------------
SERVICE SHARES
[CHART]
Service Service Lehman Agg Lipper Interm
(no sales charge) (w/sales charge) Bond Index Debt Funds Index
----------------- ---------------- ---------- ----------------
1/2/97(b) $10,000 $ 9,650 $10,000 $10,000
10/31/97 $10,748 $10,371 $10,806 $10,723
-----------------------------------
Aggregate Total Returneturn
-----------------------------------
Since Inception(b)
- ---------------------------------------------------------------------
Service (No Sales Charge) 7.48%
- ---------------------------------------------------------------------
Service (w/ Sales Charge) 3.71%
- ---------------------------------------------------------------------
7
<PAGE>
THE COMMERCE FUNDS
PERFORMANCE COMPARISON--(CONTINUED)
BALANCED FUND
INSTITUTIONAL SHARES
[CHART]
Institutional Institutional Combined S&P and Lipper Balanced
(no sales charge) (w/sales charge) Lehman Bond Index Funds Index
----------------- ---------------- -------------------- ---------------
12/12/94(a) $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 $13,874
10/31/97 $17,319 $16,712 $17,971 $16,661
-----------------------------------
Average Annual Total Return
-----------------------------------
Since Inception(a) One Year
- ---------------------------------------------------------------------
Institutional (No Sales Charge) 20.92% 19.92%
- ---------------------------------------------------------------------
Institutional (w/ Sales Charge) 19.45% 15.72%
- ---------------------------------------------------------------------
SERVICE SHARES
[CHART]
Service Service Combined S&P and Lipper Balanced
(no sales charge) (w/sales charge) Lehman Bond Index Funds Index
----------------- ---------------- ----------------- ---------------
1/2/97(b) $10,000 $ 9,650 $10,000 $10,000
10/31/97 $11,653 $11,247 $11,837 $11,617
-----------------------------------
Aggregate Total Return
-----------------------------------
Since Inception(b)
- ---------------------------------------------------------------------
Service (No Sales Charge) 16.53%
- ---------------------------------------------------------------------
Service (w/ Sales Charge) 12.47%
- ---------------------------------------------------------------------
GROWTH AND INCOME FUND
INSTITUTIONAL SHARES
[CHART]
Lipper Growth
Institutional Institutional & Income
(no sales charge) (w/sales charge) S&P 500 Funds Index
----------------- ---------------- ------- -------------
3/3/97(c) $10,000 $ 9,650 $10,000 $10,000
10/31/97 $12,200 $11,775 $11,703 $11,529
-----------------------------------
Aggregate Total Return
-----------------------------------
Since Inception(a)
- ---------------------------------------------------------------------
Institutional (No Sales Charge) 22.00%
- ---------------------------------------------------------------------
Institutional (w/ Sales Charge) 17.75%
- ---------------------------------------------------------------------
SERVICE SHARES
[CHART]
Lipper Growth
Service Service & Income
(no sales charge) (w/sales charge) S&P 500 Funds Index
----------------- ---------------- ------- -------------
3/3/97(c) $10,000 $ 9,650 $10,000 $10,000
10/31/97 $12,181 $11,757 $11,703 $11,529
-----------------------------------
Aggregate Total Return
-----------------------------------
Since Inception(c)
- ---------------------------------------------------------------------
Service (No Sales Charge) 21.81%
- ---------------------------------------------------------------------
Service (w/ Sales Charge) 17.57%
- ---------------------------------------------------------------------
8
<PAGE>
THE COMMERCE FUNDS
PERFORMANCE COMPARISON--(CONTINUED)
GROWTH FUND
INSTITUTIONAL SHARES
[CHART]
Institutional Institutional Lipper Growth
(no sales charge) (w/sales charge) S&P 500 Funds Index
----------------- ---------------- ------- -------------
12/12/94(a) $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
10/31/97 $21,845 $21,080 $21,815 $19,925
-----------------------------------
Average Annual Total Return
-----------------------------------
Since Inception(a) One Year
- ---------------------------------------------------------------------
Institutional (No Sales Charge) 31.04% 28.12%
- ---------------------------------------------------------------------
Institutional (w/ Sales Charge) 29.44% 23.64%
- ---------------------------------------------------------------------
SERVICE SHARES
[CHART]
Service Service Lipper Growth
(no sales charge) (w/sales charge) S&P 500 Funds Index
----------------- ---------------- ------- -------------
1/2/97(b) $10,000 $9,650 $10,000 $10,000
10/31/97 $12,247 $11,820 $12,531 $12,312
-----------------------------------
Aggregate Total Return
-----------------------------------
Since Inception(b)
- ---------------------------------------------------------------------
Service (No Sales Charge) 22.47%
- ---------------------------------------------------------------------
Service (w/ Sales Charge) 18.20%
- ---------------------------------------------------------------------
MIDCAP FUND
INSTITUTIONAL SHARES
[CHART]
Institutional Institutional S&P Lipper Mid Cap
(no sales charge) (w/sales charge) Mid Cap 400 Funds Index
----------------- ---------------- ----------- --------------
12/12/94(a) $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
10/31/97 $19,019 $18,357 $20,423 $19,118
-----------------------------------
Average Annual Total Return
-----------------------------------
Since Inception(a) One Year
- ---------------------------------------------------------------------
Institutional (No Sales Charge) 24.91% 18.88%
- ---------------------------------------------------------------------
Institutional (w/ Sales Charge) 23.39% 14.71%
- ---------------------------------------------------------------------
SERVICE SHARES
[CHART]
Service Service S&P Lipper Mid Cap
(no sales charge) (w/sales charge) Mid Cap 400 Funds Index
----------------- ---------------- ----------- --------------
1/2/97(b) $10,000 $ 9,650 $10,000 $10,000
10/31/97 $11,501 $11,098 $12,546 $11,696
-----------------------------------
Aggregate Total Return
-----------------------------------
Since Inception(b)
- ---------------------------------------------------------------------
Service (No Sales Charge) 15.01%
- ---------------------------------------------------------------------
Service (w/ Sales Charge) 10.98%
- ---------------------------------------------------------------------
9
<PAGE>
THE COMMERCE FUNDS
PERFORMANCE COMPARISON--(CONTINUED)
INTERNATIONAL EQUITY FUND
INSTITUTIONAL SHARES
[CHART]
Institutional Institutional Morgan Stanley Lipper Int'l
(no sales charge) (w/sales charge) Gross EAFE Funds Index
----------------- ---------------- -------------- ------------
1/1/95(d) $10,000 $ 9,650 $10,000 $10,000
10/31/95 $10,264 $ 9,921 $10,428 $10,584
10/31/96 $11,628 $11,240 $11,551 $11,837
10/31/97 $12,459 $12,043 $12,118 $13,417
-----------------------------------
Average Annual Total Return
-----------------------------------
Since Inception(a) One Year
- ---------------------------------------------------------------------
Institutional (No Sales Charge) 8.30% 7.15%
- ---------------------------------------------------------------------
Institutional (w/ Sales Charge) 6.98% 3.40%
- ---------------------------------------------------------------------
SERVICE SHARES
[CHART]
Service Service Morgan Stanley Lipper Int'l
(no sales charge) (w/sales charge) Gross EAFE Funds Index
----------------- ---------------- -------------- -------------
1/2/97(b) $10,000 $9,650 $10,000 $10,000
10/31/97 $10,166 $9,809 $10,217 $10,732
-----------------------------------
Aggregate Total Return
-----------------------------------
Since Inception(b)
- ---------------------------------------------------------------------
Service (No Sales Charge) 1.66%
- ---------------------------------------------------------------------
Service (w/ Sales Charge) (1.91%)
- ---------------------------------------------------------------------
NATIONAL TAX-FREE BOND FUND
[CHART]
Lipper General
Nat'l Tax-Free Nat'l Tax-Free Merrill Lynch Muni Muni Debt
(no sales charge) (w/sales charge) Interm Index Funds Index
----------------- ---------------- ------------------ --------------
2/21/95(e) $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 $11,359
10/31/97 $11,666 $11,259 $12,191 $12,267
-----------------------------------
Average Annual Total Return
-----------------------------------
Since Inception(e) One Year
- ---------------------------------------------------------------------
Nat'l Tax-Free (No Sales Charge) 5.88% 6,16%
- ---------------------------------------------------------------------
Nat'l Tax-Free (w/ Sales Charge) 4.50% 2.44%
- ---------------------------------------------------------------------
MISSOURI TAX-FREE BOND FUND
[CHART]
Lipper General
Missouri Tax-Free Missouri Tax-Free Merrill Lynch Muni Muni Debt
(no sales charge) (w/sales charge) Interm Index Funds Index
------------------ ----------------- ------------------ -------------
2/21/95(e) $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
10/31/97 $11,595 $11,189 $12,191 $12,267
-----------------------------------
Average Annual Total Return
-----------------------------------
Since Inception(e) One Year
- ---------------------------------------------------------------------
Missouri Tax-Free (No Sales Charge) 5.64% 6.31%
- ---------------------------------------------------------------------
Missouri Tax-Free (w/ Sales Charge) 4.26% 2.60%
- ---------------------------------------------------------------------
(a) Commencement of operations was December 12, 1994.
(b) Commencement of operations was January 2, 1997.
(c) Commencement of operations was March 3, 1997.
(d) For comparative purposes, initial investments are assumed to be made on the
first day of the month following the International Equity Fund's inception.
(e) Commencement of operations was February 21, 1995.
10
<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 and Income Fund,
Growth Fund, MidCap Fund (formerly 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, 1997, and the related
statements of operations for the year or period ended October 31, 1997, the
statements of changes in net assets for each of the years in the two-year
period ended October 31, 1997 for Short-Term Government Fund, Bond Fund,
Balanced Fund, Growth Fund, MidCap Fund, International Equity Fund, National
Tax-Free Bond Fund and Missouri Tax-Free Bond Fund and the period from March
3, 1997 (commencement of operations) to October 31, 1997 for Growth and Income
Fund and the financial highlights for each of the years or periods in the
three-year period ended October 31, 1997. 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 and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 1997 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, 1997, 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 5, 1997
11
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
SHORT-TERM GOVERNMENT FUND
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
---------- -------- -------- --------
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS--30.4%
Federal Home Loan Mortgage Corp. REMIC Series 14,
Class A
$ 157,000 6.00 06/25/23 $150,015
Federal Home Loan Mortgage Corp. REMIC Series 1112,
Class F
117,000 8.40 01/15/21 119,888
Federal Home Loan Mortgage Corp. REMIC Series 1205,
Class G
250,000 7.00 03/15/07 254,765
Federal Home Loan Mortgage Corp. REMIC Series 1360,
Class PE
210,000 3.50 12/15/17 194,970
Federal Home Loan Mortgage Corp. REMIC Series 1574,
Class P
235,741 6.50 07/15/23 233,973
Federal Home Loan Mortgage Corp. REMIC Series 1617,
Class C
149,000 6.50 02/15/23 148,487
Federal Home Loan Mortgage Corp. REMIC Series 1619,
Class EC
500,000 5.60 11/15/23 489,060
Federal Home Loan Mortgage Corp. REMIC Series 1727,
Class E
660,000 6.50 04/15/18 665,980
Federal Home Loan Mortgage Corp. Series 180, Class
G
827,697 8.00 09/15/21 849,681
Federal Home Loan Mortgage Corp. Series 1255, Class
G
455,000 7.50% 07/15/21 468,081
Federal National Mortgage Assn. REMIC Series 1991-
118, Class K
405,000 7.00 08/25/21 409,933
Federal National Mortgage Assn. REMIC Series 1992-
1, Class E
500,000 7.50 01/25/07 517,965
Federal National Mortgage Assn. REMIC Series 1992-
129, Class G
432,000 4.00 06/25/18 409,860
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- ----------- -------- -------- -----------
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS--CONTINUED
Federal National Mortgage Assn. REMIC Series 1993-
29, Class FA
$ 250,634 6.20(a) 03/25/23 $ 242,801
Federal National Mortgage Assn. REMIC Series 1993-
76, Class A
357,532 6.00 06/25/08 345,913
Federal National Mortgage Assn. REMIC Series 1993-
208, Class L
81,503 6.50% 03/25/23 81,605
Federal National Mortgage Assn. REMIC Series 1993-
225,
Class NC
229,000 6.50 03/25/23 225,134
Federal National Mortgage Assn. REMIC Series 1993-
245, Class N
200,000 6.50 12/25/23 198,000
Federal National Mortgage Assn. REMIC Series 1994-
23, Class A
158,679 6.00 12/25/22 153,125
Federal National Mortgage Assn. REMIC Series G92-
35, Class D
210,000 4.50 08/25/21 186,505
Federal National Mortgage Assn. REMIC Series G94-
9, Class C
250,000 6.25 04/17/10 246,640
Federal National Mortgage Assn. REMIC Series X-
130A, Class H
510,000 6.30 09/25/18 512,071
Federal National Mortgage Assn. REMIC Series X-
225C, Class G
192,175 6.50 11/25/22 181,605
Federal National Mortgage Assn. REMIC Series X-
225C, Class NB
1,502,115 6.50% 12/25/22 1,494,605
Federal National Mortgage Assn. Series 1993-139,
Class KB
1,000,000 7.00 11/25/00 1,013,120
Federal National Mortgage Assn. Series 1993-140,
Class D
903,200 5.50 08/25/07 899,249
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
SHORT-TERM GOVERNMENT FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
---------- -------- -------- -----------
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS--CONTINUED
GE Capital Mortgage Services, Inc. Series 1993-
16, Class A4
$ 71,936 6.25% 12/25/23 $ 71,621
Independent National Mortgage Corp. REMIC Series
1995-M, Class A1
813,328 7.50 09/25/25 823,495
Prudential Home Mortgage Securities Series 1993-
43,
Class A1
774,629 5.40 10/25/23 767,363
Residential Funding Mortgage Securities Series
1993-S49,
Class A2
1,000,000 6.00 12/25/08 997,500
Securitized Asset Sales, Inc. Series 1993-7,
Class T
470,000 6.25 12/25/23 450,025
Westam Mortgage Financial Corp. Series 7, Class F
1,172,729 9.30 10/01/15 1,214,865
-----------
Total Collateralized Mortgage Obligations
(cost $14,769,940).......................... $15,017,900
-----------
MORTGAGE-BACKED PASS-THROUGH OBLIGATIONS--6.9%
Federal Home Loan Mortgage Corp.
$ 33,049 8.75% 02/01/01 $ 33,989
87,138 8.75 04/01/01 91,958
381,818 8.25 08/01/01 387,186
148,927 7.75 09/01/07 153,299
943,275 7.00 05/01/26 949,755
Federal National Mortgage Assn.
484,479 6.50 02/01/12 484,479
387,270 9.00 07/01/24 413,169
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
---------- -------- -------- -----------
<S> <C> <C> <C>
MORTGAGE-BACKED PASS-THROUGH OBLIGATIONS--CONTINUED
Government National Mortgage Assn.
$ 298,839 8.00% 10/15/16 $ 314,621
536,326 8.00 07/15/17 563,775
-----------
Total Mortgage-Backed Pass-Through
Obligations
(cost $3,295,063)........................... $ 3,392,231
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS--43.6%
Federal Agriculture Mortgage Corp.
$ 500,000 6.69% 02/10/00 $ 509,380
Federal Farm Credit Bank
1,000,000 7.17 04/03/00 1,030,000
1,000,000 6.10 11/19/01 1,005,780
Federal Home Loan Bank
530,000 7.13 03/27/00 545,402
1,000,000 7.44 08/10/01 1,050,620
1,000,000 6.53 08/28/01 1,020,940
1,000,000 6.63 08/28/01 1,023,840
965,000 7.56 02/27/02 1,024,261
1,630,000 6.89 04/04/04 1,697,938
Federal Home Loan Mortgage Corp.
500,000 7.90 01/27/00 521,560
1,000,000 6.52 08/25/00 1,017,190
500,000 6.70 07/25/01 512,970
Federal National Mortgage Assn.
1,500,000 6.36 08/16/00 1,520,865
1,000,000 9.20 09/11/00 1,087,970
250,000 6.18 03/15/01 251,875
500,000 6.63 04/18/01 511,015
700,000 6.38 08/14/01 710,388
281,000 6.50 03/25/20 283,633
Israel Aid Series 5A
2,000,000 7.75 11/15/99 2,072,440
Tennessee Valley Authority 1989, Series D
2,000,000 8.38 10/01/99 2,092,180
575,000 6.00 11/01/00 577,156
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
SHORT-TERM GOVERNMENT FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
---------- -------- -------- -----------
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS--CONTINUED
U.S. Department of Housing & Urban Development
Series
1994-A
$ 100,000 6.44% 08/01/02 $ 100,764
U.S. Department of Housing & Urban Development
Series
1995-A
1,250,000 8.15 08/01/00 1,314,250
-----------
Total U.S. Government Agency Obligations
(cost $21,212,579).......................... $21,482,417
-----------
U.S. TREASURY OBLIGATIONS--8.2%
United States Treasury Notes
$2,000,000 6.38% 04/30/99 $ 2,021,560
2,000,000 5.88 08/31/99 2,007,820
-----------
Total U.S. Treasury Obligations
(cost $4,006,875)........................... $ 4,029,380
-----------
SHORT-TERM OBLIGATIONS--4.1%
Federal Home Loan Mortgage Corp.
$1,000,000 7.93% 01/20/98 $ 1,004,370
1,000,000 7.82 01/27/98 1,004,530
-----------
Total Short-Term Obligations
(cost $2,018,438)........................... $ 2,008,900
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
---------- -------- -------- -----------
<S> <C> <C> <C>
REPURCHASE AGREEMENT--2.2%
State Street Bank & Trust Company, dated
10/31/97, repurchase price $1,116,479 (U.S.
Treasury Note: $1,141,060, 6.00%, 08/15/2000)
$1,116,000 5.15% 11/03/97 $ 1,116,000
-----------
Total Repurchase Agreement
(cost $1,116,000)........................... $ 1,116,000
-----------
Total Investments
(cost $46,418,895(b))....................... $47,046,828
===========
- --------------------------------------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost.............................. $ 738,993
Gross unrealized loss for investments in which
value exceeds cost.............................. (111,060)
-----------
Net unrealized gain.............................. $ 627,933
===========
- --------------------------------------------------------------------------------------------------
</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, 1997.
(b)The cost stated also represents aggregate cost for federal income tax
purposes.
- --------------------------------------------------------------------------------
INVESTMENT ABBREVIATIONS:
REMIC--Real Estate Mortgage Investment Conduit
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
BOND FUND
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- ----------- -------- -------- ------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES--29.4%
AUTO--3.4%
Fifth Third Bank Auto Grantor Trust Series 1996-A,
Class A
$ 5,461,380 6.20% 09/15/01 $ 5,476,727
NationsBank Auto Owner Trust Series 1996-A, Class
A4
2,000,000 6.63 12/15/00 2,019,360
------------
$ 7,496,087
------------
CREDIT CARD--10.5%
American Express Master Trust Series 1994-3, Class
A
$ 2,000,000 7.85% 08/15/05 $ 2,163,740
Chemical Master Credit Card Trust 1 Series 1995-3,
Class A
2,000,000 6.23 04/15/05 2,003,740
Choice Credit Card Master Trust Series 1992-2,
Class B
2,000,000 7.20 04/15/99 2,046,640
Discover Card Trust Series 1991-F, Class B
4,000,000 8.35 11/21/00 4,080,000
Discover Card Master Trust Series 1993-3, Class A
2,000,000 6.20 05/16/06 1,990,620
MBNA Master Credit Card Trust Series 1995-C, Class
A
2,000,000 6.45 02/15/08 2,018,740
Standard Credit Card Master Trust 1991-6, Series A
2,000,000 7.88 11/07/98 2,041,480
Standard Credit Card Master Trust Series 1993-2,
Class A
2,000,000 5.95 10/07/04 1,987,740
Standard Credit Card Master Trust Series 1995-1,
Class A
2,000,000 8.25 01/07/07 2,239,340
Standard Credit Card Master Trust Series 1995-1,
Class B
2,000,000 8.45 01/07/07 2,235,220
------------
$ 22,807,260
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- ----------- -------- -------- ------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES--CONTINUED
HOME EQUITY--3.2%
Advanta Mortgage Loan Trust Series 1994-4, Class
A2
$ 4,000,000 8.92% 01/25/26 $ 4,301,480
Corestates Home Equity Trust Series 1993-2, Class
A
642,574 5.10 03/15/09 631,304
GE Capital Mortgage Services, Inc. Series 1997-
HE1, Class M
1,974,954 7.50 03/25/27 2,047,703
------------
$ 6,980,487
------------
MANUFACTURED HOUSING--12.3%
Associates Manufactured Housing Series 1996-1,
Class A5
$ 5,000,000 7.60% 03/15/27 $ 5,233,594
Green Tree Financial Corp. Series 1993-4, Class A4
2,000,000 6.60 01/15/19 2,015,620
Green Tree Financial Corp. Series 1993-4, Class A5
4,000,000 7.05 01/15/19 4,062,480
Green Tree Financial Corp. Series 1994-2, Class A4
4,000,000 7.90 05/15/19 4,175,000
Green Tree Financial Corp. Series 1996-4, Class A7
4,000,000 7.90 06/15/27 4,242,480
Green Tree Financial Corp. Series 1996-8, Class M1
2,000,000 7.85 10/15/27 2,100,620
Indymac Manufactured Housing Contract Series 1997-
1, Class A3
3,000,000 6.61 02/25/28 3,024,375
Indymac Manufactured Housing Contract Series 1997-
1, Class M
2,000,000 7.11(a) 02/25/28 2,046,238
------------
$ 26,900,407
------------
Total Asset-Backed Securities
(cost $58,741,827)........................... $ 64,184,241
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
BOND FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- ----------- -------- -------- ------------
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS--3.4%
Countrywide Mortgage Backed Securities, Inc. REMIC
Series 1993-B, Class A5
$ 1,333,571 6.75% 11/25/23 $ 1,317,110
Federal Home Loan Mortgage REMIC Series 1579,
Class PM
1,165,000 6.70 09/15/23 1,167,913
Federal National Mortgage Assn. REMIC Series 1992-
1, Class E
1,500,000 7.50 01/25/07 1,553,895
Federal National Mortgage Assn. REMIC Series X-
130A, Class H
1,500,000 6.30 09/25/18 1,506,090
PNC Mortgage Securities Corp. REMIC Series 1996-1,
Class A10
1,868,016 7.50 09/25/09 2,022,127
------------
Total Collateralized Mortgage Obligations
(cost $10,301,039)........................... $ 7,567,135
------------
CORPORATE OBLIGATIONS--12.2%
FINANCIAL--10.8%
American Express Credit Corp.
$ 2,000,000 6.13% 11/15/01 $ 1,990,620
BankAmerica Corp.
3,500,000 6.88 06/01/03 3,577,875
Chemical Bank
2,000,000 6.70 08/15/08 2,019,980
Chubb Capital Corp.
2,000,000 6.00 02/01/98 2,000,300
Ford Motor Company Credit Corp.
2,000,000 6.63 06/30/03 2,015,640
General Motors Acceptance Corp.
2,000,000 6.63 10/15/05 2,013,900
Morgan Stanley Group, Inc.
2,000,000 6.75 03/04/03 2,030,420
Nationsbank Corp
1,000,000 7.75 08/15/15 1,072,790
NationsBank Corp.
1,000,000 7.80 09/15/16 1,080,310
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- ----------- -------- -------- ------------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS--CONTINUED
FINANCIAL--Continued
PNC Bank N.A.
$ 2,000,000 7.88% 04/15/05 $ 2,144,940
Smith Barney Holdings, Inc.
3,500,000 6.63 06/01/00 3,543,015
------------
$ 23,489,790
------------
INDUSTRIAL--0.5%
Shell Oil Co.
$ 1,000,000 6.95% 12/15/98 $ 1,012,430
------------
UTILITIES--0.9%
Duke Power Corp.
$ 1,000,000 7.37% 02/02/04 $ 1,047,500
Union Electric Co.
1,000,000 6.75 10/15/99 1,012,450
------------
$ 2,059,950
------------
Total Corporate Obligations
(cost $25,139,681)........................... $ 26,562,170
------------
FOREIGN BONDS--1.4%
Hanson Overseas BV
$ 2,000,000 6.75% 09/15/05 $ 2,034,240
Hydro Quebec Note
1,000,000 7.96 12/17/01 1,064,170
------------
Total Foreign Bonds
(cost $2,965,820)............................ $ 3,098,410
------------
MORTGAGE-BACKED PASS-THROUGH OBLIGATIONS--27.0%
Federal Home Loan Mortgage Corp.
$ 1,917,362 6.00% 12/01/13 $ 1,888,007
2,188,102 8.50 02/01/19 2,314,531
2,490,420 8.50 03/01/21 2,634,317
11,319,295 7.00 05/01/26 11,397,059
Federal National Mortgage Assn.
1,180,973 7.19 07/01/06 1,248,648
4,263,225 5.50 01/01/09 4,105,401
3,495,709 7.00 07/01/09 3,556,884
968,958 6.50 02/01/12 968,958
1,922,911 6.00 12/01/13 1,874,434
1,585,588 6.50 07/01/14 1,571,381
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
BOND FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- ----------- -------- -------- ------------
<S> <C> <C> <C>
MORTGAGE-BACKED PASS-THROUGH OBLIGATIONS--CONTINUED
Federal National Mortgage
Assn.--Continued
$ 1,774,764 9.00% 11/01/21 $ 1,906,877
1,022,669 9.00 02/01/25 1,102,550
2,793,760 6.50 03/01/26 2,750,988
Government National Mortgage Assn.
4,689,923 8.00 02/15/22 4,895,060
4,663,931 7.00 09/15/23 4,703,248
2,171,749 7.50 08/20/25 2,215,184
9,570,575 7.50 07/20/26 9,761,987
------------
Total Mortgage-Backed Pass-Through
Obligations
(cost $56,259,680)........................... $ 58,895,514
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS--0.9%
Federal Home Loan Bank
$ 1,000,000 6.32% 02/01/00 $ 1,010,890
Federal Home Loan Mortgage Corp.
1,000,000 6.20 04/15/03 1,009,690
------------
Total U.S. Government Agency Obligations
(cost $1,863,692)............................ $ 2,020,580
------------
U.S. TREASURY OBLIGATIONS--23.0%
United States Treasury Bonds
$ 8,000,000 7.25% 05/15/16 $ 8,936,240
8,000,000 7.50 11/15/16 9,153,760
United States Treasury Notes
10,500,000 5.88 11/15/05 10,485,195
10,500,000 7.00 07/15/06 11,266,184
10,000,000 6.50 10/15/06 10,401,600
------------
Total U.S. Treasury Obligations
(cost $48,173,321)........................... $ 50,242,979
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- ----------- -------- -------- ------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT--0.7%
State Street Bank & Trust Company, dated 10/31/97,
repurchase price $1,526,655 (U.S. Treasury Note:
$1,559,968, 6.375%, 04/30/1999)
$ 1,526,000 5.15% 11/03/97 $ 1,526,000
------------
Total Repurchase Agreement
(cost $1,526,000)............................ $ 1,526,000
------------
Total Investments (cost $204,971,060(b))...... $214,097,029
============
- ---------------------------------------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost............................... $ 9,189,749
Gross unrealized loss for investments in which
cost exceeds value............................... (63,780)
------------
Net unrealized gain............................... $ 9,125,969
============
- ---------------------------------------------------------------------------------------------------
</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, 1997.
(b)The cost stated also represents aggregate cost for federal income tax
purposes.
- -------------------------------------------------------------------------------
INVESTMENT ABBREVIATIONS:
REMIC--Real Estate Mortgage Investment Conduit
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
BALANCED FUND
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
--------- ----------- ------------
<C> <S> <C>
COMMON STOCKS--61.5%
ADVERTISING--0.5%
7,600 Omnicom Group $ 536,750
------------
AEROSPACE/DEFENSE--1.6%
5,000 General Dynamics Corp. $ 405,937
11,500 Lockheed Martin Corp. 1,093,219
10,000 Tracor, Inc. 267,500
------------
$ 1,766,656
------------
AIRLINES--0.3%
10,000 Southwest Airlines Co. $ 326,250
------------
AUTO/VEHICLE--1.9%
33,000 Chrysler Corp. $ 1,163,250
21,000 Ford Motor Co. 917,437
------------
$ 2,080,687
------------
BANKING--2.5%
12,400 BankAmerica Corp. $ 886,600
13,400 Northern Trust Corp. 783,900
30,800 Norwest Corp. 987,525
------------
$ 2,658,025
------------
BIOTECHNOLOGY--0.3%
6,000 Elan Corp. PLC ADR* $ 299,250
------------
BUSINESS SERVICES--1.5%
20,000 Personnel Group of America, Inc.* $ 693,750
39,300 Reynolds & Reynolds Co. 673,013
6,000 Robert Half International, Inc. 245,625
------------
$ 1,612,388
------------
CHEMICAL PRODUCTS--1.9%
10,800 Dexter Corp. $ 423,900
14,000 Du Pont (E.I.) de Nemours & Co. 796,250
10,500 OM Group, Inc. 396,375
18,300 Schulman, Inc. 411,750
------------
$ 2,028,275
------------
COMPUTER SERVICES/SOFTWARE--3.0%
12,000 Cadence Design Systems, Inc.* $ 639,000
15,800 Compaq Computer Corp. 1,007,250
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
--------- ----------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
COMPUTER SERVICES/SOFTWARE--CONTINUED
7,500 Compuware Corp. $ 495,938
11,500 McAfee Associates, Inc.* 572,125
3,500 Microsoft Corp.* 455,000
------------
$ 3,169,313
------------
DIVERSIFIED MANUFACTURING--3.8%
32,200 Allied Signal, Inc. $ 1,159,200
10,600 Dover Corp. 715,500
12,500 Federal Signal Corp. 302,344
24,900 General Electric Co. 1,607,606
6,800 Parker Hannifin Corp. 284,325
------------
$ 4,068,975
------------
ELECTRONICS & OTHER ELECTRICAL EQUIPMENT--0.4%
12,000 Symbol Technologies, Inc. $ 477,000
------------
FINANCIAL SERVICES--8.9%
9,100 A. G. Edwards, Inc. $ 298,594
4,400 Bankers Trust Corp. 519,200
7,500 Bear Stearns Companies, Inc. 297,656
14,000 DST Systems, Inc. 494,375
22,000 Federal National Mortgage Association 1,065,625
15,600 Franklin Resources, Inc. 1,402,050
14,000 Green Tree Financial Corp. 589,750
6,000 Lehman Brothers Holdings, Inc. 282,375
16,000 Merrill Lynch & Co. 1,082,000
8,910 Morgan Stanley, Dean Witter, Discover and Co. 436,590
10,000 SLM Holding Corp. 1,403,750
16,775 Synovus Financial Corp. 364,856
18,000 Travelers Group, Inc. 1,260,000
------------
$ 9,496,821
------------
HEALTH & MEDICAL SERVICES--1.9%
3,000 Cardinal Health, Inc. $ 222,750
26,200 Lincare Holdings, Inc. 1,404,975
3,600 McKesson Corp. 386,325
------------
$ 2,014,050
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
BALANCED FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
--------- ----------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
HEALTH/PERSONAL CARE--0.4%
5,200 Gillette Co. $ 463,125
------------
HOUSEHOLD DURABLES--0.8%
21,000 Leggett & Platt, Inc. $ 876,750
------------
INDUSTRIAL MACHINERY--4.0%
24,700 Caterpillar, Inc. $ 1,265,875
8,400 Deere & Co. 442,050
34,400 Illinois Tool Works, Inc. 1,692,050
7,500 Lindsay Manufacturing Co. 325,312
11,600 Sealed Air Corp.* 598,125
------------
$ 4,323,412
------------
INSURANCE SERVICES--4.7%
10,500 Allied Group, Inc. $ 496,125
14,000 American Bankers Insurance Group, Inc. 523,250
2,500 Cigna Corp. 388,125
20,800 Conseco, Inc. 907,400
9,500 Financial Security Assurance Holdings, Ltd. 413,250
6,700 Ohio Cas Corp. 296,475
17,000 Orion Capital Corp. 765,000
5,000 Protective Life Corp.* 264,375
26,400 SunAmerica, Inc. 948,750
------------
$ 5,002,750
------------
INTEGRATED OIL--2.5%
3,800 Chevron Corp. $ 315,162
24,800 Mobil Corp. 1,805,750
6,500 Phillips Petroleum Co. 314,438
8,600 YPF Sociedad Anonima ADR 275,200
------------
$ 2,710,550
------------
MACHINERY AND EQUIPMENT--0.3%
7,400 Ingersoll-Rand Co. $ 288,137
------------
MEDICAL/BIOTECHNOLOGY--0.9%
12,200 Dentsply International, Inc. $ 346,175
10,000 Guidant Corp. 575,000
------------
$ 921,175
------------
METALS-DIVERSIFIED--0.3%
7,500 AK Steel Holding Corp. $ 315,937
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
--------- ----------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
OFFICE EQUIPMENT AND SUPPLIES--0.2%
8,000 Lexmark International Group, Inc. $ 244,500
------------
OIL & GAS-PRODUCTION/DISTRIBUTION--2.0%
6,900 National Fuel Gas Co. Of New Jersey $ 304,462
10,000 Newpark Resources, Inc. 415,000
26,600 Royal Dutch Petroleum ADR 1,399,825
------------
$ 2,119,287
------------
OIL WELL EQUIPMENT AND SERVICES--1.6%
10,000 BJ Services Co. $ 847,500
14,000 Ensco International, Inc. 588,875
4,800 Seacor Smit, Inc. 312,600
------------
$ 1,748,975
------------
PHARMACEUTICALS--2.2%
11,300 Abbott Laboratories $ 692,831
12,800 Johnson & Johnson 734,400
10,100 Merck & Co. 901,425
------------
$ 2,328,656
------------
PUBLISHING--0.8%
15,600 Equifax, Inc. $ 484,575
5,800 New York Times Co.
(Class A) 317,550
------------
$ 802,125
------------
RETAIL TRADE--4.4%
15,000 Arbor Drugs, Inc. $ 401,250
14,000 Central Garden & Pet Co.* 367,500
25,031 Consolidated Stores Corp.* 998,111
22,000 Gap, Inc. 1,170,125
15,000 Stein Mart, Inc. 438,750
30,000 TJX Companies, Inc. 888,750
15,800 Walgreen Co. 444,375
------------
$ 4,708,861
------------
SEMICONDUCTORS & ELECTRONICS--4.4%
20,600 Adaptec, Inc.* $ 997,813
12,600 Intel Corp. 970,200
5,000 Lattice Semiconductor Corp. 250,312
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
BALANCED FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
--------- ----------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
SEMICONDUCTORS & ELECTRONICS--CONTINUED
11,400 Linear Technology Corp. $ 716,775
14,800 National Semiconductor Corp. 532,800
7,000 Texas Instruments, Inc. 746,813
13,800 Xilinx, Inc.* 470,925
------------
$ 4,685,638
------------
TEXTILES--0.9%
12,500 Jones Apparel Group, Inc. $ 635,937
3,600 VF Corp. 321,750
------------
$ 957,687
------------
TOBACCO--0.4%
11,400 Universal Corp. $ 438,188
------------
TRANSPORTATION/STORAGE--1.2%
19,000 Air Express International Corp. $ 581,875
10,000 Tidewater, Inc.(a) 656,875
------------
$ 1,238,750
------------
UTILITIES--1.0%
6,400 Northern States Power Co. of Minnesota $ 322,400
19,500 Union Electric Co. 734,906
------------
$ 1,057,306
------------
Total Common Stocks
(cost $50,412,950).................... $ 65,766,249
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE
--------- -------- --------
<S> <C> <C> <C>
FIXED INCOME--34.5%
ASSET-BACKED SECURITIES--9.2%
AUTO--0.8%
Chevy Chase Auto Receivables Trust Series 1995-1,
Class A
$ 354,411 6.00% 12/15/01 $ 354,522
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- ------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES--CONTINUED
AUTO--CONTINUED
NationsBank Auto Owner Trust Series 1996-A, Class
A4
$ 500,000 6.63% 12/15/00 $ 504,840
------------
$ 859,362
------------
CREDIT CARD--3.9%
American Express Master Trust Series 1994-3,
Class A
$ 500,000 7.85% 08/15/05 $ 540,935
Choice Credit Card Master Trust Series 1992-2,
Class B
500,000 7.20 04/15/99 511,660
Discover Card Master Trust Series 1993-3, Class A
500,000 6.20 05/16/06 497,655
J.C. Penney Master Credit Card Trust Series B,
Class A
500,000 8.95 10/15/01 529,215
MBNA Master Credit Card Trust Series 1995-C,
Class A
500,000 6.45 02/15/08 504,685
Standard Credit Card Master Trust Series 1991-6,
Class B
500,000 8.35 01/07/99 512,335
Standard Credit Card Master Trust Series 1993-2,
Class A
500,000 5.95 10/07/04 496,935
Standard Credit Card Master Trust Series 1995-1,
Class B
500,000 8.45 01/07/07 558,805
------------
$ 4,152,225
------------
HOME EQUITY--1.6%
Advanta Mortgage Loan Trust Series 1994-4, Class
A2
$ 500,000 8.92% 01/25/26 $ 537,685
Corestates Home Equity Trust Series 1993-2, Class
A
642,574 5.10 03/15/09 631,304
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
BALANCED FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- ------------
<S> <C> <C> <C>
ASSET-BACKED SECURITIES--CONTINUED
GE Capital Mortgage Services, Inc. Series 1997-
HE1, Class M
$ 493,738 7.50% 03/25/27 $ 511,926
------------
$ 1,680,915
------------
MANUFACTURED HOUSING--2.9%
Associates Manufactured Housing Series 1996-1,
Class A5
$ 500,000 7.60% 03/15/27 $ 523,359
Green Tree Financial Corp.
Series 1993-4, Class A4
500,000 6.60 01/15/19 503,905
Green Tree Financial Corp.
Series 1993-4, Class A5
500,000 7.05 01/15/19 507,810
Green Tree Financial Corp.
Series 1994-2, Class A4
500,000 7.90 05/15/19 521,875
Green Tree Financial Corp.
Series 1996-4, Class A7
500,000 7.90 06/15/27 530,310
Green Tree Financial Corp.
Series 1996-5, Class A6
500,000 7.75 07/15/27 529,375
------------
$ 3,116,634
------------
Total Asset-Backed Securities
(cost $9,443,485)........................... $ 9,809,136
------------
COLLATERALIZED MORTGAGE OBLIGATIONS--2.3%
Federal Home Loan Mortgage Corp. REMIC Series
159,
Class H
$1,153,000 4.50% 09/15/21 $ 1,022,204
Federal National Mortgage Assn. REMIC Series X-
225C, Class NB
940,586 6.50 12/25/22 935,883
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- ------------
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS--CONTINUED
Residential Funding Mortgage Securities Corp.
Series 1995, Class A4
$ 500,000 8.00% 04/25/10 $ 524,530
------------
Total Collateralized Mortgage Obligations
(cost $2,401,507)........................... $ 2,482,617
------------
CORPORATE OBLIGATIONS--5.3%
FINANCIAL--3.9%
BankAmerica Corp.
$ 500,000 6.88% 06/01/03 $ 511,125
Chemical Bank
500,000 6.70 08/15/08 504,995
Ford Motor Company Credit Corp.
500,000 6.63 06/30/03 503,910
General Electric Capital Corp.
500,000 8.30 09/20/09 576,810
Morgan Stanley Group, Inc.
500,000 6.75 03/04/03 507,605
NationsBank Corp.
500,000 7.80 09/15/16 540,155
PNC Bank N.A.
500,000 7.88 04/15/05 536,235
Smith Barney Holdings, Inc.
500,000 6.63 06/01/00 506,145
------------
$ 4,186,980
------------
INDUSTRIAL--0.9%
Gannett, Inc.
$ 500,000 5.25% 03/01/98 $ 499,055
Hanson Overseas BV
500,000 6.75 09/15/05 508,560
------------
$ 1,007,615
------------
UTILITIES--0.5%
AT&T Corp.
$ 500,000 7.12% 01/15/02 $ 518,895
------------
Total Corporate Obligations
(cost $5,269,223)........................... $ 5,713,490
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
BALANCED FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- ------------
<S> <C> <C> <C>
MORTGAGE-BACKED PASS-THROUGH OBLIGATIONS--9.9%
Federal Home Loan Mortgage Corp.
$ 766,945 6.00% 12/01/13 $ 755,203
1,886,549 7.00 05/01/26 1,899,510
Federal National Mortgage Assn.
1,398,284 7.00 07/01/09 1,422,754
484,479 6.50 02/01/12 484,479
769,164 6.00 12/01/13 749,774
931,253 6.50 03/01/26 916,996
Government National Mortgage Assn.
1,532,096 7.00 09/15/23 1,545,012
868,700 7.50 08/20/25 886,074
1,914,115 7.50 07/20/26 1,952,397
------------
Total Mortgage-Backed Pass-Through
Obligations
(cost $10,167,777).......................... $ 10,612,199
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS--0.7%
Federal Home Loan Bank
$ 750,000 6.63% 08/28/01 $ 767,880
------------
Total U.S. Government Agency Obligations
(cost $695,320)............................. $ 767,880
------------
U.S. TREASURY OBLIGATIONS--7.1%
United States Treasury Bonds
$1,000,000 7.25% 05/15/16 $ 1,117,030
2,000,000 7.50 11/15/16 2,288,440
United States Treasury Notes
2,000,000 5.88 11/15/05 1,997,180
2,000,000 7.00 07/15/06 2,145,940
------------
Total U.S. Treasury Obligations
(cost $7,185,328)........................... $ 7,548,590
------------
Total Fixed Income
(cost $35,162,640).......................... $ 36,933,912
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- ------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT--3.5%
State Street Bank & Trust Company, dated
10/31/97, repurchase price $3,791,627 (U.S.
Treasury Note: $3,867,105, 6.375%, 04/30/1999)
$3,790,000 5.15% 11/03/97 $ 3,790,000
------------
Total Repurchase Agreement
(cost $3,790,000)........................... $ 3,790,000
------------
Total Investments
(cost $89,365,590(b))....................... $106,490,161
============
- ---------------------------------------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost.............................. $ 17,791,548
Gross unrealized loss for investments in which
cost exceeds value.............................. (717,524)
------------
Net unrealized gain.............................. $ 17,074,024
============
- ---------------------------------------------------------------------------------------------------
</TABLE>
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
*Non-income producing security.
(a)There are common stock rights attached to these securities.
(b)The aggregate cost for federal income tax purposes is $89,416,137.
- -------------------------------------------------------------------------------
INVESTMENT ABBREVIATIONS:
ADR--American Depository Receipts
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
GROWTH AND INCOME FUND
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
------ ----------- -----------
<C> <S> <C>
COMMON STOCKS--93.5%
AEROSPACE/DEFENSE--2.7%
8,000 General Dynamics Corp. $ 649,500
6,000 Northrop Grumman Corp. 655,500
-----------
$ 1,305,000
-----------
AUTO PARTS-ORIGINAL EQUIPMENT--0.5%
4,000 Borg Warner Automotive, Inc. $ 218,000
-----------
AUTO/VEHICLE--2.7%
18,000 Ford Motor Co. $ 786,375
8,000 General Motors Corp. 513,500
-----------
$ 1,299,875
-----------
BANKING--1.8%
12,000 BankAmerica Corp. $ 858,000
-----------
BUILDING MATERIALS & CONSTRUCTION--1.8%
15,000 Centex Corp. $ 877,500
-----------
BUSINESS SERVICES--1.9%
9,000 Arrow Electronics, Inc.* $ 255,375
18,000 Stratus Computer, Inc.* 636,750
-----------
$ 892,125
-----------
CHEMICAL PRODUCTS--4.6%
10,000 BF Goodrich Co. $ 445,625
18,000 Dexter Corp. 706,500
10,000 Hanna M.A. Co. 257,500
35,000 Schulman, Inc. 787,500
-----------
$ 2,197,125
-----------
COMPUTER SERVICES/SOFTWARE--1.4%
20,000 Sterling Software, Inc.* $ 682,500
-----------
DIVERSIFIED MANUFACTURING--1.4%
16,000 Parker Hannifin Corp. $ 669,000
-----------
FINANCIAL SERVICES--15.0%
16,000 A. G. Edwards, Inc. $ 525,000
17,000 Bankers Trust Corp. 2,006,000
22,000 Bear Stearns Companies, Inc. 873,125
20,000 Equitable Companies, Inc. 823,750
2,500 JP Morgan & Co, Inc. 274,375
18,000 Lehman Brothers Holdings, Inc. 847,125
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
------ ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
FINANCIAL SERVICES--CONTINUED
18,000 Morgan Stanley, Dean Witter, Discover and Co. $ 882,000
12,000 Salomon Brothers, Inc. 932,250
-----------
$ 7,163,625
-----------
INDUSTRIAL MACHINERY--7.2%
12,500 Caterpillar, Inc. $ 640,625
8,000 Cummins Engine, Inc. 487,500
17,000 Deere & Co. 894,625
24,000 Ingersoll-Rand Co. 934,500
10,000 Springs Industries, Inc. 463,750
-----------
$ 3,421,000
-----------
INSURANCE SERVICES--13.7%
6,600 Ace, Ltd. $ 613,387
10,000 AMBAC Financial Group, Inc. 422,500
4,000 Cigna Corp. 621,000
7,000 Cincinnati Financial Corp. 634,375
28,000 Conseco, Inc. 1,221,500
10,000 Financial Securities Assurance Holdings, Ltd. 435,000
5,000 Lincoln National Corp. 343,750
10,000 MBIA, Inc.(a) 597,500
10,000 Ohio Casualty Corp. 442,500
10,000 Old Republic International Corp. 357,500
11,000 Orion Capital Corp. 495,000
9,000 W.R. Berkley Corp. 370,125
-----------
$ 6,554,137
-----------
INTEGRATED OIL--7.1%
5,100 Atlantic Richfield Co. $ 419,794
11,000 Chevron Corp. 912,312
7,000 Imperial Oil, Ltd. 435,750
10,000 Murphy Oil Corp. 579,375
9,000 Phillips Petroleum Co. 435,375
17,000 Ranger Oil, Ltd. 146,625
15,000 YPF Sociedad Anonima ADR 480,000
-----------
$ 3,409,231
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
GROWTH AND INCOME FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
------ ----------- ----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
METALS-DIVERSIFIED--1.6%
10,000 AK Steel Holding Corp. $ 421,250
28,000 LTV Corp. 341,250
----------
$ 762,500
----------
OIL & GAS--0.5%
10,000 Washington Gas Co. $ 256,875
----------
OIL & GAS-PRODUCTION/DISTRIBUTION--5.4%
7,000 Consolidated Natural Gas Co. $ 378,438
8,000 Devon Energy Corp. 358,000
14,000 National Fuel Gas Co. 617,750
13,000 Northwest Natural Gas Co. 320,125
22,500 Peoples Energy Corp. 804,375
2,200 Wicor, Inc. 94,875
----------
$2,573,563
----------
OIL REFINING & MARKETING--0.7%
21,000 Quaker State Corp. $ 325,500
----------
OIL WELL EQUIPMENT AND SERVICES--2.6%
7,000 Helmerich & Payne, Inc. $ 564,812
10,000 Seacor Smit, Inc.* 651,250
----------
$1,216,062
----------
PAPER/PACKAGING--0.8%
10,000 Fort James Corp. $ 396,875
----------
PHARMACEUTICALS--1.3%
40,000 Perrigo Co.* $ 615,000
----------
PUBLISHING--1.2%
10,000 New York Times Co. $ 547,500
----------
RETAIL TRADE--1.4%
7,000 Dayton Hudson Corp. $ 439,688
8,000 Great Atlantic & Pacific Tea Co., Inc. 245,500
----------
$ 685,188
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
------ ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
SEMICONDUCTORS & ELECTRONICS--3.6%
35,000 National Semiconductor Corp.* $ 1,260,000
15,000 VLSI Technology, Inc.* 444,375
-----------
$ 1,704,375
-----------
TEXTILES--1.9%
10,000 VF Corp. $ 893,750
-----------
TOBACCO--1.9%
24,000 Universal Corp. $ 922,500
-----------
UTILITIES--8.8%
14,000 Consolidated Edison Co. of New York, Inc. $ 479,500
13,000 Duke Power Co. 627,250
10,000 Florida Progress Corp.(a) 325,625
10,000 FPL Group, Inc. 516,875
11,200 GPU, Inc. 405,300
10,000 Ipalco Enterprises, Inc.(a) 350,000
15,000 New Century Energies, Inc. 626,250
10,000 Northern States Power Co. Of Minnesota 503,750
10,000 Union Electric Co. 376,875
-----------
$ 4,211,425
-----------
Total Common Stocks (cost $41,782,584)........
$44,658,231
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE
--------- -------- --------
<S> <C> <C> <C>
REPURCHASE AGREEMENT--6.3%
State Street Bank & Trust Company, dated 10/31/97,
repurchase price $3,018,295 (U.S. Treasury Note:
$3,079,999, 7.75%, 11/30/1999)
$3,017,000 5.15% 11/03/97 $ 3,017,000
-----------
Total Repurchase Agreement
(cost $3,017,000)...........................
$ 3,017,000
-----------
Total Investments
(cost $44,799,584(b)).......................
$47,675,231
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
GROWTH AND INCOME FUND--(CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Federal Income Tax Information:
Gross unrealized gain for
investments in which value
exceeds cost...................................................... $3,553,519
Gross unrealized loss for
investments in which cost
exceeds value..................................................... (677,872)
----------
Net unrealized gain................................................ $2,875,647
==========
- --------------------------------------------------------------------------------
</TABLE>
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
*Non-income producing security.
(a)There are common stock rights attached to these securities.
(b)The cost stated also represents aggregate cost for federal income tax
purposes.
- --------------------------------------------------------------------------------
INVESTMENT ABBREVIATIONS:
ADR--American Depository Receipts
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
GROWTH FUND
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
------- ----------- ------------
<C> <S> <C>
COMMON STOCKS--93.9%
ADVERTISING--1.0%
48,565 Omnicom Group $ 3,429,903
------------
AEROSPACE/DEFENSE--2.3%
85,000 Lockheed Martin Corp. $ 8,080,313
------------
AUTO/VEHICLE--4.6%
257,000 Chrysler Corp. $ 9,059,250
160,000 Ford Motor Co. 6,990,000
------------
$ 16,049,250
------------
BANKING--6.2%
102,000 BankAmerica Corp. $ 7,293,000
116,000 Northern Trust Corp. 6,786,000
236,000 Norwest Corp. 7,566,750
------------
$ 21,645,750
------------
BUSINESS SERVICES--3.2%
246,400 Reynolds & Reynolds Co. $ 4,219,600
88,600 Robert Half International, Inc.* 3,627,063
77,205 Tech Data Corp.* 3,435,623
------------
$ 11,282,286
------------
CHEMICAL PRODUCTS--1.6%
100,000 Du Pont (E.I.) de Nemours & Co. $ 5,687,500
------------
COMPUTER SERVICES/SOFTWARE--3.2%
122,500 Compaq Computer Corp.* $ 7,809,375
25,500 Microsoft Corp.* 3,315,000
------------
$ 11,124,375
------------
DIVERSIFIED MANUFACTURING--12.4%
256,500 Allied Signal, Inc. $ 9,234,000
87,000 Dover Corp. 5,872,500
100,000 Federal Signal Corp. 2,418,750
200,000 General Electric Co. 12,912,500
262,500 Illinois Tool Works, Inc. 12,911,719
------------
$ 43,349,469
------------
ELECTRICAL SERVICES--1.7%
163,000 Union Electric Co. $ 6,143,063
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
------- ----------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
FINANCIAL SERVICES--14.3%
142,800 Federal National Mortgage Association $ 6,916,875
115,600 Franklin Resources, Inc. 10,389,550
102,500 Green Tree Financial Corp. 4,317,812
109,000 Merrill Lynch & Co. 7,371,125
98,000 Morgan Stanley, Dean Witter, Discover and Co. 4,802,000
52,400 SLM Holding Corp. 7,355,650
125,000 Travelers Group, Inc. 8,750,000
------------
$ 49,903,012
------------
HEALTH & MEDICAL SERVICES--1.7%
108,500 Lincare Holdings, Inc.* $ 5,818,313
------------
HEALTH/PERSONAL CARE--1.0%
39,600 Gillette Co. $ 3,526,875
------------
HOUSEHOLD DURABLES--1.9%
158,000 Leggett & Platt, Inc. $ 6,596,500
------------
INDUSTRIAL MACHINERY--3.5%
170,000 Caterpillar, Inc. $ 8,712,500
65,600 Deere & Co. 3,452,200
------------
$ 12,164,700
------------
INSURANCE SERVICES--3.8%
145,000 Conseco, Inc. $ 6,325,625
190,500 SunAmerica, Inc. 6,846,094
------------
$ 13,171,719
------------
INTEGRATED OIL--3.4%
165,200 Mobil Corp. $ 12,028,625
------------
OIL & GAS-PRODUCTION/DISTRIBUTION--2.9%
195,000 Royal Dutch Petroleum ADR $ 10,261,875
------------
PHARMACEUTICALS--6.2%
107,000 Abbott Laboratories $ 6,560,437
126,600 Johnson & Johnson 7,263,675
89,000 Merck & Co. 7,943,250
------------
$ 21,767,362
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
GROWTH FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
------- ----------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
PUBLISHING--1.4%
156,000 Equifax, Inc. $ 4,845,750
------------
RETAIL TRADE--7.5%
180,500 Consolidated Stores Corp.* $ 7,197,437
160,000 Gap, Inc. 8,510,000
235,000 TJX Companies, Inc. 6,961,875
121,600 Walgreen Co. 3,420,000
------------
$ 26,089,312
------------
SEMICONDUCTORS & ELECTRONICS--8.2%
147,000 Adaptec, Inc.* $ 7,120,312
94,000 Intel Corp. 7,238,000
75,000 Linear Technology Corp. 4,715,625
60,000 Texas Instruments, Inc. 6,401,250
90,400 Xilinx, Inc.* 3,084,900
------------
$ 28,560,087
------------
TEXTILES--1.9%
133,300 Jones Apparel Group, Inc.* $ 6,781,637
------------
Total Common Stocks
(cost $237,369,485)..... $328,307,676
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE
- ----------- -------- --------
<S> <C> <C> <C>
REPURCHASE AGREEMENT--5.7%
State Street Bank & Trust Company, dated 10/31/97,
repurchase price $19,885,531 (U.S. Treasury Note:
$20,275,829, 6.25%, 07/31/1998)
$19,877,000 5.15% 11/03/97 $ 19,877,000
------------
Total Repurchase
Agreement
(cost $19,877,000).................................................... $ 19,877,000
------------
Total Investments
(cost $257,246,485(b))................................................ $348,184,676
============
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Federal Income Tax Information:
Gross unrealized gain for investments in which value exceeds
cost............................................................ $92,804,715
Gross unrealized loss for investments in which cost exceeds
value........................................................... (1,866,524)
-----------
Net unrealized gain.............................................. $90,938,191
===========
</TABLE>
- --------------------------------------------------------------------------------
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
*Non-income producing security.
(a) There are common stock rights attached to these securities.
(b) The cost stated also represents aggregate cost for federal income tax
purposes.
- --------------------------------------------------------------------------------
INVESTMENT ABBREVIATIONS:
ADR--American Depository Receipts
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
MIDCAP FUND
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
------ ----------- ------------
<C> <S> <C>
COMMON STOCKS--98.8%
ADVERTISING--2.3%
18,400 Omnicom Group $ 1,299,500
28,100 WPP Group PLC ADR 1,296,112
------------
$ 2,595,612
------------
AEROSPACE/DEFENSE--1.2%
50,600 Tracor, Inc.* $ 1,353,550
------------
AIRLINES--1.5%
51,000 Southwest Airlines Co. $ 1,663,875
------------
BANKING--1.3%
29,700 Star Banc Corp. $ 1,457,156
------------
BIOTECHNOLOGY--1.6%
36,200 Elan Corp. PLC ADR* $ 1,805,475
------------
BUILDING MATERIALS & CONSTRUCTION--1.4%
28,700 Southdown, Inc. $ 1,589,262
------------
BUSINESS SERVICES--4.1%
25,300 Devry, Inc.* $ 667,287
21,600 National Data Corp. 797,850
35,950 Paychex, Inc. 1,370,594
51,300 Personnel Group of America, Inc.* 1,779,469
------------
$ 4,615,200
------------
CHEMICAL PRODUCTS--1.3%
39,250 OM Group, Inc. $ 1,481,687
------------
COMPUTER SERVICES/SOFTWARE--9.1%
24,000 BMC Software, Inc.* $ 1,449,000
28,000 Cadence Design Systems, Inc.* 1,491,000
22,300 Compuware Corp.* 1,474,587
17,450 McAfee Associates, Inc.* 868,137
25,600 Peoplesoft, Inc.* 1,609,600
33,540 SunGuard Data Systems, Inc.* 792,382
51,500 Symantec Corp.* 1,126,562
40,800 Visio Corp.* 1,517,250
------------
$ 10,328,518
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
------ ----------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
DIVERSIFIED MANUFACTURING--3.8%
26,300 Danaher Corp. $ 1,441,568
31,200 Helix Technology Corp. 1,404,000
25,000 Precision Castparts Corp.(a) 1,470,313
------------
$ 4,315,881
------------
ELECTRONICS & OTHER ELECTRICAL
EQUIPMENT--2.7%
58,600 Avid Technology, Inc.* $ 1,673,762
33,100 Symbol Technologies, Inc. 1,315,725
------------
$ 2,989,487
------------
FINANCIAL SERVICES--10.0%
48,600 A. G. Edwards, Inc. $ 1,594,687
26,100 Bear Stearns Companies, Inc. 1,035,844
37,200 DST Systems, Inc.* 1,313,625
19,800 Franklin Resources, Inc. 1,779,525
32,000 Lehman Brothers Holdings, Inc. 1,506,000
23,900 Provident Financial Group, Inc. 1,099,400
62,400 Synovus Financial Corp. 1,357,200
28,800 TCF Financial Corp. 1,638,000
------------
$ 11,324,281
------------
HEALTH & MEDICAL SERVICES--6.4%
20,300 Cardinal Health, Inc. $ 1,507,275
51,900 Health Management Assn.* 1,265,062
30,000 Lincare Holdings, Inc.* 1,608,750
15,900 McKesson Corp. 1,706,269
25,800 Pediatrix Medical Group, Inc.* 1,090,050
------------
$ 7,177,406
------------
HOTELS & RESTAURANTS--1.2%
32,800 Doubletree Corp.* $ 1,365,300
------------
HOUSEHOLD DURABLES--1.2%
83,600 Furniture Brands International, Inc.* $ 1,400,300
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
MIDCAP FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
------ ----------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
INDUSTRIAL MACHINERY--5.2%
46,900 Agco Corp. $ 1,360,100
25,400 Cummins Engine, Inc. 1,547,812
35,150 Lindsay Manufacturing Co. 1,524,631
29,000 Sealed Air Corp.* 1,495,312
------------
$ 5,927,855
------------
INSURANCE SERVICES--8.0%
34,000 Allied Group, Inc. $ 1,606,500
44,400 American Bankers Insurance Group, Inc. 1,659,450
34,950 Orion Capital Corp. 1,572,750
30,000 Protective Life Corp.(a) 1,586,250
33,000 SunAmerica, Inc. 1,185,938
21,000 Transatlantic Holdings, Inc. 1,452,938
------------
$ 9,063,826
------------
MEDIA/ENTERTAINMENT--1.7%
18,200 HBO & Co. $ 791,700
46,600 Speedway Motorsports, Inc.* 1,115,488
------------
$ 1,907,188
------------
MEDICAL/BIOTECHNOLOGY--5.0%
51,200 Dentsply International, Inc. $ 1,452,800
27,600 Guidant Corp. 1,587,000
24,900 Safeskin Corp.* 1,129,838
36,900 Sybron International Corp. 1,480,613
------------
$ 5,650,251
------------
METALS-DIVERSIFIED--1.1%
62,900 Tubos de Acero de Mexico SA ADR $ 1,269,794
------------
OFFICE EQUIPMENT & SUPPLIES--1.4%
52,700 Lexmark International Group, Inc.* $ 1,610,644
------------
OIL & GAS-PRODUCTION/DISTRIBUTION--2.8%
27,200 Devon Energy Corp. $ 1,217,200
45,500 Newpark Resources, Inc.* 1,888,250
------------
$ 3,105,450
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
------ ----------- ------------
<C> <S> <C>
COMMON STOCKS--CONTINUED
OIL WELL EQUIPMENT & SERVICES--5.0%
21,000 BJ Services Co.* $ 1,779,750
45,400 Ensco International, Inc. 1,909,638
46,400 Nabors Industries, Inc.* 1,908,200
------------
$ 5,597,588
------------
PUBLISHING--0.5%
10,600 New York Times Co. $ 576,280
------------
RETAIL TRADE--7.1%
62,400 Arbor Drugs, Inc. $ 1,669,200
45,000 Bed Bath & Beyond, Inc.* 1,428,750
44,100 Central Garden & Pet Co.* 1,157,625
48,800 Paul Harris Stores, Inc.* 896,700
51,800 Stein Mart, Inc. 1,515,150
45,300 TJX Companies, Inc. 1,342,013
------------
$ 8,009,438
------------
SEMICONDUCTORS & ELECTRONICS--6.7%
30,400 Adaptec, Inc.* $ 1,472,500
37,800 Berg Electronics Corp.* 883,575
32,100 C&D Technologies 1,412,400
26,000 Lattice Semiconductor Corp.* 1,301,625
25,200 Maxim Integrated Products, Inc.* 1,669,500
36,000 Sandisk Corp.* 859,500
------------
$ 7,599,100
------------
TEXTILES--2.1%
22,700 Jones Apparel Group, Inc.* $ 1,154,863
45,900 Nautica Enterprises, Inc.* 1,222,088
------------
$ 2,376,951
------------
TRANSPORTATION/STORAGE--3.1%
47,350 Air Express International Corp. $ 1,450,094
31,800 Tidewater, Inc.(a) 2,088,863
------------
$ 3,538,957
------------
Total Common Stocks (cost $89,448,877)...
$111,696,312
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
MIDCAP FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
---------- -------- -------- ------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT--1.4%
State Street Bank & Trust Company, dated 10/31/97,
repurchase price $1,584,680 (U.S. Treasury Note:
$295,599, 5.875%, 04/30/1998; $1,324,445, 6.00%,
8/15/2000)
$1,584,000 5.15% 11/03/97 $ 1,584,000
------------
Total Repurchase Agreement
(cost $1,584,000)...........................
$ 1,584,000
------------
Total Investments
(cost $91,032,877(b)).......................
$113,280,312
============
- ---------------------------------------------------------------------------------------------------
Federal Income Tax Information:
Gross unrealized gain for
investments in which value
exceeds cost.................................... $ 24,604,386
Gross unrealized loss for
investments in which cost
exceeds value................................... (2,356,951)
------------
Net unrealized gain.............................. $ 22,247,435
============
- ---------------------------------------------------------------------------------------------------
</TABLE>
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
*Non-income producing security.
(a)There are common stock rights attached to these securities.
(b)The cost stated also represents aggregate cost for federal income tax
purposes.
- --------------------------------------------------------------------------------
INVESTMENT ABBREVIATIONS:
ADR--American Depository Receipts
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS--94.4%
ARGENTINE PESO--0.9%
2,919 Banco de Galicia Buenos Aires SA ADR (Financial
Services) $ 70,740
2,614 Banco Frances del Rio de la Plata ADR (Financial
Services) 64,370
20,767 Perez Compac SA (Diversified Industrial Manufacturing) 130,080
2,230 Telecom Argentina (Utilities) 11,157
960 Telecom Argentina ADR (Utilities) 24,300
4,760 Telefonica de Argentina ADR (Utilities) 133,875
9,387 YPF Sociedad Anonima ADR (Oil & Gas) 300,384
-----------
$ 734,906
-----------
AUSTRALIAN DOLLAR--2.0%
8,000 Australia & New Zealand Bank Group (Financial
Services) $ 55,810
20,150 Australian Gas Light Co. (Utilities) 134,620
16,000 Boral, Ltd. (Building Materials & Construction) 42,082
2,000 Brambles Industries, Ltd. (Transportation/Storage) 38,454
17,494 Broken Hill Proprietary Co. (Mining--Metals/Minerals) 173,467
16,700 Commonwealth Instalments Receipt (Financial Services) 123,432
537 Commonwealth Bank of Australia (Financial Services) 6,171
36,000 Fosters Brewing Group (Beverages/Tobacco) 68,356
32,000 John Fairfax Holdings (Publishing) 70,663
5,101 Lend Lease Corp. (Building Materials & Construction) 104,462
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
AUSTRALIAN DOLLAR--CONTINUED
5,189 National Australia Bank (Financial Services) $ 70,976
26,502 News Corp., Ltd. (Broadcast Media) 126,922
8,969 News Corporation, Ltd. (Broadcast Media) 39,800
18,000 Publishing & Broadcasting, Ltd. (Broadcast Media) 104,433
10,342 St. George Bank, Ltd. (Financial Services) 62,650
19,000 Tab Corp. Holdings, Ltd. (Recreational Services) 87,119
11,500 Western Mining Corp. Holdings, Ltd. (Mining--
Metals/Minerals) 40,841
16,000 Westpac Banking Corp. (Financial Services) 93,167
15,000 Woodside Petroleum, Ltd. (Oil & Gas) 126,691
-----------
$ 1,570,116
-----------
BELGIAN FRANC--1.3%
585 Dexia (Financial Services) $ 63,920
368 Generale Banque (Financial Services) 150,527
33 Generale De Banque (Financial Services) 14
1,560 Kredietbank (Financial Services) 654,576
39 UCB (Chemical Products) 134,759
-----------
$ 1,003,796
-----------
BRAZILIAN REAL--3.1%
13,550,488 Banco Bradesco SA (Financial Services) $ 100,788
135,623 Brahma (Food/Grocery Products) 84,884
130,400 Brasmotor SA (Automobiles & Automobile Parts) 18,334
</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, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
BRAZILIAN REAL--CONTINUED
2,092,000 Cemig - CIA Energetica Minas Gerais (Electrical
Services) $ 83,494
500 Cemig - CIA Energetica Minas Gerais ADR+ (Utilities) 19,960
4,947 Cemig - CIA Energetica Minas Gerais ADR
(Non-Voting) (Utilities) 196,643
118,176 Cim Port Itau (Cia) (Utilities) 30,336
2,070 Companhia Brasileira* (Utilities) 39,430
2,159,736 Companhia Siderurgica Nacional (Mining-
Metals/Minerals) 78,361
94,000 Coteminas (Textiles) 34,950
4,285 Electrobas-Centrais Eletricas Brasileiras ADR
(Utilities) 90,368
94,000 ENCORPAR* (Diversified Manufacturing) 0
137,000 Itaubanco (Financial Services) 55,300
1,352,000 Lojas Americanas SA
(Retail Trade) 11,037
605,000 Petroleo Brasileiros - Petrobras (Oil & Gas) 112,499
310,959 Telecom de Rio de Janeiro Telerj (Utilities) 29,616
10,103 Telecomunicacoes Brasileiras ADR (Utilities) 1,022,297
10,779 Telecomunicacoes do Rio de Janeiro Telerj SA
(Utilities) 147
307,770 Telemig - Telec de Minas Gerais SA (Utilities) 38,525
842,766 Telesp (Utilities) 220,161
25,739 Telesp - Rights* (Utilities) 1
9,813 Uniao Siderurgicas de Minas (Financial Services) 71
2,700,000 Unibanco Uniao de Bancos Brasileirs* (Financial
Services) 68,526
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
BRAZILIAN REAL--CONTINUED
8,530 Usinas Siderurgicas de Minas ADR (Building Materials
& Construction) $ 63,833
11,587 White Martins SA (Chemical Products) 19,444
-----------
$ 2,419,005
-----------
BRITISH POUND STERLING--18.0%
25,000 Abbey National (Financial Services) $ 397,627
25,800 Argos (Retail Trade) 274,866
76,000 Asda Group (Retail Trade) 197,639
34,000 BG (Energy) 149,454
23,000 British Petroleum (Oil & Gas) 338,033
56,000 Cable & Wireless (Utilities) 447,221
42,744 Cadbury Schweppes (Food/Grocery Products) 430,283
64,600 Caradon (Building Materials & Construction) 205,927
19,000 Centrica* (Energy) 26,697
17,000 Compass Group (Recreational Services) 179,687
21,000 Electrocomponents (Electronics & Other Electrical
Equipment) 163,832
3,000 GKN (Automobiles & Automobile Parts) 67,295
46,000 Glaxo Wellcome (Health/Personal Care) 986,316
74,000 Grand Metropolitan (Beverages/Tobacco) 667,946
60,000 Guinness (Beverages/Tobacco) 536,545
4,000 Heywood Williams Group (Building Materials &
Construction) 16,106
15,000 Hillsdown Holdings (Food/Grocery Products) 42,279
67,000 Kingfisher (Retail Trade) 964,472
38,000 Ladbroke Group (Recreational Services) 170,225
</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, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
BRITISH POUND STERLING--CONTINUED
11,000 Laing (John) (Building Materials & Construction) $ 68,284
104,400 National Westminster Bank (Financial Services) 1,501,097
35,500 Rank Organisation (Recreational Services) 198,335
100,000 Reed International (Publishing) 989,034
11,000 Rolls-Royce (Aerospace/Defense) 39,494
30,000 RTZ Corp. (Mining - Metals/Minerals) 386,554
48,000 Safeway (Retail Trade) 312,666
9,000 Sears Holdings (Retail Trade) 8,909
162,500 Shell Transport & Trading Co. (Oil & Gas) 1,152,563
35,000 Smith (David S.) Holdings (Textiles) 133,885
133,800 Smithkline Beecham (Medical Products and Supplies) 1,268,329
30,000 T & N (Automobiles & Automobile Parts) 126,649
47,000 Tesco (Retail Trade) 376,332
121,500 Tomkins (Diversified Industrial Manufacturing) 623,771
51,000 United News & Media (Broadcast Media) 641,740
-----------
$14,090,092
-----------
CANADIAN DOLLAR--0.3%
4,570 Alcan Aluminum, Ltd.
(Mining - Metals/Minerals) $ 129,705
1,950 Royal Bank of Canada (Financial Services) 104,463
-----------
$ 234,168
-----------
CHILEAN PESO--0.5%
590 Cervecerias Unidas (CCU) ADR (Beverages/Tobacco) $ 14,381
2,440 Chilectra SA ADR+ (Utilities) 65,915
996 Chilgener SA ADR (Utilities) 27,141
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
CHILEAN PESO--CONTINUED
2,559 Cia de Telecomunicaciones Chile (Utilities) $ 71,012
3,576 Empresa Nacional de Electricidad SA ADR (Utilities) 71,967
2,225 Enersis SA ADR (Utilities) 73,425
1,160 Genesis Chile Fund (Financial Services) 53,360
1,151 Santa Isabel (Retail Trade) 21,294
-----------
$ 398,495
-----------
CHINESE YUAN--0.2%
6,900 Huaneng Power International, Inc. ADR* (Energy) $ 151,800
-----------
CZECH KORUNA--0.0%
190 SPT Telecom (Utilities) $ 21,903
-----------
DANISH KRONE--0.3%
1,105 Den Danske Bank AB (Financial Services) $ 124,764
290 Teledanmark (Utilities) 17,035
1,250 Unidanmark (Financial Services) 84,490
-----------
$ 226,289
-----------
DEUTSCHEMARK--4.9%
1,860 Allianz AG Holdings (Insurance Services) $ 414,340
7,289 Bayer AG (Chemical Products) 255,821
4,288 Bayerische Hypo Und Wechsel Bank (Financial Services) 177,858
1,499 Bayerische Vereinsbank (Financial Services) 86,959
1,500 Bilfinger & Berger Bauag (Building Materials &
Construction) 53,864
102 Buderus AG (Industrial Machinery) 49,467
2,330 Commerzbank AG (Financial Services) 79,072
</TABLE>
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, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
DEUTSCHEMARK--CONTINUED
6,416 Deutsche Bank AG (Financial Services) $ 419,843
8,301 Deutsche Telekom AG (Utilities) 155,541
464 Fielmann AG (Health/Personal Care) 10,902
420 Fresenius AG (Health & Medical Services) 70,902
7,431 Gehe AG (Health/Personal Care) 387,974
2,560 Hoechst AG (Chemical Products) 97,422
200 Hornbach Baumarkt (Retail Trade) 5,929
630 Hornbach Holdings AG (Retail Trade) 42,395
262 Mannesmann AG (Engineering) 110,649
1,322 Rhoen-Klinikum AG (Health/Personal Care) 126,540
1,190 Sap AG (Computer Services/Software) 341,371
5,022 Siemens AG (Electronics & Other Electrical Equipment) 309,104
9,508 Veba AG (Utilities) 530,061
130 Veba AG - Warrants* (Utilities) 43,741
166 Volkswagen AG (Automobiles & Automobile Parts) 98,129
-----------
$ 3,867,884
-----------
FINNISH MARKKA--0.3%
2,590 Nokia (AB) OY (Electronics & Other Electrical
Equipment) $ 226,295
-----------
FRENCH FRANC--8.0%
425 Accor (Recreational Services) $ 79,131
2,830 Alcatel Alsthom (Cie Gen El) (Electronics & Other
Electrical Equipment) 341,469
2,050 Assurances Generales de France (Insurance Services) 107,862
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
--------- ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
FRENCH FRANC--CONTINUED
3,237 Axa (Diversified Holding
Companies) $ 221,664
580 Canal Plus (Broadcast
Media) 100,953
409 Carrefour (Retail Trade) 213,425
580 CLF Dexia France
(Financial Services) 58,219
1,645 Credit Commercial de
France (Financial
Services) 93,197
455 Credit Local de France
(Financial Services) 45,672
268 Credit Local de France
(Financial Services) 26,901
510 Danone (Food/Grocery
Products) 77,982
7,720 Eaux (Cie Generale Des)
(Utilities) 900,717
2,730 Elf Aquitaine (Energy) 337,922
490 GTM Entrepose (Building
Materials &
Construction) 30,581
697 Guilbert SA (Business
Services) 90,988
410 Havas SA (Broadcast
Media) 27,010
205 L'Oreal (Health/Personal
Care) 72,642
1,790 Lapeyre (Building
Materials &
Construction) 104,578
665 Legrand (Electronics &
Other Electrical
Equipment) 123,817
1,177 LVMH Moet-Hennessy Louis
Vuitton
(Beverages/Tobacco) 199,967
360 Pathe (Broadcast Media) 64,595
1,376 Pinault Printemps
Redoute (Retail Trade) 629,288
780 Primagaz (Cie Des Gaz
Petrole) (Oil & Gas) 58,146
1,720 Saint Gobain (Chemical
Products) 246,896
3,987 Sanofi (Health/Personal
Care) 378,776
5,914 Schneider SA
(Electronics & Other
Electrical Equipment) 315,782
1,464 Societe Generale
(Financial Services) 200,504
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
FRENCH FRANC--CONTINUED
416 Sodexho (Food/Grocery Products) $ 207,486
1,410 Television Francaise (Broadcast Media) 131,265
7,074 Total (Oil & Gas) 784,876
-----------
$ 6,272,311
-----------
HONG KONG DOLLAR--2.5%
14,000 China Light & Power, Ltd. (Electrical Services) $ 73,699
39,000 Dao Heng Bank Group (Financial Services) 89,789
136,573 First Pacific Co. (Financial Services) 86,114
51,000 Guoco Group (Financial Services) 111,479
16,000 Henderson Land Development Co. (Recreational
Services) 88,573
101,380 Hong Kong Land Holdings (Real Estate) 231,146
69,000 Hutchison Whampoa (Diversified Holding Companies) 477,462
95,262 New World Development Co. (Real Estate) 335,139
10,000 Sun Hung Kai Properties Co. (Real Estate) 73,724
35,000 Swire Pacific Ltd. A Shares (Transportation/Storage) 186,962
83,000 Wharf Holdings (Diversified Holding Companies) 169,618
-----------
$ 1,923,705
-----------
ITALIAN LIRA--3.3%
4,000 Assicurazioni Generali Spa (Insurance Services) $ 89,427
15,000 Banca Commercial Italiana (Financial Services) 40,933
13,756 Banca Fideuram (Financial Services) 52,408
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
ITALIAN LIRA--CONTINUED
128,094 Credito Italiano Spa (Financial Services) $ 341,609
85,309 Ente Nazionale Idrocarburi (Oil & Gas) 479,706
2,372 Gucci Group NV (Textiles) 86,282
18,840 IMI Spa (Financial Services) 168,481
3,226 Industrie Natuzzi Spa ADR (Household Durables) 72,182
12,000 Italgas (Societa Italiana Il Gas) Spa (Utilities) 42,705
8,605 Mediolanum (Insurance Services) 144,348
3,000 Rinascente (Retail Trade) 22,239
147,443 Telecom Italia Mobile (Telecommunications) 546,924
15,887 Telecom Italia Mobile (Di Risp Shares) (Utilities) 32,468
78,341 Telecom Italia Spa* (Utilities) 490,959
-----------
$ 2,610,671
-----------
JAPANESE YEN--20.9%
1,210 Advantest (Electronics & Other Electrical Equipment) $ 100,037
12,000 Alps Electric Co. (Electronics & Other Electrical
Equipment) 134,607
21,000 Amada Co, Ltd. (Industrial Machinery) 111,674
39,000 Canon, Inc. (Electronics & Other Electrical
Equipment) 946,240
10,000 Citizen Watch Co. (Electronics & Other Electrical
Equipment) 63,814
18,000 Dai Nippon Screen Manufacturing (Electronics & Other
Electrical Equipment) 145,974
3,000 Daifuku Co., Ltd. (Industrial Machinery) 22,484
21,000 Daiichi Pharmaceutical Co. (Health/Personal Care) 298,380
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
JAPANESE YEN--CONTINUED
27,000 Daiwa House Industry Co. (Building Materials &
Construction) $ 260,241
39 DDI Corp. (Utilities) 130,270
62 East Japan Railway (Transportation/Storage) 301,371
5,100 Fanuc Co., Ltd. (Electronics & Other Electrical
Equipment) 205,949
39,000 Hitachi (Electronics & Other Electrical Equipment) 299,751
22,000 Hitachi Zosen Corp. (Engineering) 48,442
2,000 Honda Motor Co., Ltd. (Automobiles & Automobile Parts) 67,304
7,000 Inax Corp. (Building Materials & Construction) 30,478
6,000 Ishihara Sangyo Kaisha (Chemical Products) 12,314
9,000 Ito-Yokado Co. (Retail Trade) 447,196
17,000 Kao Corp. (Cosmetics) 237,308
10,000 Kokuyo Co., Ltd. (Computers/Communication) 235,978
22,000 Komatsu, Ltd. (Industrial Machinery) 117,541
8,000 Komori Corp. (Industrial Machinery) 146,240
14,000 Kumagai Gumi Co. (Building Materials & Construction) 13,727
24,000 Kuraray Co. (Chemical Products) 215,372
11,000 Kyocera Corp. (Electronics & Other Electrical
Equipment) 629,747
12,000 Makita Corp. (Industrial Machinery) 168,509
24,000 Marui Co., Ltd. (Retail Trade) 404,819
38,000 Matsushita Electric Industrial Co. (Electronics &
Other Electrical Equipment) 637,811
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
JAPANESE YEN--CONTINUED
20,000 Mitsubishi Corp. (Wholesale Trade) $ 171,167
98,000 Mitsubishi Heavy Industries Ltd. (Industrial
Machinery) 481,246
9,000 Mitsubishi Paper Mills, Ltd. (Paper & Forest Products) 23,855
6,000 Mitsui Chemical, Ltd. (Energy) 19,942
56,000 Mitsui Fudosan Co. (Real Estate) 632,821
11,000 Murata Manufacturing Co. (Electronics & Other
Electrical Equipment) 446,032
4,000 National House Industrial (Building Materials &
Construction) 43,540
59,000 NEC Corp. (Electronics & Other Electrical Equipment) 647,113
4,000 Nippon Hodo (Building Materials & Construction) 23,565
145,000 Nippon Steel Corp. (Mining - Metals/Minerals) 298,795
23 Nippon Telephone & Telegraph Corp. (Utilities) 194,931
33,000 Nippondenso Co. (Transportation/Storage) 712,921
36,000 Nomura Securities Co., Ltd. (Financial Services) 418,779
12,000 Pioneer Electronic Corp. (Household Durables) 197,424
2,000 Sangetsu Co., Ltd. (Building Materials & Construction) 32,405
23,000 Sankyo Co. (Health/Personal Care) 758,704
2,700 SEGA Enterprises (Diversified Industrial
Manufacturing) 66,406
30,000 Sekisui Chemical Co., Ltd. (Building Materials &
Construction) 236,061
16,000 Sekisui House (Building Materials & Construction) 136,934
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
JAPANESE YEN--CONTINUED
3,000 Seven Eleven Japan Co., Ltd. (Retail Trade) $ 224,346
33,000 Sharp Corp. (Household Durables) 256,377
16,000 Shinetsu Chemical Co., Ltd. (Chemical Products) 390,860
4,000 Shiseido Co. (Health/Personal Care) 54,508
9,000 Sony Corp. (Household Durables) 747,071
39,000 Sumitomo Corp. (Wholesale Trade) 278,687
48,000 Sumitomo Electric Industries, Ltd. (Electronics &
Other Electrical Equipment) 634,150
13,000 Sumitomo Forestry Co., Ltd. (Paper & Forest Products) 93,976
9,000 TDK Corp. (Household Durables) 746,323
49,000 Teijin (Chemical Products) 160,823
11,000 Tokio Marine & Fire Insurance Co. (Insurance Services) 109,680
5,300 Tokyo Electron (Electronics & Other Electrical
Equipment) 264,229
8,000 Tokyo Steel Manufacturing (Mining--Metals/Minerals) 56,502
17,000 Toppan Printing Co. (Broadcast Media) 213,295
10,000 Uny Co. (Retail Trade) 162,027
3,000 Yurtec Corp. (Building Materials & Construction) 20,241
-----------
$16,389,314
-----------
KOREAN WON--0.1%
1,718 Samsung Electronics (Electronics & Other Electrical
Equipment) $ 67,474
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
----------- ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
KOREAN WON--CONTINUED
8 Samsung Electronics, Ltd. GDS 144A+ (Electronics &
Other Electrical Equipment) $ 160
-----------
$ 67,634
-----------
MALAYSIAN RINGGIT--0.5%
40,000 Berjaya Sports Toto Berhad (Business Services) $ 109,195
43,200 Commerce Asset Holdings Berhad (Financial Services) 33,694
31,000 Resorts World Berhad (Recreational Services) 55,332
55,000 Tanjong (Mining--Metals/Minerals) 97,345
27,000 Time Engineering Berhad (Industrial Machinery) 11,663
28,000 United Engineers Malaysia (Industrial Machinery) 66,357
-----------
$ 373,586
-----------
MEXICAN PESO--1.7%
9,860 Cemex SA (B Shares) (Building Materials &
Construction) $ 43,273
15,860 Cemex SA ADR (Building Materials & Construction) 123,752
9,362 CIFRA SA de CV (Retail Trade) 18,724
18,752 Fomento Economico Mexicano SA (Beverages/Tobacco) 131,946
30,158 Groupo Financiero Banamex-Accivl (B Shares)
(Financial Services) 59,705
499 Groupo Financiero Banamex-Accivl (L Shares)
(Financial Services) 912
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
MEXICAN PESO--CONTINUED
16,650 Gruma SA* (Diversified Holding Companies) $ 65,131
3,555 Gruma SA*+ (Diversified Holding Companies) 55,389
37,450 Grupo Industrial Maseca SA (Household Durables) 36,177
11,058 Grupo Modelo SA (Beverages/Tobacco) 81,765
722 Grupo Televisa GDR (Broadcast Media) 22,382
23,739 Kimberly Clark de Mexico (Health/Personal Care) 104,185
6,040 Panamerica Beverages ADR (Beverages/Tobacco) 187,240
4,800 TV Azteca (Broadcast Media) 91,800
8,145 Telefonos de Mexico SA ADR (Utilities) 352,271
-----------
$ 1,374,652
-----------
NETHERLANDS GUILDER--10.3%
21,976 ABN AMRO Holdings NV (Financial Services) $ 442,576
4,506 Ahold (Koninklijke) NV (Food-Retailer) 115,348
498 Akzo Nobel NV (Chemical Products) 87,750
2,509 Baan Co. NV (Computer Services/Software) 177,691
1,330 Baan Co. NVF (Computer Services/Software) 93,266
6,233 CSM CVA (Food/Grocery Products) 284,442
55,560 Elsevier NV (Broadcast Media) 872,820
8,455 Fortis AMEV NV (Insurance Services) 332,277
23,242 ING Groep NV* (Financial Services) 975,649
5,924 ING Groep NV--Warrants* (Financial Services) 60,994
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
--------- ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
NETHERLANDS GUILDER--CONTINUED
2,598 Koninklijke Ptt Nederland (Utilities) $ 99,290
5,620 Nutricia (Verenigde Bedrijen) NV (Food/Grocery
Products) 160,654
950 Otra NV (Electronics & Other Electrical Equipment) 15,169
7,427 Polygram (Recreational Services) 422,323
37,360 Royal Dutch Petroleum Co. (Energy) 1,976,241
12,080 Unilever NV (Diversified Manufacturing) 642,110
10,676 Wolters Kluwer (Publishing) 1,310,924
-----------
$ 8,069,524
-----------
NEW ZEALAND DOLLAR--0.4%
21,909 Air New Zealand, Ltd. (Transportation/Storage) $ 46,382
11,200 Carter Holt Harvey (Paper & Forest Products) 19,526
25,950 Fletcher Challenge Building (Building Materials &
Construction) 78,365
11,750 Fletcher Challenge Energy (Oil & Gas) 52,676
27,383 Fletcher Challenge Forest Division (Paper &
Forest Products) 26,428
12,500 Fletcher Challenge Paper (Paper & Forest Products) 20,547
16,000 New Zealand Telecom (Telecommunications) 77,507
4,000 Tranz Rail Holdings (Transportation/Storage) 18,181
-----------
$ 339,612
-----------
NORWEGIAN KRONE--2.0%
1,170 Bergesen D-Y ASA (Transportation/Storage) $ 34,208
13,370 Norsk Hydro (Energy) 738,690
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
NORWEGIAN KRONE--CONTINUED
7,800 Orkla AS (Diversified Industrial Manufacturing) $ 718,806
2,690 Saga Petroleum (Oil & Gas) 47,806
-----------
$ 1,539,510
-----------
PANAMANIAN BALBOA--0.0%
567 Banco Latino Americano De Export "E' (Financial
Services) $ 22,538
-----------
PERUVIAN SOL--0.1%
1,320 Credicorp, Ltd. (Financial Services) $ 23,678
1,906 Telefonica del Peru SA ADS (Utilities) 37,644
-----------
$ 61,322
-----------
PORTUGUESE ESCUDO--0.4%
5,139 Jeronimo Martins SGPS (Food/Grocery Products) $ 336,073
-----------
RUSSIAN RUBLE--0.0%
840 Rao Gazprom ADS* (Energy) $ 18,795
-----------
SINGAPORE DOLLAR--0.8%
7,000 City Developments
(Real Estate) $ 29,333
43,000 DBS Land (Real Estate) 73,168
9,600 Fraser & Neave (Beverages/Tobacco) 48,152
4,800 Overseas Chinese Banking Corp-Alien Market (Financial
Services) 26,667
17,000 Overseas Union Bank--Foreign (Financial Services) 56,667
35,000 Singapore Land (Real Estate) 99,556
12,200 Singapore Press Holdings (Broadcast Media) 168,089
16,800 United Overseas Bank (Financial Services) 92,800
-----------
$ 594,432
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
SPANISH PESETA--2.1%
2,109 Argentaria (Financial Services) $ 117,143
3,060 Banco Bilbao Vizcaya SA (Financial Services) 81,827
9,719 Banco de Santander SA (Financial Services) 272,255
3,400 Banco Popular Espanol (Financial Services) 200,770
2,011 Centros Comerciales Pryca (Retail Trade) 31,934
9,596 Endesa SA (Electrical Services) 180,745
2,189 Gas Natural Sdg SA (Utilities) 101,422
16,080 Iberdrola SA (Utilities) 192,337
3,847 Repsol SA (Oil & Gas) 161,316
11,525 Telefonica de Espana (Utilities) 314,527
-----------
$ 1,654,276
-----------
SWEDISH KRONA--3.1%
13,600 ABB AB (Electronics & Other Electrical Equipment) $ 158,881
43,120 Astra AB (Health & Medical Services) 667,822
9,060 Atlas Copco AB (Industrial Machinery) 269,142
4,380 Electrolux Co. (Household Durables) 362,568
2,530 Esselte (Broadcast Media) 55,059
1,855 Granges AB (Metal Products) 30,339
11,220 Hennes & Mauritz AB (Retail Trade) 459,142
5,680 Nordbanken AB (Financial Services) 178,213
2,050 Sandvik AB (Industrial Machinery) 62,130
6,640 Sandvik AB (B Shares) (Industrial Machinery) 202,128
660 Scribona AB (Broadcast Media) 8,724
-----------
$ 2,454,148
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
SWISS FRANC--6.3%
490 ABB AG* (Electronics & Other Electrical Equipment) $ 638,636
1,199 Adia SA (Commercial Services) 381,043
1,250 CS Holdings (Financial Services) 176,085
685 Nestle SA (Food/Grocery Products) 965,188
898 Novartis AG (Chemical Products) 1,406,402
123 Roche Holdings AG (Health/Personal Care) 1,080,889
1,110 Schweizerischer Bankverein (Financial Services) 298,457
-----------
$ 4,946,700
-----------
THAI BAHT--0.0%
2,900 Advanced Information Services
(Computers/Communication) $ 15,269
2,000 Siam Cement Public Co. (Building Materials &
Construction) 16,673
1 Thai Farmers Bank Public-Alien Market Warrants*
(Financial Services) 0
-----------
$ 31,942
-----------
VENEZUELAN BOLIVAR--0.1%
1,160 Cia Anonima Nacional Tele Venezuela ADS* (Utilities) $ 50,750
-----------
Total Common Stocks
(cost $69,764,611).................................. $74,076,244
-----------
PREFERRED STOCKS--0.3%
AUSTRALIAN DOLLAR--0.1%
53,200 Sydney Harbour Casino* (Recreational Services) $ 54,249
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
---------- ----------- -----------
<C> <S> <C>
PREFERRED STOCKS--CONTINUED
DEUTSCHEMARK--0.2%
60 Krones AG (Industrial Machinery) $ 20,362
510 SAP AG (Non Voting) (Computer Services/ Software) 151,923
-----------
172,285
-----------
Total Preferred Stocks
(cost $188,969)...................................... $ 226,534
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE
--------- -------- --------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS--0.0%
BELGIAN FRANC--0.0%
Kredietbank
1,000 5.75% 11/30/03 $ 4,196
-----------
Total Corporate Obligations
(cost $2,557)...............................
$ 4,196
-----------
REPURCHASE AGREEMENT--5.6%
State Street Bank & Trust Company, dated 10/31/97,
repurchase price $4,437,904 (U.S. Treasury Note:
$4,527,922, 6.25%, 06/30/1998)
$4,436,000 5.15% 11/03/97 $ 4,436,000
-----------
Total Repurchase Agreement
(cost $4,436,000)...........................
$ 4,436,000
-----------
Total Investments (identified cost
$74,392,137(a)).............................
$78,742,974
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
- ---------------------------
<S> <C> <C> <C>
Federal Income
Tax
Information:
Gross
unrealized
gain for
investments
in which
value
exceeds
cost........ $10,577,320
Gross
unrealized
loss for
investments
in which
cost
exceeds
value....... (6,312,777)
-----------
Net
unrealized
gain........ $ 4,264,543
===========
- ---------------------------
</TABLE>
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
*Non-income producing security.
+ Securities that may be resold to "Qualified Institutional Buyers" under Rule
144A or securities offered pursuant to Section 4(2) of the Securities Act of
1933, as amended. The securities has been determined to be liquid under
guidelines established by Board of Trustees.
(a)The aggregate cost for federal income tax purposes is $74,478,431.
- --------------------------------------------------------------------------------
INVESTMENT ABBREVIATIONS:
ADR -- American Depository Receipts
ADS -- American Depository Shares
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
INTERNATIONAL EQUITY FUND--(CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
COMMON AND PREFERRED STOCK INDUSTRY CONCENTRATIONS+
<TABLE>
- -----------------------------------------------
<S> <C>
Financial Services 12.1%
Electronics & Other Electrical Equipment 9.6%
Utilities 8.2%
Retail Trade 6.2%
Health/Personal Care 5.4%
Oil & Gas 4.6%
Energy 4.4%
Chemical Products 3.9%
Broadcast Media 3.4%
Food/Grocery Products 3.3%
Household Durables 3.1%
Publishing 3.0%
Beverages/Tobacco 2.5%
Building Materials & Construction 2.2%
Industrial Machinery 2.2%
Diversified Industrial Manufacturing 2.0%
Real Estate 1.9%
Transportation/Storage 1.7%
Recreational Services 1.7%
Medical Products and Supplies 1.6%
Mining - Metals/Minerals 1.6%
Insurance Services 1.5%
Diversified Holding Companies 1.3%
Computer Services/Software 1.0%
Health & Medical Services 0.9%
Diversified Manufacturing 0.8%
Telecommunications 0.8%
Wholesale Trade 0.6%
Commercial Services 0.5%
Automobiles & Automobile Parts 0.5%
Electrical Services 0.4%
Textiles 0.3%
Computers/Communication 0.3%
Cosmetics 0.3%
Business Services 0.3%
Paper & Forest Products 0.2%
Engineering 0.2%
Food - Retailer 0.1%
Aerospace/Defense 0.1%
- -----------------------------------------------
TOTAL COMMON AND PREFERRED STOCKS 94.7%
- -----------------------------------------------
</TABLE>
+ Industry Concentrations greater than one tenth of one percent are disclosed.
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
NATIONAL TAX-FREE BOND FUND
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- -----------
<S> <C> <C> <C>
MUNICIPAL BOND OBLIGATIONS--97.4%
ARIZONA--2.0%
Salt River Project Arizona Agricultural
Improvements Revenue Bonds Series C (AA/Aa)
$500,000 4.50% 01/01/04 $ 502,910
-----------
FLORIDA--1.8%
Florida State Board of Education Capital Outlay GO
Bonds Series A (AA+/Aa2)
$200,000 5.25% 01/01/04 $ 209,396
Florida State Board of Education Capital Outlay GO
Bonds Series D (AA+/Aa2)
250,000 5.00 06/01/12 249,478
-----------
$ 458,874
-----------
GEORGIA--0.8%
Georgia State GO Bonds Series D (AA+/Aaa)
$200,000 5.40% 11/01/10 $ 210,112
-----------
ILLINOIS--5.0%
Chicago Metropolitan Water Reclamation GO Bonds
(AA/Aa)
$500,000 4.90% 12/01/01 $ 513,335
450,000 5.60 12/01/09 482,675
Evanston GO Bonds (NR/Aaa)
250,000 5.30 12/01/99 256,543
-----------
$ 1,252,553
-----------
INDIANA--1.0%
Purdue University Revenue Bonds (AMBAC) (AAA/Aaa)
$250,000 5.25% 07/01/10 $ 253,600
-----------
IOWA--3.1%
Bettendorf GO Bonds Series A (AMBAC) (NR/Aaa)
$250,000 4.70% 06/01/03 $ 257,145
Iowa City Sewer Revenue Bonds (AMBAC) (AAA/Aaa)
250,000 6.00 07/01/08 264,285
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- -----------
<S> <C> <C> <C>
MUNICIPAL BOND OBLIGATIONS--CONTINUED
IOWA--CONTINUED
Polk County GO Bonds (FGIC) (AAA/Aaa)
$250,000 5.50% 12/01/10 $ 270,057
-----------
$ 791,487
-----------
KENTUCKY--2.7%
Kentucky Infrastructure Authority Revenue Bonds
(A/A2)
$485,000 5.13% 06/01/11 $ 483,991
Louisville Water Works Board Water System Revenue
Bonds (AA/Aa)
200,000 5.63 11/15/06 210,376
-----------
$ 694,367
-----------
MARYLAND--2.0%
Washington Suburban Sanitation District GO Revenue
Bonds (AA/Aa1)
$500,000 4.75% 06/01/02 $ 512,780
-----------
MICHIGAN--2.8%
Greenville Public Schools GO Bonds (MBIA)
(AAA/Aaa)
$200,000 5.75% 05/01/07 $ 212,874
Waterford Township School District Bonds (Q-SBLF)
(AA/Aa2)
500,000 4.85 06/01/10 497,190
-----------
$ 710,064
-----------
MINNESOTA--5.2%
Minneapolis GO Bonds (AAA/Aaa)
$500,000 5.30% 10/01/98 $ 506,550
Minnesota State Housing and Finance Agency Series
D (AA+/Aa)
390,000 5.35 01/01/05 407,394
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
NATIONAL TAX-FREE BOND FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- -----------
<S> <C> <C> <C>
MUNICIPAL BOND OBLIGATIONS--CONTINUED
MINNESOTA--CONTINUED
St. Paul Independent School District #625 GO Bonds
Series C (AA/Aa)
$400,000 5.20% 02/01/07 $ 410,640
-----------
$ 1,324,584
-----------
NEBRASKA--3.9%
Nebraska Public Power District Revenue Bonds
Series A (A+/A1)
$250,000 5.10% 01/01/06 $ 255,848
200,000 6.00 01/01/06 214,486
Omaha Public Power Revenue Bonds Series A (AA/Aa)
500,000 5.00 02/01/01 512,570
-----------
$ 982,904
-----------
NEVADA--2.9%
Clark County School District GO Bonds Series B
(FGIC) (AAA/Aaa)
$200,000 5.30% 05/01/04 $ 209,604
Nevada State GO Bonds Series A-2 (AA/Aa2)
500,000 5.25 05/15/05 525,340
-----------
$ 734,944
-----------
NEW JERSEY--1.9%
Morris County GO Bonds (AAA/Aaa)
$500,000 4.63% 08/15/10 $ 487,020
-----------
NEW MEXICO--2.0%
Albuquerque Joint Water & Sewer System Revenue
Bonds (AA/Aa3)
$500,000 4.75% 07/01/04 $ 512,290
-----------
OHIO--3.3%
Columbus GO Bonds Series A (AAA/Aaa)
$250,000 4.50% 07/01/01 $ 253,690
Euclid GO Bonds (NR/Aa)
415,000 4.40 12/01/01 419,611
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- -----------
<S> <C> <C> <C>
MUNICIPAL BOND OBLIGATIONS--CONTINUED
OHIO--CONTINUED
Ohio State Infrastructure Improvement GO Bonds
(AA+/Aa1)
$150,000 5.20% 08/01/10 $ 155,104
-----------
$ 828,405
-----------
OREGON--2.1%
Oregon State Housing & Community Services
Department Revenue Bonds Series D (NR/Aa)
$500,000 5.55% 07/01/06 $ 521,950
-----------
PENNSYLVANIA--2.1%
Pennsylvania State GO Bonds
(AA-/A1)
$500,000 5.25% 06/15/06 $ 520,940
-----------
SOUTH CAROLINA--5.3%
Brookland Cayce School District #2 GO Bonds
(SCSDE) (AA/Aa1)
$500,000 4.70% 03/01/05 $ 508,960
South Carolina State Capital Improvement GO Bonds
Series A (AA+/Aaa)
250,000 5.00 03/01/05 258,812
York County School District #1 GO Bonds Series A
(MBIA SCSDE) (AAA/AA/Aaa/Aa1)
500,000 7.00 07/01/03 567,365
-----------
$ 1,335,137
-----------
TENNESSEE--2.1%
Shelby County GO Bonds Series A (AA+/Aa)
$500,000 5.63% 06/01/08 $ 533,030
-----------
TEXAS--10.3%
Channelview Independent School District GO Bonds
(PSFG) (NR/Aaa)
$250,000 4.75% 08/15/05 $ 252,435
</TABLE>
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
NATIONAL TAX-FREE BOND FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- -----------
<S> <C> <C> <C>
MUNICIPAL BOND OBLIGATIONS--CONTINUED
TEXAS--CONTINUED
Collin County GO Bonds (AA-/Aa)
$400,000 5.40% 02/15/09 $ 408,712
Dallas Waterworks & Sewer System Revenue Bonds
(AA/Aa2)
500,000 4.90 04/01/05 508,040
Houston Independent School District GO Bonds
(AA+/Aa)
250,000 4.40 07/15/01 251,765
San Antonio GO Bonds (AA/Aa)
200,000 5.20 08/01/02 208,238
Tarrant County GO Bonds (AA+/Aa1)
400,000 4.80 07/15/06 404,536
Tarrant County Water Control & Improvement Revenue
Bonds (AAA/Aaa)
140,000 5.00 03/01/09 140,508
Texas A&M University Revenue Bonds (AA/Aa)
200,000 5.55 05/15/01 209,498
State of Texas GO Bonds Series A (AA/Aa)
200,000 5.65 10/01/08 210,480
-----------
$ 2,594,212
-----------
UTAH--3.1%
Alpine School District GO Bonds (FGIC-TCRS)
(AAA/Aaa)
$250,000 5.40% 03/15/05 $ 258,005
Intermountain Power Agency Revenue Bonds (A+/A1)
250,000 5.10 07/01/03 257,150
Salt Lake City School District Revenue Bonds
Series A (NR/Aaa)
250,000 5.80 03/01/07 267,810
-----------
$ 782,965
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- -----------
<S> <C> <C> <C>
MUNICIPAL BOND OBLIGATIONS--CONTINUED
VIRGINIA--2.8%
Virginia Beach GO Bonds (AA/Aa)
$200,000 5.20% 07/15/06 $ 210,998
Virginia State Public School Authority Revenue
Bonds (AA/Aa)
500,000 4.50 01/01/00 504,675
-----------
$ 715,673
-----------
WASHINGTON--17.4%
King & Snohomish Counties School District (AA-/Aa)
$280,000 5.20% 06/15/08 $ 288,008
King County GO Bonds Series D (AA+/Aa1)
500,000 6.20 12/01/00 531,185
King County School District #412 GO Bonds (MBIA)
(AAA/Aaa)
250,000 5.75 06/01/08 265,245
King County School District #414 GO Bonds (AA/Aa)
430,000 5.10 12/01/06 444,052
Pierce County Sewer Improvements Revenue Bonds
(A+/A1)
290,000 5.45 02/01/08 296,998
Port Seattle Revenue Bonds
Series A (AMBAC) (AAA/Aaa)
500,000 6.00 02/01/99 512,115
Port Tacoma Washington Bonds Series B (AMBAC)
(AAA/Aaa)
500,000 4.35 12/01/03 499,190
Seattle GO Bonds Series A (AA+/Aa1)
150,000 5.30 08/01/13 152,382
Seattle Municipal Light & Power Revenue Bonds
Series A (AA/Aa)
250,000 5.75 08/01/09 261,027
Snohomish County GO Bonds (MBIA) (AAA/Aaa)
250,000 5.75 12/01/10 257,740
</TABLE>
The accompanying notes are an integral part of these financial statements.
45
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
NATIONAL TAX-FREE BOND FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- -----------
<S> <C> <C> <C>
MUNICIPAL BOND OBLIGATIONS--CONTINUED
WASHINGTON--CONTINUED
Spokane County School District #354 GO Bonds
(A+/A)
$370,000 5.20% 12/01/06 $ 382,543
Vancouver Water & Sewer Revenue Bonds (FGIC)
(AAA/Aaa)
250,000 4.70 06/01/01 254,347
Washington State GO Bonds Series DD-12 & CC-9
(AA/Aa)
250,000 5.38 03/01/08 261,367
-----------
$ 4,406,199
-----------
WISCONSIN -- 11.8%
Appleton Wisconsin Area School District GO Bonds
(NR/Aa)
$500,000 5.00% 04/01/11 $ 501,090
Eau Claire GO Bonds Series A (AA/Aa2)
470,000 5.00% 04/01/08 483,038
Green Bay Public School District GO Bonds (NR/Aa)
500,000 4.90 04/01/05 514,360
Milwaukee GO Bonds Series E (AA+/Aa1)
250,000 5.50 06/15/10 260,063
Waukesha County GO Bonds (NR/Aaa)
500,000 4.40 12/01/98 502,950
Winnebago County GO Bonds (NR/Aa2)
500,000 4.40 04/01/03 499,980
Wisconsin State GO Bonds Series 3 (AA/Aa)
200,000 5.25 11/01/02 209,454
-----------
$ 2,970,935
-----------
Total Municipal Bond Obligations
(cost $24,003,802)........................... $24,637,935
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- -----------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--0.8%
New Jersey Industrial and Economic Development
Authority Revenue Bonds VRDN (Chase Manhattan
Bank LOC)
(NR/A+/A-1)
$100,000 4.05(a) 04/01/19 $ 100,000
Grapevine Industrial Development Revenue Bonds
VRDN (American Airlines, Inc.) (NR/Aa1/P-1)
100,000 4.05(a) 12/01/24 100,000
-----------
Total Short-Term Obligations
(cost $200,000).............................. $ 200,000
-----------
Total Investments
(cost $24,203,802(b))........................ $24,837,935
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
NATIONAL TAX-FREE BOND FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Federal Income Tax Information:
Gross unrealized gain for investments in which value exceeds cost.... $635,285
Gross unrealized loss for investments in which value exceeds cost.... (1,152)
--------
Net unrealized gain.................................................. $634,133
========
- --------------------------------------------------------------------------------
</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, 1997.
(b) The cost stated also represents aggregate cost for federal income tax
purposes.
- --------------------------------------------------------------------------------
INVESTMENT ABBREVIATIONS:
AMBAC--Insured by American Municipal Bond Assurance Corporation
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
Q-SBLF--Qualified--School Bond Loan Fund
SCSDE--South Carolina School District Credit Enhancement
TCRS--Transferable Custodial Receipts
VRDN--Variable Rate Demand Note
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
47
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
MISSOURI TAX-FREE BOND FUND
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
---------- -------- -------- -----------
<S> <C> <C> <C>
MISSOURI MUNICIPAL BOND OBLIGATIONS--96.7%
Belton Cap Improvement Sales Tax Revenue Bonds
(MBIA) (NR/Aaa)
$ 200,000 5.00% 03/01/05 $ 206,544
200,000 5.00 03/01/06 206,584
Benton County School District GO Bonds (AA/NR)
300,000 4.90 03/01/04 304,185
Cass County School District #R-2 GO Bonds (AA/NR)
725,000 4.80 03/01/02 734,947
Cass County School District #R-9 GO Bonds (NR/A)
200,000 6.25 03/01/00 204,944
Cass County School District GO Bonds (AA/NR)
400,000 4.75 03/01/03 405,604
Chesterfield GO Bonds (NR/Aa2)
500,000 5.20 02/15/12 510,285
Clayton School District GO Bonds (Student Aid
Direct Deposit) (AA/Aa2)
750,000 4.75 03/01/10 742,365
250,000 4.80 03/01/11 247,315
Columbia School District GO Bonds (AA/Aa)
375,000 4.75 03/01/05 382,391
Columbia Water & Electricity Revenue Bonds Series
A (AA/A1)
300,000 5.40 10/01/02 316,203
Fort Zumwalt School District (AA/NR)
100,000 5.25 03/01/11 103,115
Hazelwood School District GO Bonds (NR/Aa)
150,000 5.15 03/01/04 156,308
Jackson County Longview Recreation Project
(NR/A1)
350,000 8.00 11/01/07 357,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
---------- -------- -------- -----------
<S> <C> <C> <C>
MISSOURI MUNICIPAL BOND OBLIGATIONS--CONTINUED
Jackson County Reorganized School District #7 COP
Bonds (AMBAC) (NR/Aaa)
$ 265,000 4.50% 03/01/04 $ 266,142
Jackson County School District GO Bonds (NR/A1)
250,000 5.60 03/01/08 261,185
Jasper County School District #R-9 GO Bonds
(AA/NR)
500,000 5.00 09/01/03 517,825
Kansas City Chouteau Bridge Project Series B
(AA/Aa3)
380,000 5.00 05/01/11 383,705
Kansas City GO Bonds (AA/Aa)
200,000 4.50 06/01/04 201,224
Kansas City Sewer Special Assessment GO Bonds
Series A (AA/Aa)
410,000 7.40 05/15/99 430,451
Kansas City Water Revenue Bonds Series A (AA/Aa)
750,000 4.85 12/01/06 769,350
Lafayette County School District GO Bonds (AA/NR)
350,000 5.20 03/01/07 357,340
Lees Summit GO Bonds Series B (AMBAC) (AAA/Aaa)
400,000 4.20 04/01/04 392,064
Missouri State Economic Development Export &
Infrastructure Board Revenue Bonds VRDN (A/NR)
200,000 5.38(a) 05/01/03 202,572
Missouri State Environmental Improvement & Energy
Resources Authority Pollution Control Revenue
Bonds (AA/A1)
250,000 4.25 12/01/98 251,635
250,000 5.50 12/01/04 266,235
</TABLE>
The accompanying notes are an integral part of these financial statements.
48
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
MISSOURI TAX-FREE BOND FUND--(CONTINUED)
OCTOBER 31, 1997
<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 (AA/A1)
$ 500,000 5.50% 12/01/06 $ 534,200
Missouri State Environmental Improvement & Energy
Resources Authority Water Pollution Control
Revenue Bonds Series A (AA/NR)
150,000 5.25 07/01/02 156,782
Missouri State Environmental Improvement & Energy
Resources Authority Water Pollution Control
Revenue Bonds Series C (NR/Aa)
205,000 4.75 01/01/01 209,383
500,000 4.90 01/01/02 513,765
Missouri State Environmental Improvement & Energy
Resources Authority Water Pollution Control
Revenue Bonds Series D (NR/Aa)
400,000 5.50 01/01/08 422,232
Missouri State Environmental Improvement & Energy
Resources Authority Water Pollution Control
Revenue Bonds Series E (NR/Aa)
390,000 4.38 07/01/00 394,809
Missouri State Fourth State Building GO Bonds
Series A (AAA/Aaa)
150,000 5.30 08/01/08 157,254
500,000 5.40 08/01/09 524,075
Missouri State GO Bonds Series A (AAA/Aaa)
500,000 4.50 08/01/02 507,000
Missouri State Health & Educational Facility
Revenue Bonds (Barnes-Jewish, Inc.) (AA/Aa)
150,000 6.00 05/15/11 162,920
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
- ------------ -------- -------- -------------
<S> <C> <C> <C>
MISSOURI MUNICIPAL BOND OBLIGATIONS--CONTINUED
Missouri State Health & Educational Facility
Revenue Bonds (Barnes-Jewish, Inc.) (AMBAC-TRCS)
(AAA/Aaa)
$ 1,000,000 5.15% 05/15/10 $ 1,026,950
Missouri State Health & Educational Facility
Revenue Bonds (prerefunded to 06/01/01) (MBIA)
(AAA/Aaa)
300,000 6.63 06/01/11 330,111
Missouri State Health & Educational Facility
Revenue Bonds Series B (Health Midwest) (MBIA)
(AAA/Aaa)
150,000 6.10 06/01/11 162,009
Missouri State Health & Educational Facility
Washington University Revenue Bonds Series A
(NR/Aa1)
800,000 4.75 08/15/05 812,944
Missouri State Housing Development Community
Mortgage Revenue Bonds (GNMA/FNMA) (AAA/Aaa)
205,000 5.40% 03/01/06 212,913
Missouri State Housing Development Community
Mortgage Revenue Bonds Series B-2 (GNMA/FNMA)
(AAA/NR)
400,000 5.20 03/01/08 409,928
Missouri State Housing Development Community
Mortgage Revenue Bonds Series C-2
(GNMA/FNMA)(AAA/NR)
250,000 4.90 03/01/07 251,098
Missouri State Housing Development Community
Revenue Bonds Series B (GNMA/FNMA) (AAA/NR)
235,000 5.50 03/01/06 246,487
</TABLE>
The accompanying notes are an integral part of these financial statements.
49
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
MISSOURI TAX-FREE BOND FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
---------- -------- -------- -----------
<S> <C> <C> <C>
MISSOURI MUNICIPAL BOND OBLIGATIONS--CONTINUED
Missouri State Housing Development Community
Revenue Bonds Series C (GNMA/FNMA) (AAA/NR)
$ 245,000 4.80% 09/01/01 $ 250,214
Missouri State Water Pollution Control GO Bonds
Series A (AAA/Aaa)
300,000 5.60 08/01/10 316,503
Platte County Missouri School District Park Hill
GO Bond (Student Aid Direct Deposit) (AA/Aa2)
500,000 5.20 03/01/09 513,340
Platte County School District #R-3 GO Bonds
(AA/NR)
265,000 4.90 03/01/05 268,890
Polk County Reorganized School District #1 GO
Bonds (Student Aid Direct Deposit) (AA/NR)
205,000 5.00 03/01/06 210,603
Ritenour Cons School District GO Bonds (Student
Aid Direct Deposit) (AA/NR)
630,000 4.88 03/01/09 630,189
Springfield GO Bonds (NR/Aa)
220,000 4.30 03/01/00 221,681
St. Charles County Francis Howell School District
GO Bonds (FGIC) (AAA/Aaa)
700,000 4.60 03/01/04 707,196
St. Charles County Francis Howell School District
GO Bonds (Student Aid Direct Deposit) (AA/NR)
485,000 4.50 03/01/04 486,295
St. Charles School District GO Bonds Series A
(AMBAC) (AAA/Aaa)
150,000 5.75 03/01/11 157,580
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
---------- -------- -------- -----------
<S> <C> <C> <C>
MISSOURI MUNICIPAL BOND OBLIGATIONS--CONTINUED
St. Francois County School District GO Bonds
(CGIC) (AAA/Aaa)
$ 280,000 4.80% 03/01/04 $ 285,911
St. Louis County GO Bonds Series B (NR/Aa1)
200,000 5.25 02/01/07 205,600
750,000 5.30 02/01/08 769,575
St. Louis County Rockwood School District #R-6 GO
Bonds (NR/Aaa)
300,000 5.80 02/01/99 306,807
St. Louis County School District GO Bonds
Lindbergh (NR/Aa)
715,000 6.60 02/15/03 791,491
200,000 5.40 02/15/10 205,426
St. Louis County School District GO Bonds Parkway
(NR/Aa)
300,000 7.00 02/01/00 319,395
St. Louis School District GO Bonds (FGIC)
(AAA/Aaa)
200,000 5.40 04/01/03 211,192
St. Peters GO Bonds (NR/A1)
150,000 5.80 01/01/10 157,088
University Missouri Health Facilities Revenue
Bonds Series A (AMBAC) (AAA/Aaa)
150,000 5.20 11/01/10 153,531
University of Missouri Systems Facilities Revenue
Bonds (AA+/Aa2)
250,000 4.60 11/01/00 254,320
-----------
Total Missouri Municipal Bond Obligations
(cost $23,180,953)............................ $23,635,205
-----------
SHORT-TERM OBLIGATIONS--7.0%
Missouri State Health & Educational Facility
Bethesda Barclay House Revenue Bonds Series A
VRDN (Mercantile Bank St. Louis LOC; Expire:
7/7/99) (NR/A1/VMIG1)
$ 100,000 4.25%(a) 08/15/26 $ 100,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
50
<PAGE>
THE COMMERCE FUNDS
STATEMENT OF INVESTMENTS
MISSOURI TAX-FREE BOND FUND--(CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
---------- -------- -------- -----------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--CONTINUED
Missouri State Health & Educational Facility St.
Francis Medical Center Revenue Bonds Series A
VRDN (Credit Local de France LOC; Expire:
6/19/03, 100%)
(AA+/A-1+/NR)
$1,600,000 4.10%(a) 06/01/26 $ 1,600,000
-----------
Total Short-Term Obligations (cost
$1,700,000)................................... $ 1,700,000
-----------
Total Investments (cost $24,880,953(b))........ $25,335,205
===========
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Federal Income Tax Information:
Gross unrealized gain for investments in which value exceeds cost.... 476,329
Gross unrealized loss for investments in which value exceeds cost.... (22,077)
--------
Net unrealized gain.................................................. $454,252
========
- --------------------------------------------------------------------------------
</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, 1997.
(b) The cost stated also represents aggregate cost for federal income tax
purposes.
- --------------------------------------------------------------------------------
INVESTMENT ABBREVIATIONS:
AMBAC--Insured by American Municipal Bond Assurance Corporation
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
LOC--Letter of Credit
MBIA--Insured by Municipal Bond Investors Assurance Corporation
NR--Not Rated
TRCS--Transferable Custodial Receipts
VRDN--Variable Rate Demand Note
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
51
<PAGE>
THE COMMERCE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHORT-TERM
GOVERNMENT BOND
FUND FUND
----------- ------------
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $46,418,895, $204,971,060, $89,365,590,
$44,799,584, $257,246,485, $91,032,877,
$74,392,137, $24,203,802, and $24,880,953,
respectively)..................................... $47,046,828 $214,097,029
Cash and Foreign Currency.......................... 690 194
Receivables:
Investment securities sold........................ 2,020,315 2,532,175
Interest.......................................... 499,489 2,679,113
Dividends......................................... -- --
Fund shares sold.................................. 1,713,624 --
Deferred organization expenses, net................ 20,998 22,282
Other.............................................. 10,008
----------- ------------
Total assets...................................... 51,311,952 219,330,793
----------- ------------
LIABILITIES:
Payables:
Investment securities purchased................... 1,859,592 --
Fund shares redeemed.............................. 34,140 318,861
Dividends and distributions....................... 84,238 255,518
Advisory fees..................................... 11,979 89,704
Administrative fees............................... 5,990 26,911
Shareowner servicing fees......................... 5,867 37,906
Distribution fees................................. 266 505
Accrued expenses and other liabilities............. 19,831 59,771
----------- ------------
Total liabilities................................. 2,021,903 789,176
----------- ------------
NET ASSETS:
Paid-in capital.................................... 48,782,930 209,528,790
Accumulated undistributed net investment income.... 59,144 103,694
Accumulated net realized gain (loss) on investment
transactions...................................... (179,958) (216,836)
Accumulated net realized loss on currency related
transactions...................................... -- --
Net unrealized gain on investments................. 627,933 9,125,969
Net unrealized loss on translation of assets and
liabilities denominated in foreign currency....... -- --
----------- ------------
Net assets........................................ $49,290,049 $218,541,617
=========== ============
SHARES OUTSTANDING:
Total shares outstanding, no par value (unlimited
number of shares authorized):
Institutional Shares.............................. 2,643,812 11,207,266
=========== ============
Service Shares.................................... 24,359 38,047
=========== ============
Institutional Shares: Net asset value per share
(net assets/shares outstanding)................... $ 18.47 $ 19.43
=========== ============
Maximum public offering price per share(a)........ $ 18.85 $ 20.13
=========== ============
Service Shares: Net asset value per share (net
assets/shares outstanding)........................ $ 18.47 $ 19.43
=========== ============
Maximum public offering price per share(a)........ $ 18.85 $ 20.13
=========== ============
</TABLE>
- -------
(a)For the Short-Term Government Fund, the maximum public offering price per
share is calculated as (NAV per share X 1.0204). For all other Funds, the
maximum public offering price per share is calculated as (NAV per share X
1.0362).
(b)For the National Tax-Free Bond and Missouri Tax-Free Bond Funds, shares
outstanding are designated as neither Institutional Shares nor Service Shares.
The accompanying notes are an integral part of these financial statements.
52
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL NATIONAL MISSOURI
BALANCED GROWTH AND GROWTH MIDCAP EQUITY TAX-FREE TAX-FREE
FUND INCOME FUND FUND FUND FUND FUND(B) FUND(B)
- ------------ ----------- ------------ ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$106,490,161 $47,675,231 $348,184,676 $113,280,312 $78,742,974 $24,837,935 $25,335,205
17 1,813 573 636 693,054 19,351 42,641
147,031 123,336 -- 85,587 73,983 -- --
465,711 432 2,843 227 636 369,413 314,612
47,798 57,162 302,798 19,510 187,907 -- --
-- 1,048,180 1,719,632 445,718 398,673 147,618 100,000
21,464 17,337 22,761 20,877 20,734 24,661 24,605
27,666 18,343 3,021 350 2,323 2,276 6,887
- ------------ ----------- ------------ ------------ ----------- ----------- -----------
107,199,848 48,941,834 350,236,304 113,853,217 80,120,284 25,401,254 25,823,950
- ------------ ----------- ------------ ------------ ----------- ----------- -----------
-- 1,056,430 -- 576,280 1,329,351 -- 1,292,666
18,487 6,000 240,493 19,184 107,520 20,000 --
4,681 -- -- -- -- 66,072 67,293
68,363 26,234 231,789 73,715 77,687 10,777 6,199
13,672 5,247 46,730 14,743 10,691 3,233 3,098
43,174 3,791 88,925 21,133 11,944 -- --
793 792 4,172 383 168 -- --
49,817 81,897 92,785 47,311 79,005 20,366 21,024
- ------------ ----------- ------------ ------------ ----------- ----------- -----------
198,987 1,180,391 704,894 752,749 1,616,366 120,448 1,390,280
- ------------ ----------- ------------ ------------ ----------- ----------- -----------
84,202,523 44,755,926 235,571,060 84,499,696 71,968,741 24,631,502 23,944,161
209,213 28,799 40,695 -- 236,149 15,303 16,372
5,464,554 101,071 22,981,464 6,353,337 2,728,568 (132) 18,885
-- -- -- -- (756,503) -- --
17,124,571 2,875,647 90,938,191 22,247,435 7,979,972 634,133 454,252
-- -- -- -- (3,653,009) -- --
- ------------ ----------- ------------ ------------ ----------- ----------- -----------
$107,000,861 $47,761,443 $349,531,410 $113,100,468 $78,503,918 $25,280,806 $24,433,670
============ =========== ============ ============ =========== =========== ===========
3,966,282 2,070,789 9,953,941 3,404,956 3,541,115 1,341,115 1,312,685
============ =========== ============ ============ =========== =========== ===========
45,717 118,667 166,880 19,980 10,449
============ =========== ============ ============ ===========
$ 26.67 $ 21.82 $ 34.54 $ 33.02 $ 22.10 $ 18.85 $ 18.61
============ =========== ============ ============ =========== =========== ===========
$ 27.64 $ 22.61 $ 35.79 $ 34.22 $ 22.90 $ 19.53 $ 19.28
============ =========== ============ ============ =========== =========== ===========
$ 26.66 $ 21.81 $ 34.50 $ 32.94 $ 22.06
============ =========== ============ ============ ===========
$ 27.63 $ 22.60 $ 35.75 $ 34.13 $ 22.86
============ =========== ============ ============ ===========
</TABLE>
53
<PAGE>
THE COMMERCE FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHORT-TERM
GOVERNMENT BOND
FUND FUND
---------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Interest............................................. $2,669,993 $12,133,511
Dividends(b)......................................... -- --
---------- -----------
Total income........................................ 2,669,993 12,133,511
---------- -----------
EXPENSES:
Advisory fees........................................ 198,802 867,384
Administration fees.................................. 59,641 260,215
Shareowner Servicing fees............................ 12,379 70,398
Transfer agent fees.................................. 42,838 69,530
Registration fees.................................... 30,471 49,117
Custodian fees....................................... 51,228 55,345
Professional fees.................................... 13,689 55,169
Trustee fees......................................... 1,537 5,950
Amortization of deferred organization expenses....... 9,968 10,578
Other................................................ 18,316 33,621
---------- -----------
Total expenses...................................... 438,869 1,477,307
Less--Investment advisory fees waived and expense
reimbursements...................................... (168,498) --
---------- -----------
Net expenses........................................ 270,371 1,477,307
Distribution fees--Service Shares................... 295 654
---------- -----------
Total expenses and distribution fees................ 270,666 1,477,961
---------- -----------
Net investment income (loss)........................ 2,399,327 10,655,550
---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) on investment transactions.. (133,888) (143,004)
Net realized loss on currency related transactions... -- --
Net change in unrealized gain (loss) on investments.. 314,447 4,412,106
Net change in unrealized loss on translation of
assets and liabilities denominated in foreign
currencies.......................................... -- --
---------- -----------
Net realized and unrealized gain on investments and
foreign currency transactions...................... 180,559 4,269,102
---------- -----------
Net increase in net assets resulting from
operations......................................... $2,579,886 $14,924,652
========== ===========
</TABLE>
- -------
(a)The Growth and Income Fund commenced operations on March 3, 1997.
(b)For the Balanced Fund, Growth and Income Fund, Growth Fund and
International Equity Fund amount is net of $5,245, $826, $37,384 and $158,725
respectively, in withholding taxes.
The accompanying notes are an integral part of these financial statements.
54
<PAGE>
<TABLE>
<CAPTION>
GROWTH AND INTERNATIONAL NATIONAL MISSOURI
BALANCED INCOME EQUITY TAX-FREE TAX-FREE
FUND FUND(a) GROWTH FUND MIDCAP FUND FUND FUND FUND
- ----------- ---------- ----------- ----------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 2,477,003 $ 60,616 $ 970,226 $ 86,872 $ 281,686 $ 986,379 $ 933,162
616,428 295,713 3,851,251 466,106 1,127,142 -- --
- ----------- ---------- ----------- ----------- ---------- ---------- ----------
3,093,431 356,329 4,821,477 552,978 1,408,828 986,379 933,162
- ----------- ---------- ----------- ----------- ---------- ---------- ----------
865,907 106,879 2,132,218 664,643 1,020,685 104,058 97,420
129,886 21,376 426,443 132,929 102,068 31,217 29,226
71,327 4,940 156,188 37,616 20,689 -- --
90,351 33,233 134,081 98,404 56,657 30,329 30,204
37,056 40,985 67,067 38,588 34,132 7,708 7,080
64,477 43,627 59,767 53,075 234,097 40,020 41,590
29,035 15,185 89,289 31,401 19,533 8,541 8,463
3,450 1,313 8,925 3,550 2,300 859 861
10,187 2,663 10,800 9,906 9,840 10,687 10,665
21,661 17,373 45,054 20,844 16,956 4,889 9,492
- ----------- ---------- ----------- ----------- ---------- ---------- ----------
1,323,337 287,574 3,129,832 1,090,956 1,516,957 238,308 235,001
(344,859) (116,567) -- -- (346,574) (61,410) (108,355)
- ----------- ---------- ----------- ----------- ---------- ---------- ----------
978,478 171,007 3,129,832 1,090,956 1,170,383 176,898 126,646
1,165 1,033 6,149 579 235 -- --
- ----------- ---------- ----------- ----------- ---------- ---------- ----------
979,643 172,040 3,135,981 1,091,535 1,170,618 176,898 126,646
- ----------- ---------- ----------- ----------- ---------- ---------- ----------
2,113,788 184,289 1,685,496 (538,557) 238,210 809,481 806,516
- ----------- ---------- ----------- ----------- ---------- ---------- ----------
5,557,357 101,071 22,981,707 6,551,956 2,787,057 5,845 18,879
-- -- -- -- (731,732) -- --
7,648,745 2,875,647 40,425,005 9,385,946 3,011,877 458,468 385,392
-- -- -- -- (2,299,560) -- --
- ----------- ---------- ----------- ----------- ---------- ---------- ----------
13,206,102 2,976,718 63,406,712 15,937,902 2,767,642 464,313 404,271
- ----------- ---------- ----------- ----------- ---------- ---------- ----------
$15,319,890 $3,161,007 $65,092,208 $15,399,345 $3,005,852 $1,273,794 $1,210,787
=========== ========== =========== =========== ========== ========== ==========
</TABLE>
55
<PAGE>
THE COMMERCE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHORT-TERM
GOVERNMENT BOND
FUND FUND
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss)..................... $ 2,399,327 $ 10,655,550
Net realized gain (loss) on investment
transactions.................................... (133,888) (143,004)
Net realized loss from foreign currency related
transactions.................................... -- --
Net change in unrealized gain (loss) on
investments..................................... 314,447 4,412,106
Net change in unrealized loss on translation of
assets and liabilities denominated in foreign
currencies...................................... -- --
------------ ------------
Increase in net assets resulting from
operations..................................... 2,579,886 14,924,652
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income
Institutional Shares............................. (2,392,682) (10,693,018)
Service Shares................................... (6,645) (15,032)
From net realized gain on investment transactions
Institutional Shares............................. -- (184,700)
Service Shares................................... -- --
------------ ------------
Total distributions to shareholders............. (2,399,327) (10,892,750)
------------ ------------
FROM SHARE TRANSACTIONS
Net proceeds from sale of shares
Institutional Shares............................. 31,421,375 96,052,292
Service Shares................................... 447,777 711,647
Reinvestment of dividends and distributions
Institutional Shares............................. 1,434,765 8,300,085
Service Shares................................... 5,599 13,229
Cost of shares redeemed
Institutional Shares............................. (18,031,858) (41,772,254)
Service Shares................................... (6,679) --
------------ ------------
Net increase in net assets resulting from share
transactions................................... 15,270,979 63,304,999
------------ ------------
Total increase.................................. 15,451,538 67,336,901
------------ ------------
NET ASSETS:
Beginning of year................................ 33,838,511 151,204,716
------------ ------------
End of year...................................... $ 49,290,049 $218,541,617
============ ============
ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME.... $ 59,144 $ 103,694
============ ============
SUMMARY OF SHARE TRANSACTIONS:
Institutional Shares
Sold............................................. 1,714,904 5,037,764
Issued on reinvestment of dividends and
distributions................................... 78,311 436,023
Redeemed......................................... (985,134) (2,196,219)
------------ ------------
Increase in shares outstanding.................. 808,081 3,277,568
------------ ------------
Service Shares
Sold............................................. 24,418 37,357
Issued on reinvestment of dividends and
distributions................................... 304 690
Redeemed......................................... (363) --
------------ ------------
Increase in shares outstanding.................. 24,359 38,047
============ ============
</TABLE>
- -------
(a) The Growth and Income Fund commenced operations on March 3, 1997.
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
<TABLE>
<CAPTION>
GROWTH AND INTERNATIONAL NATIONAL MISSOURI
BALANCED INCOME GROWTH MIDCAP EQUITY TAX-FREE TAX-FREE
FUND FUND(A) FUND FUND FUND FUND FUND
- ------------ ----------- ------------ ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 2,113,788 $ 184,289 $ 1,685,496 $ (538,557) $ 238,210 $ 809,481 $ 806,516
5,557,357 101,071 22,981,707 6,551,956 2,787,057 5,845 18,879
-- -- -- -- (731,732) -- --
7,648,745 2,875,647 40,425,005 9,385,946 3,011,877 458,468 385,392
-- -- -- -- (2,299,560) -- --
- ------------ ----------- ------------ ------------ ------------ ----------- -----------
15,319,890 3,161,007 65,092,208 15,399,345 3,005,852 1,273,794 1,210,787
- ------------ ----------- ------------ ------------ ------------ ----------- -----------
(2,044,522) (152,431) (1,656,440) -- (268,546) (809,481) (806,516)
(10,379) (3,059) (10,547) -- -- -- --
(3,708,475) -- (14,172,190) (781,830) (598,118) -- (14,681)
-- -- -- -- -- -- --
- ------------ ----------- ------------ ------------ ------------ ----------- -----------
(5,763,376) (155,490) (15,839,177) (781,830) (866,664) (809,481) (821,197)
- ------------ ----------- ------------ ------------ ------------ ----------- -----------
44,216,003 44,109,295 135,701,270 44,321,047 38,848,968 10,977,557 10,099,731
1,166,221 2,586,874 5,567,088 3,397,877 240,846 -- --
5,674,564 117,222 14,235,374 679,188 679,366 127,490 133,039
10,147 2,980 10,529 -- -- -- --
(23,479,903) (2,058,993) (64,005,148) (21,768,366) (14,993,427) (3,901,839) (3,223,104)
(22,933) (1,452) (138,519) (2,788,233) (49) -- --
- ------------ ----------- ------------ ------------ ------------ ----------- -----------
27,564,099 44,755,926 91,370,594 23,841,513 24,775,704 7,203,208 7,009,666
- ------------ ----------- ------------ ------------ ------------ ----------- -----------
37,120,613 47,761,443 140,623,625 38,459,028 26,914,892 7,667,521 7,399,256
- ------------ ----------- ------------ ------------ ------------ ----------- -----------
69,880,248 -- 208,907,785 74,641,440 51,589,026 17,613,285 17,034,414
- ------------ ----------- ------------ ------------ ------------ ----------- -----------
$107,000,861 $47,761,443 $349,531,410 $113,100,468 $ 78,503,918 $25,280,806 $24,433,670
============ =========== ============ ============ ============ =========== ===========
$ 209,213 $ 28,799 $ 40,695 $ -- $ 236,149 $ 15,303 $ 16,372
============ =========== ============ ============ ============ =========== ===========
1,767,694 2,164,150 4,256,557 1,462,199 1,709,863 589,481 548,660
236,855 5,534 495,397 23,891 31,992 6,843 7,233
(949,694) (98,895) (2,015,211) (741,233) (662,113) (209,410) (175,860)
- ------------ ----------- ------------ ------------ ------------ ----------- -----------
1,054,855 2,070,789 2,736,743 744,857 1,079,742 386,914 380,033
- ------------ ----------- ------------ ------------ ------------ ----------- -----------
46,192 118,593 170,508 111,102 10,451
392 142 309 -- --
(867) (68) (3,937) (91,122) (2)
- ------------ ----------- ------------ ------------ ------------
45,717 118,667 166,880 19,980 10,449
============ =========== ============ ============ ============
</TABLE>
57
<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 above information relates to Institutional Shares.
The accompanying notes are an integral part of these financial statements.
58
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL NATIONAL MISSOURI
BALANCED GROWTH MIDCAP EQUITY TAX-FREE TAX-FREE
FUND FUND FUND FUND BOND FUND BOND FUND
- ------------ ------------ ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 1,444,493 $ 1,215,945 $ (225,170) $ 282,561 $ 539,768 $ 506,160
3,633,059 14,171,671 583,211 606,179 (5,961) 20,856
-- -- -- (60,783) -- --
2,979,254 20,413,669 6,869,864 4,232,406 (25,939) (54,709)
-- -- -- (1,006,981) -- --
- ------------ ------------ ------------ ----------- ----------- -----------
8,056,806 35,801,285 7,227,905 4,053,382 507,868 472,307
- ------------ ------------ ------------ ----------- ----------- -----------
(1,422,102) (1,233,937) -- (107,021) (539,768) (506,160)
(1,461,563) (6,627,050) (1,205,033) (85,792) (5,570) --
- ------------ ------------ ------------ ----------- ----------- -----------
(2,883,665) (7,860,987) (1,205,033) (192,813) (545,338) (506,160)
- ------------ ------------ ------------ ----------- ----------- -----------
29,373,815 93,709,847 41,229,162 33,783,562 10,518,564 10,435,951
2,865,066 7,452,682 1,073,165 156,566 54,574 71,819
(15,860,466) (61,930,178) (15,348,445) (7,225,443) (3,643,702) (2,328,641)
- ------------ ------------ ------------ ----------- ----------- -----------
16,378,415 39,232,351 26,953,882 26,714,685 6,929,436 8,179,129
- ------------ ------------ ------------ ----------- ----------- -----------
21,551,556 67,172,649 32,976,754 30,575,254 6,891,966 8,145,276
48,328,692 141,735,136 41,664,686 21,013,772 10,721,319 8,889,138
- ------------ ------------ ------------ ----------- ----------- -----------
$ 69,880,248 $208,907,785 $ 74,641,440 $51,589,026 $17,613,285 $17,034,414
============ ============ ============ =========== =========== ===========
$ 142,448 $ 16,344 -- $ 245,502 $ 9,525 $ 10,626
============ ============ ============ =========== =========== ===========
1,297,097 3,571,900 1,537,748 1,685,034 570,941 572,789
126,879 296,637 41,581 8,234 2,968 3,935
(699,003) (2,393,934) (566,313) (359,077) (197,928) (127,110)
- ------------ ------------ ------------ ----------- ----------- -----------
724,973 1,474,603 1,013,016 1,334,191 375,981 449,614
============ ============ ============ =========== =========== ===========
</TABLE>
59
<PAGE>
THE COMMERCE FUNDS
SHORT-TERM GOVERNMENT FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS SHAREHOLDERS
--------------------- ----------------------
NET
REALIZED
AND
UNREALIZED
NET ASSET GAIN FROM NET
VALUE, NET (LOSS) ON FROM NET REALIZED
BEGINNING INVESTMENT INVEST- INVESTMENT GAIN ON
OF PERIOD INCOME MENTS(B) INCOME INVESTMENTS
--------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
For the Year Ended October 31, 1997
Institutional
Shares $18.43 $1.11 $ 0.04 $(1.11) --
Service
Shares(a) 18.37 0.92 0.10 (0.92) --
For the Year Ended October 31, 1996
Institutional
Shares 18.83 1.09 (0.18) (1.09) (0.22)
For the Period December 12, 1994 (commencement of operations) through
October 31, 1995
Institutional
Shares 18.00 1.06 0.83 (1.06) --
<CAPTION>
RATIOS ASSUMING
NO WAIVER OF
INVESTMENT ADVISORY
FEES OR EXPENSE
REIMBURSEMENTS
-----------------------
RATIO
NET RATIO OF NET RATIO
ASSET OF NET INVESTMENT NET RATIO OF NET
VALUE, EXPENSES INCOME TO ASSETS AT OF INVESTMENT
END TO AVERAGE AVERAGE PORTFOLIO END EXPENSES INCOME TO
OF TOTAL NET NET TURNOVER OF PERIOD TO AVERAGE AVERAGE
PERIOD RETURN(C) ASSETS ASSETS RATE (IN 000'S) NET ASSETS NET ASSETS
------ --------- ----------- ----------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year Ended October 31, 1997
Institutional
Shares $18.47 6.45% 0.68% 6.04% 36% $48,840 1.11% 5.61%
Service
Shares(a) 18.47 5.81% 0.93%(d) 5.64%(d) 36 450 1.36%(d) 5.21%(d)
For the Year Ended October 31, 1996
Institutional
Shares 18.43 5.02 0.68 5.90 12 33,839 1.11 5.47
For the Period December 12, 1994 (commencement of operations) through
October 31, 1995
Institutional
Shares 18.83 10.72 0.68(d) 6.38(d) 158 20,211 1.14(d) 5.92(d)
</TABLE>
- ----
(a) Service share activity commenced on January 2, 1997.
(b) Includes the balancing effect of calculating per share amounts.
(c) Assumes investment at the net asset value 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 sales charges were taken
into account.
(d) Annualized.
The accompanying notes are an integral part of these financial statements.
60
<PAGE>
THE COMMERCE FUNDS
BOND FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS SHAREHOLDERS
------------------------- -------------------------
NET
REALIZED
AND
NET ASSET UNREALIZED
VALUE, NET GAIN FROM NET FROM NET
BEGINNING INVESTMENT (LOSS) ON INVESTMENT REALIZED GAIN
OF PERIOD INCOME INVESTMENTS(B) INCOME ON INVESTMENTS
--------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
For the Year Ended October
31, 1997
Institutional
Shares $19.07 $1.17 $ 0.39 $(1.18) $(0.02)
Service
Shares(a) 19.00 0.94 0.43 (0.94) --
For the Year Ended October
31, 1996
Institutional
Shares 19.61 1.16 (0.28) (1.16) (0.26)
For the Period December 12, 1994 (commencement of operations) through October 31, 1995
Institutional
Shares 18.00 1.12 1.61 (1.12) --
<CAPTION>
RATIO
NET RATIO OF NET
ASSET OF NET INVESTMENT NET
VALUE, EXPENSES INCOME ASSETS AT
END TO AVERAGE TO AVERAGE PORTFOLIO END
OF TOTAL NET NET TURNOVER OF PERIOD
PERIOD RETURN(C) ASSETS ASSETS RATE (IN 000'S)
------ --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended October 31, 1997
Institutional
Shares $19.43 8.50% 0.85% 6.14% 19% $217,803
Service
Shares(a) 19.43 7.48 1.10(d) 5.67(d) 19 739
For the Year Ended October
31, 1996
Institutional
Shares 19.07 4.71 0.84 6.10 31 151,205
For the Period December 12, 1994 (commencement of operations) through October 31, 1995
Institutional
Shares 19.61 15.59 0.88(d) 6.64(d) 58 98,504
</TABLE>
- ----
(a) Service share activity commenced on January 2, 1997.
(b) Includes the balancing effect of calculating per share amounts.
(c) Assumes investment at the net asset value 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 sales charges were taken
into account.
(d) Annualized.
The accompanying notes are an integral part of these financial statements.
61
<PAGE>
THE COMMERCE FUNDS
BALANCED FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS SHAREHOLDERS
------------------------- ----------------------
RATIO
NET RATIO OF NET
REALIZED NET OF NET INVESTMENT
NET ASSET AND FROM NET ASSET EXPENSES INCOME
VALUE, NET UNREALIZED FROM NET REALIZED VALUE, TO AVERAGE TO AVERAGE PORTFOLIO
BEGINNING INVESTMENT GAIN ON INVESTMENT GAIN ON END OF TOTAL NET NET TURNOVER
OF PERIOD INCOME INVESTMENTS(B) INCOME INVESTMENTS PERIOD RETURN(C) ASSETS ASSETS RATE
--------- ---------- -------------- ---------- ----------- ------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year Ended October 31, 1997
Institutional
Shares $24.00 $0.59 $3.93 $(0.59) $(1.26) $26.67 19.92% 1.13% 2.44% 31%
Service
Shares(a) 23.25 0.40 3.42 (0.41) -- 26.66 16.53 1.38(d) 2.13(d) 31
For the Year Ended October 31, 1996
Institutional
Shares 22.10 0.54 2.56 (0.54) (0.66) 24.00 14.45 1.13 2.47 58
For the Period December 12, 1994 (commencement of operations) through October 31, 1995
Institutional
Shares 18.00 0.59 4.06 (0.55) -- 22.10 26.14 1.13(d) 3.28(d) 59
<CAPTION>
RATIOS ASSUMING
NO WAIVER OF
INVESTMENT ADVISORY
FEES OR EXPENSE
REIMBURSEMENTS
---------------------
RATIO
OF NET
NET RATIO OF INVESTMENT
ASSETS EXPENSES INCOME
AVERAGE AT END TO AVERAGE TO AVERAGE
COMMISSION OF PERIOD NET NET
RATE (IN 000'S) ASSETS ASSETS
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
For the Year Ended October 31, 1997
Institutional
Shares $0.0604 $105,782 1.53% 2.04%
Service
Shares(a) 0.0604 1,219 1.78(d) 1.73(d)
For the Year Ended October 31, 1996
Institutional
Shares 0.0764 69,880 1.45 2.15
For the Period December 12, 1994 (commencement of operations) through October 31, 1995
Institutional
Shares -- 48,329 1.45(d) 2.96(d)
</TABLE>
- ----
(a) Service share activity commenced on January 2, 1997.
(b) Includes the balancing effect of calculating per share amounts.
(c) Assumes investment at the net asset value 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 sales charges were taken
into account.
(d) Annualized.
The accompanying notes are an integral part of these financial statements.
62
<PAGE>
THE COMMERCE FUNDS
GROWTH AND INCOME FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS SHAREHOLDERS
--------------------- ----------------------
NET
REALIZED
AND
NET ASSET UNREALIZED FROM NET
VALUE, NET GAIN ON FROM NET REALIZED
BEGINNING INVESTMENT INVEST- INVESTMENT GAIN ON
OF PERIOD INCOME MENTS(B) INCOME INVESTMENTS
--------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
For the Period March 3, 1997(a) through October 31, 1997
Institutional
Shares $18.00 $0.15 $3.80 $(0.13) --
Service Shares 18.00 0.12 3.80 (0.11) --
<CAPTION>
RATIOS ASSUMING
NO EXPENSE
REIMBURSEMENTS
-----------------------
RATIO
NET RATIO OF NET RATIO RATIO
ASSET OF NET INVESTMENT NET OF NET OF NET
VALUE, EXPENSES INCOME TO AVERAGE ASSETS AT EXPENSES INVESTMENT
END TO AVERAGE AVERAGE PORTFOLIO COMMIS- END TO AVERAGE LOSS TO
OF TOTAL NET NET TURNOVER SION OF PERIOD NET AVERAGE
PERIOD RETURN(C) ASSETS ASSETS RATE RATE (IN 000'S) ASSETS NET ASSETS
------ --------- ----------- ----------- --------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the Period March 3, 1997(a) through October 31, 1997
Institutional
Shares $21.82 22.00% 1.20%(d) 1.30%(d) 5% $0.0774 $45,173 2.02%(d) 0.48%(d)
Service Shares 21.81 21.81 1.45(d) 1.02(d) 5 0.0774 2,588 2.27(d) 0.20(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 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 sales charges were taken
into account.
(d) Annualized.
The accompanying notes are an integral part of these financial statements.
63
<PAGE>
THE COMMERCE FUNDS
GROWTH FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS SHAREHOLDERS
------------------------- -------------------------
NET
REALIZED
NET ASSET AND
VALUE, NET UNREALIZED FROM NET FROM NET
BEGINNING INVESTMENT GAIN ON INVESTMENT REALIZED GAIN
OF PERIOD INCOME INVESTMENTS(B) INCOME ON INVESTMENTS
--------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
For the Year Ended October
31, 1997
Institutional
Shares $28.95 $0.19 $7.51 $(0.19) $(1.92)
Service
Shares(a) 28.26 0.09 6.25 (0.10) --
For the Year Ended October
31, 1996
Institutional
Shares 24.68 0.19 5.40 (0.19) (1.13)
For the Period December 12, 1994 (commencement of operations) through October 31, 1995
Institutional
Shares 18.00 0.15 6.68 (0.15) --
<CAPTION>
RATIO
NET RATIO OF NET
ASSET OF NET INVESTMENT NET
VALUE, EXPENSES INCOME ASSETS AT
END TO AVERAGE TO AVERAGE PORTFOLIO AVERAGE END
OF TOTAL NET NET TURNOVER COMMISSION OF PERIOD
PERIOD RETURN(C) ASSETS ASSETS RATE RATE (IN 000'S)
------ --------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
For the Year Ended October
31, 1997
Institutional
Shares $34.54 28.12% 1.11% 0.60% 32% $0.0556 $343,773
Service
Shares(a) 34.50 22.47 1.36(d) 0.35(d) 32 0.0556 5,758
For the Year Ended October
31, 1996
Institutional
Shares 28.95 23.43 1.08 0.72 36 0.0654 208,908
For the Period December 12, 1994 (commencement of operations) through October 31, 1995
Institutional
Shares 24.68 38.06 1.11(d) 0.81(d) 33 -- 141,735
</TABLE>
- ----
(a) Service share activity commenced on January 2, 1997.
(b) Includes the balancing effect of calculating per share amounts.
(c) Assumes investment at the net asset value 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 sales charges were taken
into account.
(d) Annualized.
The accompanying notes are an integral part of these financial statements.
64
<PAGE>
THE COMMERCE FUNDS
MIDCAP FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS SHAREHOLDERS
------------------------- -------------------------
NET
REALIZED
NET ASSET AND
VALUE, NET UNREALIZED FROM NET FROM NET
BEGINNING INVESTMENT GAIN ON INVESTMENT REALIZED GAIN
OF PERIOD LOSS INVESTMENTS(B) INCOME ON INVESTMENTS
--------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
For the Year Ended October
31, 1997
Institutional
Shares $28.06 $(0.13) $5.38 -- $(0.29)
Service
Shares(a) 28.64 (0.11) 4.41 -- --
For the Year Ended October
31, 1996
Institutional
Shares 25.30 (0.07) 3.51 -- (0.68)
For the Period December 12, 1994 (commencement of operations) through October 31, 1995
Institutional
Shares 18.00 (0.04) 7.34 -- --
<CAPTION>
RATIO
NET RATIO OF NET
ASSET OF NET INVESTMENT NET
VALUE, EXPENSES LOSS ASSETS AT
END TO AVERAGE TO AVERAGE PORTFOLIO AVERAGE END
OF TOTAL NET NET TURNOVER COMMISSION OF PERIOD
PERIOD RETURN(C) ASSETS ASSETS RATE RATE (IN 000'S)
------ --------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
For the Year Ended October
31, 1997
Institutional
Shares $33.02 18.88% 1.23% (0.61)% 89% $0.0608 $112,442
Service
Shares(a) 32.94 15.01 1.48(d) (0.95)(d) 89 0.0608 658
For the Year Ended October
31, 1996
Institutional
Shares 28.06 13.78 1.22 (0.37) 71 0.0692 74,641
For the Period December 12, 1994 (commencement of operations) through October 31, 1995
Institutional
Shares 25.30 40.56 1.32(d) (0.29)(d) 59 -- 41,665
</TABLE>
- ----
(a) Service share activity commenced on January 2, 1997.
(b) Includes the balancing effect of calculating per share amounts.
(c) Assumes investment at the net asset value 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 sales charges were taken
into account.
(d) Annualized.
The accompanying notes are an integral part of these financial statements.
65
<PAGE>
THE COMMERCE FUNDS
INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS SHAREHOLDERS
-------------------------------- ----------------------
NET
REALIZED
NET AND
REALIZED UNREALIZED
AND LOSS ON
UNREALIZED FOREIGN
NET ASSET GAIN CURRENCY FROM NET
VALUE, NET (LOSS) ON RELATED FROM NET REALIZED
BEGINNING INVESTMENT INVEST- TRANS- INVESTMENT GAIN ON
OF PERIOD INCOME MENTS(B) ACTIONS(B) INCOME INVESTMENTS
--------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended October 31, 1997
Institutional
Shares $20.96 $0.06 $2.07 $(0.65) $(0.10) $(0.24)
Service
Shares(a) 21.70 0.01 0.51 (0.16) -- --
For the Year Ended October 31, 1996
Institutional
Shares $18.64 $0.11 $3.02 $(0.67) $(0.07) $(0.07)
For the Period December 12, 1994 (commencement of operations) through October 31, 1995
Institutional
Shares 18.00 0.12 0.95 (0.40) (0.03) --
<CAPTION>
RATIOS ASSUMING
NO WAIVER OF
INVESTMENT ADVISORY
FEES OR EXPENSE
REIMBURSEMENTS
---------------------
RATIO RATIO
NET RATIO OF NET OF NET
ASSET OF NET INVESTMENT NET RATIO INVESTMENT
VALUE, EXPENSES INCOME TO AVERAGE ASSETS AT OF INCOME
END TO AVERAGE AVERAGE PORTFOLIO COMMIS- END EXPENSES (LOSS) TO
OF TOTAL NET NET TURNOVER SION OF PERIOD TO AVERAGE AVERAGE
PERIOD RETURN(C) ASSETS ASSETS RATE RATE (IN 000'S) NET ASSETS NET ASSETS
------ --------- ---------- ---------- --------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year Ended October 31, 1997
Institutional
Shares $22.10 7.15% 1.72% 0.35% 22% $0.0007 $78,273 2.23% (0.16)%
Service
Shares(a) 22.06 1.66 1.97(d) 0.14(d) 22 0.0007 231 2.48(d) (0.37)(d)
For the Year Ended October 31, 1996
Institutional
Shares $20.96 13.25 1.72 0.74 21 0.0147 51,589 2.64 (0.18)
For the Period December 12, 1994 (commencement of operations) through October 31, 1995
Institutional
Shares 18.64 3.73 1.81(d) 1.06(d) 25 -- 21,014 3.50(d) (0.63)(d)
</TABLE>
- ----
(a) Service share activity commenced on January 2, 1997.
(b) Includes the balancing effect of calculating per share amounts.
(c) Assumes investment of the net asset value 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 sales charges were taken
into account.
(d) Annualized.
The accompanying notes are an integral part of these financial statements.
66
<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
AND
UNREALIZED
NET ASSET GAIN FROM NET
VALUE, NET (LOSS) ON FROM NET REALIZED
BEGINNING INVESTMENT INVEST- INVESTMENT GAIN ON
OF PERIOD INCOME MENTS(b) INCOME INVESTMENTS
--------- ---------- ---------- ---------- -----------
NATIONAL TAX-FREE BOND FUND
<S> <C> <C> <C> <C> <C>
For the Year
Ended October
31, 1997 $18.46 $0.72 $ 0.39 $(0.72) $ --
For the Year
Ended October
31, 1996 18.54 0.73 (0.07) (0.73) (0.01)
For the Period
February 21,
1995(a) through
October 31, 1995 18.00 0.54 0.54 (0.54) --
<CAPTION>
RATIOS ASSUMING
NO EXPENSE
REIMBURSEMENTS
---------------------
RATIO
NET RATIO OF NET RATIO
ASSET OF NET INVESTMENT NET RATIO OF NET
VALUE, EXPENSES INCOME TO ASSETS AT OF INVESTMENT
END TO AVERAGE AVERAGE PORTFOLIO END EXPENSES INCOME TO
OF TOTAL NET NET TURNOVER OF PERIOD TO AVERAGE AVERAGE
PERIOD RETURN(c) ASSETS ASSETS RATE (IN 000'S) NET ASSETS NET ASSETS
------ --------- ---------- ---------- --------- ---------- ---------- ----------
NATIONAL TAX-FREE BOND FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year
Ended October
31, 1997 $18.85 6.16% 0.85% 3.89% 6% $25,281 1.15% 3.59%
For the Year
Ended October
31, 1996 18.46 3.60 0.85 3.93 34 17,613 1.55 3.23
For the Period
February 21,
1995(a) through
October 31, 1995 18.54 6.06 0.85(d) 4.19(d) 19 10,721 1.90(d) 3.14(d)
<CAPTION>
INCOME FROM DISTRIBUTIONS TO
INVESTMENT OPERATIONS SHAREHOLDERS
--------------------- ----------------------
NET
REALIZED
AND
UNREALIZED
NET ASSET GAIN FROM NET
VALUE, NET (LOSS) ON FROM NET REALIZED
BEGINNING INVESTMENT INVEST- INVESTMENT GAIN ON
OF PERIOD INCOME MENTS(b) INCOME INVESTMENTS
--------- ---------- ---------- ---------- -----------
MISSOURI TAX-FREE BOND FUND
<S> <C> <C> <C> <C> <C>
For the Year
Ended October
31, 1997 $18.26 $0.76 $ 0.37 $(0.76) $(0.02)
For the Year
Ended October
31, 1996 18.40 0.76 (0.14) (0.76) --
For the Period
February 21,
1995(a) through
October 31, 1995 18.00 0.57 0.40 (0.57) --
<CAPTION>
RATIOS ASSUMING
NO EXPENSE
REIMBURSEMENTS
---------------------
RATIO
NET RATIO OF NET RATIO
ASSET OF NET INVESTMENT NET RATIO OF NET
VALUE, EXPENSES INCOME TO ASSETS AT OF INVESTMENT
END TO AVERAGE AVERAGE PORTFOLIO END EXPENSES INCOME TO
OF TOTAL NET NET TURNOVER OF PERIOD TO AVERAGE AVERAGE
PERIOD RETURN(c) ASSETS ASSETS RATE (IN 000'S) NET ASSETS NET ASSETS
------ --------- ---------- ---------- --------- ---------- ---------- ----------
MISSOURI TAX-FREE BOND FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Year
Ended October
31, 1997 $18.61 6.31% 0.65% 4.14% 13% $24,434 1.21% 3.58%
For the Year
Ended October
31, 1996 18.26 3.43 0.65 4.14 49 17,034 1.58 3.21
For the Period
February 21,
1995(a) through
October 31, 1995 18.40 5.45 0.65(d) 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.
67
<PAGE>
THE COMMERCE FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
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 nine portfolios
(individually, a "Fund" and collectively, the "Funds"): Short-Term Government
Fund, Bond Fund, Balanced Fund, Growth and Income Fund, Growth Fund, MidCap
Fund (formerly Aggressive Growth Fund), International Equity Fund, National
Tax-Free Bond Fund and Missouri Tax-Free Bond Fund. Each of the Funds (except
National Tax-Free Bond Fund and Missouri Tax-Free Bond Fund which only offer
Institutional Shares) offer two classes of shares, Institutional Shares and
Service Shares. The Growth and Income Fund commenced investment operations on
March 3, 1997 with both Institutional and Service Shares. All other Service
Shares commenced investment operations on January 2, 1997. 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 that
exchange as of the close of business of the exchange immediately preceding the
time of valuation. 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 as of 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, MidCap and
68
<PAGE>
THE COMMERCE FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
International Equity Funds accrete market discounts and amortize premiums on a
yield to maturity basis. The Short-Term Government, Bond, Balanced and Growth
and Income 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 increase or decrease ordinary taxable 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.
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 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.
69
<PAGE>
THE COMMERCE FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 $179,958 2004-2005
Bond Fund 216,767 2005
National Tax-Free Bond Fund 115 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.
G. Deferred Organization Expenses
Organization 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 The Goldman Sachs Group, L.P.
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 organization expense.
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. Service Class shareholders bear all
expenses and fees relating to the Distribution Plan.
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, Growth and Income and
Growth Funds; and declared and paid annually by the MidCap 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.
70
<PAGE>
THE COMMERCE FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 and Income Fund............................................. .75%
Growth Fund........................................................ .75%
MidCap Fund........................................................ .75%
International Equity Fund.......................................... 1.50%
National Tax-Free Bond Fund........................................ .50%
Missouri Tax-Free Bond Fund........................................ .50%
</TABLE>
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, 1997, 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, .99% 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, 1997 was to reduce advisory fees by $79,521,
$216,475, $346,574 and $38,968 for the Short-Term Government, Balanced,
International Equity and Missouri Tax-Free Bond Funds, respectively.
In addition, for the year ended October 31, 1997, the Advisor has
voluntarily agreed to reimburse expenses (excluding interest, taxes,
distribution expenses and extraordinary expenses) to the extent that such
total expenses exceed, on an annualized basis, .68%, .88%, 1.13%, 1.20%,
1.13%, 1.72%, .85% and .65% of average net assets of the Short-Term
Government, Bond, Balanced, Growth and Income, 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,
1997 was to reduce expenses by $88,977, $128,384, $116,567, $61,410 and
$69,387 for the Short-Term Government, Balanced, Growth and Income, National
Tax-Free Bond and Missouri Tax-Free Bond Funds, respectively. The amounts
reimbursable to the Short-Term Government, Balanced, Growth and Income,
National Tax-Free Bond and Missouri Tax-Free Bond Funds at October 31, 1997
are $9,883, $27,107, $18,323, $2,161 and $6,842, respectively, and are
reflected in "Other Assets" in the accompanying Statements of Assets and
Liabilities.
71
<PAGE>
THE COMMERCE FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. AGREEMENTS--(CONTINUED)
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 Short-Term Government Fund is 2.00%; for all other
Funds, the maximum sales load imposed on the sale of shares of the Funds is
3.50%. Goldman Sachs has advised the Trust that it has retained approximately
$47,000 for the year ended October 31, 1997.
The Trust, on behalf of each Fund (except National Tax-Free Bond Fund and
Missouri Tax-Free Bond Fund), has adopted a Distribution Plan for the Service
Shares pursuant to Rule 12b-1. Under the distribution plan, payments by each
Fund for distribution expenses may not exceed .25% (annualized) of the average
daily net assets of the Fund's Service Shares.
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
4. INVESTMENT TRANSACTIONS
Purchases and proceeds from sales or maturities of long-term securities for
the year ended October 31, 1997 were as follows:
<TABLE>
<S> <C>
SHORT-TERM GOVERNMENT FUND
Purchases (excluding U.S. Government securities)................... $ 4,073,361
Sales (excluding U.S. Government securities)....................... 1,014,120
Purchases of U.S. Government securities............................ 24,648,692
Sales of U.S. Government securities................................ 11,810,070
BOND FUND
Purchases (excluding U.S. Government securities)................... $34,385,439
Sales (excluding U.S. Government securities)....................... 10,980,424
Purchases of U.S. Government securities............................ 68,964,093
Sales of U.S. Government securities................................ 20,316,563
BALANCED FUND
Purchases (excluding U.S. Government securities)................... $41,279,921
Sales (excluding U.S. Government securities)....................... 23,338,147
Purchases of U.S. Government securities............................ 14,452,831
Sales of U.S. Government securities................................ 7,673,649
</TABLE>
72
<PAGE>
THE COMMERCE FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. INVESTMENT TRANSACTIONS--(CONTINUED)
<TABLE>
<S> <C>
GROWTH AND INCOME FUND
Purchases (excluding U.S. Government securities)................. $ 42,992,505
Sales (excluding U.S. Government securities)..................... 1,310,992
Purchases of U.S. Government securities.......................... --
Sales of U.S. Government securities.............................. --
GROWTH FUND
Purchases (excluding U.S. Government securities)................. $ 157,313,963
Sales (excluding U.S. Government securities)..................... 86,174,038
Purchases of U.S. Government securities.......................... --
Sales of U.S. Government securities.............................. --
MIDCAP FUND
Purchases (excluding U.S. Government securities)................. $ 96,616,428
Sales (excluding U.S. Government securities)..................... 75,018,728
Purchases of U.S. Government securities.......................... --
Sales of U.S. Government securities.............................. --
INTERNATIONAL EQUITY FUND
Purchases (excluding U.S. Government securities)................. $ 35,954,565
Sales (excluding U.S. Government securities)..................... 13,473,884
Purchases of U.S. Government securities.......................... --
Sales of U.S. Government securities.............................. --
NATIONAL TAX-FREE BOND FUND
Purchases (excluding U.S. Government securities)................. $ 17,156,735
Sales (excluding U.S. Government securities)..................... 10,466,472
Purchases of U.S. Government securities.......................... --
Sales of U.S. Government securities.............................. --
MISSOURI TAX-FREE BOND FUND
Purchases (excluding U.S. Government securities)................. $ 16,394,011
Sales (excluding U.S. Government securities)..................... 8,087,456
Purchases of U.S. Government securities.......................... --
Sales of U.S. Government securities.............................. --
</TABLE>
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 National Tax
Free Bond Fund may invest significant amounts in selected states. The issuers'
abilities to meet their obligations may be affected by the states' economic or
political developments.
6. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Short-Term Government,
Bond, Balanced, Growth, MidCap, International Equity, National Tax-Free Bond
and Missouri Tax-Free Bond Funds have reclassified $5,389, $5,724, $5,516,
$5,842, $5,350, $5,318, $5,778 and $5,746 respectively, from paid-in capital
to accumulated undistributed net investment income. The Short-Term Government,
Bond, Balanced and International Equity Funds have reclassified $37,486,
$73,763, $2,362 and $28,387, respectively, of accumulated net realized gain on
investment transactions to accumulated undistributed net investment income.
73
<PAGE>
THE COMMERCE FUNDS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The MidCap Fund has reclassified $533,207 of accumulated net investment loss
to paid-in capital. The International Equity Fund has reclassified $12,722 of
accumulated net realized loss on foreign currency related transactions 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.
THE COMMERCE FUNDS (UNAUDITED)
During the year ended October 31, 1997, 99.57% and 97.75% 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, 1997, 4.52% and 3.25% 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, 1997, 28.55%, 100.00% and 100.00% of the
dividends paid from net investment income by the Balanced Fund, Growth and
Income Fund and Growth Fund, respectively, qualify for the dividends received
deduction available to corporations.
74
<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
Gordon F. Linke
Vice President
Nancy L. Mucker
Vice President
John M. Perlowski
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 AUDITORS
KPMG Peat Marwick LLP
1000 Walnut Street
Kansas City, Missouri 64106
LEGAL COUNSEL
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
COM-ANN97
LOGO COMMERCE FUNDS TM
The Short-Term Government Fund
The Bond Fund
The Balanced Fund
The Growth and Income Fund
The Growth Fund
The MidCap Fund
The International Equity Fund
The National Tax-Free Bond Fund
The Missouri Tax-Free Bond Fund
Annual Report
October 31, 1997
