UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-8598
The Commerce Funds
(Exact name of Registrant as specified in charter)
| 922 Walnut St., Fourth Floor, Mail Code = TB4-1, Kansas City, Missouri 64106 |
| (Address of principal executive offices) (Zip code) |
Diana E. McCarthy, Esq.
Faegre Drinker Biddle & Reath LLP
One Logan Square
Suite 2000
Philadelphia, PA 19103-6996
(Name and address of agent for service)
Registrant’s telephone number, including area code:1-800-995-6365
Date of fiscal year end: 10/31
Date of reporting period: 10/31/20
| ITEM 1. | REPORTS TO SHAREHOLDERS. |
The Annual Report to Shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1) is filed herewith.
ANNUAL REPORT Beginning on January 1, 2021, as permitted by regulations adopted by the SEC, paper copies of The Commerce Funds’ shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from The Commerce Funds or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on The Commerce Funds’ website (www. commercefunds.com) and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you have already elected to receive your shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from The Commerce Funds electronically at any time by contacting your ?nancial intermediary (such as a broker-dealer or bank) or by calling 1-800-995-6365. You may elect to receive all future reports in paper free of charge. If you invest through a ?nancial intermediary, please contact your ?nancial intermediary to continue receiving paper copies of your shareholder reports. You may also inform The Commerce Funds that you wish to continue receiving paper copies of your shareholder reports by calling 1-800-995-6365. Your election to receive reports in paper will apply to all funds held in your account with your ?nancial intermediary. You must provide separate instructions to each of your ?nancial intermediaries. These securities have not been approved or disapproved by the Securities and Exchange Commission, nor has the Securities and Exchange Commission passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
LIFE’S DIRECTION At The Commerce Funds, we’re committed to providing sound investment choices to help \RX UHDOL]H \RXU PRVW LPSRUWDQW ÀQDQFLDO JRDOV QR PDWWHU ZKHUH OLIH WDNHV \RX :H RIIHU D IXOO UDQJH RI PXWXDO IXQGV PDQDJHG E\ &RPPHUFH ,QYHVWPHQW $GYLVRUV ,QF D VXEVLGLDU\ RI &RPPHUFH %DQN :LWK D FKRLFH RI SRUWIROLRV³HDFK WDUJHWLQJ D VSHFLÀF LQYHVWPHQW JRDO³ZH PDNH LW HDV\ IRU \RX WR LQYHVW ZLWK FRQÀGHQFH QRW MXVW WRGD\ EXW WKURXJKRXW DOO VWDJHV RI \RXU OLIH %HKLQG HDFK RI RXU )XQGV LV D FDUHIXOO\ GHÀQHG LQYHVWPHQW SKLORVRSK\ DQG D FRPPLWPHQW WR WKH KLJKHVW LQYHVWPHQW VWDQGDUGV 7KLV PHDQV ZKHWKHU \RX DUH EXLOGLQJ D QHVW HJJ IRU UHWLUHPHQW SODQQLQJ IRU \RXU FKLOG·V HGXFDWLRQ RU VDYLQJ IRU D VSHFLDO QHHG \RX FDQ ÀQG LQYHVWPHQW RSWLRQV DW 7KH &RPPHUFH )XQGV In general, greater returns are associated with greater risks and increased risks create the potential for greater losses. The reports concerning The Commerce Funds portfolios (each a “Fund” and together, the “Funds”) included in this shareholder report may contain certain forward-looking statements about the factors that may affect the performance of the Funds in the future. These statements are based on Fund management’s predictions and expectations concerning certain future events and their expected impact on the Funds, such as performance of the economy DV D ZKROH DQG RI VSHFLÀF LQGXVWU\ VHFWRUV FKDQJHV LQ WKH OHYHOV RI LQWHUHVW UDWHV WKH LPSDFW RI GHYHORSLQJ ZRUOG HYHQWV DQG RWKHU IDFWRUV WKDW PD\ LQÁXHQFH WKH IXWXUH SHUIRUPDQFH RI WKH )XQGV &RPPHUFH ,QYHVWPHQW $GYLVRUV ,QF WKH ´$GYLVHUµ RU ´&RPPHUFHµ EHOLHYHV WKHVH IRUZDUG ORRNLQJ VWDWHPHQWV WR EH UHDVRQDEOH DOWKRXJK WKH\ DUH LQKHUHQWO\ XQFHUWDLQ DQG GLIÀFXOW WR SUHGLFW $FWXDO HYHQWV PD\ FDXVH DGMXVWPHQWV LQ SRUWIROLR PDQDJHPHQW strategies from those currently expected to be employed. 5HIHUHQFHV WR D VSHFLÀF FRPSDQ\·V VHFXULWLHV VKRXOG QRW EH FRQVWUXHG DV D UHFRPPHQGDWLRQ RU LQYHVWPHQW DGYLFH DQG WKHUH FDQ EH QR DVVXUDQFH WKDW DV RI the date of publication of this report, the securities mentioned in each Fund’s portfolio are still held or that the securities sold have not been repurchased.
COMMERCE FUNDS
Table of Contents
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Fund Overviews, Performance Summaries and Schedules of Investments |
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| 94 | ||||
| 96 | ||||
Please note:
The information in this annual report is as of October 31, 2020 and is audited, except where noted. The securities mentioned in this report may no longer be held by the Funds. To view more recent information about each Commerce Fund’s performance and portfolio or to obtain a prospectus, please visit our website at www.commercefunds.com. This report is not authorized for distribution to prospective shareholders unless accompanied or preceded by a prospectus, which contains more complete information about Commerce Funds’ investment policies, management and expenses. Investors should read the prospectus carefully before investing.
You may also receive Commerce Funds information by calling toll free 1-800-995-6365 or by writing to P.O. Box 219525, Kansas City, Missouri, 64121-9525, or you may contact your investment professional. The Commerce Funds publish performance and portfolio information for each Commerce Fund at the end of every calendar quarter. Investors should read the prospectus carefully before investing or sending money.
COMMERCE FUNDS
Recent Market Events related to COVID-19
In early 2020, an outbreak of a novel strain of coronavirus (COVID-19) emerged globally. The outbreak has resulted in travel and border restrictions, quarantines, curfews, restrictions on large gatherings, cancellations, lower consumer activity, diminished demand for a wide range of products and services, disruption in manufacturing and supply chains and general public concern and uncertainty. While governments have taken unprecedented actions to limit disruption to the financial system caused by COVID-19, global financial markets have experienced, and may continue to experience, significant losses in value, volatility and liquidity constraints resulting from the spread of the disease. The future impact of COVID-19 is currently unknown, and it may exacerbate other risks that apply to the Funds, including political, social and economic risks. Any such impact could adversely affect a Fund’s performance and the performance of the securities in which a Fund invests, and may lead to losses on your investment in the Fund. The full extent of the impact of COVID-19 on a Fund’s performance cannot be determined at this time and will depend on future developments, including the duration and the continued spread of the disease. The Commerce Funds’ long-term commitment to shareholders remains unchanged, and we encourage you to maintain perspective and stay current with timely commentary and investment insights by visiting Commercefunds.com.
2
THE GROWTH FUND
We present you with the annual report for The Growth Fund for the one-year period ended October 31, 2020.
A conversation with Joe Williams, Portfolio Manager of The Growth Fund.
Q: How did the Fund perform over the review period?
A: Over the last year, we have witnessed three distinct price swings of growth stocks, two up and one down. Of course, the sharp decline was caused by the beginning of the coronavirus pandemic. Companies that showed great promise early in 2020 had to quickly adapt to an economy that was shutting down in the spring. Companies centered around travel and entertainment have yet to recover. The Fund returned 19.89% over the 12-month period ended October 31, 2020, underperforming the Russell 1000 Growth Index’s (the “benchmark”) return of 29.22% during the same period.
Q: Were there any significant adjustments made to the Fund’s portfolio during the period?
A: The biggest adjustments made to the Fund’s sector allocations during the 12-month period were to account for the dramatic growth of the information technology sector. Technology companies played an important role in allowing workers and students to operate at home during the period. The information technology sector exposure in the Fund’s portfolio increased from 36.0% to 44.2% with the purchase of Monolithic Power Systems, Inc., Cadence Design Systems, Inc., Cognex Corporation, Salesforce.com, Inc., Proofpoint, Inc., KLA Corporation, Citrix Systems, Inc., and Entegris, Inc. In addition, the Fund’s exposure to the consumer discretionary sector, which was dominated by Amazon during the period, moved from 13.0% to 16.5% with the Fund’s purchase of eBay Inc. and Tesla Inc. The information technology and consumer discretionary sectors were the two top-performing sectors for the period, returning 43.33% and 44.98%, respectively. The largest sector reduction in the Fund’s portfolio was made to the industrials sector, moving from 12.90% to 7.70% with the sale of Honeywell International Inc., Middleby Corporation,
Lennox International Inc., AMETEK, Inc., and Armstrong World Industries, Inc. In addition, the Fund’s exposure to the financials sector was reduced from 4.43% to 2.26% with the sale of Charles Schwab Corporation and Cboe Global Markets Inc. The industrials and financials sector returned -1.11% and 5.17%, respectively over the 12-month period.
Q: Could you describe some specific strategies and holdings that enhanced the Fund’s returns during the period?
A: The Fund benefited from security selection within the industrials sector, with overweight positions to Rockwell Automation, Inc. and Rollins, Inc. returning 40.70% and 53.39%, respectively. Additionally, security selection within the health care sector helped Fund performance, with overweight positions to Agilent Technologies, Inc., Hologic, Inc., Mettler-Toledo International Inc., and UnitedHealth Group Incorporated returning 35.91%, 42.45%, 41.56% and 57.06%, respectively, for the 12-month period.
Q: What were some examples of strategies and holdings that didn’t work well for the Fund during the period?
A: The consumer discretionary sector was the top-performing sector in the benchmark, returning 44.98% for the last 12 months. However, the Fund’s underweight position to the consumer discretionary sector detracted from relative performance. In addition, the information technology sector was the second-best performing sector in the benchmark, returning 43.33% for the period. However, the Fund’s underweight position to the information technology sector also detracted for the year. While the Fund held material positions in Apple, Microsoft, Alphabet, Facebook, we were underweight the benchmark’s weight of these companies and they all outperformed the benchmark.
References to specific securities should not be construed as a recommendation or investment advice and securities referenced may no longer be held in a Fund’s portfolio.
3
THE GROWTH FUND
Performance Summary
October 31, 2020 (Unaudited)
The following is performance information for The Growth Fund (“Growth Fund”) for various time periods. The returns represent past performance. Past performance is no guarantee of future results. The Fund’s investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The Fund is not subject to a sales charge, so a sales charge is not applied to its total returns. In addition to the Adviser’s decisions regarding issuer/industry investment selection and allocation, other factors may affect Fund performance. These factors include, but are not limited to, Fund operating fees and expenses, portfolio turnover, and subscription and redemption cash flows affecting the Fund. Please visit our website at www.commercefunds.com to obtain the most recent month-end returns.
Growth Fund Shares 10 Year Performance
Performance of a $10,000 Investment, with distributions reinvested, from November 1, 2010 through October 31, 2020.
| Average Annual Total Return through October 31, 2020 | One Year | Five Years | Ten Years | |||||
|
Growth Fund(a) |
19.89% | 16.06% | 14.65% | |||||
| (a) | Returns reflect any applicable fee waivers or expense reductions. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
| (b) |
The Russell 1000® Growth Index, an unmanaged index, measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The Index figures do not reflect any deduction for fees, taxes or expenses. |
4
THE GROWTH FUND
Schedule of Investments
October 31, 2020
| The accompanying notes are an integral part of these financial statements. | 5 |
THE GROWTH FUND
Schedule of Investments (continued)
October 31, 2020
| The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets. | ||
| * | Non-income producing security. | |
|
|
||
PORTFOLIO COMPOSITION
|
AS OF
10/31/20 |
AS OF
10/31/19 |
|||||||
|
|
||||||||
|
Information Technology |
44.2 | % | 36.0 | % | ||||
|
Consumer Discretionary |
16.5 | 13.0 | ||||||
|
Health Care |
10.5 | 11.4 | ||||||
|
Communication Services |
10.0 | 10.0 | ||||||
|
Industrials |
7.7 | 12.9 | ||||||
|
Materials |
4.3 | 3.3 | ||||||
|
Consumer Staples |
2.4 | 3.4 | ||||||
|
Real Estate |
2.4 | 2.2 | ||||||
|
Financials |
2.3 | 4.4 | ||||||
|
Exchange-Traded Funds |
— | 2.1 | ||||||
|
Investment Company |
— | 1.3 | ||||||
|
|
||||||||
| TOTAL INVESTMENTS | 100.3 | % | 100.0 | % | ||||
|
|
||||||||
The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets. Underlying investment categories of investment companies and exchange-traded funds held by the Fund are not reflected in the table above. Consequently, the Fund’s overall investment category allocations may differ from the percentages contained in the table above.
The Fund is actively managed and, as such, its composition may differ over time.
| 6 | The accompanying notes are an integral part of these financial statements. |
THE VALUE FUND
We present you with the annual report for The Value Fund for the one-year period ended October 31, 2020.
A conversation with Matt Schmitt, Portfolio Manager of The Value Fund.
Q: How did the Fund perform over the review period?
A: The Fund returned -7.69% over the 12-month period ended October 31, 2020, underperforming the Russell 1000 Value Index (the “benchmark”), which returned -7.57% for the same period.
Q: Were there any significant adjustments made to the Fund’s portfolio during the period?
A: There were a few adjustments made to the Fund’s sector allocations during the 12-month period. The materials sector moved from 3.90% to 8.0% of the Fund’s portfolio with the purchase of Eastman Chemical Company and Celanese Corporation. In addition, the consumer staples sector went from 7.4% to 11.3% of the Fund’s portfolio with the purchase of Archer-Daniels-Midland Company, Coca-Cola Company, and General Mills, Inc. The materials and consumer staples sectors returned 8.82% and 3.98%, respectively, over the 12-month period. The largest reduction in the Fund’s portfolio was made to the energy sector, from 8.80% to 3.21%, with the sale of Exxon Mobil Corporation and ONEOK, Inc. Additionally, the consumer discretionary sector moved from 9.50% to 5.59% of the Fund’s portfolio with the sale of Target Corporation, Starbucks Corporation and Kohl’s Corporation. The energy and consumer discretionary sectors returned -46.23% and 0.84%, respectively, over the 12-month period.
Q: Could you describe some specific strategies and holdings that enhanced the Fund’s returns during the period?
A: The Fund’s sector allocation had an overall positive impact on the Fund’s performance. The Fund was overweight to the consumer staples sector, which returned 3.98% for the 12-month period, as well as underweight to
the real estate sector, which returned -22.64 for the 12-month period. Additionally, security selection within the industrials sector helped the Fund’s performance, with overweight positions to United Parcel Service, Inc. Class B, Caterpillar Inc. and Eaton Corp. Plc returning 41.23%, 17.36%, and 22.36%, respectively, during the 12-month period.
Q: What were some examples of strategies and holdings that didn’t work well for the Fund during the period?
A: The Fund’s security selection was the primary detractor of performance. Security selection within the health care sector hurt the Fund’s performance, as the Fund owned CVS Health Corporation and Merck & Co., Inc., which returned -12.84% and -10.58%, respectively, while the health care sector as a whole returned 10.18% for the period. In addition, security selection within the communication services sector, with the Fund’s position in AT&T Inc. returning -25.01% for the 12-month period while the sector as a whole returned -3.62%, hurt performance.
References to specific securities should not be construed as a recommendation or investment advice and securities referenced may no longer be held in a Fund’s portfolio.
7
THE VALUE FUND
Performance Summary
October 31, 2020 (Unaudited)
The following is performance information for The Value Fund (“Value Fund”) for various time periods. The returns represent past performance. Past performance is no guarantee of future results. The Fund’s investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The Fund is not subject to a sales charge, so a sales charge is not applied to its total returns. In addition to the Adviser’s decisions regarding issuer/industry investment selection and allocation, other factors may affect Fund performance. These factors include, but are not limited to, Fund operating fees and expenses, portfolio turnover, and subscription and redemption cash flows affecting the Fund. Please visit our website at www.commercefunds.com to obtain the most recent month-end returns.
Value Fund Shares 10 Year Performance
Performance of a $10,000 Investment, with distributions reinvested, from November 1, 2010 through October 31, 2020.
| Average Annual Total Return through October 31, 2020 | One Year | Five Years | Ten Years | |||||
|
Value Fund(a) |
–7.69% | 7.05% | 10.68% | |||||
| (a) | Returns reflect any applicable fee waivers or expense reductions. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
| (b) |
The Russell 1000® Value Index, an unmanaged index, measures the performance of the large-cap value segment of the U.S. equity universe. It includes Russell 1000 companies with lower price-to-book ratios and lower expected growth values. The Index figures do not reflect any deduction for fees, taxes or expenses. |
8
THE VALUE FUND
Schedule of Investments
October 31, 2020
| The accompanying notes are an integral part of these financial statements. | 9 |
THE VALUE FUND
Schedule of Investments (continued)
October 31, 2020
| Shares | Description | Value | ||||||
| Exchange Traded Fund – 3.6% | ||||||||
| 75,000 | iShares Russell 1000 Value Index Fund |
|
||||||
|
(Cost $8,768,509) |
$ 8,754,750 | |||||||
|
|
|
|||||||
| The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets. | ||
PORTFOLIO COMPOSITION
|
AS OF
10/31/20 |
AS OF
10/31/19 |
|||||||
|
|
||||||||
|
Financials |
18.6 | % | 20.4 | % | ||||
|
Health Care |
13.6 | 15.1 | ||||||
|
Industrials |
13.3 | 9.5 | ||||||
|
Consumer Staples |
11.3 | 7.4 | ||||||
|
Materials |
8.0 | 3.9 | ||||||
|
Information Technology |
7.6 | 7.5 | ||||||
|
Communication Services |
6.7 | 4.8 | ||||||
|
Utilities |
6.2 | 3.9 | ||||||
|
Consumer Discretionary |
5.6 | 9.5 | ||||||
|
Exchange Traded Fund |
3.6 | 3.4 | ||||||
|
Energy |
3.2 | 8.8 | ||||||
|
Real Estate |
1.9 | 3.9 | ||||||
|
Investment Company |
0.5 | 1.5 | ||||||
|
|
||||||||
| TOTAL INVESTMENTS | 100.1 | % | 99.6 | % | ||||
|
|
||||||||
The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets. Underlying investment categories of investment companies held by the Fund are not reflected in the table above. Consequently, the Fund’s overall investment category allocations may differ from the percentages contained in the table above.
The Fund is actively managed and, as such, its composition may differ over time.
| 10 | The accompanying notes are an integral part of these financial statements. |
THE MIDCAP GROWTH FUND
We present you with the annual report for The MidCap Growth Fund for the one-year period ended October 31, 2020.
A conversation with Joe Williams, Portfolio Manager of The MidCap Growth Fund.
Q: How did the Fund perform over the review period?
A: Over the last year, we have witnessed three distinct price swings of mid-cap growth stocks, two up and one down. Of course, the sharp decline was caused by the beginning of the coronavirus pandemic. Companies that showed great promise early in 2020 had to quickly adapt to an economy that was shutting down in the spring. Companies centered around travel and entertainment have yet to recover. The Fund returned 13.08% over the 12-month period ended October 31, 2020, underperforming the Russell Midcap Growth Index’s (the “benchmark”) return of 21.14% during the same period.
Q: Were there any significant adjustments made to the Fund’s portfolio during the period?
A: The biggest adjustments made to the Fund’s sector allocations during the 12-month period were to account for the dramatic growth of the information technology sector. Technology companies played an important role in allowing workers and students to operate at home during the period. The information technology sector exposure in the Fund increased from 31.5% to 40.4% with the purchase Teradyne, Inc., Okta Inc., KLA Corporation, Proofpoint, Inc., Zebra Technologies Corporation, PTC Inc., Genpact Limited, IPG Photonics Corporation, EPAM systems, Inc., Leidos Holdings, Inc., Cognex Corporation, Monolithic Power Systems, Inc., Akamai Technologies, Inc., Dropbox, Inc. Class A, and Lumentum Holdings, Inc. In addition, the Fund’s exposure to the health care sector moved from 11.8% to 18.8%, as the sector was playing an important role in developing a vaccine and providing necessary care and prevention for COVID-19. Some new companies added to the Fund’s portfolio were Repligen Corporation, Penumbra, Inc., IQVIA Holdings Inc, Alnylam Pharmaceuticals, Inc., Guardant Health, Inc., Cardinal Health, Inc., and Seagen, Inc. The information technology and health care sectors were the two top-performing sectors for the period, returning 29.27% and 41.46%, respectively. The largest sector reduction in the Fund’s portfolio was made in
consumer discretionary, which was hard hit from the shutdown of the economy and the slow rebound in consumer discretionary businesses. Companies sold from the Fund’s portfolio included Wendy’s Company, Advance Auto Parts, Inc., Hilton Worldwide Holdings Inc, Dollar General Corporation, Dunkin’ Brands Group, Inc., Bright Horizons Family Solution, Service Corporation International, Columbia Sportswear Company, and Hasbro, Inc. In addition, the Fund’s exposure to the industrials sector was reduced from 19.1% to 12.0% with the sale of Rockwell Automation, Inc., AMETEK, Inc., TransDigm Group Incorporated, United Airlines Holdings, Inc., Middleby Corporation, Armstrong World Industries, Inc., Fortive Corp., HEICO Corporation, and IDEX Corporation. The consumer discretionary and industrials sectors returned 14.40% and 9.43%, respectively, over the 12-month period.
Q: Could you describe some specific strategies and holdings that enhanced the Fund’s returns during the period?
A: The Fund benefited from security selection within the consumer discretionary sector with overweight positions to Best Buy Co., Inc., Domino’s Pizza, Inc., Pool Corporation and Tractor Supply Company returning 59.67%, 40.50%, 70.33%, and 42.00%, respectively. Additionally, the energy sector was the worst-performing sector in the benchmark for the 12-month period, returning -29.99%. The benchmark had a small weight to the sector, however, the Fund’s zero allocation to the sector helped Fund performance.
Q: What were some examples of strategies and holdings that didn’t work well for the Fund during the period?
A: The Fund’s security selection was the primary detractor of performance. Overweight positions to United Airlines Holdings, Inc., Middleby Corporation, ViacomCBS Inc. Class B, and Comerica Incorporated were down -62.73%, -17.70%, -17.60% and -25.97%, respectively, for the 12-month period and detracted from Fund performance. Additionally, the Fund’s sector allocation hurt performance with an underweight position to the best-performing sector, health care, which returned 41.46% for the period.
References to specific securities should not be construed as a recommendation or investment advice and securities referenced may no longer be held in a Fund’s portfolio.
11
THE MIDCAP GROWTH FUND
Performance Summary
October 31, 2020 (Unaudited)
The following is performance information for The MidCap Growth Fund (“MidCap Growth Fund”) for various time periods. The returns represent past performance. Past performance is no guarantee of future results. The Fund’s investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The Fund is not subject to a sales charge, so a sales charge is not applied to its total returns. In addition to the Adviser’s decisions regarding issuer/industry investment selection and allocation, other factors may affect Fund performance. These factors include, but are not limited to, Fund operating fees and expenses, portfolio turnover, and subscription and redemption cash flows affecting the Fund. Please visit our website at www.commercefunds.com to obtain the most recent month-end returns.
MidCap Growth Fund Shares 10 Year Performance
Performance of a $10,000 Investment, with distributions reinvested, from November 1, 2010 through October 31, 2020.
| Average Annual Total Return through October 31, 2020 | One Year | Five Years | Ten Years | |||||
|
MidCap Growth Fund(a) |
13.08% | 13.20% | 12.51% | |||||
| (a) | Returns reflect any applicable fee waivers or expense reductions. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
| (b) |
The Russell Midcap® Growth Index, an unmanaged index, measures the performance of the mid-cap growth segment at the U.S. equity universe. It includes those Russell Midcap Index companies with higher price-to-book ratios and higher forecasted growth values. The Index figures do not reflect any deduction for fees, taxes, or expenses. |
12
THE MIDCAP GROWTH FUND
Schedule of Investments
October 31, 2020
| The accompanying notes are an integral part of these financial statements. | 13 |
THE MIDCAP GROWTH FUND
Schedule of Investments (continued)
October 31, 2020
| Shares |
Dividend Rate |
Value | ||||||
| Investment Company – 0.4% | ||||||||
|
|
State Street Institutional US Government Money Market
Fund — Premier Class |
|
||||||
| 1,105,588 | 0.027% | $ 1,105,588 | ||||||
| (Cost $1,105,588) | ||||||||
|
|
|
|||||||
| TOTAL INVESTMENTS – 100.1% | ||||||||
|
(Cost $236,727,451) |
$294,664,138 | |||||||
|
|
|
|||||||
|
|
LIABILITIES IN EXCESS OF OTHER
|
(336,414) | ||||||
|
|
|
|||||||
| NET ASSETS – 100.0% | $294,327,724 | |||||||
|
|
|
|||||||
| The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets. | ||
| * | Non-income producing security. | |
PORTFOLIO COMPOSITION
|
AS OF
10/31/20 |
AS OF
10/31/19 |
|||||||
|
|
||||||||
|
Information Technology |
40.4 | % | 31.5 | % | ||||
|
Health Care |
18.8 | 11.8 | ||||||
|
Industrials |
12.0 | 19.1 | ||||||
|
Consumer Discretionary |
6.0 | 14.2 | ||||||
|
Consumer Staples |
5.7 | 2.4 | ||||||
|
Financials |
5.0 | 7.1 | ||||||
|
Communication Services |
3.7 | 3.4 | ||||||
|
Materials |
3.7 | 2.4 | ||||||
|
Real Estate |
2.6 | 3.5 | ||||||
|
Exchange-Traded Funds |
1.8 | 3.3 | ||||||
|
Investment Company |
0.4 | 1.2 | ||||||
|
|
||||||||
| TOTAL INVESTMENTS | 100.1 | % | 99.9 | % | ||||
|
|
||||||||
The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets. Underlying investment categories of investment companies and exchange-traded funds held by the Fund are not reflected in the table above. Consequently, the Fund’s overall investment category allocations may differ from the percentages contained in the table above.
The Fund is actively managed and, as such, its composition may differ over time.
| 14 | The accompanying notes are an integral part of these financial statements. |
THE BOND FUND
We present you with the annual report for The Bond Fund for the one-year period ended October 31, 2020.
A conversation with Scott Colbert and Brent Schowe, Portfolio Managers of The Bond Fund.
Q: How did the Fund perform over the review period?
A: Over the one-year period ended October 31, 2020, the Fund generated a cumulative total return of 4.82%. This return compares to the 6.19% cumulative total return of its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index (the “benchmark”) during the same period.
Q: What were the material factors that affected the Fund’s performance relative to its benchmark during the reporting period?
A: A key detractor to performance was the level of the Fund’s duration. Treasury yields across the curve declined and the Fund lagged in performance due to being short relative to the benchmark’s duration. The Fund’s Asset-Backed Securities (“ABS”) sector exposure was also a drag on performance during the period. After the spring pandemic shock to investment markets, the ABS sector did not recover in terms of pricing to the same degree as the other non-government sectors.
Q: Were there any significant adjustments made to the Fund’s portfolio during the period?
A: Treasury and Corporate bond exposure in the Fund’s portfolio was increased over the past 12 months, while Mortgage-Back Securities (“MBS”) exposure was reduced. Record low mortgage rates led to elevated refinancing activity and accelerated pre-payments on MBS, leading to the decline in the Fund’s exposure to the MBS sector.
Q: Could you describe some specific strategies and holdings that enhanced the Fund’s returns during the period?
A: Gradually increasing exposure to the Corporate bond sector in the later half of the period helped enhance the
Fund’s returns. As the bond market improved after the spring shock of COVID-19, spreads (i.e., risk premium above Treasury yields) tightened, resulting in prices generally rising for Corporate bonds.
Q: What were some examples of strategies and holdings that didn’t work well for the Fund during the period?
A: Being underweighted the Treasury sector detracted from the Fund’s performance over the 12-month period. A significant decline in Treasury yields across the curve helped Treasuries finish as the top-performing sector over the period. Adjustments to move the Fund’s duration from short to neutral relative to its benchmark during the last three months of the period did not contribute positively to Fund performance. Treasury yields began to rise during this three-month period.
15
THE BOND FUND
Performance Summary
October 31, 2020 (Unaudited)
The following is performance information for The Bond Fund (“Bond Fund”) for various time periods. The returns represent past performance. Past performance is no guarantee of future results. The Fund’s investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The Fund is not subject to a sales charge, so a sales charge is not applied to its total returns. In addition to the Adviser’s decisions regarding issuer/industry investment selection and allocation, other factors may affect Fund performance. These factors include, but are not limited to, Fund operating fees and expenses, portfolio turnover, and subscription and redemption cash flows affecting the Fund. Please visit our website at www.commercefunds.com to obtain the most recent month-end returns.
Bond Fund 10 Year Performance
Performance of a $10,000 Investment, with distributions reinvested, from November 1, 2010 through October 31, 2020.
| Average Annual Total Return through October 31, 2020 | One Year | Five Years | Ten Years | |||||
|
Bond Fund(a) |
4.82% | 4.15% | 3.94% | |||||
| (a) | Returns reflect any applicable fee waivers or expense reductions. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
| (b) | The Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index that measures the investment grade, U.S. dollar denominated, fixed-rate taxable bond market, including treasuries, government-related and corporate securities, mortgage-backed securities, asset-backed securities, and commercial mortgage-backed securities. The Index figures do not reflect any deduction for fees, taxes or expenses. |
16
THE BOND FUND
Schedule of Investments
October 31, 2020
| The accompanying notes are an integral part of these financial statements. | 17 |
THE BOND FUND
Schedule of Investments (continued)
October 31, 2020
| 18 | The accompanying notes are an integral part of these financial statements. |
THE BOND FUND
| The accompanying notes are an integral part of these financial statements. | 19 |
THE BOND FUND
Schedule of Investments (continued)
October 31, 2020
| 20 | The accompanying notes are an integral part of these financial statements. |
THE BOND FUND
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Value | |||||||
| Corporate Obligations – (continued) |
|
|||||||||
|
Semiconductors(a) – (continued) |
|
|||||||||
| Maxim Integrated Products, Inc. |
|
|||||||||
| $ 5,016,000 | 3.375 | % | 03/15/23 | $ | 5,296,695 | |||||
| QUALCOMM, Inc. |
|
|||||||||
| 2,930,000 | 3.250 | 05/20/27 | 3,259,846 | |||||||
| Texas Instruments, Inc. |
|
|||||||||
| 2,925,000 | 3.875 | 03/15/39 | 3,570,287 | |||||||
|
|
|
|||||||||
| 16,061,389 | ||||||||||
|
|
||||||||||
|
Software(a) – 0.2% |
|
|||||||||
| Adobe, Inc. |
|
|||||||||
| 2,000,000 | 2.150 | 02/01/27 | 2,129,821 | |||||||
|
|
||||||||||
|
Telecommunications – 0.9% |
|
|||||||||
| Bell Canada, Inc.(a) |
|
|||||||||
| 2,600,000 | 4.464 | 04/01/48 | 3,247,787 | |||||||
| Sprint Spectrum Co. LLC/Sprint Spectrum Co. II LLC/Sprint Spectrum Co. III LLC(b) |
|
|||||||||
| 2,000,000 | 4.738 | 09/20/29 | 2,175,440 | |||||||
| Verizon Communications, Inc. |
|
|||||||||
| 4,748,000 | 4.329 | 09/21/28 | 5,699,334 | |||||||
|
|
|
|||||||||
| 11,122,561 | ||||||||||
|
|
||||||||||
|
Transportation – 1.1% |
|
|||||||||
| Burlington Northern Santa Fe LLC(a) |
|
|||||||||
| 1,220,000 | 4.950 | 09/15/41 | 1,601,980 | |||||||
| Canadian National Railway Co. |
|
|||||||||
| 1,190,000 | 6.200 | 06/01/36 | 1,785,927 | |||||||
| 1,310,000 | 2.450 | (a) | 05/01/50 | 1,273,262 | ||||||
| Canadian Pacific Railway Co. |
|
|||||||||
| 1,980,000 | 5.750 | 01/15/42 | 2,776,516 | |||||||
| 2,500,000 | 6.125 | (a)(e) | 09/15/15 | 3,757,633 | ||||||
| Kansas City Southern(a) |
|
|||||||||
| 1,000,000 | 4.950 | 08/15/45 | 1,146,292 | |||||||
| 1,500,000 | 4.700 | 05/01/48 | 1,728,863 | |||||||
| The Kansas City Southern Railway Co.(a) |
|
|||||||||
| 500,000 | 4.950 | 08/15/45 | 573,146 | |||||||
|
|
|
|||||||||
| 14,643,619 | ||||||||||
|
|
||||||||||
| TOTAL CORPORATE OBLIGATIONS |
|
|||||||||
|
(Cost $543,316,514) |
$ | 586,902,739 | ||||||||
|
|
||||||||||
| Asset-Backed Securities – 15.5% |
|
|||||||||
|
Automotive(b) – 3.1% |
|
|||||||||
| Avis Budget Rental Car Funding AESOP LLC Series 2015-2A, Class A |
|
|||||||||
| $ 1,733,333 | 2.630 | % | 12/20/21 | $ | 1,736,144 | |||||
| Avis Budget Rental Car Funding AESOP LLC Series 2017-2A, Class A |
|
|||||||||
| 2,180,000 | 2.970 | 03/20/24 | 2,244,343 | |||||||
| Avis Budget Rental Car Funding AESOP LLC Series 2018-1A, Class A |
|
|||||||||
| 4,150,000 | 3.700 | 09/20/24 | 4,361,948 | |||||||
|
|
||||||||||
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Value | |||||||
| Asset-Backed Securities – (continued) |
|
|||||||||
|
Automotive(b) – (continued) |
|
|||||||||
| Avis Budget Rental Car Funding AESOP LLC Series 2019-3A, Class A |
|
|||||||||
| $11,100,000 | 2.360 | % | 03/20/26 | $ | 11,397,272 | |||||
| Avis Budget Rental Car Funding AESOP LLC Series2020-2A, Class A |
|
|||||||||
| 2,080,000 | 2.020 | 02/20/27 | 2,099,360 | |||||||
| Ford Credit Auto Owner Trust Series 2016-1, Class A |
|
|||||||||
| 7,000,000 | 2.310 | 08/15/27 | 7,040,140 | |||||||
| Ford Credit Auto Owner Trust Series 2017-1, Class A |
|
|||||||||
| 2,500,000 | 2.620 | 08/15/28 | 2,570,330 | |||||||
| Ford Credit Auto Owner Trust Series 2018-1, Class A |
|
|||||||||
| 5,000,000 | 3.190 | 07/15/31 | 5,457,005 | |||||||
| Hertz Vehicle Financing II LP Series 2018-1A, Class A |
|
|||||||||
| 901,498 | 3.290 | 02/25/24 | 905,303 | |||||||
| Hertz Vehicle Financing II LP Series 2019-1A, Class A |
|
|||||||||
| 1,397,662 | 3.710 | 03/25/23 | 1,398,474 | |||||||
|
|
|
|||||||||
| 39,210,319 | ||||||||||
|
|
||||||||||
|
Home Equity – 0.5% |
|
|||||||||
| Accredited Mortgage Loan Trust Series 2004-4, Class A1B(c) |
|
|||||||||
| (1M USD LIBOR + 0.780%) |
|
|||||||||
| 789,301 | 0.929 | 01/25/35 | 781,086 | |||||||
| Ameriquest Mortgage Securities, Inc. Series 2004-FR1W, Class A6(f) |
|
|||||||||
| 507,247 | 4.131 | 05/25/34 | 518,591 | |||||||
| EquiFirst Mortgage Loan Trust Series 2003-2, Class 2A2(f) |
|
|||||||||
| 202,713 | 4.250 | 09/25/33 | 212,667 | |||||||
| Morgan Stanley ABS Capital I, Inc. Trust Series 2005-HE1, Class M1(c) |
|
|||||||||
| (1M USD LIBOR + 0.675%) |
|
|||||||||
| 2,777,700 | 0.824 | 12/25/34 | 2,676,914 | |||||||
| Renaissance Home Equity Loan Trust Series 2005-3, Class AF4(f) |
|
|||||||||
| 836,963 | 5.140 | 11/25/35 | 875,918 | |||||||
| Southern Pacific Secured Asset Corp. Series 1998-2, Class A7(f) |
|
|||||||||
| 1,186,095 | 7.490 | 07/25/29 | 1,232,618 | |||||||
|
|
|
|||||||||
| 6,297,794 | ||||||||||
|
|
||||||||||
|
Manufactured Housing – 0.0% |
|
|||||||||
| Green Tree Financial Corp. Series 1998-3, Class A5 |
|
|||||||||
| 231,336 | 6.220 | 03/01/30 | 235,101 | |||||||
| Green Tree Financial Corp. Series 1998-3, Class A6(c)(g) |
|
|||||||||
| 28,895 | 6.760 | 03/01/30 | 29,353 | |||||||
| Mid-State Trust Series 2011, Class A1 |
|
|||||||||
| 157,807 | 4.864 | 07/15/38 | 168,317 | |||||||
|
|
|
|||||||||
| 432,771 | ||||||||||
|
|
||||||||||
|
Other – 10.1% |
|
|||||||||
| AFN LLC Series 2019-1A, Class A1(b) |
|
|||||||||
| 4,929,167 | 3.780 | 05/20/49 | 4,974,376 | |||||||
|
|
||||||||||
| The accompanying notes are an integral part of these financial statements. | 21 |
THE BOND FUND
Schedule of Investments (continued)
October 31, 2020
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Value | |||||||
| Asset-Backed Securities – (continued) |
|
|||||||||
|
Other – (continued) |
|
|||||||||
| Structured Asset Securities Corp. Series 2005-9XS, Class 1A3A(f) |
|
|||||||||
| $ 194,122 | 5.750 | % | 06/25/35 | $ | 200,047 | |||||
| Tif Funding II LLC Series 2020-1A, Class A(b) |
|
|||||||||
| 2,271,250 | 2.090 | 08/20/45 | 2,272,946 | |||||||
| Towd Point Mortgage Trust Series 2015-1, Class 1A2(b)(c)(g) |
|
|||||||||
| 5,000,000 | 3.250 | 11/25/60 | 5,188,691 | |||||||
| Towd Point Mortgage Trust Series 2015-4, Class A1B(b)(c)(g) |
|
|||||||||
| 984,569 | 2.750 | 04/25/55 | 989,933 | |||||||
| Towd Point Mortgage Trust Series 2016-2, Class A1(b)(c)(g) |
|
|||||||||
| 548,657 | 3.000 | 08/25/55 | 563,182 | |||||||
| Towd Point Mortgage Trust Series 2016-3, Class A1(b)(c)(g) |
|
|||||||||
| 1,445,685 | 2.250 | 04/25/56 | 1,462,669 | |||||||
| Towd Point Mortgage Trust Series 2017-3, Class A2(b)(c)(g) |
|
|||||||||
| 1,850,000 | 3.000 | 07/25/57 | 1,965,073 | |||||||
| Towd Point Mortgage Trust Series 2018-2,Class A2(b)(c)(g) |
|
|||||||||
| 5,500,000 | 3.500 | 03/25/58 | 5,849,867 | |||||||
| Trafigura Securitisation Finance PLC Series 2018-1A, Class A2(b) |
|
|||||||||
| 4,335,000 | 3.730 | 03/15/22 | 4,382,773 | |||||||
| Trinity Rail Leasing 2020 LLC Series 2020-2A, Class A2(b)(h) |
|
|||||||||
| 10,315,000 | 2.560 | 11/19/27 | 10,319,432 | |||||||
| Trinity Rail Leasing LLC Series 2019-1A, Class A(b) |
|
|||||||||
| 4,680,233 | 3.820 | 04/17/49 | 4,854,826 | |||||||
| Trinity Rail Leasing LLC Series 2019-2A, Class A2(b) |
|
|||||||||
| 3,000,000 | 3.100 | 10/18/49 | 3,084,272 | |||||||
| Triton Container Finance VIII LLC Series 2020-1A, Class A(b) |
|
|||||||||
| 6,205,729 | 2.110 | 09/20/45 | 6,204,076 | |||||||
| Vantage Data Centers LLC Series 2020-1A, Class A2(b) |
|
|||||||||
| 8,250,000 | 1.645 | 09/15/45 | 8,198,758 | |||||||
| Wendy’s Funding LLC Series 2019-1A, Class A2I(b) |
|
|||||||||
| 2,932,500 | 3.783 | 06/15/49 | 3,090,914 | |||||||
| Wendys Funding LLC Series 2018-1A, Class A2I(b) |
|
|||||||||
| 2,917,500 | 3.573 | 03/15/48 | 3,002,574 | |||||||
|
|
|
|||||||||
| 129,643,713 | ||||||||||
|
|
||||||||||
|
Student Loan – 1.8% |
|
|||||||||
| DRB Prime Student Loan Trust Series 2016-B, Class A2(b) |
|
|||||||||
| 779,260 | 2.890 | 06/25/40 | 793,756 | |||||||
| DRB Prime Student Loan Trust Series 2017-A, Class A2B(b) |
|
|||||||||
| 1,943,962 | 2.850 | 05/27/42 | 1,974,852 | |||||||
| Massachusetts Educational Financing Authority Series 2018-A, Class A |
|
|||||||||
| 3,033,684 | 3.850 | 05/25/33 | 3,119,447 | |||||||
| Navient Private Education Loan Trust Series 2015-AA, Class A2A(b) |
|
|||||||||
| 2,879,209 | 2.650 | 12/15/28 | 2,924,345 | |||||||
| Navient Private Education Refi Loan Trust Series 2018-A, Class A2(b) |
|
|||||||||
| 845,663 | 3.190 | 02/18/42 | 863,464 | |||||||
| Sofi Professional Loan Program LLC Series 2016-B, Class A2B(b) |
|
|||||||||
| 1,015,868 | 2.740 | 10/25/32 | 1,034,818 | |||||||
|
|
||||||||||
| 22 | The accompanying notes are an integral part of these financial statements. |
THE BOND FUND
| The accompanying notes are an integral part of these financial statements. | 23 |
THE BOND FUND
Schedule of Investments (continued)
October 31, 2020
| 24 | The accompanying notes are an integral part of these financial statements. |
THE BOND FUND
| The accompanying notes are an integral part of these financial statements. | 25 |
THE BOND FUND
Schedule of Investments (continued)
October 31, 2020
| 26 | The accompanying notes are an integral part of these financial statements. |
THE BOND FUND
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Value | |||||||
| Municipal Bond Obligations – (continued) |
|
|||||||||
|
Michigan – (continued) |
|
|||||||||
| Dearborn MI GO Bonds (Taxable) Series B |
|
|||||||||
| $ 1,750,000 | 3.879 | % | 05/01/27 | $ | 1,935,938 | |||||
| Fraser MI Public School District GO Bonds (Taxable-Refunding) Series 2019 (Q-SBLF) |
|
|||||||||
| 2,150,000 | 2.380 | 05/01/29 | 2,307,724 | |||||||
| Utica Community Schools GO Bonds (Taxable-Qualified School Construction-Direct Payment) (Q-SBLF)(a) |
|
|||||||||
| 1,500,000 | 5.875 | 05/01/22 | 1,505,175 | |||||||
|
|
|
|||||||||
| 7,565,199 | ||||||||||
|
|
||||||||||
|
Mississippi(a) – 0.4% |
|
|||||||||
| Mississippi Medical Center Educational Building Corp. Revenue Bonds (Taxable-Refunding-University) Series B |
|
|||||||||
| 1,465,000 | 3.000 | 06/01/23 | 1,551,669 | |||||||
| State of Mississippi GO (Taxable-Refunding-Bonds) Series 2020 |
|
|||||||||
| 3,000,000 | 1.282 | 11/01/28 | 3,000,510 | |||||||
|
|
|
|||||||||
| 4,552,179 | ||||||||||
|
|
||||||||||
|
Missouri(a) – 0.5% |
|
|||||||||
| Curators University of Missouri System Facilities Revenue Bonds Build America Bonds |
|
|||||||||
| 2,500,000 | 5.792 | 11/01/41 | 3,862,475 | |||||||
| Missouri State Highways & Transit Commission State Road Revenue Bonds Build America Bonds Series 2010 |
|
|||||||||
| 2,800,000 | 4.820 | 05/01/23 | 3,071,852 | |||||||
|
|
|
|||||||||
| 6,934,327 | ||||||||||
|
|
||||||||||
|
Nebraska – 0.3% |
|
|||||||||
| University of Nebraska Facilities Corp. Revenue Bonds (Taxable-Refunding) Series A |
|
|||||||||
| 3,750,000 | 2.175 | 10/01/26 | 3,946,988 | |||||||
|
|
||||||||||
|
New Jersey(a) – 0.3% |
|
|||||||||
| Rutgers New Jersey State University Revenue Bonds (Taxable-Refunding) Series R |
|
|||||||||
| 4,000,000 | 2.588 | 05/01/27 | 4,177,600 | |||||||
|
|
||||||||||
|
New York(a) – 0.6% |
|
|||||||||
| New York GO Build America Bonds Series 2010 |
|
|||||||||
| 2,000,000 | 4.908 | 06/01/21 | 2,051,760 | |||||||
| 1,055,000 | 5.008 | 06/01/22 | 1,128,681 | |||||||
| New York State Thruway Authority Revenue Bonds (Taxable-Refunding) Series M |
|
|||||||||
| 2,755,000 | 2.500 | 01/01/27 | 2,822,360 | |||||||
| New York State Urban Development Corp. Revenue Bonds Series B |
|
|||||||||
| 1,950,000 | 3.350 | 03/15/26 | 2,165,592 | |||||||
|
|
|
|||||||||
| 8,168,393 | ||||||||||
|
|
||||||||||
|
Ohio – 0.8% |
|
|||||||||
| City of Cincinnati OH GO Bonds (Taxable-Refunding) Series A(a) |
|
|||||||||
| 2,865,000 | 1.880 | 12/01/31 | 2,956,966 | |||||||
|
|
||||||||||
| The accompanying notes are an integral part of these financial statements. | 27 |
THE BOND FUND
Schedule of Investments (continued)
October 31, 2020
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Value | |||||||
| Municipal Bond Obligations – (continued) |
|
|||||||||
|
Ohio – (continued) |
|
|||||||||
| Kent OH State University Revenue Bonds (Taxable-Refunding) Series B(a) |
|
|||||||||
| $ 1,700,000 | 2.221 | % | 05/01/26 | $ | 1,805,774 | |||||
| South-Western City OH School District Franklin & Pickaway Countries GO Bonds (CABS-Taxable-Refunding) Series C(i) |
|
|||||||||
| 2,740,000 | 0.000 | 12/01/28 | 2,296,723 | |||||||
| University of Cincinnati Revenue Bonds (Taxable-Refunding) Series B |
|
|||||||||
| 3,000,000 | 1.775 | 06/01/29 | 2,959,920 | |||||||
|
|
|
|||||||||
| 10,019,383 | ||||||||||
|
|
||||||||||
|
Oregon – 0.2% |
|
|||||||||
| Oregon Education Districts Full Faith & Credit Pension Obligations GO Bonds (Taxable) Series 2018(a) |
|
|||||||||
| 495,000 | 4.220 | 06/30/30 | 588,273 | |||||||
| Portland OR Community College District GO Bonds Series 2018 |
|
|||||||||
| 1,250,000 | 3.970 | 06/01/27 | 1,458,875 | |||||||
|
|
|
|||||||||
| 2,047,148 | ||||||||||
|
|
||||||||||
|
Pennsylvania(a) – 0.4% |
|
|||||||||
| County of Allegheny PA GO (Taxable-Refunding-Bonds) Series C-79 |
|
|||||||||
| 1,650,000 | 0.973 | 11/01/25 | 1,655,247 | |||||||
| State Public School Building Authority Revenue Bonds (Qualified School Construction Bonds) |
|
|||||||||
| 3,000,000 | 6.495 | 09/15/28 | 3,928,770 | |||||||
|
|
|
|||||||||
| 5,584,017 | ||||||||||
|
|
||||||||||
|
Rhode Island – 0.2% |
|
|||||||||
| Rhode Island State Student Loan Authority Loan Revenue Bonds (Taxable) Series 1 |
|
|||||||||
| 2,000,000 | 2.530 | 12/01/25 | 2,005,860 | |||||||
|
|
||||||||||
|
Texas – 0.6% |
|
|||||||||
| Austin TX Community College District GO (Taxable-Refunding) Series 2020(h) |
|
|||||||||
| 2,120,000 | 5.000 | 08/01/23 | 2,371,050 | |||||||
| City of Houston TX GO Bonds (Taxable-Refunding) Series B(a) |
|
|||||||||
| 5,000,000 | 2.130 | 03/01/26 | 5,268,400 | |||||||
|
|
|
|||||||||
| 7,639,450 | ||||||||||
|
|
||||||||||
|
Washington(a) – 0.2% |
|
|||||||||
| Seattle Municipal Light & Power Revenue Bonds Taxable Clean Renewable Energy Bonds Series C |
|
|||||||||
| 2,000,000 | 3.750 | 06/01/33 | 2,246,120 | |||||||
|
|
||||||||||
| TOTAL MUNICIPAL BOND OBLIGATIONS |
|
|||||||||
|
(Cost $104,608,784) |
$ | 115,745,559 | ||||||||
|
|
||||||||||
| The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets. | ||
| (a) | Security with “Call” features with resetting interest rates. | |
| (b) | Exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be resold, normally to qualified institutional buyers in transactions exempt from registration. | |
| (c) | Variable rate security. The interest rate shown reflects the rate as of October 31, 2020. | |
| (d) | Securities with “Put” features with resetting interest rates. Maturity dates disclosed are the next interest reset dates. | |
| (e) | Actual maturity date is September 15, 2115. | |
| (f) | Step-up Bond. Coupon rate increases in increments to maturity. Rate disclosed is as of October 31, 2020. Maturity date disclosed is the ultimate maturity. | |
| (g) | Rate shown is that which is in effect on October 31, 2020. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. | |
| 28 | The accompanying notes are an integral part of these financial statements. |
THE BOND FUND
| (h) | All or a portion represents a forward commitment. | |
| (i) | Security issued with a zero coupon. The actual effective yield of this security is different than the stated coupon due to the accretion of discount. | |
|
|
||
| Investment Abbreviations: | ||
| ASA |
—Allmennaksjeselskap (Norwegian Public Company) |
|
| AG |
—Aktiengesellschaft (German Corporation) |
|
| CMT |
—Constant Maturity Treasury Indexes |
|
| FFCB |
—Federal Farm Credit Bank |
|
| FHLB |
—Federal Home Loan Bank |
|
| FHLMC |
—Federal Home Loan Mortgage Corp. |
|
| FNMA |
—Federal National Mortgage Association |
|
| GNMA |
—Government National Mortgage Association |
|
| GO |
—General Obligation |
|
| LIBOR |
—London Interbank Offered Rate |
|
| LLC |
—Limited Liability Company |
|
| LP |
—Limited Partnership |
|
| NA |
—National Association |
|
| NV |
—Naamloze Vennootschap (Dutch Public Company) |
|
| PLC |
—Public Limited Company |
|
| Q-SBLF |
—Qualified School Bond Loan Fund |
|
| REMIC |
—Real Estate Mortgage Investment Conduit |
|
| SOFR |
—Secured Overnight Funding Rate |
|
| UMBS |
—Uniform Mortgage Backed Securities |
|
PORTFOLIO COMPOSITION
|
AS OF
10/31/20 |
AS OF
10/31/19 |
|||||||
|
|
||||||||
|
Corporate Obligations |
46.0 | % | 41.8 | % | ||||
|
Asset-Backed Securities |
15.5 | 18.0 | ||||||
|
Collateralized Mortgage Obligations |
11.8 | 17.7 | ||||||
|
U.S. Treasury Obligations |
9.7 | 7.2 | ||||||
|
Municipal Bond Obligations |
9.1 | 8.6 | ||||||
|
Investment Company |
4.8 | 0.8 | ||||||
|
U.S. Government Agency Obligations |
1.5 | 1.4 | ||||||
|
Federal Agencies |
1.3 | 2.1 | ||||||
|
Commercial Mortgage Obligations |
0.6 | 1.9 | ||||||
|
|
||||||||
| TOTAL INVESTMENTS | 100.3 | % | 99.5 | % | ||||
|
|
||||||||
The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets. Underlying investment categories of investment companies held by the Fund are not reflected in the table above. Consequently, the Fund’s overall investment category allocations may differ from the percentages contained in the table above.
The Fund is actively managed and, as such, its composition may differ over time.
| The accompanying notes are an integral part of these financial statements. | 29 |
THE SHORT-TERM GOVERNMENT FUND
Short-Term Government Fund Overview
We present you with the annual report for The Short-Term Government Fund for the one-year period ended October 31, 2020.
A conversation with Scott Colbert and Brent Schowe, Portfolio Managers of The Short-Term Government Fund.
Q: How did the Fund perform over the review period?
A: Over the one-year period ended October 31, 2020, the Fund generated a cumulative return of 2.73%. The return of the Fund’s benchmark, the Bloomberg Barclay’s U.S. 1-5 Year Government Bond Index (the “benchmark”), was a cumulative 4.21% over the same time period.
Q: What were the material factors that affected the Fund’s performance relative to its benchmark during the reporting period?
A: The Fund’s short duration relative to the duration of the benchmark was a key detractor from Fund performance. Treasury yields declined across the short end of the curve by 113 to 145 basis points, and the Fund’s duration prevented it from fully participating in this rally.
Q: Were there any significant adjustments made to the Fund’s portfolio during the period?
A: The Fund’s exposure to Treasury securities was increased significantly in the first half of the reporting period. This adjustment helped to provide more liquidity for the Fund and allowed the Fund to benefit from an additional decline in Treasury yields.
Q: Could you describe some specific strategies and holdings that enhanced the Fund’s returns during the period?
A: Extending duration and the weighted average life of the Fund, while maintaining an overweight to mortgage-backed securities, enhanced the Fund’s returns.
Q: What were some examples of strategies and holdings that didn’t work well for the Fund during the period?
A: Maintaining a shorter duration relative to the Fund’s benchmark hindered performance. The Federal Reserve rapidly cut rates to near zero as the scope of the economic damage caused by the coronavirus pandemic became clear. The Fund was not positioned to fully gain from a significant drop in Treasury yields in the spring of 2020.
30
THE SHORT-TERM GOVERNMENT FUND
Performance Summary
October 31, 2020 (Unaudited)
The following is performance information for The Short-Term Government Fund (“Short-Term Government Fund”) for various time periods. The returns represent past performance. Past performance is no guarantee of future results. The Fund’s investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance reflects expense limitations in effect. In their absence, performance would be reduced. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The Fund is not subject to a sales charge, so a sales charge is not applied to its total returns. In addition to the Adviser’s decisions regarding issuer/industry investment selection and allocation, other factors may affect Fund performance. These factors include, but are not limited to, Fund operating fees and expenses, portfolio turnover, and subscription and redemption cash flows affecting the Fund. Please visit our website at www.commercefunds.com to obtain the most recent month-end returns.
| Short-Term Government Fund 10 Year Performance |
Performance of a $10,000 Investment, with distributions reinvested, from November 1, 2010 through October 31, 2020.
| Average Annual Total Return through October 31, 2020 | One Year | Five Years | Ten Years | |||||
|
Short-Term Government Fund(a) |
2.73% | 1.68% | 1.37% | |||||
| (a) | Returns reflect any applicable fee waivers or expense reductions. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
| (b) | The Bloomberg Barclays U.S. 1-5 Year Government Bond Index is an unmanaged index comprised of U.S. Treasury and Agency securities with a minimum principal amount outstanding of $250 million and a final maturity of at least one year but no more than five years. The Index figures do not reflect any deduction for fees, taxes or expenses. |
31
THE SHORT-TERM GOVERNMENT FUND
Schedule of Investments
October 31, 2020
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Value | |||||||
| Mortgage-Backed Obligations – (continued) |
|
|||||||||
|
Collateralized Mortgage Obligations – (continued) |
|
|||||||||
| FNMA REMIC PAC Series 1992-89, Class MA(c) |
|
|||||||||
| $ 958 | 0.000 | % | 06/25/22 | $ | 954 | |||||
| FNMA REMIC Series 1991-137, Class H |
|
|||||||||
| 1,944 | 7.000 | 10/25/21 | 1,974 | |||||||
|
FNMA REMIC Series 1993-182, Class FA(a)
(10 Year CMT — 0.650%) |
|
|||||||||
| 2,174 | 0.090 | 09/25/23 | 2,171 | |||||||
| FNMA REMIC Series 2003-117, Class KB |
|
|||||||||
| 372,152 | 6.000 | 12/25/33 | 439,612 | |||||||
| FNMA REMIC Series 2003-14, Class AP |
|
|||||||||
| 26,149 | 4.000 | 03/25/33 | 27,397 | |||||||
| FNMA REMIC Series 2011-146, Class NB |
|
|||||||||
| 357,603 | 4.000 | 09/25/41 | 374,524 | |||||||
| FNMA REMIC Series 2012-100, Class WA |
|
|||||||||
| 492,611 | 1.500 | 09/25/27 | 500,002 | |||||||
| FNMA REMIC Series 2012-110, Class CA |
|
|||||||||
| 475,187 | 3.000 | 10/25/42 | 510,115 | |||||||
| FNMA REMIC Series 2012-118, Class EB |
|
|||||||||
| 512,737 | 1.500 | 11/25/27 | 522,311 | |||||||
| FNMA REMIC Series 2013-112, Class G |
|
|||||||||
| 415,156 | 2.125 | 07/25/40 | 426,031 | |||||||
| FNMA REMIC Series 2013-135, Class GA |
|
|||||||||
| 814,443 | 3.000 | 07/25/32 | 848,259 | |||||||
| FNMA REMIC Series 2013-74, Class YA |
|
|||||||||
| 560,352 | 3.000 | 05/25/42 | 587,387 | |||||||
| FNMA REMIC Series 2015-15, Class CA |
|
|||||||||
| 742,894 | 3.500 | 04/25/35 | 810,429 | |||||||
| FNMA REMIC Series 2015-19, Class CA |
|
|||||||||
| 504,482 | 3.500 | 01/25/43 | 529,907 | |||||||
| FNMA REMIC Series 2015-2, Class PA |
|
|||||||||
| 391,253 | 2.250 | 03/25/44 | 403,373 | |||||||
| FNMA REMIC Series 2016-104, Class BA |
|
|||||||||
| 428,864 | 3.000 | 01/25/47 | 461,290 | |||||||
| FNMA REMIC Series 2016-24, Class TA |
|
|||||||||
| 376,311 | 3.000 | 04/25/42 | 384,381 | |||||||
| FNMA REMIC Series 2016-53, Class BV |
|
|||||||||
| 687,208 | 3.500 | 11/25/27 | 740,948 | |||||||
| FNMA REMIC Series 2016-96, Class A |
|
|||||||||
| 492,065 | 1.750 | 12/25/46 | 500,649 | |||||||
| FNMA REMIC Series 2017-46, Class EA |
|
|||||||||
| 477,869 | 3.500 | 12/25/50 | 494,655 | |||||||
| FNMA REMIC Series 2017-51, Class EA |
|
|||||||||
| 330,255 | 3.000 | 11/25/42 | 335,865 | |||||||
| FNMA REMIC Series 2017-7, Class JA |
|
|||||||||
| 357,589 | 2.000 | 02/25/47 | 362,433 | |||||||
| FNMA REMIC Series 2019-10, Class PT |
|
|||||||||
| 495,347 | 3.500 | 03/25/49 | 538,133 | |||||||
| FNMA REMIC Series 2019-68, Class B |
|
|||||||||
| 646,269 | 3.000 | 11/25/49 | 681,005 | |||||||
| FNMA REMIC Series 2020-35, Class MA |
|
|||||||||
| 715,205 | 2.000 | 12/25/43 | 728,740 | |||||||
|
|
||||||||||
| 32 | The accompanying notes are an integral part of these financial statements. |
THE SHORT-TERM GOVERNMENT FUND
| The accompanying notes are an integral part of these financial statements. | 33 |
THE SHORT-TERM GOVERNMENT FUND
Schedule of Investments (continued)
October 31, 2020
| 34 | The accompanying notes are an integral part of these financial statements. |
THE SHORT-TERM GOVERNMENT FUND
| The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets. | ||||||
| (a) | Variable rate security. The interest rate shown reflects the rate as of October 31, 2020. | |||||
| (b) | Rate shown is that which is in effect on October 31, 2020. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. | |||||
| (c) | Security issued with a zero coupon. The actual effective yield of this security is different than the stated coupon due to the accretion of discount. | |||||
| (d) | Step-up Bond. Coupon rate increases in increments to maturity. Rate disclosed is as of October 31, 2020. Maturity date disclosed is the ultimate maturity. | |||||
| (e) | Security with “Call” features with resetting interest rates. | |||||
| (f) | Exempt from registration under Rule 144A of the Securities Act 1933. Such securities may be resold, normally to qualified institutional buyers in transactions exempt from registration. | |||||
PORTFOLIO COMPOSITION
|
AS OF
10/31/20 |
AS OF
10/31/19 |
|||||||
|
|
||||||||
|
Collateralized Mortgage Obligations |
38.9 | % | 37.8 | % | ||||
|
U.S. Treasury Obligations |
25.4 | 11.9 | ||||||
|
U.S. Government Agency Obligations |
16.3 | 26.0 | ||||||
|
Federal Agencies |
16.1 | 17.4 | ||||||
|
Investment Company |
3.5 | 1.5 | ||||||
|
Asset-Backed Securities |
1.7 | 4.1 | ||||||
|
Commercial Mortgage Obligations |
1.0 | 2.5 | ||||||
|
|
||||||||
| TOTAL INVESTMENTS | 102.9 | % | 101.2 | % | ||||
|
|
||||||||
The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets. Underlying investment categories of investment companies held by the Fund are not reflected in the table above. Consequently, the Fund’s overall investment category allocations may differ from the percentages contained in the table above.
The Fund is actively managed and, as such, its composition may differ over time.
| The accompanying notes are an integral part of these financial statements. | 35 |
THE NATIONAL TAX-FREE INTERMEDIATE BOND FUND
National, Missouri, and Kansas Tax-Free Intermediate Bond Funds Overview
We present you with the annual report for The National, Missouri, and Kansas Tax-Free Intermediate Bond Funds for the one-year period ended October 31, 2020.
A conversation with Brian Musielak, Portfolio Manager of The National, Missouri, and Kansas Tax-Free Intermediate Bond Funds.
Q: How did the Funds perform over the review period?
A: Over the one-year period ended October 31, 2020, The National Tax-Free Intermediate Bond Fund generated an annualized total return of 3.82%.
Over the one-year period ended October 31, 2020, The Missouri Tax-Free Intermediate Bond Fund generated an annualized total return of 3.10%.
Over the one-year period ended October 31, 2020, The Kansas Tax-Free Intermediate Bond Fund generated an annualized total return of 3.54%.
These returns compare to the 3.84% annualized total return of the Bloomberg Barclays 3-15 Year Blend Municipal Bond Index (the “benchmark”) for the same period.
Q: What were the material factors that affected the Funds’ performance relative to their benchmark during the reporting period?
A: Regarding The National Tax-Free Intermediate Bond Fund’s performance, being short relative to the benchmark’s duration had a negative impact on performance. Sector positioning was supportive of returns. The Fund’s relative underweight exposure to the transportation sector was additive, while the Fund’s general obligation, water/sewer and power sector underweight positions reduced relative performance. The Fund’s cash position also lagged. The Fund’s relative overweight exposure to the lease, housing and hospital sectors detracted from performance, while the Fund’s higher education overweight exposures enhanced returns. The Fund’s underweight exposure to the industrial development revenue/pollution control revenue sector hindered returns, while the Fund’s resource recovery sector
underweight supported relative performance during the last 12-months. Overall, curve positioning had a negative impact on Fund performance for the last 12-months. Intermediate exposures performed the best, but not enough to overcome low returns on the short end.
Regarding The Missouri Tax-Free Intermediate Bond Fund’s performance, being short relative to the benchmark’s duration had a negative impact on performance. Sector positioning was supportive of returns. The Fund’s relative underweight exposure to the transportation sector was additive, while the Fund’s general obligation, water/sewer and power sector underweight positions reduced relative performance. The Fund’s cash position also lagged. The Fund’s relative overweight exposure to the lease, housing and hospital sectors detracted from performance, while the Fund’s education overweight exposures enhanced returns. The Fund’s underweight exposure to the industrial development revenue/pollution control revenue sector hindered returns, while the Fund’s resource recovery sector underweight supported relative performance during the last 12-months. Overall, curve positioning had a negative impact on Fund performance for the last 12-months. Intermediate exposures performed the best, but not enough to overcome low returns on the short end.
Regarding The Kansas Tax-Free Intermediate Bond Fund’s performance, being short relative to the benchmark’s duration had a negative impact on performance. Sector positioning was supportive of returns. The Fund’s relative underweight exposure to the transportation sector was additive, while the general obligation, water/sewer and power sector underweight positions reduced relative performance. The Fund’s cash position also lagged. The Fund’s relative overweight exposure to the lease, housing and hospital sectors detracted from performance, while the Fund’s higher education overweight exposures enhanced returns. The Fund’s underweight exposure to the industrial development revenue/pollution control revenue sector hindered returns, while the Fund’s resource recovery sector underweight supported relative performance during the last 12-months. Overall, curve positioning had a negative impact
36
THE NATIONAL TAX-FREE INTERMEDIATE BOND FUND
National, Missouri, and Kansas Tax-Free Intermediate Bond Funds Overview (continued)
on Fund performance for the last 12-months. Intermediate exposures performed the best, but not enough to overcome low returns on the short end.
Q: Were there any significant adjustments made to the Fund’s portfolio during the period?
A: Regarding each of The National, Missouri, and Kansas Tax-Free Intermediate Bond Funds, no significant adjustments were made to the Fund’s portfolio during the period. Our focus was on the higher-yielding, non-essential service revenue sectors, where we sought to identify solid risk-adjusted value opportunities. We have been emphasizing positions with less credit and duration risk for the past year due to the lack of additional yield for taking on such risks. Given the extraordinary economic uncertainty that lies ahead, we are now actively reducing/eliminating exposure to what we determine are securities that are the most vulnerable to credit risk. Overall, we do not envision widespread distress in the municipal securities market. Issuers are generally well positioned, with healthy cash reserves, and have the flexibility to adjust expenditures to offset tax revenue losses. In addition, we anticipate that an unprecedented amount of fiscal support in the form of direct cash payments to state and local governments will help to bridge the gap until the economy begins to recover.
Q: Could you describe some specific strategies or holdings that enhanced returns during the period?
A: In The National Tax-Free Intermediate Bond Fund, the best performing bonds were Arizona State Industrial Development Authority Revenue Lincoln South Beltway Project 5% due 05/01/2031, Arizona State Industrial Development Authority Revenue Lincoln South Beltway Project 5% due 02/01/2031, and Jackson County MO Special Obligation Revenue Bonds (Harry S. Truman Sports Complex) Series 2014 5% due 12/01/2026.
In The Missouri Tax-Free Intermediate Bond Fund, the best performing bonds were Metropolitan St. Louis MO Sewer District Wastewater System Revenue Bonds Taxable-Refunding-Series C 2.514% due 05/01/2028, Joplin MO Industrial Development Authority Health Facilities Revenue
Bonds Taxable-Refunding-Freeman Health System Project 2.844% due 02/15/2028, and Jackson County MO Special Obligation Refunding-Truman Sports Complex Project 5% due 12/01/2023.
In The Kansas Tax-Free Intermediate Bond Fund, the best performing bonds were Dickinson County KS Unified School District No. 435 GO Bonds (Taxable-Refunding) Series 2019 2.95% due 09/01/2032, Franklin County KS Unified School District No. 290 GO Bonds Series A 5% due 09/01/2040, and Douglas County KS Unified School District No. 491 GO Bonds (Edora-Refunding) Series B- 4% due 09/01/2029.
Q: What were some examples of strategies or holdings that didn’t meet your expectations?
A: In The National Tax-Free Intermediate Bond Fund, University of Alaska AK Revenues Refunding-Series- V-2 4% due 10/01/2025, York PA GO Bonds (Refunding) Series A 5% due 11/15/2026, and University of Alaska AK Revenues Refunding-General-Series S 4% due 10/01/2026 did not meet our expectations.
In The Missouri Tax-Free Intermediate Bond Fund, Knox County TN Health, Educational & Housing Facilities Board Refunding-Facilities Board University Health Systems Inc 3.375% due 04/01/2026, Delaware County PA Authority University Revenue Neumann University 5% due 10/01/2025, and Joplin MO Schools GO Buildings 3% due 03/01/2035 did not meet our expectations.
In The Kansas Tax-Free Intermediate Bond Fund, Knox County TN Health, Educational & Housing Facilities Board Revenue Refunding-Facilities Board University Health Systems Inc 3.375% due 04/01/2026, Illinois State Housing Development Authority Revenue Bonds (Homeowner Mortgage) Subseries A- 3.5% due 08/01/2031, and Delaware County PA Authority University Revenue Neumann Univ 5% due 10/01/2025 did not meet our expectations.
References to specific securities should not be construed as a recommendation or investment advice and securities referenced may no longer be held in a Fund’s portfolio.
37
THE NATIONAL TAX-FREE INTERMEDIATE BOND FUND
Performance Summary
October 31, 2020 (Unaudited)
The following is performance information for The National Tax-Free Intermediate Bond Fund (“National Tax-Free Intermediate Bond Fund”) for various time periods. The returns represent past performance. Past performance is no guarantee of future results. The Fund’s investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance reflects expense limitations in effect. In their absence, performance would be reduced. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The Fund is not subject to a sales charge, so a sales charge is not applied to its total returns. In addition to the Adviser’s decisions regarding issuer/industry investment selection and allocation, other factors may affect Fund performance. These factors include, but are not limited to, Fund operating fees and expenses, portfolio turnover, and subscription and redemption cash flows affecting the Fund. Please visit our website at www.commercefunds.com to obtain the most recent month-end returns.
National Tax-Free Intermediate Bond Fund 10 Year Performance
Performance of a $10,000 Investment, with distributions reinvested, from November 1, 2010 through October 31, 2020.
| Average Annual Total Return through October 31, 2020 | One Year | Five Years | Ten Years | |||||
|
National Tax-Free Intermediate Bond Fund(a) |
3.82% | 3.30% | 3.58% | |||||
| (a) | Returns reflect any applicable fee waivers or expense reductions. Returns do not reflect the deduction of taxes that a shareholder would pay on capital gains or other taxable distributions or the redemption of Fund shares. |
| (b) | The Bloomberg Barclays 3-15 Year Blend Municipal Bond Index is an unmanaged index comprised of investment-grade municipal securities ranging from 2 to 17 years in maturity. The Index figures do not reflect any deduction for fees, taxes or expenses. |
38
THE NATIONAL TAX-FREE INTERMEDIATE BOND FUND
Schedule of Investments
October 31, 2020
| The accompanying notes are an integral part of these financial statements. | 39 |
THE NATIONAL TAX-FREE INTERMEDIATE BOND FUND
Schedule of Investments (continued)
October 31, 2020
| 40 | The accompanying notes are an integral part of these financial statements. |
THE NATIONAL TAX-FREE INTERMEDIATE BOND FUND
| The accompanying notes are an integral part of these financial statements. | 41 |
THE NATIONAL TAX-FREE INTERMEDIATE BOND FUND
Schedule of Investments (continued)
October 31, 2020
| 42 | The accompanying notes are an integral part of these financial statements. |
THE NATIONAL TAX-FREE INTERMEDIATE BOND FUND
| The accompanying notes are an integral part of these financial statements. | 43 |
THE NATIONAL TAX-FREE INTERMEDIATE BOND FUND
Schedule of Investments (continued)
October 31, 2020
| 44 | The accompanying notes are an integral part of these financial statements. |
THE NATIONAL TAX-FREE INTERMEDIATE BOND FUND
| The accompanying notes are an integral part of these financial statements. | 45 |
THE NATIONAL TAX-FREE INTERMEDIATE BOND FUND
Schedule of Investments (continued)
October 31, 2020
| 46 | The accompanying notes are an integral part of these financial statements. |
THE NATIONAL TAX-FREE INTERMEDIATE BOND FUND
| The accompanying notes are an integral part of these financial statements. | 47 |
THE NATIONAL TAX-FREE INTERMEDIATE BOND FUND
Schedule of Investments (continued)
October 31, 2020
| The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets. | ||
| (a) | Security with “Call” features with resetting interest rates. | |
| (b) | Variable rate security. The interest rate shown reflects the rate as of October 31, 2020. | |
| (c) | Rate shown is that which is in effect on October 31, 2020. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. | |
| (d) | Prerefunded security. Maturity date disclosed is prerefunding date. | |
| (e) | Security issued with a zero coupon. The actual effective yield of this security is different than the stated coupon due to the accretion of discount. | |
| Security ratings disclosed, if any, are issued by S&P Global Ratings Services/Moody’s Investors Service and are unaudited. A description of the ratings is available in the Fund’s Statement of Additional Information. | ||
|
|
||
| Investment Abbreviations: | ||
| AGM |
—Insuredby Assured Guaranty Municipal Corp. |
|
| AMBAC |
—Insuredby American Municipal Bond Assurance Corp. |
|
| AMT |
—AlternativeMinimum Tax |
|
| ETM |
—Escrowto Maturity |
|
| FHLMC |
—FederalHome Loan Mortgage Corp. |
|
| FNMA |
—FederalNational Mortgage Association |
|
| GNMA |
—GovernmentNational Mortgage Association |
|
| GO |
—GeneralObligation |
|
| LIBOR |
—LondonInterbank Offered Rate |
|
| NR |
—Not Rated |
|
| PSF-GTD |
—Guaranteedby Permanent School Fund |
|
| Q-SBLF |
—QualifiedSchool Bond Loan Fund |
|
| WR |
—WithdrawnRating |
|
|
|
||
PORTFOLIO COMPOSITION
|
AS OF
10/31/20 |
AS OF
10/31/19 |
|||||||
|
|
||||||||
|
General Obligation |
32.9 | % | 33.7 | % | ||||
|
Lease |
13.0 | 13.4 | ||||||
|
Education |
11.8 | 12.6 | ||||||
|
Investment Company |
8.5 | 0.2 | ||||||
|
Hospital |
7.1 | 9.3 | ||||||
|
Single Family Housing |
6.5 | 4.5 | ||||||
|
Limited Tax |
6.3 | 7.3 | ||||||
|
Transportation |
5.7 | 3.4 | ||||||
|
Water/Sewer |
1.9 | 4.3 | ||||||
|
Prerefunded/Escrow to Maturity |
1.6 | 4.6 | ||||||
|
Power |
1.4 | 3.2 | ||||||
|
Multi Family Housing |
1.1 | 1.2 | ||||||
|
Student |
1.0 | 1.3 | ||||||
|
Not For Profit |
0.4 | 0.6 | ||||||
|
Crossover |
— | 0.2 | ||||||
|
|
||||||||
| TOTAL INVESTMENTS | 99.2 | % | 99.8 | % | ||||
|
|
||||||||
The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets. Underlying investment categories of investment companies held by the Fund are not reflected in the table above. Consequently, the Fund’s overall investment category allocations may differ from the percentages contained in the table above.
The Fund is actively managed and, as such, its composition may differ over time.
| 48 | The accompanying notes are an integral part of these financial statements. |
THE MISSOURI TAX-FREE INTERMEDIATE BOND FUND
Performance Summary
October 31, 2020 (Unaudited)
The following is performance information for The Missouri Tax-Free Intermediate Bond Fund (“Missouri Tax-Free Intermediate Bond Fund”) for various time periods. The returns represent past performance. Past performance is no guarantee of future results. The Fund’s investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance reflects expense limitations in effect. In their absence, performance would be reduced. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The Fund is not subject to a sales charge, so a sales charge is not applied to its total returns. In addition to the Adviser’s decisions regarding issuer/industry investment selection and allocation, other factors may affect Fund performance. These factors include, but are not limited to, Fund operating fees and expenses, portfolio turnover, and subscription and redemption cash flows affecting the Fund. Please visit our website at www.commercefunds.com to obtain the most recent month-end returns.
Missouri Tax-Free Intermediate Bond Fund 10 Year Performance
Performance of a $10,000 Investment, with distributions reinvested, from November 1, 2010 through October 31, 2020.
| Average Annual Total Return through October 31, 2020 | One Year | Five Years | Ten Years | |||||
|
Missouri Tax-Free Intermediate Bond Fund(a) |
3.10% | 2.94% | 3.07% | |||||
| (a) | Returns reflect any applicable fee waivers or expense reductions. Returns do not reflect the deduction of taxes that a shareholder would pay on capital gains or other taxable distributions or the redemption of Fund shares. |
| (b) | The Bloomberg Barclays Capital 3-15 Year Blend Municipal Bond Index is an unmanaged index comprised of investment-grade municipal securities ranging from 2 to 17 years in maturity. The Index figures do not reflect any deduction for fees, taxes or expenses. |
49
THE MISSOURI TAX-FREE INTERMEDIATE BOND FUND
Schedule of Investments
October 31, 2020
| 50 | The accompanying notes are an integral part of these financial statements. |
THE MISSOURI TAX-FREE INTERMEDIATE BOND FUND
| The accompanying notes are an integral part of these financial statements. | 51 |
THE MISSOURI TAX-FREE INTERMEDIATE BOND FUND
Schedule of Investments (continued)
October 31, 2020
| 52 | The accompanying notes are an integral part of these financial statements. |
THE MISSOURI TAX-FREE INTERMEDIATE BOND FUND
| The accompanying notes are an integral part of these financial statements. | 53 |
THE MISSOURI TAX-FREE INTERMEDIATE BOND FUND
Schedule of Investments (continued)
October 31, 2020
| 54 | The accompanying notes are an integral part of these financial statements. |
THE MISSOURI TAX-FREE INTERMEDIATE BOND FUND
| The accompanying notes are an integral part of these financial statements. | 55 |
THE MISSOURI TAX-FREE INTERMEDIATE BOND FUND
Schedule of Investments (continued)
October 31, 2020
| The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets. | ||
| (a) | Security issued with a zero coupon. The actual effective yield of this security is different than the stated coupon due to the accretion of discount. | |
| (b) | Security with “Call” features with resetting interest rates. Maturity dates disclosed are the final maturity dates. | |
| (c) | Prerefunded security. Maturity date disclosed is prerefunding date. | |
| (d) | All or a portion represents a forward commitment. | |
| (e) | Variable rate security. The interest rate shown reflects the rate as of October 31, 2020. | |
| (f) | Rate shown is that which is in effect on October 31, 2020. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. | |
| Security ratings disclosed, if any, are issued by S&P Global Ratings/Moody’s Investors Service and are unaudited. A description of the ratings is available in the Fund’s Statement of Additional Information. | ||
|
|
||
| Investment Abbreviations: | ||
| AMBAC |
—Insured by American Municipal Bond Assurance Corp. |
|
| AMT |
—Alternative Minimum Tax |
|
| FHA |
—Insured by Federal Housing Administration |
|
| FHLMC |
—Federal Home Loan Mortgage Corp. |
|
| FNMA |
—Federal National Mortgage Association |
|
| GNMA |
—Government National Mortgage Association |
|
| GO |
—General Obligation |
|
| Non-ACE |
—Non-Adjust Current Earnings |
|
| Non-AMT |
—Non-Alternative Minimum Tax |
|
| NR |
—Not Rated |
|
| SPA |
—Stand-by Purchase Agreement |
|
|
|
||
PORTFOLIO COMPOSITION
|
AS OF
10/31/20 |
AS OF
10/31/19 |
|||||||
|
|
||||||||
|
Lease |
28.8 | % | 28.8 | % | ||||
|
General Obligation |
24.2 | 22.0 | ||||||
|
Hospital |
9.9 | 10.3 | ||||||
|
Education |
9.1 | 11.7 | ||||||
|
Limited Tax |
4.5 | 7.3 | ||||||
|
Single Family Housing |
4.1 | 4.6 | ||||||
|
Prerefunded/Escrow to Maturity |
4.1 | 2.7 | ||||||
|
Water/Sewer |
3.8 | 3.5 | ||||||
|
Investment Company |
3.6 | 1.7 | ||||||
|
Power |
2.7 | 2.2 | ||||||
|
Transportation |
2.3 | 2.0 | ||||||
|
Not For Profit |
1.6 | 1.0 | ||||||
|
Crossover |
1.1 | 1.2 | ||||||
|
Multi Family Housing |
0.1 | 0.3 | ||||||
|
Industrial Development Revenue/ Pollution Control Revenue |
— | 0.1 | ||||||
|
|
||||||||
| TOTAL INVESTMENTS | 99.9 | % | 99.4 | % | ||||
|
|
||||||||
The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets. Underlying investment categories of investment companies held by the Fund are not reflected in the table above. Consequently, the Fund’s overall investment category allocations may differ from the percentages contained in the table above.
The Fund is actively managed and, as such, its composition may differ over time.
| 56 | The accompanying notes are an integral part of these financial statements. |
THE KANSAS TAX-FREE INTERMEDIATE BOND FUND
Performance Summary
October 31, 2020 (Unaudited)
The following is performance information for The Kansas Tax-Free Intermediate Bond Fund (“Kansas Tax-Free Intermediate Bond Fund”) for various time periods. The returns represent past performance. Past performance is no guarantee of future results. The Fund’s investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance reflects expense limitations in effect. In their absence, performance would be reduced. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. The Fund is not subject to a sales charge, so a sales charge is not applied to its total returns. In addition to the Adviser’s decisions regarding issuer/industry investment selection and allocation, other factors may affect Fund performance. These factors include, but are not limited to, Fund operating fees and expenses, portfolio turnover, and subscription and redemption cash flows affecting the Fund. Please visit our website at www.commercefunds.com to obtain the most recent month-end returns.
Kansas Tax-Free Intermediate Bond Fund Lifetime Performance
Performance of a $10,000 Investment, with distributions reinvested, from November 1, 2010 through October 31, 2020.
| Average Annual Total Return through October 31, 2020 | One Year | Five Years | Ten Years | |||||
|
Kansas Tax-Free Intermediate Bond Fund(a) |
3.54% | 2.80% | 3.12% | |||||
| (a) | Returns reflect any applicable fee waivers or expense reductions. Returns do not reflect the deduction of taxes that a shareholder would pay on capital gains or other taxable distributions or the redemption of Fund shares. |
| (b) | The Bloomberg Barclays 3-15 Year Blend Municipal Bond Index is an unmanaged index comprised of investment-grade municipal securities ranging from 2 to 17 years in maturity. The Index figures do not reflect any deduction for fees, taxes or expenses. |
57
THE KANSAS TAX-FREE INTERMEDIATE BOND FUND
Schedule of Investments
October 31, 2020
| 58 | The accompanying notes are an integral part of these financial statements. |
THE KANSAS TAX-FREE INTERMEDIATE BOND FUND
|
Principal
Amount |
Interest
Rate |
Maturity
Date |
Value | |||||||
| Municipal Bond Obligations – (continued) |
|
|||||||||
|
Kansas – (continued) |
|
|||||||||
| Dickinson County KS Unified School District No. 435 GO Bonds (Taxable-Refunding) Series 2019 (A+/NR)(a) |
|
|||||||||
| $ 375,000 | 2.950 | % | 09/01/32 | $ | 413,205 | |||||
| Douglas County KS Unified School District No. 491 GO Bonds (Edora-Refunding) Series B-2019 BAM (AA/A2) |
|
|||||||||
| 1,010,000 | 4.000 | 09/01/29 | 1,247,835 | |||||||
| Finney County Unified School District No. 457 GO Bonds (Refunding) Series A (A+/NR)(a) |
|
|||||||||
| 1,530,000 | 4.000 | 09/01/30 | 1,764,947 | |||||||
| Franklin County KS Unified School District No. 290 GO Bonds Series A (NR/A1)(a)(c) |
|
|||||||||
| 2,470,000 | 5.000 | 09/01/25 | 3,014,042 | |||||||
| Geary Country KS GO Bonds (Refunding) Series 2016 (A/NR)(a) |
|
|||||||||
| 1,000,000 | 4.000 | 09/01/29 | 1,161,250 | |||||||
| Geary County KS Unified Government GO Bonds (Refunding & Improvement) Series B (AA-/NR)(a) |
|
|||||||||
| 380,000 | 4.000 | 12/01/26 | 442,947 | |||||||
| 310,000 | 5.000 | 12/01/37 | 364,182 | |||||||
| Geary County KS Unified School District No. 475 (Taxable) Series C (NR/Aa2)(a) |
|
|||||||||
| 865,000 | 3.661 | 09/01/32 | 946,569 | |||||||
| Goddard KS GO Bonds Series 2019-1 (SP-1+/NR)(a) |
|
|||||||||
| 1,000,000 | 3.000 | 12/01/22 | 1,025,760 | |||||||
| Johnson & Miami Counties KS Unified School District No. 230 GO Bonds Series A (NR/Aa3)(a) |
|
|||||||||
| 1,000,000 | 4.000 | 09/01/32 | 1,173,840 | |||||||
| Johnson & Miami County KS Unified School District No. 230 GO Bonds (Refunding) Series 2016 (NR/Aa3) |
|
|||||||||
| 1,000,000 | 5.000 | 09/01/26 | 1,249,130 | |||||||
| 1,000,000 | 3.500 | (a) | 09/01/30 | 1,112,460 | ||||||
| Johnson & Miami County KS Unified School District No. 230 GO Bonds Series B (NR/Aa3)(a) |
|
|||||||||
| 1,000,000 | 4.000 | 09/01/33 | 1,148,170 | |||||||
| Johnson County KS Improvement GO Bond Series A (AAA/Aaa)(a) |
|
|||||||||
| 2,000,000 | 4.000 | 09/01/34 | 2,353,780 | |||||||
| Johnson County KS Park & Recreation District Certificates of Participation Series A (NR/Aa2)(a) |
|
|||||||||
| 1,000,000 | 4.000 | 09/01/23 | 1,040,580 | |||||||
| Johnson County KS Unified School District No. 231 GO Bonds (Improvement) Series 2013-A (AA-/NR) |
|
|||||||||
| 2,395,000 | 5.000 | 10/01/22 | 2,613,208 | |||||||
| Johnson County KS Unified School District No. 231 GO Bonds (Refunding & Improvement) Series A (AA-/NR)(a) |
|
|||||||||
| 1,500,000 | 4.000 | 10/01/36 | 1,671,045 | |||||||
| Johnson County KS Unified School District No. 233 GO Bonds (Refunding & Improvement) Series C (AA/Aa2)(a) |
|
|||||||||
| 500,000 | 5.000 | 09/01/27 | 519,200 | |||||||
| Johnson County KS Unified School District No. 233 GO Bonds (Refunding) Series B (AA/Aa2)(a) |
|
|||||||||
| 1,000,000 | 4.000 | 09/01/31 | 1,157,770 | |||||||
|
|
||||||||||
| The accompanying notes are an integral part of these financial statements. | 59 |
THE KANSAS TAX-FREE INTERMEDIATE BOND FUND
Schedule of Investments (continued)
October 31, 2020
| 60 | The accompanying notes are an integral part of these financial statements. |
THE KANSAS TAX-FREE INTERMEDIATE BOND FUND
| The accompanying notes are an integral part of these financial statements. | 61 |
THE KANSAS TAX-FREE INTERMEDIATE BOND FUND
Schedule of Investments (continued)
October 31, 2020
| The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets. | ||
| (a) | Security with “Call” features with resetting interest rates. | |
| (b) | Security issued with a zero coupon. The actual effective yield of this security is different than the stated coupon due to the accretion of discount. | |
| (c) | Prerefunded security. Maturity date disclosed is prerefunding date. | |
| (d) | All or a portion represents a forward commitment. | |
| (e) | Variable Rate Security. The interest rate shown reflects the rate as of October 31, 2020. | |
| (f) | Rate shown is that which is in effect on October 31, 2020. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. | |
| Security ratings disclosed, if any, are issued by S&P Global Ratings Services/Moody’s Investors Service and are unaudited. A description of the ratings is available in the Fund’s Statement of Additional Information. | ||
|
|
||
| Investment Abbreviations: | ||
| AGM |
—Insured by Assured Guaranty Municipal Corp. |
|
| AMBAC |
—Insured by American Municipal Bond Assurance Corp. |
|
| AMT |
—Alternative Minimum Tax |
|
| FHLMC |
—Federal Home Loan Mortgage Corp. |
|
| FNMA |
—Federal National Mortgage Association |
|
| GNMA |
—Government National Mortgage Association |
|
| GO |
—General Obligation |
|
| NR |
—Not Rated |
|
| PSF-GTD |
—Guaranteed by Permanent School Fund |
|
| WR |
—Withdrawn Rating |
|
|
|
||
PORTFOLIO COMPOSITION
|
AS OF
10/31/20 |
AS OF
10/31/19 |
|||||||
|
|
||||||||
|
General Obligation |
44.8 | % | 45.0 | % | ||||
|
Lease |
15.7 | 17.6 | ||||||
|
Hospital |
11.3 | 10.2 | ||||||
|
Prerefunded/Escrow to Maturity |
6.8 | 5.8 | ||||||
|
Investment Company |
5.7 | 0.9 | ||||||
|
Water/Sewer |
5.3 | 6.0 | ||||||
|
Transportation |
3.7 | 2.7 | ||||||
|
Education |
3.1 | 4.8 | ||||||
|
Limited Tax |
1.6 | 3.3 | ||||||
|
Single Family Housing |
1.4 | 1.8 | ||||||
|
Power |
1.2 | 3.0 | ||||||
|
Crossover |
0.3 | 0.3 | ||||||
|
|
||||||||
| TOTAL INVESTMENTS | 100.9 | % | 101.4 | % | ||||
|
|
||||||||
The percentage shown for each investment category reflects the value of investments in that category as a percentage of net assets. Underlying investment categories of investment companies held by the Fund are not reflected in the table above. Consequently, the Fund’s overall investment category allocations may differ from the percentages contained in the table above.
The Fund is actively managed and, as such, its composition may differ over time.
| 62 | The accompanying notes are an integral part of these financial statements. |
COMMERCE FUNDS
Statements of Assets and Liabilities
October 31, 2020
| Growth Fund | Value Fund |
MidCap
|
Bond Fund | |||||||||||||
|
Assets: |
|
|||||||||||||||
|
Investments at value (identified cost $135,516,409, $230,963,325, $236,727,451 and $1,198,933,162, respectively) |
$ | 211,351,608 | $ | 242,376,904 | $ | 294,664,138 | $ | 1,280,816,907 | ||||||||
|
Receivables: |
|
|||||||||||||||
|
Interest and dividends |
36,998 | 536,684 | 43,129 | 7,952,435 | ||||||||||||
|
Fund shares sold |
42,574 | 111,285 | 53,281 | 1,501,461 | ||||||||||||
|
Investments sold |
— | — | — | 3,000,000 | ||||||||||||
|
Reimbursement from Adviser |
— | 17,026 | — | — | ||||||||||||
|
Other |
6,176 | 7,288 | 8,524 | 36,247 | ||||||||||||
|
Total Assets |
211,437,356 | 243,049,187 | 294,769,072 | 1,293,307,050 | ||||||||||||
|
Liabilities: |
|
|||||||||||||||
|
Due to custodian |
445,928 | — | — | — | ||||||||||||
|
Payables: |
||||||||||||||||
|
Fund shares redeemed |
54,845 | 632,377 | 154,501 | 749,353 | ||||||||||||
|
Dividends |
— | — | — | 1,977,197 | ||||||||||||
|
Investments purchased on an extended settlement basis |
— | — | — | 12,682,049 | ||||||||||||
|
Advisory fees |
75,464 | 64,497 | 120,878 | 380,712 | ||||||||||||
|
Deferred trustee fees |
53,899 | 70,460 | 42,353 | 346,186 | ||||||||||||
|
Administrative fees |
25,941 | 29,561 | 35,729 | 148,832 | ||||||||||||
|
Accrued expenses |
79,096 | 106,011 | 87,887 | 295,933 | ||||||||||||
|
Total Liabilities |
735,173 | 902,906 | 441,348 | 16,580,262 | ||||||||||||
|
Net Assets: |
|
|||||||||||||||
|
Paid-in capital |
125,863,929 | 238,149,384 | 223,010,695 | 1,201,407,907 | ||||||||||||
|
Total distributable earnings |
84,838,254 | 3,996,897 | 71,317,029 | 75,318,881 | ||||||||||||
|
Net Assets |
$ | 210,702,183 | $ | 242,146,281 | $ | 294,327,724 | $ | 1,276,726,788 | ||||||||
|
Shares Outstanding/Net Asset Value |
|
|||||||||||||||
|
Total shares outstanding, no par value (unlimited number of shares authorized): |
4,978,292 | 9,023,364 | 6,328,014 | 61,224,656 | ||||||||||||
|
Net asset value (net assets/shares outstanding) |
$ | 42.32 | $ | 26.84 | $ | 46.51 | $ | 20.85 | ||||||||
| The accompanying notes are an integral part of these financial statements. | 63 |
COMMERCE FUNDS
Statements of Assets and Liabilities (continued)
October 31, 2020
|
Short-Term
Government Fund |
National
Tax-Free Intermediate Bond Fund |
Missouri
Tax-Free Intermediate Bond Fund |
Kansas
Tax-Free Intermediate Bond Fund |
|||||||||||||
|
Assets: |
|
|||||||||||||||
|
Investments at value (identified cost $68,838,142, $430,284,564, $363,270,897 and $174,205,581, respectively) |
$ | 70,328,541 | $ | 455,618,719 | $ | 382,134,345 | $ | 183,958,392 | ||||||||
|
Receivables: |
|
|||||||||||||||
|
Interest and dividends |
213,549 | 4,590,297 | 2,775,365 | 1,331,751 | ||||||||||||
|
Fund shares sold |
281,098 | 143,894 | 190,141 | 1,013 | ||||||||||||
|
Reimbursement from Adviser |
26,298 | — | — | 9,157 | ||||||||||||
|
Other |
2,465 | 12,719 | 10,884 | 5,069 | ||||||||||||
|
Total Assets |
70,851,951 | 460,365,629 | 385,110,735 | 185,305,382 | ||||||||||||
|
Liabilities: |
|
|||||||||||||||
|
Payables: |
||||||||||||||||
|
Fund shares redeemed |
2,287,293 | 17,384 | 394,695 | 6,709 | ||||||||||||
|
Dividends |
33,144 | 551,885 | 478,145 | 197,938 | ||||||||||||
|
Investments purchased on an extended settlement basis |
— | — | 1,212,219 | 2,527,759 | ||||||||||||
|
Advisory fees |
29,838 | 126,391 | 111,130 | 66,637 | ||||||||||||
|
Deferred trustee fees |
49,608 | 107,532 | 116,659 | 45,013 | ||||||||||||
|
Administrative fees |
8,205 | 53,211 | 44,817 | 21,188 | ||||||||||||
|
Accrued expenses |
71,689 | 121,876 | 112,732 | 88,251 | ||||||||||||
|
Total Liabilities |
2,479,777 | 978,279 | 2,470,397 | 2,953,495 | ||||||||||||
|
Net Assets: |
|
|||||||||||||||
|
Paid-in capital |
71,720,102 | 432,669,447 | 366,471,406 | 172,708,040 | ||||||||||||
|
Total distributable earnings (loss) |
(3,347,928 | ) | 26,717,903 | 16,168,932 | 9,643,847 | |||||||||||
|
Net Assets |
$ | 68,372,174 | $ | 459,387,350 | $ | 382,640,338 | $ | 182,351,887 | ||||||||
|
Shares Outstanding/Net Asset Value |
|
|||||||||||||||
|
Total shares outstanding, no par value (unlimited number of shares authorized): |
3,963,092 | 22,464,036 | 19,016,518 | 9,066,887 | ||||||||||||
|
Net asset value (net assets/shares outstanding) |
$ | 17.25 | $ | 20.45 | $ | 20.12 | $ | 20.11 | ||||||||
| 64 | The accompanying notes are an integral part of these financial statements. |
COMMERCE FUNDS
For the Fiscal Year Ended October 31, 2020
| Growth Fund | Value Fund |
MidCap
|
Bond Fund | |||||||||||||
|
Investment Income: |
|
|||||||||||||||
|
Dividends |
$ | 2,083,180 | $ | 9,730,979 | $ | 2,593,736 | $ | 162,090 | ||||||||
|
Interest |
— | — | — | 38,807,832 | ||||||||||||
|
Total Investment Income |
2,083,180 | 9,730,979 | 2,593,736 | 38,969,922 | ||||||||||||
|
Expenses: |
|
|||||||||||||||
|
Advisory fees |
765,053 | 791,913 | 1,199,971 | 4,385,354 | ||||||||||||
|
Administration fees |
263,403 | 363,678 | 344,734 | 1,699,872 | ||||||||||||
|
Custody, accounting and administrative services |
84,589 | 94,784 | 93,788 | 248,483 | ||||||||||||
|
Transfer Agent fees |
76,093 | 120,265 | 67,065 | 89,661 | ||||||||||||
|
Professional fees |
61,328 | 80,179 | 71,794 | 302,070 | ||||||||||||
|
Shareholder servicing fees |
32,122 | 331,111 | 71,599 | 537,186 | ||||||||||||
|
Registration fees |
20,381 | 23,736 | 22,482 | 28,687 | ||||||||||||
|
Trustee fees |
13,754 | 19,126 | 18,148 | 83,450 | ||||||||||||
|
Printing and mailing fees |
12,040 | 25,538 | 17,020 | 70,215 | ||||||||||||
|
Other |
21,813 | 25,060 | 24,585 | 64,583 | ||||||||||||
|
Total Expenses |
1,350,576 | 1,875,390 | 1,931,186 | 7,509,561 | ||||||||||||
|
Less — expense reductions |
— | (27,593 | ) | — | — | |||||||||||
|
Net Expenses |
1,350,576 | 1,847,797 | 1,931,186 | 7,509,561 | ||||||||||||
| Net Investment Income | $ | 732,604 | $ | 7,883,182 | $ | 662,550 | $ | 31,460,361 | ||||||||
|
Realized and unrealized gain (loss) |
|
|||||||||||||||
|
Net realized gain (loss) |
8,334,340 | (7,553,727 | ) | 12,993,742 | 4,322,933 | |||||||||||
|
Net change in unrealized gain (loss) |
26,821,675 | (23,337,112 | ) | 17,785,709 | 22,642,628 | |||||||||||
|
Net realized and unrealized gain (loss) |
35,156,015 | (30,890,839 | ) | 30,779,451 | 26,965,561 | |||||||||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | 35,888,619 | $ | (23,007,657 | ) | $ | 31,442,001 | $ | 58,425,922 | |||||||
| The accompanying notes are an integral part of these financial statements. | 65 |
COMMERCE FUNDS
Statements of Operations (continued)
For the Fiscal Year Ended October 31, 2020
|
Short-Term
Government Fund |
National
Tax-Free Intermediate Bond Fund |
Missouri
Tax-Free Intermediate Bond Fund |
Kansas
Tax-Free Intermediate Bond Fund |
|||||||||||||
|
Investment Income: |
|
|||||||||||||||
|
Interest |
$ | 1,343,680 | $ | 10,245,005 | $ | 9,464,501 | $ | 4,236,484 | ||||||||
|
Dividends |
9,230 | 59,698 | 27,228 | 31,225 | ||||||||||||
|
Total Investment Income |
1,352,910 | 10,304,703 | $ | 9,491,729 | 4,267,709 | |||||||||||
|
Expenses: |
|
|||||||||||||||
|
Advisory fees |
336,326 | 1,430,641 | 1,288,478 | 749,607 | ||||||||||||
|
Custody, accounting and administrative services |
101,818 | 171,765 | 142,567 | 106,652 | ||||||||||||
|
Administration fees |
92,632 | 595,368 | 517,061 | 235,954 | ||||||||||||
|
Shareholder servicing fees |
56,205 | 36,343 | 110,858 | 29,323 | ||||||||||||
|
Transfer Agent fees |
37,356 | 47,879 | 54,085 | 39,017 | ||||||||||||
|
Professional fees |
36,252 | 113,372 | 106,497 | 62,387 | ||||||||||||
|
Registration fees |
16,401 | 25,164 | 20,190 | 18,190 | ||||||||||||
|
Trustee fees |
4,745 | 29,174 | 24,900 | 11,355 | ||||||||||||
|
Printing and mailing fees |
4,297 | 20,200 | 18,453 | 8,131 | ||||||||||||
|
Other |
16,922 | 31,480 | 29,209 | 20,943 | ||||||||||||
|
Total Expenses |
702,954 | 2,501,386 | 2,312,298 | 1,281,559 | ||||||||||||
|
Less — expense reductions |
(245,550 | ) | — | — | (82,346 | ) | ||||||||||
|
Net Expenses |
457,404 | 2,501,386 | 2,312,298 | 1,199,213 | ||||||||||||
| Net Investment Income | $ | 895,506 | $ | 7,803,317 | $ | 7,179,431 | $ | 3,068,496 | ||||||||
|
Realized and unrealized gain |
|
|||||||||||||||
|
Net realized gain |
694,871 | 980,342 | 152,108 | 39,026 | ||||||||||||
|
Net change in unrealized gain |
131,946 | 7,445,484 | 3,858,813 | 2,755,675 | ||||||||||||
|
Net realized and unrealized gain |
826,817 | 8,425,826 | 4,010,921 | 2,794,701 | ||||||||||||
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 1,722,323 | $ | 16,229,143 | $ | 11,190,352 | $ | 5,863,197 | ||||||||
| 66 | The accompanying notes are an integral part of these financial statements. |
COMMERCE FUNDS
Statements of Changes in Net Assets
| Growth Fund | Value Fund | |||||||||||||||
|
For the
Year Ended October 31, 2020 |
For the
Year Ended October 31, 2019 |
For the
Year Ended October 31, 2020 |
For the
Year Ended October 31, 2019 |
|||||||||||||
|
From Operations: |
|
|||||||||||||||
|
Net investment income |
$ | 732,604 | $ | 888,248 | $ | 7,883,182 | $ | 6,220,169 | ||||||||
|
Net realized gain (loss) |
8,334,340 | 9,109,887 | (7,553,727 | ) | 14,324,618 | |||||||||||
|
Net change in unrealized gain (loss) |
26,821,675 | 16,695,958 | (23,337,112 | ) | 14,044,958 | |||||||||||
|
Net increase (decrease) in net assets resulting from operations |
35,888,619 | 26,694,093 | (23,007,657 | ) | 34,589,745 | |||||||||||
|
Distributions to Shareholders: |
|
|||||||||||||||
|
From distributable earnings |
(10,013,406 | ) | (10,962,638 | ) | (21,858,052 | ) | (26,253,766 | ) | ||||||||
|
From Share Transactions: |
|
|||||||||||||||
|
Proceeds from sales of shares |
54,247,168 | 46,446,484 | 80,140,025 | 92,248,719 | ||||||||||||
|
Reinvestment of distributions |
2,708,119 | 3,506,471 | 11,005,675 | 12,844,437 | ||||||||||||
|
Cost of shares redeemed |
(40,307,378 | ) | (21,273,028 | ) | (91,115,520 | ) | (47,636,049 | ) | ||||||||
|
Net increase in net assets resulting from share transactions |
16,647,909 | 28,679,927 | 30,180 | 57,457,107 | ||||||||||||
| TOTAL INCREASE (DECREASE) | 42,523,122 | 44,411,382 | (44,835,529 | ) | 65,793,086 | |||||||||||
|
Net Assets: |
|
|||||||||||||||
|
Beginning of year |
168,179,061 | 123,767,679 | 286,981,810 | 221,188,724 | ||||||||||||
|
End of year |
$ | 210,702,183 | $ | 168,179,061 | $ | 242,146,281 | $ | 286,981,810 | ||||||||
| The accompanying notes are an integral part of these financial statements. | 67 |
COMMERCE FUNDS
Statements of Changes in Net Assets (continued)
| MidCap Growth Fund | Bond Fund | |||||||||||||||
|
For the
Year Ended October 31, 2020 |
For the
Year Ended October 31, 2019 |
For the
Year Ended October 31, 2020 |
For the
Year Ended October 31, 2019 |
|||||||||||||
|
From Operations: |
|
|||||||||||||||
|
Net investment income |
$ | 662,550 | $ | 623,638 | $ | 31,460,361 | $ | 34,163,449 | ||||||||
|
Net realized gain |
12,993,742 | 13,769,207 | 4,322,933 | 894,787 | ||||||||||||
|
Net change in unrealized gain |
17,785,709 | 18,303,980 | 22,642,628 | 80,084,677 | ||||||||||||
|
Net increase in net assets resulting from operations |
31,442,001 | 32,696,825 | 58,425,922 | 115,142,913 | ||||||||||||
|
Distributions to Shareholders: |
|
|||||||||||||||
|
From distributable earnings |
(14,509,824 | ) | (15,147,303 | ) | (34,901,218 | ) | (36,117,722 | ) | ||||||||
|
From Share Transactions: |
|
|||||||||||||||
|
Proceeds from sales of shares |
87,382,310 | 63,051,963 | 238,989,135 | 208,987,812 | ||||||||||||
|
Reinvestment of distributions |
3,228,475 | 2,943,603 | 9,489,523 | 8,838,942 | ||||||||||||
|
Cost of shares redeemed |
(35,911,766 | ) | (22,567,243 | ) | (192,656,377 | ) | (194,375,265 | ) | ||||||||
|
Net increase in net assets resulting from share transactions |
54,699,019 | 43,428,323 | 55,822,281 | 23,451,489 | ||||||||||||
| TOTAL INCREASE | 71,631,196 | 60,977,845 | 79,346,985 | 102,476,680 | ||||||||||||
|
Net Assets: |
|
|||||||||||||||
|
Beginning of year |
222,696,528 | 161,718,683 | 1,197,379,803 | 1,094,903,123 | ||||||||||||
|
End of year |
$ | 294,327,724 | $ | 222,696,528 | $ | 1,276,726,788 | $ | 1,197,379,803 | ||||||||
| 68 | The accompanying notes are an integral part of these financial statements. |
COMMERCE FUNDS
Statements of Changes in Net Assets (continued)
|
Short-Term
Government Fund |
National Tax-Free
Intermediate Bond Fund |
|||||||||||||||
|
For the
Year Ended October 31, 2020 |
For the
Year Ended October 31, 2019 |
For the
Year Ended October 31, 2020 |
For the
Year Ended October 31, 2019 |
|||||||||||||
|
From Operations: |
|
|||||||||||||||
|
Net investment income |
$ | 895,506 | $ | 1,372,311 | $ | 7,803,317 | $ | 8,567,312 | ||||||||
|
Net realized gain (loss) |
694,871 | (143,045 | ) | 980,342 | 1,478,453 | |||||||||||
|
Net change in unrealized gain |
131,946 | 1,948,557 | 7,445,484 | 22,601,410 | ||||||||||||
|
Net increase in net assets resulting from operations |
1,722,323 | 3,177,823 | 16,229,143 | 32,647,175 | ||||||||||||
|
Distributions to Shareholders: |
|
|||||||||||||||
|
From distributable earnings |
(1,334,378 | ) | (1,490,983 | ) | (9,309,049 | ) | (9,018,330 | ) | ||||||||
|
From Share Transactions: |
|
|||||||||||||||
|
Proceeds from sales of shares |
49,970,331 | 17,845,619 | 92,206,963 | 77,541,416 | ||||||||||||
|
Reinvestment of distributions |
798,690 | 662,024 | 398,050 | 329,208 | ||||||||||||
|
Cost of shares redeemed |
(41,488,722 | ) | (33,030,664 | ) | (53,930,216 | ) | (49,950,844 | ) | ||||||||
|
Net increase (decrease) in net assets resulting from share transactions |
9,280,299 | (14,523,021 | ) | 38,674,797 | 27,919,780 | |||||||||||
| TOTAL INCREASE (DECREASE) | 9,668,244 | (12,836,181 | ) | 45,594,891 | 51,548,625 | |||||||||||
|
Net Assets: |
|
|||||||||||||||
|
Beginning of year |
58,703,930 | 71,540,111 | 413,792,459 | 362,243,834 | ||||||||||||
|
End of year |
$ | 68,372,174 | $ | 58,703,930 | $ | 459,387,350 | $ | 413,792,459 | ||||||||
| The accompanying notes are an integral part of these financial statements. | 69 |
COMMERCE FUNDS
Statements of Changes in Net Assets (continued)
|
Missouri Tax-Free
Intermediate Bond Fund |
Kansas Tax-Free
Intermediate Bond Fund |
|||||||||||||||
|
For the
Year Ended October 31, 2020 |
For the
Year Ended October 31, 2019 |
For the
Year Ended October 31, 2020 |
For the
Year Ended October 31, 2019 |
|||||||||||||
|
From Operations: |
|
|||||||||||||||
|
Net investment income |
$ | 7,179,431 | $ | 7,811,173 | $ | 3,068,496 | $ | 3,433,945 | ||||||||
|
Net realized gain |
152,108 | 940,419 | 39,026 | 168,322 | ||||||||||||
|
Net change in unrealized gain |
3,858,813 | 17,398,500 | 2,755,675 | 7,872,076 | ||||||||||||
|
Net increase in net assets resulting from operations |
11,190,352 | 26,150,092 | 5,863,197 | 11,474,343 | ||||||||||||
|
Distributions to Shareholders: |
|
|||||||||||||||
|
From distributable earnings |
(7,146,099 | ) | (7,784,178 | ) | (3,038,602 | ) | (3,417,665 | ) | ||||||||
|
From Share Transactions: |
|
|||||||||||||||
|
Proceeds from sales of shares |
56,742,123 | 60,746,649 | 29,488,363 | 27,143,394 | ||||||||||||
|
Reinvestment of distributions |
819,494 | 944,160 | 209,207 | 262,003 | ||||||||||||
|
Cost of shares redeemed |
(44,804,738 | ) | (54,018,331 | ) | (10,901,400 | ) | (22,226,243 | ) | ||||||||
|
Net increase in net assets resulting from share transactions |
12,756,879 | 7,672,478 | 18,796,170 | 5,179,154 | ||||||||||||
| TOTAL INCREASE | 16,801,132 | 26,038,392 | 21,620,765 | 13,235,832 | ||||||||||||
|
Net Assets: |
|
|||||||||||||||
|
Beginning of year |
365,839,206 | 339,800,814 | 160,731,122 | 147,495,290 | ||||||||||||
|
End of year |
$ | 382,640,338 | $ | 365,839,206 | $ | 182,351,887 | $ | 160,731,122 | ||||||||
| 70 | The accompanying notes are an integral part of these financial statements. |
THE GROWTH FUND
Selected Data for a Share Outstanding Throughout Each Year
| Growth Fund | ||||||||||||||||||||
| Year Ended October 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
|
Per Share Data |
||||||||||||||||||||
|
Net asset value, beginning of year |
$ | 37.43 | $ | 34.61 | $ | 33.21 | $ | 27.83 | $ | 29.44 | ||||||||||
|
Net investment income(a) |
0.15 | 0.21 | 0.23 | 0.24 | 0.28 | |||||||||||||||
|
Net realized and unrealized gain |
6.95 | 5.69 | 3.04 | 6.77 | 1.26 | |||||||||||||||
|
Total from investment operations |
7.10 | 5.90 | 3.27 | 7.01 | 1.54 | |||||||||||||||
|
Distributions to shareholders from net investment income |
(0.19 | ) | (0.22 | ) | (0.23 | ) | (0.24 | ) | (0.21 | ) | ||||||||||
|
Distributions to shareholders from net realized gains |
(2.02 | ) | (2.86 | ) | (1.64 | ) | (1.39 | ) | (2.94 | ) | ||||||||||
|
Total distributions |
(2.21 | ) | (3.08 | ) | (1.87 | ) | (1.63 | ) | (3.15 | ) | ||||||||||
|
Net asset value, end of year |
$ | 42.32 | $ | 37.43 | $ | 34.61 | $ | 33.21 | $ | 27.83 | ||||||||||
|
Total return(b) |
19.89 | % | 19.10 | % | 10.23 | % | 26.67 | % | 5.64 | % | ||||||||||
|
Net assets, end of year (in 000s) |
$ | 210,702 | $ | 168,179 | $ | 123,768 | $ | 117,301 | $ | 88,227 | ||||||||||
|
Ratio of net expenses to average net assets |
0.71 | % | 0.75 | % | 0.76 | % | 0.78 | % | 0.82 | % | ||||||||||
|
Ratio of total expenses to average net assets |
0.71 | % | 0.75 | % | 0.76 | % | 0.78 | % | 0.82 | % | ||||||||||
|
Ratio of net investment income to average net assets |
0.38 | % | 0.61 | % | 0.67 | % | 0.81 | % | 1.01 | % | ||||||||||
|
Portfolio turnover rate |
37 | % | 39 | % | 45 | % | 34 | % | 37 | % | ||||||||||
| (a) | Calculated based on the average shares outstanding methodology. |
| (b) | Assumes investment at the NAV at the beginning of the year, reinvestment of all dividends and distributions, a complete redemption of the investment at the NAV at the end of the year and no sales or redemption charges (if any). Total return would be reduced if a sales or redemption charge was taken into account. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
| The accompanying notes are an integral part of these financial statements. | 71 |
THE VALUE FUND
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Year
| Value Fund | ||||||||||||||||||||
| Year Ended October 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
|
Per Share Data |
||||||||||||||||||||
|
Net asset value, beginning of year |
$ | 31.50 | $ | 30.97 | $ | 33.02 | $ | 29.98 | $ | 31.65 | ||||||||||
|
Net investment income(a) |
0.84 | 0.76 | 0.81 | 0.87 | 0.77 | |||||||||||||||
|
Net realized and unrealized gain (loss) |
(3.14 | ) | 3.32 | 1.20 | 3.63 | 1.58 | ||||||||||||||
|
Total from investment operations |
(2.30 | ) | 4.08 | 2.01 | 4.50 | 2.35 | ||||||||||||||
|
Distributions to shareholders from net investment income |
(0.82 | ) | (0.79 | ) | (0.80 | ) | (0.87 | ) | (0.76 | ) | ||||||||||
|
Distributions to shareholders from net realized gains |
(1.54 | ) | (2.76 | ) | (3.26 | ) | (0.59 | ) | (3.26 | ) | ||||||||||
|
Total distributions |
(2.36 | ) | (3.55 | ) | (4.06 | ) | (1.46 | ) | (4.02 | ) | ||||||||||
|
Net asset value, end of year |
$ | 26.84 | $ | 31.50 | $ | 30.97 | $ | 33.02 | $ | 29.98 | ||||||||||
|
Total return(b) |
(7.69 | )% | 14.65 | % | 6.22 | % | 15.29 | % | 8.48 | % | ||||||||||
|
Net assets, end of year (in 000s) |
$ | 242,146 | $ | 286,982 | $ | 221,189 | $ | 250,755 | $ | 273,983 | ||||||||||
|
Ratio of net expenses to average net assets |
0.70 | % | 0.70 | % | 0.70 | % | 0.70 | % | 0.70 | % | ||||||||||
|
Ratio of total expenses to average net assets |
0.71 | % | 0.71 | % | 0.79 | % | 0.74 | % | 0.74 | % | ||||||||||
|
Ratio of net investment income to average net assets |
2.99 | % | 2.52 | % | 2.56 | % | 2.73 | % | 2.61 | % | ||||||||||
|
Portfolio turnover rate |
54 | % | 36 | % | 49 | % | 47 | % | 41 | % | ||||||||||
| (a) | Calculated based on the average shares outstanding methodology. |
| (b) | Assumes investment at the NAV at the beginning of the year, reinvestment of all dividends and distributions, a complete redemption of the investment at the NAV at the end of the year and no sales or redemption charges (if any). Total return would be reduced if a sales or redemption charge was taken into account. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
| 72 | The accompanying notes are an integral part of these financial statements. |
THE MIDCAP GROWTH FUND
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Year
| MidCap Growth Fund | ||||||||||||||||||||
| Year Ended October 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
|
Per Share Data |
||||||||||||||||||||
|
Net asset value, beginning of year |
$ | 43.88 | $ | 40.44 | $ | 40.46 | $ | 34.64 | $ | 36.10 | ||||||||||
|
Net investment income(a) |
0.11 | (b) | 0.14 | 0.18 | 0.20 | 0.21 | ||||||||||||||
|
Net realized and unrealized gain |
5.36 | 7.00 | 2.58 | 7.43 | 1.21 | |||||||||||||||
|
Total from investment operations |
5.47 | 7.14 | 2.76 | 7.63 | 1.42 | |||||||||||||||
|
Distributions to shareholders from net investment income |
(0.14 | ) | (0.17 | ) | (0.20 | ) | (0.18 | ) | (0.12 | ) | ||||||||||
|
Distributions to shareholders from net realized gains |
(2.70 | ) | (3.53 | ) | (2.58 | ) | (1.63 | ) | (2.76 | ) | ||||||||||
|
Total distributions |
(2.84 | ) | (3.70 | ) | (2.78 | ) | (1.81 | ) | (2.88 | ) | ||||||||||
|
Net asset value, end of year |
$ | 46.51 | $ | 43.88 | $ | 40.44 | $ | 40.46 | $ | 34.64 | ||||||||||
|
Total return(c) |
13.08 | % | 19.76 | % | 7.04 | % | 23.03 | % | 4.24 | % | ||||||||||
|
Net assets, end of year (in 000s) |
$ | 294,328 | $ | 222,697 | $ | 161,719 | $ | 150,539 | $ | 106,270 | ||||||||||
|
Ratio of net expenses to average net assets |
0.77 | % | 0.81 | % | 0.83 | % | 0.82 | % | 0.87 | % | ||||||||||
|
Ratio of total expenses to average net assets |
0.77 | % | 0.81 | % | 0.83 | % | 0.82 | % | 0.87 | % | ||||||||||
|
Ratio of net investment income to average net assets |
0.26 | % | 0.33 | % | 0.44 | % | 0.55 | % | 0.62 | % | ||||||||||
|
Portfolio turnover rate |
69 | % | 53 | % | 71 | % | 58 | % | 39 | % | ||||||||||
| (a) | Calculated based on the average shares outstanding methodology. |
| (b) | Reflects income recognized from non-recurring special dividends which amounted to $0.06 per share and 0.13% of average net assets. |
| (c) | Assumes investment at the NAV at the beginning of the year, reinvestment of all dividends and distributions, a complete redemption of the investment at the NAV at the end of the year and no sales or redemption charges (if any). Total return would be reduced if a sales or redemption charge was taken into account. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
| The accompanying notes are an integral part of these financial statements. | 73 |
THE BOND FUND
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Year
| Bond Fund | ||||||||||||||||||||
| Year Ended October 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
|
Per Share Data |
||||||||||||||||||||
|
Net asset value, beginning of year |
$ | 20.46 | $ | 19.05 | $ | 20.04 | $ | 20.22 | $ | 19.96 | ||||||||||
|
Net investment income(a) |
0.53 | 0.60 | 0.59 | 0.60 | 0.61 | |||||||||||||||
|
Net realized and unrealized gain (loss) |
0.44 | 1.45 | (0.94 | ) | (0.12 | ) | 0.33 | |||||||||||||
|
Total from investment operations |
0.97 | 2.05 | (0.35 | ) | 0.48 | 0.94 | ||||||||||||||
|
Distributions to shareholders from net investment income |
(0.58 | ) | (0.64 | ) | (0.64 | ) | (0.65 | ) | (0.66 | ) | ||||||||||
|
Distributions to shareholders from net realized gains |
— | — | — | (0.01 | ) | (0.02 | ) | |||||||||||||
|
Total distributions |
(0.58 | ) | (0.64 | ) | (0.64 | ) | (0.66 | ) | (0.68 | ) | ||||||||||
|
Net asset value, end of year |
$ | 20.85 | $ | 20.46 | $ | 19.05 | $ | 20.04 | $ | 20.22 | ||||||||||
|
Total return(b) |
4.82 | % | 10.90 | % | (1.80 | )% | 2.44 | % | 4.79 | % | ||||||||||
|
Net assets, end of year (in 000s) |
$ | 1,276,727 | $ | 1,197,380 | $ | 1,094,903 | $ | 1,078,318 | $ | 1,098,321 | ||||||||||
|
Ratio of net expenses to average net assets |
0.61 | % | 0.62 | % | 0.66 | % | 0.66 | % | 0.67 | % | ||||||||||
|
Ratio of total expenses to average net assets |
0.61 | % | 0.62 | % | 0.66 | % | 0.66 | % | 0.67 | % | ||||||||||
|
Ratio of net investment income to average net assets |
2.55 | % | 3.04 | % | 3.00 | % | 2.99 | % | 3.05 | % | ||||||||||
|
Portfolio turnover rate |
20 | % | 16 | % | 17 | % | 26 | % | 17 | % | ||||||||||
| (a) | Calculated based on the average shares outstanding methodology. |
| (b) | Assumes investment at the NAV at the beginning of the year, reinvestment of all dividends and distributions, a complete redemption of the investment at the NAV at the end of the year and no sales or redemption charges (if any). Total return would be reduced if a sales or redemption charge was taken into account. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
| 74 | The accompanying notes are an integral part of these financial statements. |
THE SHORT-TERM GOVERNMENT FUND
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Year
| Short-Term Government Fund | ||||||||||||||||||||
| Year Ended October 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
|
Per Share Data |
||||||||||||||||||||
|
Net asset value, beginning of year |
$ | 17.14 | $ | 16.73 | $ | 17.11 | $ | 17.34 | $ | 17.43 | ||||||||||
|
Net investment income(a) |
0.23 | 0.34 | 0.28 | 0.22 | 0.21 | |||||||||||||||
|
Net realized and unrealized gain (loss) |
0.23 | 0.44 | (0.35 | ) | (0.17 | ) | (0.02 | ) | ||||||||||||
|
Total from investment operations |
0.46 | 0.78 | (0.07 | ) | 0.05 | 0.19 | ||||||||||||||
|
Distributions to shareholders from net investment income |
(0.35 | ) | (0.37 | ) | (0.31 | ) | (0.28 | ) | (0.28 | ) | ||||||||||
|
Net asset value, end of year |
$ | 17.25 | $ | 17.14 | $ | 16.73 | $ | 17.11 | $ | 17.34 | ||||||||||
|
Total return(b) |
2.73 | % | 4.73 | % | (0.38 | )% | 0.31 | % | 1.09 | % | ||||||||||
|
Net assets, end of year (in 000s) |
$ | 68,372 | $ | 58,704 | $ | 71,540 | $ | 99,011 | $ | 107,942 | ||||||||||
|
Ratio of net expenses to average net assets |
0.68 | % | 0.68 | % | 0.68 | % | 0.68 | % | 0.68 | % | ||||||||||
|
Ratio of total expenses to average net assets |
1.05 | % | 1.03 | % | 0.92 | % | 0.88 | % | 0.88 | % | ||||||||||
|
Ratio of net investment income to average net assets |
1.33 | % | 2.02 | % | 1.64 | % | 1.28 | % | 1.21 | % | ||||||||||
|
Portfolio turnover rate |
64 | % | 30 | % | 17 | % | 21 | % | 35 | % | ||||||||||
| (a) | Calculated based on the average shares outstanding methodology. |
| (b) | Assumes investment at the NAV at the beginning of the year, reinvestment of all dividends and distributions, a complete redemption of the investment at the NAV at the end of the year and no sales or redemption charges (if any). Total return would be reduced if a sales or redemption charge was taken into account. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
| The accompanying notes are an integral part of these financial statements. | 75 |
THE NATIONAL TAX-FREE INTERMEDIATE BOND FUND
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Year
| National Tax-Free Intermediate Bond Fund | ||||||||||||||||||||
| Year Ended October 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
|
Per Share Data |
||||||||||||||||||||
|
Net asset value, beginning of year |
$ | 20.13 | $ | 18.92 | $ | 19.63 | $ | 19.84 | $ | 19.54 | ||||||||||
|
Net investment income(a) |
0.37 | 0.43 | 0.43 | 0.43 | 0.43 | |||||||||||||||
|
Net realized and unrealized gain (loss) |
0.39 | 1.23 | (0.68 | ) | (0.12 | ) | 0.30 | |||||||||||||
|
Total from investment operations |
0.76 | 1.66 | (0.25 | ) | 0.31 | 0.73 | ||||||||||||||
|
Distributions to shareholders from net investment income |
(0.37 | ) | (0.43 | ) | (0.43 | ) | (0.43 | ) | (0.43 | ) | ||||||||||
|
Distributions to shareholders from net realized gains |
(0.07 | ) | (0.02 | ) | (0.03 | ) | (0.09 | ) | — | |||||||||||
|
Total distributions |
(0.44 | ) | (0.45 | ) | (0.46 | ) | (0.52 | ) | (0.43 | ) | ||||||||||
|
Net asset value, end of year |
$ | 20.45 | $ | 20.13 | $ | 18.92 | $ | 19.63 | $ | 19.84 | ||||||||||
|
Total return(b) |
3.82 | % | 8.89 | % | (1.31 | )% | 1.62 | % | 3.76 | % | ||||||||||
|
Net assets, end of year (in 000s) |
$ | 459,387 | $ | 413,792 | $ | 362,244 | $ | 338,416 | $ | 328,038 | ||||||||||
|
Ratio of net expenses to average net assets |
0.58 | % | 0.59 | % | 0.59 | % | 0.61 | % | 0.62 | % | ||||||||||
|
Ratio of total expenses to average net assets |
0.58 | % | 0.59 | % | 0.59 | % | 0.61 | % | 0.62 | % | ||||||||||
|
Ratio of net investment income to average net assets |
1.81 | % | 2.20 | % | 2.21 | % | 2.22 | % | 2.17 | % | ||||||||||
|
Portfolio turnover rate |
19 | % | 29 | % | 33 | % | 37 | % | 27 | % | ||||||||||
| (a) | Calculated based on the average shares outstanding methodology. |
| (b) | Assumes investment at the NAV at the beginning of the year, reinvestment of all dividends and distributions, a complete redemption of the investment at the NAV at the end of the year and no sales or redemption charges (if any). Total return would be reduced if a sales or redemption charge was taken into account. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
| 76 | The accompanying notes are an integral part of these financial statements. |
THE MISSOURI TAX-FREE INTERMEDIATE BOND FUND
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Year
| Missouri Tax-Free Intermediate Bond Fund | ||||||||||||||||||||
| Year Ended October 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
|
Per Share Data |
||||||||||||||||||||
|
Net asset value, beginning of year |
$ | 19.89 | $ | 18.84 | $ | 19.52 | $ | 19.68 | $ | 19.53 | ||||||||||
|
Net investment income(a) |
0.38 | 0.44 | 0.47 | 0.48 | 0.47 | |||||||||||||||
|
Net realized and unrealized gain (loss) |
0.23 | 1.05 | (0.68 | ) | (0.16 | ) | 0.15 | |||||||||||||
|
Total from investment operations |
0.61 | 1.49 | (0.21 | ) | 0.32 | 0.62 | ||||||||||||||
|
Distributions to shareholders from net investment income |
(0.38 | ) | (0.44 | ) | (0.47 | ) | (0.48 | ) | (0.47 | ) | ||||||||||
|
Net asset value, end of year |
$ | 20.12 | $ | 19.89 | $ | 18.84 | $ | 19.52 | $ | 19.68 | ||||||||||
|
Total return(b) |
3.10 | % | 7.98 | % | (1.09 | )% | 1.70 | % | 3.21 | % | ||||||||||
|
Net assets, end of year (in 000s) |
$ | 382,640 | $ | 365,839 | $ | 339,801 | $ | 344,291 | $ | 346,467 | ||||||||||
|
Ratio of net expenses to average net assets |
0.62 | % | 0.64 | % | 0.63 | % | 0.64 | % | 0.64 | % | ||||||||||
|
Ratio of total expenses to average net assets |
0.62 | % | 0.64 | % | 0.63 | % | 0.64 | % | 0.64 | % | ||||||||||
|
Ratio of net investment income to average net assets |
1.91 | % | 2.26 | % | 2.46 | % | 2.50 | % | 2.40 | % | ||||||||||
|
Portfolio turnover rate |
13 | % | 25 | % | 18 | % | 15 | % | 21 | % | ||||||||||
| (a) | Calculated based on the average shares outstanding methodology. |
| (b) | Assumes investment at the NAV at the beginning of the year, reinvestment of all dividends and distributions, a complete redemption of the investment at the NAV at the end of the year and no sales or redemption charges (if any). Total return would be reduced if a sales or redemption charge was taken into account. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
| The accompanying notes are an integral part of these financial statements. | 77 |
THE KANSAS TAX-FREE INTERMEDIATE BOND FUND
Financial Highlights (continued)
Selected Data for a Share Outstanding Throughout Each Year
| Kansas Tax-Free Intermediate Bond Fund | ||||||||||||||||||||
| Year Ended October 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
|
Per Share Data |
||||||||||||||||||||
|
Net asset value, beginning of year |
$ | 19.77 | $ | 18.75 | $ | 19.35 | $ | 19.57 | $ | 19.46 | ||||||||||
|
Net investment income(a) |
0.36 | 0.43 | 0.42 | 0.43 | 0.42 | |||||||||||||||
|
Net realized and unrealized gain (loss) |
0.34 | 1.02 | (0.60 | ) | (0.22 | ) | 0.11 | |||||||||||||
|
Total from investment operations |
0.70 | 1.45 | (0.18 | ) | 0.21 | 0.53 | ||||||||||||||
|
Distributions to shareholders from net investment income |
(0.36 | ) | (0.43 | ) | (0.42 | ) | (0.43 | ) | (0.42 | ) | ||||||||||
|
Net asset value, end of year |
$ | 20.11 | $ | 19.77 | $ | 18.75 | $ | 19.35 | $ | 19.57 | ||||||||||
|
Total return(b) |
3.54 | % | 7.80 | % | (0.94 | )% | 1.09 | % | 2.74 | % | ||||||||||
|
Net assets, end of year (in 000s) |
$ | 182,352 | $ | 160,731 | $ | 147,495 | $ | 140,555 | $ | 137,306 | ||||||||||
|
Ratio of net expenses to average net assets |
0.70 | % | 0.70 | % | 0.70 | % | 0.70 | % | 0.70 | % | ||||||||||
|
Ratio of total expenses to average net assets |
0.75 | % | 0.79 | % | 0.77 | % | 0.81 | % | 0.81 | % | ||||||||||
|
Ratio of net investment income to average net assets |
1.79 | % | 2.23 | % | 2.21 | % | 2.22 | % | 2.14 | % | ||||||||||
|
Portfolio turnover rate |
16 | % | 14 | % | 8 | % | 17 | % | 11 | % | ||||||||||
| (a) | Calculated based on the average shares outstanding methodology. |
| (b) | Assumes investment at the NAV at the beginning of the year, reinvestment of all dividends and distributions, a complete redemption of the investment at the NAV at the end of the year and no sales or redemption charges (if any). Total return would be reduced if a sales or redemption charge was taken into account. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
| 78 | The accompanying notes are an integral part of these financial statements. |
COMMERCE FUNDS
October 31, 2020
| 1. ORGANIZATION |
The Commerce Funds (the “Trust”) is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end, management investment company. The Trust consists of eight portfolios (individually, a “Fund” and collectively, the “Funds”): Growth Fund, Value Fund, MidCap Growth Fund, Bond Fund, Short-Term Government Fund, National Tax-Free Intermediate Bond Fund, Missouri Tax-Free Intermediate Bond Fund and Kansas Tax-Free Intermediate Bond Fund. Each of the Funds offers one class of shares (the “Shares”). Each Fund is registered as a diversified open-end management investment company, except the Missouri Tax-Free Intermediate Bond Fund and the Kansas Tax-Free Intermediate Bond Fund, which are registered as non-diversified under the Act.
The Funds have entered into an Advisory Agreement with Commerce Investment Advisors, Inc. (the “Adviser” or “Commerce”), a subsidiary of Commerce Bank.
| 2. SIGNIFICANT ACCOUNTING POLICIES |
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and require management to make estimates and assumptions that may affect the reported amounts and disclosures. Actual results may differ from those estimates and assumptions. Each Fund is an investment company under GAAP and follows the accounting and reporting guidance applicable to investment companies.
A. Investment Valuation — The Funds’ valuation policy is to value investments at fair value.
B. Investment Income and Investments — Investment income is comprised of interest income, and dividend income. Interest income is accrued daily and adjusted for amortization of premiums and accretion of discounts. Dividend income is recognized on the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Investment transactions are reflected on trade date with realized gains and losses on sales calculated using identified cost. Investment transactions are recorded on the following business day for daily net asset value (“NAV”) calculations. Distributions received from the Funds’ investments in United States (“U.S.”) real estate investment trusts (“REITs”) may be characterized as ordinary income, net capital gain or a return of capital. A return of capital is recorded by the Funds as a reduction to the cost basis of the REIT. For treasury inflation indexed securities, adjustments to principal due to inflation/deflation are reflected as increases/decreases to interest income with a corresponding adjustment to cost.
For securities with paydown provisions, principal payments received are treated as a proportionate reduction to the cost basis of the securities and excess or shortfall amounts are recorded as income.
C. Expenses — Expenses incurred by the Trust that do not specifically relate to an individual Fund of the Trust are allocated to the Funds based on each Fund’s average net assets and are accrued daily.
D. Federal Taxes and Distributions to Shareholders — It is each Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), applicable to regulated investment companies (mutual funds) and to distribute each year substantially all of its investment company taxable income and capital gains to its shareholders. Accordingly, the Funds are not required to make any provisions for the payment of federal income tax. Distributions to
79
COMMERCE FUNDS
Notes to Financial Statements (continued)
October 31, 2020
| 2. SIGNIFICANT ACCOUNTING POLICIES (continued) |
shareholders are recorded on the ex-dividend date. Income and capital gains distributions, if any, are declared and paid according to the following schedule:
| Income Distribution | Capital Gains Distribution | |||||||
| Fund | Declared | Paid | Declared | Paid | ||||
|
Value |
Quarterly | Quarterly | Annually | Annually | ||||
|
Growth and MidCap Growth |
Annually | Annually | Annually | Annually | ||||
|
Bond, Short-Term Government, National Tax-Free Intermediate Bond, Missouri Tax-Free Intermediate Bond and Kansas Tax-Free Intermediate Bond |
Daily | Monthly | Annually | Annually | ||||
Net capital losses, if any, are carried forward to future fiscal years and may be used to the extent allowed by the Code to offset any future capital gains. Utilization of capital loss carryforwards will reduce the requirement of future capital gains distributions.
The characterization of distributions to shareholders for financial reporting purposes is determined in accordance with federal income tax rules, which may differ from GAAP. The source of each Fund’s distributions may be shown in the accompanying financial statements as either from distributable earnings or capital. Certain components of the Funds’ net assets on the Statements of Assets and Liabilities reflect permanent GAAP/tax differences based on the appropriate tax character.
| 3. INVESTMENTS AND FAIR VALUE MEASUREMENTS |
U.S. GAAP defines the fair value of a financial instrument as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The levels used for classifying investments are not necessarily an indication of the risk associated with investing in these investments. The three levels of the fair value hierarchy are described below:
Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 — Quoted prices in markets that are not active or financial instruments for which significant inputs are observable (including, but not limited to, quoted prices for similar investments, interest rates, prepayment speeds and credit risk), either directly or indirectly;
Level 3 — Prices or valuations that require significant unobservable inputs (including the Adviser’s assumptions in determining fair value measurement).
The Trust’s Board of Trustees (the “Board”) has adopted valuation procedures (“Valuation Procedures”) that govern the valuation of the portfolio investments held by the Funds, including investments for which market quotations are not readily available. The Board has delegated to Commerce day-to-day responsibility for implementing and maintaining internal controls and procedures related to the valuation of the Funds’ portfolio investments. To assess the continuing appropriateness of pricing sources and methodologies, Commerce regularly performs price verifications and issues challenges as necessary to third party pricing vendors or brokers, and any differences are reviewed in accordance with the Valuation Procedures.
80
COMMERCE FUNDS
| 3. INVESTMENTS AND FAIR VALUE MEASUREMENTS (continued) |
A. Level 1 and Level 2 Fair Value Investments — The valuation techniques and significant inputs used in determining the fair values for investments classified as Level 1 and Level 2 are as follows:
Equity Securities — Equity securities traded on a U.S. securities exchange or the NASDAQ system, or those located on certain foreign exchanges, including but not limited to the Americas, are valued daily at their last sale price or official closing price on the principal exchange or system on which they are traded. If there is no sale or official closing price or such price is believed by the Adviser to not represent fair value, equity securities may be valued at the closing bid price. To the extent these investments are actively traded, they are classified as Level 1 of the fair value hierarchy, otherwise they are generally classified as Level 2. Certain equity securities containing unique attributes may be classified as Level 2.
Unlisted equity securities for which market quotations are available are valued at the last sale price on the valuation date, or if no sale occurs, at the last bid price, and are generally classified as Level 2 .
Underlying Funds (including Money Market Funds) — Underlying Funds (“Underlying Funds”) include other investment companies in which the Funds may invest. Investments in the Underlying Funds are valued at the NAV per share on the day of valuation. Because the Funds invests in Underlying Funds that fluctuate in value, the Funds’ shares will correspondingly fluctuate in value. To the extent these investments are actively traded, they are classified as Level 1 of the fair value hierarchy, otherwise they are generally classified as Level 2. For information regarding an Underlying Fund’s accounting policies and investment holdings, please see the Underlying Fund’s shareholder report.
Debt Securities — Debt securities for which market quotations are readily available are valued daily on the basis of quotations furnished by an independent pricing service or provided by securities dealers. The pricing services may use valuation models or matrix pricing, which consider yield or price with respect to comparable bonds, quotations from bond dealers or by reference to other securities that are considered comparable in characteristics such as rating, interest rate and maturity date, to determine current value.
i. Mortgage-Backed and Asset-Backed Securities — Mortgage-backed securities represent direct or indirect participations in, or are collateralized by and payable from, mortgage loans secured by residential and/or commercial real estate property. Asset-backed securities include securities whose principal and interest payments are collateralized by pools of other assets or receivables. The value of certain mortgage-backed and asset-backed securities (including adjustable rate mortgage loans) may be particularly sensitive to changes in prevailing interest rates. The value of these securities may also fluctuate in response to the market’s perception of the creditworthiness of the issuers.
Asset-backed securities may present credit risks that are not presented by mortgage-backed securities because they generally do not have the benefit of a security interest in collateral that is comparable to mortgage assets. Some asset-backed securities may only have a subordinated claim on collateral.
Collateralized mortgage-backed securities (“CMOs”) may exhibit even more price volatility and interest rate risk than other mortgage-backed securities. They may lose liquidity as CMO market makers may choose not to repurchase, or may offer prices, based on current market conditions, that are unacceptable to a Fund based on the Adviser’s analysis of the market value of the security.
ii. Treasury Inflation Indexed Securities —These are treasury securities in which the principal amount is adjusted daily to keep pace with inflation, as measured by the U.S. Consumer Pricing Index for Urban Consumers. The repayment of the original bond principal upon maturity is guaranteed by the full faith and credit of the U.S. Government. The value of U.S. Treasury inflation protected public obligations will generally fluctuate in response to changes in real interest rates, generally decreasing when real interest rates rise and increasing when real interest rates fall. Inflation-protected bonds typically have lower yields than conventional fixed-rate bonds because of their inflation adjustment feature.
81
COMMERCE FUNDS
Notes to Financial Statements (continued)
October 31, 2020
| 3. INVESTMENTS AND FAIR VALUE MEASUREMENTS (continued) |
Short Term Investments — Short-term investments, except for Government obligations, having a maturity of 60 days or less are generally valued at amortized cost, which approximates fair market value. Government obligations maturing in less than 60 days shall be valued at their market price. With the exception of treasury securities, which are generally classified as Level 1, these investments are classified as Level 2 of the fair value hierarchy.
When-Issued Securities and Forward Commitments — When-issued securities, including TBA (“To Be Announced”) securities, are securities that are authorized but not yet issued in the market and purchased in order to secure what is considered to be an advantageous price or yield to a Fund. A forward commitment involves entering into a contract to purchase or sell securities, typically on an extended settlement basis, for a fixed price at a future date. The purchase of securities on a when-issued or forward commitment basis involves a risk of loss if the value of the security to be purchased declines before the settlement date. Conversely, the sale of securities on a forward commitment basis involves the risk that the value of the
securities sold may increase before the settlement date. Although a Fund will generally purchase securities on a when-issued or forward commitment basis with the intention of acquiring the securities for its portfolio, the Fund may dispose of when-issued securities or forward commitments prior to settlement, which may result in a realized gain or loss. For financial reporting purposes, cash collateral that has been pledged to cover obligations of a Fund and cash collateral received, if any, is reported separately on the Statements of Assets and Liabilities as receivables/payables for collateral on certain contracts. Non-cash collateral pledged by a Fund, if any, is noted in the Schedules of Investments.
B. Level 3 Fair Value Investments — The valuation techniques and significant inputs used in determining the fair values for investments classified as Level 3 are as follows:
To the extent that the aforementioned significant inputs are unobservable, or if quotations are not readily available, or if Commerce believes that such quotations do not accurately reflect fair value, the fair value of a Fund’s investments may be determined under valuation procedures approved by the Board. Commerce, consistent with the Funds’ procedures and applicable regulatory guidance, may make an adjustment to the most recent valuation prices of either domestic or foreign securities in light of significant events to reflect what it believes to be the fair value of the securities at the time of determining a Fund’s NAV. Significant events that could affect a large number of securities in a particular market may include, but are not limited to: significant fluctuations in U.S. or foreign markets; market dislocations; market disruptions; or unscheduled market closings. Significant events that could also affect a single issuer may include, but are not limited to: corporate actions such as reorganizations, mergers and buyouts; ratings downgrades; and bankruptcies.
C. Fair Value Hierarchy — The following is a summary of the Funds’ investments classified in the fair value hierarchy as of October 31, 2020:
| GROWTH | ||||||||||||
| Investment Type | Level 1 | Level 2 | Level 3 | |||||||||
|
Assets |
||||||||||||
|
Common Stock and/or Other Equity Investments |
$ | 211,351,608 | $ | — | $ | — | ||||||
|
Total |
$ | 211,351,608 | $ | — | $ | — | ||||||
82
COMMERCE FUNDS
| 3. INVESTMENTS AND FAIR VALUE MEASUREMENTS (continued) |
|
VALUE
|
||||||||||||
| Investment Type | Level 1 | Level 2 | Level 3 | |||||||||
|
Assets |
||||||||||||
|
Common Stock and/or Other Equity Investments |
$ | 232,531,196 | $ | — | $ | — | ||||||
|
Exchange Traded Fund |
8,754,750 | — | — | |||||||||
|
Investment Company |
1,090,958 | — | — | |||||||||
|
Total |
$ | 242,376,904 | $ | — | $ | — | ||||||
| MIDCAP GROWTH |
|
|||||||||||
| Investment Type | Level 1 | Level 2 | Level 3 | |||||||||
|
Assets |
||||||||||||
|
Common Stock and/or Other Equity Investments |
$ | 288,335,861 | $ | — | $ | — | ||||||
|
Exchange Traded Fund |
5,222,689 | — | — | |||||||||
|
Investment Company |
1,105,588 | — | — | |||||||||
|
Total |
$ | 294,664,138 | $ | — | $ | — | ||||||
|
BOND
|
|
|||||||||||
| Investment Type | Level 1 | Level 2 | Level 3 | |||||||||
|
Assets |
||||||||||||
|
Fixed Income |
||||||||||||
|
Corporate Obligations |
$ | — | $ | 586,902,739 | $ | — | ||||||
|
Mortgage-Backed Obligations |
— | 175,384,473 | — | |||||||||
|
Asset-Backed Securities |
— | 198,156,090 | — | |||||||||
|
Municipal Bond Obligations |
— | 115,745,559 | — | |||||||||
|
U.S. Treasury and/or Other U.S. Government Agencies |
123,981,515 | 19,494,574 | — | |||||||||
|
Investment Company |
61,151,957 | — | — | |||||||||
|
Total |
$ | 185,133,472 | $ | 1,095,683,435 | $ | — | ||||||
| SHORT-TERM GOVERNMENT |
|
|||||||||||
| Investment Type | Level 1 | Level 2 | Level 3 | |||||||||
|
Assets |
||||||||||||
|
Fixed Income |
|
|||||||||||
|
Asset-Backed Securities |
$ | — | $ | 1,158,741 | $ | — | ||||||
|
Mortgage-Backed Obligations |
— | 38,295,281 | — | |||||||||
|
U.S. Treasury Obligations and/or other U.S Government Agencies |
17,338,098 | 11,145,154 | — | |||||||||
|
Investment Company |
2,391,267 | — | — | |||||||||
|
Total |
$ | 19,729,365 | $ | 50,599,176 | $ | — | ||||||
| NATIONAL TAX-FREE INTERMEDIATE BOND | ||||||||||||
| Investment Type | Level 1 | Level 2 | Level 3 | |||||||||
|
Assets |
||||||||||||
|
Fixed Income |
||||||||||||
|
Municipal Bond Obligations |
$ | — | $ | 411,310,598 | $ | — | ||||||
|
Corporate Obligations |
— | 5,191,995 | — | |||||||||
|
Investment Company |
39,116,126 | — | — | |||||||||
|
Total |
$ | 39,116,126 | $ | 416,502,593 | $ | — | ||||||
83
COMMERCE FUNDS
Notes to Financial Statements (continued)
October 31, 2020
| 3. INVESTMENTS AND FAIR VALUE MEASUREMENTS (continued) |
|
MISSOURI TAX-FREE INTERMEDIATE BOND
|
||||||||||||
| Investment Type | Level 1 | Level 2 | Level 3 | |||||||||
|
Assets |
||||||||||||
|
Fixed Income |
||||||||||||
|
Municipal Bond Obligations |
$ | — | $ | 368,363,029 | $ | — | ||||||
|
Investment Company |
13,771,316 | — | — | |||||||||
|
Total |
$ | 13,771,316 | $ | 368,363,029 | $ | — | ||||||
| KANSAS TAX-FREE INTERMEDIATE BOND |
|
|||||||||||
| Investment Type | Level 1 | Level 2 | Level 3 | |||||||||
|
Assets |
||||||||||||
|
Fixed Income |
|
|||||||||||
|
Municipal Bond Obligations |
$ | — | $ | 173,638,356 | $ | — | ||||||
|
Investment Company |
10,320,036 | — | — | |||||||||
|
Total |
$ | 10,320,036 | $ | 173,638,356 | $ | — | ||||||
For further information regarding security characteristics, see the Schedule of Investments.
| 4. AGREEMENTS AND OTHER AFFILIATED TRANSACTIONS |
A. Advisory Agreement — Pursuant to the terms of the Advisory Agreement, the Adviser is responsible for managing the investments and making investment decisions for each of the Funds. For these services and for assuming related expenses, the Adviser is entitled to a fee, accrued daily and payable monthly, at the contractual annual rate of the corresponding Fund’s average daily net assets. The contractual advisory fees for the Funds are as follows:
| Contractual Advisory Fees | ||||||
| Fund |
First
$100 million |
Next
$100 million |
Over
$200 million |
|||
|
Short-Term Government, National Tax-Free Intermediate Bond, Missouri Tax-Free Intermediate Bond and Kansas Tax-Free Intermediate Bond |
0.50% | 0.35% | 0.25% | |||
|
First
$400 million |
Next
$300 million |
Over
$700 million |
||||
|
Bond |
0.50% | 0.35% | 0.25% | |||
|
First
$200 million |
Over
$200 million |
|||||
|
MidCap Growth |
0.50% | 0.40% | ||||
The contractual advisory fees for the Growth and Value Funds are 0.40% and 0.30% of the Funds’ average daily net assets, respectively.
For the fiscal year ended October 31, 2020, the effective advisory fees were 0.40%, 0.30%, 0.48%, 0.36%, 0.50%, 0.33%, 0.34% and 0.44%, for the Growth, Value, MidCap Growth, Bond, Short-Term Government, National Tax-Free Intermediate Bond, Missouri Tax-Free Intermediate Bond and Kansas Tax-Free Intermediate Bond Funds, respectively.
B. Administration Agreements — Goldman Sachs Asset Management, L.P. (“GSAM”), an affiliate of Goldman Sachs & Co. LLC (“Goldman Sachs”), and Commerce, serve as Co-Administrators of the Trust pursuant to a Co-Administration Agreement. Under the Co-Administration Agreement, GSAM and Commerce administer the Trust’s business affairs. As compensation for the services rendered under the Co-Administration Agreement, GSAM and Commerce are entitled to a fee,
84
COMMERCE FUNDS
| 4. AGREEMENTS AND OTHER AFFILIATED TRANSACTIONS (continued) |
accrued daily and payable monthly, at the contractual annual rate of the corresponding Fund’s average daily net assets. Pursuant to the Co-Administration Agreement, the Funds pay an aggregate administrative fee at the annual rate of 0.1375% of 1% of each Fund’s average daily net assets, allocated as follows: (1) for each Fund, Commerce is entitled to receive an administrative fee payable on the last day of each month at the annual rate of 0.12% of 1% of each Fund’s average daily net assets; and (2) for each Fund, GSAM is entitled to receive an administrative fee payable on the last day of each month at the annual rate of 0.0175% of 1% of each Fund’s average daily net assets. Prior to November 12, 2019, the Funds paid an aggregate administrative fee payable on the last day of each month at the annual rate of 0.145% of 1% of each Fund’s average daily net assets and the administrative fee payable to GSAM was 0.025 of 1% of each Fund’s average daily net assets. The administrative fee payable to Commerce has not changed. State Street Bank and Trust Company (“State Street”) also provides certain enhanced accounting and administrative services to the Funds pursuant to an Amended and Restated Enhanced Accounting and Administrative Services Agreement which services include, among other things, certain financial reporting, daily compliance and treasury services.
C. Distribution Agreement — The Commerce Funds’ shares are offered on a continuous basis through Goldman Sachs which acts as Distributor under the Distribution Agreement with The Commerce Funds. Goldman Sachs does not receive compensation from the Funds for these services.
D. Other Agreements — The Adviser has contractually agreed to waive fees and/or reimburse expenses (excluding interest, taxes, acquired fund fees and expenses, and extraordinary expenses) for all Funds (except the MidCap Growth Fund) to the extent that such expenses exceeded, on an annualized basis, 1.00%, 0.70%, 0.80%, 0.68%, 0.70%, 0.70% and 0.70% of the average net assets of the Growth, Value, Bond, Short-Term Government, National Tax-Free Intermediate Bond, Missouri Tax-Free Intermediate Bond and Kansas Tax-Free Intermediate Bond Funds, respectively. This agreement will remain in place through March 1, 2021. After this date, the Adviser or a Fund may terminate the contractual arrangement. In addition, the Funds are not obligated to reimburse the Adviser for prior fiscal year expense reimbursements, if any. Expense reimbursements, if any, are accrued daily and paid monthly and are disclosed in the Statements of Operations for the fiscal year ended October 31, 2020.
E. Deferred Compensation Plan — Certain Trustees participate in a Deferred Compensation Plan, as amended and restated (the “Plan”), which allows eligible Trustees as described in the Plan to defer the receipt of all or a portion of the Trustees’ fees payable. Under the Plan, such Trustees have deferred fees treated as if they had been invested by The Commerce Funds in the shares of one or more Funds of the Trust. All amounts payable to the Trustees under the Plan are determined based on the performance of such Funds and are accrued monthly.
85
COMMERCE FUNDS
Notes to Financial Statements (continued)
October 31, 2020
| 5. PORTFOLIO SECURITIES TRANSACTIONS |
The cost of purchases and proceeds from sales and maturities of long-term securities for the fiscal year ended October 31, 2020, were as follows:
| Fund |
Purchases of
U.S. Government and Agency Obligations |
Purchases
(Excluding U.S. Government and Agency Obligations) |
Sales and
Maturities of U.S. Government and Agency Obligations |
Sales
and Maturities (Excluding U.S. Government and Agency Obligations) |
||||||||||||
|
Growth |
$ | — | $ | 80,351,949 | $ | — | $ | 70,052,490 | ||||||||
|
Value |
— | 139,981,191 | — | 148,884,033 | ||||||||||||
|
MidCap Growth |
— | 212,362,150 | — | 169,459,396 | ||||||||||||
|
Bond |
56,980,759 | 197,509,298 | 39,180,160 | 203,204,773 | ||||||||||||
|
Short-Term Government |
46,207,958 | 918,993 | 33,901,991 | 7,099,915 | ||||||||||||
|
National Tax-Free Intermediate Bond |
— | 83,754,568 | — | 78,970,729 | ||||||||||||
|
Missouri Tax-Free Intermediate Bond |
— | 61,786,607 | — | 47,172,395 | ||||||||||||
|
Kansas Tax-Free Intermediate Bond |
— | 37,610,665 | — | 27,022,102 | ||||||||||||
| 6. TAX INFORMATION |
The tax character of distributions paid during the fiscal year ended October 31, 2020 was as follows:
| Growth | Value |
MidCap
Growth |
Bond | |||||||||||||
|
Distributions paid from: |
||||||||||||||||
|
Ordinary income |
$ | 918,204 | $ | 9,205,937 | $ | 2,650,864 | $ | 34,901,218 | ||||||||
|
Net long-term capital gains |
9,095,202 | 12,652,115 | 11,858,960 | — | ||||||||||||
|
Total taxable distributions |
$ | 10,013,406 | $ | 21,858,052 | $ | 14,509,824 | $ | 34,901,218 | ||||||||
|
Short-Term
Government |
National Tax-Free
Intermediate Bond |
Missouri Tax-Free
Intermediate Bond |
Kansas Tax-Free
Intermediate Bond |
|||||||||||||
|
Distributions paid from: |
||||||||||||||||
|
Ordinary income |
$ | 1,334,378 | $ | 855,826 | $ | 145,110 | $ | 61,303 | ||||||||
|
Net long-term capital gains |
— | 1,124,105 | — | — | ||||||||||||
|
Total taxable distributions |
1,334,378 | 1,979,931 | 145,110 | 61,303 | ||||||||||||
|
Total tax-exempt income distributions |
$ | — | $ | 7,329,118 | $ | 7,000,989 | $ | 2,977,299 | ||||||||
86
COMMERCE FUNDS
| 6. TAX INFORMATION (continued) |
The tax character of distributions paid during the fiscal year ended October 31, 2019 was as follows:
| Growth | Value |
MidCap
Growth |
Bond | |||||||||||||
|
Distributions paid from: |
||||||||||||||||
|
Ordinary income |
$ | 2,887,326 | $ | 6,449,812 | $ | 4,531,023 | $ | 36,117,722 | ||||||||
|
Net long-term capital gains |
8,075,312 | 19,803,954 | 10,616,279 | — | ||||||||||||
|
Total taxable distributions |
$ | 10,962,638 | $ | 26,253,766 | $ | 15,147,302 | $ | 36,117,722 | ||||||||
|
Short-Term Government |
National Tax-Free
Intermediate Bond |
Missouri Tax-Free Intermediate Bond |
Kansas Tax-Free Intermediate Bond |
|||||||||||||
|
Distributions paid from: |
||||||||||||||||
|
Ordinary income |
$ | 1,490,983 | $ | 415,561 | $ | 317,917 | $ | 76,060 | ||||||||
|
Net long-term capital gains |
— | 465,255 | — | — | ||||||||||||
|
Total taxable distributions |
1,490,983 | 880,816 | $ | 317,917 | 76,060 | |||||||||||
|
Total tax-exempt income distributions |
$ | — | $ | 8,137,514 | $ | 7,466,261 | $ | 3,341,605 | ||||||||
As of October 31, 2020, the components of accumulated earnings (losses) on a tax basis were as follows:
| Growth | Value |
MidCap
Growth |
Bond | |||||||||||||
|
Undistributed ordinary income — net |
$ | 715,400 | $ | 270,444 | $ | 438,069 | $ | 2,452,654 | ||||||||
|
Undistributed long-term capital gains |
8,327,493 | — | 12,986,004 | — | ||||||||||||
|
Total undistributed earnings |
$ | 9,042,893 | $ | 270,444 | $ | 13,424,073 | $ | 2,452,654 | ||||||||
|
Capital loss carryforward |
— | (6,990,291 | ) | — | (1,557,868 | ) | ||||||||||
|
Timing differences (distributions payable, deferred compensation) |
(39,515 | ) | (62,771 | ) | (37,782 | ) | (2,255,926 | ) | ||||||||
|
Unrealized gains (losses) — net |
75,834,876 | 10,779,515 | 57,930,738 | 76,680,021 | ||||||||||||
|
Total accumulated gains (losses) — net |
$ | 84,838,254 | $ | 3,996,897 | $ | 71,317,029 | $ | 75,318,881 | ||||||||
|
Short-Term
Government |
National Tax-Free
Intermediate Bond |
Missouri Tax-Free
Intermediate Bond |
Kansas Tax-Free
Intermediate Bond |
|||||||||||||
|
Undistributed ordinary income — net |
$ | 114,028 | $ | — | $ | — | $ | — | ||||||||
|
Undistributed tax-exempt income |
— | 1,055,505 | 625,309 | 265,049 | ||||||||||||
|
Undistributed long-term capital gains |
— | 978,167 | — | — | ||||||||||||
|
Total undistributed earnings |
$ | 114,028 | $ | 2,033,672 | $ | 625,309 | $ | 265,049 | ||||||||
|
Capital loss carryforward |
(4,873,421 | ) | — | (2,920,634 | ) | (188,560 | ) | |||||||||
|
Timing differences (distributions payable, deferred compensation) |
(60,390 | ) | (626,126 | ) | (555,260 | ) | (228,916 | ) | ||||||||
|
Unrealized gains (losses) — net |
1,471,855 | 25,310,357 | 19,019,517 | 9,796,274 | ||||||||||||
|
Total accumulated gains (losses) — net |
$ | (3,347,928 | ) | $ | 26,717,903 | $ | 16,168,932 | $ | 9,643,847 | |||||||
87
COMMERCE FUNDS
Notes to Financial Statements (continued)
October 31, 2020
| 6. TAX INFORMATION (continued) |
| Value | Bond |
Short-Term
Government |
Missouri Tax-Free
Intermediate Bond |
Kansas Tax-Free
Intermediate Bond |
||||||||||||||||
|
Capital loss carryforwards:(1) |
||||||||||||||||||||
|
Perpetual Short-term |
$ | (179,364 | ) | $ | — | $ | (412,291 | ) | $ | (417,773 | ) | $ | — | |||||||
|
Perpetual Long-term |
(6,810,927 | ) | (1,557,868 | ) | (4,461,130 | ) | (2,502,861 | ) | (188,560 | ) | ||||||||||
|
Total capital loss carryforwards: |
$ | (6,990,291 | ) | $ | (1,557,868 | ) | $ | (4,873,421 | ) | $ | (2,920,634 | ) | $ | (188,560 | ) | |||||
| (1) | The Bond, Short-Term Government, Missouri Tax-Free Intermediate Bond and Kansas Tax-Free Intermediate Bond Funds utilized $1,671,163, $284,235, $152,108 and $57,206, respectively, of capital losses in the current fiscal year. |
As of October 31, 2020 the Funds’ aggregate security unrealized gains and losses based on cost for U.S. federal income tax purposes were as follows:
| Growth | Value |
MidCap
Growth |
Bond | |||||||||||||
|
Tax Cost |
$ | 135,516,732 | $ | 231,597,389 | $ | 236,733,400 | $ | 1,204,136,886 | ||||||||
|
Gross unrealized gain |
76,533,576 | 21,763,558 | 62,608,488 | 85,384,809 | ||||||||||||
|
Gross unrealized loss |
(698,700 | ) | (10,984,043 | ) | (4,677,750 | ) | (8,704,788 | ) | ||||||||
|
Net unrealized security gain |
$ | 75,834,876 | $ | 10,779,515 | $ | 57,930,738 | $ | 76,680,021 | ||||||||
|
Short-Term
Government |
National Tax-Free
Intermediate Bond |
Missouri Tax-Free
Intermediate Bond |
Kansas Tax-Free
Intermediate Bond |
|||||||||||||
|
Tax Cost |
$ | 68,856,686 | $ | 430,308,362 | $ | 363,114,828 | $ | 174,162,118 | ||||||||
|
Gross unrealized gain |
1,599,680 | 25,419,320 | 19,266,489 | 9,838,154 | ||||||||||||
|
Gross unrealized loss |
(127,825 | ) | (108,963 | ) | (246,972 | ) | (41,880 | ) | ||||||||
|
Net unrealized security gain |
$ | 1,471,855 | $ | 25,310,357 | $ | 19,019,517 | $ | 9,796,274 | ||||||||
The difference between GAAP-basis and tax-basis unrealized gains (losses) are attributable primarily to wash sales and differences in the tax treatment of market discount accretion and premium amortization.
Commerce and GSAM have reviewed the Funds’ tax positions for all open tax years (the current and prior three fiscal years) and have concluded that no provision for income tax is required in the Funds’ financial statements. Such open tax years remain subject to examination and adjustment by tax authorities.
| 7. OTHER RISKS |
The Funds’ risks include, but are not limited to, the following:
Credit Risk — The fixed income Funds are subject to credit risk because an issuer or guarantor of a fixed income security may be unable or unwilling to make interest and principal payments when due. A bond’s value could decline because of concerns about an issuer’s willingness to make such payments. This may impair a Fund’s liquidity or cause a deterioration in the Fund’s NAV. In addition, a Fund may incur expenses in an effort to protect the Fund’s interests or enforce its rights against an issuer, guarantor or counterparty or may be hindered or delayed in exercising these rights.
88
COMMERCE FUNDS
| 7. OTHER RISKS (continued) |
High Yield Risk — The Bond Fund is subject to high yield risk. High yield securities are subject to greater levels of credit and liquidity risk. High yield securities are considered speculative with respect to an issuer’s ability to make principal and interest payments and may be more volatile than higher-rated securities of similar maturity.
Interest Rate Risk — The fixed income Funds are subject to interest rate risk. Interest rate risk is the risk that the value of the Fund’s portfolio will decline because of rising interest rates. The magnitude of this decline will often be greater for longer-term, fixed-income securities than shorter-term securities. Changing interest rates may have unpredictable effects on the markets and on a Fund’s investments. Recent and any future declines in interest rate levels could cause a Fund’s earnings to fall below the Fund’s expense ratio, resulting in a negative yield and a decline in the Fund’s share price.
Investment Companies Risk — The Funds may invest, consistent with their respective investment objectives and strategies, in securities of other investment companies subject to statutory limitations prescribed by the Act. These limitations include a prohibition on any Fund acquiring more than 3% of the voting shares of any other investment company, and a prohibition on investing more than 5% of the Fund’s total assets in securities of any one investment company or more than 10% of its total assets in securities of all investment companies (except money market funds). The Funds will indirectly bear their proportionate share of any management fees and other expenses paid by such other investment companies.
LIBOR Risk — The London Interbank Offered Rate (“LIBOR”) is used extensively in the U.S. and globally as a “benchmark” or “reference rate” for various commercial and financial contracts, including corporate and municipal bonds, bank loans, assetbacked and mortgage-related securities, interest rate swaps and other derivatives.
On July 27, 2017, the head of the UK Financial Conduct Authority announced a desire to phase out the use of LIBOR by the end of 2021. Such announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. Regulators and industry working groups have suggested alternative reference rates, but global consensus is lacking and the process for amending existing contracts or instruments to transition away from LIBOR remains unclear. There also remains uncertainty and risk regarding the willingness and ability of issuers to include enhanced provisions in new and existing contracts or instruments. As such, the transition away from LIBOR may lead to increased volatility and illiquidity in markets that are tied to LIBOR, reduced values of LIBOR-related investments, and reduced effectiveness of hedging strategies, adversely affecting a Fund’s performance or NAV. In addition, the alternative reference rate may be an ineffective substitute resulting in prolonged adverse market conditions for a Fund.
Liquidity Risk — The fixed income Funds are subject to liquidity risk. Each fixed income Fund may not be able to pay redemption proceeds within the time periods described in the Funds’ prospectus because of unusual market conditions, an unusually high number of redemption requests or other reasons. Liquidity risk may result from the lack of an active market or reduced number and capacity of traditional market participants to make a market in fixed income securities, and may be magnified in a rising interest rate environment or other circumstances where investor redemptions from fixed income mutual funds may be higher than normal, causing increased supply in the market due to selling activity. Certain portfolio securities held by the fixed income funds may be less liquid than others, which may make those securities difficult or impossible to sell at an advantageous time or price.
Market Risk — Certain securities and other investments held by a Fund may experience increased volatility, illiquidity, or other potentially adverse effects in response to changing market conditions, inflation, changes in interest rates, lack of liquidity in the bond or equity markets, volatility in the equity markets, market disruptions caused by local or regional events such as war, acts of terrorism, the spread of infectious illness (including epidemics and pandemics) or other public health issues, recessions or other events or adverse investor sentiment. There is also a risk that a particular style of investing, such as growth, may underperform other styles of investing or the market generally.
89
COMMERCE FUNDS
Notes to Financial Statements (continued)
October 31, 2020
| 7. OTHER RISKS (continued) |
General economic conditions and/or the activities of individual companies may cause the value of the securities in a Fund to increase or decrease, sometimes rapidly or unpredictably. Your shares at redemption may be worth more or less than your initial investment. The value of a security may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, adverse changes to credit markets or adverse investor sentiment generally. The value of a security may also decline due to factors that affect a particular industry or industries such as labor shortages or increased production costs and competitive conditions within an industry. During a general downturn in the securities markets, multiple asset classes may decline in value simultaneously. Equity securities generally have greater price volatility than fixed income securities.
Credit ratings downgrades may also negatively affect securities held by a Fund. Even when markets perform well, there is no assurance that the investments held by a Fund will increase in value along with the broader market. In addition, market risk includes the risk that geopolitical events will disrupt the economy on a national or global level. For instance, local or regional events such as war, terrorism, market manipulation, government defaults, government shutdowns, natural/environmental disasters, the spread of infectious illness (including epidemics or pandemics) or other public health issues, recessions or other events can, all negatively impact the securities markets, which could cause the Funds to lose value. Any market disruptions could also prevent a Fund from executing advantageous investment decisions in a timely manner. Funds that have focused their investments in a region enduring geopolitical market disruption will face higher risks of loss. Thus, investors should closely monitor current market conditions to determine whether a specific Fund meets their individual financial needs and tolerance for risk.
Mid-Cap and Small-Cap Risk — The Growth, Value and MidCap Growth Funds are subject to the risks associated with investing in equity securities of mid- and small-cap companies. Investing in securities of smaller and mid-sized companies may be riskier than investing in larger, more established companies. Smaller and mid-sized companies are more vulnerable to adverse developments because of more limited product lines, markets or financial resources. Also, these stocks may trade less often and in limited volume compared to larger cap stocks trading on a national securities exchange. The prices of these stocks may be more volatile than the prices of larger company stocks. As a result, a Fund’s net asset value may be subject to rapid and substantial changes.
Non-Diversified Risk — Non-diversified funds typically hold fewer securities than diversified funds do. Consequently, the change in value of any one security may affect the overall value of a non-diversified portfolio more than it would a diversified portfolio.
Portfolio Concentration Risk — The Missouri Tax-Free Intermediate Bond and Kansas Tax-Free Intermediate Bond Funds invest a large percentage of their assets in obligations of issuers within Missouri and Kansas, respectively. Therefore, they are subject to possible concentration risks associated with economic, political or legal developments or industrial or regional matters specifically affecting those states.
Under normal market conditions, the Missouri Tax-Free Intermediate Bond Fund and the Kansas Tax-Free Intermediate Bond Fund invest at least 80% of their assets plus any borrowings for investment purposes (measured at the time of purchase) in Missouri and Kansas municipal securities, respectively, the income from which, in the opinion of bond counsel, is exempt from regular federal income tax, federal alternative minimum taxes and Missouri and Kansas state taxes, respectively. Alternatively, at least 80% of a Fund’s distributed income must be exempt from such taxes. For each of the Missouri and Kansas Tax-Free Funds, the actual payment of principal and interest on Missouri and Kansas municipal securities is dependent on the Missouri General Assembly and the Kansas legislature, respectively, allotting money each fiscal year for these payments.
The investments of the Growth, Value and MidCap Growth Funds may be concentrated in securities of technology companies. At times, securities of technology companies may experience significant price fluctuations. The Value Fund’s performance may be adversely affected by events affecting the financial sectors, if it invests a relatively large percentage of its assets in those sectors. The financial sectors can be significantly affected by changes in interest rates, government regulation,
90
COMMERCE FUNDS
| 7. OTHER RISKS (continued) |
the rate of corporate and consumer debt defaulted, price competition, and the availability and cost of capital. The MidCap Growth Fund concentrates in mid-cap stocks. Investing in smaller and mid-sized companies may be riskier than investing in larger, more established companies.
The Bond and Short-Term Government Funds may invest 80% and 100%, respectively, of their total assets in mortgage-related securities and the Bond Fund may invest 80% of its total assets in asset-backed securities. Mortgage-backed securities, especially collateralized mortgage-backed securities, may be subject to risks that include price volatility, liquidity, and enhanced sensitivity to interest rates. As a result, mortgage-backed securities may be more difficult to value and liquidate, if necessary. Mortgage-backed securities are also subject to prepayment risk, which may result in a decreased rate of return and a decline in the value of the securities. Asset-backed securities are dependent upon payment of the underlying consumer loans or receivables by individuals, and the certificate holder frequently has no recourse against the entity that originated the loans or receivables. Asset backed securities have a greater risk of default during periods of economic downturn than other securities. Also, asset-backed securities may be less liquid than other securities and therefore more difficult to value and liquidate, if necessary.
Quantitative Model Risk — The Growth, Value and MidCap Growth Funds are subject to the risk that securities selected using quantitative models may perform differently from the market as a whole for many reasons, including the factors used in building the model and the weights placed on each factor, among others. The quantitative models used by the Adviser to manage the Growth, Value and MidCap Growth Funds may not perform as expected, particularly in volatile markets.
| 8. INDEMNIFICATIONS |
Under the Trust’s organizational documents, its Trustees, officers, employees and agents are indemnified, to the extent permitted by the Act and state law, against certain liabilities that may arise out of performance of their duties to the Funds. Additionally, in the course of business, the Funds enter into contracts that contain a variety of indemnification clauses. The Funds’ maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds that have not yet occurred. However, in their experience, Commerce and GSAM believe the risk of loss under these arrangements to be remote.
| 9. OTHER MATTERS |
Certain Funds have adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2017-08 to amend the amortization period for certain purchased callable debt securities held at a premium. Under ASU No. 2017-08, the Funds have changed the amortization period for the premium on certain purchased callable debt securities with non-contingent call features to the earliest call date. In accordance with the transition provisions of the standard, the Funds applied the amendments on a modified retrospective basis beginning with the fiscal period ended October 31, 2020. This change in accounting policy has been made to comply with the newly issued accounting standard and had no impact on total distributable earnings (loss) or the NAV of the Funds.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU No. 2020-04 provides optional exceptions for applying GAAP to contract modifications, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 is elective and is effective on March 12, 2020 through December 31, 2022. As of the end of the financial reporting period, GSAM and Commerce are currently evaluating the impact, if any, of applying ASU No. 2020-04.
On October 22, 2020, The Goldman Sachs Group, Inc. announced a settlement of matters involving 1Malaysia Development Bhd. (1MDB), a Malaysian sovereign wealth fund, with the United States Department of Justice as well as criminal and civil authorities in the UK, Singapore and Hong Kong. Goldman Sachs, GSAM and certain of their affiliates have received a permanent
91
COMMERCE FUNDS
Notes to Financial Statements (continued)
October 31, 2020
| 9. OTHER MATTERS (continued) |
exemptive order from the Securities and Exchange Commission to permit, among other things, Goldman Sachs to continue to provide principal underwriting services to U.S.-registered investment companies, such as the Funds. The 1MDB settlement will not materially adversely affect Goldman Sachs’ ability to serve as Distributor or GSAM’s ability to serve as Co-Administrator.
| 10. SUBSEQUENT EVENTS |
Subsequent events after the Statement of Assets and Liabilities date have been evaluated through the date the financial statements were issued. Commerce and GSAM have concluded that there is no impact requiring adjustment or disclosure in the financial statements.
| 11. SUMMARY OF SHARE TRANSACTIONS |
Share activity is as follows:
| Growth Fund | ||||||||
|
For the Fiscal Year Ended
October 31, 2020 |
For the Fiscal Year Ended
October 31, 2019 |
|||||||
| Shares | Shares | |||||||
|
Shares sold |
1,440,977 | 1,435,623 | ||||||
|
Reinvestment of distributions |
73,508 | 114,471 | ||||||
|
Shares redeemed |
(1,029,646 | ) | (632,744 | ) | ||||
| Net Increase | 484,839 | 917,350 | ||||||
| Value Fund | ||||||||
|
For the Fiscal Year Ended
October 31, 2020 |
For the Fiscal Year Ended
October 31, 2019 |
|||||||
| Shares | Shares | |||||||
|
Shares sold |
2,856,846 | 3,141,884 | ||||||
|
Reinvestment of distributions |
379,171 | 449,519 | ||||||
|
Shares redeemed |
(3,324,151 | ) | (1,622,403 | ) | ||||
| Net Increase (Decrease) | (88,134 | ) | 1,969,000 | |||||
| MidCap Growth Fund | ||||||||
|
For the Fiscal Year Ended
October 31, 2020 |
For the Fiscal Year Ended
October 31, 2019 |
|||||||
| Shares | Shares | |||||||
|
Shares sold |
2,037,222 | 1,567,135 | ||||||
|
Reinvestment of distributions |
75,741 | 82,049 | ||||||
|
Shares redeemed |
(859,916 | ) | (572,763 | ) | ||||
| Net Increase | 1,253,047 | 1,076,421 | ||||||
92
COMMERCE FUNDS
| 11. SUMMARY OF SHARE TRANSACTIONS (continued) |
| Bond Fund | ||||||||
|
For the Fiscal Year Ended
October 31, 2020 |
For the Fiscal Year Ended
October 31, 2019 |
|||||||
| Shares | Shares | |||||||
|
Shares sold |
11,606,927 | 10,557,791 | ||||||
|
Reinvestment of distributions |
459,166 | 444,510 | ||||||
|
Shares redeemed |
(9,374,213 | ) | (9,933,288 | ) | ||||
| Net Increase | 2,691,880 | 1,069,013 | ||||||
| Short-Term Government Fund | ||||||||
|
For the Fiscal Year Ended
October 31, 2020 |
For the Fiscal Year Ended
October 31, 2019 |
|||||||
| Shares | Shares | |||||||
|
Shares sold |
2,894,048 | 1,053,150 | ||||||
|
Reinvestment of distributions |
46,322 | 38,905 | ||||||
|
Shares redeemed |
(2,402,091 | ) | (1,943,531 | ) | ||||
| Net Increase (Decrease) | 538,279 | (851,476 | ) | |||||
| National Tax-Free Intermediate Bond Fund | ||||||||
|
For the Fiscal Year Ended
October 31, 2020 |
For the Fiscal Year Ended
October 31, 2019 |
|||||||
| Shares | Shares | |||||||
|
Shares sold |
4,548,409 | 3,945,791 | ||||||
|
Reinvestment of distributions |
19,644 | 16,700 | ||||||
|
Shares redeemed |
(2,661,729 | ) | (2,551,185 | ) | ||||
| Net Increase | 1,906,324 | 1,411,306 | ||||||
| Missouri Tax-Free Intermediate Bond Fund | ||||||||
|
For the Fiscal Year Ended
October 31, 2020 |
For the Fiscal Year Ended
October 31, 2019 |
|||||||
| Shares | Shares | |||||||
|
Shares sold |
2,826,293 | 3,104,366 | ||||||
|
Reinvestment of distributions |
40,810 | 48,245 | ||||||
|
Shares redeemed |
(2,245,951 | ) | (2,793,097 | ) | ||||
| Net Increase | 621,152 | 359,514 | ||||||
| Kansas Tax-Free Intermediate Bond Fund | ||||||||
|
For the Fiscal Year Ended
October 31, 2020 |
For the Fiscal Year Ended
October 31, 2019 |
|||||||
| Shares | Shares | |||||||
|
Shares sold |
1,473,949 | 1,398,891 | ||||||
|
Reinvestment of distributions |
10,451 | 13,449 | ||||||
|
Shares redeemed |
(548,379 | ) | (1,149,868 | ) | ||||
| Net Increase | 936,021 | 262,472 | ||||||
93
COMMERCE FUNDS
Report of Independent Registered Public Accounting Firm
To the Shareholders of the Funds and Board of Trustees of
The Commerce Funds:
Opinion on the Financial Statements
We have audited the accompanying statements of assets and liabilities of The Growth Fund, The Value Fund, The MidCap Growth Fund, The Bond Fund, The Short-Term Government Fund, The National Tax-Free Intermediate Bond Fund, The Missouri Tax-Free Intermediate Bond Fund, and The Kansas Tax-Free Intermediate Bond Fund (the Funds), each a series of The Commerce Funds, including the schedules of investments, as of October 31, 2020, the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the financial statements) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Funds as of October 31, 2020, the results of their operations for the year then ended, the changes in their net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of October 31, 2020, by correspondence with custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Commerce Funds since 1994.
Boston, Massachusetts
December 21, 2020
94
COMMERCE FUNDS
Liquidity Risk Management Program (Unaudited)
The Trust, on behalf of each Fund, has adopted and implemented a Liquidity Risk Management Program (the “Program”) as required by rule 22e-4 under the Act (the “Rule”). The Program seeks to assess, manage and review the risk that a Fund could not meet requests to redeem shares issued by the Fund without significant dilution of remaining investors’ interest in the Fund (“Liquidity Risk”).
The Board has appointed Commerce, as the program administrator for the Program. Commerce has delegated oversight of the Program to its Liquidity Committee (the “Committee”).
At a meeting held on May 12, 2020, the Board received and reviewed the annual written report of the Committee, on behalf of Commerce (the “Report”), concerning the operation of the Program for the period from April 1, 2019 through March 31, 2020 (the “Reporting Period”). The Report addressed the operation of the Program and assessed its adequacy and effectiveness of implementation.
The Report summarized the operation of the Program and the information and factors considered by the Committee in reviewing the adequacy and effectiveness of the Program’s implementation with respect to each Fund. Such information and factors included, among other things: (i) the methodology and inputs used to classify the liquidity of each Fund’s portfolio investments and the Committee’s assessment that each Fund’s strategy was appropriate for an open-end mutual fund; (ii) that each Fund held primarily highly liquid assets (investments that the Fund anticipates can be converted to cash within 3 business days or less in current market conditions without significantly changing their market value) and that none of the Funds engaged in lending for investment purposes or invested in derivatives; (iii) historical information and short- and long-term projections relating to redemptions and shareholder concentration in each Fund; (iv) that none of the Funds had breached the 15% maximum illiquid security threshold (investments that cannot be sold or disposed of in seven days or less in current market conditions without the sale of the investment significantly changing the market value of the investment) and the procedures for monitoring compliance with the limit; (v) the functioning of the framework and technologies used to assess, manage, and periodically review each Fund’s Liquidity Risk; and (vi) that each Fund was not required by the Rule to establish a highly liquid investment minimum (“HLIM”) but that the Trust had established for each Fund a HLIM of 10%, which no Fund had exceeded during the Reporting Period. The Report also indicated that there were no changes made to the Program during the Reporting Period.
Based on the review, the Report concluded that the Program was being implemented effectively and reasonably designed to assess and manage Liquidity Risk in each Fund’s portfolio.
There can be no assurance that the Program will achieve its objectives under all circumstances in the future. Please refer to the Funds’ prospectus for more information regarding a Fund’s exposure to liquidity risk and other risks to which it may be subject.
95
96
COMMERCE FUNDS
Fund Expenses – Six Month Period Ended October 31, 2020 (Unaudited)
As a shareholder of the Funds you incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees; shareholder servicing fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from May 1, 2020 through October 31, 2020, which represents a
period of 184 days in a 366-day year.
Actual Expenses — The first line in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000=8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes — The second line in the table below provides information about hypothetical account values and hypothetical expenses based on the Funds’ actual net expense ratios and an assumed rate of return of 5% per year before expenses, which is not the Funds’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as exchange fees, but shareholders of other funds may incur such costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
|
Beginning
Account Value 5/1/20 |
Ending
Account Value 10/31/20 |
Expenses
Paid for the 6 months ended 10/31/20* |
Beginning
Account Value 5/1/20 |
Ending
Account Value 10/31/20 |
Expenses
Paid for the 6 months ended 10/31/20* |
Beginning
Account Value 5/1/20 |
Ending
Account Value 10/31/20 |
Expenses
Paid for the 6 months ended 10/31/20* |
Beginning
Account Value 5/1/20 |
Ending
Account Value 10/31/20 |
Expenses
Paid for the 6 months ended 10/31/20* |
|||||||||||||||||||||||||||||||||||||
| Growth Fund | Value Fund | MidCap Growth Fund | Bond Fund | |||||||||||||||||||||||||||||||||||||||||||||
|
Share Class |
||||||||||||||||||||||||||||||||||||||||||||||||
| Actual | $ | 1,000.00 | $ | 1,172.60 | $ | 3.88 | $ | 1,000.00 | $ | 1,058.00 | $ | 3.72 | $ | 1,000.00 | $ | 1,188.60 | $ | 4.24 | $ | 1,000.00 | $ | 1,037.30 | $ | 3.23 | ||||||||||||||||||||||||
| Hypothetical 5% return | 1,000.00 | 1,021.57 | + | 3.61 | 1,000.00 | 1,021.52 | + | 3.66 | 1,000.00 | 1,021.27 | + | 3.91 | 1,000.00 | 1,021.97 | + | 3.20 | ||||||||||||||||||||||||||||||||
| Short-Term Government Fund |
National Tax-Free Intermediate
Bond Fund |
Missouri Tax-Free Intermediate
Bond Fund |
Kansas Tax-Free Intermediate Bond
Fund |
|||||||||||||||||||||||||||||||||||||||||||||
|
Share Class |
||||||||||||||||||||||||||||||||||||||||||||||||
| Actual | $ | 1,000.00 | $ | 1,003.10 | $ | 3.42 | $ | 1,000.00 | $ | 1,037.80 | $ | 3.02 | $ | 1,000.00 | $ | 1,029.40 | $ | 3.16 | $ | 1,000.00 | $ | 1,030.60 | $ | 3.57 | ||||||||||||||||||||||||
| Hypothetical 5% return | 1,000.00 | 1,021.72 | + | 3.46 | 1,000.00 | 1,022.17 | + | 3.00 | 1,000.00 | 1,022.02 | + | 3.15 | 1,000.00 | 1,021.62 | + | 3.56 | ||||||||||||||||||||||||||||||||
| * |
Expenses are calculated using each Fund’s annualized net expense ratio, which represents the ongoing expenses as a percentage of net assets for the six months ended October 31, 2020. Expenses are calculated by multiplying the annualized net expense ratio by the average account value for the period; then multiplying the result by the number of days in the most recent fiscal half year; and then dividing that result by the number of days in the year. The annualized net expense ratios for the period were as follows: |
|
Fund |
Fund |
|||||||||||||
| Growth | 0.71 | % | Short-Term Government | 0.68 | % | |||||||||
| Value | 0.72 | National Tax-Free Intermediate Bond | 0.59 | |||||||||||
| MidCap Growth | 0.77 | Missouri Tax-Free Intermediate Bond | 0.62 | |||||||||||
| Bond | 0.63 | Kansas Tax-Free Intermediate Bond | 0.70 | |||||||||||
| + | Hypothetical expenses are based on the Funds’ actual net expense ratios and an assumed rate of return of 5% per year before expenses. |
COMMERCE FUNDS
Trustees and Officers (Unaudited)
The Board of the Trust is responsible for the management of the business and affairs of the Trust. The Trustees and officers of the Trust and their principal occupations for the last five years are set forth below. The table below shows the Trustees and officers as of November 17, 2020. Trustees who are not deemed to be “interested persons” of the Trust as defined in the Act are referred to as “Independent Trustees.” Trustees who are deemed to be “interested persons” of the Trust are referred to as “Interested Trustees.” The Commerce Funds’ statement of additional information (“SAI”), which includes additional information about the Trustees, is available and may be obtained without charge by calling 1-800-995-6365.
Each Trustee holds office for an indefinite term until the earliest of: (a) the election of his successor; (b) the date a trustee dies, resigns or is removed by at least two-thirds of the Board in accordance with the Trust’s Declaration of Trust; (c) in accordance with the by-laws of the Trust (which may be changed by the Trustees without shareholder approval) at the end of the calendar year during which the Trustee attains the age of 75 years; unless the Board, in its discretion, votes to retain a trustee or (d) the Trust terminates. Each officer holds office for an indefinite term until the earliest of: (a) the election of his successor; (b) the date an officer dies, resigns or is removed by the Board in accordance with the Trust’s by-laws; or (c) the Trust terminates.
Independent Trustees
|
Name,
|
Position(s)
|
Length of
|
Principal Occupation(s)
|
Number of
Funds in Fund Complex2 Overseen by Trustee |
Other Directorships Held
|
|||||
|
Scott D. Monette c/o The Commerce Funds 922 Walnut Street Kansas City, MO 64106 Age: 59 |
Trustee | Since August 2017 | Chief Executive Officer, Big Heart Wines LLC, since 2013; Director, Spartan Light Metal Products, Inc., since 2014; Chief Financial Officer, from 2011 to 2013, Corporate Vice President, Treasurer and Corporate Development Officer, from 2001 to 2011, Ralcorp Holdings, Inc. (food manufacturing). | 8 | None | |||||
|
*Charles W. Peffer c/o The Commerce Funds 922 Walnut Street Kansas City, MO 64106 Age: 73 |
Lead Independent Trustee |
17 years | Retired. Former Partner and Managing Partner of KPMG LLP until September 2002. | 8 | Director, Garmin Ltd. (aviation and consumer technology), since 2004; Director, NPC International Inc. (restaurant and business), from 2006 to December 2011 and from 2012 to 2018; Director, Sensata Technologies Holding N.V. (sensors and control systems for various manufacturing products), since 2010; Director, HD Supply Holdings, Inc. (industrial distributor of products and services in North America), since 2013. | |||||
97
COMMERCE FUNDS
Trustees and Officers (Unaudited) (continued)
Independent Trustees (continued)
|
Name,
|
Position(s)
|
Length of
|
Principal Occupation(s)
|
Number of
Funds in Fund Complex2 Overseen by Trustee |
Other Directorships Held
|
|||||
|
Erika Z. Schenk c/o The Commerce Funds 922 Walnut Street Kansas City, MO 64106 Age: 48 |
Trustee | Since August 2017 | General Counsel and Vice President of Compliance, World Wide Technology, Inc., (technology solutions and services) since 2014; Senior Counsel, The Boeing Company (aerospace manufacturing), from 2011 to 2014. | 8 | None | |||||
| Interested Trustees | ||||||||||
|
**V. Raymond Stranghoener c/o The Commerce Funds 922 Walnut Street Kansas City, MO 64106 Age: 69 |
Chair of the Board | Since February 2018 | Executive Vice President of Commerce Bancshares, since 2018; Non-Executive Chairman, since 2018, Chairman and CEO, from 2016 to 2018, President and CEO, from 1999 to 2016, Commerce Trust Company. | 8 | None | |||||
| 1 |
Each Trustee holds office for an indefinite term until the earliest of: (a) the election of his or her successor; (b) the date a Trustee dies, resigns or is removed by at least two-thirds of the Board in accordance with the Trust’s Declaration of Trust; (c) in accordance with the by-laws of the Trust (which may be changed by the Trustees without shareholder approval) at the end of the calendar year during which the Trustee attains the age of 75 years, unless the Board, in its discretion, votes to retain a Trustee; or (d) the Trust terminates. |
| 2 |
The “Fund Complex” consists of the Trust. |
| 3 |
Directorships of companies required to report to the SEC under the Securities Exchange Act of 1934 (i.e., “public companies”) or other investment companies registered under the 1940 Act. |
| * |
Mr. Peffer serves as an independent director of Lockton Inc. (“Lockton”), a privately owned company (since 2013). Lockton serves as the Funds’ insurance broker. Commerce Bancshares, parent company of the Adviser, pays Lockton an annual fee for insurance brokerage services provided to both the Funds and Commerce Bancshares in the amount of approximately $346,500 (the “Transaction”). The Transaction is not considered material to Lockton or Commerce Bancshares, and Mr. Peffer is not considered to have a material business relationship with either the Adviser or the Trust under the 1940 Act as a result of the Transaction. |
| ** |
Mr. Stranghoener is an interested person of the Trust because he is the Non-Executive Chairman of CTC, an affiliate of the Adviser, and Executive Vice President of Commerce Bancshares, the parent company of the Adviser. In addition, Mr. Stranghoener owns shares of Commerce Bancshares. |
98
COMMERCE FUNDS
Officers
|
Name,
|
Position(s) Held with The Trust |
Length of Time Served |
Principal Occupation(s) During Past 5 Years |
|||
|
William R. Schuetter Commerce Investment Advisors, Inc. 922 Walnut Street Kansas City, MO 64106 Age: 60 |
President | 12 years | Chief Operations Officer, Commerce Investment Advisors, Inc., since May 2001; Director, Commerce Investment Advisors, Inc., since April 2008; Vice President, Commerce Bank, since 1998; President, The Commerce Funds, since May 2008. | |||
|
Laura Spidle Commerce Investment Advisors, Inc. 922 Walnut Street Kansas City, MO 64106 Age: 51 |
Secretary, Chief Compliance Officer, Vice President and Anti-Money Laundering Officer |
Since August 2017 |
Chief Compliance Officer, Commerce Investment Advisors, Inc., since 2017; Compliance Manager, 2004-2017, Investment Accounting Manager, Senior, 2003-2004, Investment Accounting Manager, 1999-2003, American Century Investments. |
|||
|
Jeffrey Bolin Commerce Investment Advisors, Inc. 922 Walnut Street Kansas City, MO 64106 Age: 53 |
Vice President Assistant Treasurer | 12 years Since November 2020 | Vice President and Business Manager, The Commerce Funds, since November 2013; Vice President and Business Manager, Commerce Investment Advisors, Inc., since March 2012; Assistant Vice President and Business Manager, The Commerce Funds, from November 2008 to November 2013; Assistant Vice President and Business Manager, Commerce Investment Advisors, Inc., November 2008 to March 2012. | |||
|
Peter W. Fortner Goldman Sachs & Co. LLC 30 Hudson Street Jersey City, NJ 07302 Age: 62 |
Chief Accounting Officer and Treasurer | 13 years |
Vice President, Goldman Sachs & Co. LLC, since July 2000; Assistant Treasurer, Goldman Sachs Mutual Fund Complex, since July 2000; Treasurer of the Goldman Sachs Philanthropy Fund since September 2019. |
|||
|
Joseph McClain Goldman Sachs & Co. LLC 200 West Street New York, NY 10282 Age: 36 |
Assistant Secretary | Since November 2017 | Vice President and Senior Counsel, Goldman Sachs Asset Management, since February 2016; Associate, Dechert LLP, April 2012 to January 2016. | |||
99
COMMERCE FUNDS
The Commerce Funds
The Growth Fund:
The Fund is subject to market risk so that the value of the securities in which it invests may go up or down in response to the prospects of individual companies, particular industry sectors and/or general economic conditions. Investments in technology companies, which may produce or use products or services that prove commercially unsuccessful or become obsolete, may be subject to greater price volatility than securities of companies in other sectors. The Fund is also subject to quantitative model risk, which is the risk that securities selected using quantitative models may perform differently from the market as a whole for many reasons, including the factors used in building the model and the weights placed on each factor, among others. The quantitative model used by the Adviser to manage the Fund may not perform as expected, particularly in volatile markets.
The Value Fund:
The Fund is subject to market risk so that the value of the securities in which it invests may go up or down in response to the prospects of individual companies, particular industry sectors and/or general economic conditions. Investments in technology companies, which may produce or use products or services that prove commercially unsuccessful or become obsolete, may be subject to greater price volatility than securities of companies in other sectors. The Value Fund’s performance may be adversely affected by events affecting the financial sectors, if it invests a relatively large percentage of its assets in those sectors. The financial sectors can be significantly affected by changes in interest rates, government regulation, the rate of corporate and consumer debt defaulted, price competition, and the availability and cost of capital. The Fund is also subject to quantitative model risk, which is the risk that securities selected using quantitative models may perform differently from the market as a whole for many reasons, including the factors used in building the model and the weights placed on each factor, among others. The quantitative model used by the Adviser to manage the Fund may not perform as expected, particularly in volatile markets.
The MidCap Growth Fund:
The Fund is subject to market risk so that the value of the securities in which it invests may go up or down in response to the prospects of individual companies, particular industry sectors and/or general economic conditions. Investments in technology companies, which may produce or use products or services that prove commercially unsuccessful or become obsolete, may be subject to greater price volatility than securities of companies in other sectors. The Fund invests in small- and mid-capitalization securities. Generally, smaller and mid-sized companies are more vulnerable to adverse developments because of more limited product lines, markets or financial resources. As a result, the securities of smaller and mid-sized companies may involve greater risks than those associated with larger, more established companies and may be subject to more abrupt or erratic trading and price movements. The Fund is also subject to quantitative model risk, which is the risk that securities selected using quantitative models may perform differently from the market as a whole for many reasons, including the factors used in building the model and the weights placed on each factor, among others. The quantitative model used by the Adviser to manage the Fund may not perform as expected, particularly in volatile markets.
The Bond Fund:
Investments in fixed income securities are subject to the risks associated with debt securities including credit and interest rate risk. The guarantee on U.S. government securities applies only to the underlying securities of the Fund if held to maturity and not to the value of the Fund’s shares. Mortgage-backed securities, especially collateralized mortgage-backed securities, may be subject to risks that include price volatility, liquidity and enhanced sensitivity to interest rates. Asset-backed securities may be less liquid than other securities and therefore more difficult to value and liquidate, if necessary.
The Short-Term Government Fund:
Investments in fixed income securities are subject to the risks associated with debt securities including credit and interest rate risk. The guarantee on U.S. government securities applies only to the underlying securities of the Fund if held to maturity and
100
COMMERCE FUNDS
not to the value of the Fund’s shares. Mortgage-backed securities, especially collateralized mortgage-backed securities, may be subject to risks that include price volatility, liquidity and enhanced sensitivity to interest rates.
The National Tax-Free Intermediate Bond Fund:
Investments in fixed income securities are subject to the risks associated with debt securities including credit and interest rate risk. Investments in municipal securities can be significantly affected by political changes as well as uncertainties in the municipal market related to taxation or legislative changes. The Fund’s investments may subject shareholders to the federal alternative minimum tax and state income taxes.
The Missouri Tax-Free Intermediate Bond Fund:
Investments in fixed income securities are subject to the risks associated with debt securities including credit and interest rate risk. The Fund invests its assets predominately in Missouri bonds. The actual payment of principal and interest on these bonds is dependent on the Missouri General Assembly allotting money each fiscal year for these payments. The Fund is non-diversified. Due to the small number of bonds generally held in the portfolio, the Fund may be subject to greater risks than a more diversified fund. A change in the value of any single holding may affect the overall value more than it would affect a diversified fund that holds more investments. Investments in municipal securities can be significantly affected by political changes as well as uncertainties in the municipal market related to taxation or legislative changes. In addition, the Fund’s investments may subject shareholders to federal alternative minimum tax. The investment income from this Fund may be subject to state income taxes.
The Kansas Tax-Free Intermediate Bond Fund:
Investments in fixed income securities are subject to the risks associated with debt securities including credit and interest rate risk. The Fund invests its assets predominately in Kansas bonds. The actual payment of principal and interest on these bonds is dependent on the Kansas legislature allotting money each fiscal year for these payments. The Fund is non-diversified. Due to the small number of bonds generally held in the portfolio, the Fund may be subject to greater risks than a more diversified fund. A change in the value of any single holding may affect the overall value more than it would affect a diversified fund that holds more investments. Investments in municipal securities can be significantly affected by political changes as well as uncertainties in the municipal market related to taxation or legislative changes. In addition, the Fund’s investments may subject shareholders to federal alternative minimum tax. The investment income from this Fund may be subject to state income taxes.
101
COMMERCE FUNDS
The Commerce Funds (continued)
Commerce Funds Tax Information (Unaudited)
For the year ended October 31, 2020, 100%, 99.42%, and 74.89% of the dividends paid from net investment company taxable income by the Growth, Value, and Mid Cap Growth Funds, respectively, qualify for the dividends received deduction available to corporations.
For the year ended October 31, 2020, 100%, 99.59%, and 70.87% of the dividends paid from net investment company taxable income by the Growth, Value, and Mid Cap Growth Funds, respectively, qualify for the reduced tax rate under the Jobs and Growth Tax Relief and Reconciliation Act of 2003.
Pursuant to Section 852 of the Internal Revenue Code, the Growth, Value, Mid Cap Growth, and National Tax-Free Intermediate Bond Funds designate $9,095,202, $12,660,501, $11,858,960, and $1,124,105, respectively, or, if different, the maximum amount allowable, as capital gain dividends paid during the year ended October 31, 2020.
During the year ended October 31, 2020, 93.61%, 97.97%, and 97.98%, of the distributions from net investment income paid by the National Tax-Free Intermediate Bond, Missouri Tax-Free Intermediate Bond, and Kansas Tax-Free Intermediate Bond Funds, respectively, were exempt-interest dividends and as such, are not subject to U.S. Federal income tax.
During the year ended October 31, 2020, the Growth, Value, Mid Cap Growth, and National Tax-Free Intermediate Bond Funds designate $4,576, $1,406,594, $1,899,889 and $355,450, respectively, as short-term capital gain dividends pursuant to Section 871(k) of the Internal Revenue Code.
During the year ended October 31, 2020, 100% of the distributions paid from net investment company taxable income by the Bond and Short-Term Government Funds, respectively, are designated as interest-related dividends pursuant to section 871(k) of the Internal Revenue Code.
102
ADVISER AND CO-ADMINISTRATOR COMMERCE INVESTMENT ADVISORS, INC. 922 Walnut Street, 4th Floor Kansas City, Missouri 64106 CUSTODIAN/ACCOUNTING AGENT STATE STREET BANK & TRUST COMPANY 1 Lincoln Street Boston, Massachusetts 02111 TRANSFER AGENT DST ASSET MANAGER SOLUTIONS, INC. 2000 Crown Colony Drive Quincy, Massachusetts 02167 DISTRIBUTOR Goldman Sachs & Co. LLC 200 West Street New York, New York 10282 CO-ADMINISTRATOR Goldman Sachs Asset Management, L.P. 200 West Street New York, New York 10282 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP Two Financial Center 60 South Street Boston, Massachusetts 02111 LEGAL COUNSEL Faegre Drinker Biddle & Reath LLP One Logan Square Suite 2000 Philadelphia, Pennsylvania 19103-6996 IMPORTANT INFORMATION 7KLV $QQXDO 5HSRUW FRQWDLQV IDFWV FRQFHUQLQJ 7KH &RPPHUFH )XQGV· REMHFWLYHV DQG SROLFLHV PDQDJHPHQW H[SHQVHV DQG RWKHU LQIRUPDWLRQ )RU PRUH FRPSOHWH LQIRUPDWLRQ DERXW 7KH &RPPHUFH )XQGV D SURVSHFWXV PD\ EH REWDLQHG E\ FDOOLQJ $Q LQYHVWRU VKRXOG UHDG WKH prospectus carefully before investing or sending money. 7KH &RPPHUFH )XQGV DUH DGYLVHG E\ &RPPHUFH ,QYHVWPHQW $GYLVRUV ,QF D VXEVLGLDU\ RI &RPPHUFH %DQN ZKLFK UHFHLYHV D IHH IRU LWV VHUYLFHV The Commerce Funds are distributed by Goldman Sachs & Co. LLC. 7KH &RPPHUFH )XQGV ÀOH WKHLU FRPSOHWH VFKHGXOH RI SRUWIROLR KROGLQJV ZLWK WKH 6(& IRU HDFK PRQWK LQ D ÀVFDO TXDUWHU ZLWKLQ GD\V DIWHU WKH HQG RI WKH UHOHYDQW ÀVFDO TXDUWHU RQ )RUP 1 3257 7KH )XQGV VFKHGXOH RI SRUWIROLR KROGLQJV IRU WKH WKLUG PRQWK RI HDFK ÀVFDO TXDUWHU LV DYDLODEOH RQ WKH 6(& V ZHEVLWH DW KWWS ZZZ VHF JRY $ GHVFULSWLRQ RI WKH SROLFLHV DQG SURFHGXUHV WKDW 7KH &RPPHUFH )XQGV XVH WR GHWHUPLQH KRZ WR YRWH SUR[LHV UHODWLQJ WR SRUWIROLR VHFXULWLHV and information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is DYDLODEOH L ZLWKRXW FKDQJH XSRQ UHTXHVW E\ FDOOLQJ DQG LL RQ WKH 6(&·V ZHEVLWH DW KWWS ZZZ VHF JRY 7KLV PDWHULDO LV QRW DXWKRUL]HG IRU GLVWULEXWLRQ WR SURVSHFWLYH LQYHVWRUV XQOHVV SUHFHGHG RU DFFRPSDQLHG E\ D FXUUHQW 3URVSHFWXV ,QYHVWRUV VKRXOG FRQVLGHU D )XQG·V REMHFWLYH ULVNV DQG FKDUJHV DQG H[SHQVHV DQG UHDG WKH 3URVSHFWXV FDUHIXOO\ EHIRUH LQYHVWLQJ RU VHQGLQJ PRQH\ 7KH 3URVSHFWXV FRQWDLQV WKLV DQG RWKHU LQIRUPDWLRQ DERXW D )XQG DQG PD\ EH REWDLQHG IURP \RXU DXWKRUL]HG GHDOHU RU IURP &RPPHUFH )XQGV E\ FDOOLQJ NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
TRUSTEES 9 5D\PRQG 6WUDQJKRHQHU Chairman &KDUOHV : 3HIIHU Lead Independent Trustee 6FRWW ‘ 0RQHWWH (ULND = 6FKHQN OFFICERS :LOOLDP 6FKXHWWHU President /DXUD 6SLGOH 9LFH 3UHVLGHQW &KLHI &RPSOLDQFH 2IÀFHU $QWL 0RQH\ /DXQGHULQJ 2IÀFHU DQG 6HFUHWDU\ -HIIUH\ %ROLQ Vice President and Assistant Treasurer 3HWHU : )RUWQHU &KLHI $FFRXQWLQJ 2IÀFHU DQG 7UHDVXUHU -RVHSK 0F&ODLQ $VVLVWDQW 6HFUHWDU\ COMMERCE FUNDS :DOQXW 6WUHHW WK )ORRU .DQVDV &LW\ 02 WWW.COMMERCEFUNDS.COM
| ITEM 2. | CODE OF ETHICS. |
(a) As of the end of the period covered by this report, the Registrant has adopted a code of ethics, the Code of Conduct for Senior Officers, that applies to the Registrant’s principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, regardless of whether these individuals are employed by the Registrant or a third party. A copy of the Code of Conduct for Senior Officers is filed herein under Item 13(a)(1).
(c) During the period covered by this report, no amendments were made to the provisions of the Code of Conduct for Senior Officers.
(d) During the period covered by this report, the Registrant did not grant any waivers, including an implicit waiver, from any provision of the Code of Conduct for Senior Officers.
| ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
The Registrant’s Board of Trustees has determined that the Registrant has at least one “audit committee financial expert” (as defined in Item 3 of Form N-CSR) serving on its Audit Committee. Scott D. Monette is the “audit committee financial expert” and is “independent” (as each of these terms is defined in Item 3 of Form N-CSR).
Under applicable securities laws and regulations, a person who is determined to be an audit committee financial expert will not be deemed an “expert” for any purpose, including without limitation for purposes of Section 11 of the Securities Act of 1933, as amended, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liability that are greater than the duties, obligations, and liability imposed on such person as a member of the Registrant’s Audit Committee and Board of Trustees in the absence of such designation or identification. The designation or identification of a person as an audit committee financial expert does not affect the duties, obligations or liability of any other member of the Registrant’s Audit Committee or Board of Trustees.
| ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
(a) Audit Fees. The aggregate fees billed for each of the last two fiscal years for professional services rendered by the Registrant’s principal accountant for the audit of the Registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements were $161,350 and $157,500 for fiscal years ended October 31, 2020 and 2019, respectively.
(b) Audit-Related Fees. There were no fees billed in either of the last two fiscal years for assurance and related services by the Registrant’s principal accountant reasonably related to the performance of the audit of the Registrant’s financial statements that were not reported under paragraph (a) of this item.
(c) Tax Fees. The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning were $38,000 and $47,240 for the fiscal years ended October 31, 2020 and 2019, respectively. Tax fees for the fiscal years ended October 31, 2020 and 2019 consist of tax compliance services rendered to the Registrant. These services include the preparation of federal and state corporate tax returns and excise tax returns, as well as services relating to excise tax distribution requirements.
(d) All Other Fees. There were no fees billed in either of the last two fiscal years for products and services provided by the Registrant’s principal accountant, other than the services reported in paragraphs (a) through (c) of this Item.
(e)(l) Pursuant to a Board resolution adopted on February 10, 2004, to the extent required by applicable regulations, all audit and non-audit services provided by the independent accountants shall be pre-approved either: (a) by the Registrant’s Audit Committee as a whole; or (b) between meetings of the Audit Committee by the Chairman of the Audit Committee and the Registrant’s designated Audit Committee Financial Expert, provided that, in each case, such pre-approvals must be reported to the full Audit Committee at its next meeting.
(e)(2) There were no services described in each of paragraphs (b) through (d) of this item that were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable. The percentage of hours expended on the principal accountant’s engagement to audit the Registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was zero percent (0%).
(g) The aggregate non-audit fees billed by the Registrant’s accountant for services rendered to the Registrant, and rendered to the Registrant’s investment adviser and any entity controlling, controlled by or under common control with the adviser that provides ongoing services to the Registrant for each of the last two fiscal years of the Registrant were $315,097 and $313,143 for the fiscal years ended October 31, 2020 and 2019, respectively.
(h) The Registrant’s Audit Committee has considered whether the provision of non-audit services that were rendered to the Registrant’s investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
| ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable.
| ITEM 6. | SCHEDULE OF INVESTMENTS. |
(a) The Schedule of Investments is included as part of the Report to Shareholders filed under Item 1.
(b) Not applicable.
| ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT |
| INVESTMENT | COMPANIES. |
Not applicable.
| ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND |
| AFFILIATED | PURCHASERS. |
Not applicable.
| ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
There has been no material change to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees.
| ITEM 11. | CONTROLS AND PROCEDURES. |
| (a) | The Registrant’s principal executive and principal financial officers or persons performing similar functions have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing of this report, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended. |
| (b) | There was no change in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
| ITEM 12. | DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 13. | EXHIBITS |
| (a)(1) | The Commerce Funds’ Code of Conduct for Senior Officers is attached hereto. | |||
| (a)(2) | Exhibit 99.CERT | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are filed herewith. | ||
| (a)(3) | Not applicable. | |||
| (a)(4) | Not applicable. | |||
| (b) | Exhibit 99.906CERT | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are filed herewith. | ||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| THE COMMERCE FUNDS |
| /s/ Bill Schuetter |
| Bill Schuetter |
| President |
| January 7, 2021 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| /s/ Bill Schuetter |
| Bill Schuetter |
| President |
| The Commerce Funds |
| January 7, 2021 |
| /s/ Peter Fortner |
| Peter Fortner |
| Chief Accounting Officer |
| The Commerce Funds |
| January 7, 2021 |