<PAGE>
THE COMMERCE FUNDS
Annual Report - October 31, 1998
commerce funds
<PAGE>
Building on Your Values
The value of a shared perspective
At The Commerce Funds, we have a simple, straightforward mission: to build
relationships that have lasting value to our clients.
We achieve our mission by keeping our focus squarely on what matters most: the
financial success and well-being of the customers we serve. At The Commerce
Funds, looking at the world through our customers' eyes has helped us to create
a family of mutual funds designed
to assist you in meeting the financial challenges that lie ahead.
The power of professional commitment
Behind each of The Commerce Funds is a consistent, long-term investment
philosophy and a commitment to the highest investment standards. Our success in
helping investors like you reach their financial goals has proven the wisdom of
this careful, disciplined approach to investing.
Your relationship with The Commerce Funds is built on a foundation of shared
values and many years of investment experience. Working from this solid
foundation, we're equipped to help our customers meet the challenge of investing
for a lifetime.
Strength, insight, and service: good reasons to invest with
The Commerce Funds.
The Commerce Funds
International Equity
MidCap
Growth
Growth and Income
Balanced
Missouri Tax-Free
Intermediate Bond
National Tax-Free
Intermediate Bond
Bond
Short-Term Government
Potential
Return
Risk
In general, greater returns are associated with greater risks.
<PAGE>
COMMERCE FUNDS
Shareholder Letter
Dear Shareholder,
WE ARE PLEASED TO INTRODUCE A NEW LOOK AND FORMAT FOR THE COMMERCE FUNDS AN-
NUAL REPORT. THIS ANNUAL REPORT CONTAINS DETAILED PERFORMANCE AND FINANCIAL
INFORMATION ABOUT EACH OF THE NINE COMMERCE FUNDS PORTFOLIOS. IN THIS SHARE-
HOLDER LETTER, OUR OBJECTIVE IS TO PROVIDE AN INFORMATIVE ECONOMIC COMMEN-
TARY, AS IT RELATES TO THE RECENT PERFORMANCE OF THE COMMERCE FUNDS, AND OUR
OUTLOOK FOR THE FUTURE.
Market and Economic Update
Turmoil in many Asian economies, Japan in particular,
prompted much of the instability and disruptive currency
fluctuations experienced across world markets. Despite ex-
treme market volatility early this fall, the U.S. economy
remains strong. While it is important to recognize the im-
pact of the interrelationship between U.S. markets and the
global marketplace, we don't think it is likely that any
economic imbalances will trigger a recession. With low in-
flation, low unemployment, and a balanced budget, our fi-
nancial system is very solid.
Over the 12-month period ended October 31, 1998, the S&P
500 posted an approximate 22% return. There have been some
stomach-turning ups and downs in the financial markets over
the past 12-months. Cashing out and trying to effectively
time re-entry makes it all too easy to miss buying opportu-
nities that occur only every few years. Specifically, there
is potential for good returns among medium-sized companies
where price-to-earnings ratios are attractive relative to
the S&P 500 average. Throughout the period, we have re-
mained invested, while continuing to look for select, stra-
tegic buying opportunities.
It has also been an unusual year in the bond markets, not
in terms of results, but in the way these results have been
generated. Normally, investors are compensated to take on
more risk with lower quality bonds. This year, U.S. Trea-
suries have been the highest performing asset class. High
yielding "junk" bonds experienced a negative return -- an
example of the risk associated with intense periods of re-
versal. Though we participate in all investment grade bond
sectors, we recently increased the allocation in asset-
backed securities, which are bonds backed by specific pools
of assets, such as credit card receivables. In addition, we
deliberately purchased in the down-trending market to take
advantage of lower prices to add to yield.
Volatile markets underscore the benefits of asset alloca-
tion and provide an important opportunity to validate the
assumptions of the planning process. While sobering in many
ways, volatility also offers opportunities to re-balance
assets, buy-into undervalued markets, and redistribute dol-
lars from assets that have grown disproportionate to the
overall portfolio.
We believe the underlying strength of the U.S. economy will
accrue to the value of a diversified, professionally man-
aged portfolio. We will continue to work diligently to pro-
vide quality investments that help you meet your investment
objectives over the long term. We are pleased to have you
as a Commerce Funds shareholder.
Sincerely,
Peter F. Mackie
President
Investment Management Group
Commerce Bank, N.A.
November 20, 1998
1
<PAGE>
COMMERCE SHORT-TERM GOVERNMENT FUND
Shareholder Letter
Dear Shareholder,
WE ARE PLEASED TO REPORT ON THE PERFORMANCE OF THE COMMERCE SHORT-TERM GOV-
ERNMENT FUND FOR THE 12-MONTH PERIOD ENDED OCTOBER 31, 1998.
Performance Review
The Institutional Shares had a total return of 7.94% for
the 12 months ended October 31, 1998. (Refer to the Short-
Term Government Fund's Performance Summary for the perfor-
mance information pertaining to the Service Shares.) This
compares with a 6.87% return for the Lipper Short U.S. Gov-
ernment Funds Index and a 8.62% return for the Salomon
Brothers 1-5 Year Treasury/Government Sponsored Index.
Portfolio Highlights
.The Fund was positioned with a near-maximum average matu-
rity during the second half of the fiscal period. We are
maintaining that maturity position and look to add value
for our shareholders. We will seek to achieve this by in-
vesting in higher-yielding securities, including mortgage-
backed securities with short, stable average lives.
.We expect that well-structured mortgage securities will
continue to provide good risk- adjusted incremental re-
turns.
We thank you for your investment and look forward to your
continued confidence.
Sincerely,
Fixed Income Team
Investment Management Group
Commerce Bank, N.A.
November 20, 1998
2
<PAGE>
COMMERCE SHORT-TERM GOVERNMENT FUND
Performance Summary (Unaudited)
October 31, 1998
The following graph shows the value, as of October 31, 1998, of a $10,000 in-
vestment made on December 12, 1994 in the Institutional Shares. For compara-
tive purposes, the performance of the Fund's benchmarks (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) are shown. The per-
formance data represents past performance and should not be considered indic-
ative of future performance which will fluctuate with changes in market
conditions. These performance fluctuations will cause an investor's shares,
when redeemed, to be worth more or less than their original cost. Performance
of the Service Shares will vary from the Institutional Shares due to differ-
ences in fees and loads.
SHORT-TERM GOVERNMENT FUND'S--INSTITUTIONAL SHARES LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED DECEMBER 12, 1994 TO
OCTOBER 31, 1998
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Institutional Salomon Brothers Lipper Short
<S> <C> <C> <C>
12/12/94 10,000 10,000 10,000
10/31/95 11,072 11,082 10,930
10/31/96 11,629 11,736 11,520
10/31/97 12,379 12,533 12,248
10/31/98 13,362 13,613 13,090
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C>
INSTITUTIONAL SHARES (COMMENCED DECEMBER 12, 1994) 7.73% 7.94%
-------------------------------------------------------------------------------
SERVICE SHARES (COMMENCED JANUARY 2, 1997)
Excluding sales charges 7.38% 7.67%
Including sales charges (maximum sales charge 2.00%) 6.22% 5.50%
-------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
COMMERCE SHORT-TERM GOVERNMENT FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - 42.1%
Bear Stearns Mortgage Securities, Inc. Series 1998-1, Class A17
$ 250,000 5.00% 03/25/28 $ 234,728
CMC Securities Corp. REMIC Series 1993-B, Class B4
1,236,712 6.85 04/25/23 1,237,231
Countrywide Home Loans, Inc.
517,436 8.00 08/25/27 531,553
Federal Home Loan Mortgage Corp. REMIC PAC Series 1205, Class G
250,000 7.00 03/15/07 257,577
Federal Home Loan Mortgage Corp. REMIC PAC Series 1360, Class PE
210,000 3.50 12/15/17 206,850
Federal Home Loan Mortgage Corp. REMIC PAC Series 1526, Class N
1,428,794 6.50 12/15/22 1,441,739
Federal Home Loan Mortgage Corp. REMIC PAC Series 1619, Class EC
500,000 5.60 11/15/23 499,685
Federal Home Loan Mortgage Corp. REMIC Series 1112, Class F
47,688 8.40 01/15/21 48,046
Federal Home Loan Mortgage Corp. REMIC Series 1574, Class P
169,878 6.50 07/15/23 170,303
Federal Home Loan Mortgage Corp. REMIC Series 1617, Class C
149,000 6.50 02/15/23 150,909
Federal Home Loan Mortgage Corp. REMIC Series 1632, Class B
200,000 6.00 11/15/23 200,812
Federal Home Loan Mortgage Corp. REMIC Series 1727, Class E
660,000 6.50 04/15/18 670,930
Federal Home Loan Mortgage Corp. Series 1255, Class G
284,895 7.50 07/15/21 290,593
Federal Home Loan Mortgage Corp. Series 1652, Class PJ
500,000 6.60 08/15/22 519,685
Federal Home Loan Mortgage Corp. Series 180, Class G
400,590 8.00 09/15/21 404,844
Federal National Mortgage Assn. REMIC PAC Series 1991-118, Class K
356,730 7.00 08/25/21 360,853
Federal National Mortgage Assn. REMIC PAC Series 1992-129, Class G
354,485 4.00 06/25/18 350,606
Federal National Mortgage Assn. REMIC PAC Series 1992-49, Class H
161,625 7.00 05/25/20 162,029
Federal National Mortgage Assn. REMIC PAC Series 1993-208, Class L
24,652 6.50 03/25/23 24,798
Federal National Mortgage Assn. REMIC PAC Series 1996-28, Class PE
281,000 6.50 03/25/20 290,484
Federal National Mortgage Assn. REMIC PAC Series G92-35, Class D
210,000 4.50 08/25/21 206,653
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - (CONTINUED)
Federal National Mortgage Assn. REMIC Series 1992-1, Class E
$ 447,385 7.50% 01/25/07 $ 461,504
Federal National Mortgage Assn. REMIC Series 1993-225C, Class NE
1,750,390 6.50 12/25/22 1,750,390
Federal National Mortgage Assn. REMIC Series 1993-245, Class N
200,000 6.50 12/25/23 202,624
Federal National Mortgage Assn. REMIC Series 1993-76, Class A
357,532 6.00 06/25/08 357,532
Federal National Mortgage Assn. REMIC Series 1994-23, Class A
158,679 6.00 12/25/22 158,481
Federal National Mortgage Assn. REMIC Series G94-9, Class C
250,000 6.25 04/17/10 250,780
Federal National Mortgage Assn. REMIC Series X-130A, Class H
510,000 6.30 09/25/18 520,996
Federal National Mortgage Assn. REMIC Series X-225C, Class G
630,334 6.50 11/25/22 630,530
Federal National Mortgage Assn. REMIC Series X-225C, Class NB
1,539,176 6.50 12/25/22 1,542,531
Federal National Mortgage Assn. REMIC Series X-225C, Class NC
3,229,000 6.50 03/25/23 3,273,399
Federal National Mortgage Assn. Series 1993-139, Class KB
818,404 7.00 11/25/00 828,119
Federal National Mortgage Assn. Series 1995-19E, Class L
282,018 6.25 08/25/08 286,775
Federal National Mortgage Assn. Series1996-55 Class G, Class G
1,071,732 7.00 04/25/14 1,074,814
GE Capital Mortgage Services, Inc. REMIC Series 1997-8, Class A11
1,500,000 7.25 10/25/27 1,533,398
GE Capital Mortgage Services, Inc. Series 1993-16, Class A4
48,934 6.25 12/25/23 48,888
Independent National Mortgage Corp. REMIC
Series 1995-M, Class A1
214,708 7.50 09/25/25 215,176
Prudential Home Mortgage Securities Co. REMIC PAC Series 1993-3, Class A6
4,000,000 7.40 02/25/08 4,197,480
Prudential Home Mortgage Securities Series 1993-43, Class A1
416,412 5.40 10/25/23 414,980
Residential Funding Mortgage Securities I REMIC PAC Series 1994-S1, Class
A7
279,512 6.57 01/25/24 279,484
Residential Funding Mortgage Securities I, Inc. REMIC Series 1995-S12,
Class A2
1,500,000 7.25 08/25/10 1,524,375
Residential Funding Mortgage Securities I, Inc. REMIC Series 1997-S3,
Class A3
250,000 7.30 03/25/07 254,382
Residential Funding Mortgage Securities Series 1993-S49, Class A2
643,050 6.00 12/25/08 643,647
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
<PAGE>
COMMERCE SHORT-TERM GOVERNMENT FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - (CONTINUED)
Saxon Mortgage Securities Corp. REMIC Series 1993-8A, Class 1A5
$ 500,000 7.38% 09/25/23 $ 515,352
Securitized Asset Sales, Inc. Series 1993-7, Class T
470,000 6.25 12/25/23 484,537
-------------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(COST $28,978,626) $29,711,082
-------------------------------------------------------------------------------------------------
MORTGAGE-BACKED PASS-THROUGH OBLIGATIONS - 2.8%
Federal Home Loan Mortgage Corp.
$ 15,833 8.75% 02/01/01 $ 16,095
21,034 8.75 04/01/01 22,119
178,469 8.25 08/01/01 180,700
121,164 7.75 09/01/07 124,299
Federal National Mortgage Assn.
350,332 8.00 12/01/07 364,745
389,399 6.50 02/01/12 395,178
183,647 9.00 07/01/24 195,041
Government National Mortgage Assn.
267,667 8.00 10/15/16 280,129
394,957 8.00 07/15/17 413,026
-------------------------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED PASS-THROUGH OBLIGATIONS
(COST $1,954,946) $ 1,991,332
-------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 40.6%
Federal Agriculture Mortgage Corp.
$ 500,000 6.69% 02/10/00 $ 512,660
Federal Farm Credit Bank
1,000,000 7.17 04/03/00 1,033,120
1,000,000 6.10 11/19/01 1,036,090
Federal Home Loan Bank
530,000 7.13 03/27/00 547,140
1,250,000 7.44 08/10/01 1,335,550
1,000,000 6.53 08/28/01 1,045,780
1,000,000 6.63 08/28/01 1,051,450
965,000 7.56 02/27/02 1,045,664
4,000,000 7.17 07/22/02 4,318,120
1,630,000 6.89 04/06/04 1,773,130
1,700,000 5.43 09/24/08 1,701,853
Federal Home Loan Mortgage Corp.
500,000 7.90 01/27/00 518,750
1,000,000 6.52 08/25/00 1,030,620
500,000 6.70 07/25/01 524,455
200,000 5.75 04/15/08 207,750
Federal National Mortgage Assn.
1,000,000 9.20 09/11/00 1,078,590
250,000 6.18 03/15/01 257,812
500,000 6.63 04/18/01 525,155
700,000 6.38 08/14/01 728,987
3,050,000 5.75 04/15/03 3,167,700
625,000 7.40 07/01/04 697,950
215,000 7.88 02/24/05 248,022
Israel Aid Series 5A
2,000,000 7.75 11/15/99 2,056,620
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS - (CONTINUED)
Student Loan Marketing Assn.
$ 180,000 6.05 09/14/00 $ 183,825
Tennessee Valley Authority 1989, Series D
575,000 6.00% 11/01/00 586,678
U.S. Department of Housing & Urban Development Series 1994-A
100,000 6.44 08/01/02 104,837
U.S. Department of Housing & Urban Development Series 1995-A
1,250,000 8.15 08/01/00 1,315,162
----------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $28,075,840) $28,633,470
----------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 8.8%
United States Treasury Notes
$1,500,000 6.00% 07/31/02 $ 1,582,260
600,000 5.75 08/15/03 635,904
3,550,000 6.50 10/15/06 3,982,106
----------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $6,011,657) $ 6,200,270
----------------------------------------------------------------------------------------------
SHORT TERM OBLIGATIONS - 4.5%
Federal Home Loan Mortgage Corp. Discount Notes
$ 715,000 4.06%(a) 11/06/98 $ 714,523
1,808,000 4.49(a) 11/13/98 1,805,107
State Street Bank & Trust Company Repurchase Agreement(b)
$ 610,000 5.25% 11/02/98 $ 610,000
----------------------------------------------------------------------------------------------
TOTAL SHORT TERM INVESTMENTS
(COST $3,129,630) $ 3,129,630
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $68,150,699)(C) $69,665,784
----------------------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $ 1,628,215
Gross unrealized loss for investments in which
cost exceeds value (113,130)
----------------------------------------------------------------------------------------------
Net unrealized gain $ 1,515,085
----------------------------------------------------------------------------------------------
</TABLE>
The percentage shown for each investment category reflects the value of in-
vestments in that category as a percentage of total net assets.
(a) The interest rate disclosed for this security represents the effective
yield to maturity.
(b) The repurchase agreement is fully collateralized by U.S. Treasury securi-
ties.
(c) The cost stated also represents aggregate cost for federal income tax
purposes.
------------------------------------------------------------------------------
INVESTMENT ABBREVIATIONS:
PAC --Planned Amortization Class
REMIC --Real Estate Mortgage Investment Conduit
------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
<PAGE>
COMMERCE BOND FUND
Shareholder Letter
Dear Shareholder,
WE ARE PLEASED TO REPORT ON THE PERFORMANCE OF THE COMMERCE BOND FUND FOR THE
12-MONTH PERIOD ENDED OCTOBER 31, 1998.
Performance Review
The Institutional Shares had a total return of 8.27% for
the 12 months ended October 31, 1998. (Refer to the Bond
Fund's Performance Summary for the performance information
pertaining to the Service Shares.) This compares with a
7.97% return for the Lipper Intermediate Investment Grade
Debt Funds Index and a 9.34% return for the Lehman Brothers
Aggregate Bond Index.
Portfolio Highlights
.The Bond Fund was positioned slightly long of its duration
benchmark for the second half of the fiscal period. We con-
tinue to run our duration slightly longer than our bench-
mark as inflation adjusted yields are attractive,
especially with inflation continuing to be benign. We ex-
pect to maintain our positive duration while maintaining
exposure to higher-yielding securities.
.The U.S. Treasury market benefited from the world finan-
cial turmoil of the past several months. The demand for
high quality credits, and for liquidity, boosted the demand
for U.S. Treasury securities. Yields declined for all matu-
rities. The thirty-year bond traded below 5% for the first
time. Corporate bonds also continued their under-perfor-
mance that started earlier this year.
.Credit spreads have reached levels last seen during the
recession of the early 1990's. The Fund took advantage of
the widening in credit spreads to increase its exposure to
corporate securities. These purchases were funded by the
sale of U.S. Treasury securities, and new subscriptions
that came into the Fund. Mortgage exposure decreased
through run-off. The Fund continues to maintain exceptional
credit quality, with an average quality rating of AA+.
We thank you for your investment and look forward to your
continued confidence.
Sincerely,
Fixed-Income Team
Investment Management Group
Commerce Bank, N.A.
November 20, 1998
6
<PAGE>
COMMERCE BOND FUND
Performance Summary (Unaudited)
October 31, 1998
The following graph shows the value, as of October 31, 1998, of a $10,000 in-
vestment made on December 12, 1994 in the Institutional Shares. For compara-
tive purposes, the performance of the Fund's benchmarks (the Lehman Brothers
Aggregate Bond Index ("Lehman Agg Bond Index") and the Lipper Intermediate
Investment Grade Debt Funds Index ("Lipper Interm Debt Funds Index")) are
shown. The performance data represents past performance and should not be
considered indicative of future performance which will fluctuate with changes
in market conditions. These performance fluctuations will cause an investor's
shares, when redeemed, to be worth more or less than their original cost.
Performance of the Service Shares will vary from the Institutional Shares due
to differences in fees and loads.
BOND FUND'S - INSTITUTIONAL SHARES LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED DECEMBER 12, 1994 TO
OCTOBER 31, 1998
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Institutional Lehman Agg Bond Index Lipper Interm Debt Funds Index
<S> <C> <C> <C>
12/12/94 10,000 10,000 10,000
10/31/95 11,559 11,542 11,402
10/31/96 12,106 12,216 12,030
10/31/97 13,135 13,302 13,038
10/31/98 14,221 14,544 14,078
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C>
INSTITUTIONAL SHARES (COMMENCED DECEMBER 12, 1994) 9.47% 8.27%
-------------------------------------------------------------------------------
SERVICE SHARES (COMMENCED JANUARY 2, 1997)
Excluding sales charges 8.52% 8.05%
Including sales charges (maximum sales charge 3.50%) 6.42% 4.29%
-------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
COMMERCE BOND FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
ASSET-BACKED SECURITIES - 33.6%
AUTO - 2.3%
Fifth Third Bank Auto Grantor Trust Series 1996-A, Class A
$ 2,501,801 6.20% 09/15/01 $ 2,510,382
NationsBank Auto Owner Trust Series 1996-A, Class A4
4,500,000 6.63 12/15/00 4,540,770
------------
7,051,152
-----------------------------------------------------------------------------------------------
COMMERCIAL - 0.8%
First Union-Lehman Brothers-Bank of America Series 1998-C2, Class B
2,500,000 6.64 03/18/11 2,508,975
-----------------------------------------------------------------------------------------------
CREDIT CARD - 12.5%
American Express Credit Account Master Trust Series 1996-1, Class B
2,000,000 6.95 12/15/03 2,065,000
American Express Master Trust Series 1994-3, Class A
2,000,000 7.85 08/15/05 2,204,360
Chemical Master Credit Card Trust I Series 1995-3, Class A
2,000,000 6.23 04/15/05 2,055,620
Chemical Master Credit Card Trust I Series 1996-1, Class B
1,000,000 5.71 09/15/03 1,002,810
Chemical Master Credit Card Trust I Series 1996-2, Class A
2,500,000 5.98 09/15/08 2,532,025
Chemical Master Credit Card Trust I Series 1996-2, Class B
2,500,000 6.16 09/15/08 2,514,050
Citibank Credit Card Master Trust I Series 1997-6, Class B
2,000,000 5.88(a) 08/15/06 1,422,500
Discover Card Master Trust I Series 1993-3, Class A
2,000,000 6.20 11/15/03 2,061,860
Discover Card Trust Series 1991-F, Class B
7,350,000 8.35 11/21/00 7,356,836
First USA Credit Card Master Trust 1997-6, Class B
2,000,000 6.58 03/17/05 2,077,952
First USA Secured Note Trust Series 98-2, Class C+
3,000,000 6.80 02/18/11 3,085,800
MBNA Master Credit Card Trust Series 1995-C, Class A
2,000,000 6.45 02/15/08 2,090,620
Metris Master Trust Series 1997-1, Class B
1,000,000 7.11 10/20/05 1,042,500
Standard Credit Card Master Trust Series 1993-2, Class A
2,000,000 5.95 10/07/04 2,052,960
Standard Credit Card Master Trust Series 1995-1, Class A
2,000,000 8.25 01/07/07 2,305,040
Standard Credit Card Master Trust Series 1995-1, Class B
2,000,000 8.45 01/07/07 2,286,260
------------
38,156,193
-----------------------------------------------------------------------------------------------
EQUIPMENT - 0.2%
Green Tree Recreational, Equipment & Consumer Trust 1996-A, Class A1
678,503 5.55 02/15/18 680,885
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
ASSET-BACKED SECURITIES - (CONTINUED)
HOME EQUITY - 6.4%
Access Financial Mortgage Loan Trust Series 1996-2, Class A4
$ 1,500,000 7.63% 09/18/21 $ 1,591,890
Advanta Mortgage Loan Trust Series 1994-4, Class A2
3,791,637 8.92 01/25/26 4,270,483
American Business Financial Services, Inc. 1996-1, Class A+
4,372,180 7.95 09/15/26 4,404,971
Corestates Home Equity Trust Series 1993-2, Class A
401,554 5.10 03/15/09 399,365
GE Capital Mortgage Services, Inc. Series 1997-HE1, Class B1
1,236,374 7.50 03/25/07 1,235,459
GE Capital Mortgage Services, Inc. Series 1997-HE1, Class M
1,934,126 7.50 03/25/27 1,942,985
GE Capital Mortgage Services, Inc. Series 1997-HE4, Class B1
3,937,911 7.33 12/25/28 3,774,291
GE Capital Mortgage Services, Inc. Series 1997-HE4, Class M
1,968,955 7.14 12/25/28 1,989,590
------------
19,609,034
----------------------------------------------------------------------------------------------
MANUFACTURED HOUSING - 11.0%
Associates Manufactured Housing Series 1996-1, Class A5
5,000,000 7.60 03/15/27 5,364,244
Green Tree Financial Corp. Series 1993-4, Class A4
2,000,000 6.60 01/15/19 2,045,740
Green Tree Financial Corp. Series 1993-4, Class A5
4,000,000 7.05 01/15/19 4,181,507
Green Tree Financial Corp. Series 1994-2, Class A4
4,000,000 7.90 05/15/19 4,196,774
Green Tree Financial Corp. Series 1995-1, Class B1
200,000 9.00 06/15/25 212,258
Green Tree Financial Corp. Series 1995-5, Class B1
2,000,000 7.30 09/15/26 2,025,620
Green Tree Financial Corp. Series 1995-8, Class B1
200,000 7.30 12/15/26 204,710
Green Tree Financial Corp. Series 1996-4, Class A7
4,000,000 7.90 06/15/27 4,304,648
Green Tree Financial Corp. Series 1996-8, Class M1
2,000,000 7.85 10/15/27 2,113,265
Green Tree Home Improvement Loan Trust Series 1997-E, Class HEM1
2,500,000 7.28 01/15/29 2,521,725
Indymac Manufactured Housing Contract (Credit Suisse First Boston)
Series 1997-1, Class A3
2,993,343 6.61 02/25/28 3,049,198
Indymac Manufactured Housing Contract (Credit Suisse First Boston)
Series 1997-1, Class M
2,000,000 7.11 02/25/28 1,954,920
Oakwood Mortgage Investors, Inc. Series 1997-A, Class A5
1,500,000 7.13 05/15/27 1,573,777
------------
33,748,386
----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
8
<PAGE>
COMMERCE BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
ASSET-BACKED SECURITIES - (CONTINUED)
UTILITIES - 0.4%
California Infrastructure PG&E-1 (Pacific Gas and Electric) Series 1997-
1, Class A6
$ 1,250,000 6.40% 09/25/05 $ 1,265,562
----------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $96,754,468) $103,020,187
----------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS - 7.7%
Asset Securitization Corp. Class A1
$ 1,909,037 7.10% 08/13/29 $ 2,023,522
Bear Stearns Mortgage Securities, Inc. Series 1998-1, Class A17
1,000,000 5.00 03/25/28 938,910
Countrywide Mortgage Backed Securities, Inc. REMIC PAC Series 1993-B,
Class A5
1,333,571 6.75 11/25/23 1,375,712
Residential Asset Securitization Trust REMIC Series 1997-A1, Class A7
3,000,000 7.38 03/25/27 3,075,468
Federal Home Loan Mortgage PC Series 1652, Class PJ
3,000,000 6.60 08/15/22 3,118,110
Federal Home Loan Mortgage REMIC PAC Series 1579, Class PM
1,235,000 6.70 09/15/23 1,291,724
Federal National Mortgage Assn. REMIC Series 1992-1, Class E
2,236,924 7.50 01/25/07 2,307,521
Federal National Mortgage Assn. REMIC Series X-130A, Class H
1,500,000 6.30 09/25/18 1,532,340
Federal National Mortgage Assn. Series1996-55 Class G, Class G
1,428,977 7.00 04/25/14 1,433,085
Mortgage Capital Funding, Inc. Series 1996-MC1, Class A2A
3,079,421 7.35 07/15/05 3,253,901
Norwest Asset Securities Corp. Series 1998-21, Class B1
1,291,694 6.50 09/25/13 1,304,626
PNC Mortgage Securities Corp. REMIC Series 1996-1, Class A10
1,766,029 7.50 09/25/09 1,839,972
----------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(COST $25,922,359) $ 23,494,891
----------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 26.5%
FINANCIAL - 16.0%
Allstate Corp.
$ 814,000 6.75% 05/15/18 $ 795,115
American Express Credit Corp.
2,000,000 6.13 11/15/01 2,048,180
Associates Corp. N.A.
1,900,000 6.95 11/01/18 1,875,984
BankAmerica Corp.
3,500,000 6.88 06/01/03 3,660,230
Chemical Bank
2,000,000 6.70 08/15/08 2,083,080
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE OBLIGATIONS - (CONTINUED)
Equitable Life Assurance Society of the United States+
$ 6,000,000 7.70% 12/01/15 $ 6,596,520
Ford Motor Company Credit Corp.
2,000,000 6.63 06/30/03 2,093,480
General Motors Acceptance Corp.
2,000,000 5.88 01/22/03 2,028,300
2,000,000 6.63 10/15/05 2,085,840
Hanson Overseas BV
2,000,000 6.75 09/15/05 2,100,220
Metropolitan Life Insurance Co.+
4,000,000 7.70 11/01/15 4,573,120
Morgan Stanley Group, Inc.
2,000,000 6.75 03/04/03 2,069,440
NationsBank Corp.
1,000,000 7.75 08/15/15 1,051,120
1,000,000 7.80 09/15/16 1,080,940
PNC Bank, N.A.
2,000,000 7.88 04/15/05 2,185,580
Salomon Smith Barney, Inc.
3,500,000 6.63 06/01/00 3,540,530
Swiss Bank Corp.
4,000,000 7.38 06/15/17 4,083,160
5,000,000 7.50 07/15/25 5,074,700
------------
49,025,539
----------------------------------------------------------------------------------------------
INDUSTRIAL - 7.6%
Ford Motor Co.
5,000,000 6.50 08/01/18 4,727,250
Lafarge Corp.
3,500,000 6.88 07/15/13 3,538,360
Receipts On Corporate Securities Trust CHR-1998-1+
5,187,062 6.50 08/01/18 5,361,451
Receipts On Corporate Securities Trust NSC-1998-1+
4,193,551 6.38 05/15/17 4,160,463
Service Master Co.
3,000,000 7.10 03/01/18 3,009,630
TRW, Inc.
2,500,000 6.05 01/15/05 2,553,700
------------
23,350,854
----------------------------------------------------------------------------------------------
UTILITIES - 2.9%
Duke Power Corp.
1,000,000 7.37 02/02/04 1,102,530
GTE Corp.
5,500,000 6.84 04/15/18 5,575,460
Hydro Quebec Note
1,000,000 7.96 12/17/01 1,076,660
Union Electric Co.
1,000,000 6.75 10/15/99 1,013,380
------------
8,768,030
----------------------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(COST $79,420,025) $ 81,144,423
----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
9
<PAGE>
COMMERCE BOND FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MORTGAGE-BACKED PASS-THROUGH OBLIGATIONS - 16.7%
Federal Home Loan Mortgage Corp.
$ 1,632,111 6.00% 12/01/13 $ 1,648,318
1,507,576 8.50 02/01/19 1,581,794
1,757,739 8.50 03/01/21 1,843,305
10,749,272 7.00 05/01/26 10,964,258
Federal National Mortgage Assn.
1,164,276 7.19 07/01/06 1,265,688
3,645,741 5.50 01/01/09 3,599,586
2,814,971 7.00 07/01/09 2,873,888
778,798 6.50 02/01/12 790,356
1,641,657 6.00 12/01/13 1,640,278
1,384,434 6.50 07/01/14 1,401,947
1,332,663 9.00 11/01/21 1,412,609
559,410 9.00 02/01/25 593,669
3,230,136 6.50 03/01/26 3,256,365
Government National Mortgage Assn.
3,310,507 8.00 02/15/22 3,440,842
4,009,400 7.00 09/15/23 4,105,866
1,619,670 7.50 08/20/25 1,663,191
8,951,379 7.50 07/20/26 9,191,902
----------------------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED PASS-THROUGH OBLIGATIONS
(COST $48,671,478) $ 51,273,862
----------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS - 3.4%
Federal Home Loan Bank
$ 1,000,000 6.32% 02/01/00 $ 1,020,410
Federal Home Loan Mortgage Corp.
1,000,000 6.20 04/15/03 1,055,310
Federal National Mortgage Assn.
8,000,000 5.75 04/15/03 8,308,720
----------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $9,907,134) $ 10,384,440
----------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 11.1%
United States Treasury Bonds
$ 1,000,000 7.50% 11/15/16 $ 1,246,250
5,000,000 7.88 02/15/21 6,587,500
United States Treasury Notes
10,000,000 7.00 07/15/06 11,515,600
13,000,000 6.50 10/15/06 14,582,360
----------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $31,395,922) $ 33,931,710
----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $292,071,386)(B) $303,249,513
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value exceeds cost $12,600,717
Gross unrealized loss for investments in which cost exceeds value (1,422,590)
----------------------------------------------------------------------------------------------
Net unrealized gain $11,178,127
----------------------------------------------------------------------------------------------
</TABLE>
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
+ Securities that may be resold to "Qualified Institutional Buyers" under
Rule 144A or securities offered pursuant to Section 4(2) of the Securi-
ties Act of 1933, as amended. These securities have been determined to be
liquid under guidelines established by the Board of Trustees.
(a) The interest rate disclosed for this security represents the effective
yield to maturity.
(b) The cost stated also represents aggregate cost for federal income tax
purposes.
------------------------------------------------------------------------------
INVESTMENT ABBREVIATIONS:
PAC--Planned Amortization Class
REMIC--Real Estate Mortgage Investment Conduit
------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
10
<PAGE>
COMMERCE BALANCED FUND
Shareholder Letter
Dear Shareholder,
WE ARE PLEASED TO REPORT ON THE PERFORMANCE OF THE COMMERCE BALANCED FUND FOR
THE 12-MONTH PERIOD ENDED OCTOBER 31, 1998.
Performance Review
The Institutional Shares had a total return of 8.68% for
the 12 months ended October 31, 1998. (Refer to the Bal-
anced Fund's Performance Summary for the performance infor-
mation pertaining to the Service Shares.) This compares
with a 17.45% return for the composite of 60% of the Stan-
dard and Poor's 500 Index with Income ("S&P 500")/40% Leh-
man Brothers Aggregate Bond Index and a 10.73% return for
the Lipper Balanced Funds Index.
Portfolio Highlights
.The equity portion of the Fund is composed of a blend of
large and middle capitalization stocks. The companies cho-
sen for the Fund are selected from both the growth and
value universes. We have diversified the portfolio among
various S&P industry groups (such as the S&P 500 and S&P
Mid-Cap 400). We have over-weighted the retailing, producer
manufacturing and commercial service sectors, and have un-
der-weighted the health technology, consumer non-durables
and the utility sectors.
.The fixed-income portion of the Fund was positioned
slightly long to its duration benchmark for the second half
of 1998. We continue to run our duration slightly longer
than our benchmark as inflation adjusted yields are attrac-
tive.
.We also took advantage of the widening in credit spreads
to increase our exposure to corporate securities. These
purchases were funded by the sale of U.S. Treasury securi-
ties, the fixed- income portion of the Fund continues to
have exceptional credit quality, with an average quality
rating of AA+.
We thank you for your investment and look forward to your
continued confidence.
Sincerely,
Balanced Fund Team
Investment Management Group
Commerce Bank, N.A.
November 20, 1998
11
<PAGE>
COMMERCE BALANCED FUND
Performance Summary (Unaudited)
October 31, 1998
The following graph shows the value, as of October 31, 1998, of a $10,000 in-
vestment made on December 12, 1994 in the Institutional Shares. For compara-
tive purposes, the performance of the Fund's benchmarks (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 Index) are shown. The per-
formance data represents past performance and should not be considered indic-
ative of future performance which will fluctuate with changes in market
conditions. These performance fluctuations will cause an investor's shares,
when redeemed, to be worth more or less than their original cost. Performance
of the Service Shares will vary from the Institutional Shares due to differ-
ences in fees and loads.
BALANCED FUND'S - INSTITUTIONAL SHARES LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED DECEMBER 12, 1994 TO
OCTOBER 31, 1998
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Institutional Combined S&P 500 Lipper Balanced Funds Index
<S> <C> <C> <C>
12/12/94 10,000 10,000 10,000
Oct-95 12,614 12,577 12,139
Oct-96 14,442 14,658 13,900
Oct-97 17,319 17,971 16,717
Oct-98 18,822 21,107 18,510
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C>
INSTITUTIONAL SHARES (COMMENCED DECEMBER 12, 1994) 17.65% 8.68%
-------------------------------------------------------------------------------
SERVICE SHARES (COMMENCED JANUARY 2, 1997)
Excluding sales charges 13.59% 8.36%
Including sales charges (maximum sales charge 3.50%) 11.41% 4.55%
-------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
COMMERCE BALANCED FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - 60.9%
ADVERTISING - 1.0%
15,600 Omnicom Group, Inc. $ 771,225
9,000 WPP Group Plc, ADR 447,750
-----------
1,218,975
-------------------------------------------------------
AEROSPACE/DEFENSE - 1.5%
20,000 General Dynamics Corp. 1,183,750
6,500 Lockheed Martin Corp. 723,938
-----------
1,907,688
-------------------------------------------------------
AGRICULTURE/HEAVY EQUIPMENT - 0.5%
13,300 Caterpillar, Inc. 598,500
-------------------------------------------------------
AIRFREIGHT, TRUCK & OTHER - 1.0%
23,000 Airborne Freight Corp. 539,063
15,000 Seacor Smit, Inc. 717,188
-----------
1,256,251
-------------------------------------------------------
AIRLINES - 2.0%
10,000 AMR Corp.* 670,000
6,000 Delta Air Lines, Inc. 633,375
15,000 SkyWest, Inc. 382,500
39,300 Southwest Airlines Co. 832,669
-----------
2,518,544
-------------------------------------------------------
APPAREL - 1.4%
40,400 Jones Apparel Group, Inc. 696,900
8,500 Tommy Hilfiger Corp.* 394,719
17,000 VF Corp. 710,813
-----------
1,802,432
-------------------------------------------------------
BANKS - 2.5%
18,000 Citigroup, Inc. 847,125
18,000 Comerica, Inc. 1,161,000
10,400 Northern Trust Corp. 767,000
11,500 Norwest Corp. 427,656
-----------
3,202,781
-------------------------------------------------------
BUSINESS SERVICES - 1.4%
18,000 Paychex, Inc. 895,500
26,000 Personnel Group of America, Inc.* 403,000
10,000 RemedyTemp, Inc. 182,500
15,000 World Access, Inc.* 320,625
-----------
1,801,625
-------------------------------------------------------
CHEMICALS - 2.4%
35,000 A. Schulman, Inc. 695,625
17,000 Air Products & Chemicals, Inc. 641,750
22,000 BF Goodrich Co. 792,000
20,000 Dexter Corp. 585,000
10,500 OM Group, Inc. 342,563
-----------
3,056,938
-------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
COMMERCIAL SERVICES - 1.0%
15,000 Century Business Services, Inc. $ 209,063
10,000 Galileo International, Inc. 379,375
16,800 Robert Half International, Inc.* 674,100
------------
1,262,538
-----------------------------------------------------------
CONSUMER STAPLES - 0.6%
7,500 Clorox Co. 819,375
-----------------------------------------------------------
DIVERSIFIED MANUFACTURING - 1.5%
15,000 Allied Signal, Inc. 584,063
23,400 Herman Miller, Inc. 516,263
22,500 Parker Hannifin Corp.* 804,375
------------
1,904,701
-----------------------------------------------------------
ELECTRONICS & OTHER ELECTRICAL EQUIPMENT - 0.8%
11,500 General Electric Co. 1,006,250
-----------------------------------------------------------
ENTERPRISE SYSTEMS - 1.1%
7,000 EMC Corp.* 450,625
9,500 Xerox Corp. 920,313
------------
1,370,938
-----------------------------------------------------------
FOREST PRODUCTS - 0.3%
20,000 Louisiana Pacific Corp. 355,000
-----------------------------------------------------------
HEALTH SUPPLIERS/SERVICES - 3.0%
7,100 Cardinal Health, Inc. 671,394
5,000 Guidant Corp. 382,500
12,000 HBO & Co. 315,000
7,200 McKesson Corp. 554,400
15,000 Ocular Sciences, Inc.* 376,875
8,000 Quintiles Transnational Corp.* 362,000
10,000 Safeskin Corp.* 221,250
26,000 Steris Corp.* 598,000
5,000 Waters Corp.* 367,500
------------
3,848,919
-----------------------------------------------------------
HEALTHCARE MANAGEMENT - 1.0%
30,400 Lincare Holdings, Inc.* 1,214,100
-----------------------------------------------------------
HOMEBUILDING - 0.3%
25,450 DR Horton, Inc. 404,019
-----------------------------------------------------------
HOME FURNISHING - 1.5%
18,000 Ethan Allen Interiors, Inc. 618,750
18,000 Furniture Brands International, Inc. 387,000
38,000 Leggett & Platt, Inc. 888,250
------------
1,894,000
-----------------------------------------------------------
INDUSTRIAL MACHINERY/COMPONENTS - 2.0%
20,000 Illinois Tool Works, Inc. 1,282,500
25,000 Ingersoll-Rand Co. 1,262,500
------------
2,545,000
-----------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
13
<PAGE>
COMMERCE BALANCED FUND
Statement of Investments (continued)
October 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
INDUSTRIAL SPECIALTIES - 0.5%
21,000 Owens-Illinois, Inc. $ 641,813
-----------------------------------------------------------------
INFORMATION MANAGEMENT - 0.3%
10,000 Sabre Group Holdings, Inc. 376,875
-----------------------------------------------------------------
INSURANCE - 4.7%
27,000 Ace, Ltd. 914,625
10,000 AMBAC, Inc. 581,875
10,000 Cigna Corp. 729,375
16,800 Conseco, Inc. 582,750
16,000 Financial Security Assurance Holdings, Ltd. 797,000
15,000 Ohio Casualty Corp. 566,250
27,000 Old Republic International Corp. 513,000
13,000 Orion Capital Corp. 444,438
10,000 Protective Life Corp. 370,625
5,000 Transatlantic Holdings, Inc. 390,000
-----------
5,889,938
-----------------------------------------------------------------
INTEGRATED OIL COMPANIES - 2.6%
12,000 Chevron Corp. 978,000
10,000 Exxon Corp. 712,500
7,600 Mobil Corp. 575,225
9,500 Royal Dutch Petroleum ADR 467,875
10,000 Texaco, Inc. 593,125
-----------
3,326,725
-----------------------------------------------------------------
INVESTMENT SERVICES - 2.3%
20,000 A. G. Edwards, Inc. 691,250
14,000 Franklin Resources, Inc. 529,375
13,000 Merrill Lynch & Company, Inc. 770,250
13,700 Morgan Stanley, Dean Witter, Discover & Co. 887,075
-----------
2,877,950
-----------------------------------------------------------------
METAL - 1.5%
45,000 AK Steel Holding Corp. 779,063
60,000 LTV Corp. 367,500
30,000 USX-US Steel Group 697,500
-----------
1,844,063
-----------------------------------------------------------------
MOTOR VEHICLE - 0.8%
18,000 Ford Motor Co. 976,500
-----------------------------------------------------------------
OILFIELD SERVICES - 2.0%
50,000 Helmerich & Payne, Inc. 1,190,625
12,000 Peoples Energy Corp. 442,500
30,000 YPF Sociedad Anonima ADR 868,125
-----------
2,501,250
-----------------------------------------------------------------
PERSONAL COMPUTERS AND PERIPHERALS - 2.4%
30,000 Compaq Computer Corp. 948,750
12,000 Lexmark International Group, Inc.* 839,250
15,000 Seagate Technology, Inc.* 395,625
18,000 Symbol Technologies, Inc. 805,500
-----------
2,989,125
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
PHARMACEUTICALS - 2.7%
10,600 Abbott Laboratories $ 497,538
9,000 Elan Corp. PLC ADR 630,563
6,000 Johnson & Johnson 489,000
12,000 Schering-Plough Corp. 1,234,500
9,000 Watson Pharmaceuticals, Inc. 500,625
-----------
3,352,226
-----------------------------------------------------------
PUBLISHING - 0.9%
17,000 Harte-Hanks Communication, Inc. 413,313
25,000 New York Times Co. 706,250
-----------
1,119,563
-----------------------------------------------------------
RETAIL - 1.2%
7,000 Dayton Hudson Corp. 296,625
6,000 Express Scripts, Inc. 586,125
45,000 K Mart Corp.* 635,625
-----------
1,518,375
-----------------------------------------------------------
SEMICONDUCTORS - 0.7%
10,000 Linear Technology Corp. 596,250
25,000 National Semiconductor Corp. 317,188
-----------
913,438
-----------------------------------------------------------
SOFTWARE & SERVICES - 3.2%
14,000 Computer Horizons Corp.* 322,000
15,000 Compuware Corp.* 812,813
14,000 DST Systems, Inc.* 700,000
2,800 Microsoft Corp.* 296,450
30,000 Sterling Software, Inc.* 785,625
25,000 Symantec Corp.* 400,000
30,000 Systems & Computer Tech Corp. 427,500
8,300 Tech Data Corp.* 326,813
-----------
4,071,201
-----------------------------------------------------------
SPECIALTY FINANCE & AGENCIES - 0.4%
7,500 Federal National Mortgage Association 531,093
-----------------------------------------------------------
SPECIALTY RETAIL - 5.3%
10,000 Abercrombie & Fitch Co.* 396,874
15,000 Bed Bath & Beyond, Inc.* 413,437
8,500 Best Buy Co., Inc. 407,999
14,318 CVS Corp. 654,153
18,000 Linens-n-Things, Inc.* 556,874
16,500 Lowes Companies, Inc. 555,843
24,000 Office Depot, Inc. 600,000
35,000 OfficeMax, Inc. 319,374
15,000 Pacific Sunwear of California, Inc.* 324,374
10,000 Payless ShoeSource, Inc.* 469,374
20,000 The Gap, Inc. 1,202,499
44,000 TJX Companies, Inc. 833,249
-----------
6,734,050
-----------------------------------------------------------
TELECOMMUNICATIONS - 0.7%
15,000 Century Telephone Enterprises, Inc. 852,187
-----------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT - 0.4%
8,500 Cisco Systems, Inc.* 535,500
-----------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
14
<PAGE>
COMMERCE BALANCED FUND
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
TOBACCO - 0.6%
20,000 Universal Corp. $ 746,250
-------------------------------------
UTILITIES - ELECTRIC/WATER - 0.9%
10,000 FPL Group, Inc. 625,625
12,000 GPU, Inc. 517,500
-----------
1,143,125
-------------------------------------
TOTAL COMMON STOCKS
(COST $68,789,140) $76,929,821
-------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
FIXED INCOME - 35.6%
ASSET-BACKED SECURITIES - 13.0%
AUTO - 0.5%
Chevy Chase Auto Receivables Trust Series 1995-1, Class A
$ 134,608 6.00% 12/15/01 $ 134,944
Nations Bank Auto Owner Trust Series 1996-A, Class A4
500,000 6.63 12/15/00 504,530
------------
639,474
--------------------------------------------------------------------------------------------------
COMMERCIAL - 0.4%
First Union - Lehman Brothers - Bank of America Series 1998-C2, Class B
500,000 6.64 03/18/11 501,795
--------------------------------------------------------------------------------------------------
CREDIT CARD - 4.8%
American Express Credit Account Master Trust Series 1996-1, Class B
500,000 6.95 12/15/03 516,250
American Express Master Trust Series 1994-3, Class A
500,000 7.85 08/15/05 551,090
Discover Card Master Trust I Series 1993-3, Class A
1,250,000 6.20 11/15/03 1,288,663
First USA Secured Note Trust Series 98-2, Class C+
500,000 6.80 02/18/11 514,300
J.C. Penney Master Credit Card Trust Series B, Class A
500,000 8.95 10/15/01 539,055
MBNA Master Credit Card Trust Series 1995-C, Class A
500,000 6.45 02/15/08 522,655
Metris Master Trust Series 1997-1, Class B
500,000 7.11 10/20/05 521,250
Standard Credit Card Master Trust Series 1991-6, Class B
500,000 8.35 01/07/99 500,260
Standard Credit Card Master Trust Series 1993-2, Class A
500,000 5.95 10/07/04 513,240
Standard Credit Card Master Trust Series 1995-1, Class B
500,000 8.45 01/07/07 571,565
------------
6,038,328
--------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
ASSET-BACKED SECURITIES - (CONTINUED)
HOME EQUITY - 3.1%
Access Financial Mortgage Loan Trust Series 1996-2, Class A4
$ 500,000 7.63% 09/18/21 $ 530,630
Advanta Mortgage Loan Trust Series 1994-4, Class A2
473,955 8.92 01/25/26 533,810
American Business Financial Services, Inc. 1996-1, Class A+
437,218 7.95 09/15/26 440,497
Corestates Home Equity Trust Series 1993-2, Class A
401,554 5.10 03/15/09 399,365
First Plus Home Loan Trust Series 1997-3, Class A5
500,000 6.86 10/10/12 510,720
GE Capital Mortgage Services, Inc. Series 1997-HE1, Class B1
494,550 7.50 03/25/07 494,184
GE Capital Mortgage Services, Inc. Series 1997-HE1, Class M
483,532 7.50 03/25/27 485,746
GE Capital Mortgage Services, Inc. Series 1997-HE4, Class M
492,239 7.14 12/25/28 497,398
------------
3,892,350
--------------------------------------------------------------------------------------------------
MANUFACTURED HOUSING - 4.2%
Associates Manufactured Housing Series 1996-1, Class A5
500,000 7.60 03/15/27 536,424
Green Tree Financial Corp. Series 1993-4, Class A4
500,000 6.60 01/15/19 511,435
Green Tree Financial Corp. Series 1993-4, Class A5
500,000 7.05 01/15/19 522,688
Green Tree Financial Corp. Series 1994-2, Class A4
500,000 7.90 05/15/19 524,597
Green Tree Financial Corp. Series 1996-3, Class A4
500,000 7.10 05/15/27 515,619
Green Tree Financial Corp. Series 1996-4, Class A7
500,000 7.90 06/15/27 538,081
Green Tree Financial Corp. Series 1996-5, Class A6
500,000 7.75 07/15/27 535,504
Green Tree Home Improvement Loan Trust Series 1997-E, Class HEM1
500,000 7.28 01/15/29 504,345
Oakwood Mortgage Investors, Inc. Series 1995-B, Class A3
600,000 6.90 01/15/21 623,380
Oakwood Mortgage Investors, Inc. Series 1997-A, Class A5
500,000 7.13 05/15/27 524,592
------------
5,336,665
--------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(COST $15,842,698) $ 16,408,612
--------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
15
<PAGE>
COMMERCE BALANCED FUND
Statement of Investments (continued)
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
FIXED INCOME - (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS - 3.5%
Asset Securitization Corp. Class A1
$ 477,259 7.10% 08/13/29 $ 505,881
Residential Asset Securitization Trust REMIC Series 1997-A1, Class A7
500,000 7.38 03/25/27 512,578
Federal Home Loan Mortgage Corp. REMIC PAC Series 159, Class H
1,233,000 4.50 09/15/21 1,212,269
Federal National Mortgage Assn. REMIC Series X-225C, Class NB
712,581 6.50 12/25/22 714,135
Mortgage Capital Funding, Inc. Series 1996-MC1, Class A2A
384,928 7.35 07/15/05 406,738
Residential Asset Securitization REMIC Trust Series 1997-A5, Class A13
500,000 7.75 07/25/27 513,294
Residential Funding Mortgage Securities Corp. Series 1995, Class A4
500,000 8.00 04/25/10 517,185
--------------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(COST $4,178,119) $ 4,382,080
--------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 10.3%
FINANCIAL - 6.7%
BankAmerica Corp.
$ 500,000 6.88% 06/01/03 $ 522,890
Chemical Bank
500,000 6.70 08/15/08 520,770
Donaldson Lufkin and Jenrette, Inc.
750,000 6.11 05/15/01 763,958
Equitable Life Assurance Society of the United States+
1,000,000 7.70 12/01/15 1,099,420
Ford Motor Company Credit Corp.
500,000 6.63 06/30/03 523,370
General Electric Capital Corp.
500,000 8.30 09/20/09 608,850
Hanson Overseas BV
500,000 6.75 09/15/05 525,055
Metropolitan Life Insurance Co.+
1,000,000 7.70 11/01/15 1,143,280
Morgan Stanley Group, Inc.
500,000 6.75 03/04/03 517,360
NationsBank Corp.
500,000 7.80 09/15/16 540,470
PNC Bank, N.A.
500,000 7.88 04/15/05 546,395
Salomon Smith Barney, Inc.
500,000 6.63 06/01/00 505,790
Swiss Bank Corp.
1,145,000 7.38 06/15/17 1,168,805
------------
8,986,413
--------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
CORPORATE OBLIGATIONS - (CONTINUED)
INDUSTRIAL - 2.4%
Lafarge Corp.
$ 500,000 6.88% 07/15/13 $ 505,480
Receipts On Corporate Securities Trust CHR-1998-1+
741,009 6.50 08/01/18 765,922
Receipts On Corporate Securities Trust NSC-1998-1+
1,186,760 6.38 05/15/17 1,177,396
Service Master Co.
500,000 7.10 03/01/18 501,605
------------
2,950,403
--------------------------------------------------------------------------------------------------
UTILITIES - 0.8%
AT&T Corp.
500,000 7.13 01/15/02 529,360
GTE Corp.
500,000 6.84 04/15/18 506,860
------------
1,036,220
--------------------------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS
(COST $12,377,508) $ 12,973,036
--------------------------------------------------------------------------------------------------
MORTGAGE-BACKED PASS-THROUGH OBLIGATIONS - 6.3%
Federal Home Loan Mortgage Corp.
$ 652,844 6.00% 12/01/13 $ 659,327
1,653,734 7.00 05/01/26 1,686,809
Federal National Mortgage Assn.
1,125,988 7.00 07/01/09 1,149,555
389,399 6.50 02/01/12 395,178
656,663 6.00 12/01/13 656,111
Government National Mortgage Assn.
1,317,083 7.00 09/15/23 1,348,772
647,868 7.50 08/20/25 665,276
1,377,135 7.50 07/20/26 1,414,139
--------------------------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED PASS-THROUGH OBLIGATIONS
(COST $7,521,955) $ 7,975,167
--------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
16
<PAGE>
COMMERCE BALANCED FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS - 0.6%
Federal Home Loan Bank
$ 750,000 6.63% 08/28/01 $ 788,588
--------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
(COST $695,325) $ 788,588
--------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 1.9%
United States Treasury Bonds
$1,000,000 7.25% 05/15/16 $ 1,216,250
1,000,000 7.50 11/15/16 1,246,250
--------------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $2,182,907) $ 2,462,500
--------------------------------------------------------------------------------------------------
TOTAL FIXED INCOME
(COST $42,798,512) $ 44,989,983
--------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 3.3%
State Street Bank & Trust Company(a)
$4,136,000 5.25% 11/02/98 $ 4,136,000
--------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $4,136,000) $ 4,136,000
--------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $115,723,652)(B) $126,055,804
--------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value exceeds cost $15,777,656
Gross unrealized loss for investments in which cost exceeds value (5,445,504)
--------------------------------------------------------------------------------------------------
Net unrealized gain $10,332,152
---------------------------------------------------------------------------------------------------
</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. These securities have been determined to be liquid
under guidelines established by the Board of Trustees.
(a) The repurchase agreement is fully collateralized by U.S. Treasury securi-
ties.
(b) The amount stated also represents aggregate cost for federal income tax
purposes.
------------------------------------------------------------------------------
INVESTMENT ABBREVIATIONS:
ADR--American Depository Receipt
PAC--Planned Amortization Class
REMIC--Real Estate Mortgage Investment Conduit
------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
17
<PAGE>
COMMERCE GROWTH AND INCOME FUND
Shareholder Letter
Dear Shareholder,
WE ARE PLEASED TO REPORT ON THE PERFORMANCE OF THE COMMERCE GROWTH AND INCOME
FUND FOR THE 12-MONTH PERIOD ENDED OCTOBER 31, 1998.
Performance Review
The Institutional Shares had a total return of .53% for the
12 months ended October 31, 1998. (Refer to the Growth and
Income Fund's Performance Summary for the performance in-
formation pertaining to the Service Shares.) This compares
with a 21.99% return for the Standard & Poor's 500 Index
with Income and a 9.45% return for the Lipper Growth & In-
come Funds Index.
Portfolio Highlights
.This Fund is one which uses a "value style." This year,
particularly in the second half of the fiscal period, has
been one of the worst periods for the value style in many
years. As overall earnings growth began to slow, investors
didn't really seem to care about "value." They sought com-
panies that had identifiable earnings "growth" when prices
were at a premium. On top of that, our process tends to di-
rect us to the "deepest" values, thereby magnifying this
factor.
.Secondly, by virtue of the fact that the process we use to
identify the most attractive sectors of the market is based
on our value criteria, we have been focused primarily on
the midcap sector of the market. This is where the "value"
seems to be, a point which has been clear for some time.
Unfortunately, the same problem noted above also applies
here, and investors flocked to the largest companies.
.Finally, we were significantly impacted by the sharp de-
cline in the financial stocks, where the Fund has been
overweighted for some time. While this has proven to be an
enhancement to our returns for the past year, over-weight-
ing impacted results in the last quarter of the fiscal pe-
riod as several bank and brokerage stocks fell almost 50%.
This correction was overdone, in our view, and we have re-
cently seen a sharp rebound in many of these stocks.
.We believe that several of these factors will likely re-
verse over the course of the next six to twelve months.
While weak growth may continue to penalize both value and
smaller companies in the near term, we believe that recent
action by the Federal Reserve portends a period of stronger
growth as we move into the middle of 1999.
We thank you for your investment and look forward to your
continued confidence.
Sincerely,
Growth and Income Fund Team
Investment Management Group
Commerce Bank, N.A.
November 20, 1998
18
<PAGE>
COMMERCE GROWTH AND INCOME FUND
Performance Summary (Unaudited)
October 31, 1998
The following graph shows the value, as of October 31, 1998, of a $10,000 in-
vestment made on March 3, 1997 in the Institutional Shares and the Services
Shares (with the maximum sales charge of 3.50%). For comparative purposes,
the performance of the Fund's benchmarks (the Standard & Poor's 500 Index
with Income ("S&P 500") and the Lipper Growth & Income Funds Index) are
shown. The performance data represents past performance and should not be
considered indicative of future performance which will fluctuate with changes
in market conditions. These performance fluctuations will cause an investor's
shares, when redeemed, to be worth more or less than their original cost.
GROWTH AND INCOME FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED MARCH 3, 1997 TO OC-
TOBER 31, 1998
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Institutional S&P 500 Lipper Growth Service with
& Income Index Sales Charge
<S> <C> <C> <C> <C>
3/3/97 10,000 10,000 10,000 9,650
Oct-97 11,757
Oct-98 12,265 14,276 12,618 11,792
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C>
INSTITUTIONAL SHARES (COMMENCED MARCH 3, 1997) 13.04% .53%
-------------------------------------------------------------------------------
SERVICE SHARES (COMMENCED MARCH 3, 1997)
Excluding sales charges 12.78% .30%
Including sales charges (maximum sales charge 3.50%) 10.40% -3.21%
-------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
COMMERCE GROWTH AND INCOME FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - 98.3%
AEROSPACE/DEFENSE - 4.5%
45,000 General Dynamics Corp. $ 2,663,438
19,700 Northrop Grumman Corp. 1,571,075
-----------
4,234,513
-----------------------------------------------------------------
AIRFREIGHT, TRUCK & OTHER - 1.0%
20,000 Seacor Smit, Inc.* 956,250
-----------------------------------------------------------------
AIRLINES - 2.4%
15,000 AMR Corp.* 1,005,000
12,000 Delta Air Lines, Inc. 1,266,750
-----------
2,271,750
-----------------------------------------------------------------
APPAREL - 1.8%
40,700 VF Corp. 1,701,769
-----------------------------------------------------------------
BANKS - 4.1%
29,987 BankAmerica Corp. 1,722,378
33,000 Comerica, Inc. 2,128,500
-----------
3,850,878
-----------------------------------------------------------------
CHEMICALS - 5.3%
88,050 A. Schulman, Inc. 1,749,994
35,000 Air Products & Chemicals, Inc. 1,321,250
52,000 BF Goodrich Co. 1,872,000
-----------
4,943,244
-----------------------------------------------------------------
DIVERSIFIED MANUFACTURING - 1.3%
34,000 Parker Hannifin Corp. 1,215,500
-----------------------------------------------------------------
FOREST PRODUCTS - 1.2%
62,000 Louisiana Pacific Corp. 1,100,500
-----------------------------------------------------------------
HEALTHCARE MANAGEMENT - 0.9%
25,000 HCR Manor Care, Inc.* 812,500
-----------------------------------------------------------------
HOMEBUILDING - 2.0%
57,000 Centex Corp. 1,909,500
-----------------------------------------------------------------
INDUSTRIAL MACHINERY - 1.7%
31,350 Ingersoll-Rand Co. 1,583,175
-----------------------------------------------------------------
INDUSTRIAL SPECIALTIES - 1.9%
58,000 Owens-Illinois, Inc.* 1,772,625
-----------------------------------------------------------------
INSURANCE - 22.5%
70,000 Ace, Ltd. 2,371,250
32,000 AMBAC, Inc. 1,862,000
22,450 American International Group, Inc. 1,913,862
26,300 Cigna Corp. 1,918,256
70,150 Conseco, Inc. 2,433,328
42,450 Equitable Companies, Inc. 2,080,050
37,000 Financial Security Assurance Holdings, Ltd. 1,843,062
22,500 Lincoln National Corp. 1,707,188
12,000 MBIA, Inc. 733,500
30,000 Ohio Casualty Corp. 1,132,500
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
INSURANCE - (CONTINUED)
85,000 Old Republic International Corp. $ 1,615,000
45,000 Orion Capital Corp. 1,538,438
-----------
21,148,434
------------------------------------------------------------------
INTEGRATED OIL COMPANIES - 8.7%
20,600 Chevron Corp. 1,678,900
40,000 Conoco, Inc. 995,000
17,000 Exxon Corp. 1,211,250
78,000 Imperial Oil, Ltd. 1,228,500
20,000 Murphy Oil Corp. 826,250
15,350 Texaco, Inc. 910,447
47,000 YPF Sociedad Anonima, ADR 1,360,063
-----------
8,210,410
------------------------------------------------------------------
INVESTMENT SERVICES - 6.7%
60,000 A. G. Edwards, Inc. 2,073,750
33,200 Merrill Lynch & Company, Inc. 1,967,100
35,000 Morgan Stanley, Dean Witter, Discover & Co. 2,266,250
-----------
6,307,100
------------------------------------------------------------------
MEDIA CONGLOMERATES/OTHER - 0.0%
2 Metris Companies, Inc. 79
------------------------------------------------------------------
METAL - 3.0%
60,000 AK Steel Holding Corp. 1,038,750
125,000 LTV Corp. 765,625
44,800 USX-US Steel Group 1,041,600
-----------
2,845,975
------------------------------------------------------------------
MOTOR VEHICLE - 4.0%
40,000 Ford Motor Co. 2,170,000
25,000 General Motors Corp. 1,576,563
-----------
3,746,563
------------------------------------------------------------------
OIL & GAS PRODUCTION - 1.1%
30,000 Devon Energy Corp. 1,016,250
------------------------------------------------------------------
OILFIELD SERVICES - 2.3%
90,100 Helmerich & Payne, Inc. 2,145,506
------------------------------------------------------------------
PERSONAL COMPUTERS AND PERIPHERALS - 1.1%
40,000 Seagate Technology, Inc.* 1,055,000
------------------------------------------------------------------
PUBLISHING - 1.3%
42,600 New York Times Co. 1,203,450
------------------------------------------------------------------
RETAIL - 1.9%
125,000 K Mart Corp.* 1,765,625
------------------------------------------------------------------
SOFTWARE & SERVICES - 2.1%
75,000 Sterling Software, Inc.* 1,964,063
------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
20
<PAGE>
COMMERCE GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
SPECIALTY RETAIL - 2.8%
134,400 OfficeMax, Inc.* $ 1,226,400
30,000 Payless ShoeSource, Inc.* 1,408,125
-----------
2,634,525
---------------------------------------------------
TELECOMMUNICATIONS - 5.1%
22,000 BellSouth Corp. 1,755,875
25,450 GTE Corp. 1,493,597
30,000 Telefonos de Mexico SA, ADR 1,584,375
-----------
4,833,847
---------------------------------------------------
TOBACCO - 2.0%
50,000 Universal Corp. 1,865,625
---------------------------------------------------
UTILITIES - ELECTRIC/WATER - 5.6%
14,500 Consolidated Edison, Inc. 726,812
17,000 Duke Energy Co. 1,099,687
16,400 FPL Group, Inc. 1,026,025
25,500 GPU, Inc. 1,099,687
15,000 Peoples Energy Corp. 553,125
30,000 Washington Gas Light Co. 793,125
-----------
5,298,461
---------------------------------------------------
TOTAL COMMON STOCKS
(COST $94,016,918) $92,393,117
---------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
REPURCHASE AGREEMENT - 0.8%
STATE STREET BANK & TRUST
COMPANY(A)
$760,000 5.25% 11/02/98 $ 760,000
---------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $760,000) $ 760,000
---------------------------------------------------
TOTAL INVESTMENTS
(COST $94,776,918)(B) $93,153,117
---------------------------------------------------
</TABLE>
<TABLE>
---------------------------------------------------
<S> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments
in which value exceeds cost $6,532,483
Gross unrealized loss for investments
in which cost exceeds value (8,184,895)
---------------------------------------------------
Net unrealized loss (1,652,412)
---------------------------------------------------
</TABLE>
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets. Investment
categories less than one tenth of one percent of net assets are disclosed as
0.0%.
* Non-income producing security.
(a) The repurchase agreement is fully collateralized by U.S. Treasury securi-
ties.
(b) The aggregate cost for federal income tax purposes is $94,805,529.
---------------------------------------------------
INVESTMENT ABBREVIATIONS:
ADR--American Depository Receipt
---------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
21
<PAGE>
COMMERCE GROWTH FUND
Shareholder Letter
Dear Shareholder,
WE ARE PLEASED TO REPORT ON THE PERFORMANCE OF THE COMMERCE GROWTH FUND FOR
THE 12-MONTH PERIOD ENDED OCTOBER 31, 1998.
Performance Review
The Institutional Shares had a total return of 15.38% for
the 12 months ended October 31, 1998. (Refer to the Growth
Fund's Performance Summary for the performance information
pertaining to the Service Shares.) This compares with a
21.99% return for the Standard & Poor's 500 Index with In-
come and a 13.88% return for the Lipper Growth Funds Index.
Portfolio Highlights
.The Fund has been increasing the consumer cyclical, tech-
nology and health care sectors. Recent additions have been
Tommy Hilfiger Corp., Herman Miller, Inc., Dayton Hudson
Corp., Cisco Systems, Inc., and Computer Horizons Corp.
.The Fund has considerably reduced its exposure in the fi-
nancial and the energy sectors. The financial area reached
a euphoric state last spring and summer as several high
profile mergers were announced. We felt many of the finan-
cial stock prices moved ahead of their favorable fundamen-
tals. The energy sector was reduced because of the poor
pricing for oil.
.Many of the new additions to the Fund have had market cap-
italizations in the $2 to $10 billion range. We continue to
believe the mid-cap market capitalization sector may offer
strong value. The weighted market capitalization of the
Fund is $36.8 billion versus $70.4 billion for the S&P 500.
We thank you for your investment and look forward to your
continued confidence.
Sincerely,
Growth Team
Investment Management Group
Commerce Bank, N.A.
November 20, 1998
22
<PAGE>
COMMERCE GROWTH FUND
Performance Summary (Unaudited)
October 31, 1998
The following graph shows the value, as of October 31, 1998, of a $10,000 in-
vestment made on December 12, 1994 in the Institutional Shares. For compara-
tive purposes, the performance of the Fund's benchmarks (the Standard &
Poor's 500 Index with Income ("S&P 500") and the Lipper Growth Funds Index)
are shown. The performance data represents past performance and should not be
considered indicative of future performance which will fluctuate with changes
in market conditions. These performance fluctuations will cause an investor's
shares, when redeemed, to be worth more or less than their original cost.
Performance of the Service Shares will vary from the Institutional Shares due
to differences on fees and loads.
GROWTH FUND'S - INSTITUTIONAL SHARES LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED DECEMBER 12, 1994 TO
OCTOBER 31, 1998
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Institutional S&P 500 Lipper Growth Funds Index
<S> <C> <C> <C>
12/12/94 10,000 10,000 10,000
Oct-95 13,806 13,306 13,269
Oct-96 17,050 16,511 15,522
Oct-97 21,845 21,815 19,927
Oct-98 25,206 26,612 22,693
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C>
INSTITUTIONAL SHARES (COMMENCED DECEMBER 12, 1994) 26.82% 15.38%
-------------------------------------------------------------------------------
SERVICE SHARES (COMMENCED JANUARY 2, 1997)
Excluding sales charges 20.63% 15.10%
Including sales charges (maximum sales charge 3.50%) 18.32% 11.08%
-------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
COMMERCE GROWTH FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - 94.4%
ADVERTISING - 2.4%
205,000 Omnicom Group, Inc. $ 10,134,687
--------------------------------------------------------
AEROSPACE/DEFENSE - 2.1%
80,600 Lockheed Martin Corp. 8,976,825
--------------------------------------------------------
AGRICULTURE/HEAVY EQUIPMENT - 1.7%
156,000 Caterpillar, Inc. 7,020,000
--------------------------------------------------------
AIRLINES - 1.9%
381,000 Southwest Airlines Co. 8,072,438
--------------------------------------------------------
APPAREL - 3.9%
533,000 Jones Apparel Group, Inc. 9,194,250
157,000 Tommy Hilfiger Corp.* 7,290,688
------------
16,484,938
--------------------------------------------------------
BANKS - 4.7%
158,000 Citigroup, Inc. 7,435,875
109,000 Northern Trust Corp. 8,038,750
115,000 Norwest Corp. 4,276,563
------------
19,751,188
--------------------------------------------------------
COMMERCIAL PRODUCTS - 5.7%
178,000 Allied Signal, Inc. 6,930,875
257,000 Danaher Corp. 10,263,937
302,000 Herman Miller, Inc. 6,662,875
------------
23,857,687
--------------------------------------------------------
CONSUMER STAPLES - 2.5%
96,400 Clorox Co. 10,531,700
--------------------------------------------------------
DIVERSIFIED MANUFACTURING - 2.1%
221,000 Robert Half International, Inc.* 8,867,625
--------------------------------------------------------
ELECTRONICS & OTHER ELECTRICAL EQUIPMENT - 3.3%
160,000 General Electric Co. 14,000,000
--------------------------------------------------------
ENTERPRISE SYSTEMS - 4.6%
103,000 EMC Corp.* 6,630,625
130,000 Xerox Corp. 12,593,750
------------
19,224,375
--------------------------------------------------------
HEALTH SUPPLIERS/SERVICES - 2.1%
93,600 Cardinal Health, Inc. 8,851,050
--------------------------------------------------------
HEALTHCARE MANAGEMENT - 2.9%
300,000 Lincare Holdings, Inc.* 11,981,250
--------------------------------------------------------
HOMEBUILDING - 1.4%
369,800 DR Horton, Inc. 5,870,575
--------------------------------------------------------
HOME FURNISHING - 4.6%
260,000 Ethan Allen Interiors, Inc. 8,937,500
438,000 Leggett & Platt, Inc. 10,238,250
------------
19,175,750
--------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
INDUSTRIAL MACHINERY/COMPONENTS - 4.1%
265,000 Illinois Tool Works, Inc. $ 16,993,125
--------------------------------------------------------
INSURANCE - 3.7%
214,000 Conseco, Inc. 7,423,125
117,000 SunAmerica, Inc. 8,248,500
------------
15,671,625
--------------------------------------------------------
INTEGRATED OIL COMPANIES - 3.0%
82,000 Mobil Corp. 6,206,375
126,000 Royal Dutch Petroleum ADR 6,205,500
------------
12,411,875
--------------------------------------------------------
INVESTMENT SERVICES - 4.6%
218,000 Franklin Resources, Inc. 8,243,125
90,000 Merrill Lynch & Company, Inc. 5,332,500
90,000 Morgan Stanley, Dean Witter,
Discover & Co. 5,827,500
------------
19,403,125
--------------------------------------------------------
MOTOR VEHICLE - 2.1%
161,000 Ford Motor Co. 8,734,250
--------------------------------------------------------
PERSONAL COMPUTERS AND PERIPHERALS - 3.0%
395,000 Compaq Computer Corp. 12,491,875
--------------------------------------------------------
PHARMACEUTICALS - 6.6%
166,000 Abbott Laboratories 7,791,625
90,700 Johnson & Johnson 7,392,050
120,000 Schering-Plough Corp. 12,345,000
------------
27,528,675
--------------------------------------------------------
RETAIL - 1.4%
134,000 Dayton Hudson Corp. 5,678,250
--------------------------------------------------------
SEMICONDUCTORS - 1.7%
120,000 Linear Technology Corp. 7,155,000
--------------------------------------------------------
SOFTWARE & SERVICES - 5.2%
180,500 Computer Horizons Corp.* 4,151,500
158,000 Compuware Corp.* 8,561,625
38,000 Microsoft Corp.* 4,023,250
125,000 Tech Data Corp. 4,921,875
------------
21,658,250
--------------------------------------------------------
SPECIALTY FINANCE & AGENCIES - 1.8%
108,800 Federal National Mortgage
Association 7,704,400
--------------------------------------------------------
SPECIALTY RETAIL - 7.1%
220,000 Lowes Companies, Inc. 7,411,249
183,000 The Gap, Inc. 11,002,875
586,000 TJX Companies, Inc. 11,097,375
------------
29,511,499
--------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
24
<PAGE>
COMMERCE GROWTH FUND
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
TELECOMMUNICATIONS - 2.5%
185,000 Century Telephone Enterprises, Inc. $ 10,510,313
-----------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT - 1.7%
112,000 Cisco Systems, Inc.* 7,056,000
-----------------------------------------------------------
TOTAL COMMON STOCKS
(COST $312,007,312) $395,308,350
-----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
REPURCHASE AGREEMENT - 8.5%
State Street Bank & Trust Company(a)
$35,599,000 5.25% 11/02/98 $ 35,599,000
-----------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $35,599,000) $ 35,599,000
-----------------------------------------------------------
TOTAL INVESTMENTS
(COST $347,606,312)(B) $430,907,350
-----------------------------------------------------------
</TABLE>
<TABLE>
------------------------------------------------------------
<S> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $ 96,187,141
Gross unrealized loss for investments in which
cost exceeds value (12,886,103)
------------------------------------------------------------
Net unrealized gain $ 83,301,038
------------------------------------------------------------
</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) The repurchase agreement is fully collateralized by U.S. Treasury securi-
ties.
(b) The cost stated also represents aggregate cost for federal income tax
purposes.
-----------------------------------------------------------
INVESTMENT ABBREVIATIONS:
ADR--American Depository Receipt
-----------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
25
<PAGE>
COMMERCE MIDCAP FUND
Shareholder Letter
Dear Shareholder,
WE ARE PLEASED TO REPORT ON THE PERFORMANCE OF THE COMMERCE MIDCAP FUND FOR
THE 12-MONTH PERIOD ENDED OCTOBER 31, 1998.
Performance Review
The Institutional Shares had a total return of 3.96% for
the 12 months ended October 31, 1998. (Refer to the MidCap
Fund's Performance Summary for the performance information
pertaining to the Service Shares.) This compares with a
6.70% return for the Standard & Poor's MidCap 400 Index and
a -2.91% return for the Lipper MidCap Funds Index.
Portfolio Highlights
.The phenomenon of this liquidity driven, risk averse mar-
ket that we have experienced for the past several years may
have reached extremes. Valuations of many companies outside
the top 100 "Blue Chip" issues are very compelling. As we
have commented before, what is necessary to recognize these
valuations is a catalyst to drive investor confidence. We
may soon be experiencing this change as interest rates de-
cline in an effort to accommodate continued economic
growth.
.Today, we find the strong domestic economy providing an
attractive backdrop for compelling investment ideas. Compa-
nies which stay close to satisfying consumer needs, (i.e.,
specialty retailers, homebuilders, furnishing manufactur-
ers), benefit from strong income growth. While the recent
stock market jitters have eroded consumer confidence
slightly, spending remains at strong levels.
.The healthcare sector, in which we have found many good
companies and remain over-weighted, continues to consoli-
date at a rapid pace. In the past year, we have seen sev-
eral holdings consolidate through acquisition by larger
companies. Service companies in medical supply distribu-
tion, medical device manufacturers and pharmaceutical com-
panies will all benefit from an aging population in the
United States.
We thank you for your investment and look forward to your
continued confidence.
Sincerely,
MidCap Fund Team
Investment Management Group
Commerce Bank, N.A.
November 20, 1998
26
<PAGE>
COMMERCE MIDCAP FUND
Performance Summary (Unaudited)
October 31, 1998
The following graph shows the value, as of October 31, 1998, of a $10,000 in-
vestment made on December 12, 1994 in the Institutional Shares. For compara-
tive purposes, the performance of the Fund's benchmarks (the Standard &
Poor's Mid Cap 400 Index with Income ("S&P Mid Cap 400") and the Lipper Mid
Cap Funds Index) are shown. The performance data represents past performance
and should not be considered indicative of future performance which will
fluctuate with changes in market conditions. These performance fluctuations
will cause an investor's shares, when redeemed, to be worth more or less than
their original cost. Performance of the Service Shares will vary from the In-
stitutional Shares due to the differences in fees and loads.
MIDCAP FUND'S - INSTITUTIONAL SHARES LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED DECEMBER 12, 1994 TO
OCTOBER 31, 1998
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Institutional S&P Mid Cap 400 Lipper Mid Cap Funds Index
<S> <C> <C> <C>
12/12/94 10,000 10,000 10,000
Oct-95 14,056 13,116 13,535
Oct-96 15,999 15,392 15,890
Oct-97 19,019 20,423 19,181
Oct-98 19,772 21,791 18,623
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C>
INSTITUTIONAL SHARES (COMMENCED DECEMBER 12, 1994) 19.15% 3.96%
-------------------------------------------------------------------------------
SERVICE SHARES (COMMENCED JANUARY 2, 1997)
Excluding sales charges 10.10% 3.68%
Including sales charges (maximum sales charge 3.50%) 7.97% .07%
-------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
COMMERCE MIDCAP FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<S> <C>
COMMON STOCKS - 96.2%
ADVERTISING - 2.8%
41,200 Omnicom Group, Inc. $ 2,036,825
38,100 WPP Group PLC ADR 1,895,475
------------
3,932,300
-------------------------------------------------------------
AIRFREIGHT, TRUCK & OTHER - 1.7%
102,600 Airborne Freight Corp. 2,404,687
-------------------------------------------------------------
AIRLINES - 3.4%
88,800 SkyWest, Inc. 2,264,400
117,650 Southwest Airlines Co. 2,492,709
------------
4,757,109
-------------------------------------------------------------
APPAREL - 1.3%
103,700 Jones Apparel Group, Inc.* 1,788,825
-------------------------------------------------------------
BANKS - 3.4%
28,500 Northern Trust Corp. 2,101,875
35,700 Star Banc Corp. 2,699,813
------------
4,801,688
-------------------------------------------------------------
BUILDING PRODUCTS - 1.5%
38,500 Southdown, Inc. 2,095,844
-------------------------------------------------------------
BUSINESS SERVICES - 4.8%
37,875 Paychex, Inc. 1,884,281
129,100 Personnel Group of America, Inc.* 2,001,050
37,000 RemedyTemp, Inc. 675,250
101,100 World Access, Inc.* 2,161,013
------------
6,721,594
-------------------------------------------------------------
CHEMICALS - 1.2%
51,250 OM Group, Inc. 1,672,031
-------------------------------------------------------------
COMMERCIAL SERVICES - 4.4%
122,800 Century Business Services, Inc.* 1,711,525
48,300 Dendrite International, Inc.* 996,188
52,600 Galileo International, Inc. 1,995,513
55,800 Viad Corp. 1,531,013
------------
6,234,239
-------------------------------------------------------------
DIVERSIFIED MANUFACTURING - 3.0%
55,000 Danaher Corp.* 2,196,563
88,300 Herman Miller, Inc. 1,948,119
------------
4,144,682
-------------------------------------------------------------
ELECTRICAL EQUIPMENT - 1.0%
55,700 Hughes Supply, Inc. 1,479,531
-------------------------------------------------------------
ENTERPRISE SYSTEMS - 0.9%
21,000 Ceridian Corp.* 1,204,875
-------------------------------------------------------------
HEALTH SUPPLIERS/SERVICES - 14.1%
12,700 Allegiance Corp. 472,281
20,300 Cardinal Health, Inc. 1,919,619
25,900 Guidant Corp. 1,981,350
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<S> <C>
COMMON STOCKS - (CONTINUED)
HEALTH SUPPLIERS/SERVICES - (CONTINUED)
71,100 HBO & Co. $ 1,866,375
25,600 McKesson Corp. 1,971,200
75,300 Ocular Sciences, Inc.* 1,891,913
50,300 Quintiles Transnational Corp.* 2,276,075
41,600 Safeskin Corp.* 920,400
40,800 Serologicals Corp.* 923,100
79,600 Steris Corp.* 1,830,800
88,900 Trex Med Corp. 1,089,025
35,100 Waters Corp. 2,579,850
------------
19,721,988
-------------------------------------------------------------
HEALTHCARE MANAGEMENT - 2.9%
101,350 Health Management Association, Inc.* 1,805,297
56,300 Lincare Holdings, Inc.* 2,248,481
------------
4,053,778
-------------------------------------------------------------
HOMEBUILDING - 2.4%
61,600 Crossmann Communities, Inc.* 1,401,400
121,700 DR Horton, Inc. 1,931,988
------------
3,333,388
-------------------------------------------------------------
HOME FURNISHING - 1.5%
98,400 Furniture Brands International, Inc.* 2,115,600
-------------------------------------------------------------
INFORMATION MANAGEMENT - 1.4%
51,600 Sabre Group Holdings, Inc.* 1,944,675
-------------------------------------------------------------
INSURANCE SERVICES - 3.4%
29,750 Orion Capital Corp. 1,017,078
54,000 Protective Life Corp. 2,001,375
23,400 Transatlantic Holdings, Inc. 1,825,200
------------
4,843,653
-------------------------------------------------------------
INVESTMENT SERVICES - 1.6%
66,100 A. G. Edwards, Inc. 2,284,581
-------------------------------------------------------------
MEDIA CONGLOMERATES/OTHER - 1.1%
47,200 Apollo Group, Inc.* 1,516,300
-------------------------------------------------------------
PERSONAL COMPUTERS AND PERIPHERALS - 3.5%
35,500 Lexmark International Group, Inc.* 2,482,781
53,050 Symbol Technologies, Inc. 2,373,988
------------
4,856,769
-------------------------------------------------------------
PHARMACEUTICALS - 3.2%
30,200 Elan Corp. PLC ADR* 2,115,887
43,500 Watson Pharmaceuticals, Inc.* 2,419,687
------------
4,535,574
-------------------------------------------------------------
PUBLISHING - 2.7%
82,600 Harte-Hanks Communication, Inc. 2,008,213
62,000 New York Times Co. 1,751,500
------------
3,759,713
-------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
28
<PAGE>
COMMERCE MIDCAP FUND
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
RETAIL - 4.2%
43,550 Dollar Tree Stores, Inc.* $ 1,679,397
24,100 Express Scripts, Inc.* 2,354,269
100,400 Family DLR Stores, Inc. 1,819,750
------------
5,853,416
------------------------------------------------------------
SEMICONDUCTORS - 3.3%
70,700 C&D Technologies, Inc. 1,723,313
34,500 Level One Communications, Inc.* 907,781
57,600 Maxim Integrated Products, Inc.* 2,055,600
------------
4,686,694
------------------------------------------------------------
SOFTWARE & SERVICES - 8.5%
42,100 BMC Software, Inc.* 2,023,431
44,400 Compuware Corp.* 2,405,925
43,500 DST Systems, Inc.* 2,175,000
45,140 SunGard Data Systems, Inc.* 1,523,475
102,900 Symantec Corp.* 1,646,400
147,600 Systems & Computer Tech Corp.* 2,103,300
------------
11,877,531
------------------------------------------------------------
SPECIALTY RETAIL - 10.4%
43,800 Abercrombie & Fitch Co.* 1,738,312
74,200 Bed Bath & Beyond, Inc.* 2,045,137
42,600 Best Buy Co., Inc.* 2,044,800
49,484 CVS Corp. 2,260,800
60,900 Linens-n-Things, Inc.* 1,884,094
66,700 Office Depot, Inc.* 1,667,500
70,050 Pacific Sunwear of California, Inc.* 1,514,831
78,200 TJX Companies, Inc. 1,480,912
------------
14,636,386
------------------------------------------------------------
UTILITIES - ELECTRIC/WATER - 2.6%
49,000 Carolina Power and Light Co. 2,247,875
55,000 Washington Gas Light Co. 1,454,062
------------
3,701,937
------------------------------------------------------------
TOTAL COMMON STOCKS
(COST $115,898,611) $134,959,388
------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
REPURCHASE AGREEMENT - 3.7%
State Street Bank & Trust Company(a)
$5,158,000 5.25% 11/02/98 $ 5,158,000
-------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $5,158,000) $ 5,158,000
-------------------------------------------------------------
TOTAL INVESTMENTS
(COST $121,056,611)(B) $140,117,388
-------------------------------------------------------------
</TABLE>
<TABLE>
-------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which
value exceeds cost $26,017,550
Gross unrealized loss for investments in which
cost exceeds value (7,273,311)
-------------------------------------------------------------
Net unrealized gain $18,744,239
-------------------------------------------------------------
</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) The repurchase agreement is fully collateralized by U.S. Treasury securi-
ties.
(b) The aggregate cost for federal income tax purposes is $121,373,149.
-------------------------------------------------------------
INVESTMENT ABBREVIATIONS:
ADR--American Depository Receipt
-------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
29
<PAGE>
COMMERCE INTERNATIONAL EQUITY FUND
Shareholder Letter
Dear Shareholder,
WE ARE PLEASED TO REPORT ON THE PERFORMANCE OF THE COMMERCE INTERNATIONAL EQ-
UITY FUND FOR THE 12-MONTH PERIOD ENDED OCTOBER 31, 1998.
Performance Review
The Institutional Shares had a total return of 7.16% for
the 12 months ended October 31, 1998. (Refer to the Inter-
national Equity Fund's Performance Summary for the perfor-
mance information pertaining to the Service Shares.) This
compares with a 9.95% return for the Morgan Stanley Capital
International Europe, Australia and Far East Index ("EAFE")
and a 4.64% return for the Lipper International Equity
Funds Index.
Portfolio Highlights
.After a strong first half, the international equity mar-
kets have experienced a great deal of downside volatility
in the latter half of the fiscal year. During this time,
markets rose until mid-July, but were then unsettled by a
sequence of economic and financial crises in Asia, Russia,
and Latin America. In contrast to previous periods, Euro-
pean markets fell as much as Asian markets. For the year
ended October 31, 1998, as a whole, however, the European
markets have provided most of the strength in the portfo-
lio.
.The portfolio has remained under-weighted in Japan (at ap-
proximately 16% of the portfolio versus 21% of the EAFE In-
dex) which has added value. Country allocation overall has
been a negative factor year-to-date, but has been offset by
stock selection, which has added value. The manager's
growth orientation did not work well early in the year in
certain areas such as Europe, but has recently allowed the
Fund to outperform its peer universe. In the current, less
optimistic economic climate, companies with sustainable
growth have been outperforming more cyclical companies.
.We believe that the portfolio's relatively defensive re-
gional posture -- under-weighted in Japan and Asia -- and
its focus on steady, sustainable growth stocks, will help
to weather this period of economic difficulty. The near-
term outlook for Japan remains unclear, and we are still
cautious about the outlook for the rest of Asia. In Europe,
we remain encouraged by the longer-term fundamentals: low
inflation, continued corporate restructuring, and an im-
proved focus on shareholder value.
We thank you for your investment and look forward to your
continued confidence.
Sincerely, Sincerely,
International Equity International Equity
Team Team
Investment Management Rowe Price-Fleming In-
Group ternational, Inc.
Commerce Bank, N.A.
November 20, 1998
30
<PAGE>
COMMERCE INTERNATIONAL EQUITY FUND
Performance Summary (Unaudited)
October 31, 1998
The following graph shows the value, as of October 31, 1998, of a $10,000 in-
vestment made on January 1, 1995 in the Institutional Shares. For comparative
purposes, the performance of the Fund's benchmarks (the Morgan Stanley Capi-
tal International Europe, Australia and Far East Index ("Morgan Stanley
EAFE") and the Lipper International ("Int'l") Funds Index) are shown. The
performance data represents past performance and should not be considered in-
dicative of future performance which will fluctuate with changes in market
conditions. These performance fluctuations will cause an investor's shares,
when redeemed, to be worth more or less than their original cost. Performance
of the Service Shares will vary from the Institutional Shares due to the dif-
ferences in fees and loads.
INTERNATIONAL EQUITY FUND'S - INSTITUTIONAL SHARES LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED JANUARY 1, 1995(A)
TO OCTOBER 31, 1998
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Institutional Morgan Stanley Lipper Int'l
<S> <C> <C> <C>
1/1/95 10,000 10,000 10,000
Oct-95 10,264 10,428 10,584
Oct-96 11,628 11,551 11,920
Oct-97 12,459 12,118 13,513
Oct-98 13,352 13,324 14,140
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C>
INSTITUTIONAL SHARES (COMMENCED DECEMBER 12, 1994) 8.01% 7.16%
-------------------------------------------------------------------------------
SERVICE SHARES (COMMENCED JANUARY 2, 1997)
Excluding sales charges 4.64% 6.88%
Including sales charges (maximum sales charge 3.50%) 2.62% 3.14%
-------------------------------------------------------------------------------
</TABLE>
(a) For comparative purposes, initial investments are assumed to be made on
the first day of the month following the Fund's inception.
31
<PAGE>
COMMERCE INTERNATIONAL EQUITY FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - 94.5%
ARGENTINE PESO - 0.8%
3,429 Banco de Galicia Buenos Aires, ADR (Banks) $ 58,507
3,794 Banco Frances Del Rio De La Plata ADR (Financial
Services) 79,200
20,767 Perez Compac SA (Diversified Industrial Manufacturing) 102,623
6,570 Telefonica de Argentina ADR (Utility) 217,221
13,537 YPF Sociedad Anonima ADR
(Oil & Gas) 391,727
------------
849,278
-----------------------------------------------------------------------------
AUSTRALIAN DOLLAR - 2.3%
8,000 Amp Ltd.* (Financial Services) 95,234
19,954 Australian Gas & Light Co. (Utilities) 143,621
6,000 Brambles Industries, Ltd. (Transportation/Storage) 131,682
14,189 Broken Hill Proprietary Co.
(Mining - Metals/Minerals) 120,693
40,791 Colonial Ltd.* (Financial Services) 133,738
17,675 Commonwealth Bank of Australia (Financial Services) 219,881
23,000 Fosters Brewing Group, LTD. (Beverages/Tobacco) 56,534
80,000 Goodman Fielder Wattie, Ltd. (Food Products) 105,726
48,000 John Fairfax Holdings (Publishing) 84,060
5,208 Lend Lease Corp. (Financial Services) 114,974
9,539 National Australia Bank (Banks) 126,483
30,502 News Corp., Ltd. (Media) 208,517
24,000 Publishing & Broadcasting, Ltd. (Media) 95,319
26,000 Tab Corp. Holdings, Ltd. (Recreational Services) 173,090
69,765 Telstra Corp.* (Utilities) 215,991
34,542 Westpac Banking Corp.* (Banks) 210,210
17,000 Woodside Petroleum, Ltd. (Oil & Gas) 89,899
------------
2,325,652
-----------------------------------------------------------------------------
BELGIAN FRANC - 2.0%
945 Dexia* (Financial Services) 153,400
1,722 Fortis AG (Insurance) 494,590
14,660 Kredietbank (Financial Services) 1,022,641
600 Soc Europeenne* (Media) 98,099
39 UCB (Chemical Products) 227,624
------------
1,996,354
-----------------------------------------------------------------------------
BRAZILIAN REAL - 1.3%
611 Cemig - CIA Energetica Minas Gerais ADR+ (Utilities) 11,883
6,052 Cemig - CIA Energetica Minas Gerais ADR (Non-Voting)
(Utilities) 110,449
3,734 Companhia Brasileira (Utilities) 60,211
13,103 Telecomunicacoes Brasileiras ADR (Telecommunications) 995,009
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
BRAZILIAN REAL - (CONTINUED)
982,766 Telesp Cellular SA* (Telecommunications) $ 48,607
4,700 Unibanco - Uniao De Bancos Brasileirs GDR*
(Financial Services) 82,250
------------
1,308,409
------------------------------------------------------------------------------
BRITISH POUND STERLING - 18.9%
32,000 Abbey National (Insurance) 622,348
120,000 Asda Group (Consumer Products) 323,359
38,000 BG (Gas Distribution & Pipeline) 248,996
29,000 British Petroleum (Oil & Gas) 425,672
74,000 Cable & Wireless (Telecommunications) 829,820
50,744 Cadbury Schweppes (Food Products) 777,111
83,600 Caradon (Building Materials & Construction) 173,209
36,000 Centrica* (Energy) 69,894
46,000 Compass Group (Food Products) 465,790
141,776 Diageo PLC (Beverages/Tobacco) 1,530,523
26,000 Electrocomponents (Electronics) 171,454
10,000 Gkn (Industrial Machinery) 121,511
56,000 Glaxo Wellcome (Pharmaceuticals) 1,739,576
4,000 Heywood Williams Group (Building Materials &
Construction) 12,620
158,000 Kingfisher Group (Retail) 1,387,011
50,000 Ladbroke Group (Hotels & Restaurants) 183,061
11,000 Laing (John) (Household Durables) 54,864
145,400 National Westminster Bank (Banks) 2,455,460
25,500 Rank Group (Commercial Services) 104,991
128,000 Reed International (Publishing) 1,082,950
27,000 Rolls Royce (Aerospace/Defense) 99,644
38,000 RTZ Corp (Mining - Metals/Minerals) 461,422
63,000 Safeway (Retail Trade) 316,329
211,500 Shell Transport & Trading Co. (Oil & Gas) 1,277,894
35,000 Smith (David S) Holdings (Paper & Forest Products) 73,810
176,800 Smithkline Beecham (Health & Medical Services) 2,210,448
177,000 Tesco (Food Products) 499,172
156,500 Tomkins (Diversified) 724,247
10,000 Unilever NV (Consumer Products) 100,422
55,000 United News & Media Plc (Publishing) 608,473
------------
19,152,081
------------------------------------------------------------------------------
CANADIAN DOLLAR - 0.2%
5,410 Alcan Aluminum, Ltd. (Mining - Metals/Minerals) 135,864
1,950 Royal Bank of Canada (Financial Services) 89,854
------------
225,718
------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
32
<PAGE>
COMMERCE INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
CHILEAN PESO - 0.1%
590 Cervecerias Unidas (CCU), ADR (Beverages/Tobacco) $ 10,620
2,440 Chilectra SA, ADR (Utilities)+ 48,002
------------
58,622
------------------------------------------------------------------------
CHINESE YUAN - 0.2%
12,900 Huaneng Power International, Inc., ADR* (Energy) 177,375
------------------------------------------------------------------------
CZECH KORUNA - 0.0%
1,900 SPT Telecom AS* (Telecommunications) 28,707
------------------------------------------------------------------------
DANISH KRONE - 0.4%
1,525 Den Danske Bank AB (Financial Services) 207,030
650 Tele Danmark AS (Telecommunications) 70,800
1,250 Unidanmark (Financial Services) 95,268
------------
373,098
------------------------------------------------------------------------
DEUTSCHEMARK - 6.9%
1,770 Allianz AG Holdings (Insurance) 606,918
8,669 Bayer AG (Chemical Products) 352,203
11,703 Bayerische Vereinsbank (Financial Services) 928,994
182 Buderus AG (Industrial Machinery) 75,701
8,226 Deutsche Bank AG (Financial Services) 511,487
14,431 Deutsche Telekom AG (Telecommunications) 393,074
11,508 Dresdner Bank AG (Financial Services) 448,093
13,241 Gehe AG (Health/Personal Care) 995,173
3,470 Hoechst AG (Chemical Products) 144,959
200 Hornbach Baumarkt (Retail Trade) 8,693
7,710 Mannesmann AG (Industrial Machinery) 758,666
1,832 Rhoen-Klinikum AG (Health/Personal Care) 182,481
1,430 Sap AG (Computer Services/Software) 599,970
3,682 Siemens AG (Electronics) 221,387
10,808 Veba AG (Utilities) 603,526
2,230 Volkswagen AG (Automobiles & Automobile Parts) 167,603
------------
6,998,928
------------------------------------------------------------------------
FINNISH MARKKA - 0.5%
6,160 Nokia (AB) OY (Telecommunications) 560,611
------------------------------------------------------------------------
FRENCH FRANC - 10.4%
3,660 Alcatel Alsthom (Cie Gen El) (Computers/Office) 407,772
6,157 Axa Uap (Insurance) 695,944
370 Canal Plus (Media) 89,771
639 Carrefour (Retail Trade) 424,167
580 CLF Dexia France* (Financial Services) 85,498
4,135 Credit Commercial de France (Financial Services) 290,408
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
FRENCH FRANC - (CONTINUED)
1,440 Danone (Food Products) $ 380,741
705 Dexia France (Financial Services) 103,925
268 Dexia France - Prime De Fidel (Financial
Services) 39,506
2,920 Elf Aquitaine (Oil & Gas) 337,940
820 GTM Entrepose (Building Materials &
Construction) 88,850
325 L'Oreal (Health/Personal Care) 185,726
1,781 Lafarge SA* (Building Materials & Construction) 182,078
1,790 Lapeyre (Building Materials & Construction) 157,868
855 Legrand (Electronics) 217,909
550 Pathe (Media) 105,032
5,560 Pin Printemps Redo (Retail Trade) 930,686
780 Primagaz (Cie Des Gaz Petrole) (Oil & Gas) 70,196
2,930 Saint Gobain (Chemical Products) 433,496
4,787 Sanofi (Health/Personal Care) 749,598
8,044 Schneider SA (Electronics) 477,494
3,010 SGS Thomson Microelectronics* (Electronics) 184,201
1,994 Societe Generale (Financial Services) 263,790
3,848 Sodexho Alliance (Food Products) 747,312
2,180 Television Francaise (Media) 360,201
8,574 Total (Oil & Gas) 989,207
6,790 Vivendi (Utilities) 1,550,876
------------
10,550,192
-------------------------------------------------------------------------------
HONG KONG DOLLAR - 1.4%
10,000 Cheung Kong Holdings, Ltd. (Real Estate) 68,431
32,000 CLP Holdings, Ltd.* (Utilities) 179,729
11,000 Hang Seng Bank (Banks) 95,158
39,000 Henderson Land Development Co. (Recreational
Services) 191,853
80,400 Hong Kong Telecom (Telecommunications) 160,904
93,000 Hutchison Whampoa (Diversified) 666,430
10,000 Sun Hung Kai Properties Co. (Real Estate) 69,722
------------
1,432,227
-------------------------------------------------------------------------------
IRISH PUNT - 0.0%
1,720 CBT Group ADR* (Computer Services/Software) 20,533
-------------------------------------------------------------------------------
ITALIAN LIRA - 5.2%
12,600 Assicurazioni Generali Spa (Insurance) 451,112
23,000 Banca Commercial Italiana (Banks) 142,106
200,000 Banca Di Roma* (Financial Services) 348,876
103,309 Ente Nazionale Idrocarburi (Oil & Gas) 614,353
2,372 Gucci Group NV, ADR (Textiles) 90,433
33,840 IMI Spa (Financial Services) 520,123
3,226 Industrie Natuzzi Spa, ADR (Household Durables) 58,673
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
33
<PAGE>
COMMERCE INTERNATIONAL EQUITY FUND
Statement of Investments (continued)
October 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
ITALIAN LIRA - (CONTINUED)
72,000 Instituto National Assicurazioni (Insurance) $ 198,274
23,000 Italgas (Societa Italiana Il Gas) Spa (Utilities) 105,282
10,605 Mediolanum (Insurance) 263,904
7,000 Rinascente (Retail Trade) 67,458
123,443 Telecom Italia Mobile Spa (Utilities) 716,392
152,340 Telecom Italia Spa (Telecommunications) 1,101,051
114,094 Unicredito Italiano Spa (Financial Services) 612,380
-------------
5,290,417
-----------------------------------------------------------------------------
JAPANESE YEN - 15.7%
1,910 Advantest (Electronics) 120,419
9,000 Alps Electric Co. (Electronics) 123,829
21,000 Amada Co, Ltd. (Industrial Machinery) 125,553
41,000 Canon, Inc. (Electronics) 775,476
10,000 Citizen Watch Co. (Electronics) 55,241
18,000 Dai Nippon Screen Manufacturing (Electronics) 39,372
3,000 Daifuku Co., Ltd. (Industrial Machinery) 12,661
20,000 Daiichi Pharmaceutical Co. (Health/Personal Care) 333,676
26,000 Daiwa House Industry Co. (Building Materials &
Construction) 293,275
54 DDI Corp. (Utilities) 157,488
67 East Japan Railway (Railroads) 397,126
5,600 Fanuc Co., Ltd. (Electronics) 168,125
9,000 Fujitsu Limited (Computers/Office) 95,728
47,000 Hitachi (Electronics) 239,072
3,000 Honda Motor Co., Ltd. (Automobiles & Automobile
Parts) 90,067
7,000 Inax Corp. (Building Materials & Construction) 34,646
10,000 Ito-Yokado Co. (Retail Trade) 583,290
21,000 Kao Corp. (Cosmetics) 425,116
13,000 Kokuyo Company, Ltd. (Computers Services/Software) 172,843
27,000 Komatsu, Ltd. (Industrial Machinery) 145,908
11,000 Komori Corp. (Industrial Machinery) 201,921
31,000 Kuraray Co. (Chemical Products) 330,528
11,000 Kyocera Corp. (Electronics) 485,932
17,000 Makita Corp. (Industrial Machinery) 179,653
32,000 Marui Co., Ltd. (Retail Trade) 557,214
45,000 Matsushita Electric Industrial Co. (Electronics) 660,448
32,000 Mitsubishi Corp. (Wholesale Trade) 169,360
135,000 Mitsubishi Heavy Industries, Ltd. (Industrial
Machinery) 521,101
66,000 Mitsui Fudosan Co. (Real Estate) 438,188
14,000 Murata Manufacturing Co. (Electronics) 471,951
73,000 NEC Corp. (Electronics) 540,393
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
JAPANESE YEN - (CONTINUED)
37 Nippon Telephone & Telegraph Corp. (Utilities) $ 289,449
42,000 Nippondenso Co. (Transportation/Storage) 790,787
47,000 Nomura Securities Co., Ltd. (Financial Services) 354,778
8,000 Pioneer Electronic Corp. (Household Durables) 131,755
2,000 Sangetsu Co., Ltd. (Building Materials &
Construction) 24,704
31,000 Sankyo Co. (Financial Services) 699,348
43,000 Sekisui Chemical Co., Ltd. (Building Materials &
Construction) 234,217
26,000 Sekisui House (Building Materials &
Construction) 258,929
4,000 Seven Eleven Japan Co., Ltd. (Retail Trade) 303,997
24,000 Shinetsu Chemical Co., Ltd. (Chemical Products) 477,612
17,000 Shiseido Co. (Health/Personal Care) 186,070
10,700 Sony Corp. (Household Durables) 679,190
48,000 Sumitomo Corp. (Wholesale Trade) 229,748
66,000 Sumitomo Electric Industries, Ltd. (Electronics) 730,314
16,000 Sumitomo Forestry Co., Ltd. (Paper & Forest
Products) 108,835
10,000 TDK Corp. (Household Durables) 658,775
13,000 Tokio Marine & Fire Insurance Co. (Insurance) 147,753
6,300 Tokyo Electron (Electronics) 204,812
8,000 Tokyo Steel Manufacturing (Mining -
Metals/Minerals) 36,370
25,000 Toppan Printing Co. (Media) 256,262
14,000 Uny Co. (Retail Trade) 228,170
3,000 Yurtec Corp. (Building Materials & Construction) 15,569
------------
15,993,044
--------------------------------------------------------------------------
KOREAN WON - 0.1%
2,040 Samsung Electronics* (Electronics) 83,486
--------------------------------------------------------------------------
MEXICAN PESO - 1.5%
295 Cemex SA (Building Materials & Construction) 703
9,860 Cemex SA (B Shares) (Building Materials &
Construction) 27,508
15,860 Cemex SA ADS (Building Materials & Construction) 72,854
1,044 Cifra SA de CV, ADR* (Retail Trade) 13,181
46,500 Fomento Econ Mexico SA* (Diversified) 119,838
16,928 Gruma SA* (Diversified Holding Companies) 40,193
3,613 Gruma SA De CV, ADR* (Financial Services)+ 36,406
68,450 Grupo Industrial Maseca SA (Household Durables) 55,529
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
34
<PAGE>
COMMERCE INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
COMMON STOCKS - (CONTINUED)
MEXICAN PESO - (CONTINUED)
59,232 Grupo Modelo SA
(Beverages/Tobacco) $ 124,816
6,222 Grupo Televisa, GDR
(Media) 168,772
33,739 Kimberly Clark de Mexico
(Health/Personal Care) 98,800
8,040 Panamerica Beverages, ADR
(Beverages/Tobacco) 162,810
10,145 Telefonos de Mexico SA,
ADR (Financial Services) 535,783
4,800 TV Azteca, ADS* (Media) 42,000
------------
1,499,193
------------------------------------------------
NETHERLANDS GUILDER - 10.9%
23,256 ABN AMRO Holdings NV
(Banks) 435,634
21,556 Ahold (Koninklijke) NV
(Food Products) 716,437
1,992 Akzo Nobel NV (Chemicals
Products) 77,401
11,050 ASM Lithography Holding
NV* (Electronics-
Semiconductors) 280,323
8,983 CSM CVA (Food Products) 442,311
56,100 Elsevier NV (Media) 789,655
10,705 Fortis AMEV NV
(Insurance) 694,970
27,782 ING Groep NV (Financial
Services) 1,344,158
2,598 Koninklijke KPN NV
(Utilities) 100,947
8,620 Koninklijke Numico NV
(Food Products) 339,089
5,840 Philips Electronics
(Electronics) 310,683
9,357 Polygram (Recreational
Services) 551,369
32,190 Royal Dutch Petroleum Co.
(Energy) 1,553,982
2,598 TNT Post Groep NV
(Financial Services) 69,523
14,000 Unilever NV (Consumer
Products) 1,038,508
11,896 Wolters Kluwer (Media) 2,304,772
------------
11,049,762
------------------------------------------------
NEW ZEALAND DOLLAR - 0.2%
33,000 Telecom Corp. of New
Zealand* (Utilities) 135,432
15,000 Telecom Corp. of New
Zealand IR* (Utilities) 29,231
------------
164,663
------------------------------------------------
NORWEGIAN KRONE - 1.4%
1,170 Bergesen D-Y ASA
(Transportation/Storage) 16,207
16,130 Norsk Hydro (Energy) 700,971
42,000 Orkla SA (Food Products) 710,124
2,690 Saga Petroleum ASA (Oil
Refining & Marketing) 33,974
------------
1,461,276
------------------------------------------------
PORTUGUESE ESCUDO - 0.5%
10,996 Jeronimo Martins SGPS
(Food Products) 476,300
------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<S> <C>
COMMON STOCKS - (CONTINUED)
RUSSIAN RUBLE - 0.0%
540 Lukoil Co., ADR (Oil & Gas) $ 8,775
3,560 Rao Gazprom, ADS* (Energy) 33,197
------------
41,972
------------------------------------------------
SINGAPORE DOLLAR - 0.2%
10,504 Singapore Press Holdings
(Media) 137,426
42,000 Singapore Telecommunications
(Telecommunications) 72,516
------------
209,942
------------------------------------------------
SPANISH PESETA - 2.9%
11,676 Argentaria Corp Bancaria
De Espana (Banks) 254,060
12,090 Banco Bilbao Vizcaya SA
(Financial Services) 163,077
26,395 Banco Santander SA* (Banks) 483,452
16,316 Endesa SA (Electrical Services) 411,201
2,979 Gas Natural Sdg SA
(Utilities) 256,533
18,700 Iberdrola SA (Utilities) 302,020
3,847 Repsol SA (Oil & Gas) 193,087
19,625 Telefonica de Espana
(Utilities) 886,093
------------
2,949,523
------------------------------------------------
SWEDISH KRONA - 3.4%
18,810 ABB AB (Electronics) 198,799
49,750 Astra AB (Health & Medical
Services) 780,730
11,470 Atlas Copco AB (Industrial
Machinery) 266,693
30,690 Electrolux AB (Appliance
Manufacturer) 461,962
2,530 Esselte (Media) 36,949
1,855 Granges AB
(Mining - Metals/Minerals) 24,239
12,390 Hennes & Mauritz AB
(Retail Trade) 872,982
93,560 Nordbanken Holding AB
(Financial Services) 560,929
2,050 Sandvik AB
(Industrial Machinery) 42,150
10,210 Sandvik AB (B Shares)
(Industrial Machinery) 209,929
660 Sifo Group*
(Financial Services) 2,537
------------
3,457,899
------------------------------------------------
SWISS FRANC - 7.1%
350 ABB AG (Electronics) 418,874
1,429 Adecco SA (Financial Services) 569,365
2,910 Credit Suisse Group
(Financial Services) 447,139
955 Nestle SA (Food Products) 2,029,366
818 Novartis AG
(Chemical Products) 1,472,678
93 Roche Holdings AG
(Health/Personal Care) 1,084,188
480 Swisscom AG
(Telecommunications) 162,562
3,660 UBS AG (Banks) 1,003,239
------------
7,187,411
------------------------------------------------
TOTAL COMMON STOCKS
(COST $84,829,821) $ 95,922,673
------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
35
<PAGE>
COMMERCE INTERNATIONAL EQUITY FUND
Statement of Investments (continued)
October 31, 1998
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
<C> <S> <C>
PREFERRED STOCKS - 1.4%
AUSTRALIAN DOLLAR - 0.2%
26,130 News Corporation, Ltd. (Media) $ 157,220
96,200 Star City Holdings* (Recreational Services) 65,583
-----------
222,803
---------------------------------------------------------------------------
BRAZILIAN REAL - 0.7%
13,550,488 Banco Bradesco SA (Banks) 77,243
194,623 Brahma (Food Products) 91,365
2,560,126 Cemig - Cia Energetica Minas Gerais (Utilities) 49,790
118,176 Cimento Portland Itau (Building Materials &
Construction) 15,851
94,000 Emp Nac Com Redito* (Encorpar) (Diversified
Manufacturing) 126
137,000 Itaubanco (Financial Services) 66,612
1,774,463 Petroleo Brasileiros--Petrobras (Oil & Gas) 223,128
1,028,953 Telesp (Telecommunications) 172,513
-----------
696,628
---------------------------------------------------------------------------
DEUTSCHEMARK - 0.5%
464 Fielmann AG (Health/Personal Care) 20,868
420 Fresenius AG (Health & Medical Services) 72,007
1,210 Hornbach Holdings AG (Retail Trade) 91,161
766 SAP AG (Non Voting) (Computer Services/ Software) 373,174
-----------
557,210
---------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(COST $1,744,586) $ 1,476,641
---------------------------------------------------------------------------
WARRANTS - 0.1%
DEUTSCHEMARK - 0.1%
4,883 Dresdner Bank AG* (Financial Services) $ 68,978
---------------------------------------------------------------------------
TOTAL WARRANTS
(COST $85,914) $ 68,978
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
REPURCHASE AGREEMENT - 5.9%
State Street Bank & Trust Company(a)
$5,982,000 5.25% 11/02/98 $ 5,982,000
---------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $5,982,000) $ 5,982,000
---------------------------------------------------------------------------
TOTAL INVESTMENTS
(IDENTIFIED COST $92,642,321)(B) $103,450,292
---------------------------------------------------------------------------
</TABLE>
<TABLE>
---------------------------------------------------------------------------
<S> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value
exceeds cost $17,628,020
Gross unrealized loss for investments in which cost
exceeds value (7,075,935)
---------------------------------------------------------------------------
Net unrealized gain $10,552,085
---------------------------------------------------------------------------
</TABLE>
The percentage shown for each investment category reflects the value of in-
vestments in that category as a percentage of total net assets. Investment
categories less than one tenth of one percent of net assets are disclosed as
0.0%.
* 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. These securities have been determined to be liquid
under guidelines established by the Board of Trustees.
(a) The repurchase agreement is fully collateralized by U.S. Treasury securi-
ties.
(b) The aggregate cost for federal income tax purposes is $92,898,207.
------------------------------------------------------------------------------
INVESTMENT ABBREVIATIONS:
ADR--American Depository Receipt
ADS--American Depository Shares
GDR--Global Depository Receipt
------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
36
<PAGE>
COMMERCE INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
PERCENTAGE
OF
TOTAL NET
ASSETS
COMMON AND PREFERRED STOCK INDUSTRY
CONCENTRATIONS+
<S> <C>
Financial Services 10.6%
Food Products 7.6
Electronics 7.5
Utilities 6.1
Banks 5.0
Media 4.8
Oil & Gas 4.6
Telecommunications 4.5
Retail Trade 4.3
Insurance 4.1
Health/Personal Care 3.8
Chemical Products 3.6
Health & Medical Services 3.0
Industrial Machinery 2.6
Energy 2.5
Beverages/Tobacco 1.8
Publishing 1.7
Pharmaceuticals 1.7
Household Durables 1.6
Building Materials & Construction 1.5
Diversified 1.5
Consumer Products 1.5
Retail 1.4
Computer Services/Software 1.2
Recreational Services 1.0
Transportation/Storage 0.9
Mining--Metals/Minerals 0.8
Real Estate 0.6
Appliance Manufacturer 0.5
Computers/Office 0.5
Electrical Services 0.4
Wholesale Trade 0.4
Railroads 0.4
Electronics-Semiconductors 0.3
Gas Distribution & Pipeline 0.3
Automobiles & Automobile Parts 0.3
Hotels & Restaurants 0.2
Paper & Forest Products 0.2
Computers/Communication 0.2
Commercial Services 0.1
Diversified Industrial Manufacturing 0.1
Aerospace/Defense 0.1
Textiles 0.1
--------------------------------------------------
TOTAL COMMON AND PREFERRED STOCKS 95.9%
--------------------------------------------------
</TABLE>
+ Industry concentrations greater than one tenth of one percent are dis-
closed.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
37
<PAGE>
COMMERCE NATIONAL TAX-FREE INTERMEDIATE BOND FUND
Shareholder Letter
Dear Shareholder,
WE ARE PLEASED TO REPORT ON THE PERFORMANCE OF THE COMMERCE NATIONAL TAX-FREE
INTERMEDIATE BOND FUND FOR THE 12-MONTH PERIOD ENDED OCTOBER 31, 1998.
Performance Review
The Fund had a total return of 6.59% for the 12 months
ended October 31, 1998. This compares with a 7.28% return
for the Lipper General Municipal Debt Funds Index, a 6.80%
return for Lipper Intermediate Municipal Funds Index and a
7.44% return for Merrill Lynch Municipal Intermediate In-
dex. During the period, we have changed one of the Fund's
benchmarks from the Lipper General Municipal Debt Funds In-
dex to the Lipper Intermediate Municipal Funds Index. We
have determined that the new benchmark is weighted more ap-
propriately with the Fund's investment objective.
Portfolio Highlights
.The story in the municipal market has been supply, and
lots of it. Year-to-date long-term new issue volume of $234
billion is already the second busiest year on record,
eclipsing 1997's mark of $221 billion. Several factors have
contributed to this surge, including lower interest rates,
tightening credit spreads, and voter willingness to approve
public debt-financed projects. As measured by the yield on
the general obligation triple-A 10 year, interest rates de-
clined roughly 50 basis points from October 1997 to October
1998. This provided a golden opportunity for issuers to re-
fund or refinance existing higher coupon debt at lower lev-
els.
.Complementing the decline in overall interest rates,
credit spreads continued to slide inward. This has allowed
for greater savings for lower quality issuers as their ex-
isting debt could be refinanced at spreads 20 to 30 basis
points tighter to the triple-A curve. Lastly, the strong
economy has produced a more congenial taxpayer. In the most
recent election, voters nationwide approved 90% of the $28
billion in proposed bond issues.
.This spike in supply presented several buying opportuni-
ties over the course of the year. We took advantage of
these opportunities by selectively adding exposure to high-
er-yielding sectors including health care, housing, higher
education, and transportation. In addition to diversifying
the overall credit exposure, bonds in these sectors still
provide incremental yields of 20 to 40 basis points over
highly rated general obligation bonds. The duration of the
Fund remained in the 5.50-5.75 range for the last six
months of the year. This tended to fall slightly short of
the Lipper Intermediate Municipal Debt Funds Index and
slightly long of the Merrill Lynch Municipal Intermediate
Index.
We thank you for your investment and look forward to your
continued confidence.
Sincerely,
Fixed-Income Team
Investment Management Group
Commerce Bank, N.A.
November 20, 1998
38
<PAGE>
COMMERCE NATIONAL TAX-FREE INTERMEDIATE BOND FUND
Performance Summary (Unaudited)
October 31, 1998
The following graph shows the value, as of October 31, 1998, of a $10,000 in-
vestment made on February 21, 1995 in the Institutional Shares. For compara-
tive purposes, the performance of the Fund's benchmarks (the Merrill Lynch
Municipal Intermediate Index ("Merrill Lynch Muni Interm Index"), Lipper Gen-
eral Municipal Debt Funds Index ("Lipper Gen Muni Debt Funds Index") and the
Lipper Intermediate Municipal Funds Index ("Lipper Interm Muni Funds Index"))
are shown. The performance data represents past performance and should not be
considered indicative of future performance which will fluctuate with changes
in market conditions. These performance fluctuations will cause an investor's
shares, when redeemed, to be worth more or less than their original cost.
NATIONAL TAX-FREE INTERMEDIATE BOND FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED FEBRUARY 21, 1995 TO
OCTOBER 31, 1998
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Nat'l Tax- Nat'l Tax- Merrill Lynch Lipper General Lipper Interm
Free w/o Free w/ Muni Muni Muni Funds Index
<S> <C> <C> <C> <C> <C>
2/21/95 10,000 9,650 10,000 10,000 10,000
Oct-95 10,606 10,235 10,765 10,817 10,733
Oct-96 10,989 10,604 11,387 11,409 11,214
Oct-97 11,666 11,257 12,191 12,374 11,989
Oct-98 12,435 11,999 13,098 13,275 12,804
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31,
1998
<S> <C> <C>
INSTITUTIONAL SHARES (COMMENCED FEBRUARY 21, 1995)
-----------------------------------------------------------------------------
Excluding sales charge 6.07% 6.59%
Including sales charge(a) (maximum sales charge
3.50%) 5.06% 2.88%
-----------------------------------------------------------------------------
</TABLE>
(a) Sales charge removed effective November 1, 1998.
39
<PAGE>
COMMERCE NATIONAL TAX-FREE INTERMEDIATE BOND FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MUNICIPAL BOND OBLIGATIONS - 97.0%
ARIZONA - 1.6%
Arizona State Trans Brd Exc Tax Rev (AA-/Aa2)
$500,000 5.00% 07/01/05 $ 527,750
-------------------------------------------------------------------------------------------------
FLORIDA - 0.6%
Florida State Board of Education Capital Outlay GO Bonds Series A
(AA+/Aa2)
200,000 5.25 01/01/04 213,072
-------------------------------------------------------------------------------------------------
GEORGIA - 0.7%
Georgia State GO Bonds Series D (AA+/Aaa)
200,000 5.40 11/01/10 221,236
-------------------------------------------------------------------------------------------------
ILLINOIS - 3.8%
Chicago Metropolitan Water Reclamation GO Bonds (AA/Aa2)
500,000 4.90 12/01/01 519,780
450,000 5.60 12/01/09 501,520
Evanston GO Bonds (NR/Aaa)
250,000 5.30 12/01/99 256,057
-----------
1,277,357
-------------------------------------------------------------------------------------------------
INDIANA - 4.0%
Merrillville Ind. Multi Sch Bldg (AAA/Aaa)
500,000 6.65 07/01/06 582,685
Plymouth Ind Multi Sch Bldg (AAA/Aaa)
700,000 5.75 07/01/06 771,575
-----------
1,354,260
-------------------------------------------------------------------------------------------------
IOWA - 2.4%
Bettendorf GO Bonds Series A (AMBAC) (NR/Aaa)
250,000 4.70 06/01/03 259,255
Iowa City Sewer Revenue Bonds (AMBAC) (AAA/Aaa)
250,000 6.00 07/01/08 265,620
Polk County GO Bonds (FGIC) (AAA/Aaa)
250,000 5.50 12/01/10 277,293
-----------
802,168
-------------------------------------------------------------------------------------------------
KANSAS - 3.2%
Kansas State Dev Fin Auth Rev Series G-2 (AAA/Aaa)
500,000 5.50 10/01/07 548,650
Kansas State Dev Fin Auth Rev Water Pollution Cntl (AA+/Aa1)
250,000 5.25 11/01/09 270,630
Olathe KS Certificate Participation (AA-NR)
250,000 4.80 09/01/07 256,810
-----------
1,076,090
-------------------------------------------------------------------------------------------------
KENTUCKY - 1.5%
Kentucky Infrastructure Authority Revenue Bonds (A/A2)
485,000 5.13 06/01/11 500,501
-------------------------------------------------------------------------------------------------
LOUISIANA - 2.3%
Louisiana Pub Facs Auth Hosp Rev (AAA/Aaa)
500,000 5.00 07/01/04 527,400
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MUNICIPAL BOND OBLIGATIONS - (CONTINUED)
Louisiana State GO Bonds (AMBAC) (AAA/Aaa)
$250,000 5.00% 04/15/02 $ 260,177
-----------
787,577
-------------------------------------------------------------------------------------------------
MARYLAND - 1.5%
Washington Suburban Sanitation District GO Bonds (AA/Aa1)
500,000 4.75 06/01/02 518,945
-------------------------------------------------------------------------------------------------
MASSACHUSETTS - 2.3%
Massachusetts State GO Series A (MBIA) (AA-/Aaa)
700,000 5.60 02/01/07 765,527
-------------------------------------------------------------------------------------------------
MICHIGAN - 3.7%
Greenville Public Schools GO Bonds (MBIA) (AAA/Aaa)
200,000 5.75 05/01/07 219,750
Michigan State Housing Development Authority (Single Family Home) Series
B (AMBAC) (AAA/NR)
500,000 4.80 12/01/10 500,000
Waterford Township School District Bonds (AA/Aa2)
500,000 4.85 06/01/10 514,995
-----------
1,234,745
-------------------------------------------------------------------------------------------------
MINNESOTA - 2.3%
Minnesota State Housing and Finance Agency Series D (AA+/Aa)
340,000 5.35 01/01/05 357,799
St. Paul Independent School District #625 GO Bonds Series C (AA/Aa)
400,000 5.20 02/01/07 422,636
-----------
780,435
-------------------------------------------------------------------------------------------------
MISSOURI - 5.7%
Clay Cnty MO Pub Bldg Auth Leasehold Rev (AAA/NR)
850,000 5.10 05/15/10 887,817
Jackson Cnty MO Leasehold Rev (AMBAC) (AAA/Aaa)
500,000 4.00 12/01/04 505,095
Missouri State Health & Educational Fac Rev (BBB+/NR)
500,000 4.75 02/15/05 508,655
-----------
1,901,567
-------------------------------------------------------------------------------------------------
NEBRASKA - 3.9%
Nebraska Pub Pwr Dist Rev Series A (MBIA) (AAA/Aaa)
500,000 5.25 01/01/04 531,240
Nebraska Public Power District Revenue Bonds Series A (AAA/A1)
250,000 5.10 01/01/06 265,657
Omaha Public Power Revenue Bonds Series A (AA/Aa)
500,000 5.00 02/01/01 515,245
-----------
1,312,142
-------------------------------------------------------------------------------------------------
NEVADA - 2.2%
Clark County School District GO Bonds Series B (FGIC) (AAA/Aaa)
200,000 5.30 05/01/04 213,200
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
40
<PAGE>
COMMERCE NATIONAL TAX-FREE INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MUNICIPAL BOND OBLIGATIONS - (CONTINUED)
Nevada State GO Bonds Series A-2 (AA/Aa2)
$500,000 5.25% 05/15/05 $ 535,900
-----------
749,100
-------------------------------------------------------------------------------------------------
NEW YORK - 8.9%
New York Dormitory Authority Rev (MBIA) (AAA/Aaa)
500,000 4.50 07/01/06 516,660
New York GO Bonds Series A (A-/A3)
500,000 5.25 08/01/07 533,525
New York GO Bonds Series J (A-/A3)
750,000 5.25 08/01/11 785,460
New York State Dorm Auth Rev Series B (A-/A3)
540,000 5.00 05/15/08 572,762
New York State Urban Dev Corp Rev (BBB+/Baa1)
500,000 6.25 01/01/07 571,265
-----------
2,979,672
-------------------------------------------------------------------------------------------------
NORTH CAROLINA - 2.9%
Gaston County GO Bonds (FGIC) (AAA/Aaa)
250,000 4.90 03/01/12 259,163
North Carolina Med Care Commn Hosp Rev (A+/A1)
695,000 4.40 02/15/04 705,432
-----------
964,595
-------------------------------------------------------------------------------------------------
OHIO - 0.5%
Ohio State Infrastructure Improvement GO Bonds (AA+/Aa1)
150,000 5.20 08/01/10 160,395
-------------------------------------------------------------------------------------------------
OREGON - 1.6%
Oregon State Housing & Community Services Department Revenue Bonds
Series D (NR/Aa)
500,000 5.55 07/01/06 527,365
-------------------------------------------------------------------------------------------------
PENNSYLVANIA - 3.3%
Pennsylvania State GO Bonds (AA-/A1)
500,000 5.25 06/15/06 532,100
Pennsylvania State Indl Dev Auth Rev (AAA/Aaa)
500,000 6.00 07/01/08 568,690
-----------
1,100,790
-------------------------------------------------------------------------------------------------
SOUTH CAROLINA - 2.5%
South Carolina State Capital Improvement GO Bonds Series A (AA+/Aaa)
250,000 5.00 03/01/05 265,557
York County School District #1 GO Bonds Series A (MBIA) (AAA/AA/Aaa/Aa1)
500,000 7.00 07/01/03 568,145
-----------
833,702
-------------------------------------------------------------------------------------------------
SOUTH DAKOTA - 4.5%
South Dakota Health & Educational Revenue Bonds (MBIA) (AAA/Aaa)
500,000 5.00 09/01/04 525,460
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MUNICIPAL BOND OBLIGATIONS - (CONTINUED)
South Dakota Housing Development Authority Revenue Bonds (AAA/Aa1)
$660,000 4.60% 05/01/05 $ 666,270
315,000 4.65 05/01/06 318,774
-----------
1,510,504
-------------------------------------------------------------------------------------------------
TENNESSEE - 1.6%
Shelby County GO Bonds Series A (AA+/Aa)
500,000 5.63 06/01/08 546,480
-------------------------------------------------------------------------------------------------
TEXAS - 3.1%
Channelview Independent School District GO Bonds (PSFG) (NR/Aaa)
250,000 4.75 08/15/05 259,448
San Antonio GO Bonds (AA/Aa)
200,000 5.20 08/01/02 211,384
Tarrant County Water Control & Improvement Revenue Bonds (AAA/Aaa)
140,000 5.00 03/01/09 143,878
Texas A&M University Revenue Bonds (AA/Aa)
200,000 5.55 05/15/01 209,152
Texas State GO Bonds Series A (AA/Aa)
200,000 5.65 10/01/08 216,138
-----------
1,040,000
-------------------------------------------------------------------------------------------------
UTAH - 4.3%
Alpine School District GO Bonds (FGIC-TCRS) (AAA/Aaa)
250,000 5.40 03/15/05 260,820
Intermountain Power Agency Rev Series A (MBIA) (AAA/Aaa)
800,000 6.00 07/01/08 903,816
Intermountain Power Agency Rev Series B (A+/A1)
250,000 5.10 07/01/03 262,870
-----------
1,427,506
-------------------------------------------------------------------------------------------------
VIRGINIA - 3.8%
Metro Wash DC Arpts Auth Rev Series B (AAA/Aaa)
500,000 5.25 10/01/09 533,360
500,000 5.25 10/01/12 523,905
Virginia Beach GO Bonds (AA/Aa)
200,000 5.20 07/15/06 216,166
-----------
1,273,431
-------------------------------------------------------------------------------------------------
WASHINGTON - 10.1%
King County GO Bonds Series D (AA+/Aa1)
500,000 6.20 12/01/00 527,190
King County School District #414 GO Bonds Series A (AA/Aa)
430,000 5.10 12/01/06 457,696
Pierce County Sewer Improvements Revenue Bonds (A+/A1)
290,000 5.45 02/01/08 303,241
Port Seattle Revenue Bonds Series A (AMBAC) (AAA/Aaa)
500,000 6.00 02/01/99 503,480
Seattle GO Bonds Series A (AA+/Aa1)
150,000 5.30 08/01/13 156,927
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
41
<PAGE>
COMMERCE NATIONAL TAX-FREE INTERMEDIATE BOND FUND
Statement of Investments (continued)
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MUNICIPAL BOND OBLIGATIONS - (CONTINUED)
Spokane County School District #354 GO Bonds (A+/A)
$370,000 5.20% 12/01/06 $ 394,982
Vancouver Water & Sewer Revenue Bonds (FGIC) (AAA/Aaa)
250,000 4.70 06/01/01 257,010
Washington Higher Educational Facility University of Puget Sound
Revenue Bonds (A+/A2)
500,000 5.00 10/01/06 521,870
Washington State GO Bonds Series DD-12 & CC-9 (AA/Aa)
250,000 5.38 03/01/08 273,265
-----------
3,395,661
--------------------------------------------------------------------------------------------
WISCONSIN - 8.2%
Eau Claire GO Bonds Series A (AA/Aa2)
470,000 5.00 04/01/08 503,488
Green Bay Public School District GO Bonds (NR/Aa)
500,000 4.90 04/01/05 530,130
Green Bay Public School District GO Bonds (NR/Aa2)
200,000 4.63 04/01/11 202,660
Milwaukee GO Bonds Series E (AA+/Aa1)
250,000 5.50 06/15/10 268,955
Waukesha County GO Bonds (NR/Aaa)
500,000 4.40 12/01/98 500,550
Wisconsin State Clean Water Revenue Bonds Series 1 (AA+/Aa2)
500,000 5.25 06/01/10 528,240
Wisconsin State GO Bonds Series 3 (AA/Aa)
200,000 5.25 11/01/02 211,330
-----------
2,745,353
--------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BOND OBLIGATIONS
(COST $31,408,961) $32,527,926
--------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 2.1%
ALABAMA - 0.9%
Columbia Alabama Power Co. Series D
$300,000 3.60%(a) 11/02/98(a) $ 300,000
DELAWARE - 0.3%
Delaware State Econ Dev Auth Rev (A/A2)
100,000 3.85(a) 11/02/98(a) 100,000
TEXAS - 0.9%
Grapevine Industrial Development Revenue Bonds (Morgan Guarantee
Trust Co. LOC) (NR/Aa1/P-1)
300,000 3.65(a) 11/02/98(a) 300,000
--------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(COST $700,000) $ 700,000
--------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $32,108,961)(B) $33,227,926
--------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
--------------------------------------------------------------------------------------------
<S> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value exceeds cost $1,118,965
Gross unrealized loss for investments in which value exceeds cost --
--------------------------------------------------------------------------------------------
Net unrealized gain $1,118,965
--------------------------------------------------------------------------------------------
</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, 1998. The maturity date shown is the next reset date.
(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
TCRS--Transferable Custodial Receipts
------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
42
<PAGE>
COMMERCE MISSOURI TAX-FREE INTERMEDIATE BOND FUND
Shareholder Letter
Dear Shareholder,
WE ARE PLEASED TO REPORT ON THE PERFORMANCE OF THE COMMERCE MISSOURI TAX-FREE
INTERMEDIATE BOND FUND FOR THE 12-MONTH PERIOD ENDED OCTOBER 31, 1998.
Performance Review
The Fund had a total return of 6.65% for the 12 months
ended October 31, 1998. This compares with a 7.28% return
for the Lipper General Municipal Debt Funds Index, a 6.80%
return for the Lipper Intermediate Municipal Funds Index
and a 7.44% return for the Merrill Lynch Municipal Interme-
diate Index. During the period, we have changed one of the
Fund's benchmarks from the Lipper General Municipal Debt
Funds Index to the Lipper Intermediate Municipal Funds In-
dex. We have determined that the new benchmark is weighted
more appropriately with the Fund's investment objective.
Portfolio Highlights
.The story in the municipal market has been supply, and
lots of it. Year-to-date long-term new issue volume of $234
billion makes 1998 the second busiest year on record,
eclipsing 1997's mark of $221 billion. Several factors have
contributed to this surge including lower interest rates,
tightening credit spreads, and voter willingness to approve
public debt-financed projects. As measured by the yield on
the general obligation triple-A 10 year, interest rates de-
clined roughly 50 basis points from October 1997 to October
1998. This provided a golden opportunity for issuers to re-
fund or refinance existing higher coupon debt at lower lev-
els.
.Complementing the decline in overall interest rates,
credit spreads continued to slide inward. This has allowed
for greater savings for lower quality issuers as their ex-
isting debt could be refinanced at spreads 20 to 30 basis
points tighter to the triple-A curve. Lastly, the strong
economy has produced a more congenial taxpayer. In the most
recent election, voters nationwide approved 90% of the $28
billion in proposed bond issues
.In Missouri, the story was no different. At the end of Oc-
tober, long-term new issue supply in the State totaled $4.1
billion. That is an increase of 88% over 1997 levels. We
took advantage of this spike in supply by selectively add-
ing exposure to higher-yielding sectors including health
care, housing, higher education and transportation. In ad-
dition to diversifying the overall credit exposure, bonds
in these sectors still provide incremental yields of 20 to
40 basis points over highly rated general obligation bonds.
The duration of the Fund remained in the 5.50-5.75 range
for the last six months of the year. This tended to fall
slightly short of the Lipper Intermediate Municipal Debt
Funds Index and slightly long of the Merrill Lynch Munici-
pal Intermediate Index.
We thank you for your investment and look forward to your
continued confidence.
Sincerely,
Fixed-Income Team
Investment Management Group
Commerce Bank, N.A.
November 20, 1998
43
<PAGE>
COMMERCE MISSOURI TAX-FREE INTERMEDIATE BOND FUND
Performance Summary (Unaudited)
October 31, 1998
The following graph shows the values as of October 31, 1998, of a $10,000 in-
vestment made on February 21, 1995 in the Institutional Shares. For compara-
tive purposes, the performance of the Fund's benchmarks (the Merrill Lynch
Municipal Interim Index, Lipper Gen Municipal Debt Funds Index and the Lipper
Interim Municipal Funds Index) are shown. The performance data represents
past performance and should not be considered indicative of future perfor-
mance which will fluctuate with changes in market conditions. These perfor-
mance fluctuations will cause an investor's shares, when redeemed, to be
worth more or less than their original cost.
MISSOURI TAX-FREE INTERMEDIATE BOND FUND'S LIFETIME PERFORMANCE
GROWTH OF A $10,000 INVESTMENT, DISTRIBUTIONS REINVESTED FEBRUARY 21, 1995 TO
OCTOBER 31, 1998
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Missouri Missouri Lipper Lipper
Tax-Free Tax-Free Merrill Lynch General Interim
(no sales (w/sales Muni Interm Muni Debt Muni Funds
charge) charge) Index Funds Index Index
<S> <C> <C> <C> <C> <C>
2/21/95 10,000 9,650 10,000 10,000 10,000
Oct-95 10,545 10,176 10,765 10,817 10,733
Oct-96 10,907 10,525 11,387 11,409 11,214
Oct-97 11,595 11,189 12,191 12,374 11,989
Oct-98 12,367 11,935 13,098 13,275 12,804
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION ONE YEAR
AVERAGE ANNUAL TOTAL RETURN THROUGH OCTOBER 31, 1998
<S> <C> <C>
INSTITUTIONAL SHARES (COMMENCED FEBRUARY 21, 1995)
-----------------------------------------------------------------------------
Excluding sales charges 5.92% 6.65%
Including sales charges(a) (maximum sales charge
3.50%) 4.90% 2.95%
-----------------------------------------------------------------------------
</TABLE>
(a) Sales charge removed effective November 1, 1998.
44
<PAGE>
COMMERCE MISSOURI TAX-FREE INTERMEDIATE BOND FUND
Statement of Investments
October 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MISSOURI MUNICIPAL BOND OBLIGATIONS - 97.1%
Ballwin MO GO Bonds (NR/Aa2)
$ 755,000 4.50% 09/01/10 $ 764,536
Belton Cap Improvement Sales Tax Revenue Bonds (MBIA) (NR/Aaa)
200,000 5.00 03/01/05 212,100
200,000 5.00 03/01/06 213,102
Cass County School District #R-9 GO Bonds (NR/A)
200,000 6.25 03/01/00 201,534
Chesterfield GO Bonds (NR/Aa2)
500,000 5.20 02/15/12 524,290
Clay County MO Pub Bldg Auth Leasehold Rev Series A (AAA/NR)
665,000 5.00 05/15/09 694,725
Clay County MO Pub Bldg Auth Leasehold Rev Series C (AAA/NR)
40,000 5.00 05/15/09 41,788
Columbia Water & Electricity Revenue Bonds Series A (AA/A1)
300,000 5.40 10/01/02 317,718
Fort Zumwalt School District (AA/NR)
100,000 5.25 03/01/11 105,865
Hazelwood School District GO Bonds (NR/Aa)
150,000 5.15 03/01/04 158,265
Jackson County Lease Revenue Bonds (Truman Sports Comp.) (AMBAC)
(AAA/Aaa)
500,000 4.00 12/01/04 505,095
Jackson County Reorganized School District #7 GO Bonds (NR/A1)
250,000 5.60 03/01/08 265,930
Jackson County Reorganized School District #7 Lease Summit Reg & Imp.
(AA/Aa2)
500,000 4.50 03/01/05 515,800
Jackson County Reorganized School District #7 Lease Summit Revenue Bonds
(AMBAC) (NR/Aaa)
310,000 4.15 03/01/05 313,252
Jackson County Reorganized School District #7 Lease Summit Certificate
Participation (AMBAC) (NR/Aaa)
265,000 4.50 03/01/04 273,724
Jasper County School District #R-9 GO Bonds (AA/NR)
500,000 5.00 09/01/03 526,200
Kansas City Chouteau Bridge Project Series B (AA/Aa3)
380,000 5.00 05/01/11 395,675
Kansas City MO GO Bonds (AA/Aa3)
200,000 4.50 06/01/04 203,962
Kansas City MO GO Bonds Series A (AA/Aa3)
500,000 5.25 03/01/10 537,110
Kansas City Sewer Special Assessment GO Bonds Series A (AA/Aa)
410,000 7.40 05/15/99 419,221
</TABLE>
<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
Pollution Control Revenue Bonds (Assoc. Elec. Coop) (AA/A1)
$ 250,000 4.25% 12/01/98 $ 250,130
250,000 5.50 12/01/04 268,090
500,000 5.50 12/01/06 540,195
Missouri State Environmental Improvement & Energy Resources Authority
Water Pollution Control Revenue Bonds Series A (AA/NR)
150,000 5.25 07/01/02 157,617
Missouri State Environmental Improvement & Energy Resources Authority
Water Pollution Control Revenue Bonds Series C (NR/Aa1)
205,000 4.75 01/01/01 209,631
500,000 4.90 01/01/02 516,950
Missouri State Environmental Improvement & Energy Resources Authority
Water Pollution Control Revenue Bonds Series D (NR/Aa1)
400,000 5.50 01/01/08 432,488
Missouri State Environmental Improvement & Energy Resources Authority
Water Pollution Control Revenue Bonds Series E (NR/Aa1)
390,000 4.38 07/01/00 395,437
Missouri State Fourth State Building GO Bonds Series A (AAA/Aaa)
500,000 7.00 04/01/04 572,540
150,000 5.30 08/01/08 161,931
500,000 5.40 08/01/09 540,300
Missouri State Health & Educational Facility Revenue Bonds (Barnes-
Jewish, Inc.) (AA/Aa2)
400,000 6.00 05/15/07 449,644
150,000 6.00 05/15/11 170,597
Missouri State Health & Educational Facility Revenue Bonds (Barnes-
Jewish, Inc.) (AMBAC-TRCS) (AAA/Aaa)
1,000,000 5.15 05/15/10 1,065,380
Missouri State Health & Educational Facility Revenue Bonds (Children
Mercy Hosp) (A+/NR)
205,000 4.55 05/15/05 208,473
750,000 5.25 05/15/18 753,855
Missouri State Health & Educational Facility Revenue Bonds (Freeman
Health Sys) (BBB+/NR)
500,000 4.75 02/15/05 508,655
Missouri State Health & Educational Facility Revenue Bonds (prerefunded
to 06/01/01) (MBIA) (AAA/Aaa)
300,000 6.63 06/01/11 328,371
Missouri State Health & Educational Facility Authority Revenue Bonds (St.
Louis Univ) (AA-/A1)
1,000,000 4.40 10/01/06 1,012,630
Missouri State Health & Educational Facility Revenue Bonds (The Barstow
Sch)
405,000 4.75 10/01/10 397,402
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
45
<PAGE>
COMMERCE MISSOURI TAX-FREE INTERMEDIATE BOND FUND
Statement of Investments
October 31, 1998
<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 Series A
(Washington University)(NR/Aa1)
$ 800,000 4.75% 08/15/05 $ 837,216
Missouri State Health & Educational Facility Revenue Bonds Series B
(Health Midwest) (MBIA) (AAA/Aaa)
150,000 6.10 06/01/11 165,697
Missouri State Housing Development Community Revenue Bonds Series B
(GNMA/FNMA) (AAA/NR)
210,000 5.50 03/01/06 222,161
Missouri State Housing Development Community Revenue Bonds Series C
(GNMA/FNMA) (AAA/NR)
230,000 4.80 09/01/01 235,536
Missouri State Housing Development Community Mortgage Revenue Bonds (AMT-
SingleFam. Series A2) (GNMA/FNMA) (AAA/NR)
195,000 5.40 03/01/06 204,471
Missouri State Housing Development Community Mortgage Revenue Bonds(AMT-
SingleFam. Series B2) (GNMA/FNMA) (AAA/ NR)
380,000 4.55 03/01/04 385,179
390,000 5.20 03/01/08 406,653
Missouri State Housing Development Community Mortgage Revenue Bonds (AMT-
SingleFam. Series C2) (GNMA/FNMA)(AAA/NR)
245,000 4.90 03/01/07 250,361
Missouri State Regal Convention & Sports Comp Auth (A+/A1)
640,000 4.75 08/15/04 661,178
Missouri State Third State Building GO Bonds Series A (AAA/Aaa)
500,000 4.50 08/01/02 515,595
Missouri State Water Pollution Control GO Bonds Series A (AAA/Aaa)
300,000 5.60 08/01/10 326,664
New Liberty Hospital District Revenue Bonds (MBIA) (NR/Aaa)
375,000 4.25 12/01/02 383,153
Platte County Missouri School District Park Hill GO Bond (Student Aid
Direct Deposit) (AA/Aa2)
500,000 5.20 03/01/09 533,705
Richmond Heights CTFS Partnership Capital Improvement Projects Series A
Certificate Participation (MBIA) (AAA/Aaa)
550,000 4.60 02/15/05 569,371
575,000 4.70 02/15/06 599,805
Springfield MO GO Bonds (NR/Aa)
220,000 4.30 03/01/00 222,477
Springfield MO Sch Dist#12 GO Bonds Series B (FGIC) (AAA/Aaa)
620,000 9.50 03/01/07 856,183
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MISSOURI MUNICIPAL BOND OBLIGATIONS - (CONTINUED)
Springfield Public Building Corp. Leasehold Revenue Bond (AMBAC) (AAA/NR)
$ 225,000 4.50% 03/01/08 $ 229,282
250,000 4.85 03/01/10 257,165
St. Charles County Francis Howell School District GO Bonds (Student Aid
Direct Deposit) (AA/NR)
485,000 4.50 03/01/04 498,376
St. Charles County Frances Howell School District GO Bonds Series A
(AMBAC) (AAA/Aaa)
150,000 5.75 03/01/11 158,470
St. Charles County Francis Howell School District GO Bonds Series A (FGIC)
(AAA/Aaa)
700,000 4.60 03/01/04 722,673
St. Louis Board of Education GO Bonds Series A (FGIC State Aid Direct
Deposit) (AAA/Aaa)
500,000 4.40 04/01/07 512,710
St. Louis Board of Education GO Bonds Series B (FGIC State Aid Direct
Deposit) (AAA/Aaa)
905,000 5.50 04/01/10 982,432
St. Louis County GO Bonds Series B (NR/Aaa)
200,000 5.25 02/01/07 210,690
750,000 5.30 02/01/08 791,535
St. Louis County Rockwood School District #R-6 GO Bonds (NR/Aaa)
300,000 5.80 02/01/99 302,058
800,000 5.13 02/01/07 853,920
740,000 4.63 07/01/08 769,733
St. Louis County School District GO Bonds (FGIC) (AAA/Aaa)
200,000 5.40 04/01/03 214,462
St. Louis County School District GO Bonds Lindbergh (NR/Aa)
715,000 6.60 02/15/03 793,950
200,000 5.40 02/15/10 215,978
St. Louis County School District GO Bonds Parkway (NR/Aa)
300,000 7.00 02/01/00 312,852
St. Louis Regal Convention & Sports Comp Authority Series C (AAA/Aaa)
530,000 7.90 08/15/21 625,400
St. Peters GO Bonds (NR/A1)
150,000 5.80 01/01/10 159,559
University Dev Foundation MO Power Leasehold Revenue Bonds (AAA/NR)
500,000 5.75 05/01/13 548,355
University of Missouri Health Facilities Revenue Bonds
Series A (AMBAC) (AAA/Aaa)
150,000 5.20 11/01/10 158,747
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
46
<PAGE>
COMMERCE MISSOURI TAX FREE INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
<S> <C> <C> <C>
MISSOURI MUNICIPAL BOND OBLIGATIONS - (CONTINUED)
University of Missouri Systems Facilities Revenue Bonds (AA+/Aa2)
$ 250,000 4.60% 11/01/00 $ 255,245
--------------------------------------------------------------------------------------------
TOTAL MISSOURI MUNICIPAL BOND OBLIGATIONS
(COST $32,088,362) $33,079,205
--------------------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 1.5%
Independence MO Ind Dev Auth Rev Bonds (LOC-Credit Local de France;
Expire: 11/15/07; 100%) (AA+/NR)
$ 400,000 3.65%(a) 11/02/98(a) $ 400,000
Kansas City MO Ind Dev Auth Rev Bonds (A-1+/NR)
100,000 3.70%(a) 11/02/98(a) 100,000
--------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(COST $500,000) $ 500,000
--------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 0.7%
State Street Bank & Trust Company(b)
$ 221,000 5.25% 11/02/98 $ 221,000
--------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(COST $221,000) $ 221,000
--------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(COST $32,809,362)(C) $33,800,205
--------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
--------------------------------------------------------------------------------------------
<S> <C>
FEDERAL INCOME TAX INFORMATION:
Gross unrealized gain for investments in which value exceeds cost $997,056
Gross unrealized loss for investments in which cost exceeds value (6,213)
--------------------------------------------------------------------------------------------
Net unrealized gain $990,843
--------------------------------------------------------------------------------------------
</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, 1998. The maturity date shown is the next reset date.
(b) The repurchase agreement is fully collateralized by U.S. Treasury securi-
ties.
(c) 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
GO--General Obligation
LOC--Letter of Credit
MBIA--Insured by Municipal Bond Investors Assurance Corporation
NR--Not Rated
------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
47
<PAGE>
COMMERCE FUNDS
Statements of Assets and Liabilities
October 31, 1998
<TABLE>
<CAPTION>
SHORT-TERM
GOVERNMENT BALANCED
FUND BOND FUND FUND
ASSETS:
<S> <C> <C> <C>
Investments in securities, at value
(cost $68,150,699, $292,071,386,
$115,723,652, $94,776,918,
$347,606,312, $121,056,611,
$92,642,321, $32,108,961 and
$32,809,362, respectively) $69,665,784 $303,249,513 $126,055,804
Cash and Foreign Currency (cost
$1,118,712, International Equity) 97 31,013 --
Receivables:
Investment securities sold -- -- 514,500
Interest 622,022 3,241,748 548,458
Dividends -- -- 59,804
Fund shares sold 451,194 1,088,197 708,790
Deferred organization expenses, net 11,030 11,704 11,277
Other -- -- 967
------------------------------------------------------------------------------
TOTAL ASSETS 70,750,127 307,622,175 127,899,600
------------------------------------------------------------------------------
LIABILITIES:
Payables:
Investment securities purchased -- -- 1,415,581
Fund shares redeemed 16,641 418,500 2,354
Dividends and distributions 167,523 450,134 --
Advisory fees 6,582 132,576 62,649
Administrative fees 8,654 39,772 15,334
Shareowner servicing fees 4,672 28,072 30,383
Distribution fees -- Service Shares 777 1,183 2,734
Accrued expenses and other liabilities 39,576 97,307 59,351
------------------------------------------------------------------------------
TOTAL LIABILITIES 244,425 1,167,544 1,588,386
------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 68,919,625 291,534,412 101,631,944
Accumulated undistributed net invest-
ment income 22,304 109,912 271,260
Accumulated net realized gain (loss)
on investment transactions and foreign
currency transactions 48,688 3,632,180 14,075,858
Net unrealized gain (loss) on
investments and translation of assets
and liabilities denominated in foreign
currencies 1,515,085 11,178,127 10,332,152
------------------------------------------------------------------------------
NET ASSETS $70,505,702 $306,454,631 $126,311,214
------------------------------------------------------------------------------
SHARES OUTSTANDING:
Total shares outstanding, no par value
(unlimited number of shares autho-
rized):
Institutional Shares 3,702,607 15,389,277 4,575,901
Service Shares 51,501 53,342 96,025
Institutional Shares: Net asset value
per share (net assets/shares outstand-
ing) $ 18.78 $ 19.84 $ 27.04
Maximum public offering price per
share(b) $ 18.78 $ 19.84 $ 27.04
Service Shares: Net asset value per
share (net assets/shares outstanding) $ 18.79 $ 19.85 $ 27.01
Maximum public offering price per
share(c) $ 19.17 $ 20.57 $ 27.99
------------------------------------------------------------------------------
</TABLE>
(a) The National Tax-Free Intermediate Bond and Missouri Tax-Free Intermedi-
ate Bond Funds were formerly known as the National Tax-Free Bond Fund and
MIssouri Tax-Free Bond Fund, respectively.
(b) For the National Tax-Free Intermediate Bond and Missouri Tax-Free Inter-
mediate Bond Funds, the maximum public offering price per share is calcu-
lated as (NAV per share x 1.0363). Effective November 1, 1998, the sales
charge was removed for the National Tax-Free Intermediate Bond and Mis-
souri Tax-Free Intermediate Bond Funds.
(c) 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
1.0363).
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
48
<PAGE>
COMMERCE FUNDS
<TABLE>
<CAPTION>
GROWTH NATIONAL MISSOURI
AND TAX-FREE TAX-FREE
INCOME MIDCAP INTERNATIONAL INTERMEDIATE INTERMEDIATE
FUND GROWTH FUND FUND EQUITY FUND BOND FUND(A) BOND FUND(A)
<S> <C> <C> <C> <C> <C>
$93,153,117 $430,907,350 $140,117,388 $103,450,292 $33,227,926 $33,800,205
689 76 981 1,115,750 91,534 --
-- -- 1,788,500 104,576 -- --
222 10,383 1,504 1,745 485,282 411,657
98,685 261,931 51,110 281,089 -- --
882,391 1,097,241 861,605 854,254 372,132 144,000
13,337 11,961 10,971 10,894 13,974 13,940
1,685 2,771 -- 739 103 32
---------------------------------------------------------------------------------
94,150,126 432,291,713 142,832,059 105,819,339 34,190,951 34,369,834
---------------------------------------------------------------------------------
-- 12,477,478 2,371,962 4,045,111 501,667 --
19,201 595,208 26,150 34,547 35,000 205,000
-- -- -- -- 90,077 85,962
54,730 245,463 80,150 77,979 11,085 5,025
10,946 49,093 16,030 11,996 4,268 4,210
23,818 62,799 16,251 8,313 -- --
1,651 10,347 1,235 613 -- --
49,474 89,348 48,870 100,824 21,070 18,645
---------------------------------------------------------------------------------
159,820 13,529,736 2,560,648 4,279,383 663,167 318,842
---------------------------------------------------------------------------------
94,595,183 273,149,896 114,427,920 92,006,819 32,105,180 32,852,682
32,869 151,592 -- 347,428 21,096 22,171
986,055 62,159,451 6,782,714 (1,634,649) 282,543 185,296
(1,623,801) 83,301,038 19,060,777 10,820,358 1,118,965 990,843
---------------------------------------------------------------------------------
$93,990,306 $418,761,977 $140,271,411 $101,539,956 $33,527,784 $34,050,992
---------------------------------------------------------------------------------
4,263,826 10,967,087 4,268,806 4,399,237 1,734,314 1,786,004
62,811 240,424 38,158 16,559 -- --
$ 21.72 $ 37.37 $ 32.57 $ 23.00 $ 19.33 $ 19.07
$ 21.72 $ 37.37 $ 32.57 $ 23.00 $ 20.03 $ 19.76
$ 21.73 $ 37.29 $ 32.40 $ 22.92 -- --
$ 22.52 $ 38.64 $ 33.58 $ 23.75 -- --
---------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
COMMERCE FUNDS
Statements of Operations
For the Year Ended October 31, 1998
<TABLE>
<CAPTION>
SHORT-TERM
GOVERNMENT BOND BALANCED
FUND FUND FUND
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $3,775,481 $17,926,452 $ 3,214,258
Dividends(a) -- -- 957,471
-------------------------------------------------------------------------------
TOTAL INCOME 3,775,481 17,926,452 4,171,729
-------------------------------------------------------------------------------
EXPENSES:
Advisory fees 286,805 1,338,581 1,250,959
Administration fees 86,042 401,574 187,644
Shareowner servicing fees 26,639 153,357 149,843
Transfer agent fees 61,208 70,629 51,035
Custodian fees 60,773 72,561 79,867
Professional fees 13,528 54,972 31,883
Registration fees 36,278 66,544 40,195
Trustee fees 1,562 6,474 3,486
Distribution fees-Service Shares 1,488 2,168 5,531
Amortization of deferred organiza-
tion expenses 9,968 10,578 10,187
Other 11,178 57,892 50,156
-------------------------------------------------------------------------------
TOTAL EXPENSES 595,469 2,235,330 1,860,786
-------------------------------------------------------------------------------
Less -- Investment advisory fees
waived and expense reimbursements (203,926) -- (439,213)
-------------------------------------------------------------------------------
NET EXPENSES 391,543 2,235,330 1,421,573
-------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 3,383,938 15,691,122 2,750,156
-------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain (loss) on:
Investment transactions 228,646 3,849,016 14,126,371
Foreign currency transactions -- -- --
Net change in unrealized gain (loss)
on:
Investments 887,152 2,052,158 (6,792,419)
Translation of assets and liabili-
ties denominated in foreign curren-
cies -- -- --
-------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS 1,115,798 5,901,174 7,333,952
-------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $4,499,736 $21,592,296 $10,084,108
-------------------------------------------------------------------------------
</TABLE>
(a) Amount is net of $3,981, $28,211 and $215,356 respectively, for the
Growth and Income Fund, Growth Fund and International Equity Fund in
withholding taxes.
(b) The National Tax-Free Intermediate Bond and Missouri Tax-Free
Intermediate Bond Funds were formerly known as the National Tax-Free Bond
Fund and the Missouri Tax-Free Bond Fund, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
50
<PAGE>
COMMERCE FUNDS
<TABLE>
<CAPTION>
NATIONAL MISSOURI
GROWTH TAX-FREE TAX-FREE
AND INCOME GROWTH MIDCAP INTERNATIONAL INTERMEDIATE INTERMEDIATE
FUND FUND FUND EQUITY FUND BOND FUND(B) BOND FUND(B)
<S> <C> <C> <C> <C> <C>
$ 131,071 $ 1,094,497 $ 179,803 $ 331,681 $1,337,540 $1,322,852
1,465,428 4,074,672 597,173 1,615,408 -- --
-----------------------------------------------------------------------------------
1,596,499 5,169,169 776,976 1,947,089 1,337,540 1,322,852
-----------------------------------------------------------------------------------
603,694 3,026,752 997,933 1,406,013 145,111 144,482
120,739 605,350 199,587 140,601 43,526 43,344
45,984 316,143 80,807 44,394 -- --
31,578 100,331 74,894 58,148 28,931 28,394
50,751 76,183 60,360 264,908 44,184 43,834
13,688 72,987 30,635 20,792 7,104 5,945
51,026 48,976 38,459 35,177 8,478 8,285
2,185 10,475 3,485 2,232 929 609
4,012 19,470 2,419 759 -- --
4,000 10,800 9,906 9,840 10,687 10,665
8,690 102,682 49,008 23,744 12,257 10,652
-----------------------------------------------------------------------------------
936,347 4,390,149 1,547,493 2,006,608 301,207 296,210
-----------------------------------------------------------------------------------
-- -- -- (485,815) (87,722) (108,385)
-----------------------------------------------------------------------------------
936,347 4,390,149 1,547,493 1,520,793 213,485 187,825
-----------------------------------------------------------------------------------
660,152 779,020 (770,517) 426,296 1,124,055 1,135,027
-----------------------------------------------------------------------------------
986,021 62,159,771 6,782,606 (1,482,189) 282,675 185,385
-- -- -- (101,310) -- --
(4,499,448) (7,637,153) (3,186,658) 6,457,134 484,832 536,591
-- -- -- 36,261 -- --
-----------------------------------------------------------------------------------
(3,513,427) 54,522,618 3,595,948 4,909,896 767,507 721,976
-----------------------------------------------------------------------------------
$(2,853,275) $55,301,638 $2,825,431 $5,336,192 $1,891,562 $1,857,003
-----------------------------------------------------------------------------------
</TABLE>
51
<PAGE>
COMMERCE FUNDS
Statements of Changes in Net Assets
For the Year Ended October 31, 1998
<TABLE>
<CAPTION>
SHORT-TERM
GOVERNMENT BOND BALANCED
FUND FUND FUND
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) $ 3,383,938 $ 15,691,122 $ 2,750,156
Net realized gain (loss) on
investments and foreign currency
transactions 228,646 3,849,016 14,126,371
Net change in unrealized gain
(loss) on investments and
translation of assets and
liabilities denominated in foreign
currencies 887,152 2,052,158 (6,792,419)
------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS 4,499,736 21,592,296 10,084,108
------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income:
Institutional Shares (3,391,516) (15,642,257) (2,649,664)
Service Shares (33,839) (48,371) (43,961)
From net realized gain on
investment transactions:
Institutional Shares -- -- (5,448,631)
Service Shares -- -- (66,436)
------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS (3,425,355) (15,690,628) (8,208,692)
------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Proceeds from sale of shares:
Institutional Shares 35,298,819 124,463,979 37,176,250
Service Shares 558,189 341,018 1,570,001
Reinvestment of dividends and
distributions:
Institutional Shares 2,127,602 10,866,284 8,031,502
Service Shares 25,076 44,692 105,688
Cost of shares redeemed:
Institutional Shares (17,791,072) (53,619,651) (29,167,152)
Service Shares (77,342) (84,976) (281,352)
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM SHARE TRANSACTIONS 20,141,272 82,011,346 17,434,937
------------------------------------------------------------------------------
TOTAL INCREASE 21,215,653 87,913,014 19,310,353
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 49,290,049 218,541,617 107,000,861
------------------------------------------------------------------------------
End of year $ 70,505,702 $306,454,631 $126,311,214
------------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED NET
INVESTMENT INCOME $ 22,304 $ 109,912 $ 271,260
------------------------------------------------------------------------------
SUMMARY OF SHARE TRANSACTIONS:
Institutional Shares
Sold 1,903,333 6,349,549 1,363,665
Issued on reinvestment of
dividends and distributions 114,766 552,687 300,769
Redeemed (959,304) (2,720,225) (1,054,815)
------------------------------------------------------------------------------
INCREASE IN SHARES OUTSTANDING 1,058,795 4,182,011 609,619
------------------------------------------------------------------------------
Service Shares
Sold 29,958 17,372 57,190
Issued on reinvestment of
dividends and distributions 1,352 2,273 3,950
Redeemed (4,168) (4,350) (10,832)
------------------------------------------------------------------------------
INCREASE (DECREASE) IN SHARES
OUTSTANDING 27,142 15,295 50,308
------------------------------------------------------------------------------
</TABLE>
(a) The National Tax-Free Intermediate Bond and Missouri Tax-Free
Intermediate Bond Funds were formerly known as the National Tax-Free Bond
Fund and the Missouri Tax-Free Bond Fund, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
52
<PAGE>
COMMERCE FUNDS
<TABLE>
<CAPTION>
NATIONAL MISSOURI
GROWTH AND TAX-FREE TAX-FREE
INCOME GROWTH MIDCAP INTERNATIONAL INTERMEDIATE INTERMEDIATE
FUND FUND FUND EQUITY FUND BOND FUND(A) BOND FUND(A)
<S> <C> <C> <C> <C> <C>
$ 660,152 $ 779,020 $ (770,517) $ 426,296 $ 1,124,055 $ 1,135,027
986,021 62,159,771 6,782,606 (1,583,499) 282,675 185,385
(4,499,448) (7,637,153) (3,186,658) 6,493,395 484,832 536,591
----------------------------------------------------------------------------------------
(2,853,275) 55,301,638 2,825,431 5,336,192 1,891,562 1,857,003
----------------------------------------------------------------------------------------
(649,065) (672,603) -- (284,322) (1,124,055) (1,135,027)
(7,017) (1,362) -- (617) -- --
(96,153) (22,597,342) (6,316,543) (2,052,413) -- (18,974)
(4,884) (384,442) (36,686) (6,198) -- --
----------------------------------------------------------------------------------------
(757,119) (23,655,749) (6,353,229) (2,343,550) (1,124,055) (1,154,001)
----------------------------------------------------------------------------------------
66,921,460 101,540,731 53,751,656 38,758,637 11,904,162 13,626,116
845,014 3,281,298 747,791 200,795 -- --
515,244 20,410,434 4,555,044 1,653,469 149,809 193,371
8,795 381,744 36,634 6,737 -- --
(16,381,268) (87,122,002) (28,264,874) (20,520,621) (4,574,500) (4,905,167)
(2,069,988) (907,527) (127,510) (55,621) -- --
----------------------------------------------------------------------------------------
49,839,257 37,584,678 30,698,741 20,043,396 7,479,471 8,914,320
----------------------------------------------------------------------------------------
46,228,863 69,230,567 27,170,943 23,036,038 8,246,978 9,617,322
----------------------------------------------------------------------------------------
47,761,443 349,531,410 113,100,468 78,503,918 25,280,806 24,433,670
----------------------------------------------------------------------------------------
$ 93,990,306 $418,761,977 $140,271,411 $101,539,956 $33,527,784 $34,050,992
----------------------------------------------------------------------------------------
$ 32,869 $ 151,592 $ -- $ 347,428 $ 21,096 $ 22,171
----------------------------------------------------------------------------------------
2,886,337 2,754,076 1,567,306 1,685,123 624,858 723,684
22,352 588,450 136,501 75,866 7,857 10,270
(715,652) (2,329,380) (839,957) (902,867) (239,516) (260,635)
----------------------------------------------------------------------------------------
2,193,037 1,013,146 863,850 858,122 393,199 473,319
----------------------------------------------------------------------------------------
35,269 87,121 20,737 8,322 -- --
379 11,026 1,101 309 -- --
(91,504) (24,603) (3,660) (2,521) -- --
----------------------------------------------------------------------------------------
(55,856) 73,544 18,178 6,110 -- --
----------------------------------------------------------------------------------------
</TABLE>
53
<PAGE>
COMMERCE FUNDS
Statements of Changes in Net Assets
For the Year Ended October 31, 1997
<TABLE>
<CAPTION>
SHORT-TERM
GOVERNMENT BOND BALANCED
FUND FUND FUND
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS
Net investment income (loss) $ 2,399,327 $ 10,655,550 $ 2,113,788
Net realized gain (loss) on
investments and foreign currency
transactions (133,888) (143,004) 5,557,357
Net change in unrealized gain
(loss) on investments and
translation of assets and
liabilities denominated in foreign
currencies 314,447 4,412,106 7,648,745
------------------------------------------------------------------------------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 2,579,886 14,924,652 15,319,890
------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income:
Institutional Shares (2,392,682) (10,693,018) (2,044,522)
Service Shares (6,645) (15,032) (10,379)
From net realized gain on
investment transactions:
Institutional Shares -- (184,700) (3,708,475)
Service Shares -- -- --
------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS (2,399,327) (10,892,750) (5,763,376)
------------------------------------------------------------------------------
FROM SHARE TRANSACTIONS:
Proceeds from sale of shares:
Institutional Shares 31,421,375 96,052,292 44,216,003
Service Shares 447,777 711,647 1,166,221
Reinvestment of dividends and
distributions:
Institutional Shares 1,434,765 8,300,085 5,674,564
Service Shares 5,599 13,229 10,147
Cost of shares redeemed:
Institutional Shares (18,031,858) (41,772,254) (23,479,903)
Service Shares (6,679) -- (22,933)
------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM SHARE TRANSACTIONS 15,270,979 63,304,999 27,564,099
------------------------------------------------------------------------------
TOTAL INCREASE 15,451,538 67,336,901 37,120,613
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 33,838,511 151,204,716 69,880,248
------------------------------------------------------------------------------
End of year $ 49,290,049 $218,541,617 $107,000,861
------------------------------------------------------------------------------
ACCUMULATED UNDISTRIBUTED NET
INVESTMENT INCOME $ 59,144 $ 103,694 $ 209,213
------------------------------------------------------------------------------
SUMMARY OF SHARE TRANSACTIONS:
Institutional Shares
Sold 1,714,904 5,037,764 1,767,694
Issued on reinvestment of
dividends and distributions 78,311 436,023 236,855
Redeemed (985,134) (2,196,219) (949,694)
------------------------------------------------------------------------------
INCREASE IN SHARES OUTSTANDING 808,081 3,277,568 1,054,855
------------------------------------------------------------------------------
Service Shares
Sold 24,418 37,357 46,192
Issued on reinvestment of
dividends and distributions 304 690 392
Redeemed (363) -- (867)
------------------------------------------------------------------------------
INCREASE IN SHARES OUTSTANDING 24,359 38,047 45,717
------------------------------------------------------------------------------
</TABLE>
(a) The Growth and Income Fund commenced operations on March 3, 1997.
(b) The National Tax-Free Intermediate Bond and Missouri Tax-Free Intermedi-
ate Bond Funds were formerly known as the National Tax-Free Bond Fund and
the Missouri Tax-Free Bond Fund, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
54
<PAGE>
COMMERCE FUNDS
<TABLE>
<CAPTION>
MISSOURI
NATIONAL TAX-FREE
GROWTH AND TAX-FREE INTERMEDIATE
INCOME INTERNATIONAL INTERMEDIATE BOND
FUND(A) GROWTH FUND MIDCAP FUND EQUITY FUND BOND FUND(B) FUND(B)
<S> <C> <C> <C> <C> <C>
$ 184,289 $ 1,685,496 $ (538,557) $ 238,210 $ 809,481 $ 806,516
101,071 22,981,707 6,551,956 2,055,325 5,845 18,879
2,875,647 40,425,005 9,385,946 712,317 458,468 385,392
---------------------------------------------------------------------------------------
3,161,007 65,092,208 15,399,345 3,005,852 1,273,794 1,210,787
---------------------------------------------------------------------------------------
(152,431) (1,656,440) -- (268,546) (809,481) (806,516)
(3,059) (10,547) -- -- -- --
-- (14,172,190) (781,830) (598,118) -- (14,681)
-- -- -- -- -- --
---------------------------------------------------------------------------------------
(155,490) (15,839,177) (781,830) (866,664) (809,481) (821,197)
---------------------------------------------------------------------------------------
44,109,295 135,701,270 44,321,047 38,848,968 10,977,557 10,099,731
2,586,874 5,567,088 3,397,877 240,846 -- --
117,222 14,235,374 679,188 679,366 127,490 133,039
2,980 10,529 -- -- -- --
(2,058,993) (64,005,148) (21,768,366) (14,993,427) (3,901,839) (3,223,104)
(1,452) (138,519) (2,788,233) (49) -- --
---------------------------------------------------------------------------------------
44,755,926 91,370,594 23,841,513 24,775,704 7,203,208 7,009,666
---------------------------------------------------------------------------------------
47,761,443 140,623,625 38,459,028 26,914,892 7,667,521 7,399,256
---------------------------------------------------------------------------------------
-- 208,907,785 74,641,440 51,589,026 17,613,285 17,034,414
---------------------------------------------------------------------------------------
$47,761,443 $349,531,410 $113,100,468 $78,503,918 $25,280,806 $24,433,670
---------------------------------------------------------------------------------------
$ 28,799 $ 40,965 $ -- $ 236,149 $ 15,303 $ 16,372
---------------------------------------------------------------------------------------
2,164,150 4,256,557 1,462,199 1,709,863 589,481 548,660
5,534 495,397 23,891 31,992 6,843 7,233
(98,895) (2,015,211) (741,233) (662,113) (209,410) (175,860)
---------------------------------------------------------------------------------------
2,070,789 2,736,743 744,857 1,079,742 386,914 380,033
---------------------------------------------------------------------------------------
118,593 170,508 111,102 10,451 -- --
142 309 -- -- -- --
(68) (3,937) (91,122) (2) -- --
---------------------------------------------------------------------------------------
118,667 166,880 19,980 10,449 -- --
---------------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
COMMERCE FUNDS
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS
INVESTMENT OPERATIONS TO SHAREHOLDERS
------------------------- ------------------------------
NET ASSET NET REALIZED FROM NET
VALUE, NET AND UNREALIZED FROM NET REALIZED
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT GAIN ON
OF PERIOD INCOME INVESTMENTS(B) INCOME INVESTMENTS
SHORT-TERM GOVERNMENT FUND
<S> <C> <C> <C> <C> <C>
For the Year Ended Octo-
ber 31, 1998
Institutional Shares $18.47 $1.10 $ 0.32 $(1.11) $ --
Service Shares 18.48 1.06 0.31 (1.06) --
---------------------------------------------------------------------------------------------
For the Year Ended Octo-
ber 31, 1997
Institutional Shares 18.43 1.11 0.04 (1.11) --
Service Shares(a) 18.37 0.92 0.11 (0.92) --
---------------------------------------------------------------------------------------------
For the Year Ended Octo-
ber 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) --
BOND FUND
For the Year Ended Octo-
ber 31, 1998
Institutional Shares $19.43 $1.15 $ 0.41 $(1.15) $ --
Service Shares 19.43 1.11 0.42 (1.11) --
---------------------------------------------------------------------------------------------
For the Year Ended Octo-
ber 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 Octo-
ber 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) --
---------------------------------------------------------------------------------------------
</TABLE>
(a) For the period January 2, 1997 (date of initial public offering) through
October 31, 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.
56
<PAGE>
COMMERCE FUNDS
<TABLE>
<CAPTION>
RATIOS ASSUMING NO WAIVER OF
INVESTMENT ADVISORY FEES OR
EXPENSE REIMBURSEMENTS
----------------------------
NET ASSETS RATIO OF RATIO OF RATIO OF RATIO OF
NET ASSET AT END OF NET EXPENSES NET INVESTMENT EXPENSES TO NET INVESTMENT PORTFOLIO
VALUE, END TOTAL PERIOD TO AVERAGE INCOME TO AVERAGE AVERAGE INCOME TO AVERAGE TURNOVER
OF PERIOD RETURN(C) (IN 000S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS RATE
<S> <C> <C> <C> <C> <C> <C> <C>
$18.78 7.94% $ 69,538 0.68% 5.90% 1.04% 5.55% 48%
18.79 7.67 968 0.93 5.63 1.29 5.28 48
- ----------------------------------------------------------------------------------------------------------
18.47 6.45 48,840 0.68 6.04 1.11 5.61 36
18.48 5.81 450 0.93(d) 5.64(d) 1.36(d) 5.21(d) 36
- ----------------------------------------------------------------------------------------------------------
18.43 5.02 33,839 0.68 5.90 1.11 5.47 12
- ----------------------------------------------------------------------------------------------------------
18.83 10.72 20,211 0.68(d) 6.38(d) 1.14(d) 5.92(d) 158
$19.84 8.27% $305,396 0.83% 5.86% 0.83% 5.86% 30%
19.85 8.05 1,059 1.08 5.59 1.08 5.59 30
- ----------------------------------------------------------------------------------------------------------
19.43 8.50 217,803 0.85 6.14 0.85 6.14 19
19.43 7.48 739 1.10(d) 5.67(d) 1.10(d) 5.67(d) 19
- ----------------------------------------------------------------------------------------------------------
19.07 4.71 151,205 0.84 6.10 0.84 6.10 31
- ----------------------------------------------------------------------------------------------------------
19.61 15.59 98,504 0.88(d) 6.64(d) 0.88(d) 6.64(d) 58
- ----------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
COMMERCE FUNDS
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS
INVESTMENT OPERATIONS TO SHAREHOLDERS
------------------------- ------------------------------
NET ASSET NET REALIZED FROM NET
VALUE, NET AND UNREALIZED FROM NET REALIZED
BEGINNING INVESTMENT GAIN ON INVESTMENT GAIN ON
OF PERIOD INCOME INVESTMENTS(B) INCOME INVESTMENTS
BALANCED FUND
<S> <C> <C> <C> <C> <C>
For the Year Ended Octo-
ber 31, 1998
Institutional Shares $26.67 $0.59 $ 1.67 $(0.59) $(1.30)
Service Shares 26.66 0.53 1.65 (0.53) (1.30)
---------------------------------------------------------------------------------------------
For the Year Ended Octo-
ber 31, 1997
Institutional Shares 24.00 0.59 3.93 (0.59) (1.26)
Service Shares(a) 23.25 0.40 3.42 (0.41) --
---------------------------------------------------------------------------------------------
For the Year Ended Octo-
ber 31, 1996
Institutional Shares 22.10 0.54 2.56 (0.54) (0.66)
---------------------------------------------------------------------------------------------
For the Period December
12, 1994 (Commencement
of Operations) Through
October 31, 1995
Institutional Shares 18.00 0.59 4.06 (0.55) --
GROWTH AND INCOME FUND
For the Year Ended Octo-
ber 31, 1998
Institutional Shares $21.82 $0.18 $(0.05) $(0.19) $(0.04)
Service Shares 21.81 0.16 (0.09) (0.11) (0.04)
---------------------------------------------------------------------------------------------
For the Period March 3,
1997 (Commencement of
Operations) Through Oc-
tober 31, 1997
Institutional Shares 18.00 0.15 3.80 (0.13) --
Service Shares 18.00 0.12 3.80 (0.11) --
---------------------------------------------------------------------------------------------
</TABLE>
(a) For the period January 2, 1997 (date of initial public offering) through
October 31, 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.
58
<PAGE>
COMMERCE FUNDS
<TABLE>
<CAPTION>
RATIOS ASSUMING NO WAIVER OF
INVESTMENT ADVISORY FEES OR
EXPENSE REIMBURSEMENTS
-----------------------------
NET ASSETS RATIO OF RATIO OF RATIO OF RATIO OF
NET ASSET AT END OF NET EXPENSES NET INVESTMENT EXPENSES TO NET INVESTMENT PORTFOLIO
VALUE, END TOTAL PERIOD TO AVERAGE INCOME TO AVERAGE AVERAGE INCOME TO AVERAGE TURNOVER
OF PERIOD RETURN(C) (IN 000'S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS RATE
<S> <C> <C> <C> <C> <C> <C> <C>
$27.04 8.68% $123,717 1.13% 2.20% 1.49% 1.84% 68%
27.01 8.36 2,594 1.38 1.99 1.74 1.63 68
- ----------------------------------------------------------------------------------------------------------
26.67 19.92 105,782 1.13 2.44 1.53 2.04 31
26.66 16.53 1,219 1.38(d) 2.13(d) 1.78(d) 1.73(d) 31
- ----------------------------------------------------------------------------------------------------------
24.00 14.45 69,880 1.13 2.47 1.45 2.15 58
- ----------------------------------------------------------------------------------------------------------
22.10 26.14 48,329 1.13(d) 3.28(d) 1.45(d) 2.96(d) 59
$21.72 0.53% $ 92,625 1.16% 0.82% 1.16% 0.82% 55%
21.73 0.30 1,365 1.41 0.60 1.41 0.60 55
- ----------------------------------------------------------------------------------------------------------
21.82 22.00 45,173 1.20(d) 1.30(d) 2.02(d) 0.48(d) 5
21.81 21.81 2,588 1.45(d) 1.02(d) 2.27(d) 0.20(d) 5
- ----------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
COMMERCE FUNDS
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS
INVESTMENT OPERATIONS TO SHAREHOLDERS
------------------------- ------------------------------
NET ASSET NET NET REALIZED FROM NET
VALUE, INVESTMENT AND UNREALIZED FROM NET REALIZED
BEGINNING INCOME GAIN ON INVESTMENT GAIN ON
OF PERIOD (LOSS) INVESTMENTS(B) INCOME INVESTMENTS
GROWTH FUND
<S> <C> <C> <C> <C> <C>
For the Year Ended Octo-
ber 31, 1998
Institutional Shares $34.54 $ 0.07 $5.06 $(0.06) $(2.24)
Service Shares 34.50 (0.01) 5.05 (0.01) (2.24)
---------------------------------------------------------------------------------------------
For the Year Ended Octo-
ber 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 Octo-
ber 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) --
MIDCAP FUND
For the Year Ended Octo-
ber 31, 1998
Institutional Shares $33.02 $(0.13) $1.48 -- $(1.80)
Service Shares 32.94 (0.16) 1.42 -- (1.80)
---------------------------------------------------------------------------------------------
For the Year Ended Octo-
ber 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 Octo-
ber 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 -- --
---------------------------------------------------------------------------------------------
</TABLE>
(a) For the period January 2, 1997 (date of initial public offering) through
October 31, 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>
COMMERCE FUNDS
<TABLE>
<CAPTION>
NET
ASSETS
AT END RATIO OF
OF RATIO OF NET INVESTMENT
NET ASSET PERIOD NET EXPENSES INCOME (LOSS) PORTFOLIO
VALUE, END TOTAL (IN TO AVERAGE TO AVERAGE TURNOVER
OF PERIOD RETURN(C) 000'S) NET ASSETS NET ASSETS RATE
<S> <C> <C> <C> <C> <C>
$37.37 15.38% $409,797 1.08% 0.20% 53%
37.29 15.10 8,965 1.33 (0.06) 53
- --------------------------------------------------------------------------------
34.54 28.12 343,773 1.11 0.60 32
34.50 22.47 5,758 1.36(d) 0.35(d) 32
- --------------------------------------------------------------------------------
28.95 23.43 208,908 1.08 0.72 36
- --------------------------------------------------------------------------------
24.68 38.06 141,735 1.11(d) 0.81(d) 33
$32.57 3.96% $139,035 1.16% (0.58)% 76%
32.40 3.68 1,236 1.41 (0.82) 76
- --------------------------------------------------------------------------------
33.02 18.88 112,442 1.23 (0.61) 89
32.94 15.01 658 1.48(d) (0.95)(d) 89
- --------------------------------------------------------------------------------
28.06 13.78 74,641 1.22 (0.37) 71
- --------------------------------------------------------------------------------
25.30 40.56 41,665 1.32(d) (0.29)(d) 59
- --------------------------------------------------------------------------------
</TABLE>
61
<PAGE>
COMMERCE FUNDS
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS
INVESTMENT OPERATIONS TO SHAREHOLDERS
--------------------------- ------------------------------
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON
NET ASSET INVESTMENTS AND FROM NET
VALUE, NET FOREIGN FROM NET REALIZED
BEGINNING INVESTMENT CURRENCY RELATED INVESTMENT GAIN ON
OF PERIOD INCOME TRANSACTIONS(B) INCOME INVESTMENTS
INTERNATIONAL EQUITY FUND
<S> <C> <C> <C> <C> <C>
For the Year Ended Octo-
ber 31, 1998
Institutional Shares $22.10 $0.10 $1.45 $(0.08) $(0.57)
Service Shares 22.06 0.05 1.44 (0.06) (0.57)
-----------------------------------------------------------------------------------------------
For the Year Ended Octo-
ber 31, 1997
Institutional Shares 20.96 0.06 1.42 (0.10) (0.24)
Service Shares(a) 21.70 0.01 0.35 -- --
-----------------------------------------------------------------------------------------------
For the Year Ended Octo-
ber 31, 1996
Institutional Shares 18.64 0.11 2.35 (0.07) (0.07)
-----------------------------------------------------------------------------------------------
For the Period December
12, 1994 (Commencement
of Operations) through
October 31, 1995
Institutional Shares 18.00 0.12 0.55 (0.03) --
-----------------------------------------------------------------------------------------------
</TABLE>
(a) For the period January 2, 1997 (date of initial public offering) through
October 31, 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.
62
<PAGE>
COMMERCE FUNDS
<TABLE>
<CAPTION>
RATIOS ASSUMING NO WAIVER OF
INVESTMENT ADVISORY FEES OR
EXPENSE REIMBURSEMENTS
----------------------------
RATIO OF
NET ASSETS RATIO OF RATIO OF RATIO OF NET INVESTMENT
NET ASSET AT END OF NET EXPENSES NET INVESTMENT EXPENSES TO INCOME (LOSS) PORTFOLIO
VALUE, END TOTAL PERIOD TO AVERAGE INCOME TO AVERAGE AVERAGE TO AVERAGE TURNOVER
OF PERIOD RETURN(C) (IN 000'S) NET ASSETS NET ASSETS NET ASSETS NET ASSETS RATE
<S> <C> <C> <C> <C> <C> <C> <C>
$23.00 7.16% $101,161 1.62% 0.46% 2.14% (0.06)% 22%
22.92 6.88 379 1.87 0.19 2.39 (0.33) 22
- -------------------------------------------------------------------------------------------------------------------------
22.10 7.15 78,273 1.72 0.35 2.23 (0.16) 22
22.06 1.66 231 1.97(d) 0.14(d) 2.48(d) (0.37)(d) 22
- -------------------------------------------------------------------------------------------------------------------------
20.96 13.25 51,589 1.72 0.74 2.64 (0.18) 21
- -------------------------------------------------------------------------------------------------------------------------
18.64 3.73 21,014 1.81(d) 1.06(d) 3.50(d) (0.63)(d) 25
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
63
<PAGE>
COMMERCE FUNDS
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
INCOME FROM DISTRIBUTIONS
INVESTMENT OPERATIONS TO SHAREHOLDERS
------------------------- ---------------------------------
NET ASSET NET REALIZED
VALUE, NET AND UNREALIZED FROM NET FROM NET
BEGINNING INVESTMENT GAIN (LOSS) ON INVESTMENT REALIZED GAIN
OF PERIOD INCOME INVESTMENTS(B) INCOME ON INVESTMENTS
NATIONAL TAX-FREE INTERMEDIATE BOND FUND
<S> <C> <C> <C> <C> <C>
For the Year Ended Octo-
ber 31, 1998 $18.85 $0.74 $ 0.48 $(0.74) --
For the Year Ended Octo-
ber 31, 1997 18.46 0.72 0.39 (0.72) --
For the Year Ended Octo-
ber 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) --
MISSOURI TAX-FREE INTERMEDIATE BOND FUND
For the Year Ended Octo-
ber 31, 1998 $18.61 $0.74 $ 0.47 $(0.74) $(0.01)
For the Year Ended Octo-
ber 31, 1997 18.26 0.76 0.37 (0.76) (0.02)
For the Year Ended Octo-
ber 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) --
------------------------------------------------------------------------------------------------
</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 a sales charge were taken
into account.
(d) Annualized.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
64
<PAGE>
COMMERCE FUNDS
<TABLE>
<CAPTION>
RATIOS ASSUMING NO WAIVER OF
INVESTMENT ADVISORY FEES AND
EXPENSE REIMBURSEMENTS
----------------------------
NET ASSETS RATIO OF RATIO OF RATIO OF RATIO OF
NET ASSET AT END OF NET EXPENSES NET INVESTMENT EXPENSES TO NET INVESTMENT PORTFOLIO
VALUE, END TOTAL PERIOD, TO AVERAGE INCOME TO AVERAGE AVERAGE NET INCOME TO AVERAGE TURNOVER
OF PERIOD RETURN(C) (IN 000'S) NET ASSETS NET ASSETS ASSETS NET ASSETS RATE
<S> <C> <C> <C> <C> <C> <C> <C>
$19.33 6.59% $33,528 0.74% 3.87% 1.04% 3.57% 41%
18.85 6.16 25,281 0.85 3.89 1.15 3.59 6
18.46 3.60 17,613 0.85 3.93 1.55 3.23 34
18.54 6.06 10,721 0.85(d) 4.19(d) 1.90(d) 3.14(d) 19
$19.07 6.65% $34,051 0.65% 3.93% 1.03% 3.55% 34%
18.61 6.31 24,434 0.65 4.14 1.21 3.58 13
18.26 3.43 17,034 0.65 4.14 1.58 3.21 49
18.40 5.45 8,889 0.65(d) 4.41(d) 2.12(d) 2.94(d) 52
- ----------------------------------------------------------------------------------------------------------
</TABLE>
65
<PAGE>
COMMERCE FUNDS
Notes to Financial Statements
October 31, 1998
1. ORGANIZATION
The Commerce Funds (the "Trust") is a Delaware business trust registered un-
der the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end, management investment company. The Trust consists of nine portfo-
lios (individually, a "Fund" and collectively, the "Funds"): Short-Term Gov-
ernment Fund, Bond Fund, Balanced Fund, Growth and Income Fund, Growth Fund,
MidCap Fund, International Equity Fund, National Tax-Free Intermediate Bond
Fund and Missouri Tax-Free Intermediate Bond Fund (formerly National Tax-Free
Bond Fund and Missouri Tax-Free Bond Fund, respectively). Each of the Funds
(except National Tax-Free Intermediate Bond Fund and Missouri Tax-Free Inter-
mediate Bond Fund which only offer Institutional Shares) offer two classes of
shares, Institutional Shares and Service Shares. Each Fund is registered as a
diversified management investment company under the 1940 Act, other than the
Missouri Tax-Free Intermediate Bond Fund, which is registered as non-diversi-
fied 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 manage-
ment to make estimates and assumptions that may affect the reported amounts.
A. INVESTMENT VALUATION -- Investments in securities traded on a U.S. ex-
change 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
United States are based upon the price on that exchange as of the close of
business of the exchange immediately preceding the time of valuation. Un-
listed 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 val-
ued 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 in-
vestments are calculated on the identified cost basis. Dividend income is re-
corded 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
Intermediate Bond and the Missouri Tax-Free Intermediate 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 International Eq-
uity Funds accrete market discounts and amortize premiums on a yield to matu-
rity 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 distribu-
tions and are included in interest income in the accompanying Statements of
Operations. For all Funds, original issue discount on debt securities is am-
ortized 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) investments, other
assets and liabilities initially expressed in foreign currencies are con-
verted each business day into U.S. dollars based on current
66
<PAGE>
COMMERCE FUNDS
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; (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 div-
idends 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 liabili-
ties.
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 port-
folio positions as a means to manage its foreign exchange rate risk. All com-
mitments 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 for-
ward contract is offset by entry into a closing transaction or extinguished
by delivery of the currency. Risks may arise upon entering into these con-
tracts as a result of the potential inability of counterparties to meet the
terms of their contracts and unanticipated movements in the value of a for-
eign 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 taxable and
tax-exempt income to its shareholders. Accordingly, no federal income tax
provisions are required. The characterization of distributions to sharehold-
ers for financial reporting purposes is determined in accordance with income
tax rules.
As of the Trust's most recent tax year-end, the International Equity Fund
had capital loss carryforwards for U.S. federal income tax purposes:
<TABLE>
<CAPTION>
FUND AMOUNT YEAR OF EXPIRATION
--------------------------------------------------------------------------------------
<S> <C> <C>
International Equity Fund $1,426,951 2006
--------------------------------------------------------------------------------------
</TABLE>
This amount is available to be carried forward to offset future capital
gains of the Fund 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 com-
mencement 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 re-
late to an individual Fund are allocated to the Funds based on each Fund's
relative average daily 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 re-
quired to equal or exceed the value of the repurchase agreement. The under-
lying collateral for all repurchase agreements is held in safekeeping in the
customer-only account, at 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 de-
faults and the value of the security declines, or if the seller enters an in-
solvency proceeding, realization of the collateral by the Trust may be
delayed or limited.
67
<PAGE>
COMMERCE FUNDS
Notes to Financial Statements (continued)
October 31, 1998
J. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net invest-
ment income are declared daily and paid monthly by the Short-Term Government,
Bond, National Tax-Free Intermediate Bond and Missouri Tax-Free Intermediate
Bond Funds; declared and paid quarterly by the Balanced, Growth and Income
and Growth Funds; and declared and paid annually by the MidCap and Interna-
tional Equity Funds. Each Fund's net realized capital gains (including net
short-term capital gains), if any, are declared and distributed at least an-
nually. Distributions to shareholders are recorded on the ex-dividend date.
3. AGREEMENTS
The Funds have entered into an Advisory Agreement with Commerce Bank, N.A.
(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 Intermediate Bond Fund .50%
------------------------------------------------
Missouri Tax-Free Intermediate 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 Inter-
national 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>
In addition, the sub-advisor has voluntarily agreed to waive a portion of
its sub-advised fees on the International Equity Fund when the Fund's assets
exceed $200 million to 0.50% of the average daily net assets of the Fund.
For the year ended October 31, 1998, the Advisor has voluntarily agreed to
waive a portion of its advisory fee for certain portfolios. The resulting ad-
visory fees are .30% for the Short-Term Government Fund, .66% for the Bal-
anced Fund, .98% for the International Equity Fund, .39% for the National
Tax-Free Intermediate Bond Fund and .30% for the Missouri Tax-Free Intermedi-
ate Bond Fund. The effect of these waivers by the Advisor for the year ended
October 31, 1998 was to reduce advisory fees by $114,722, $426,241, $485,815,
$33,187 and $57,793 for the Short-Term Government, Balanced, International
Equity, National Tax-Free Intermediate Bond and Missouri Tax-Free Intermedi-
ate Bond Funds, respectively.
In addition, for the year ended October 31, 1998, the Advisor has voluntar-
ily agreed to reimburse expenses (excluding interest, taxes, distribution ex-
penses and extraordinary expenses) to the extent that such expenses exceed,
on an annualized basis, .68%, .88%, 1.13%, 1.20%, 1.13%, 1.72% and .65% of
average net assets of the Short-Term Government, Bond,
68
<PAGE>
COMMERCE FUNDS
Balanced, Growth and Income, Growth, International Equity and Missouri Tax-
Free Intermediate Bond Funds, respectively. Effective February 6, 1998, the
Advisor has voluntarily agreed to reimburse expenses (excluding interest,
taxes, distribution expenses and extraordinary expenses) for the National
Tax-Free Intermediate Bond Fund to the extent that such expenses exceed, on
an annualized basis .70% of average net assets. Prior thereto, the expense
limitation was .85% of average net assets. The effect of these reimbursements
by the Advisor for the year ended October 31, 1998 was to reduce expenses by
$89,204, $12,972, $0, $54,535 and $50,592 for the Short-Term Government, Bal-
anced, Growth and Income, National Tax-Free Intermediate Bond and Missouri
Tax-Free Intermediate Bond Funds, respectively. The amount reimbursable to
the Short-Term Government, Balanced and Missouri Tax-Free Intermediate Bond
Funds at October 31, 1998 was approximately $11,000, $2,000 and $4,000, re-
spectively, and are netted in "Advisory fees payable" in the accompanying
Statements of Assets and Liabilities. Included in "Advisory fees payable " in
the accompanying Statements of Assets and Liabilities of the National Tax-
Free Intermediate Bond Fund was approximately $1,200 related to excess reim-
bursement payable to the Advisor.
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co., serves as the Trust's administrator, pursuant to an Ad-
ministration 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 charge im-
posed on the sale of shares of the Funds. The maximum sales charge imposed on
the sale of Service Shares of the Short-Term Government Fund is 2.00%; for
all other Funds' Service Shares, the maximum sales charge is 3.50%. For the
National Tax-Free Intermediate Bond and the Missouri Tax-Free Intermediate
Bond Funds' Institutional Shares there is a maximum sales charge of 3.50%
which was removed effective November 1, 1998. Goldman Sachs has advised the
Trust that it has retained approximately $35,847 for the year ended October
31, 1998.
The Trust, on behalf of each Fund (except the National Tax-Free Intermediate
Bond Fund and Missouri Tax-Free Intermediate Bond Fund), has adopted a Dis-
tribution Plan for the Service Shares pursuant to Rule 12b-1 under the 1940
Act. Under the distribution plan, payments by each Fund for distribution ex-
penses 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 share-
holder administration support services. For these services, the Service Orga-
nizations 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, 1998 were as follows:
<TABLE>
<S> <C>
SHORT-TERM GOVERNMENT FUND
Purchases (excluding U.S. Government securities) $ 10,644,913
Sales (excluding U.S. Government securities) 5,317,228
Purchases of U.S. Government securities 35,055,176
Sales of U.S. Government securities 20,912,158
--------------------------------------------------------------
BOND FUND
Purchases (excluding U.S. Government securities) $112,357,032
Sales (excluding U.S. Government securities) 13,837,628
Purchases of U.S. Government securities 50,747,241
Sales of U.S. Government securities 64,495,453
--------------------------------------------------------------
</TABLE>
69
<PAGE>
COMMERCE FUNDS
Notes to Financial Statements (continued)
October 31, 1998
<TABLE>
<S> <C>
BALANCED FUND
Purchases (excluding U.S. Government securities) $ 78,192,094
Sales (excluding U.S. Government securities) 57,692,782
Purchases of U.S. Government securities 15,223,789
Sales of U.S. Government securities 23,843,039
--------------------------------------------------------------
GROWTH AND INCOME FUND
Purchases (excluding U.S. Government securities) $ 93,813,608
Sales (excluding U.S. Government securities) 42,565,295
Purchases of U.S. Government securities --
Sales of U.S. Government securities --
--------------------------------------------------------------
GROWTH FUND
Purchases (excluding U.S. Government securities) $211,688,044
Sales (excluding U.S. Government securities) 199,209,987
Purchases of U.S. Government securities --
Sales of U.S. Government securities --
--------------------------------------------------------------
MIDCAP FUND
Purchases (excluding U.S. Government securities) $117,652,070
Sales (excluding U.S. Government securities) 97,984,942
Purchases of U.S. Government securities --
Sales of U.S. Government securities --
--------------------------------------------------------------
INTERNATIONAL EQUITY FUND
Purchases (excluding U.S. Government securities) $ 38,071,461
Sales (excluding U.S. Government securities) 19,820,710
Purchases of U.S. Government securities --
Sales of U.S. Government securities --
--------------------------------------------------------------
NATIONAL TAX-FREE INTERMEDIATE BOND FUND
Purchases (excluding U.S. Government securities) $ 18,475,122
Sales (excluding U.S. Government securities) 11,487,822
Purchases of U.S. Government securities --
Sales of U.S. Government securities --
--------------------------------------------------------------
MISSOURI TAX-FREE INTERMEDIATE BOND FUND
Purchases (excluding U.S. Government securities) $ 16,464,234
Sales (excluding U.S. Government securities) 9,378,175
Purchases of U.S. Government securities --
Sales of U.S. Government securities --
--------------------------------------------------------------
</TABLE>
5. CONCENTRATION OF CREDIT RISK
The Missouri Tax-Free Intermediate Bond Fund invests substantially all of its
assets in debt obligations of issuers located in the State of Missouri. The
National Tax-Free Intermediate Bond Fund may invest significant amounts in
selected states. The issuers' abilities to meet their obligations may be af-
fected by the states' economic and political developments.
70
<PAGE>
COMMERCE FUNDS
6. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Short-Term Government,
Bond, Balanced, Growth, MidCap, International Equity, National Tax-Free In-
termediate Bond and Missouri Tax-Free Intermediate Bond Funds have reclassi-
fied $4,577, $5,724, $5,516, $5,842, $5,350, $5,318, $5,793 and $5,799
respectively, from paid-in capital to accumulated undistributed net invest-
ment income. The MidCap Fund has reclassified $765,167 of accumulated net in-
vestment loss to paid-in capital. The International Equity Fund has
reclassified $88,000 of accumulated net realized loss on foreign currency re-
lated transactions to accumulated undistributed net investment income and has
reclassified $52,604 of accumulated net realized gain on investments to accu-
mulated 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, 1998, 96.59% and 97.22% of the
distributions paid by the National Tax-Free Intermediate Bond Fund
and the Missouri Tax-Free Intermediate 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, 1998, 2.30% and 1.42% of the ex-
empt-interest dividends paid by the National Tax-Free Intermediate
Bond Fund and the Missouri Tax-Free Intermediate Bond Fund, re-
spectively, were derived from Private Activity Bonds or Alterna-
tive Minimum Tax Bonds ("AMT Bonds").
During the year ended October 31, 1998, 25.35%, 100.00% and 99.86%
of the dividends paid from net investment income by the Balanced
Fund, Growth and Income Fund and Growth Fund, respectively, qual-
ify for the dividends received deduction available to corpora-
tions.
71
<PAGE>
COMMERCE FUNDS
Independent Auditors' Report
The Board of Trustees and Shareholders of
The Commerce Funds:
We have audited the accompanying statements of assets and liabilities of The
Short-Term Government Fund, The Bond Fund, The Balanced Fund, The Growth &
Income Fund, The Growth Fund, The MidCap Fund, The International Equity Fund,
The National Tax-Free Intermediate Bond Fund (formerly The National Tax-Free
Bond Fund), and The Missouri Tax-Free Intermediate Bond Fund (formerly The
Missouri Tax-Free Bond Fund), portfolios of The Commerce Funds, (collective-
ly, The Commerce Funds), including statements of investments as of October
31, 1998 and the related statements of operations for the year ended October
31, 1998, the statements of changes in net assets for each of the years in
the two-year period ended October 31, 1998 for The Short-Term Government
Fund, The Bond Fund, The Balanced Fund, the Growth Fund, The MidCap Fund, The
International Equity Fund, The National Tax-Free Intermediate Bond Fund, and
The Missouri Tax-Free Intermediate Bond Fund, and for the year ended October
31, 1998 and the period from March 3, 1997 to October 31, 1997 for The Growth
and Income Fund and financial highlights for each of the years or periods in
the four-year period ended October 31, 1998. These financial statements and
financial highlights are the responsibility of The Commerce Funds' manage-
ment. Our responsibility is to express an opinion on these financial state-
ments and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. 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 finan-
cial statements and financial highlights. Our procedures included confirma-
tion of securities owned as of October 31, 1998 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting prin-
ciples used and significant estimates made by management, as well as evaluat-
ing 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, 1998, and the results of their operations,
changes in their net assets and financial highlights for each of the years or
periods specified in the first paragraph above in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Kansas City, Missouri
December 11, 1998
72
<PAGE>
The Commerce Funds
Trustees
J. Eric Helsing, Chairman
Randall D. Barron
David L. Bodde
John J. Holland
Warren Weaver
Officers
Warren Weaver, President
Philip V. Giuca Jr., 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 contains facts concerning The Commerce Funds' objectives and
policies, management, expenses, and other information. For more complete
information about The Commerce Funds, a prospectus may be obtained by calling
1-800-995-6365. An investor should read the prospectus carefully before
investing or sending money.
Shares of the Funds are not deposits or obligations of, or guaranteed, endorsed,
or otherwise supported by Commerce Bank, N.A., its 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 the possible loss of the principal amount invested. The Commerce Funds
are advised by Commerce Bank, N.A., which receives a fee for its services. The
Commerce Funds are distributed by Goldman, Sachs & Co.
<PAGE>
INVESTMENT ADVISER DISTRIBUTOR
Commerce Bank, N.A. Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
INVESTMENT SUB-ADVISER,
INTERNATIONAL EQUITY FUND
Rowe Price-Fleming International, Inc. ADMINISTRATOR
100 East Pratt Street Goldman Sachs Asset Management
Baltimore, Maryland 21202 One New York Plaza
New York, New York 10004
CUSTODIAN
State Street Bank & Trust Company INDEPENDENT AUDITORS
225 Franklin Street KPMG Peat Marwick LLP
Boston, Massachusetts 02110 1000 Walnut Street
Kansas City, Missouri 64106
TRANSFER AGENT
State Street Bank & Trust Company LEGAL COUNSEL
330 W. 9th Drinker Biddle & Reath LLP
4th Floor 1345 Chestnut Street
Kansas City, Missouri 64105 Philadelphia, Pennsylvania 19107
[LOGO OF COMMERCE FUNDS APPEARS HERE]
8000 Forsyth Boulevard
Suite 606
St. Louis, Missouri 63105
922 Walnut Street
Third Floor
Kansas City, Missouri 64106
www.commercefunds.com
1-800-995-6365
CB 5041
Date of first use: 12/31/98
