Law Offices
DRINKER BIDDLE & REATH LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Telephone: (215) 988-2700
TELEX: 834684
FAX: (215) 988-2757
December 22, 1998
VIA EDGAR TRANSMISSION
- ----------------------
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: FIRSTAR FUNDS, INC.
(1933 ACT REGISTRATION NO. 33-18255)
(1940 ACT REGISTRATION NO. 811-5380)
------------------------------------
Ladies and Gentlemen:
On behalf of Firstar Funds, Inc. (the "Company"), I have transmitted
herewith for filing Post-Effective Amendment No. 35 to the Fund's Registration
Statement on Form N-1A under the Securities Act of 1933 and the Investment
Company Act of 1940.
Pursuant to Rule 485(a) under the Securities Act of 1933, it is
proposed that this Amendment become effective on March 1, 1999. Registrant
intends to file a subsequent Post-Effective Amendment pursuant to Rule 485(b)
under the Securities Act of 1933 in order to (i) include the Company's audited
financial statements for the fiscal year ended October 31, 1998, (ii) update
certain financial information and (iii) finalize and complete the disclosure in
the current filing.
The Company currently has Retail and Institutional versions of its
prospectus, a separate prospectus for its Balanced Income Fund covering both
Retail and Institutional shares and a separate prospectus covering four of its
Money Market funds. Please be advised that the Retail and Institutional versions
of the prospectus and the separate prospectus for the Balanced Income Fund have
been combined into one prospectus in this filing. The Money Market Fund
prospectus continues as a separate prospectus
As requested in the staff's generic comment letter dated February 25,
1994, we note for your information that shares of the Company are marketed in
part through banks.
Very truly yours,
/s/Joan O. Swirsky
---------------
Joan O. Swirsky
xxxxx
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON DECEMBER 22, 1998
1933 ACT REGISTRATION NO. 33-18255
1940 ACT REGISTRATION NO. 811-5380
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
-- --
Post-Effective Amendment No. 35 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 36 X
(Check appropriate box or boxes)
FIRSTAR FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
FIRSTAR FUNDS CENTER
615 EAST MICHIGAN STREET
MILWAUKEE, WISCONSIN 53201-3011
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (414) 287-3909
W. BRUCE MCCONNEL, III, ESQUIRE
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box).
immediately upon filing pursuant to paragraph (b)
--
On January 30, 1998 pursuant to paragraph (b)
--
60 days after filing pursuant to paragraph (a)(1)
--
X on March 1, 1999 pursuant to paragraph (a)(1)
--
75 days after filing on , 1997 pursuant to paragraph (a)(2)
-- --------
on , 19 pursuant to paragraph (a)(2) of Rule 485.
-- ----------- -- --
If appropriate, check the following box:
this Post-Effective Amendment designates a new effective date for a
--
previously filed Post-Effective Amendment.
Title of securities being registered: Shares of common stock.
xxxxx
FIRSTAR FUNDS/R
MARCH 1, 1999
CONTENTS Page
The Funds
- ---------------
Learn about
each Fund's
Objective,
Principal
Investment
Strategies,
Principal
Risks,
Performance
and Expenses.
- --------------
INSTITUTIONAL MONEY MARKET FUND
MONEY MARKET FUND
U.S. TREASURY MONEY MARKET FUND
U.S. GOVERNMENT FUND
TAX-EXEMPT MONEY MARKET FUND
SHORT-TERM BOND MARKET FUND
INTERMEDIATE BOND MARKET FUND
BOND IMMDEX/TM FUND
TAX-EXEMPT INTERMEDIATE BOND FUND
BALANCED INCOME FUND
BALANCED GROWTH FUND
GROWTH AND INCOME FUND
EQUITY INDEX FUND
GROWTH FUND
SPECIAL GROWTH FUND
EMERGING GROWTH FUND
MICROCAP FUND
INTERNATIONAL EQUITY FUND
ADDITIONAL FUND INFORMATION
Types of Investment Risk
INVESTING WITH FIRSTAR FUNDS
Share Classes Available
Sales Charges and Waivers
Purchase of Shares
Buying of Shares
Redemption of Shares
Exchanges of Shares
Additional Shareowner Services
ADDITIONAL INFORMATION
Dividends, Capital Gains Distributions and Taxes
Management of the Funds
Net Asset Value and Days of Operation
Additional Performance Information
APPENDIX
Financial Highlights
<PAGE>
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
An investment in the Funds is not a deposit of Firstar Bank and is not insured
by the Federal Deposit Insurance Corporation, or any other government agency.
An investment in a Fund involves investment risks, including possible loss of
principal. Although each Money Market Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Fund.
MONEY MARKET FUND AND INSTITUTIONAL MONEY MARKET FUND
OBJECTIVE
The investment objective of the Money Market Fund and the Institutional
Money Market Fund is to provide a high level of taxable current income
consistent with liquidity, the preservation of capital and a stable net asset
value.
PRINCIPAL INVESTMENT STRATEGIES
Each Fund invests principally in short-term money market debt obligations,
including:
- -- commercial paper
- -- asset-backed commercial paper
- -- bonds issued by U.S. or foreign corporate issuers
- -- obligations of U.S. or foreign banks and savings institutions
- -- variable and floating rate instruments (instruments with an interest rate
that is adjusted either on a schedule or when an index or benchmark changes)
- -- obligations issued or guaranteed by the U.S. government or an agency or
instrumentality thereof
- -- short-term funding agreements (contracts between an issuer and purchaser that
obligate the issuer to pay a guaranteed rate of interest)
- -- shares of other investment companies; and
- -- debt obligations issued or guaranteed by foreign governments or their
agencies, instrumentalities or political subdivisions ("sovereign debt")
Each Fund will acquire only securities which are rated in the highest
short-term rating category by at least two rating agencies (or by the only
rating agency providing a rating), or are issued or guaranteed by, or otherwise
provide the right to demand payment from, entities with those ratings. If the
securities are unrated, they must be of comparable quality, as determined at the
time of acquisition.
Each Fund maintains an average maturity of 90 days or less.
PRINCIPAL RISKS
The investment risks below are described in more detail under the heading
"Types of Investment Risk." Some additional risks which apply to the Funds are
also described under that heading.
The rate of income on Fund shares will vary from day to day so that the
dividends on your investment will vary. The Funds are subject to credit risk
and interest rate risk.
<PAGE>
PAST PERFORMANCE
The bar chart and table below provide an indication of the risks of investing in
a Fund by showing: (a) changes in the performance of a Fund's shares from year
to year; and (b) how the average annual returns of a Fund's shares compare to
those of a composite of similarly managed funds. The bar charts and performance
tables assume reinvestment of dividends and distributions. Remember, past
performance is not necessarily indicative of future results. Performance
reflects fee waivers in effect. If fee waivers were not in place, a Fund's
performance would be have been reduced.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
INSTITUTIONAL
MONEY MONEY
MARKET MARKET
------ ------
1989 8.98
1990 8.05
1991 5.87
1992 3.58 3.42
1993 2.90 2.66
1994 4.08 3.73
1995 5.81 5.54
1996 5.26 5.00
1997 5.39 5.14
INSTITUTIONAL
MONEY MONEY
MARKET MARKET
------ ------
BEST QUARTER: Q '9 Q '9
WORST QUARTER: Q '9 Q '9
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
------------------------------------------
Since
1 Year 5 Years 10 Years Inception
------ ------- -------- ---------
INSTITUTIONAL MONEY
MARKET FUND
IBC INSTITUTIONAL ALL
TAXABLE MONEY MARKET
FUND AVERAGE
MONEY MARKET FUND
IBC ALL TAXABLE MONEY
MARKET FUND AVERAGE
The IBC Institutional All Taxable Money Market Fund Average and the IBC All
Taxable Money Market Fund Average are averages of professionally managed money
market investment funds with similar objectives compiled by IBC's Money Fund
Report. You can use that information to help you compare the Fund's performance
with the returns of an index of funds with similar investment objectives.
<PAGE>
The 7-day yield for the period ended on 12/31/98 for the Money Market Fund and
the Institutional Money Market Fund was ___ and ___ respectively and without
giving effect to fee waivers was __and ___ respectively. Figures reflect past
performance. Yields will vary. You may call 1-800-228-1024 to obtain the
current 7-day yield of the Money Market Fund and the Institutional Money Market
Fund.
EXPENSES
- --------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Money Market Fund and Institutional Money Market Fund.
SHAREOWNER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)---------------------------------None
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price)---------------------------------None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends---------------------------------------------------------None
Redemption Fees-------------------------------------------------None<F1>
Exchange Fees-------------------------------------------------------None
- -----------------------------------------------------------------
<F1> A fee of $12.00 is charged for each wire redemption (Money Market Fund
only) and $15.00 for each non-systematic withdrawal from a retirement
account which Firstar Bank, Milwaukee N.A. is custodian.
Distribution Shareowner Other Total Fund
Management and Service Servicing Expenses Operating
Fees <F2> Fees <F3> Fees <F4> Expenses<F5>
--------- -------- ---- ----------- --------
ANNUAL FUND
OPERATING
EXPENSES
(expenses that
are deducted
from Fund
Assets)
Money Market
Fund 0.50% 0.03% 0.00% 0.35% 0.88%
Institutional
Money Market
Fund 0.50% 0.00% 0.00% 0.14% 0.64%
- ----------------------------------------------------------------------------
<F2> The Adviser has voluntarily agreed that a portion of its management fee
will not be imposed on the Money Market and Institutional Money Market Funds
during the current fiscal year. As a result of the fee waiver, current
management fees of the Money Market and Institutional Money Market Fund, are
0.37% and 0.29%, respectively, of such Fund's average daily net assets. These
waivers are expected to remain in effect for the current fiscal year. However,
they are voluntary and can be modified or terminated at any time without the
Funds' consent.
<F3> The total of all 12b-1 fees and shareowner servicing fees may not exceed,
in the aggregate, the annual rate of 0.25% of a Fund's average daily net assets
for the shares. The Money Market Fund (but not the Institutional Money Market
Fund) intends to pay 12b-1 fees with respect to the Retail shares for the
current fiscal year.
<F4> "Other Expenses" includes administrative fees plus all other ordinary
expenses of the Funds not listed above. The administrator of the Funds has
voluntarily agreed that a portion of the administration fee will not be imposed
on the Institutional Money Market Fund during the current fiscal year. As a
result of the fee waiver, "Other Expenses" of the Institutional Money Market
Fund are estimated to be 0.10%. This waiver is expected to remain in effect for
the current fiscal year. However, it is voluntary and can be modified or
terminated at any time without the Fund's consent.
<F5> As a result of the fee waivers set forth in notes 2 and 4, the Total Fund
Operating Expenses of the Money Market Fund and Institutional Money Market Fund
which are estimated to be 0.78% and 0.39% respectively. Although the fee
waivers are expected to remain in effect for the current fiscal year, these
waivers are voluntary and may be terminated at any time at the option of the
Adviser or administrator.
EXPENSE EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund (without the fee waivers) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- -------
Money Market
Fund
Institutional
Money Market Fund
<PAGE>
In addition to the compensation itemized above, Shareowner Organizations may
charge fees for providing services in connection with their clients' investments
in a Fund's shares.
U.S. TREASURY MONEY MARKET FUND AND U.S. GOVERNMENT MONEY MARKET FUND
OBJECTIVES
The investment objective of the U.S. Treasury Money Market Fund is to
provide a high level of current income exempt from state income taxes consistent
with liquidity, the preservation of capital and a stable net asset value.
The investment objective of the U.S. Government Money Market Fund is to
provide a high level of taxable current income consistent with liquidity, the
preservation of capital and a stable net asset value (irrespective of state
income tax considerations).
PRINCIPAL INVESTMENT STRATEGIES
The U.S. Treasury Money Market Fund invests in short term debt obligations
issued or guaranteed as to principal and interest by the U.S. Treasury. The Fund
may temporarily hold cash during extraordinary circumstances such as when U.S.
Treasury securities are unavailable.
The U.S. Government Money Market Fund invests in short term debt
obligations issued or guaranteed as to principal and interest by the U.S.
government, its agencies or instrumentalities. Under normal market conditions,
the Fund intends to invest at least 65% of its total assets in these
obligations. The Fund also invests in variable and floating rate instruments
and repurchase agreements.
Each Fund maintains an average maturity of 90 days or less.
PRINCIPAL RISKS
The investment risks below are described in more detail under the heading
"Types of Investment Risk." Some additional risks which apply to the Funds are
also described under that heading.
<PAGE>
- ------------------------------------------------------------------------------
Even though the U.S. Treasury Money Market Fund and U.S. Government Money
Market Fund purchase mostly U.S. government obligations, the shares of the Funds
are not themselves issued or guaranteed by any government agency.
- ----------------------------------------------------------------------------
The rate of income on Fund shares will vary from day to day so that the
dividends on your investment will vary. The Funds are subject to credit risk
and interest rate risk.
For the U.S. Government Money Market Fund, there can be no assurance that
the U.S. government will provide financial support to U.S. government-sponsored
agencies or instrumentalities where it is not obligated to do so by law.
The U.S. Treasury Money Market Fund is also subject to tax risk.
PAST PERFORMANCE
The bar chart and table below provide an indication of the risks of investing in
a Fund by showing: (a) changes in the performance of a Fund's shares from year
to year; and (b) how the average annual returns of a Fund's shares compare to
those of a composite of similarly managed funds. The bar charts and performance
tables assume reinvestment of dividends and distributions. Remember, past
performance is not necessarily indicative of future results. Performance
reflects fee waivers in effect. If fee waivers were not in place, a Fund's
performance would be have been reduced.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
US TREASURY US GOVERNMENT
MONEY MARKET MONEY MARKET
FUND FUND
------ ------
1989 8.70
1990 7.71
1991 5.56
1992 3.19 3.30
1993 2.55 2.59
1994 3.57 3.76
1995 5.21 5.39
1996 4.76 4.92
1997 4.78 4.97
US TREASURY US GOVERNMENT
MONEY MARKET MONEY MARKET
FUND FUND
------ ------
BEST QUARTER: Q '9 Q '9
WORST QUARTER: Q '9 Q '9
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
------------------------------------------
Since
1 Year 5 Years 10 Years Inception (inception
date)
U.S. TREASURY MONEY
MARKET FUND
<PAGE>
IBC MONEY MARKET
FUND AVERAGE/100%
U.S. TREASURY
U.S. GOVERNMENT
MONEY MARKET FUND --
IBC MARKET FUND
AVERAGE/GOVERNMENT --
The IBC Money Market Fund Average 100% U.S. Treasury and the IBC Money Market
Fund Average Government are averages of professionally managed money market
investment funds with similar objectives compiled by IBC's Money Fund Report.
You can use that information to help you compare the Fund's performance with the
returns of an index of funds with similar investment objectives.
The 7-day yield for the period ended on 12/31/98 for the U.S. Treasury Money
Market Fund and the U.S. Government Money Market Fund was ___ and ___
respectively and without giving effect to fee waivers was ___and ___
respectively. Figures reflect past performance. Yields will vary. You may call
1-800-228-1024 to obtain the current 7-day yield of the U.S.Treasury Money
Market Fund and the U.S. Government Money Market Fund.
EXPENSES
- --------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the U.S. Treasury Money Market Fund and U.S. Government Money Market
Fund.
SHAREOWNER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)---------------------------------None
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price)---------------------------------None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends---------------------------------------------------------None
Redemption Fees-------------------------------------------------None<F1>
Exchange Fees-------------------------------------------------------None
- ----------------------------------------
<F1> A fee of $12.00 is charged for each wire redemption (Money Market Fund
only) and $15.00 for each non-systematic withdrawal from a retirement
account which Firstar Bank, Milwaukee N.A. is custodian.
Distribution Shareowner Total Fund
Management and Service Servicing Other Operating
Fees <F2> Fees <F3> Fees Expenses Expenses<F4>
--------- -------- ---- ----------- --------
ANNUAL FUND
OPERATING
EXPENSES
(expenses that
are deducted
from Fund
Assets)
U.S. Treasury
Money Market
Fund 0.50% 0.00% 0.00% 0.26% 0.76%
U.S. Government
Money Market
Fund 0.50% 0.00% 0.00% 0.22% 0.72%
<F2> The Adviser has voluntarily agreed that a portion of its management fee
will not be imposed on the U.S. Treasury Money Market Fund during the current
fiscal year. As a result of the fee waiver, current management fees of the U.S.
Treasury Money Market Fund are 0.49% of the Fund's average daily net assets.
These waivers are expected to remain in effect for the current fiscal year.
However, they are voluntary and can be modified or terminated at any time
without the Fund's consent.
<F3> The total of all 12b-1 fees and shareowner servicing fees may not exceed,
in the aggregate, the annual rate of 0.25% of a Fund's average daily net assets
for the shares. The Funds do not intend to pay 12b-1 fees with respect to the
shares for the current fiscal year.
<F4> As a result of the fee waivers set forth in note 23, the Total Fund
Operating Expenses of the U.S. Treasury Money Market Fund are estimated to be
0.75%. Although the fee waiver is expected to remain in effect for the current
fiscal year, the waiver is voluntary and may be terminated at any time at the
option of the Adviser.
<PAGE>
EXPENSE EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund (without the fee waivers) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- -------
U.S. Treasury
Money Market
Fund
U.S. Government
Money Market Fund
In addition to the compensation itemized above, Shareowner Organizations
may charge fees for providing services in connection with their clients'
investments in a Fund's shares.
<PAGE>
TAX-EXEMPT MONEY MARKET FUND
OBJECTIVE
The investment objective of the Tax-Exempt Money Market Fund is to provide
a high level of current income exempt from federal income taxes consistent with
liquidity, the preservation of capital and a stable net asset value.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests principally in a diversified portfolio of debt obligations
("Municipal Obligations") issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia and their
authorities, agencies, instrumentalities and political subdivisions. The Fund
will acquire only securities which are rated in the highest short-term rating
category by at least two rating agencies (or by the only rating agency providing
a rating), or are issued or guaranteed by, or otherwise provide the right to
demand payment from, entities with those ratings. If the security is unrated,
it must be of comparable quality to securities with those ratings, as determined
at the time of acquisition. During normal market conditions, the Fund will
invest at least 80% of its assets in Municipal Obligations with remaining
maturities of 13 months or less. (Securities which are subject to demand
features and certain U.S. government obligations may have longer maturities).
The Fund maintains an average portfolio maturity of 90 days or less.
The two principal classifications of Municipal Obligations which the Tax-
Exempt Money Market Fund invests in are:
GENERAL OBLIGATION SECURITIES
- -----------------------------
General Obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
REVENUE SECURITIES
- ------------------
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the issuer of the
facility being financed.
Municipal Obligations purchased by the Fund may include variable and floating
rate instruments which are instruments with interest rates that are adjusted
either on a schedule or when an index or benchmark changes. While there may be
no active secondary market with respect to a particular variable or floating
rate demand instrument, the Fund may demand payment in full of the principal and
interest.
<PAGE>
PRINCIPAL RISKS
The investment risks below are described in more detail under the heading
"Types of Investment Risk." Some additional risks which apply to the Fund are
also described under that heading.
The rate of income on Fund shares will vary from day to day so that the
dividends on your investment will vary. The Fund is subject to credit risk,
interest rate risk and tax risk.
Municipal Obligations which the Fund purchases may be backed by letters of
credit issued by banks and other financial institutions. Adverse developments
affecting banks could have a negative effect on the Fund's portfolio securities.
The Fund may invest more than 25% of its total assets in Municipal
Obligations issued by entities located in the same state and the interest on
which is paid solely from revenues of similar projects. As a result, changes in
economic, business or political conditions relating to a particular state or
types of projects may have a disproportionate impact on the Fund's share price.
The Fund may acquire municipal lease obligations which are issued by a
state or local government or authority to acquire land and a wide variety of
equipment and facilities. If the funds are not appropriated for the following
year's lease payments, the lease may terminate, with the possibility of default
on the lease obligation and significant loss to the Fund.
The Fund may invest in obligations backed by foreign banks which are
subject to foreign risk.
The Fund may from time to time invest in taxable instruments.
PAST PERFORMANCE
The bar chart and table below provide an indication of the risks of investing in
a Fund by showing: (a) changes in the performance of a Fund's shares from year
to year; and (b) how the average annual returns of a Fund's shares compare to
those of a composite of similarly managed funds. The bar charts and performance
tables assume reinvestment of dividends and distributions. Remember, past
performance is not necessarily indicative of future results. Performance
reflects fee waivers in effect. If fee waivers were not in place, a Fund's
performance would behave been reduced.
<PAGE>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
TAX-EXEMPT
MONEY MARKET
FUND
------
1989 6.00
1990 5.48
1991 4.24
1992 2.64
1993 2.06
1994 2.49
1995 3.44
1996 3.06
1997 3.13
TAX EXEMPT
MONEY MARKET
FUND
------
BEST QUARTER: Q '9
WORST QUARTER: Q '9
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
------------------------------------------
Since
1 Year 5 Years 10 Years Inception
(inception date)
TAX EXEMPT MONEY
MARKET FUND
IBC MONEY FUND
AVERAGE/ALL TAX-FREE
The IBC Money Fund Average All Tax-Free is an average of professionally managed
money market investment funds with similar objectives compiled by IBC's Money
Fund Report. You can use that information to help you compare the Fund's
performance with the returns of an index of funds with similar investment
objectives.
The 7-day yield for the period ended on 12/31/98 for the Tax-Exempt Money Market
Fund was ___% and without giving effect to fee waivers was ___%. Figures reflect
past performance. Yields will vary. You may call 1-800-228-1024 to obtain the
current 7-day yield of the Tax-Exempt Money Market Fund.
EXPENSES
- --------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Tax-Exempt Money Market Fund.
SHAREOWNER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)---------------------------------None
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price)---------------------------------None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends---------------------------------------------------------None
Redemption Fees-------------------------------------------------None<F1>
Exchange Fees-------------------------------------------------------None
- ----------------------------------------------------------------------------
<F1> A fee of $12.00 is charged for each wire redemption.
Distribution Shareowner Total Fund
Management and Service Servicing Other Operating
Fees <F2> Fees <F3> Fees Expenses Expenses<F4>
--------- -------- ---- ----------- --------
<PAGE>
ANNUAL FUND
OPERATING
EXPENSES
(expenses that
are deducted
from Fund
Assets)
Tax Exempt
Money Market
Fund 0.50% 0.00% 0.00% 0.27% 0.77%
- ------------------------------------------------------------------------------
<F2> The Adviser has voluntarily agreed that a portion of its management fee
will not be imposed on the Tax-Exempt Money Market Fund during the current
fiscal year. As a result of the fee waiver, current management fees of the Fund
are 0.48% of the Fund's average daily net assets. These waivers are expected to
remain in effect for the current fiscal year. However, they are voluntary and
can be modified or terminated at any time without the Fund's consent.
<F3> The total of all 12b-1 fees and shareowner servicing fees may not exceed,
in the aggregate, the annual rate of 0.25% of the Fund's average daily net
assets for the shares. The Fund does not intend to pay 12b-1 fees with respect
to the shares for the current fiscal year.
<F4> As a result of the fee waiver set forth in note 2, the Total Fund Operating
Expenses of the Fund which are actually incurred are estimated to be 0.75%.
Although the fee waivers are expected to remain in effect for the current fiscal
year, these waivers are voluntary and may be terminated at any time at the
option of the Adviser.
EXPENSE EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund (without the fee waivers) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Tax-Exempt
Money Market
Fund
In addition to the compensation itemized above, Shareowner Organizations may
charge fees for providing services in connection with their clients' investments
in the Fund's shares.
<PAGE>
TAXABLE BOND FUNDS
SHORT-TERM BOND MARKET FUND, INTERMEDIATE BOND MARKET FUND AND BOND IMMDEX TM
FUND
OBJECTIVES
The investment objective of the Short-Term Bond Market Fund is to provide
an annual rate of total return, before Fund expenses, comparable to the annual
rate of total return of the Lehman Brothers 1-3 Year Government/Corporate Bond
Index (the "Lehman 1-3 Index").
The investment objective of the Intermediate Bond Market Fund is to provide
an annual rate of total return, before Fund expenses, comparable to the annual
rate of total return of the Lehman Brothers Intermediate Government/Corporate
Bond Index (the "Lehman Intermediate Index").
The investment objective of the Bond IMMDEX/TM Fund is to provide an annual
rate of total return, before Fund expenses, comparable to the annual rate of
total return of the Lehman Brothers Government/Corporate Bond Index (the "Lehman
Index").
- ---------------------------------------------------------
DURATION DEFINED:
"Duration" is the average time it takes to receive expected cash flows
(discounted to their present value) on a particular fixed-income instrument or a
portfolio of instruments. Duration usually defines the effect of interest rate
changes on bond prices. However, for large interest rate changes (generally
changes of 1% or more) this measure does not completely explain the interest
rate sensitivity of a bond.
FOR EXAMPLE
The duration of a 5-year zero coupon bond which pays no interest or
principal until the maturity of the bond is 5 years. This is because a zero
coupon bond produces no cash flow until the maturity date.
On the other hand, a coupon bond that pays interest semiannually and
matures in 5 years will have a duration of less than 5 years reflecting the
semiannual cash flows resulting from coupon payments.
- ------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES
The Adviser attempts to make each Fund's duration and return comparable to
those of its respective bond index, and to maintain an overall interest rate
sensitivity for each Fund equivalent to its respective bond index.
The effective dollar-weighted average portfolio maturity of each Fund will
be more than one year but less than three years for the Short-Term Bond Market
Fund; more than three years but less than ten for the Intermediate Bond Market
Fund; and more than five years for the Bond IMMDEX/TM Fund during normal market
conditions.
Each Fund typically holds less than 200 securities.
The Adviser will attempt to keep each Fund fully invested. Each Fund's
policy is to invest at least 65 % of total assets in the following types of
securities:
- -U.S. government -U.S. government agencies
- -stripped U.S. government -corporate
- -collateralized mortgage
obligations -medium-term notes
- -asset-backed and
mortgage-backed obligations -Eurobonds
<PAGE>
- ------------------------------------------------------------
INVESTMENT GRADE SECURITIES ARE:
securities rated in the highest 4 categories by S&P, Moody's or another
nationally recognized rating agency.
- ------------------------------------------------------------
Debt obligations acquired by each Fund will be "investment grade," as rated by
at least one rating agency. The Adviser may purchase unrated obligations that
are determined by the Adviser to be comparable in quality to the rated
obligations. Average quality for each Fund is expected to be at least the
second highest rating category of S&P or Moody's. After purchase, a security
may cease to be rated or may have its rating reduced below the minimum rating
required by the Fund for purchase. The Adviser will consider whether to
continue to hold the security. If over 5% of the Fund's net assets consist of
obligations which have fallen below the minimum rating, the Adviser will
immediately sell the securities.
- ------------------------------------------------------------------------------
Although these Funds attempt to achieve returns comparable to those of their
respective benchmark Indices by maintaining a comparable duration (see
"Strategies" for definition), these Funds are NOT index funds. Each Fund may
invest more than 50% of their assets in securities not included in the index.
- -----------------------------------------------------------------------------
Description of Bond Indices. The bond indices measure the price changes of
securities and the income provided by the securities. The bond indices are
intended to measure performance of fixed-rate debt markets over given time
intervals. The difference between the indices is the maturity range of the
securities included. Each index is comprised of:
- - U.S. Treasury securities
- - U.S. government agency securities
- - dollar denominated debt of certain foreign sovereign or
supranational entities
- - investment grade corporate debt obligations
The indices require that investment grade corporate debt obligations must:
- - be fixed-rate debt (as opposed to variable-rate debt);
- - have at least one year until maturity;
- - have a minimum outstanding par value of $100 million; and
- - have a minimum quality rating of Baa by Moody's, BBB by
S&P, or BBB by Fitch IBCA.
The indices also require the following maturities for each debt obligation:
- ------------------------------------------------------------
Index Length of Maturity
- ----- ------------------
Lehman 1-3 Index From one to three years remaining until maturity
Lehman Intermediate Index From one to 10 years remaining until maturity
<PAGE>
Lehman Index From one to 30 years or more remaining until maturity
- -----------------------------------------------------------------
The following chart depicts the number of bond issues and their aggregate
dollar values represented by the indices as of October 31, 1998.
Bond Issues Dollar Value
----------- ------------
Lehman 1-3 Index 1,235 $1.0 TRILLION
LEHMAN INTERMEDIATE INDEX 4,512 $2.5 TRILLION
LEHMAN INDEX 6,441 $3.6 TRILLION
PRINCIPAL RISKS
The investment risks below are described in more detail under the heading
"Types of Investment Risk." Some additional risks which apply to the Funds are
also described under that heading.
The rate of income on Fund shares will vary from day to day so that the
dividends on your investment will vary. The Funds are subject to credit risk
and interest rate risk. Obligations rated in the lowest of the top four rating
categories are considered to have speculative characteristics and are subject to
greater credit and interest rate risk than higher rated securities.
Because of the smaller number of issues held by a Fund than its respective
bond index, material events affecting a Fund's portfolio (for example, an
issuer's decline in credit quality) may influence the performance of the Fund to
a greater degree than such events will influence its respective bond index and
may prevent the Fund from attaining its investment objective for particular
periods.
While the Adviser believes that purchasing securities which are not in each
Fund's respective index or not consistent with the "mix" of the index provides
the opportunity to achieve an enhanced gross return compared to the index, the
Adviser may err in its choices of securities or portfolio mixes. Further, the
Adviser calculates the Funds' duration and average maturity based on certain
estimates relating to the duration and maturity of the securities held by the
Fund. The estimates used may not always be accurate, so the Adviser's
calculations may be incorrect. Such errors could result in a negative return
and a loss to you. In the event the performance of a Fund is not comparable to
the performance of its respective index, the Board of Directors will examine the
reasons for the deviation and the availability of corrective measures.
The Funds may invest in foreign bank securities which are subject to foreign
risk.
Certain of the securities in which the Funds invest pose additional risks.
The Additional Statement describes risks of collateralized mortgage obligations
and mortgage- and asset-backed securities, which are subject to derivatives
risk, extension risk and prepayment risk. The Funds may purchase stripped
securities and zero coupon securities which are subject to greater interest rate
risk than many other more typical fixed income securities.
The Fund purchases guaranteed investment contracts ("GIC's") issued by
highly rated U.S. insurance companies. GIC's are subject to liquidity risk.
PAST PERFORMANCE
Each Fund offers three types of shares, as described under "Investing with
Firstar Funds" - Institutional, Retail A and Retail B. These types of shares
bear differing levels of expenses, as described under "Investing with Firstar
Funds." The bar chart and table below provide an indication of the risks of
investing in a Fund by showing: (a) changes in the performance of a Fund's
Institutional Shares from year to year; and (b) how the average annual returns
of a Fund's Retail A and Institutional shares compare to
<PAGE>
those of a broad-based securities market index. The bar charts and performance
tables assume reinvestment of dividends and distributions. Remember, past
performance is not necessarily indicative of future results. Prior to January
10, 1995, each Fund offered to investors one series of shares with neither a
sales charge nor a service fee. The average annual total return calculation
reflects a maximum initial sales charge of 3.75% for the Retail A Shares, but
for periods prior to January 10, 1995, performance does not reflect service
organization fees. If service organization fees had been reflected, performance
would be reduced. Performance reflects fee waivers in effect. If fee waivers
were not in place, a Fund's performance would behave been reduced. The bar chart
does not reflect the sales load applicable to Retail A and B shares. If the
sales loads were reflected, performance returns would be reduced less. The
Retail B Shares commenced operations on February 28, 1999. Because those shares
have less than one year's performance, no average annual returns are shown for
that class in this section.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
SHORT TERM INTERMEDIATE BOND
BOND MARKET BOND MARKET IMMDEX
------ ------ ------
1989
1990 7.62 8.22
1991 13.50 16.58
1992 6.85 7.56
1993 6.46 10.96
1994 0.93 -2.09 -3.06
1995 10.73 15.25 19.55
1996 4.99 4.06 3.08
1997 6.39 7.34 9.43
SHORT TERM BOND INTERMEDIATE BOND
MONEY MARKET BOND MARKET IMMDEX
FUND FUND FUND
------ ------ ----
BEST QUARTER: Q '9 Q '9 Q '9
WORST QUARTER: Q '9 Q '9 Q '9
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
------------------------------------------
Since
1 Year 5 Years 10 Years inception
(inception date)
SHORT-TERM
BOND MARKET FUND-
Retail A Shares
SHORT-TERM
BOND MARKET FUND-
Institutional Shares
LEHMAN BROTHERS
1-3 YEAR GOVERNMENT/
CORPORATE BOND INDEX
INTERMEDIATE BOND
MARKET FUND - RETAIL
A Shares
INTERMEDIATE BOND
MARKET FUND -
Institutional Shares
LEHMAN BROTHERS
INTERMEDIATE GOVERNMENT/
CORPORATE BOND INDEX
BOND IMMDEX/TM FUND -
Retail A Shares
BOND IMMDEX/TM FUND -
Institutional Shares
LEHMAN BROTHERS
GOVERNMENT/CORPORATE
BOND INDEX
<PAGE>
Each of the Lehman Brothers 1-3 Year Government/Corporate Bond Index,
Intermediate Government/Corporate Bond Index and Government/Corporate Bond Index
is a widely-recognized unmanaged index of bond prices compiled by Lehman
Brothers. The Index figures do not reflect any fees or expenses. Investors
cannot invest directly in the Index.
Securities included in the Lehman Brothers 1-3 Year Gov't./Corp. Bond Index must
meet the following criteria: not less than one year to maturity; not more than
three years remaining to maturity.
Securities included in the Lehman Brothers Intermediate Gov't./Corp. Bond Index
must meet the following criteria: remaining maturity of one to ten years; and
rated investment grade or higher by Moody's, Standard & Poor's, or Fitch, in
that order.
Securities included in the Lehman Brothers Gov't./Corp. Bond Index must meet the
following criteria: not less than one year to maturity; and rated investment
grade or higher by Moody's, Standard & Poor's, or Fitch, in that order.
The performance of the Short-Term Bond Market and Bond IMMDEX/TM Fund for the
period prior to December 29, 1989 is represented by the performance of
collective investment funds ("Collective Investment Funds") which operated prior
to the effectiveness of the registration statement of the Firstar Short-Term
Bond Market and Bond IMMDEX/TM Funds. At the time of the Firstar Short-Term
Bond Market and Bond IMMDEX/TM Funds' inception, each Collective Investment Fund
was operated using materially equivalent investment objectives, policies,
guidelines and restrictions as its corresponding Firstar Fund. In connection
with the Firstar Short-Term Bond Market and Bond IMMDEX/TM Funds' commencement
of operations, on December 29, 1989, each Collective Investment Fund transferred
its assets to its Firstar Fund equivalent. At the time of the transfer, the
Adviser did not manage any other collective investment or common trust funds
using materially equivalent investment objectives, policies, guidelines and
restrictions to those of the Short-Term Bond Market and Bond IMMDEX/TM Funds.
The Collective Investment Funds were not open to the public generally, nor
registered under the Investment Company Act of 1940 (the "1940 Act") or subject
to certain restrictions that are imposed by the 1940 Act and the Internal
Revenue Code. If the Collective Investment Funds had been registered under the
1940 Act, performance may have been adversely affected. Performance of the
Collective Investment Funds has been restated to reflect the Firstar Short-Term
Bond Market and Bond IMMDEX/TM Funds' respective actual expenses during each
such Fund's first fiscal year. Performance quotations of each Collective
Investment Fund represent past performance of the FIRMCO managed collective
funds, which are separate and distinct from Firstar Short-Term Bond Market Fund
and Bond IMMDEX/TM Fund; do not represent past performance of those Funds; and
should not be considered as representative of future results of the Funds.
EXPENSES
- ---------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Short-Term Bond Market Fund, Intermediate Bond Market Fund and
Bond IMMDEX/TM Fund.
<PAGE>
INSTITUTIONAL RETAIL RETAIL
SHARES A SHARES B SHARES
------ -------- --------
SHAREOWNER FEES (fees paid
directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) None 3.75% None
Maximum Deferred Sales
Charge (Load) (as a
percentage of offering price) None None 5.00%<F1>
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends None None None
Redemption Fees None<F2> None<F2> None<F2>
Exchange Fees None None None
- -------------------------------------------------------------------------------
<F1> A contingent deferred sales charge is imposed on Retail B Shares redeemed
within six years of purchase at a rate of 5% in the first year, 4% in the second
year, 3% in the third and fourth year, 2% in the fifth year, declining to 1% in
the sixth fifth year, and eliminated thereafter.
<F2> A fee of $12.00 is charged for each wire redemption (Retail Shares) and
$15.00 for each non-systematic withdrawal from a Retirement Account which
Firstar Bank, Milwaukee, N.A. is custodian.
<TABLE>
<CAPTION>
Distribution Shareowner Total Fund
Management and Service Servicing Other Operating
Fees <F4> Fees <F5> Fees Expenses Expenses <F6>
<S> <C> <C> <C> <C> <C>
ANNUAL FUND
OPERATING
EXPENSES
(expenses that
are deducted
from Fund
Assets)
Short-Term
Bond Market
Fund-Retail A 0.60% 0.00% 0.25% 0.27% 1.12%
Short-Term
Bond Market
Fund-Retail B<F3> 0.60% 0.27%
Short-Term
Bond Market Fund-
Institutional 0.60% 0.00% 0.00% 0.27% 0.87%
Intermediate Bond
Market Fund-
Retail A 0.50% 0.00% 0.25% 0.21% 0.96%
Intermediate Bond
Market Fund-
Retail B<F3> 0.50% 0.21%
Intermediate Bond
Market Fund-
Institutional 0.50% 0.00% 0.00% 0.21% 0.71%
Bond IMMDEX/TM
Fund-Retail A 0.30% 0.00% 0.25% 0.19% 0.74%
Bond IMMDEX/TM
Fund-Retail B<F3> 0.30% 0.19%
Bond IMMDEX/TM Fund-
Institutional 0.30% 0.00% 0.00% 0.19% 0.49%
</TABLE>
<F3> The annual operating expenses for the prior fiscal year, but are restated
to reflect estimated expenses for Retail B Shares.
<F4> The Adviser has voluntarily agreed that a portion of its management fee
will not be imposed on the Short-Term Bond Market Fund and , Intermediate Bond
Market Market, and Bond IMMDEX/TM Fund during the current fiscal year. As a
result of the fee waiver, current management fees of the Short-Term Bond Market
and Intermediate Bond Market Funds, are 0.30% and 0.36%, respectively, of such
Fund's average daily net assets. These waivers are expected to remain in effect
for the current fiscal year. However, they are voluntary and can be modified or
terminated at any time without the Funds' consent.
<F5> The total of all 12b-1 fees and shareowner servicing fees may not exceed,
in the aggregate, the annual rate of 0.25% of a Fund's average daily net assets
for the Retail A shares. The Funds do not intend to pay 12b-1 fees with respect
to the Retail A Shares for the current fiscal year.
<F6> As a result of the fee waivers set forth in note 4, the Total Fund
Operating Expenses of the Short-Term Bond Market Fund and Intermediate Bond
Market which are estimated to be incurred are 0.82% and, 0.82% for the Retail A
shares of each the Fund, ___% and _____% for the Retail B shares of each Fund
and .57% and .57% for the Institutional Shares of each Fund respectively.
Although the fee waivers are expected to remain in effect for the current fiscal
year, these waivers are voluntary and may be terminated at any time at the
option of the Adviser.
EXPENSE EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund (without the fee waivers) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that thea Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
----- ------- ------- --------
Short-Term Bond Market
Fund - Retail A Shares.
Short-Term Bond Market
Fund - Retail B Shares
Assuming complete redemption
at end of period
<PAGE>
Assuming no redemption
Short-Term Bond Market
Fund - Institutional
Intermediate Bond Market
Fund - Retail A Shares
Intermediate Bond Market
Fund - Retail B Shares
Assuming complete
redemption at end of
period
Assuming no redemption
Intermediate Bond Market
Fund - Institutional
Bond IMMDEX/TM -
Retail A Shares
Bond IMMDEX/TM -
Retail B Shares
Assuming complete
redemption at end
of period
Assuming no redemption
Bond IMMDEX/TM -
Institutional
Retail B Shares convert to Retail A Shares six years after purchase; therefore,
Retail A Shares expenses are used in the hypothetical example after year six.
In addition to the compensation itemized above, Shareowner Organizations may
charge fees for providing services in connection with their clients' investments
in a Fund's shares.
TAX-EXEMPT INTERMEDIATE BOND FUND
OBJECTIVE
The investment objective of the Tax-Exempt Intermediate Bond Fund is to provide
current income that is substantially exempt from federal income tax and
emphasize total return with relatively low volatility of principal.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests principally in investment-grade intermediate-term municipal
obligations issued by state and local governments exempt from federal income
tax. Except during defensive periods, the Fund will invest at least 80% of its
net assets in securities, the interest on which is exempt from regular federal
income and alternative minimum taxes and will invest at least 65% of its total
assets in bonds and debentures. The Fund intends to maintain an average
weighted maturity between three and ten years. There is no limit on the
maturity of any individual security in the Fund, and the Fund may invest in
short-term municipal obligations and tax-exempt commercial paper.
In pursuing its investment objective, the Fund invests in a diversified
portfolio of Municipal Obligations (as defined above under "Tax-Exempt Money
Market Fund"). Municipal Obligations purchased by the Fund will be:
- -investment grade at the time of purchase
- -unrated at the time of purchase but determined to be of
comparable quality by the Adviser
- -municipal notes and other short-term obligations rated SP-1 by
S&P or MIG-1 by Moody's
- -tax-exempt commercial paper rated A-1 or higher by S&P or VMIG-1
by Moody's
<PAGE>
After purchase, a security may cease to be rated or may have its rating reduced
below the minimum rating required for purchase by the Fund. The Adviser will
consider whether to continue to hold the security. The Adviser will sell
promptly any securities that are not rated investment grade by at least one
nationally recognized rating agency if the securities exceed 5% of the Fund's
net assets.
PRINCIPAL RISKS
The investment risks below are described in more detail under the heading "Types
of Investment Risk." Some additional risks, which apply to the Fund, are also
described under that heading.
The rate of income on Fund shares will vary from day to day so that the
dividends on your investment will vary. The Fund is subject to credit risk,
interest rate risk and tax risk. Obligations rated in the lowest of the top
four rating categories are considered to have speculative characteristics and
are subject to greater credit and interest rate risk than higher rated
securities.
The Fund may invest more than 25% of its total assets in Municipal Obligations
issued by persons located in the same state and the interest on which is paid
solely from revenues of similar projects. As a result, changes in economic,
business or political conditions relating to a particular state or types of
projects may have a disproportionate impact on the Fund's share price.
The Fund may acquire municipal lease obligations, which are issued by a state or
local government or authority to acquire land and a wide variety of equipment
and facilities. If the funds are not appropriated for the following year's
lease payments, the lease may terminate, with the possibility of default on the
lease obligation and significant loss to the Fund.
PAST PERFORMANCE
The Fund offers three types of shares, as described under "Investing with
Firstar Funds" _ Institutional, Retail A and Retail B. These types of shares
bear differing levels of expenses, as described under "Investing with Firstar
Funds." The bar chart and table below provide an indication of the risks of
investing in a Fund by showing: (a) changes in the performance of a Fund's
Institutional Shares from year to year; and (b) how the average annual returns
of a Fund's Retail A and Institutional shares compare to those of a broad-based
securities market index. The bar charts and performance tables assume
reinvestment of dividends and distributions. Remember, past performance is not
necessarily indicative of future results. Prior to January 10, 1995, each Fund
offered to investors one series of shares with neither a sales charge nor a
service fee. The average annual total return calculation reflects a maximum
initial sales charge of 3.75% for the Retail A Shares, but for periods prior to
January 10, 1995, performance does not reflect service organization fees. If
service organization fees had been reflected, performance would be reduced. If
fee waivers were not in place, a Fund's performance would behave been reduced.
The bar chart does not reflect the sales load applicable to Retail A and B
shares. If the sales loads were reflected, performance returns would be reduced.
Performance reflects fee waivers in effect. The Retail B Shares commenced
operations on February 28, 1999. Because those shares have less than one year's
performance, no average annual returns are shown for that class in this section.
<PAGE>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%) (INSTITUTIONAL SHARES)
1989
1990
1991
1992
1993
1994 -1.73
1995 10.51
1996 3.78
1997 6.05
BEST QUARTER: Q '9
WORST QUARTER: Q '9
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
------------------------------------------
Since
1 Year 5 Years 10 Years inception
(inception date)
TAX-EXEMPT
INTERMEDIATE
BOND FUND-
Retail A Shares
TAX-EXEMPT
INTERMEDIATE
BOND FUND-
Institutional Shares
LEHMAN BROTHERS 5-YEAR
GENERAL OBLIGATION
BOND INDEX
The Lehman Brothers 5-year General Obligation Bond Index is a widely recognized
unmanaged index of bond prices compiled by Lehman Brothers. The Index figures
do not reflect any fees or expenses. Investors cannot invest directly in the
Index. To be included in this Index, a municipal bond must be a state or local
General Obligation bond; have a minimum credit rating of at least Baa; have been
issued as part of an offering of at least $50 million; have a maturity amount
outstanding of at least $3 million; have been issued within the last five years;
and have a maturity of four to six years.
EXPENSES
- --------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Tax-Exempt Intermediate Bond Fund.
INSTITUTIONAL RETAIL RETAIL
SHARES A SHARES B SHARES
------ -------- --------
SHAREOWNER FEES (fees paid
directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) None 3.75% None
Maximum Deferred Sales
Charge (Load) (as a
percentage of offering price) None None 5.00%<F1>
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends None None None
Redemption Fees None<F2> None<F2> None<F2>
Exchange Fees None None None
<PAGE>
- ------------------------------------------------------------------------------
<F1> A contingent deferred sales charge is imposed on Retail B Shares redeemed
within six years of purchase at a rate of 5% in the first year, 4% in the second
year, 3% in the third and fourth year, 2% in the fifth year, declining to 1% in
the sixth fifth year, and eliminated thereafter.
<F2> A fee of $12.00 is charged for each wire redemption.
<TABLE>
<CAPTION>
Distribution Shareowner Total Fund
Management and Service Servicing Other Operating
Fees <F4> Fees <F5> Fees Expenses Expenses<F6>
--------- -------- ---- ----------- --------
<C> <C> <C> <C> <C>
ANNUAL FUND
OPERATING
EXPENSES
(expenses that
are deducted
from Fund
Assets)
Tax-Exempt
Intermediate
Bond Fund-
Retail A 0.50% 0.00% 0.25% 0.31% 1.06%
Tax-Exempt
Intermediate
Bond Fund-
Retail B 0.50% 0.31%
Tax-Exempt
Intermediate
Bond Fund-
Institutional 0.50% 0.00% 0.00% 0.31% 0.81%
</TABLE>
- ------------------------------------------------------------------------------
<F3> The annual operating expenses for the Retail B Shares are based on Fund
expenses for the prior fiscal year, but are restated to reflect estimated
expenses for Retail B Shares.
<F4> The Adviser has voluntarily agreed that a portion of its management fee
will not be imposed on the Fund during the current fiscal year. As a result of
the fee waiver, current management fees for the Fund are 0.36% of the Fund's
average daily net assets. This waiver is expected to remain in effect for the
current fiscal year. However, it is voluntary and can be modified or terminated
at any time without the Fund's consent.
<F5> The total of all 12b-1 fees and shareowner servicing fees may not exceed,
in the aggregate, the annual rate of 0.25% of the Fund's average daily net
assets for the Retail A Shares. The Fund does not intend to pay 12b-1 fees with
respect to the Retail A shares for the current fiscal year.
<F6> As a result of the fee waiver set forth in note 4, the Total Fund
Operating Expenses of the Retail A, Retail B and Institutional Shares of the
Fund which are estimated to be incurred are 0.92%, ____% and 0.67% respectively.
Although the fee waiver is are expected to remain in effect for the current
fiscal year, this waiver is voluntary and may be terminated at any time at the
option of the Adviser.
EXPENSE EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund (without the fee waivers) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- -------- ---------
Tax-Exempt
Intermediate
Bond Fund-
Retail A Shares
Tax-Exempt
Intermediate
Bond Fund-
Retail B Shares
Assuming complete
redemption at end
of period
Assuming no redemption
Tax-Exempt
Intermediate
Bond Fund-
Institutional
Retail B Shares convert to Retail A Shares six years after purchase; therefore,
Retail A Shares expenses are used in the hypothetical example after year six.
In addition to the compensation itemized above, Shareowner Organizations may
charge fees for providing services in connection with their clients' investments
in a the Fund's shares.
<PAGE>
BALANCED INCOME FUND
OBJECTIVE
The investment objective of the Balanced Income Fund is to provide current
income and the preservation of capital by investing in a balanced portfolio of
dividend-paying equity and fixed-income securities.
PRINCIPAL INVESTMENT STRATEGIES
The Fund selects and purchases common stocks of domestic companies that
have a history of paying dividends. The Fund selects fixed-income securities,
which the Adviser believes will provide an annual rate of total return similar
to that of the Lehman Intermediate Index. That Index is described under "Bond
Funds-Description of Bond Indices."
The Fund plans to use a 50/50 method to invest its total assets--that means 50%
in equity securities and 50% in fixed income securities.
- ---------------------------------------------------
Equity Securities Fixed Income Securities
- -------------------------------------------------
50% 50%
(no less than 20%, (no less than 40%)
no more than 60%)
- ---------------------------------------------------
- ------------------------------------------------------------------------------
NOTE: THE ACTUAL PERCENTAGE OF ASSETS INVESTED IN FIXED INCOME AND EQUITY
SECURITIES WILL VARY FROM TIME TO TIME, DEPENDING ON THE JUDGMENT OF THE ADVISER
AS TO THE GENERAL MARKET AND ECONOMIC CONDITIONS, TRENDS AND YIELDS, INTEREST
RATES AND FISCAL AND MONETARY DEVELOPMENTS.
- -------------------------------------------------------------------------------
- --------------------------------------
The Adviser looks for companies
with ATTRACTIVE FUNDAMENTAL
FINANCIAL CHARACTERISTICS such
as:
1. low debt
2. high return on equity
3. consistent revenue and
earnings per share growth
over the prior three to
five years
- --------------------------------------
Equity Securities. The Fund primarily invests in common stock of domestic
companies that the Adviser considers to be well managed and to have "attractive
fundamental financial characteristics." The Adviser also generally looks for
companies with stock market capitalizations over $750 million. Stock market
capitalizations are calculated by multiplying the total number of common shares
outstanding by the market price per share. The Fund may invest up to 25% of its
total assets in the securities of foreign issuers, either directly or through
investments in sponsored American Depository Receipts ("ADRs"). ADRs are
receipts issued by an American bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. ADRs may be listed on a
national securities exchange or may trade in the over-the-counter market. ADR
prices are denominated in U.S. dollars. The underlying securities may be
denominated in a foreign currency.
The Fund may also acquire bonds, notes, debentures and preferred stocks
convertible into common stocks if they provide a current interest or dividend
stream, and may invest up to 5% of its net assets in other types of domestic
securities having common stock characteristics, such as rights and warrants to
purchase equity securities.
Fixed Income. The Fund may purchase the following types of fixed income
securities. There are no maturity limitations.
- -corporate
- -U.S. Treasury
- -U.S. government agency
- -stripped U.S. government
- -asset-backed and mortgage-backed obligations
- -money market instruments
- -U.S. Government
<PAGE>
Except for convertible securities, the Fund will purchase only debt
obligations rated investment grade by at least one rating agency or unrated
obligations deemed by the Adviser to be comparable in quality. See "Taxable
Bond Funds" for a description of investment grade securities. After purchase, a
security may cease to be rated or may have its rating reduced below the minimum
rating required for purchase by the Fund. The Adviser will consider whether to
continue to hold the security. The Adviser will sell promptly any securities
that are not rated investment grade by at least one nationally recognized rating
agency that exceed 5% of the Fund's net assets.
PRINCIPAL RISKS
The investment risks below are described in more detail under the heading "Types
of Investment Risk." Some additional risks, which apply to the Fund, are also
described under that heading.
The rate of income on Fund shares will vary from day to day so that the
dividends on your investment will vary. The Fund is subject to market risk.
Fixed income securities in which the Fund invests are subject to credit risk and
interest rate risk. In particular, convertible securities frequently have
speculative characteristics and may be acquired without regard to minimum
quality ratings. The Fund intends to invest no more than 5% of net assets in
securities rated non-investment grade by at least one rating agency at the time
of purchase or unrated securities of comparable quality. Convertible
securities and obligations rated in the lowest of the top four rating categories
are subject to greater credit and interest rate risk than higher rated
securities.
The Fund may purchase put and call options, sell covered call options and enter
into transactions involving futures contracts and options on futures as
described in the Additional Statement. The Fund's options and futures
transactions involve derivatives risk.
Certain of the securities in which the Fund invests pose additional risks. The
Additional Statement describes risks of collaterialized mortgage obligations and
mortgage- and asset-backed securities, which are subject to derivatives risk,
extension risk and prepayment risk.
PAST PERFORMANCE
The Fund offers three types of shares, as described under "Investing with
Firstar Funds" - Institutional, Retail A and Retail B. These types of shares
bear differing levels of expenses, as described under "Investing with Firstar
Funds." The bar chart and table below provide an indication of the risks of
investing in a Fund by showing: (a) changes in the performance of a Fund's
Institutional Shares from year to year; and (b) how the average annual returns
of a Fund's Retail A and Institutional Shares compare to those of a broad-based
securities market index. The bar charts and performance tables assume
reinvestment of dividends and distributions. Remember, past performance is not
necessarily indicative of future results. Prior to January 10, 1995, each Fund
offered to investors one series of shares with neither a sales charge nor a
service fee. The average annual total return calculation reflects a maximum
initial sales charge of 4.50% for the Retail A Shares, but for periods prior to
January 10, 1995, performance does not reflect service organization fees. If
service organization fees had been reflected, performance would be reduced. If
fee waivers were not in place, a Fund's performance would be reduced. The bar
chart does not reflect the sales load applicable to Retail A and B Shares. If
the sales loads were reflected, performance would be reduced. Performance
reflects fee waivers in effect. The Retail B Shares commenced operations on
February 28, 1999. Because those shares have less than one year's performance,
no average annual returns are shown for that class in this section.
<PAGE>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%) (INSTITUTIONAL SHARES)
1989
1990 4.75
1991 31.95
1992 8.92
1993 8.79
1994 -1.74
1995 25.48
1996 17.83
1997 23.47
BALANCED
INCOME
FUND
------
BEST QUARTER: Q '9
WORST QUARTER: Q '9
Average Annual Total Return as of 12/31/98
(Retail A Shares and Institutional Shares)
------------------------------------------
Since
1 Year 5 Years 10 Years Inception
(inception date)
BALANCED
INCOME FUND-
Retail A Shares
BALANCED
INCOME FUND-
Institutional
Shares
S&P 500 INDEX
LIPPER BALANCED
FUND INDEX
The S&P 500 Index is an unmanaged index of 500 common stocks that is generally
considered representative of the U.S. stock market. The Index is heavily
weighted towards stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks. The Lipper Balanced Fund Index is composed of the 30 largest mutual
funds whose primary objective is to conserve principal by maintaining a balanced
portfolio of stocks and bonds. The Index figures do not reflect any fees or
expenses. Investors cannot invest directly in the Index.
The performance of the Firstar Balanced Income Fund for the period prior to
December 1, 1997 is the performance of a common trust fund managed by FIRMCO
which operated during the periods prior to commencement of operations of the
Firstar Balanced Income Fund using materially equivalent investment objectives,
policies, guidelines and restrictions as the Firstar Balanced Income Fund. In
connection with the commencement of operations of the Balanced Income Fund, the
common trust fund transferred its assets to the Balanced Income Fund. At the
time of the transfer, the Adviser did not manage any other collective investment
or common trust funds using materially equivalent investment objectives,
policies, guidelines and restrictions to those of the Balanced Income Fund. The
common trust fund was not registered under the Investment Company Act of 1940
(the "1940 Act"), and was not subject to certain restrictions that are imposed
by the 1940 Act and the Internal Revenue Code. If the common trust fund had
been registered under the 1940 Act, performance may have been adversely
affected. The performance of the common trust fund has been restated to reflect
Firstar Balanced Income Fund's expenses for its first year of operations.
<PAGE>
EXPENSES
- --------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Balanced Income Fund.
INSTITUTIONAL RETAIL RETAIL
SHARES A SHARES B SHARES
------ -------- --------
SHAREOWNER FEES (fees paid
directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) None 4.50% None
Maximum Deferred Sales
Charge (Load) (as a
percentage of offering price) None None 5.00%<F1>
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends None None None
Redemption Fees None<F2> None<F2> None<F2>
Exchange Fees None None None
- ------------------------------------------------------------------------------
<F1> A contingent deferred sales charge is imposed on Retail B Shares redeemed
within six years of purchase at a rate of 5% in the first year, 4% in the second
year, 3% in the third and fourth year, 2% in the fifth year, declining to 1% in
the sixth fifth year, and eliminated thereafter.
<F2> A fee of $12.00 is charged for each wire redemption (Retail Shares) and
$15.00 for each non-systematic withdrawal from a Retirement Account which
Firstar Bank, Milwaukee, N.A. is custodian.
Distribution Shareowner Total Fund
Management and Service Servicing Other Operating
Fees <F4> Fees <F5> Fees Expenses Expenses<F6>
--------- -------- ---- ----------- -------
Annual Fund
Operating
Expenses
(expenses that
are deducted
from Fund
Assets)
Balanced
Income Fund-
Retail A 0.75% 0.00% 0.25% 0.64% 1.64%
Balanced
Income Fund-
Retail B 0.75% 0.64%
Balanced
Income Fund-
Institutional 0.75% 0.00% 0.00% 0.64% 1.39%
- -------------------------------------------------------------------------------
<F3> The annual operating expenses for the Retail B Shares are based on Fund
expenses for the prior fiscal year, but are restated to reflect estimated
expenses for Retail B Shares.
<F4> The Adviser has voluntarily agreed that a portion of its management fee
will not be imposed on the Fund during the current fiscal year. As a result of
the fee waiver, current management fees for the Fund are 0.33% of the Fund's
average daily net assets. This waiver is expected to remain in effect for the
current fiscal year. However, it is voluntary and can be modified or terminated
at any time without the Fund's consent.
<F5> The total of all 12b-1 fees and shareowner servicing fees may not exceed,
in the aggregate, the annual rate of 0.25% of the Fund's average daily net
assets for the Retail A Sshares. The Fund does not intend to pay 12b-1 fees
with respect to the Retail A Sshares for the current fiscal year.
<F6> As a result of the fee waiver set forth in note 4, the Total Fund Operating
Expenses of the Retail A, Retail B and Institutional Shares, which are estimated
to be incurred, are 1.22%, ____% and 0.97% respectively. Although the fee
waiver is expected to remain in effect for the current fiscal year, this waiver
is voluntary and may be terminated at any time at the option of the Adviser.
EXPENSE EXAMPLE
The following Example is intended to help you compare the cost of investing in
thea Fund (without the fee waivers) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in thea Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that thea Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- -------- ---------
Balanced
Income Fund-
Retail A Shares
Balanced
Income Fund-
Retail B Shares
Assuming complete
redemption at end
of period
<PAGE>
Assuming no
redemption
Balanced
Income Fund-
Institutional
Shares
Retail B Shares convert to Retail A Shares six years after purchase; therefore,
Retail A Shares expenses are used in the hypothetical example after year six.
In addition to the compensation itemized above, Shareowner Organizations may
charge fees for providing services in connection with their clients' investments
in the Fund's shares.
BALANCED GROWTH FUND
OBJECTIVE
The investment objective of the Balanced Growth Fund is to achieve a
balance of capital appreciation and current income with relatively low
volatility of capital.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests principally in a diversified portfolio of fixed-income and
equity securities. The Fund selects equity securities on the basis of their
potential for capital appreciation. The Fund selects fixed-income securities,
which the Adviser believes will provide an annual rate of total return similar
to that of the Lehman Brothers Government/Corporate Bond Index. That Index is
described under "Bond Funds- Description of Bond Indices."
INVESTMENT POLICY
- ---------------------------------------------------
Fixed Income Equity Securities
- ---------------------------------------------------
at least 25% at least 50% (no more than 65%)
- ---------------------------------------------------
The Fund's policy is to invest at least 25% of the value of its total assets in
fixed-income senior securities and at least 50% and no more than 65% in equity
securities at all times.
- ------------------------------------------------------------------------------
NOTE: THE ACTUAL PERCENTAGE OF ASSETS INVESTED IN FIXED INCOME AND EQUITY
SECURITIES WILL VARY FROM TIME TO TIME, DEPENDING ON THE JUDGMENT OF THE ADVISER
AS TO THE GENERAL MARKET AND ECONOMIC CONDITIONS, TRENDS AND YIELDS, INTEREST
RATES AND FISCAL AND MONETARY DEVELOPMENTS.
- ------------------------------------------------------------------------------
Equity Securities. The Fund primarily invests in common stock of domestic
and foreign companies that the Adviser considers to be well managed and to have
"attractive fundamental financial characteristics." See box on page __ for
examples of these characteristics. The Adviser also generally looks for
companies with stock market capitalizations between $100 million and $50
billion. The Fund may also invest from time to time a portion of its assets in
companies with larger or smaller market capitalizations. The Fund may invest up
to 25% of its total assets in the securities of foreign issuers, either directly
or through investments in sponsored American Depository Receipts ("ADRs"). (See
"Balanced Income Fund").
The Fund may also acquire preferred stocks. In addition, the Fund may
invest in domestic securities convertible into common stock, such as certain
bonds and preferred stocks, and may invest up to 5% of its net assets in other
types of domestic securities having common stock characteristics, such as rights
and warrants to purchase equity securities.
Fixed Income. The Fund may purchase the following types of fixed income
securities. There are no maturity limitations.
- -corporate
- -U.S. Treasury
- -U.S. government agency
- -stripped U.S. government
- -asset-backed and mortgage-backed obligations
- -money market instruments
- -U.S. Government
<PAGE>
Except for convertible securities the Fund will only acquire debt
obligations that are rated "investment- grade" by at least one rating agency or
unrated obligations deemed by the Adviser to be comparable in quality. See
"Taxable Bond Funds" for a description of investment grade securities. After
purchase, a security may cease to be rated or may have its rating reduced below
the minimum rating required for purchase by the Fund. The Adviser will consider
whether to continue to hold the security.
PRINCIPAL RISKS
The investment risks below are described in more detail under the heading
"Types of Investment Risk.". Some additional risks, which apply to the Fund,
are also described under that heading.
The rate of income on Fund shares will vary from day to day so that the
dividends on your investment will vary. The Fund is subject to market risk.
Fixed income securities in which the Fund invests are subject to credit risk and
interest rate risk. In particular, convertible securities frequently have
speculative characteristics and may be acquired without regard to minimum
quality ratings. The Fund intends to invest no more than 5% of net assets in
securities rated non-investment grade by at least one rating agency at the time
of purchase or unrated securities of comparable quality. Convertible
securities and obligations rated in the lowest of the top four rating categories
are subject to greater credit and interest rate risk than higher rated
securities.
The Fund may purchase put and call options, sell covered call options and
enter into transactions involving futures contracts and options on futures as
described later in the Additional Statement. These Securities are subject to
derivatives risk.
Certain of the securities in which the Fund invests pose additional risks.
The Additional Statement describes risks of collateralized mortgage obligations
and mortgage- and asset- backed securities, which are subject to derivatives
risk, extension risk and prepayment risk.
PAST PERFORMANCE
The Fund offers three types of shares, as described under "Investing with
Firstar Funds" - Institutional, Retail A and Retail B. These types of shares
bear differing levels of expenses, as described under "Investing with Firstar
Funds." The bar chart and table below provide an indication of the risks of
investing in the Fund by showing: (a) changes in the performance of a Fund's
Institutional Shares from year to year, and (b) how the average annual returns
of the Fund's shares compare to those of a broad-based securities market index.
The bar chart and performance table assume reinvestment of dividends and
distributions. Remember, past performance is not necessarily indicative of
future results. Prior to January 10, 1995, the Fund offered to investors one
series of shares with neither a sales charge nor a service fee. The average
annual total return calculation reflects a maximum initial sales charge of 4.50%
for the Retail A Shares but for periods prior to January 10, 1995, performance
does not reflect service organization fees. If service organization fees had
been reflected, performance would be reduced. The bar chart does not reflect
the sales load applicable to Retail A and B Shares. If the sales loads were
reflected returns would be less. Performance reflects fee waivers in effect.
If fee waivers were not in place, a Fund's performance would have been reduced.
The Retail B Shares commenced operations on February 28, 1999. Because those
shares have less than one year's performance, no average annual returns are
shown for that class in this section.
<PAGE>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%) (INSTITUTIONAL SHARES)
1989
1990
1991
1992
1993 8.24
1994 -4.27
1995 26.52
1996 12.63
1997 17.47
BALANCED
GROWTH
FUND
------
BEST QUARTER: Q '9
WORST QUARTER: Q '9
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
(RETAIL A SHARES AND INSTITUTIONAL SHARES)
------------------------------------------
Since
1 Year 5 Years 10 Years inception
(inception date)
BALANCED
GROWTH FUND-
Retail A Shares
BALANCED
GROWTH FUND-
Institutional
Shares
S&P 500 INDEX
LIPPER BALANCED
FUND INDEX
The S&P 500 Index is an unmanaged index of 500 common stocks that is generally
considered representative of the U.S. stock market. The Index is heavily
weighted towards stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks. The Lipper Balanced Fund Index is composed of the 30 largest mutual
funds whose primary objective is to conserve principal by maintaining a balanced
portfolio of stocks and bonds. The Index figures do not reflect any fees or
expenses. Investors cannot invest directly in the Index.
EXPENSES
- ---------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Balanced Growth Fund.
INSTITUTIONAL RETAIL RETAIL
SHARES A SHARES B SHARES
------ -------- --------
SHAREOWNER FEES (fees paid
directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) None 4.50% None
Maximum Deferred Sales
Charge (Load) (as a
percentage of offering price) None None 5.00%<F1>
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends None None None
Redemption Fees None<F2> None<F2> None<F2>
Exchange Fees None None None
<PAGE>
- ------------------------------------------------------------------------------
<F1> A contingent deferred sales charge is imposed on Retail B Shares redeemed
within six years of purchase at a rate of 5% in the first year, 4% in the second
year, 3% in the third and fourth year, 2% in the fifth year, declining to 1% in
the sixth fifth year, and eliminated thereafter.
<F2> A fee of $12.00 is charged for each wire redemption (Retail Shares) and
$15.00 for each non-systematic withdrawal from a Retirement Account which
Firstar Bank, Milwaukee, N.A. is custodian.
Distribution Shareowner Total Fund
Management and Service Servicing Other Operating
Fees <F4> Fees <F5> Fees Expenses Expenses<F6>
ANNUAL FUND
OPERATING
EXPENSES
(expenses that
are deducted
from Fund
Assets)
Balanced
Growth Fund-
Retail A 0.75% 0.00% 0.25% 0.24% 1.24%
Balanced
Growth Fund-
Retail B 0.75% 0.24%
Balanced
Growth Fund-
Institutional 0.75% 0.00% 0.00% 0.24% 0.99%
- ------------------------------------------------------------------------------
<F3> The annual operating expenses for the Retail B Shares are based on Fund
expenses for the prior fiscal year, but are restated to reflect estimated
expenses for Retail B Shares.
<F4> The Adviser has voluntarily agreed that a portion of its management fee
will not be imposed on the Fund during the current fiscal year. As a result of
the fee waiver, current management fees for the Fund are 0.73% of the Fund's
average daily net assets. This waiver is expected to remain in effect for the
current fiscal year. However, it is voluntary and can be modified or terminated
at any time without the Fund's consent.
<F5> The total of all 12b-1 fees and shareowner servicing fees may not exceed,
in the aggregate, the annual rate of 0.25% of the Fund's average daily net
assets for the Retail A Shares. The Fund does not intend to pay 12b-1 fees with
respect to the Retail A Shares for the current fiscal year.
<F6> As a result of the fee waiver set forth in notes 4, the Total Fund
Operating Expenses of the Retail A, Retail B and Institutional Shares of the
Fund, which are estimated to be incurred, are 1.22%, ___% and 0.97%
respectively. Although the fee waiver is expected to remain in effect for the
current fiscal year, this waiver is voluntary and may be terminated at any time
at the option of the Adviser.
EXPENSE EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund (without the fee waivers) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- -------- ---------
Balanced
Growth Fund-
Retail A Shares
Balanced
Growth Fund-
Retail B Shares
Assuming complete
redemption at end
of period
Assuming no
redemption
Balanced
Growth Fund-
Institutional
Shares
Retail B Shares convert to Retail A Shares six years after purchase; therefore,
Retail A Shares expenses are used in the hypothetical example after year six.
In addition to the compensation itemized above, Shareowner Organizations may
charge fees for providing services in connection with their clients' investments
in the Fund's shares.
GROWTH AND INCOME FUND
OBJECTIVE
<PAGE>
The investment objective of the Growth and Income Fund is to seek both
reasonable income and long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
- -----------------------------------
The Fund generally invests in
medium to large sized companies
with stock market capitalizations
over $1 billion.
- -----------------------------------
Common Stocks. The Fund selects common stocks primarily from a universe of
domestic companies that have established dividend-paying histories. During
normal market conditions, at least 50% of net assets are invested in income-
producing equity securities. Each company initially selected must pay a current
dividend.
Medium to Large Sized Companies. The Fund generally invests in medium- to
large-sized companies with stock market capitalizations over $1 billion that the
Adviser considers to be well managed and to have attractive fundamental
financial characteristics. See box on page 24 for examples of these
characteristics. The Fund may also invest a portion of its assets in companies
with smaller market capitalizations.
Other. The Fund may invest up to 25% of total assets in the securities of
foreign issuers, either directly or through sponsored ADRs. (See"'Balanced
Income Fund").
The Fund also invests in bonds, notes, debentures and preferred stocks
convertible into common stocks, if they provide a current interest or dividend
payment.
To extent consistent with its objective, the Fund may purchase non-
convertible debt and preferred stocks that in the opinion of the Adviser present
opportunities for capital appreciation. These obligations must be investment
grade at time of purchase or unrated but deemed comparable by the Adviser. See
"Taxable Bond Funds" for a description of investment grade securities.
PRINCIPAL RISKS
The investment risks below are described in more detail under the heading
"Types of Investment Risk." Some additional risks, which apply to the Fund, are
also described under that heading.
The Fund is subject to market risk. The Fund's investments in debt securities
are subject to credit risk and interest rate risk. In particular, convertible
securities frequently have speculative characteristics and may be acquired
without regard to minimum quality ratings. The Fund intends to invest no more
than 5% of net assets in securities rated non-investment grade at the time of
purchase or unrated securities of comparable quality. Convertible securities
and obligations rated in the lowest of the top four rating categories are
subject to greater credit and interest rate risk than higher rated securities.
The Fund's options and futures transactions involve derivatives risk.
PAST PERFORMANCE
The Fund offers three types of shares, as described under "Investing with
Firstar Funds" - Institutional, Retail A and Retail B. These types of shares
bear differing levels of expenses, as described under "Investing with Firstar
Funds." The bar chart and table below provide an indication of the risks of
investing in the Fund by showing: (a) changes in the performance of the Fund's
Institutional Shares from
<PAGE>
year to year, and (b) how the average annual returns of the Fund's Retail and
Institutional Shares compare to those of a broad-based securities market index.
The bar chart and performance table assume reinvestment of dividends and
distributions. Remember, past performance is not necessarily indicative of
future results. Prior to January 10, 1995, the Fund offered to investors one
series of shares with neither a sales charge nor a service fee. The average
annual total return calculation reflects a maximum initial sales charge of 4.50%
for the Retail A Shares, but for periods prior to January 10, 1995, performance
does not reflect service organization fees. If service organization fees had
been reflected, performance would be reduced. The bar chart does not reflect
the sales load applicable to Retail A and B Shares. If the sales loads were
reflected, returns would be reduced. Performance reflects fee waivers in
effect. If fee waivers were not in place, a Fund's performance would behave
been reduced. The Retail B Shares commenced operations on February 28, 1999.
Because those shares have less than one year's performance, no average annual
returns are shown for that class in this section.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%) (INSTITUTIONAL SHARES)
1989
1990 -0.28
1991 22.22
1992 5.48
1993 6.64
1994 0.14
1995 34.83
1996 25.03
1997 33.54
GROWTH
AND INCOME
FUND
------
BEST QUARTER: Q '9
WORST QUARTER: Q '9
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
(RETAIL A SHARES AND INSTITUTIONAL SHARES)
------------------------------------------
Since
1 Year 5 Years 10 Years inception
(inception date)
GROWTH AND
INCOME FUND-
Retail A Shares
GROWTH AND
INCOME FUND-
Institutional
Shares
S&P 500 INDEX
The S&P 500 Index is an unmanaged index of 500 common stocks that is generally
considered representative of the U.S. stock market. The Index is heavily
weighted towards stocks with large market capitalization's and represents
approximately two-thirds of the total market value of all domestic common
stocks. The Index figures do not reflect any fees or expenses. Investors
cannot invest directly in the Index.
EXPENSES
- --------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Growth and Income Fund.
<PAGE>
INSTITUTIONAL RETAIL RETAIL
SHARES A SHARES B SHARES
------ -------- --------
SHAREOWNER FEES (fees paid
directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) None 4.50% None
Maximum Deferred Sales
Charge (Load) (as a
percentage of offering price) None None 5.00%<F1>
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends None None None
Redemption Fees None<F2> None<F2> None<F2>
Exchange Fees None None None
- ------------------------------------------------------------------------------
<F1> A contingent deferred sales charge is imposed on Retail B Shares redeemed
within six years of purchase at a rate of 5% in the first year, 4% in the second
year, 3% in the third and fourth year, 2% in the fifth year, declining to 1% in
the sixth fifth year, and eliminated thereafter.
<F2> A fee of $12.00 is charged for each wire redemption (Retail Shares) and
$15.00 for each non-systematic withdrawal from a Retirement Account which
Firstar Bank, Milwaukee, N.A. is custodian.
Distribution Shareowner Total Fund
Management and Service Servicing Other Operating
Fees Fees <F4> Fees Expenses Expenses
--------- -------- ---- ----------- --------
ANNUAL FUND
OPERATING
EXPENSES
(expenses that
are deducted
from Fund
Assets)
Growth and
Income Fund-
Retail A 0.75% 0.00% 0.25% 0.19% 1.19%
Growth and
Income Fund-
Retail B <F3> 0.75% 0.19%
Growth Fund-
and Income
Institutional 0.75% 0.00% 0.00% 0.19% 0.94%
- ------------------------------------------------------------------------------
<F3> The annual operating expenses for the Retail B Shares are based on Fund
expenses for the prior fiscal year, but are restated to reflect estimated
expenses for Retail B Shares.
<F4> The total of all 12b-1 fees and shareowner servicing fees may not exceed,
in the aggregate, the annual rate of 0.25% of the Fund's average daily net
assets for the Retail A Shares. The Fund does not intend to pay 12b-1 fees with
respect to the Retail A Shares for the current fiscal year.
EXPENSE EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund (without the expense waivers) with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in the Fund for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that thea Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- -------- ---------
Growth and
Income Fund-
Retail A Shares
Growth and
Income Fund-
Retail B Shares
Assuming complete
redemption at end
of period
Assuming no
redemption
Growth and
Income Fund-
Institutional
Shares
Retail B Shares convert to Retail A Shares six years after purchase; therefore,
Retail A Shares expenses are used in the hypothetical example after year six.
In addition to the compensation itemized above, Shareowner Organizations may
charge fees for providing services in connection with their clients' investments
in thea Fund's shares.
<PAGE>
EQUITY INDEX FUND
OBJECTIVE
The investment objective of the Equity Index Fund is to seek returns,
before Fund expenses, comparable to the price and yield performance of publicly
traded common stocks in the aggregate, as represented by the S&P 500 Index.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund intends to invest substantially
all of its total assets in securities included in the S&P 500 Index. The Fund
uses the S&P 500 Index( as the standard performance comparison because it
represents approximately two-thirds of the total market value of all domestic
common stocks and is well known to investors.
The S&P 500 Index consists of 500 selected common stocks, most of which are
listed on the New York Stock Exchange. Standard & Poor's selects the stocks
included in the S&P 500 Index on a market capitalization basis, and the S&P 500
Index is heavily weighted toward stocks with large market capitalizations.
Rather than using traditional methods of investment management, index funds
such as the Equity Index Fund are managed with the aid of a computer program.
The Adviser purchases and sells securities for the Fund in an attempt to produce
investment results that substantially duplicate the performance of the common
stocks of the issuers represented in the S&P 500 Index.
- -------------------------
THE FUND WILL HOLD
STOCK OF APPROXIMATELY
400 TO 475 ISSUERS
INCLUDED IN THE S&P 500
INDEX.
- -------------------------
The Fund does not expect to hold all of the stocks included in the S&P 500
Index at any particular time. However, the Adviser believes that it will be
able to construct and maintain the Fund's investment portfolio so that it
reasonably tracks the performance of the S&P 500 Index by using a capitalization
weighting and sector balancing technique.
PRINCIPAL RISKS
The investment risks below are described in more detail under the heading
"Types of Investment Risk." Some additional risks, which apply to the Fund, are
also described under that heading.
The Fund is subject to market risk. Your investment follows the large-cap
portion of the U.S. stock market, as measured by the Index, during upturns as
well as downturns. Because of its indexing strategy, the Fund cannot take steps
to reduce market volatility or to lessen the effects of a declining market.
Whenever large-cap stocks perform less than mid- or small-cap stocks, the Fund
may under-perform funds that have exposure to those segments. Further, the
<PAGE>
Fund will not necessarily dispose of a security in response to adverse events
affecting the issuer of a security (such as adverse credit factors or failure to
pay dividends).
The Adviser believes the quarterly performance of the Fund and the S&P 500
Index will be within + 0.3% under normal market conditions. If a large number
of shareowners were to redeem shares, however, the Adviser may be forced to
reduce the number of issuers represented in the portfolio. This could have an
adverse effect on the accuracy with which the Fund matches the performance of
the S&P 500 Index.
The Adviser may be required to sell common stock if the issuer is
eliminated from the S&P 500 Index. Such sales may result in:
- -lower prices, or
- -losses, that may not have been incurred if the Adviser did not
have to purchase or sell the securities.
The Fund's options and futures transactions involve derivatives risk.
Futures contracts could cause the Fund to track the Index less closely if they
don't perform as expected.
Standard & Poor's makes no representation or warranty regarding the
advisability of investing in index funds or the ability of the S&P 500 Index to
track general stock market performance.
PAST PERFORMANCE
The Fund offers three types of shares, as described under "Investing with
Firstar Funds" - Institutional, Retail A and Retail B. These types of shares
bear differing levels of expenses, as described under "Investing with Firstar
Funds." The bar chart and table below provide an indication of the risks of
investing in the Fund by showing: (a) changes in the performance of the Fund's
Institutional Shares from year to year, and (b) how the average annual returns
of the Fund's Retail A and Institutional Shares compare to those of a broad-
based securities market index. The bar chart and performance table assume
reinvestment of dividends and distributions. Remember, past performance is not
necessarily indicative of future results. Prior to January 10, 1995, the Fund
offered to investors one series of shares with neither a sales charge nor a
service fee. The average annual total return calculation reflects a maximum
initial sales charge of 4.50% for the Retail A Shares, but for periods prior to
January 10, 1995, performance does not reflect service organization fees. If
service organization fees had been reflected, performance would be reduced. The
bar chart does not reflect the sales load applicable to Retail A and B Shares.
If the sales loads were reflected returns would be reducedless. Performance
reflects fee waivers in effect. If fee waivers were not in place, a Fund's
performance would behave been reduced. The Retail B Shares commenced operations
on February 28, 1999. Because those shares have less than one year's
performance, no average annual returns are shown for that class in this section.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%) (INSTITUTIONAL SHARES)
1989
1990 -3.29
1991 29.96
1992 6.97
1993 9.11
1994 1.02
1995 36.98
1996 22.65
1997 32.59
<PAGE>
EQUITY
INDEX
FUND
------
BEST QUARTER: Q '9
WORST QUARTER: Q '9
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
(RETAIL A SHARES AND INSTITUTIONAL SHARES)
------------------------------------------
Since
1 Year 5 Years 10 Years inception
(inception date)
EQUITY INDEX FUND-
Retail A Shares
EQUITY INDEX FUND-
Institutional
Shares
S&P 500 INDEX
The S&P 500 Index is an unmanaged index of 500 common stocks that is generally
considered representative of the U.S. stock market. The Index is heavily
weighted towards stocks with large market capitalization's and represents
approximately two-thirds of the total market value of all domestic common
stocks. Index figures do not reflect any fees or expenses. Investors cannot
invest directly in the Index.
The performance of the Equity Index Fund for the period prior to December 29,
1989 is represented by the performance of a collective investment fund, which
operated prior to the effectiveness of the registration statement of the Firstar
Equity Index Fund. At the time of the Firstar Equity Index Funds' inception,
the Collective Investment Fund was operated using substantially the same
investment objectives, policies and restrictions as the Firstar Equity Index
Fund. In connection with the Firstar Equity Index Funds' commencement of
operations, on December 29, 1989, the Collective Investment Fund transferred its
assets to the Firstar Equity Index Fund.
The Collective Investment Fund was not open to the public generally, nor
registered under the Investment Company Act of 1940 (the "1940 Act") or subject
to certain restrictions that are imposed by the 1940 Act and the Internal
Revenue Code. If the Collective Investment Fund had been registered under the
1940 Act, performance may have been adversely affected. Performance of the
Collective Investment Fund has been restated to reflect the Firstar Equity Index
Funds' actual expenses during its first fiscal year. Performance quotations of
the Collective Investment Fund represent past performance of the FIRMCO managed
collective fund, which is separate and distinct from the Firstar Equity Index
Fund; do not represent past performance of the Fund; and should not be
considered as representative of future results of the Fund.
At the time of the transfer, the Adviser did not manage any other collective
investment or common trust funds using materially equivalent investment
objectives, policies, guidelines and restrictions to those of the Equity Index
Fund.
EXPENSES
- ---------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Equity Index Fund.
INSTITUTIONAL RETAIL RETAIL
SHARES A SHARES B SHARES
------ -------- --------
SHAREOWNER FEES (fees paid
directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) None 4.50% None
Maximum Deferred Sales
Charge (Load) (as a
percentage of offering price) None None 5.00%<F1>
<PAGE>
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends None None None
Redemption Fees None<F2> None<F2> None<F2>
Exchange Fees None None None
<F1> A contingent deferred sales charge is imposed on Retail B Shares redeemed
within six years of purchase at a rate of 5% in the first year, 4% in the second
year, 3% in the third and fourth year, 2% in the fifth year, declining to 1% in
the sixth fifth year, and eliminated thereafter.
<F2> A fee of $12.00 is charged for each wire redemption (Retail Shares) and
$15.00 for each non-systematic withdrawal from a Retirement Account which
Firstar Bank, Milwaukee, N.A. is custodian.
Distribution Shareowner Total Fund
Management and Service Servicing Other Operating
Fees <F4> Fees <F5> Fees Expenses Expenses<F6>
--------- ---------- ---------- ---------- ----------
ANNUAL FUND
OPERATING
EXPENSES
(expenses that
are deducted
from Fund
Assets)
Equity Index
Fund-Retail A 0.25% 0.00% 0.25% 0.18% 0.68%
Equity Index Fund-
Retail B <F3> 0.25% 0.18%
Equity Index Fund
Institutional 0.25% 0.00% 0.00% 0.18% 0.43%
- ---------------------------------------------------------------------------
<F3> The annual operating expenses for the Retail B Shares are based on Fund
expenses for the prior fiscal year, but are restated to reflect estimated
expenses for Retail B Shares.
<F4> The Adviser has voluntarily agreed that a portion of its management fee
will not be imposed on the Fund during the current fiscal year. As a result of
the fee waiver, current management fees for the Fund are 0.19% of the Fund's
average daily net assets. This waiver is expected to remain in effect for the
current fiscal year. However, it is voluntary and can be modified or terminated
at any time without the Fund's consent.
<F5> The total of all 12b-1 fees and shareowner servicing fees may not exceed,
in the aggregate, the annual rate of 0.25% of the Fund's average daily net
assets for the Retail A Shares. The Fund does not intend to pay 12b-1 fees with
respect to the Retail A Shares for the current fiscal year.
<F6> As a result of the fee waiver set forth in notes 4, and 6 the Total Fund
Operating Expenses of the Retail A, Retail B and Institutional Shares of the
Fund which are estimated to be incurred are, 0.62% , ____% and 0.37%
respectively. Although the fee waiver is expected to remain in effect for the
current fiscal year, this waiver is voluntary and may be terminated at any time
at the option of the Adviser.
EXPENSE EXAMPLE
The following Example is intended to help you compare the cost of investing in
thea Fund (without the fee waivers) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in thea Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that thea Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- -------- ---------
Equity Index Fund-
Retail A Shares
Equity Index Fund-
Retail B Shares
Assuming complete
redemption at end
of period
Assuming no
redemption
Equity Index Fund-
Institutional
Shares
Retail B Shares convert to Retail A Shares six years after purchase; therefore,
Retail A Shares expenses are used in the hypothetical example after year six.
In addition to the compensation itemized above, Shareowner Organizations may
charge fees for providing services in connection with their clients' investments
in the Fund's shares.
<PAGE>
GROWTH FUND
OBJECTIVE
The Growth Fund seeks capital appreciation through investment in securities
of large-sized companies.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. During normal market conditions, the Fund invests at
least 50% of total assets in equity securities. Most of these equity securities
are publicly traded common stocks of companies incorporated in the U.S.
Large Sized Companies. The Fund generally invests in large-sized companies
with stock market capitalizations over $3 billion that the Adviser considers to
be well-managed and to have attractive fundamental financial characteristics.
See box on page 24 for examples of these characteristics. The Fund may also
invest a portion of its assets in companies with market capitalizations below $3
billion.
- --------------------------------
The Fund generally invests in
large-sized companies with
stock market capitalizations
over $3 billion.
- --------------------------------
Other. The Fund may invest up to 25% of total assets in the securities of
foreign issuers, either directly or through sponsored ADRs. (See "Balanced
Income Fund").
The Fund also invests in bonds, notes, debentures and preferred stocks
convertible into common stocks, if, in the Adviser's opinion, they present
opportunities for capital appreciation.
To extent consistent with its objective, the Fund may purchase non-
convertible debt and preferred stocks that, in the opinion of the Adviser,
present opportunities for capital appreciation. These obligations must be
investment grade at time of purchase or unrated but deemed comparable by the
Adviser. See "Taxable Bond Funds" for a description of investment grade
securities.
PRINCIPAL RISKS
The investment risks below are described in more detail under the heading
"Types of Investment Risk." Some additional risks, which apply to the Fund, are
also described under that heading.
The Fund is subject to market risk. The Fund's investments in debt
securities are subject to credit risk and interest rate risk. In particular,
convertible securities frequently have speculative characteristics and may be
acquired without regard to minimum quality ratings. The Fund intends to invest
no more than 5% of net assets in securities rated non-investment grade at the
time of purchase, or unrated securities of comparable quality. Convertible
securities and obligations rated in the lowest of the top four rating categories
are subject to greater credit and interest rate risk than higher rated
securities.
PAST PERFORMANCE
<PAGE>
The Fund offers three types of shares, as described under "Investing with
Firstar Funds" - Institutional, Retail A and Retail B. These types of shares
bear differing levels of expenses, as described under "Investing with Firstar
Funds." The bar chart and table below provide an indication of the risks of
investing in the Fund by showing: (a) changes in the performance of the Fund's
Institutional Shares from year to year, and (b) how the average annual returns
of the Fund's Retail A and Institutional Shares compare to those of a broad-
based securities market index. The bar chart and performance table assume
reinvestment of dividends and distributions. Remember, past performance is not
necessarily indicative of future results. Prior to January 10, 1995, the Fund
offered to investors one series of shares with neither a sales charge nor a
service fee. The average annual total return calculation reflects a maximum
initial sales charge of 4.50% for the Retail A Shares, but for periods prior to
January 10, 1995, performance does not reflect service organization fees. If
service organization fees had been reflected, performance would be reduced. The
bar chart does not reflect the sales load applicable to Retail A and B Shares.
If the sales loads were reflected, returns would be reduced. Performance
reflects fee waivers in effect. If fee waivers were not in place, a Fund's
performance would be have been reduced. The Retail B Shares commenced
operations on February 28, 1999. Because those shares have less than one year's
performance, no average annual returns are shown for that class in this section.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%) (INSTITUTIONAL SHARES)
1989
1990
1991
1992
1993 9.98
1994 -5.34
1995 30.03
1996 18.15
1997 22.91
GROWTH
FUND
------
BEST QUARTER: Q '9
WORST QUARTER: Q '9
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
(RETAIL A SHARES AND INSTITUTIONAL SHARES)
------------------------------------------
Since
1 Year 5 Years 10 Years inception
(inception date)
GROWTH FUND-
Retail A Shares
GROWTH FUND-
Institutional
Shares
S&P 500 INDEX
The S&P 500 Index is an unmanaged index of 500 common stocks that is generally
considered representative of the U.S. stock market. The Index is heavily
weighted towards stocks with large market capitalization's and represents
approximately two-thirds of the total market value of all domestic common
stocks. The Index figures do not reflect any fees or expenses. Investors
cannot invest directly in the Index.
EXPENSES
- ---------
<PAGE>
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Growth Fund.
INSTITUTIONAL RETAIL RETAIL
SHARES A SHARES B SHARES
------ -------- --------
SHAREOWNER FEES (fees paid
directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) None 4.50% None
Maximum Deferred Sales
Charge (Load) (as a
percentage of offering price) None None 5.00%<F1>
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends None None None
Redemption Fees None<F2> None<F2> None<F2>
Exchange Fees None None None
- -------------------------------------------------------------------------------
<F1> A contingent deferred sales charge is imposed on Retail B Shares redeemed
within six years of purchase at a rate of 5% in the first year, 4% in the second
year, 3% in the third and fourth year, 2% in the fifth year, declining to 1% in
the sixth fifth year, and eliminated thereafter.
<F2> A fee of $12.00 is charged for each wire redemption (Retail Shares) and
$15.00 for each non-systematic withdrawal from a Retirement Account which
Firstar Bank, Milwaukee, N.A. is custodian.
Distribution Shareowner Total Fund
Management and Service Servicing Other Operating
Fees Fees <F4> Fees Expenses Expenses
ANNUAL FUND
OPERATING
EXPENSES
(expenses that
are deducted
from Fund
Assets)
Growth
Fund-Retail A 0.75% 0.00% 0.25% 0.21% 1.21%
Growth Fund-
Retail B <F3> 0.75% 0.21%
Growth Fund
Institutional 0.75% 0.00% 0.00% 0.21% 0.96%
- ----------------------------------------------------------------------------
<F3> The annual operating expenses for the Retail B Shares are based on Fund
expenses for the prior fiscal year, but are restated to reflect estimated
expenses for Retail B Shares.
<F4> The total of all 12b-1 fees and shareowner servicing fees may not exceed,
in the aggregate, the annual rate of 0.25% of the Fund's average daily net
assets for the Retail A Shares. The Fund does not intend to pay 12b-1 fees with
respect to the Retail A Shares for the current fiscal year.
EXPENSE EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund (without the fee waivers) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- -------- ---------
Growth Fund-
Retail A Shares
Growth Fund-
Retail B Shares
Assuming complete
redemption at end
of period
Assuming no
redemption
Growth Fund-
Institutional
Shares
Retail B Shares convert to Retail A Shares six years after purchase; therefore,
Retail A Shares expenses are used in the hypothetical example after year six.
In addition to the compensation itemized above, Shareowner Organizations may
charge fees for providing services in connection with their clients' investments
in he Fund's shares.
<PAGE>
SPECIAL GROWTH FUND
OBJECTIVE
The Special Growth Fund seeks capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities/Potential Price Appreciation. The Fund selects
securities based on their potential for price appreciation. During normal
market conditions, the Fund invests at least 50% of total assets in equity
securities. Most of these equity securities are publicly traded common stocks
of companies incorporated in the U.S.
Medium-Sized Companies. The Fund generally invests in medium-sized
companies with stock market capitalizations between $700 million and $5 billion
that the Adviser considers to be well-managed and to have attractive fundamental
financial characteristics. See box on page 24 for examples of these
characteristics. The Fund may also invest a portion of its assets in companies
with smaller or larger market capitalizations.
- --------------------------------
The Fund generally invests in
medium-sized companies with
stock market capitalizations
between $700 million and $5
billion.
- --------------------------------
Other. The Fund may invest up to 25% of total assets in the securities of
foreign issuers, either directly or through sponsored ADRs. (See Balanced Income
Fund.")
The Fund also invests in bonds, notes, debentures and preferred stocks
convertible into common stocks, and may invest up to 5% of net assets in other
types of securities having common stock characteristics, such as rights and
warrants to purchase equity securities.
The Fund may purchase non-convertible debt and preferred stocks that in the
opinion of the Adviser present opportunities for capital appreciation. These
obligations must be investment grade at time of purchase or unrated but deemed
comparable by the Adviser. See "Taxable Bond Funds" for a description of
investment grade securities.
The Fund may acquire securities of unseasoned companies (companies with
less than three years' of continuous operation) when the Adviser believes the
investments offer possibilities of attractive capital appreciation, but will not
invest more than 5% of the value of its total assets in the securities of
unseasoned companies.
PRINCIPAL RISKS
The investment risks below are described in more detail under the heading
"Types of Investment Risk." Some additional risks, which apply to the Fund, are
also described under that heading.
The Fund may be suitable for you only if you are prepared to invest without
concern for current income and are financially able to assume risk in search of
long-term capital appreciation. The Adviser believes, however, that there is
greater potential for price appreciation
<PAGE>
among medium-sized companies in which the Fund invests, since they tend to
be less widely followed by other securities analysts and thus may be more likely
to be undervalued by the market.
The Fund is subject to market risk. The Fund's investments in debt
securities are subject to credit risk and interest rate risk. Convertible
securities frequently have speculative characteristics and may be acquired
without regard to minimum quality ratings. The Fund intends to invest no more
than 5% of net assets in securities rated non-investment grade at the time of
purchase or unrated securities of comparable quality. Convertible securities
and obligations rated in the lowest of the top four rating categories are
subject to greater credit and interest rate risk than higher rated securities.
The Additional Statement describes the risks of warrants.
PAST PERFORMANCE
The Fund offers three types of shares, as described under "Investing with
Firstar Funds" _ Institutional, Retail A and Retail B. These types of shares
bear differing levels of expenses, as described under "Investing with Firstar
Funds." The bar chart and table below provide an indication of the risks of
investing in the Fund by showing: (a) changes in the performance of thea Fund's
Institutional Shares from year to year, and (b) how the average annual returns
of the Fund's Retail A and Institutional Shares compare to those of a broad-
based securities market index. The bar chart and performance table assume
reinvestment of dividends and distributions. Remember, past performance is not
necessarily indicative of future results. Prior to January 10, 1995, the Fund
offered to investors one series of shares with neither a sales charge nor a
service fee. The average annual total return calculation reflects a maximum
initial sales charge of 4.50% for the Retail A Shares, but for periods prior to
January 10, 1995, performance does not reflect service organization fees. If
service organization fees had been reflected, performance would be reduced. The
bar chart does not reflect the sales load applicable to Retail A and B Shares.
If the sales loads were reflected, returns would be reduced. Performance
reflects fee waivers in effect. If fee waivers were not in place, a Fund's
performance would have been reduced. The Retail B Shares commenced operations
on February 28, 1999. Because those shares have less than one year's
performance, no average annual returns are shown for that class in this section.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%) (INSTITUTIONAL SHARES)
1989
1990 1.00
1991 57.96
1992 7.22
1993 8.02
1994 -2.01
1995 29.94
1996 18.87
1997 17.42
<PAGE>
SPECIAL GROWTH
FUND
------
BEST QUARTER: Q '9
WORST QUARTER: Q '9
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
(RETAIL A SHARES AND INSTITUTIONAL SHARES)
------------------------------------------
Since
1 Year 5 Years 10 Years inception
(inception date)
------ ------- -------- ---------
SPECIAL GROWTH FUND-
Retail A Shares
SPECIAL GROWTH FUND-
Institutional Shares
S&P 500 INDEX
S&P MIDCAP 400 INDEX
The S&P 500 Index is an unmanaged index of 500 common stocks that is generally
considered representative of the U.S. stock market. The Index is heavily
weighted towards stocks with large market capitalization's and represents
approximately two-thirds of the total market value of all domestic common
stocks. The S&P MidCap 400 Index is a capitalization weighted index that
represents the aggregate market value of the common equity of 400 stocks chosen
by S&P with a median capitalization of approximately $700 million and measures
the performance of the mid-range sector of the U.S. stock market. The Index
figures do not reflect any fees or expenses. Investors cannot invest directly
in the Index.
For performance information on FIRMCO's Collective Investment "B Fund" see page
____. The B Fund is a private account managed using substantially the same
investment objective, policies and restrictions as the Firstar Special Growth
Fund.
EXPENSES
- --------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Special Growth Fund.
INSTITUTIONAL RETAIL RETAIL
SHARES A SHARES B SHARES
------ -------- --------
SHAREOWNER FEES (fees paid
directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) None 4.50% None
Maximum Deferred Sales
Charge (Load) (as a
percentage of offering price) None None 5.00%<F1>
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends None None None
Redemption Fees None<F2> None<F2> None<F2>
Exchange Fees None None None
- ------------------------------------------------------------------------------
<F1> A contingent deferred sales charge is imposed on Retail B Shares redeemed
within six years of purchase at a rate of 5% in the first year, 4% in the second
year, 3% in the third and fourth year, 2% in the fifth year, declining to 1% in
the sixth fifth year, and eliminated thereafter.
<F2> A fee of $12.00 is charged for each wire redemption (Retail Shares) and
$15.00 for each non-systematic withdrawal from a Retirement Account which
Firstar Bank, Milwaukee, N.A. is custodian.
<PAGE>
Distribution Shareowner Total Fund
Management and Service Servicing Other Operating
Fees Fees <F4> Fees Expenses Expenses
---------- ---------- ---------- ---------- ----------
ANNUAL FUND
OPERATING
EXPENSES
(expenses that
are deducted
from Fund
Assets)
Special Growth
Fund-Retail A 0.75% 0.00% 0.25% 0.20% 1.20%
Special Growth Fund-
Retail B <F3> 0.75% 0.20%
Special Growth Fund
Institutional 0.75% 0.00% 0.00% 0.20% 0.95%
- ----------------------------------------------------------------------------
<F3> The annual operating expenses for the Retail B Shares are based on Fund
expenses for the prior fiscal year, but are restated to reflect estimated
expenses for Retail B Shares.
<F4> The total of all 12b-1 fees and shareowner servicing fees may not exceed,
in the aggregate, the annual rate of 0.25% of the Fund's average daily net
assets for the Retail A Sshares. The Fund does not intend to pay 12b-1 fees
with respect to the Retail A Shares for the current fiscal year.
EXPENSE EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund (without the fee waivers) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- -------- ---------
Special Growth Fund-
Retail A Shares
Special Growth Fund-
Retail B Shares
Assuming complete
redemption at end
of period
Assuming no
redemption
Special Growth Fund-
Institutional
Shares
Retail B Shares convert to Retail A Shares six years after purchase; therefore,
Retail A Shares expenses are used in the hypothetical example after year six.
In addition to the compensation itemized above, Shareowner Organizations may
charge fees for providing services in connection with their clients' investments
in the Fund's shares.
EMERGING GROWTH FUND
OBJECTIVE
The Emerging Growth Fund seeks capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities/Potential Price Appreciation. The Fund selects
securities based on their potential for price appreciation. During normal
market conditions, the Fund invests at least 50% of total assets in equity
securities. Most of these equity securities will be publicly traded common
stocks of companies incorporated in the U.S.
- ---------------------------------
The Fund invests primarily in
small-sized companies with
stock market capitalizations
between $250 million and $2
billion.
- ---------------------------------
Small-Sized Companies. The Fund generally invests in small-sized companies
with stock market capitalizations between $250 million and $2 billion that the
Adviser considers to be well-managed and to have attractive fundamental
financial characteristics. See box on page 24 for examples of these
characteristics. The Fund may also invest a portion of its assets in companies
with larger or smaller market capitalizations.
<PAGE>
Other. The Fund may invest up to 25% of total assets in the securities of
foreign issuers, either directly or through sponsored ADRs. (See "Balanced
Income Fund").
The Fund also invests in bonds, notes, debentures and preferred stocks
convertible into common stocks, and may invest up to 5% of net assets in other
types of securities having common stock characteristics, such as rights and
warrants to purchase equity securities.
The Fund may purchase non-convertible bonds, notes, debentures, preferred
stocks and other obligations that in the opinion of the Adviser present
opportunities for capital appreciation. These obligations must be investment
grade at time of purchase or unrated but deemed comparable by the Adviser. See
"Taxable Bond Funds" for a description of investment grade securities.
The Fund may acquire securities of unseasoned companies (companies with
less than three years' of continuous operation) when the Adviser believes the
investments offer possibilities of attractive capital appreciation, but will not
invest more than 10% of the value of its total assets in the securities of
unseasoned companies.
PRINCIPAL RISKS
The investment risks below are described in more detail under the heading
"Types of Investment Risk." Some additional risks, which apply to the Fund, are
also described under that heading.
The Fund may be suitable for you only if you are prepared to invest without
concern for current income and are financially able to assume an above-average
level of market risk in search of long-term capital appreciation. The Adviser
believes, however, that there is greater potential for price appreciation among
small-sized companies in which the Fund invests, since they tend to be less
widely followed by other securities analysts and thus may be more likely to be
undervalued by the market.
The Fund is subject to market risk. The Fund's investments in debt
securities are subject to credit risk and interest rate risk. In particular,
convertible securities frequently have speculative characteristics and may be
acquired without regard to minimum quality ratings. The Fund intends to invest
no more than 5% of net assets in securities rated non-investment grade at the
time of purchase or unrated securities of comparable quality. Convertible
securities and obligations rated in the lowest of the top four rating categories
are subject to greater credit and interest rate risk than higher rated
securities.
Investments in unseasoned companies present risks considerably greater than
investments in more established companies. The Fund's holdings are subject to
small cap stock risks. The Additional Statement describes the risks of
warrants.
PAST PERFORMANCE
The Fund offers three types of shares, as described under "Investing with
Firstar Funds" - Institutional, Retail A and Retail B. These types of shares
bear differing levels of expenses, as described under "Investing with Firstar
Funds." The bar chart and table below provide an indication of the risks of
investing in the Fund by showing: (a) changes in the performance of the Fund's
Institutional Shares
<PAGE>
from year to year, and (b) how the average annual returns of the Fund's Retail A
and Institutional Shares compare to those of a broad-based securities market
index. The bar chart and performance table assume reinvestment of dividends and
distributions. Remember, past performance is not necessarily indicative of
future results. Prior to January 10, 1995, the Fund offered to investors one
series of shares with neither a sales charge nor a service fee. The average
annual total return calculation reflects a maximum initial sales charge of 4.50%
for the Retail A Shares but for periods prior to January 10, 1995, performance
does not reflect service organization fees. If service organization fees had
been reflected, performance would be reduced. The bar chart does not reflect
the sales load applicable to Retail A and B Shares. If the sales loads were
reflected returns would be reduced. Performance reflects fee waivers in effect.
If fee waivers were not in place, a Fund's performance would behave been
reduced. The Retail B Shares commenced operations on February 28, 1999.
Because those shares have less than one year's performance, no average annual
returns are shown for that class in this section.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%) (INSTITUTIONAL SHARES)
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
EMERGING GROWTH
FUND
------
BEST QUARTER: Q '9
WORST QUARTER: Q '9
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
(RETAIL A SHARES AND INSTITUTIONAL SHARES)
------------------------------------------
Since
1 Year 5 Years 10 Years inception
(inception date)
EMERGING GROWTH FUND-
Retail A Shares
EMERGING GROWTH FUND-
Institutional Shares
S&P 500 INDEX
S&P SMALLCAP 600 INDEX
WILSHIRE NEXT 1750 INDEX
The S&P 500 Index is an unmanaged index of 500 common stocks that is generally
considered representative of the U.S. stock market. The Index is heavily
weighted towards stocks with large market capitalization's and represents
approximately two-thirds of the total market value of all domestic common
stocks. The S&P SmallCap 600 Index is a capitalization weighted index that
measures the performance of selected U.S. stocks with small market
capitalizations. The Wilshire Next 1750 Index is an unmanaged index, which
shows the next largest 1,750 companies after the Top 750 of the Wilshire 5000
Stock Index. The Index figures do not reflect any fees or expenses. Investors
cannot invest directly in the Index.
EXPENSES
- --------
<PAGE>
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Emerging Growth Fund.
INSTITUTIONAL RETAIL RETAIL
SHARES A SHARES B SHARES
------ -------- --------
SHAREOWNER FEES (fees paid
directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) None 4.50% None
Maximum Deferred Sales
Charge (Load) (as a
percentage of offering price) None None 5.00%<F1>
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends None None None
Redemption Fees None<F2> None<F2> None<F2>
Exchange Fees None None None
- -------------------------------------------------------------------------------
<F1> A contingent deferred sales charge is imposed on Retail B Shares redeemed
within six years of purchase at a rate of 5% in the first year, 4% in the second
year, 3% in the third and fourth year, 2% in the fifth year, declining to 1% in
the fifth year, and eliminated thereafter.
<F2> A fee of $12.00 is charged for each wire redemption (Retail Shares) and
$15.00 for each non-systematic withdrawal from a Retirement Account which
Firstar Bank, Milwaukee, N.A. is custodian.
Distribution Shareowner Total Fund
Management and Service Servicing Other Operating
Fees <F4> Fees <F5> Fees Expenses Expenses<F6>
---------- ---------- ---------- ---------- ----------
ANNUAL FUND
OPERATING
EXPENSES
(expenses that
are deducted
from Fund
Assets)
Emerging Growth
Fund-Retail A 0.75% 0.00% 0.25% 0.38% 1.38%
Emerging Growth Fund-
Retail B <F3> 0.75% 0.38%
Emerging Growth Fund
Institutional 0.75% 0.00% 0.00% 0.38% 1.13%
- -------------------------------------------------------------------------------
<F3> The annual operating expenses for the Retail B Shares are based on Fund
expenses for the prior fiscal year, but are restated to reflect estimated
expenses for Retail B Shares.
<F4> The Adviser has voluntarily agreed that a portion of its management fee
will not be imposed on the Fund during the current fiscal year. As a result of
the fee waiver, current management fees for the Fund are 0.73% of the Fund's
average daily net assets. This waiver is expected to remain in effect for the
current fiscal year. However, it is voluntary and can be modified or terminated
at any time without the Fund's consent.
<F5> The total of all 12b-1 fees and shareowner servicing fees may not exceed,
in the aggregate, the annual rate of 0.25% of the Fund's average daily net
assets for the Retail A Shares. The Fund does not intend to pay 12b-1 fees with
respect to the Retail A Shares for the current fiscal year.
<F6> As a result of the fee waiver set forth in note s 4, the Total Fund
Operating Expenses of the Retail A, Retail B and Institutional Shares of the
Fund, which are estimated to be incurred, are 1.36%, ____% and 1.11%
respectively. Although the fee waiver is expected to remain in effect for the
current fiscal year, this waiver is voluntary and may be terminated at any time
at the option of the Adviser.
EXPENSE EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund (without the fee waivers) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- -------- ---------
Emerging Growth Fund-
Retail A Shares
Emerging Growth Fund-
Retail B Shares
Assuming complete
redemption at end
of period
Assuming no
redemption
Emerging Growth Fund-
Institutional
Shares
<PAGE>
Retail B Shares convert to Retail A Shares six years after purchase; therefore,
Retail A Shares expenses are used in the hypothetical example after year six.
In addition to the compensation itemized above, Shareowner Organizations may
charge fees for providing services in connection with their clients' investments
in the Fund's shares.
MICROCAP FUND
OBJECTIVE
The investment objective of the MicroCap Fund is capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Common Stocks/Potential Price Appreciation. The Fund selects securities
based on their potential for price appreciation. Most of the securities that
the Fund holds will be common stocks of companies incorporated in the U.S.
Small Capitalization Companies. At least 65% of the Fund's total assets
will be invested in securities of small capitalization companies that, in
general, the Adviser considers to be well- managed and to have attractive
fundamental financial characteristics. See box on page 24 for examples of these
characteristics. Small capitalization companies are those with capitalizations
at the time of purchase below the median market capitalization of the Russell
2000 Index, which is currently approximately $420 million. The Fund may invest
up to 35% of its assets at the time of purchase in companies in excess of the
median market capitalization of the Russell 2000 Index. If the market
capitalization of a company in which the Fund has invested increases above the
median market capitalization of the Russell 2000 Index, the Fund may continue to
hold the security.
Other. The Fund may invest up to 25% of total assets in the securities of
foreign issuers, either directly or through sponsored ADRs. (See the "Balanced
Income Fund").
The Fund also invests in bonds, notes, debentures and preferred stocks
convertible into common stocks, and may invest up to 5% of net assets in other
types of securities having common stock characteristics, such as rights and
warrants to purchase equity securities.
The Fund may purchase non-convertible debt and preferred stocks that in the
opinion of the Adviser present opportunities for capital appreciation. These
obligations must be investment grade at time of purchase or be unrated but
deemed comparable by the Adviser. See "Taxable Bond Funds" for a description of
investment grade securities.
The Fund may acquire securities of unseasoned companies (companies with
less than three years' of continuous operation) when the Adviser believes the
investments offer possibilities of attractive capital appreciation, but will not
invest more than 20% of the value of its total assets in the securities of
unseasoned companies.
PRINCIPAL RISKS
<PAGE>
The investment risks below are described in more detail under the heading
"Types of Investment Risk." Some additional risks, which apply to the Fund, are
also described under that heading.
The Fund may be suitable for you only if you are prepared to invest without
concern for current income and are financially able to assume an above-average
level of market risk in search of long-term capital gain. The Fund's expenses
in a year may exceed income. There can be no assurance that the investment
objective of the Fund will be realized or that the value of the Fund's
investments will not decline in value. You should consider the Fund to be a
long-term investment and not a vehicle for seeking short-term profits and
income. The Adviser believes, however, that there is greater potential for
price appreciation among small-sized companies in which the Fund invests, since
they tend to be less widely followed by other securities analysts and thus may
be more likely to be undervalued by the market.
The Fund's investments in debt securities are subject to credit risk and
interest rate risk. In particular, convertible securities frequently have
speculative characteristics and may be acquired without regard to minimum
quality ratings. The Fund intends to invest no more than 5% of net assets in
securities rated non-investment grade at the time of purchase (or unrated
securities of comparable quality). Obligations rated in the lowest of the top
four rating categories are subject to greater credit and interest rate risk than
higher rated securities.
The Fund's holdings are subject to small cap stock risks. In addition, the
Fund's investments in unseasoned companies present risks considerably greater
than investments in more established companies. Further, the securities in
which the Fund invests will often be traded only in the over-the-counter market
or on a regional securities exchange, may be listed only in the quotation
service commonly known as the "pink sheets," and may not be traded every day or
in the volume typical of trading on a national securities exchange. They may be
subject to wide fluctuations in market value. The trading market for any given
security may be sufficiently thin as to make it difficult for the Fund to
dispose of a substantial block of such securities. The disposition by the Fund
of portfolio securities to meet redemptions or otherwise may require the Fund to
sell these securities at a discount from market prices or during periods when,
in the Adviser's judgment, such disposition is not desirable or to make many
small sales over a lengthy period of time.
The Fund's investments in foreign securities and ADRs are subject to
foreign risks. The Additional Statement describes the risk s of warrants,
options, future contracts and short sales.
PAST PERFORMANCE
The Fund offers three types of shares, as described under "Investing with
Firstar Funds" _ Institutional, Retail A and Retail B. These types of shares
bear differing levels of expenses, as described under "Investing with Firstar
Funds." The bar chart and table below provide an indication of the risks of
investing in the Fund by showing: (a) changes in the performance of the Fund's
Institutional Shares from year to year, and (b) how the average annual returns
of the Fund's Retail A and Institutional Shares compare to those of a broad-
based securities market index. The bar chart and performance table assume
reinvestment of dividends and distributions. Remember, past performance is not
necessarily indicative of future results. Prior to January 10, 1995, the Fund
offered to investors one series of shares with neither a sales charge nor a
service fee. The average annual total return calculation reflects a maximum
initial sales charge of 4.50% for the Retail A Shares.
<PAGE>
The bar chart does not reflect the sales load applicable to Retail A and B
Shares. If the sales loads were reflected, returns would be reduced.
Performance reflects fee waivers in effect. If fee waivers were not in place, a
Fund's performance would be have been reduced. The Retail B Shares commenced
operations on February 28, 1999. Because those shares have less than one year's
performance, no average annual returns are shown for that class in this section.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
(INSTITUTIONAL SHARES)
---------------------------------------------------------------------------
1989
1990
1991
1992
1993
1994
1995
1996 57.23
1997 13.92
1998
MICROCAP
FUND
------
BEST QUARTER: Q '9
WORST QUARTER: Q '9
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
(RETAIL A SHARES AND INSTITUTIONAL SHARES)
------------------------------------------
Since
1 Year 5 Years 10 Years inception
(inception date)
MICROCAP FUND-
Retail A Shares
MICROCAP FUND-
Institutional Shares
S&P 500 INDEX
RUSSELL 2000 INDEX
The S&P 500 Index is an unmanaged index of 500 common stocks that is generally
considered representative of the U.S. stock market. The Index is heavily
weighted towards stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks. The Russell 2000, an unmanaged index, consists of the smallest 2,000
companies in a group of 3,000 U.S. companies in the Russell 3000 Index, as
ranked by total market capitalization. The Index figures do not reflect any
fees or expenses. Investors cannot invest directly in the Index.
EXPENSES
- --------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the MicroCap Fund.
INSTITUTIONAL RETAIL RETAIL
SHARES A SHARES B SHARES
------ -------- --------
SHAREOWNER FEES (fees paid
directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) None 4.50% None
Maximum Deferred Sales
Charge (Load) (as a
percentage of offering price) None None 5.00%<F1>
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends None None None
Redemption Fees None<F2> None<F2> None<F2>
Exchange Fees None None None
- -------------------------------------------------------------------------------
<F1> A contingent deferred sales charge is imposed on Retail B Shares redeemed
within six years of purchase at a
<PAGE>
rate of 5% in the first year, 4% in the second year, 3% in the third and fourth
year, 2% in the fifth year, declining to 1% in the fifth year, and eliminated
thereafter.
<F2> A fee of $12.00 is charged for each wire redemption (Retail Shares) and
$15.00 for each non-systematic withdrawal from a Retirement Account which
Firstar Bank, Milwaukee, N.A. is custodian.
Distribution Shareowner Total Fund
Management and Service Servicing Other Operating
Fees Fees <F4> Fees Expenses Expenses
ANNUAL FUND
OPERATING
EXPENSES
(expenses that
are deducted
from Fund
Assets)
MicroCap
Fund-Retail A 1.50% 0.00% 0.25% 0.30% 2.05%
MicroCap Fund-
Retail B <F3> 1.50% 0.30%
MicroCap Fund
Institutional 1.50% 0.00% 0.00% 0.30% 1.80%
- -----------------------------------------------------------------------------
<F3> The annual operating expenses for the Retail B Shares are based on Fund
expenses for the prior fiscal year, but are restated to reflect estimated
expenses for Retail B Shares.
<F4> The total of all 12b-1 fees and shareowner servicing fees may not exceed,
in the aggregate, the annual rate of 0.25% of the Fund's average daily net
assets for the Retail A Shares. The Fund does not intend to pay 12b-1 fees with
respect to the Retail A Shares for the current fiscal year.
EXPENSE EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund (without the fee waivers) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- -------- ---------
MicroCap Fund-
Retail A Shares
MicroCap Fund-
Retail B Shares
Assuming complete
redemption at end
of period
Assuming no
redemption
MicroCap Fund-
Institutional
Shares
Retail B Shares convert to Retail A Shares six years after purchase; therefore,
Retail A Shares expenses are used in the hypothetical example after year six.
In addition to the compensation itemized above, Shareowner Organizations may
charge fees for providing services in connection with their clients' investments
in the Fund's shares.
INTERNATIONAL EQUITY FUND
OBJECTIVE
The investment objective of the International Equity Fund is to seek
capital appreciation through investing in foreign securities which the sub-
adviser believes are undervalued.
PRINCIPAL INVESTMENT STRATEGIES
<PAGE>
- -----------------------------------------------------------------------------
The Fund's policy under normal market conditions is to invest at least 65% of
its total assets in foreign common stocks and equity related securities
(including convertible securities and warrants). UNDER NORMAL MARKET CONDITIONS,
AT LEAST 80% OF ASSETS WILL BE INVESTED IN THREE COUNTRIES OTHER THAN THE U.S.
- ------------------------------------------------------------------------------
Hansberger Global Investors, Inc. (the sub-adviser) chooses securities
based on a long-term investment perspective. The sub-adviser seeks
opportunities to invest in many countries. The sub-adviser believes that this
international search provides flexibility to shift portfolio investments not
only from company to company and industry to industry, but also country to
country, in search of undervalued securities.
The Fund generally invests in common stocks, but may also invest in
preferred stocks and certain rated or unrated debt securities when the sub-
adviser believes there's a potential for appreciation. The Fund may also invest
in warrants or rights to subscribe to or purchase such securities, and sponsored
or unsponsored:
-ADRs (see "Balanced Income Fund")
-European Depository Receipts
-Global Depository Receipts, and
-other depository receipts
The Fund may also invest in:
-closed-end investment companies holding foreign securities
-options on securities and securities indices
-forward foreign currency contracts
-futures contracts and related options
-repurchase agreements and other money market investments (when
the sub-advisorAdviser feels it's appropriate for liquidity and
operating purposes).
PRINCIPAL RISKS
The investment risks below are described in more detail under the heading
"Types of Investment Risk." Some additional risks, which apply to the Fund, are
also described under that heading.
The Fund may be suitable for you only if you are prepared to invest for the
long-term and are not seeking to speculate on short-term stock market movements.
The Fund's value is expected to be volatile as a result of its investment in
foreign securities.
The Fund is subject to market risk. The Fund's investments in foreign
securities, ADRs, EDRs and GDRs are subject to foreign risks. In unsponsored
ADR programs, the issuer may not be directly involved in arranging its
securities to be traded in the form of depository receipts. Although regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, in some cases it may be easier to obtain financial information from an
issuer that has participated in the creation of a sponsored program.
Accordingly, there may be less information available regarding issuers of
securities underlying unsponsored programs and there may not be a correlation
between such information and the market value of the Depository Receipts. EDRs
are receipts issued by a European financial institution evidencing ownership of
underlying foreign securities. GDRs are receipts structured similarly to EDRs
and are issued and traded in several international financial markets. The
underlying security may be subject to foreign government taxes, which would
reduce the yield on such securities.
<PAGE>
The Fund's foreign currency exchange transactions are subject to additional
risks. Forward foreign currency exchange contracts ("forward contracts"),
provide for the purchase of or sale of an amount of a specified currency at a
future date. This Fund may use forward contracts to protect against a foreign
currency's decline against the U.S. dollar between the trade date and settlement
date for a securities transaction, or to lock in the U.S. dollar value of
dividends declared on securities it holds, or generally to protect the U.S.
dollar value of the securities it holds against exchange rate fluctuations. This
Fund may also use forward contracts to protect against fluctuating exchange
rates and exchange control regulations. Forward contracts may limit the Fund's
losses due to exchange rate fluctuation, but they will also limit any gains that
the Fund might otherwise have realized. This Fund may also hedge its foreign
currency exchange rate risk by entering into foreign currency futures contracts
("currency futures"). The forecasting of short-term currency market movements
is extremely difficult and whether short-term hedging strategies would be
successful is highly uncertain.
The Fund's investments in convertible securities are subject to credit
risk. Convertible securities frequently have speculative characteristics and
may be acquired without regard to minimum quality ratings. The Fund intends to
invest no more than 5% of net assets in securities rated non-investment grade
(or equivalent rating by an agency recognized in the local market) at the time
of purchase (or unrated securities deemed to be of comparable quality).
Convertible securities and obligations rated in the lowest of the top four
rating categories are subject to greater credit and interest rate risk than
higher rated securities.
The emerging country securities in which the Fund may invest are subject to
significant risk and will not be required to meet any minimum rating standard.
The Fund's investments in convertible securities and warrants, sovereign
debt and Brady Bonds are subject to additional risks described in the Additional
Statement.
PAST PERFORMANCE
The Fund offers three types of shares, as described under "Investing with
Firstar Funds" - Institutional, Retail A and Retail B. These types of shares
bear differing levels of expenses, as described under "Investing with Firstar
Funds." The bar chart and table below provide an indication of the risks of
investing in the Fund by showing: (a) changes in the performance of the Fund's
Institutional Shares from year to year, and (b) how the average annual returns
of the Fund's Retail A and Institutional Shares compare to those of a broad-
based securities market index. The bar chart and performance table assume
reinvestment of dividends and distributions. Remember, past performance is not
necessarily indicative of future results. Prior to January 10, 1995, the Fund
offered to investors one series of shares with neither a sales charge nor a
service fee. The average annual total return calculation reflects a maximum
initial sales charge of 4.50% for the Retail A Shares, but for periods prior to
January 10, 1995, performance does not reflect service organization fees. If
service organization fees had been reflected, performance would be reduced. The
bar chart does not reflect the sales loads applicable to Retail A and B Shares.
If the sales loads were reflected, returns would be reduced. Performance
reflects fee waivers in effect. If fee waivers were not in place, a Fund's
performance would behave been reduced. The Retail B Shares commenced operations
on February 28, 1999. Because those shares have less than one year's
performance, no average annual returns are shown for that class in this section.
Effective September 2, 1997, Hansberger Global Investors, Inc. became
investment sub-adviser to the Firstar International Equity Fund.
<PAGE>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%) (INSTITUTIONAL SHARES)
1989
1990
1991
1992
1993
1994
1995 4.49
1996 5.00
1997 -10.46
1998
INTERNATIONAL
EQUITY FUND
------
BEST QUARTER Q '9
WORST QUARTER Q '9
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
(RETAIL A SHARES AND INSTITUTIONAL SHARES)
------------------------------------------
Since
1 Year 5 Years 10 Years Inception
(inception date)
INTERNATIONAL
EQUITY FUND-
Retail A Shares
INTERNATIONAL
EQUITY FUND-
Institutional Shares
EAFE INDEX
The Morgan Stanley Capital International Europe, Australia and Far East Index
("MSCI/EAFE") are a widely recognized unmanaged index composed of 20 European
and Pacific Basin countries. The Index figures do not reflect any fees or
expenses. Investors cannot invest directly in the Index.
EXPENSES
- --------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the International Equity Fund.
INSTITUTIONAL RETAIL RETAIL
SHARES A SHARES B SHARES
------ -------- --------
SHAREOWNER FEES (fees paid
directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) None 4.50% None
Maximum Deferred Sales
Charge (Load) (as a
percentage of offering price) None None 5.00%<F1>
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends None None None
Redemption Fees None<F2> None<F2> None<F2>
Exchange Fees None None None
- ------------------------------------------------------------------------------
<F1> A contingent deferred sales charge is imposed on Retail B Shares redeemed
within six years of purchase at a rate of 5% in the first year, 4% in the second
year, 3% in the third and fourth year, 2% in the fifth year, declining to 1% in
the fifth year, and eliminated thereafter.
<F2> A fee of $12.00 is charged for each wire redemption (Retail Shares) and
$15.00 for each non-systematic
<PAGE>
withdrawal from a Retirement Account which Firstar Bank, Milwaukee, N.A. is
custodian.
Distribution Shareowner Total Fund
Management and Service Servicing Other Operating
Fees <F4> Fees <F5> Fees Expenses Expenses<F6>
ANNUAL FUND
OPERATING
EXPENSES
(expenses that
are deducted
from Fund
Assets)
International
Equity
Fund-Retail A 1.37% 0.00% 0.25% 0.43% 2.05%
International
Equity Fund-
Retail B <F3>
International
Equity Fund
Institutional 1.37% 0.00% 0.00% 0.43% 1.80%
- ------------------------------------------------------------------------------
<F3> The annual operating expenses for the Retail B Shares are based on Fund
expenses for the prior fiscal year, but are restated to reflect estimated
expenses for Retail B Shares.
<F4> The Adviser has voluntarily agreed that a portion of its management fee
will not be imposed on the Fund during the current fiscal year. As a result of
the fee waiver, current management fees for the Fund are 1.14% of the Fund's
average daily net assets. This waiver is expected to remain in effect for the
current fiscal year. However, it is voluntary and can be modified or terminated
at any time without the Fund's consent.
<F5> The total of all 12b-1 fees and shareowner servicing fees may not exceed,
in the aggregate, the annual rate of 0.25% of the Fund's average daily net
assets for the Retail A Shares. The Fund does not intend to pay 12b-1 fees with
respect to the Retail A Shares for the current fiscal year.
<F6> As a result of the fee waiver set forth in notes 4 the Total Fund Operating
Expenses of the Retail A, Retail B and Institutional Shares of the fund, which
are actually incurred estimated to be, are 1.82% , _____% and 1.57%
respectively. Although the fee waiver is expected to remain in effect for the
current fiscal year, this waiver is voluntary and may be terminated at any time
at the option of the Adviser.
EXPENSE EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund (without the fee waivers) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
------ ------- -------- ---------
International Equity
Fund-Retail A Shares
International Equity
Fund-Retail B Shares
Assuming complete
redemption at end
of period
Assuming no
redemption
International Equity
Fund-Institutional
Retail B Shares convert to Retail A Shares six years after purchase; therefore
Retail A Shares expenses are used in the hypothetical example after year six.
In addition to the compensation itemized above, Shareowner Organizations may
charge fees for providing services in connection with their clients' investments
in a Fund's shares.
TYPES OF INVESTMENT RISK
The risks of investing in each Fund are also described above in this
Prospectus. The following list provides more detail about some of those risks,
along with information on additional types of risks, which may apply, to the
Funds. Risks of particular types of investments each Fund makes are described
in this section and in the Additional Statement referred to on the back page.
GENERAL RISKS OF INVESTING IN EACH OF THE FUNDS
<PAGE>
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Complete Investment Program - All Funds
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An investment in a single Fund, by itself, does not constitute a complete
investment plan.
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Credit Risk - each Money Market Fund, Bond Funds, Balanced Funds, and each other
Fund to the extent that it invests in fixed income securities
- -------------------------------------------------------------------------------
An issuer of fixed-income securities may default on its obligation to pay
interest and repay principal. Also, changes in the financial strength of an
issuer or changes in the credit rating of a security may affect its value.
Credit risk includes "counterparty risk," -- the risk that the other party to a
transaction will not fulfill its contractual obligation. This risk applies, for
example, to repurchase agreements which each Fund may enter.
Securities rated below investment grade are particularly subject to credit risk.
These securities are predominantly speculative and are commonly referred to as
"junk bonds." To the extent a Fund purchases or holds convertible or other
securities that are below investment grade a greater risk exists as to the
timely repayment of the principal of, and the timely payment of interest or
dividends on, such securities.
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Derivatives Risk - All Funds
- -------------------------------------------------------------------------------
The term "derivative" covers a wide number of investments, but in general it
refers to any financial instrument whose value is derived, at least in part,
from the price of another security or a specified index, asset or rate. Some
derivatives may be more sensitive to interest rate changes or market moves, and
some may be susceptible to changes in yields or values due to their structure or
contract terms. Loss may result from a Fund's investments in options, futures,
swaps, structured securities and other derivative instruments, which may be
leveraged. A Fund may use derivatives to: increase yield; hedge against a
decline in principal value; invest with greater efficiency and lower cost than
is possible through direct investment; adjust the Fund's duration; or provide
daily liquidity.
Hedging is the use of one investment to offset the effects of another
investment. To the extent that a derivative is used as a hedge against an
opposite position that the Fund also holds, a loss generated by the derivative
should be substantially offset by gains on the hedged investment, and vice
versa. While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains. Hedging also involves correlation risk _ the risk that changes
in the value of a hedging instrument may not match those of the asset being
hedged.
To the extent that a derivative is not used as a hedge, the Fund is directly
exposed to the risks of that derivative. Gains or losses from speculative
positions in a derivative may be substantially greater than the derivative's
original cost.
- -------------------------------------------------------------------------------
Interest Rate Risk - each Money Market Fund, Bond Funds, Balanced Funds and each
other Fund to the extent that it invests in fixed income securities
- -------------------------------------------------------------------------------
When interest rates increase, fixed-income securities tend to decline in value
and when interest rates decrease, fixed-income securities tend to increase in
value. A change in interest rates could cause the value of your investment to
change. Fixed income securities with longer maturities are more susceptible to
interest rate fluctuations than those with shorter maturities. Therefore, the
risk of interest rate fluctuation is greater in the case of the Bond IMMDEX/TM
Fund and the Tax-Exempt Intermediate Bond Fund than in the case of the Short-
Term Bond Market Fund or the Money Market Funds. Changes in interest rates may
also extend or shorten the duration of
<PAGE>
certain types of instruments, such as asset-backed securities, thereby affecting
their value and the return on your investment.
- -------------------------------------------------------------------------------
Liquidity Risk - All Funds
- -------------------------------------------------------------------------------
Certain securities may be difficult or impossible to sell at the time and the
price that the Fund would like. A Fund may have to lower the price, sell other
securities instead or forego an investment opportunity, any of which could have
a negative effect on fund management or performance. This risk applies, for
example, to: variable and floating rate demand notes, variable amount demand
securities and restricted securities which the Funds may purchase, short-term
funding agreements which the Money Market Fund and Institutional Money Market
Fund may purchase, the GICs which the Taxable Bond Funds may purchase and the
futures contracts in which the Taxable Bond Funds, Growth and Income Fund,
Equity Index Fund, MicroCap Fund and International Equity Fund may engage.
Illiquid securities also include repurchase agreements and time deposits with
notice/termination dates of greater than seven days and , certain unlisted over-
the-counter options and other securities that are traded in the U.S. but are
subject to trading restrictions because they are not registered under the
Securities Act of 1933. There may be no active secondary market for these
securities. Each Fund may invest up to 15% of its net assets in securities that
are illiquid, except that each Money Market Fund may invest up to 10% of its net
assets in securities that are illiquid. A domestically traded security which is
not registered under the Securities Act of 1933 will not be considered illiquid
if the Adviser determines that an adequate investment trading market exists for
that security. Because illiquid and restricted securities may be difficult to
sell at an acceptable price, they may be subject to greater volatility and may
result in a loss to a Fund.
- -------------------------------------------------------------------------------
Loss of Money - All Funds
- -------------------------------------------------------------------------------
An investment in the Funds is not a deposit of Firstar Bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. An investment in a Fund involves risk, including the risk of
losing money. Although the Money Market Funds attempt to preserve the value of
your investment at $1.00 per share, it is possible to lose money by investing in
the Money Market Funds.
- -------------------------------------------------------------------------------
Management Risk - All Funds
- -------------------------------------------------------------------------------
A strategy which the Adviser or Sub-Adviser uses may fail to produce the
intended results. The particular securities and types of securities a Fund
holds may under perform other securities and types of securities. There can be
no assurance that a Fund will achieve its investment objective. Certain
policies of each Fund which may not be changed without a shareowner vote are
described in the Additional Statement.
- -------------------------------------------------------------------------------
Market Risk - All Funds
- -------------------------------------------------------------------------------
The value of the securities in which a Fund invests may go up or down in
response to the prospects of individual companies and/or general economic
conditions. Price changes may be temporary or last for extended periods.
- -------------------------------------------------------------------------------
Other Types of Investments - All Funds
- -------------------------------------------------------------------------------
This Prospectus describes each Fund's principal investment strategies, and the
types of securities in which each Fund principally invests. Each Fund may, from
time to time, make other types of investments and pursue other investment
strategies in support of its overall investment goal. These supplemental
investment strategies - and the risk involved - are described in detail in the
Additional Statement, which is referred to on the back cover of this Prospectus.
<PAGE>
- -------------------------------------------------------------------------------
Portfolio Turnover Risk - All Funds
- -------------------------------------------------------------------------------
The Adviser and Sub-Adviser will not consider the portfolio turnover rate a
limiting factor in making investment decisions for a Fund. A high rate of
portfolio turnover (100% or more) involves correspondingly greater expenses
which must be borne by a Fund and its shareowners. It may also result in higher
short-term capital gains that are taxable to shareowners. See "Financial
Highlights" for the Funds' historical portfolio turnover rates. The Money
Market Funds may have high portfolio turnover, but brokerage commissions are not
normally paid on Money Market instruments. Portfolio turnover is not expected
to have a material effect on the Money Market Funds' net investment income.
- -------------------------------------------------------------------------------
Temporary Investment Risk - All Funds
- -------------------------------------------------------------------------------
Each of the Funds may, for temporary defensive purposes, invest a certain
percentage of its total assets in cash or various short-term instruments. In
particular, the U.S. Treasury Money Market Fund may temporarily hold cash; the
Tax-Exempt Money Market Fund and the Tax-Exempt Intermediate Bond Fund may from
time to time hold uninvested cash reserves or invest in short-term taxable money
market obligations (taxable obligations purchased by each Fund normally will not
exceed 20% of total assets at the time of purchase); and the International
Equity Fund may invest in money market securities denominated in U.S. or foreign
currency. When a Fund's assets are invested in these instruments, the Fund may
not be achieving its investment objective.
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Valuation Risk - All Funds
- -------------------------------------------------------------------------------
This is the risk that a Fund has valued certain securities at a higher or lower
price than the Fund can sell them.
- -------------------------------------------------------------------------------
Year 2000 Risk - All Funds
- -------------------------------------------------------------------------------
Like other investment companies and financial service providers, each Fund could
be adversely affected if the computer systems used by its investment adviser
(and sub-adviser in the case of the International Equity Fund) and the Funds'
other service providers do not properly process and calculate date-related
information and data beginning on January 1, 2000. This possibility is commonly
known as the "Year 2000 Problem." The Year 2000 Problem arises because most
computer systems were designed only to recognize a two-digit year, not a four-
digit year. When the year 2000 begins, these computers may interpret "00" as
the year 1900 and either stop processing date-related computations or process
them incorrectly. These failures could have a negative impact on the handling
of securities trades, pricing and account services. FIRMCO, the investment
adviser to each Fund, is taking steps to address the Year 2000 Problem with
respect to the computer systems that it uses and is working with those entities
with which it has business relationships which may impact the services provided
to the Funds to determine the status of their Year 2000 initiatives. As of the
date of this Prospectus, it is not anticipated that shareowners will experience
negative effects on their investment, or on the services provided in connection
therewith, as a result of the Year 2000 Problem relating to the investment
adviser or the Funds' other major service providers. However, there can be no
assurance that these steps taken by these service providers will be successful,
or that interaction with other non-complying computer systems will not adversely
impact the Funds. Also, companies in which the Funds invest could be adversely
affected by the Year 2000 Problem. Also, it is possible that the normal
operations of the Fund will in any event, be disrupted significantly by the
failure of communications and public utility companies, governmental entities,
financial processors or others to perform their services as a result of the Year
2000 Problem.
<PAGE>
ADDITIONAL RISKS WHICH APPLY TO INVESTMENT IN CERTAIN OF THE FUNDS
- -------------------------------------------------------------------------------
Extension Risk - each Taxable Bond Fund, Balanced Funds and Money Market Funds
- -------------------------------------------------------------------------------
This is the risk that an issuer will exercise its right to pay principal on an
obligation held by a Fund (such as a mortgage- or asset-backed security) later
than expected. This may happen when there is a rise in interest rates. These
events may lengthen the duration and potentially reduce the value of these
securities.
- -------------------------------------------------------------------------------
Foreign Risks - International Equity Fund; each other Fund - other than the U.S.
Treasury Money Market Fund and U.S. Government Money Market Fund - to the extent
it invests in foreign securities
- -------------------------------------------------------------------------------
When a Fund invests in foreign securities, it will be subject to special risks
not typically associated with domestic issuers resulting from less government
regulation, less public information and less economic, political and social
stability. Foreign securities, and in particular foreign debt securities, are
sensitive to changes in interest rates. In addition, investment in the
securities of foreign governments involves the risk that foreign governments may
default on their obligations or may otherwise not respect the integrity of their
debt. A Fund which invests in foreign securities will also be subject to the
diplomatic risk that an adverse change in the diplomatic relations between the
U.S. and another country might reduce the value or liquidity of investments.
Future political and economic developments, the possible imposition of
withholding taxes on dividend income, the possible seizure or nationalization of
foreign holdings, the possible establishment of exchange controls or freezes on
the convertibility of currency, or the adoption of other governmental
restrictions might adversely affect an investment in foreign securities.
Additionally, foreign banks and foreign branches of domestic banks may be
subject to less stringent reserve requirements, and to different accounting,
auditing and recordkeeping requirements.
Foreign risks will normally be greatest when a Fund invests in issuers located
in emerging markets. Securities issued in emerging market countries, in
particular, may be more sensitive to certain economic changes and less liquid.
These countries are located in the Asia/Pacific region, Eastern Europe, Latin
and South America and Africa. In general, the securities markets of these
countries are less liquid, are subject to greater price volatility, have smaller
market capitalizations and have problems with securities registration and
custody. In addition, because the securities settlement procedures are less
developed in these countries, a Fund may be required to deliver securities
receiving payment and also be unable to complete transactions during market
disruptions. As a result of these and other risks, investments in these
countries generally present a greater risk of loss to a Fund.
Investment in foreign securities also involves higher costs than investment in
U.S. securities, including higher transaction and custody costs as well as the
imposition of additional taxes by foreign governments.
Each of the Funds, other than the Money Market Funds, may invest in foreign
currency denominated securities. A Fund, which invests in foreign currency
denominated securities, will also be subject to the risk of negative foreign
currency rate fluctuations. A change in the exchange rate between U.S. dollars
and foreign currency may reduce the value of an investment made in a security
denominated in that foreign currency. The International Equity Fund may, but is
not required to, hedge against foreign currency risk, and the other Funds may do
so on unsettled trades.
<PAGE>
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Prepayment Risk - each Taxable Bond Fund, Balanced Funds and Money Market Funds
- -------------------------------------------------------------------------------
This is the risk that an issuer will exercise its right to pay principal on an
obligation held by a Fund (such as a mortgage- or asset-backed security) earlier
than expected. This may happen when there is a decline in interest rates.
These events may make a Fund unable to recoup its initial investment and may
result in reduced yields.
- -------------------------------------------------------------------------------
Small Cap Stock Risk - Special Growth Fund, Emerging Growth Fund and MicroCap
Fund
- -------------------------------------------------------------------------------
Smaller capitalization stocks involve greater risks than those associated with
larger, more established companies. Small company stocks may be subject to more
abrupt or erratic price movements, for reasons including that the stocks are
traded in lower volume and that the issuers are more sensitive to changing
conditions and have less certain growth prospects. Also, there are fewer market
makers for these stocks and wider spreads between quoted bid and asked prices in
the over-the-counter market for these stocks. Small cap stocks tend to be less
liquid, particularly during periods of market disruption. There normally is less
publicly available information concerning these securities. Small companies in
which the Funds may invest may have limited product lines, markets or financial
resources, or may be dependent on a small management group.
- -------------------------------------------------------------------------------
Tax Risk - Tax-Exempt Money Market Fund, U.S. Treasury Money Market Fund and
Tax-Exempt Intermediate Bond Fund
- -------------------------------------------------------------------------------
These Funds may be more adversely impacted by changes in tax rates and policies
than the other Funds. Because interest income on Municipal Obligations is
normally not subject to regular federal income taxation, the attractiveness of
Municipal Obligations in relation to other investment alternatives is affected
by changes in federal income tax rates applicable to, or the continuing federal
income tax-exempt status of, such interest income. Any proposed or actual
changes in such rates or exempt status, therefore, can significantly affect the
demand for and supply, liquidity and marketability of Municipal Obligations,
which could in turn affect a Fund's ability to acquire and dispose of Municipal
Obligations at desirable yield and price levels.
Investment in tax-exempt securities poses additional risks. In many cases, the
Internal Revenue Service has not ruled on whether the interest received on a
tax-exempt obligation is tax-exempt, and accordingly, purchases of these
securities are based on the opinion of bond counsel to the issuers at the time
of issuance. The Fund and the Adviser rely on these opinions and will not
review the basis for them.
ADDITIONAL RISKS WHICH APPLY TO PARTICULAR TYPES OF SECURITIES
- -------------------------------------------------------------------------------
Other Investment Companies - All Funds
- -------------------------------------------------------------------------------
The Funds may invest their cash balances in other investment companies which
invest in high quality, short-term debt securities. A pro rata portion of the
other investment companies expenses will be borne by the Fund's shareowners.
- -------------------------------------------------------------------------------
Government Obligations - Each Money Market Fund other than the Tax-Exempt Money
Market, Taxable Bond Funds, Balanced Funds
- -------------------------------------------------------------------------------
In addition to U.S. Treasury obligations, the Funds may invest in other
securities issued or guaranteed by the U.S. government, its agencies and
instrumentalities. No assurance can be given that the U.S. government will
provide financial support to U.S. government-sponsored agencies or
instrumentalities where it is not obligated to do so by law.
<PAGE>
- -------------------------------------------------------------------------------
Mortgage-Backed and Asset-Backed Securities - Taxable Bond Funds and Balanced
Funds
- -------------------------------------------------------------------------------
Each of these Funds may purchase residential and commercial mortgage-backed as
well as other asset-backed securities (i.e., securities backed by credit card
receivables, automobile loans or other assets). In addition to credit and
market risk, mortgage- and asset-backed securities involve prepayment risk
because the underlying assets (loans) may be prepaid at any time. The value of
these securities may also change because of actual or perceived changes in the
creditworthiness of the originator, the servicing agent, the financial
institution providing the credit support, or the counterparty. Like other fixed
income securities, when interest rates rise the value of an asset-backed
security generally will decline. However when interest rates decline the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed income securities. The relative payment rights of certain
types of mortgage-backed securities may make them subject to greater volatility
and interest rate risk than other types of mortgage-backed securities. In
addition, non-mortgage asset-backed securities involve certain risks not
presented by mortgage-backed securities. Primarily, these securities do not
have the benefit of the same security interest in the underlying collateral.
Credit card receivables are generally unsecured, and the debtors are entitled to
the protection of a number of state and Federal consumer credit laws.
Automobile receivables are subject to the risk that the trustee for the holders
of the automobile receivables may not have an effective security interest in all
of the obligations backing the receivables. In times of financial stress, the
secondary market for asset-backed securities may not be as liquid as the market
for other types of securities which could result in a Fund experiencing
difficulty in valuing of liquidating such securities.
- -------------------------------------------------------------------------------
Borrowings, reverse repurchase agreements - All Funds
- -------------------------------------------------------------------------------
Each Fund may borrow money to the extent allowed (as described in the Additional
Statement) to meet shareowner redemptions from banks or through reverse
repurchase agreements. These strategies involve leveraging. If the securities
held by a Fund declines in value while these transactions are outstanding, the
net asset value of the Fund's outstanding shares will decline in value by
proportionately more than the decline in value of the securities. In addition,
reverse repurchase agreements involve the risks that the interest income earned
by a Fund (from the investment of the proceeds) will be less than the interest
expense of the transaction, that the market value of the securities sold by a
Fund will decline below the price the Fund is obligated to pay to repurchase the
securities, and that the securities may not be returned to the Fund.
- -------------------------------------------------------------------------------
Short Sales - MicroCap Fund, Emerging Growth Fund
- -------------------------------------------------------------------------------
Short selling is the selling of securities which have been borrowed on the
expectation that the market price will drop. These transactions may result in
gains if a security's price declines, but may result in losses if a security's
price does not decline in price.
- -------------------------------------------------------------------------------
Options - Taxable Bond Funds, Balanced Funds and Equity Funds Options - Taxable
Bond Funds, Balanced Funds and Equity Funds
- -------------------------------------------------------------------------------
An option is a type of derivative instrument that gives the holder the right
(but not the obligation) to buy (a "call") or sell (a "put") an asset in the
future at an agreed upon price prior to the expiration date of the option.
Options can be used to manage exposure to certain markets, enhance income or
hedge against a decline in value of portfolio securities. Options may relate to
particular securities or various stock or bond indices and may or may not be
listed on a national securities exchange and issued by the Options Clearing
Corporation. Purchasing options is a specialized investment technique which
entails a substantial risk of a complete loss of the amount paid as premiums to
the writer of the option.
<PAGE>
The value of options can be highly volatile, and their use can result in loss if
the Adviser or Sub-Adviser is incorrect in its expectation of price
fluctuations. The successful uses of options for hedging purposes also depends
in part on the ability of the Adviser or Sub-Adviser to manage future price
fluctuations and the degree of correlation between the options and securities
markets.
The Funds other than the International Equity Fund may purchase put and call
options in an amount not to exceed 5% of their respective net assets. The
International Equity Fund may purchase put and call options without limit.
The Taxable Bond Funds and International Equity Fund will engage in unlisted
over-the-counter options only with broker-dealers deemed creditworthy by the
Adviser (or the Sub-Adviser). Closing transactions in certain options are
usually effected directly with the same broker-dealer that effected the original
option transaction. A Fund bears the risk that the broker-dealer will fail to
meet its obligations. There is no assurance that a liquid secondary trading
market exists for closing out an unlisted option position. Furthermore,
unlisted options are not subject to the protections afforded purchasers of
listed options by the Options Clearing Corporation, which performs the
obligations of its members who fail to perform in connection with the purchase
or sale of options.
In addition each Fund may write call options on securities and on various stock
or bond indices. Each Fund may write a call option only if the option is
"covered." A Fund may "cover" a call option by owning the security underlying
the option or through other means which would allow for immediate satisfaction
of its obligation. Such options will be listed on a national securities
exchange and the aggregate value of the Fund's assets subject to options written
by the Taxable Bond Funds, Growth and Income, Equity Index and MicroCap Funds
will not exceed 5%, 25%, 5% and 5%, respectively, of the value of its net assets
during the current year. The International Equity Fund may write call options
on securities and on various stock indices which will be traded on a recognized
securities or futures exchange or over the counter and during the current year
the aggregate value of the Fund's assets subject to options written by the Fund
will not exceed 5% of the value of its net assets. In order to closeout an
option position, a Fund will be required to enter into a "closing purchase
transaction" (the purchase of a call option on a security or an index with the
same exercise price and expiration date as the call option which it previously
wrote on the same security or index).
The International Equity Fund may also write (i.e., sell) covered put options on
securities and various securities indices. The writer of a put incurs an
obligation to buy the security underlying the option from the put's purchaser at
the exercise price at any time on or before the termination date, at the
purchaser's election (certain options the Fund writes will be exercisable by the
purchaser only on a specific date). Generally, a put is "covered" if the Fund
maintains cash, U.S. government securities or other liquid high grade debt
obligations equal to the exercise price of the option or if the Fund holds a put
on the same underlying security with a similar or higher exercise price. By
writing a covered put option on a security, the Fund receives a premium for
writing the option; however the Fund assumes the risk that the value of the
security will decline before the exercise date, in which event, the Fund may
incur a loss in excess of the premium received when the put is exercised.
Risks associated with the use of options on securities include (I) imperfect
correlation between the change in market value of the securities the Fund holds
and the prices of options relating to the securities purchased or sold by the
Fund; and (ii) the possible lack of a liquid secondary
<PAGE>
market for an option. The Additional Statement includes additional information
relating to option trading practices and related risks.
- -------------------------------------------------------------------------------
Futures Contracts and Related Options - Taxable Bond Funds, Balanced Funds and
Equity Funds
- -------------------------------------------------------------------------------
A futures contract is a type o derivative instrument that obligates the holder
to buy or sell an asset in the future at an agreed upon price. For example, a
futures contract may obligate a Fund, at maturity, to take or make delivery of
certain domestic or foreign securities, the cash value of a securities index or
a stated quantity of a foreign currency. When a Fund purchases an option on a
futures contract, it has the right to assume a position as a purchaser or seller
of a futures contract at a specified exercise price during the option period.
When a Fund sells an option on a futures contract it becomes obligated to
purchase or sell a futures contract if the option is exercised.
Each Fund may invest in futures contracts and options on futures contracts for
hedging purposes, to have fuller exposure to price movements in a stock or bond
index, to increase total return or to maintain liquidity to meet potential
shareowner redemptions, invest cash balances or dividends or minimize trading
costs. In addition, the Equity Index Fund may purchase and sell futures and
related options (based only on the S&P 500 Index) to maintain cash reserves
while simulating full investment in the stocks underlying the S&P 500 Index, to
keep substantially all of its assets exposed to the market (as represented by
the S&P 500 Index), and to reduce transaction costs.
Futures contracts and options present the following risks: imperfect
correlation between the change in market value of a Fund's securities and the
price of futures contracts and options; the possible inability to close a
futures contract when desired; losses due to unanticipated market movements
which are potentially unlimited; and the possible inability of the investment
management team to correctly predict the direction of securities prices,
interest rates, currency exchange rates and other economic factors. The Funds
may buy and sell futures contracts and related options on foreign exchanges or
boards of trade (which do not offer the same protections as U.S. exchanges).
Each Fund's commodities transactions must constitute bona fide hedging or other
permissible transactions pursuant to regulations promulgated by the Commodities
and Futures Trading Commission ("CFTC"). In addition, a Fund may not engage in
such transactions if the sum of the amount of initial margin deposits and
premiums paid for unexpired commodity options, other than for bona fide hedging
transactions, would exceed 5% of the liquidation value of its assets, after
taking into account unrealized profits and unrealized losses on such contracts
it has entered into; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded in
calculating the percentage limitation. Pursuant to SEC requirements, a Fund may
be required to segregate cash or high quality money market instruments in
connection with its commodities transactions in an amount generally equal to the
value of the underlying commodity. The Company intends to comply with the
regulations of the CFTC exempting the Fund from registration as a "commodity
pool operator."
The Taxable Bond Funds and Growth and Income Fund intend to limit their
transactions in futures contracts and related options so that not more than 5%
of each Fund's respective net assets are at risk. The Equity Index Fund and
International Equity Fund intend to limit their transactions in futures
contracts so that not more than 10% and 25% of each Fund's respective net assets
are at risk. For a more detailed description of futures contracts and futures
options,
<PAGE>
including a discussion of the limitations imposed by federal tax law, see
Appendix B to the Additional Statement.
INVESTING WITH FIRSTAR FUNDS
This section describes for you the procedures for opening an account and how to
buy, sell or exchange Fund shares.
SHARE CLASSES AVAILABLE
The Firstar Funds offer one class of Shares in the Money Market Funds. The
Firstar Funds offer three classes of Shares in the Non-Money Market Funds;
Retail A, Retail B and Institutional.
INSTITUTIONAL SHARES
- - No sales charge (A securities dealer, broker, financial institution or
other industry professional ("Shareowner Organization") may charge
transaction or other fees for providing administrative or other services in
connection with investments in Fund shares)
- - Available for trust, agency or custodial accounts opened through Firstar
Bank, Milwaukee, N.A.;
- - employer-sponsored qualified retirement plans other than those serviced by
certain external organizations who have service agreements with Firstar or
its affiliates;
- - All clients of FIRMCO; and
- - those purchasing through certain broker-dealers who have agreed to
provide certain services with respect to shares of the Funds, including
Waterhouse Securities, Inc. and Jack White, a division of Waterhouse
Securities, Inc.
- - No conversion feature
RETAIL A SHARES
- - Initial sales charge of 4.50% or less (but no initial sales charge for
Money Market Funds)
- - No deferred sales charge
- - Reduced sales charge for larger investments. See "Sales Charges and
Waivers" for more information
- - No conversion feature
- - Available to any investor who does not qualify to purchase Institutional
shares
RETAIL B SHARES
- - No initial sales charge
- - Deferred sales charge - Maximum of 5% for redemptions during the first
year, 4% in the second year, 3% in the third and fourth year, 2% in the
fifth year and eliminated thereafter.
- - Converts to Retail A shares after six years
- - Available to any investor who does not qualify to purchase Institutional
shares
SALES CHARGES AND WAIVERS
INITIAL SALES CHARGES - for Retail A Shares of Funds other than Money Market
Funds: The public offering price for Retail A Shares is the net asset value of
the Retail A Shares purchased plus any applicable front-end sales charge. A
sales charge will not be assessed on
<PAGE>
Retail A Shares purchased through reinvestment of dividends or capital gains
distributions. The sales charge is as follows:
<TABLE>
<CAPTION> Shareowner
Organization
Sales Charge as a Sales Charge as Reallowance as a
Amount of Transaction Percentage of Offering Percentage of Net Percentage of
at Offering Price Price Asset Value Offering Price
----------------- ------------- ---------------- ----------------
Equity Bond Equity Bond Equity Bond
Funds Funds Funds Funds Funds Funds
<S> <C> <C> <C> <C> <C> <C>
Less than $100,000 4.50% 3.75% 4.71% 3.90% 4.00% 3.25%
$100,000 to $249,999 3.75% 3.00% 3.90% 3.09% 3.25% 2.50%
250,000 to $4999,999 3.75% 1.75% 2.56% 1.78% 2.00% 1.25%
$500,000 to $749,999 2.00% 1.25% 2.04% 1.27% 1.50% 0.75%
$750,000 to $999,999 1.00% 0.75% 1.01% 0.76% 0.05% 0.25%
1,000,000 and above 0.25% 0.25% 0.25% 0.25% 0.00% 0.25%
</TABLE>
You only pay a sales charge when you buy shares. The Distributor may reallow the
entire sales charge to certain Shareowner Organizations and the amount reallowed
may change periodically. To the extent that 90% or more of the sales charge is
reallowed, Shareowner Organizations may be deemed to be underwriters under the
Act.
REDUCING YOUR SALES CHARGES AND WAIVERS - RETAIL A SHARES
To qualify for a reduction of, or exception to the sales charge, you must notify
your Shareowner Organization or the Distributor at the time of purchase or
exchange. The reduction in sales charge is subject to confirmation of your
holdings through a check of records. The Company may modify or terminate
quantity discounts at any time.
WAIVERS - RETAIL A SHARES
You may purchase retail shares without a sales charge if:
(a) you are an employee, director, retiree or registered representative of
Firstar Corporation or its affiliates or of Firstar Funds, Inc.
(b) you are a spouse, parent, sibling or child of an individual who falls within
the preceding category (a) above
(c) you make any purchase for your medical savings account for which Firstar
Corporation or an affiliate serves in a custodial capacity
(d) you purchase through certain external organizations that have entered into a
service agreement with Firstar or its affiliates.
REDUCING YOUR SALES CHARGES - RETAIL A SHARES
- - Right of Accumulation - Existing Equity and Bond Fund shares can be combined
with new purchases for purposes of calculating reduced sales charges.
<PAGE>
- - Letter of Intent - Fund shares purchased in a 13-month period qualify for the
same reduced sales charge as if all purchased at once. You may obtain a reduced
sales charge by means of a written Letter of Intent which expresses your non-
binding commitment to invest in the aggregate $100,000 or more in Retail A
Shares of a Equity or Bond Fund within a period of 13 months. Any investments
you make during the period receive the discounted sales load based on the full
amount of your investment commitment.
For purposes of applying the Rights of Accumulation and Letter of Intent
privileges the scale of sales charges applies to the combined purchases made by
any individual and/or spouse purchasing securities for his, her or their own
account, or the aggregate investments of a trustee or other fiduciary or IRA for
the benefit of the persons listed above.
CONTINGENT DEFERRED SALES CHARGE - RETAIL B SHARES
The public offering price for Retail B Shares is the net asset value of the
Retail B Shares purchased. Although investors pay no front-end sales charge on
purchases of Retail B Shares, such Shares are subject to a contingent deferred
sales charge at the rates set forth below if they are redeemed within six years
of purchase.
The amount of any contingent deferred sales charge an investor must pay
depends on the number of years that elapse between the purchase date and the
date such Retail B Shares are redeemed. Solely for purposes of this
determination, all payments during a month will be aggregated and deemed to have
been made on the first day of the month.
Contingent Deferred Sales Charge
Number of Years (as % of dollar amount
Elapsed Since Purchase subject to the charge)
- ---------------------- ---------------------
Less than one 5.00%
At least one but less than two 4.00%
At least two but less than three 3.00%
At least three but less than four 3.00%
At least four but less than five 2.00%
At least five but less than six 1.00%
Six or more None
The contingent deferred sales charge on Retail B Shares is based on the lesser
of the net asset value of the Shares on the redemption date or the original cost
of the Shares being redeemed. As a result, no sales charge is imposed on any
increase in the net asset value of an investor's Retail B Shares. In addition,
a contingent deferred sales charge will not be assessed on Retail B Shares
purchased through reinvestment of dividends or capital gains distributions.
When a shareowner redeems his or her Retail B Shares, the redemption request is
processed to minimize the amount of the contingent deferred sales charge that
will be charged. Retail B Shares are redeemed first from those shares that are
not subject to a contingent deferred sales charge (that is, Retail B Shares that
were acquired through reinvestment of dividends or distributions or that qualify
for other deferred sales charge exemptions, if any) and after that from the
Retail B Shares that have been held the longest.
<PAGE>
Shareowner Organizations will receive commissions from the Distributor in
connection with sales of Retail B Shares. A commission equal to 4% of the
amount invested is paid to authorized dealers.
The contingent deferred sales charge that a shareowner may pay upon
redemption is remitted to the Distributor or other party, which may use such
amounts to defray the expenses associated with the distribution-related services
involved in selling Retail B Shares.
WAIVERS - RETAIL B SHARES
Certain types of redemptions may also qualify for an exemption from the
contingent deferred sales charge. If you think you may be eligible for a
contingent deferred sales charge waiver listed below, be sure to notify your
Shareowner Organization or the Distributor at the time Retail B Shares are
redeemed. The contingent deferred sales charge with respect to Retail B Shares
is not assessed on:
(i) exchanges described under "Exchange of Shares";
(ii) redemptions in connection with shares sold for certain retirement
distributions or because of disability or death.
(iii) redemptions effected pursuant to a Fund's right to liquidate a
shareowner's account if the aggregate net asset value of Retail B Shares held in
the account is less than the minimum account size set forth under "Redemption
of Shares - Other Transaction Information - Accounts Below the Minimum Balance;"
(iv) redemptions in connection with the combination of a Fund with any other
investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction; or
(v) redemptions resulting from a certain tax-free return of an excess
contribution.
In addition to the foregoing exemptions, no contingent deferred sales charge
will be imposed on redemptions made pursuant to the Company's systematic
withdrawal plan. The Funds reserve the right to limit such redemptions without
a contingent deferred sales charge, on an annual basis, to 12% of the value of
your Retail B Shares on the redemption date. See the Additional Statement for
more information.
CONVERSION - RETAIL B SHARES
Retail B Shares will automatically convert into Retail A Shares of the same Fund
six years after the beginning of the calendar month in which the purchase date
occurred. If you acquire Retail B Shares of a Fund by exchange from Retail B
Shares of another Fund, your Retail B Shares will convert into Retail A Shares
of that Fund based on the date of the initial purchase.
If you acquire Retail B Shares through reinvestment of distributions, your
Retail B Shares will convert into Retail A Shares at the earlier of two dates _
either six years after the beginning of the calendar month in which the purchase
date occurred (based on the date of the initial purchase of the shares on which
the distribution was paid) or the date of conversion of the most recently
purchased Retail B Shares that were not acquired through reinvestment of
dividends or
<PAGE>
distributions. For example, if a shareowner makes a one-time purchase of Retail
B Shares of a Fund and subsequently acquires additional Retail B Shares of that
Fund only through reinvestment of dividends and/or distributions, all of such
shareowner's Retail B Shares of that Fund, including those acquired through
reinvestment, will convert to Retail A Shares of such fund on the same date.
Upon conversion, the converted shares will be relieved of the distribution and
shareowner servicing fees borne by Retail B Shares, although they will be
subject to the shareowner servicing fees borne by Retail A Shares.
The conversion of Retail B Shares to Retail A Shares will not occur at any time
the Funds are advised that such conversions may constitute taxable events for
federal tax purposes, which the Funds believe is unlikely. If conversions do
not occur as a result of possible taxability, Retail B Shares would continue to
be subject to higher expenses than Retail A Shares for an indeterminate period.
HOW TO DECIDE WHETHER TO BUY RETAIL A OR RETAIL B SHARES
The decision as to which Class to purchase depends on the amount you invest, the
intended length of the investment and your personal situation.
RETAIL A SHARES - If you are making an investment of an amount that qualifies
for a reduced sales charge, you should consider purchasing Retail A Shares.
RETAIL B SHARES - If you plan to hold your investment for a significant period
of time and would prefer not to pay an initial sales charge, you might consider
purchasing Retail B Shares. By not paying a front-end sales charge, your entire
purchase in Retail B Shares is invested from the time you make your initial
investment. However, the distribution and service fee paid by Retail B Shares
will cause your Retail B Shares (until conversion to Retail A Shares) to have a
higher expense ratio and thus, lower performance and lower dividend payments (to
the extent dividends are paid) than Retail A Shares.
PURCHASE OF SHARES
Shares of the Funds are offered and sold on a continuous basis by the
distributor for the Funds, B.C. Ziegler and Company (the "Distributor"), which
is independent of the Adviser. The Distributor is a registered broker-dealer
with offices at 215 North Main Street, West Bend, Wisconsin 53095.
MINIMUM INVESTMENTS
RETAIL SHARES
The minimum initial investment for Retail Shares in a Fund is $1,000; with the
exception of IRAs, which have a minimum initial investment of $100. The minimum
subsequent investment
<PAGE>
is $50. The minimum initial investment will be waived if you participate in the
Periodic Investment Plan with the exception of the MicroCap Fund. For the
MicroCap Fund the maximum investment is $5,000,000.
INSTITUTIONAL SHARES
The minimum initial investment in the Institutional Money Market Fund is
$1,000,000 by an individual or combination of accounts. There is no minimum
initial or subsequent investment for Institutional Shares of other Funds. The
maximum investment for MicroCap Fund is $5,000,000.
- ---------------------------------------------------------------
The MicroCap Fund is currently closed to new investors and to additional share
purchases except for reinvestment of dividends from the Fund. The Fund may
reopen from time-to-time at the Company's discretion.
- ---------------------------------------------------------------
BUYING SHARES
Purchases requests for a Money Market Fund received in proper form before 11:30
a.m. Central Time (12:30 p.m. Central Time for the Institutional Money Market
Fund) on a business day for the Funds generally are processed at 11:30 a.m.
(12:30 p.m. Central Time for the Institutional Money Market Fund) on the same
day. Payment must be received in immediately available funds wired to the
transfer agent by the close of business. Purchase requests for the Money Market
Funds which are received at or after 11:30 a.m. Central Time (12:30 p.m. Central
Time for the Institutional Money Market Fund), and purchase requests for any
other Fund which are received by the transfer agent before 3:00 p.m. Central
Time on a business day for the Funds will be executed the same day, at that
day's closing price provided that payment is received by the close of regular
trading hours. Orders received after 3:00 p.m. Central Time and orders for
which payment is not received by the close of regular trading hours on the New
York Stock Exchange will be executed on the next business day after receipt of
both order and payment in proper form.
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- --------------------------------------------------------------------------------
Through a Contact your Contact your
Shareowner Shareowner Organization Shareowner
Organization Organization
- --------------------------------------------------------------------------------
By Mail Complete an application Make your check
payable to
and mail it along with a Firstar Funds.
check payable to Firstar Please include your
Funds, P.O. Box 3011, sixteen-digit
account
Milwaukee, WI 53201-3011. number on your
For overnight delivery check and mail
mail to; it to the address
615 E. Michigan St., at the left.
Milwaukee, WI 53202
- --------------------------------------------------------------------------------
Automatically Call 1-800-228-1024 Complete a Periodic
(Retail A and to obtain a purchase Investment Plan
B Shares) application, which Application to
includes information automatically purchase
for a Periodic more shares.
Investment Plan or
ConvertiFund Account.
Open a ConvertiFund
account to
automatically
invest proceeds from
one account to
another account of
the Firstar
Family of Funds.
<PAGE>
- --------------------------------------------------------------------------------
By Wire Call 1-800-228-1024 Call 1-800-228-1024
prior to sending the prior to sending the
wire in order to obtain wire in order to
a confirmation number obtain a confirmation
and to ensure prompt number and to ensure
and accurate handling prompt and accurate
of funds. Ask your handling of funds.
bank to transmit Ask your bank to
immediately available transmit immediately
funds by wire in the available funds by
amount of your purchase wire as described
to: Firstar Bank at the left. Please
Milwaukee, N.A. also include your
ABA # 0750-00022 sixteen-digit account
Firstar Trust number. The Fund
Department and its transfer agent
Account # 112-952-137 are not responsible
for further credit to for the consequences
[name of Fund] of delays resulting
[name/title on the from the banking
account]. The Fund and or Federal Reserve
its transfer agent are Wire system, or
not responsible for the from incomplete wiring
consequences of delays instructions.
resulting from the
banking or Federal
Reserve Wire system,
or from incomplete
wiring instructions.
- --------------------------------------------------------------------------------
Internet Not available. Use Firstar Funds
www.firstarfunds.com Direct to
exchange from another
Firstar Fund account
with the same
registration
including name,
address
and taxpayer ID
number.
Purchase additional
shares using an
electronic funds
transfer
from your banking
institution for
payment.
Call 1-800-228-1024 to
authorize this
service.
- --------------------------------------------------------------------------------
By Telephone
Exchange Call 1-800-228-1024 Call 1-800-228-1024
to exchange from to exchange from
another Firstar Fund another Firstar Fund
account with the same account with the
registration including same registration
name, address and including name,
taxpayer ID number. address
and taxpayer ID
number.
- --------------------------------------------------------------------------------
Please Note: All checks must be drawn on a bank located within the United States
and must be payable in U.S. dollars to Firstar Funds. A $20 fee will be imposed
by the Funds' transfer agent if any check used for investment in an account does
not clear, and the investor involved will be responsible for any loss incurred
by a Fund.
Investors making initial investments by wire must promptly complete a Purchase
Application and forward it to the transfer agent. Redemptions will not be paid
until the transfer agent has received the completed application.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Additional Information on Buying Shares
- --------------------------------------------------------------------------------
- -The Funds will not accept payment in cash or third party checks for the
purchase of shares.
<PAGE>
- -Federal regulations require that each investor provide a Social Security number
or other certified taxpayer identification number upon opening or reopening an
account. The Funds reserve the right to reject applications without such a
number or an indication that a number has been applied for. If a number has
been applied for, the number must be provided and certified within sixty days of
the date of the application. Any accounts opened without a proper number will
be subject to backup withholding at a rate of 31% on all liquidations and
dividend and capital gain distributions.
- -Payment for shares of a Fund in the amount of $1,000,000 or more may, at the
discretion of the Adviser, be made in the form of securities that are
permissible investments for the respective Fund.
- --------------------------------------------------------------------------------
- -For Owners of Institutional Shares:
- --------------------------------------------------------------------------------
All share purchases are effected pursuant to a customer's account at Firstar
Bank Milwaukee, N.A. Ttrust Ddepartment ("Firstar Trust") or at another chosen
institution or broker-dealer pursuant to procedures established in connection
with the requirements of the account. Confirmations of share purchases and
redemptions will be sent to Firstar Trust or the other Shareowner Organizations
involved. Firstar Trust and the other Shareowner Organizations or their
nominees will normally be the holders of record of Fund shares, and will reflect
their customers' beneficial ownership of shares in the account statements
provided by them to their customers. The exercise of voting rights and the
delivery to customers of shareowner communications from the Fund will be
governed by the customers' account agreements with Firstar Trust and the other
shareowner Organizations Institutions. Investors wishing to purchase shares of
the Funds should contact their account representatives.
In the case of participants in certain employee benefit plans investing in
certain Funds, purchase and redemption orders will be processed on a particular
day based on whether a service organization acting on their behalf received the
order by the close of regular trading on that day.
The Funds may authorize one or more brokers and other Shareowner Organizations
to accept on their behalf purchase, redemption and exchange orders, and may
authorize such Shareowner Organizations to designate other intermediaries to
accept purchase, redemption and exchange orders on the Funds' behalf. In these
cases, a Fund will be deemed to have received an order when an authorized
Shareowner Organization or intermediary accepts the order, and customer orders
will be priced at the Fund's net asset value next computed after they are
accepted by a Shareowner Organization or intermediary. Shareowner Organizations
and intermediaries will be responsible for transmitting accepted orders to the
Funds within the period agreed upon by them. Shareowners should contact their
Shareowner Organization or intermediaries to learn whether they are authorized
to accept orders for Funds.
It is the responsibility of Shareowner Organizations Institutions to transmit
orders and payment for the purchase of shares by their customers to the transfer
agent on a timely basis and to provide account statements in accordance with the
procedures stated above.
REDEMPTION OF SHARES
<PAGE>
SELLING SHARES
Redemption requests for a Money Market Fund received by the transfer agent by
phone before 11:30 a.m. Central Time (12:30 p.m. Central Time for the
Institutional Money Market Fund) on a business day for the Funds generally are
processed at 11:30 a.m. Central Time (12:30 p.m. Central Time for the
Institutional Money Market Fund) on the same day. Redemptions requests for
Money Market Funds received at or after 11:30 a.m. Central Time (12:30 p.m.
Central Time for the Institutional Money Market Fund) and redemption requests
for other Funds received by the transfer agent before 3:00 p.m. Central Time on
a business day for the Funds will be executed the same day, at that day's
closing price. Orders received after 3:00 p.m. Central Time will be executed on
the next business day.
- --------------------------------------------------------------------------------
Through a
Shareowner
Organization Contact your Shareowner Organization
- --------------------------------------------------------------------------------
By Phone Call 1-800-228-1024 with your account name, sixteen digit
account number and amount of redemption (minimum $500).
Redemption proceeds will only be sent to a shareowner's
address or bank account of a commercial bank located within
the United States as shown on the transfer agent's records
(available only if telephone redemptions have been
authorized on the account application and if there has been
no change of address by telephone within the preceding 15
days).
- --------------------------------------------------------------------------------
By Mail Mail your instructions to the Firstar Funds, P.O. Box 3011,
Milwaukee, WI 53201-3011 (via overnight delivery to 615 E.
Michigan Street, Milwaukee, WI 53202). Include the number
of shares or the amount to be redeemed, your sixteen-digit
account number and Social Security number or other taxpayer
identification number. Your instructions must be signed by
all persons required to sign for transactions exactly as
their names appear on the account. If the redemption amount
exceeds $50,000, or if the proceeds are to be sent elsewhere
than the address of record, or the address of record has
been changed by telephone within the preceding 15 days, each
signature must be guaranteed in writing by either a
commercial bank that is a member of the FDIC, a trust
company, a credit union, a savings association, a member
firm of a national securities exchange or other eligible
guarantor institution.
- --------------------------------------------------------------------------------
Internet
www.firstarfunds.com Use Firstar Funds Direct to redeem up to $25,000. Call
1-800-228-1024 to authorize this service.
- --------------------------------------------------------------------------------
Automatically Call 1-800-228-1024 for a Systematic Withdrawal Plan
application ($5,000 account minimum and $50 minimum per
transaction).
- --------------------------------------------------------------------------------
Guarantees must be signed by an eligible guarantor institution and "Signature
Guaranteed" must appear with the signature.
<PAGE>
- --------------------------------------------------------------------------------
The Funds may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees and guardians. A redemption
request will not be deemed to be properly received until the transfer agent
receives all required documents in proper form. Purchases of additional shares
concurrently with withdrawals could be disadvantageous because of the sales
charge involved in the additional purchases.
- --------------------------------------------------------------------------------
ADDITIONAL TRANSACTION INFORMATION
- --------------------------------------------------------------------------------
Telephone Requests
- --------------------------------------------------------------------------------
In order to arrange for telephone redemptions after you have opened your account
or to change the bank or account designated to receive redemption proceeds, send
a written request to the Firstar Funds Center or contact your registered
representative. Each shareowner of the account must sign the request. The
Funds may request further documentation from corporations, executors,
administrators, trustees and guardians.
The Funds reserve the right to refuse a telephone redemption if they believe it
is advisable to do so. Procedures for redeeming shares by telephone may be
modified or terminated by the Funds at any time upon notice to shareowners.
During periods of substantial economic or market change, telephone redemptions
may be difficult to implement. If a shareowner is unable to contact the
transfer agent by telephone, shares may also be redeemed by delivering the
redemption request to the transfer agent.
In an effort to prevent unauthorized or fraudulent purchase and redemption
requests by telephone, Firstar employs reasonable procedures to confirm that
such instructions are genuine. Among the procedures used to determine
authenticity, investors electing to transact by telephone will be required to
provide their account number (unless opening a new account). All telephone
transactions will be recorded and except for transactions in Money Market Funds,
confirmed in writing. Statements of accounts shall be conclusive if not
objected to in writing within 10 days after transmitted by mail. Firstar may
implement other procedures from time to time. If reasonable procedures are not
implemented, Firstar may be liable for any loss due to unauthorized or
fraudulent transactions. In all other cases, the shareowner is liable for any
loss for unauthorized transactions.
- --------------------------------------------------------------------------------
Check Redemption
- --------------------------------------------------------------------------------
You may request on the purchase application or by written request that a Fund
provides Redemption Checks ("Checks"). Checks may be made payable in the amount
of $250 or more. Any checks drawn on a joint account will only require one
signature. There is no charge for the use of the Checks; however, the transfer
agent will impose a $20 charge for stopping payment of a Check upon your
request, or if the transfer agent cannot honor a Check due to insufficient funds
or other valid reason. Because dividends on each Fund accrue daily, Checks may
not be used to close an account, as a small balance is likely to result.
Checks are not available for non-money market funds, Institutional Money Market
Fund, IRAs or other retirement plans for which Firstar acts as custodian.
- --------------------------------------------------------------------------------
Certificates
- --------------------------------------------------------------------------------
<PAGE>
Certificates are only issued upon shareowner request. If certificates have been
issued, the transfer agent must receive the certificates, properly endorsed or
accompanied by a properly executed stock power and accompanied by signature
guarantees, prior to a redemption request.
- --------------------------------------------------------------------------------
Additional Redemption Information
- --------------------------------------------------------------------------------
The Funds will make payment for redeemed shares typically within one or two
business days, but no later than the seventh day after receipt by the transfer
agent of a request in proper form, except as provided by SEC rules. HOWEVER, IF
ANY PORTION OF THE SHARES TO BE REDEEMED REPRESENTS AN INVESTMENT MADE BY CHECK,
THE FUNDS WILL DELAY THE PAYMENT OF THE REDEMPTION PROCEEDS UNTIL THE TRANSFER
AGENT IS REASONABLY SATISFIED THAT THE CHECK HAS BEEN COLLECTED, WHICH MAY TAKE
TWELVE DAYS FROM THE PURCHASE DATE. An investor must have filed a purchase
application before any redemption requests can be paid.
- --------------------------------------------------------------------------------
Accounts Below the Minimum Balance
- --------------------------------------------------------------------------------
If your account falls below $1,000 ($100 for IRAs) the Funds may redeem your
account. The Fund will impose no charge and will give you sixty days written
notice prior to any redemption. A Fund may also redeem shares involuntarily if
it is appropriate to do so to carry out the Fund's responsibilities under the
1940 Act and, in certain cases, may make payment for redemption in securities.
Investors would bear any brokerage or other transaction costs incurred in
converting the securities so received to cash. See the Additional Statement
referred to on the last page for examples of when such redemptions might be
appropriate.
- --------------------------------------------------------------------------------
EXCHANGE of SHARES
- --------------------------------------------------------------------------------
Without a sales charge, you may exchange shares of a Money Market Fund for
shares of another Money Market Fund. You may also exchange shares of a money
market fund for Institutional or Retail A Shares of a Non-Money Market Fund
provided you are eligible to purchase the class at time of the exchange.
You may exchange your non-money market fund shares for shares of other Firstar
Funds within the same share class without a charge by the Fund if you are
eligible to purchase the class at the time of the exchange. An initial sales
charge will be imposed on the exchange if the shares of the Fund being acquired
have an initial sales charge and the shares being redeemed were purchased
without a sales charge unless you qualify for a sales charge exemption. Retail
B Shares may be exchanged without the payment of any contingent deferred sales
charge at the time the exchange is made. In determining the holding period for
calculating the contingent deferred sales charge payable on redemptions of
Retail B Shares, the holding period of the Retail B Shares originally held will
be added to the holding period of the Retail B Shares acquired through exchange.
Telephone exchange privileges automatically apply to each shareowner of record
unless the transfer agent receives written instructions canceling the privilege.
Firstar reserves the right to terminate the exchange privilege of any party who
requests more than four exchanges within a calendar year. Firstar may do so
with prior notice based on a consideration of both the number of exchanges and
the time period over which those exchange requests have been made, together with
the level of expense to the Funds or other adverse effects which may result from
the additional exchange requests.
<PAGE>
For federal income tax purposes, an exchange of shares is a taxable event and,
accordingly, an investor may realize a capital gain or loss. Before making an
exchange request, an investor should consult a tax or other financial adviser to
determine the tax consequences of a particular exchange. No exchange fee is
currently imposed by Firstar on exchanges. However, Firstar reserves the right
to impose a charge in the future. In addition, Shareowner Organizations
Institutions may charge a fee for providing administrative or other services in
connection with exchanges. The Fund reserves the right to reject any exchange
request with prior notice to a shareowner and the exchange privilege may be
modified or terminated at any time. At least sixty days' notice will be given
to shareowners of any material modification or termination except where notice
is not required under SEC regulations. Also keep in mind:
- -- Exchanges are available only in states where exchanges may be legally made.
- -- The minimum amount which may be exchanged is $1,000.
- -- If any portion of the shares to be exchanged represents an investment made by
check, a Fund may delay the acquisition of new shares in an exchange until the
transfer agent is reasonably satisfied that the check has been collected, which
may take up to twelve days from the purchase date.
- -- It may be difficult to make telephone exchanges in times of drastic economic
or market changes.
Additional Shareowner Services
- --------------------------------------------------------------------------------
Shareowner Reports
- --------------------------------------------------------------------------------
Shareowners will be provided with a report showing portfolio investments and
other information at least semiannually; and after the close of the Fund's
fiscal year with an annual report containing audited financial statements. To
eliminate unnecessary duplication, only one copy of shareowner reports will be
sent to shareowners with the same mailing address. Shareowners may request
duplicates copies free of charge.
Account statements will be mailed to Money Market Shareowners monthly,
summarizing all transactions. For all other funds, account statements will be
mailed after each purchase, reinvestment of dividends and redemption.
Generally, the Fund does not send statements for Funds held in brokerage,
retirement or other similar accounts.
- --------------------------------------------------------------------------------
Firstar Funds Web Site (www.firstarfunds.com)
- --------------------------------------------------------------------------------
The site offers educational information and interactive financial planning tools
as well as product-specific information.
Generally, Shareowners can request purchases, exchanges and redemptions of Fund
shares after an account is opened on-line via the Internet. Redemption requests
of up to $25,000 will be accepted through the Internet. Payment for shares
purchased on-line must be made by electronic funds transfer from your banking
institution. To authorize this service, call Firstar Trust Company at 1-800-
228-1024.
<PAGE>
Firstar Funds and their agents will not be responsible for any losses resulting
from unauthorized on-line transactions when procedures are followed which are
designed to confirm that the on-line transaction request is genuine. Statements
of accounts shall be conclusive if not objected to in writing within 10 Days
after transmitted by mail. During periods of significant economic or market
change, it may be difficult to reach the Funds on-line. If this happens, you
may initiate transactions in your share accounts by mail or as otherwise
described in the prospectus.
- --------------------------------------------------------------------------------
Automated Teleresponse Service
- --------------------------------------------------------------------------------
Shareowners using a touch-tone telephone can access information on the Funds
twenty-four hours a day, seven days a week. When calling Firstar Mutual Fund
Services, LLC at 1-800-228-1024, shareowners may choose to use the automated
information feature or, during regular business hours (8:00 a.m. to 7:00 p.m.
Central Time, Monday through Friday), speak with a Firstar representative.
- --------------------------------------------------------------------------------
Retirement Plans
- --------------------------------------------------------------------------------
The Fund offers individual retirement accounts including SIMPLE and SEP IRAs.
For details concerning Retirement Accounts (including service fees), please call
Firstar Funds Center at 1-800-228-1024.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
Dividends and Capital Gains Distributions
Dividends from net investment income, including net realized gains and losses,
if any, earned on the investments held by a Fund, of the Money Market Funds are
declared on each business day on the shares that are outstanding immediately
after 11:30 a.m. Central Time (12:30 P.M. Central Time for Institutional Money
Market) on the declaration date.
Dividends from net investment income of the Bond Funds are declared and paid
monthly. Dividends from net investment income of the Balanced Income, Balanced
Growth, Growth and Income and Equity Index Funds are declared and paid
quarterly.
- -------------------
Reinvested
dividends and
distributions
receive the
same tax
treatment as
those paid in
cash.
- -------------------
Dividends from net investment income of the Growth, Special Growth, Emerging
Growth, MicroCap and International Equity Funds are declared and paid annually.
Any capital gains are distributed annually. A shareowner's dividends and capital
gains distributions will be reinvested automatically in additional shares unless
the Fund is notified that the shareowner elects to receive distributions in
cash. If a shareowner has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to shareowner's address of record, such shareowner's distribution
option will automatically be converted to having all dividend and other
distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
<PAGE>
Federal Taxes
Each Fund contemplates declaring as dividends each year all or substantially all
of its taxable income, including its net capital gain (the excess of long-term
capital gain over short-term capital loss). You will be subject to income tax
on these distributions regardless of whether they are paid in cash or reinvested
in additional Shares. Distributions attributable to the net capital gain of a
Fund will be taxable to you as long-term capital gain, regardless of how long
you have held your Shares. Other Fund distributions will generally be taxable
as ordinary income. You will be notified annually of the tax status of
distributions to you.
You should note that if you purchase Shares just prior to a capital gain
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxable on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the Shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held Shares.) Any loss
realized on Shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received on
the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, Shares held in an IRA (or other tax-
qualified plan) will not be currently taxable.
The International Equity Fund. It is expected that the International Equity
Fund will be subject to foreign withholding taxes with respect to dividends or
interest received from sources in foreign countries. The International Equity
Fund may make an election to treat a proportionate amount of such taxes as
constituting a distribution to each Shareowner, which would allow each
Shareowner either (1) to credit such proportionate amount of taxes against U.S.
federal income tax liability or (2) to take such amount as an itemized
deduction.
The Tax-Exempt Money Market Fund and Tax-Exempt Intermediate Bond Fund. It is
expected that the Tax-Exempt Money Market Fund and Tax-Exempt Intermediate Bond
Fund will distribute dividends derived from interest earned on Exempt
Securities, and these "exempt interest dividends" will be exempt income for
Shareowners for federal income tax purposes. However, distributions, if any,
derived from net capital gains will generally be taxable to you as capital
gains. It is expected that the Tax-Exempt Intermediate Bond Fund may pay such
capital gains distributions from time to time. Dividends, if any, derived from
taxable interest income will be taxable to you as ordinary income.
Interest on indebtedness incurred by a Shareowner to purchase or carry shares of
the Tax-Exempt Money Market Fund and Tax-Exempt Intermediate Bond Fund generally
will not be deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by the Tax-
Exempt Money Market Fund and Tax-Exempt Intermediate Bond Fund may constitute an
item of tax preference for purposes of determining federal alternative minimum
tax liability. Exempt-interest dividends will also be considered along with
other adjusted gross income in determining whether any Social Security or
railroad retirement payments received by you are subject to federal income
taxes.
<PAGE>
If you receive an exempt-interest dividend with respect to any Share and the
Share is held by you for six months or less, any loss on the sale or exchange of
the Share will be disallowed to the extent of such dividend amount.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. You should consult your tax
adviser for further information regarding federal, state, local and/or foreign
tax consequences relevant to your specific situation.
- --------------------------------------------------------------------------------
State and Local Taxes
- --------------------------------------------------------------------------------
Shareowners may also be subject to state and local taxes on distributions and
redemptions. State income taxes may not apply, however, to the portions of
each Fund's distributions, if any, that are attributable to interest on Federal
securities or interest on securities of the particular state. Shareowners
should consult their tax advisers regarding the tax status of distributions in
their state and locality.
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
Advisory Services
- --------------------------------------------------------------------------------
FIRMCO, a Wisconsin Limited Liability Company and subsidiary of Firstar
Corporation, a bank holding company, serves as investment adviser to each Fund.
FIRMCO, with principal offices at Firstar Center, 777 East Wisconsin Avenue, 8th
Floor, Milwaukee, Wisconsin 53202, has provided investment advisory services
since 1986. FIRMCO currently has $_____ billion in assets under management.
Firstar Corporation has agreed to permit the Company to use the name "Firstar
Funds" and expansions thereof on a non-exclusive and royalty-free basis in
connection with mutual fund management and distribution services within the
United States, its territories and possessions; this agreement may be terminated
by Firstar Corporation under specified circumstances, including if no affiliate
of Firstar Corporation is serving as investment adviser for any portfolio
offered by the Company.
Subject to the general supervision of the Board of Directors and in accordance
with the respective investment objective and policies of each Fund, the Adviser
manages each Fund's portfolio securities and maintains records relating to such
purchases and sales (except for the International Equity Fund). Subject to the
general supervision of the Board of Directors and in accordance with the
investment objective and policies of the International Equity Fund, the Adviser
is responsible for the Fund's investment program, general investment criteria
and policies.
Each Fund's investment objective may be changed by the Board of Directors
without approval of Shareowners.
The Adviser has retained Hansberger Global Investors, Inc. (HGI) as Sub-Adviser
for the International Equity Fund a Delaware corporation founded in 1994, with
its principal office at 515 East Las Olas Boulevard, Suite 1300, Fort
Lauderdale, Florida 33301, currently has $_____ billion in assets under
management. Subject to the oversight and supervision of the Fund's
<PAGE>
Board of Directors and Adviser, the Sub-Adviser formulates and implements a
continuous investment program for the Fund.
The Adviser (or Sub-Adviser for the International Equity Fund) is authorized to
allocate purchase and sale orders for portfolio securities to Shareowner
Organizations, including, in the case of agency transactions, Shareowner
Organizations which are affiliated with the Adviser (or Sub-Adviser), to take
into account the sale of Fund shares if the Adviser (or Sub-Adviser for the
International Equity Fund) believes that the quality of the transaction and the
amount of the commission are comparable to what they would be with other
qualified brokerage firms.
For the fiscal year ended October 31, 1998, tThe Adviser is entitled to received
from each Fund a fee, calculated daily and payable monthly, at the following
annual rates (as a percentage of the Fund's average daily net assets): 0.37% for
the Money Market Fund, 0.29% for the Institutional Money Market Fund, 0.49% for
the U.S. Treasury Money Market Fund, 0.50% for the U.S. Government Money Market
Fund, 0.48% for the Tax-Exempt Money Market Fund, 0.30% for the Short-Term Bond
Market Fund, 0.36% for the Intermediate Bond Market Fund, 0.36% for the Tax-
Exempt Intermediate Bond Fund, 0.30% for the Bond IMMDEX/Fund, 0.33% for the
Balanced Income Fund, 0.73% for the Balanced Growth Fund, 0.75% for the Growth
and Income Fund, 0.19% for the Equity Index Fund, 0.75% for the Growth Fund,
0.75% for the Special Growth Fund, 0.73% for the Emerging Growth Fund, 1.50% for
the MicroCap Fund and 1.14% for the International Equity Fund.
The Sub-Adviser is entitled to a fee, payable by the Adviser, for its services
and expenses incurred with respect to the International Equity Fund. The fee is
computed daily and paid monthly at the following annual rates (as a percentage
of the Fund's average daily net assets): 0.75% on the Fund's first $25 million,
0.50% of the next $75 million and 0.35% of the Fund's average daily net assets
in excess of $100 million.
- --------------------------------------------------------------------------------
Fund Managers
- --------------------------------------------------------------------------------
Mary Ellen Stanek, CFA and Daniel Tranchita, CFA co-manage the Short-Term Bond
Market Fund. Ms. Stanek is the President and Chief Executive Officer of FIRMCO,
and Director of Fixed Income Services. In addition, Ms. Stanek has served as an
officer of the Funds since September 1994. She has 20 years of investment
management experience and was named a Director of FIRMCO in 1992. Prior to
joining FIRMCO, Ms. Stanek headed the Fixed Income and Quantitative Investment
Management Department at Firstar Trust Company. She has been the Fund's
portfolio manager since its inception on December 29, 1989. Mr. Tranchita is a
Vice President and Senior Portfolio Manager and has been with Firstar since
1989. He has 10 years of investment management experience and has been a
portfolio manager of the Fund since January 1, 1993.
Mary Ellen Stanek and Teresa Westman, CFA co-manage the Intermediate Bond Market
Fund. A Senior Vice President and Senior Portfolio Manager of FIRMCO, Ms.
Westman joined Firstar in 1987 and has 12 years of investment management
experience. Both Ms. Stanek and Ms. Westman have managed the Fund since its
inception on January 5, 1993.
- ---------------------------
Chartered Financial Analyst
(CFA) designation is a
globally recognized standard
for measuring the competence
and integrity of financial
analysts.
- ---------------------------
Warren Pierson, CFA manages the Tax-Exempt Intermediate Bond Fund. Mr. Pierson
joined Firstar in 1985 and has 14 years of fixed income experience at
<PAGE>
Firstar. He is a Vice President and Senior Portfolio Manager of FIRMCO and has
been the portfolio manager of the Fund since June 22, 1993.
Mary Ellen Stanek and Teresa Westman co-manage the Bond IMMDEX( Fund. Ms.
Stanek has managed the Fund since its inception on December 29, 1989. Ms.
Westman has been a portfolio manager of the Fund since January 1, 1992.
Teresa Westman and Marian Zentmyer, CFA co-manage the Balanced Growth Fund. Ms.
Westman has managed the Fund since its inception on March 30, 1992. Ms.
Zentmyer is FIRMCO's Equity Chief Investment Officer, a Senior Vice President
and Senior Portfolio Manager. She has been with Firstar since 1982 and has 20
years of investment management experience. Ms. Zentmyer is a Certified
Financial Planner and has managed the Fund since June 19, 1996.
Marian Zentmyer and Walter Dewey, CFA co-manage the Growth and Income Fund. Ms.
Zentmyer has managed the Fund since February 22, 1993 and Mr. Dewey since June
29,1998. Mr. Dewey is a Vice President and Senior Portfolio Manager of FIRMCO.
He has been with Firstar since 1986 and has 16 years of investment management
experience.
Marian Zentmyer and Walter Dewey also co-manage the Growth Fund. Ms. Zentmyer,
has managed the Fund since June 18, 1996 and Mr. Dewey since July 7,1997.
Todd Krieg, CFA and Matt D'Attilio, CFA co-manage the Special Growth Fund. Mr.
Krieg is the Director of Equity Research and a Senior Vice President and Senior
Portfolio Manager of FIRMCO. Mr. Krieg has been with Firstar since 1992 and has
six years of investment management experience. Mr. Krieg has managed the Fund
since September 1, 1994. Mr. D'Attilio is a Vice President and Portfolio
Manager of FIRMCO and has been with Firstar since 1993. He has five years of
investment management experience and has managed the Fund since December 1,
1998.
Todd Krieg and Matthew D'Attilio, CFA also co-manage the Emerging Growth Fund.
Both have managed the Fund since its inception on August 15, 1997.
Joe Frohna, CFA, CPA manages the MicroCap Fund. Mr. Frohna is an Assistant
Vice President and Portfolio Manager of FIRMCO and has been with Firstar since
1995. He has six years of investment management experience and has managed the
Fund since September 9, 1997.
Daniel Tranchita has managed the International Equity Fund for the Adviser since
its inception on April 28, 1994. The portfolio management team comprised of
James Chaney, Robert Mazuelos and John Hock manages the Fund for the Sub-
Adviser. Mr. Chaney is primarily responsible for the day to day management of
the Fund. Mr. Chaney joined the Sub-Adviser as Chief Investment Officer in 1996
and has 15 years of investment experience. Prior to joining the Sub-Adviser, he
was Executive Vice President for Templeton Worldwide, Inc. and a senior member
of its Portfolio Management/Strategy Committee. Robert Mazuelos joined the Sub-
Adviser in 1995 as a research analyst and has eight years of investment
management experience. Prior to joining the Sub-Adviser, he was a performance
analyst at Templeton Investment Counsel, Inc. where he was responsible for
return analysis on separate accounts and mutual funds. John Hock joined the
Sub-Adviser in 1996 as a research analyst. Prior to joining the Sub-Adviser, he
was a senior analyst in the global securities research and economics group at
Merrill Lynch.
<PAGE>
- --------------------------------------------------------------------------------
Administrative Services
- --------------------------------------------------------------------------------
Firstar Mutual Fund Services, LLC and B. C. Ziegler and Company ("Ziegler")
serve as the Co-Administrators (the "Co-Administrators") and receives fees for
those services.
- --------------------------------------------------------------------------------
Shareowner Organizations - Retail A and B Shares; Money Market Funds (other than
Institutional Money Market Fund)
- --------------------------------------------------------------------------------
The Funds have adopted distribution and service plans for the Retail A and
Retail B Shares. Under the distribution and service plans, the Funds may pay
distribution fees for the sale and distribution of their shares and service fees
for shareowner services. These fees are regulated by Rule 12b-1 under the
Investment Company Act of 1940 and are subject to the NASD Conduct Rules.
Because these fees are paid out of the Funds' assets on an ongoing basis, over
time, these fees will increase the cost of your investment and may cost you more
than paying other types of sales charges.
The Funds also have adopted service plans for the Retail A and B Shares, under
which the Funds may pay service fees for shareowner services to Retail A and B
shareowners.
For their services with respect to the Retail A Shares, Shareowner Organizations
may be entitled to receive fees from a Fund at an annual rate of up to 0.25% of
the average daily net asset value of the shares covered by their agreement for
distribution and/or shareowner support services. For their services with
respect to the Retail B Shares, Shareowner Organizations may be entitled to
receive fees from a Fund at an annual rate of up to 0.__%, _____%, and ______%
of the average daily net asset value of the shares covered by their agreement,
respectively, for distribution, shareowner liaison and other support services
(as described below.)
Under these Plans, the Funds may enter into agreements with Shareowner
Organizations, including affiliates of the Adviser (such as FIS). The
Shareowner Organizations are required to provide a schedule of any fees that
they may charge to their customers relating to the investment of their assets in
shares covered by the agreements. Investors should read this Prospectus in
light of such fee schedules and under the terms of their Shareowner
Organization's agreement with Firstar. In addition, investors should contact
their Shareowner Organizations with respect to the availability of shareowner
services and the particular Shareowner Organization's procedures for purchasing
and redeeming shares. It is the responsibility of Shareowner Organizations to
transmit purchase and redemption orders and record those orders in customers'
accounts on a timely basis in accordance with their agreements with customers.
The Funds make no payments to their Distributor under the Plans for the Retail A
Shares or under the service plan for the Retail B Shares. The Funds make
payments to their Distributor under the distribution and service plan for
distribution services with respect to the Retail B Shares. Payments to
Shareowner Organizations, including affiliates of the Adviser, under the plans,
and to the Distributor under the distribution and service plan for the Retail B
Shares are not tied directly to their own out-of-pocket expenses and therefore
may be used as they elect (for example, to defray their overhead expenses), and
may exceed their direct and indirect costs.
These Shareowner Organizations will provide support and/or, in the case of the
distribution and service plan for the Retail A Shares distribution services to
their customers who
<PAGE>
are the shareowners of the Funds. Under the Service Agreements, shareowner
support services may include;
- -assisting investors in processing purchase, exchange and
redemption requests
- -processing dividend and distribution payments from the Funds
- -providing information periodically to customers showing their
positions in Fund shares
- -providing sub-accounting
- -forwarding sales literature and advertising
Shareowner liaison services may include responding to customers' inquires and
providing information on their investments, and other personal and account
maintenance services within NASD Rules.
The Glass-Steagall Act and other applicable laws, among other things, prohibit
banks from engaging in the business of underwriting securities. Accordingly,
banks will be engaged under agreements with Firstar only to perform the
administrative and investor servicing functions described above, and will
represent to Firstar that in no event will the services provided by them under
the agreements be primarily intended to result in the sale of Fund shares.
Conflict-of-interest restrictions may apply to the receipt of compensation paid
by Firstar to a Shareowner Organization in connection with the investment of
fiduciary funds in Fund shares. Institutions, including banks regulated by the
Comptroller of the Currency and investment advisers and other money managers
subject to the jurisdiction of the SEC, the Department of Labor or state
securities commissions, are urged to consult legal counsel before entering into
agreements with Firstar.
- --------------------------------------------------------------------------------
Custodian, Transfer and Dividend Disbursing Agent, and Accounting Services Agent
- --------------------------------------------------------------------------------
Mutual Fund Service, LLC, an affiliate of the Adviser, provides transfer
agency and dividend disbursing agency services for all the Funds and custodial
and accounting services for the Funds and receive fees for these services.
Inquiries to the transfer agent may be sent to: Mutual Fund Service, LLC, P.O.
Box 3011, Milwaukee, Wisconsin 53201-3011. Firstar Bank, N.A., Milwaukee,
N.A., an affiliate of the Adviseor, provides custodial services for the Funds
and receives fees for thoese services.
NET ASSET VALUE AND DAYS OF OPERATION
The price of the Retail A, Retail B and Institutional Shares (each, a "class")
is based on net asset value per share. This amount is calculated separately for
each class of shares by dividing the value of all securities and other assets
attributable to the class, less the liabilities attributable to that class, by
the number of outstanding shares of that class. The price at which a purchase
or redemption is effected is based on the next calculation of net asset value
after the order is accepted.
- --------------------------------------------------------------------------------
Money Market Funds
- --------------------------------------------------------------------------------
<PAGE>
The net asset value of the Money Market Funds for purposes of pricing
purchase and redemption orders is determined as of 11:30 a.m. Central Time
(12:30 Central Time for Institutional Money Market Fund) and as of the close of
regular trading hours on the Exchange, normally, 3:00 p.m.
The Company intends to use its best efforts to maintain the net asset value of
each Money Market Fund at $1.00 per share, although there is no assurance that
it will be able to do so.
Central Time, on each day on which both the Exchange is open for trading
and the Federal Reserve Banks' Fedline System is open. Net asset value per
share is calculated by dividing the value of all securities and other assets
owned by each Fund, less the liabilities charged to the Fund, by the number of
the Fund's outstanding shares.
- -----------------------
The Company
intends to use its
best efforts to
maintain the net
asset value of each
Money Market Fund
at $1.00 per share,
although there is no
assurance that it will
be able to do so.
- ------------------------
Net asset value is computed using the amortized cost method as permitted by
SEC rules.
- --------------------------------------------------------------------------------
Non-Money Market Funds
- --------------------------------------------------------------------------------
Net asset value for purposes of pricing purchase and redemption orders is
determined as of the close of regular trading hours on the Exchange, normally,
3:00 p.m. Central Time, on each day the Exchange is open for trading.
The Funds' investments are valued based on market quotations, except that
restricted securities and securities for which market quotations are not readily
available and other assets are valued at fair value by the Adviser under the
supervision of the Board of Directors. Short-term investments having a maturity
of 60 days or less are valued at amortized cost, unless the amortized cost does
not approximate market value.
Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, except when an occurrence subsequent
to the time a value was so established is likely to have changed such value. In
such an event, the fair value of those securities will be determined through the
consideration of other factors by or under the direction of the Board of
Directors. A Fund's foreign securities may trade on weekends or other days when
the Fund does not price its shares. Accordingly, the net asset value per share
of a Fund may change on days when shareowners will not be able to purchase or
redeem the Fund's shares.
Each Fund's securities may be valued based on valuations provided by an
independent pricing service. The Adviser reviews these valuations. If the
Adviser believes that a valuation received from the service does not represent a
fair value, it values the security by a method that the Board of Directors
believes will determine a fair value. Any pricing service used may employ
electronic data processing techniques, including a "matrix" system, to determine
valuations.
Quotations of foreign securities in foreign currency are converted to U.S.
dollar equivalents using the foreign exchange quotation in effect at the time
net asset value is computed. Foreign securities held by the International
Equity Fund may trade in their local markets on days the Fund is closed, and the
Fund's net asset value may, therefore, change on days when investors may not
purchase or redeem Fund shares.
ADDITIONAL PERFORMANCE INFORMATION
<PAGE>
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
1 Year 5 Years 10 Years
FIRMCO'S COLLECTIVE
INVESTMENT "B FUND"
(Retail Shares expenses
and sales charges reflected)
FIRMCO'S COLLECTIVE
INVESTMENT "B FUND"
(Institutional Shares
expenses reflected)
The Special Growth Fund is managed by FIRMCO using substantially the same
investment objective, polices and restrictions as the FIRMCO managed collective
investment fund Special Equity Growth Fund B (the "B Fund"). During the period
prior to August 1997, the Special Growth Fund was managed with an investment
focus which differed from that of the B Fund. At that time, the Special Growth
Fund's prior focus on small- to medium sized companies was shifted to a focus on
companies with a slightly larger minimum capitalization, with a slightly higher
range of anticipated median capitalizations for the Fund. As a result of this
shift, the Special Growth Fund currently focuses on companies meeting the same
capitalization size criteria as those for the B Fund. For this reason, the
performance history of the B Fund is relevant to a shareowner in the Firstar
Special Growth Fund.
The B Fund is not open to the public generally, nor registered under the
Investment Company Act of 1940 (the "1940 Act") or subject to certain
restrictions that are imposed by the 1940 Act and the Internal Revenue Code. If
the B Fund had been registered under the 1940 Act, performance may have been
adversely affected. Performance of the B Fund has been restated to reflect the
Special Growth Fund's current expenses for retail shares and its maximum 4.50%
sales charge. It has also been restated to reflect the Special Growth Fund's
current expenses for institutional shares. Performance quotations of the B Fund
represent past performance of the FIRMCO managed collective fund, which is
separate and distinct from Firstar Special Growth Fund; do not represent past
performance of the Fund; and should not be considered as representative of
future results of the Fund.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
, whose report, along with the Funds' Financial Statements, are
included in the Annual Report which is available upon request. Contact the
Firstar Funds Center for a free copy of the Annual Report or Additional
Statement.
MONEY MARKET FUNDS
NET ASSET DIVIDENDS NET
VALUE, NET FROM NET ASSET
BEGINNING INVESTMENT INVESTMENT VALUE END
OF PERIOD INCOME INCOME OF PERIOD
--------- ------ ------ ---------
MONEY MARKET FUND
Year Ended 1994
<PAGE>
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
INSTITUTIONAL
MONEY MARKET FUND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
U.S. TREASURY
MONEY MARKET FUND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
U.S. GOVERNMENT
MONEY MARKET FUND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
TAX-EXEMPT
MONEY MARKET FUND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
<PAGE>
SUPPLEMENTAL DATA AND RATIOS
----------------------------
RATIO OF NET
NET ASSETS RATIO OF INVESTMENT
END NET EXPENSES INCOME TO
OF PERIOD TO AVERAGE AVERAGE TOTAL
(000S) NET ASSETS NET ASSETS RETURN
----- ---------- ---------- -------
MONEY MARKET FUND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
INSTITUTIONAL
MONEY MARKET FUND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
U.S. TREASURY
MONEY MARKET FUND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
U.S. GOVERNMENT
MONEY MARKET FUND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
<PAGE>
TAX-EXEMPT
MONEY MARKET FUND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
RETAIL A SHARES BOND FUNDS
INCOME FROM INVESTMENT OPERATIONS
----------------------------
NET REALIZED AND
NET ASSETS UNREALIZED TOTAL
END NET GAINS OR FROM
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT
OF PERIOD INCOME<F1> SECURITIES OPERATIONS
----- ---------- ---------- -------
SHORT-TERM BOND MARKET
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
<PAGE>
Year Ended 1998
INTERMEDIATE BOND MARKET
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
TAX-EXEMPT
INTERMEDIATE BOND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
BOND IMMDEX/TM
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
LESS DISTRIBUTIONS
----------------------------------
DIVIDENDS DISTRIBUTIONS NET ASSET
FROM NET FROM VALUE
INVESTMENT CAPITAL TOTAL END OF
INCOME GAINS DISTRIBUTIONS PERIOD
----- ---------- ---------- -------
SHORT-TERM BOND MARKET
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
<PAGE>
Year Ended 1998
INTERMEDIATE BOND MARKET
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
TAX-EXEMPT
INTERMEDIATE BOND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
BOND IMMDEX/TM
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
<PAGE>
SUPPLEMENTAL DATA AND RATIOS
----------------------------------
NET RATIO OF NET RATIO OF NET
ASSETS, EXPENSES INVESTMENT
TOTAL END OF TO INCOME TO PORTFOLIO
RETURN PERIOD AVERAGE AVERAGE TURNOVER
<F2> (000S) NET ASSETS NET ASSETS RATE
----- ---------- ---------- ---------- -------
SHORT-TERM BOND MARKET
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
INTERMEDIATE BOND MARKET
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
TAX-EXEMPT
INTERMEDIATE BOND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
BOND IMMDEX/TM
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
<PAGE>
INSTITUTIONAL BOND FUNDS
INCOME FROM INVESTMENT OPERATIONS
----------------------------
NET REALIZED AND
NET ASSETS UNREALIZED TOTAL
END NET GAINS OR FROM
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT
OF PERIOD INCOME<F1> SECURITIES OPERATIONS
----- ---------- ---------- -------
SHORT-TERM BOND MARKET
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
INTERMEDIATE BOND MARKET
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
TAX-EXEMPT
INTERMEDIATE BOND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
BOND IMMDEX/TM
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
<PAGE>
LESS DISTRIBUTIONS
----------------------------------
DIVIDENDS DISTRIBUTIONS NET ASSET
FROM NET FROM VALUE
INVESTMENT CAPITAL TOTAL END OF
INCOME GAINS DISTRIBUTIONS PERIOD
----- ---------- ---------- -------
SHORT-TERM BOND MARKET
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
INTERMEDIATE BOND MARKET
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
TAX-EXEMPT
INTERMEDIATE BOND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
BOND IMMDEX/TM
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
<PAGE>
SUPPLEMENTAL DATA AND RATIOS
----------------------------------
NET RATIO OF NET RATIO OF NET
ASSETS, EXPENSES INVESTMENT
END OF TO INCOME TO PORTFOLIO
TOTAL PERIOD AVERAGE AVERAGE TURNOVER
RETURN (000S) NET ASSETS NET ASSETS RATE
------ ---------- ---------- ---------- -------
SHORT-TERM BOND MARKET
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
INTERMEDIATE BOND MARKET
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
TAX-EXEMPT
INTERMEDIATE BOND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
BOND IMMDEX/TM
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
<PAGE>
RETAIL A SHARE EQUITY FUNDS
INCOME FROM INVESTMENT OPERATIONS
----------------------------
NET REALIZED AND
NET ASSETS UNREALIZED TOTAL
END NET GAINS OR FROM
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT
OF PERIOD INCOME SECURITIES OPERATIONS
----- ---------- ---------- -------
BALANCED INCOME
Dec. 1, 1997 <F1>
through October
31, 1998
BALANCED GROWTH
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
GROWTH AND INCOME
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
EQUITY INDEX
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
GROWTH
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
SPECIAL GROWTH
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
EMERGING GROWTH
Aug. 15, 1997 <F1>
through Oct. 31
1997
Year Ended 1998
MICROCAP
Aug. 1, 1995 <F1>
through June 30,
1996
July 1, 1996
through Oct. 31,
1996
Year Ended 1997
Year Ended 1998
<PAGE>
INTERNATIONAL EQUITY [FN]
Apr. 28, 1994 <F1>
through Oct. 31,
1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
LESS DISTRIBUTIONS
----------------------------------
DIVIDENDS DISTRIBUTIONS NET ASSET
FROM NET FROM VALUE
INVESTMENT CAPITAL TOTAL END OF
INCOME GAINS DISTRIBUTIONS PERIOD
----- ---------- ---------- -------
BALANCED INCOME
Dec. 1, 1997 <F1> $ $ $ $
through October
31, 1998
BALANCED GROWTH
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
GROWTH AND INCOME
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
EQUITY INDEX
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
GROWTH
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
SPECIAL GROWTH
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
EMERGING GROWTH
Aug. 15, 1997 <F1>
through Oct. 31
1997
Year Ended 1998
<PAGE>
MICROCAP
Aug. 1, 1995 <F1>
through June 30,
1996
July 1, 1996
through Oct. 31,
1996
Year Ended 1997
Year Ended 1998
INTERNATIONAL EQUITY [FN]
Apr. 28, 1994 <F1>
through Oct. 31,
1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
SUPPLEMENTAL DATA AND RATIOS
----------------------------------
RATIO OF NET RATIO OF NET
NET EXPENSES INVESTMENT
ASSETS, TO INCOME TO
TOTAL END OF AVERAGE AVERAGE PORTFOLIO
RETURN PERIOD NET ASSETS NET ASSETS TURNOVER
<F2> (000S) <F3> <F3> RATE
----- ---------- ---------- ---------- -------
BALANCED INCOME
Dec. 1, 1997 <F1>
through October
31, 1998
BALANCED GROWTH
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
GROWTH AND INCOME
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
EQUITY INDEX
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
GROWTH
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
<PAGE>
SPECIAL GROWTH
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
EMERGING GROWTH
Aug. 15, 1997 <F1>
through Oct. 31
1997
Year Ended 1998
MICROCAP
Aug. 1, 1995 <F1>
through June 30,
1996
July 1, 1996
through Oct. 31,
1996
Year Ended 1997
Year Ended 1998
INTERNATIONAL EQUITY [FN]
Apr. 28, 1994 <F1>
through Oct. 31,
1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
INSTITUTIONAL EQUITY FUNDS
INCOME FROM INVESTMENT OPERATIONS
----------------------------
NET REALIZED AND
NET ASSETS UNREALIZED TOTAL
END NET GAINS OR FROM
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT
OF PERIOD INCOME SECURITIES OPERATIONS
----- ---------- ---------- -------
BALANCED INCOME
Dec. 1, 1997 <F1>
through October
31, 1998 $ $ $ $
BALANCED GROWTH
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
GROWTH AND INCOME
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
EQUITY INDEX
Year Ended 1994
<PAGE>
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
GROWTH
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
SPECIAL GROWTH
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
EMERGING GROWTH
Aug. 15, 1997 <F1>
through Oct. 31
1997
Year Ended 1998
<PAGE>
MICROCAP
Aug. 1, 1995 <F1>
through June 30,
1996
July 1, 1996
through Oct. 31,
1996
Year Ended 1997
Year Ended 1998
INTERNATIONAL EQUITY [FN]
Apr. 28, 1994 <F1>
through Oct. 31,
1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
LESS DISTRIBUTIONS
----------------------------------
DIVIDENDS DISTRIBUTIONS NET ASSET
FROM NET FROM VALUE
INVESTMENT CAPITAL TOTAL END OF
INCOME GAINS DISTRIBUTIONS PERIOD
----- ---------- ---------- -------
BALANCED INCOME
Dec. 1, 1997 <F1>
through October $ $ $ $
31, 1998
BALANCED GROWTH
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
GROWTH AND INCOME
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
EQUITY INDEX
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
GROWTH
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
<PAGE>
SPECIAL GROWTH
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
EMERGING GROWTH
Aug. 15, 1997 <F1>
through Oct. 31
1997
Year Ended 1998
MICROCAP
Aug. 1, 1995 <F1>
through June 30,
1996
July 1, 1996
through Oct. 31,
1996
Year Ended 1997
Year Ended 1998
INTERNATIONAL EQUITY [FN]
Apr. 28, 1994 <F1>
through Oct. 31,
1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
SUPPLEMENTAL DATA AND RATIOS
----------------------------------
RATIO OF NET RATIO OF NET
NET EXPENSES INVESTMENT
ASSETS, TO INCOME TO
TOTAL END OF AVERAGE AVERAGE PORTFOLIO
RETURN PERIOD NET ASSETS NET ASSETS TURNOVER
<F2> (000S) <F3> <F3> RATE
----- ---------- ---------- ---------- -------
BALANCED INCOME
Dec. 1, 1997 <F1>
through October
31, 1998
BALANCED GROWTH
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
GROWTH AND INCOME
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
EQUITY INDEX
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
<PAGE>
GROWTH
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
SPECIAL GROWTH
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
EMERGING GROWTH
Aug. 15, 1997 <F1>
through Oct. 31
1997
Year Ended 1998
MICROCAP
Aug. 1, 1995 <F1>
through June 30,
1996
July 1, 1996
through Oct. 31,
1996
Year Ended 1997
Year Ended 1998
INTERNATIONAL EQUITY [FN]
Apr. 28, 1994 <F1>
through Oct. 31,
1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
[FN] Effective September 2, 1997, Hansberger Global Investors assumed the
investment sub-advisory responsibilities of State Street Global Advisor
Advisers.
- ---------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' AADDITIONAL
SSTATEMENT INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUNDS OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
"Standard & Poor's(R)", S&PR", "S&P 500(R)", "Standard & Poor's 500",. And
"500" are trademarks of The McGraw Hill Companies, Inc. and have been licensed
for use by Firstar Funds. The Equity Index Fund is not sponsored, endorsed,
sold or promoted by Standard & Poor's and Standard & Poor's makes no
representation regarding the advisability of investing in the Equity Index
Fund.
The Lehman Brothers 1-3 Year Government/Corporate Bond Index, the Lehman
Brothers Intermediate Government/Corporate Bond Index and the Lehman Brothers
Government/Corporate Bond Index are trademarks of Lehman Brothers. The Fund,
its Adviser and the Co-Administrators are not affiliated in any way with Lehman
Brothers. Inclusion of a security in the bond index in no way implies an
opinion by Lehman Brothers as to its attractiveness or appropriateness as an
investment. Lehman Brothers' publication of the
<PAGE>
bond index is not made in connection with any sale or offer for sale of
securities or any solicitations of orders for the purchase of securities.
FOR MORE INFORMATION
ANNUAL/SEMIANNUAL REPORTS
Additional information about the Funds' investments is available in the Funds'
annual and semiannual reports to shareowners. In the Funds' annual reports, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Funds' performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION
Additional information about the Funds and their policies is also available in
the Funds' Statement of Additional Information ("Additional Statement"). The
Additional Statement is incorporated by reference into this Prospectus (and is
legally considered part of this Prospectus).
The Funds' annual and semiannual reports and the Additional Statement are
available free upon request by calling Firstar Funds at 1-800-228-1024 or 1-414-
287-3808.
To obtain other information and for shareowner inquiries:
By telephone - call 1-800-228-1024 or 1-414-287-3808
By mail - Firstar Funds, 615 East Michigan Street
P.O. Box 3011
Milwaukee, Wisconsin 53201-3011
By e-mail - [email protected]
On the Internet - Text only version of the Funds' documents are located online
and may be downloaded from: SEC - http://www.sec.gov
You may review and obtain copies of Fund documents by visiting the SEC's Public
Reference Room in Washington, D.C. You may also obtain copies of Fund documents
by sending your request and a duplicating fee to the SEC's Public Reference
Section, Washington, D.C. 20549-6009. Information on the operation of the
public reference room may be obtained by calling the SEC at 1-800-SEC-0330.
<PAGE>
The Fund's Investment Company Act File Number is 811-5380
xxxxx
FIRSTAR FUNDS/R
MARCH 1, 1999
CONTENTS
Page
----
THE FUNDS
MONEY MARKET FUND
U.S. TREASURY MONEY MARKET FUND
U.S. GOVERNMENT FUND
TAX-EXEMPT MONEY MARKET FUND
- -------------------------
Learn about
each Fund's
Objective,
Principal
Investment
Strategies,
Principal
Risks,
Performance
and Expenses.
- --------------------------
ADDITIONAL FUND INFORMATION
Types of Investment Risk
INVESTING WITH FIRSTAR FUNDS
Purchase of Shares
Buying Shares
Redemption of Shares
Exchanges of Shares
Additional Shareowner Services
ADDITIONAL INFORMATION
Dividends, Capital Gains Distributions and Taxes
Management of the Funds
Net Asset Value and Days of Operation
APPENDIX
Financial Highlights
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
An investment in the Funds is not a deposit of Firstar Bank and is not insured
by the Federal Deposit Insurance Corporation, or any other government agency.
An investment in a Fund involves investment risks, including possible loss of
principal. Although each Money Market Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Fund.
MONEY MARKET FUND
OBJECTIVE
The investment objective of the Money Market Fund is to provide a
high level of taxable current income consistent with liquidity, the preservation
of capital and a stable net asset value.
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests principally in short-term money market debt
obligations, including:
-- commercial paper
-- asset-backed commercial paper
-- bonds issued by U.S. or foreign corporate issuers
-- obligations of U.S. or foreign banks and savings institutions
-- variable and floating rate instruments (instruments with an
interest rate that is adjusted either on a schedule or when an index
or benchmark changes)
-- obligations issued or guaranteed by the U.S. government or an
agency or instrumentality thereof
-- short-term funding agreements (contracts between an issuer and
purchaser that obligate the issuer to pay a guaranteed rate of
interest)
-- shares of other investment companies; and
-- debt obligations issued or guaranteed by foreign governments or
their agencies, instrumentalities or political subdivisions
("sovereign debt")
The Fund will acquire only securities which are rated in the highest
short-term rating category by at least two rating agencies (or by the only
rating agency providing a rating), or are issued or guaranteed by, or otherwise
provide the right to demand payment from, entities with those ratings. If the
securities are unrated, they must be of comparable quality, as determined at the
time of acquisition.
The Fund maintains an average maturity of 90 days or less.
PRINCIPAL RISKS
The investment risks below are described in more detail under the
heading "Types of Investment Risk." Some additional risks which apply to the
Fund are also described under that heading.
The rate of income on Fund shares will vary from day to day so that
the dividends on your investment will vary. The Fund is subject to credit risk
and interest rate risk.
PAST PERFORMANCE
The bar chart and table below provide an indication of the risks of investing in
the Fund by showing: (a) changes in the performance of the Fund's shares from
year to year; and (b) how the average annual returns of the Fund's shares
compare to those of a composite of similarly managed funds. The bar charts and
performance tables assume reinvestment of dividends and distributions.
Remember, past performance is not necessarily indicative of future results.
Performance reflects fee waivers in effect. If fee waivers were not in place,
the Fund's performance would be reduced.
<PAGE>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
89 8.98
90 8.05
91 5.87
92 3.42
93 2.66
94 3.73
95 5.54
96 5.00
97 5.14
98
BEST QUARTER: Q `9
WORST QUARTER: Q `9
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
---------------------------------------------
1 Year 5 Years 10 Years
MONEY MARKET FUND
IBC ALL TAXABLE MONEY
MARKET FUND AVERAGE
The IBC All Taxable Money Market Fund Average is an average of professionally
managed money market investment funds with similar objectives compiled by IBC's
Money Fund Report. You can use that information to help you compare the Fund's
performance with the returns of an index of funds with similar investment
objectives.
The 7-day yield for the period ended on 12/31/98 for the Money Market Fund was
___ and without giving effect to fee waivers was __. Figures reflect past
performance. Yields will vary. You may call 1-800-228-1024 to obtain the
current 7-day yield of the Money Market Fund.
<PAGE>
EXPENSES
- --------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Money Market Fund.
SHAREOWNER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None
Redemption Fees None<F1>
Exchange Fees None
- -----------------------------------------------------------------------------
<F1> A fee of $12.00 is charged for each wire redemption and $15.00 for each
non-systematic withdrawal from a Retirement Account which Firstar Bank,
Milwaukee, N.A. is custodian.
<TABLE>
<CAPTION>
Management Distribution Shareowner Other Total Fund
Fees<F2> and Service Servicing Fees Expenses Operating
Fees<F3> Expenses<F4>
<C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund Assets)
Money Market Fund 0.50% 0.03% 0.00% 0.35% 0.88%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<F2> The Adviser has voluntarily agreed that a portion of its management fee
will not be imposed on the Money Market Fund during the current fiscal
year. As a result of the fee waiver, current management fees of the Money
Market Fund are 0.37% of the Fund's average daily net assets. This
waiver is expected to remain in effect for the current fiscal year.
However, it is voluntary and can be modified or terminated at any time
without the Fund's consent.
<F3> The total of all 12b-1 fees and shareowner servicing fees may not exceed,
in the aggregate, the annual rate of 0.25% of a Fund's average daily net
assets for the shares. The Money Market Fund intends to pay 12b-1 fees
with respect to the Retail shares for the current fiscal year.
<F4> As a result of the fee waivers set forth in note 2 the Total Fund
Operating Expenses of the Money Market Fund which are estimated to be
incurred are 0.78%. Although the fee waiver is expected to remain in
effect for the current fiscal year, this waiver is voluntary and may be
terminated at any time at the option of the Adviser.
EXPENSE EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund (without the fee waivers) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
------- -------- ------- ----------
Money Market Fund $8 $24 $42 $93
In addition to the compensation itemized above, Shareowner Organizations may
charge fees for providing services in connection with their clients' investments
in the Fund's shares.
<PAGE>
U.S. TREASURY MONEY MARKET FUND AND U.S. GOVERNMENT MONEY MARKET FUND
OBJECTIVES
The investment objective of the U.S. Treasury Money Market Fund is
to provide a high level of current income exempt from state income taxes
consistent with liquidity, the preservation of capital and a stable net asset
value.
The investment objective of the U.S. Government Money Market Fund is
to provide a high level of taxable current income consistent with liquidity, the
preservation of capital and a stable net asset value (irrespective of state
income tax considerations).
PRINCIPAL INVESTMENT STRATEGIES
The U.S. Treasury Money Market Fund invests in short term debt
obligations issued or guaranteed as to principal and interest by the U.S.
Treasury. The Fund may temporarily hold cash during extraordinary circumstances
such as when U.S. Treasury securities are unavailable.
The U.S. Government Money Market Fund invests in short term debt
obligations issued or guaranteed as to principal and interest by the U.S.
government, its agencies or instrumentalities. Under normal market conditions,
the Fund intends to invest at least 65% of its total assets in these
obligations. The Fund also invests in variable and floating rate instruments.
Each Fund maintains an average maturity of 90 days or less.
PRINCIPAL RISKS
The investment risks below are described in more detail under the
heading "Types of Investment Risk." Some additional risks which apply to the
Funds are also described under that heading.
- ------------------------------------
Even though the U.S. Treasury
Money Market Fund and U.S.
Government Money Market
Fund purchase mostly U.S.
government obligations, the
shares of the Funds are not
themselves issued or
guaranteed by any government
agency.
- ------------------------------------
The rate of income on Fund shares will vary from day to day so that
the dividends on your investment will vary. The Funds are subject to credit
risk and interest rate risk.
For the U.S. Government Money Market Fund, there can be no assurance
that the U.S. government will provide financial support to U.S. government-
sponsored agencies or instrumentalities where it is not obligated to do so by
law.
The U.S. Treasury Money Market Fund is also subject to tax risk.
<PAGE>
PAST PERFORMANCE
The bar chart and table below provide an indication of the risks of investing in
a Fund by showing: (a) changes in the performance of a Fund's shares from year
to year; and (b) how the average annual returns of a Fund's shares compare to
those of a composite of similarly managed funds. The bar charts and performance
tables assume reinvestment of dividends and distributions. Remember, past
performance is not necessarily indicative of future results. Performance
reflects fee waivers in effect. If fee waivers were not in place, a Fund's
performance would be reduced.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
U.S. GOVERNMENT U.S. TREASURY
MONEY MARKET MONEY MARKET
-------------- -------------
89 8.70
90 7.71
91 5.56
92 3.30 3.19
93 2.59 2.55
94 3.76 3.57
95 5.39 5.21
96 4.92 4.76
97 4.97 4.78
98
U.S. TREASURY U.S. GOVERNMENT
MONEY MARKET MONEY MARKET
-------------- -------------
61
BEST QUARTER: Q `9 Q `9
WORST QUARTER: Q `9 Q `9
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
- ------------------------------------------------------------------------------
1 Year 5 Years 10 Years Since inception
(inception date)
U.S. TREASURY MONEY MARKET FUND
IBC MONEY MARKET FUND AVERAGE/
100% U.S. TREASURY
U.S. GOVERNMENT
MONEY MARKET FUND --
IBC MONEY MARKET FUND AVERAGE/
GOVERNMENT --
The IBC Money Market Fund Average 100% U.S. Treasury and the IBC Money Market
Fund Average Government are averages of professionally managed money market
investment funds with similar objectives compiled by IBC's Money Fund Report.
You can use that information to help you compare the Fund's performance with the
returns of an index of funds with similar investment objectives.
The 7-day yield for the period ended on 12/31/98 for the U.S. Treasury Money
Market Fund and the U.S. Government Money Market Fund was ___ and ___
respectively and without giving effect to fee waivers was ___and ___
respectively. Figures reflect past performance. Yields will vary. You may call
1-800-228-1024 to obtain the current 7-day yield of the U.S.Treasury Money
Market Fund and the U.S. Government Money Market Fund.
EXPENSES
- --------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the U.S. Treasury Money Market Fund and U.S. Government Money Market
Fund.
<PAGE>
SHAREOWNER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None
Redemption Fees None<F1>
Exchange Fees None
- -----------------------------------------------------------------------------
<F1> A fee of $12.00 is charged for each wire redemption and $15.00 for each
non-systematic withdrawal from a Retirement Account which Firstar Bank,
Milwaukee, N.A. is custodian.
<TABLE>
<CAPTION>
Management Distribution Shareowner Other Total Fund
Fees<F2> and Service Servicing Fees Expenses Operating
Fees<F3> Expenses<F4>
<C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund Assets)
U.S. Treasury Money Market Fund 0.50% 0.00% 0.00% 0.26% 0.76%
U.S. Government Money Market Fund 0.50% 0.00% 0.00% 0.22% 0.72%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<F2> The Adviser has voluntarily agreed that a portion of its management fee
will not be imposed on the U.S. Treasury Money Market Fund during the
current fiscal year. As a result of the fee waiver, current management
fees of the U.S. Treasury Money Market Fund are 0.49% of the Fund's average
daily net assets. These waivers are expected to remain in effect for the
current fiscal year. However, they are voluntary and can be modified or
terminated at any time without the Fund's consent.
<F3> The total of all 12b-1 fees and shareowner servicing fees may not exceed,
in the aggregate, the annual rate of 0.25% of a Fund's average daily net
assets for the shares. The Funds do not intend to pay 12b-1 fees with
respect to the shares for the current fiscal year.
<F4> As a result of the fee waivers set forth in note 2, the Total Fund
Operating Expenses of the U.S. Treasury Money Market Fund are estimated to
be 0.75%. Although the fee waiver is expected to remain in effect for the
current fiscal year, the waiver is voluntary and may be terminated at any
time at the option of the Adviser.
EXPENSE EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund (without the fee waivers) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
------- ------- ------- --------
U.S. Treasury Money Market Fund $8 $24 $42 $93
U.S. Government Money Market Fund $7 $23 $40 $89
In addition to the compensation itemized above, Shareowner Organizations
may charge fees for providing services in connection with their clients'
investments in the Fund's shares.
<PAGE>
TAX-EXEMPT MONEY MARKET FUND
OBJECTIVE
The investment objective of the Tax-Exempt Money Market Fund is to
provide a high level of current income exempt from federal income taxes
consistent with liquidity, the preservation of capital and a stable net asset
value.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests principally in a diversified portfolio of debt
obligations ("Municipal Obligations") issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia and
their authorities, agencies, instrumentalities and political subdivisions. The
Fund will acquire only securities which are rated in the highest short-term
rating category by at least two rating agencies (or by the only rating agency
providing a rating), or are issued or guaranteed by, or otherwise provide the
right to demand payment from, entities with those ratings. If the security is
unrated, it must be of comparable quality to securities with those ratings, as
determined at the time of acquisition. During normal market conditions, the
Fund will invest at least 80% of its assets in Municipal Obligations with
remaining maturities of 13 months or less. (Securities which are subject to
demand features and certain U.S. government obligations may have longer
maturities). The Fund maintains an average portfolio maturity of 90 days or
less.
The two principal classifications of Municipal Obligations which
the Tax-Exempt Money Market Fund invests in are:
<TABLE>
<CAPTION>
GENERAL OBLIGATION SECURITIES REVENUE SECURITIES
<C> <C>
General Obligation securities are secured by Revenue securities are payable only from
the issuer's pledge of its full faith, credit and the revenues derived from a particular facility or
taxing power for the payment of principal and class of facilities or, in some cases, from the
interest. proceeds of a special excise tax or other
specific revenue source such as the issuer of
the facility being financed.
</TABLE>
Municipal Obligations purchased by the Fund may include variable and
floating rate instruments which are instruments with interest rates that are
adjusted either on a schedule or when an index or benchmark changes. While
there may be no active secondary market with respect to a particular variable or
floating rate demand instrument, the Fund may demand payment in full of the
principal and interest.
<PAGE>
PRINCIPAL RISKS
The investment risks below are described in more detail under the
heading "Types of Investment Risk." Some additional risks which apply to the
Fund are also described under that heading.
The rate of income on Fund shares will vary from day to day so that
the dividends on your investment will vary. The Fund is subject to credit
risk, interest rate risk and tax risk.
Municipal Obligations which the Fund purchases may be backed by
letters of credit issued by banks and other financial institutions. Adverse
developments affecting banks could have a negative effect on the Fund's
portfolio securities.
The Fund may invest more than 25% of its total assets in Municipal
Obligations issued by entities located in the same state and the interest on
which is paid solely from revenues of similar projects. As a result, changes
in economic, business or political conditions relating to a particular state or
types of projects may have a disproportionate impact on the Fund's share price.
The Fund may acquire municipal lease obligations which are issued
by a state or local government or authority to acquire land and a wide variety
of equipment and facilities. If the funds are not appropriated for the
following year's lease payments, the lease may terminate, with the possibility
of default on the lease obligation and significant loss to the Fund.
The Fund may invest in obligations backed by foreign banks which
are subject to foreign risk.
The Fund may from time to time invest in taxable instruments.
PAST PERFORMANCE
The bar chart and table below provide an indication of the risks of investing in
a Fund by showing: (a) changes in the performance of a Fund's shares from year
to year; and (b) how the average annual returns of a Fund's shares compare to
those of a composite of similarly managed funds. The bar charts and performance
tables assume reinvestment of dividends and distributions. Remember, past
performance is not necessarily indicative of future results. Performance
reflects fee waivers in effect. If fee waivers were not in place, a Fund's
performance would be reduced.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
89 6.00
90 5.48
91 4.24
92 2.64
93 2.06
94 2.49
95 3.44
96 3.06
97 3.13
98
<PAGE>
BEST QUARTER: Q `9
WORST QUARTER: Q `9
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/98
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years Since inception
(inception date)
TAX-EXEMPT MONEY MARKET FUND
IBC MONEY FUND AVERAGE/
ALL TAX-FREE
The IBC Money Fund Average All Tax-Free is an average of professionally managed
money market investment funds with similar objectives compiled by IBC's Money
Fund Report. You can use that information to help you compare the Fund's
performance with the returns of an index of funds with similar investment
objectives.
The 7-day yield for the period ended on 12/31/98 for the Tax-Exempt Money Market
Fund was ___% and without giving effect to fee waivers was ___%. Figures reflect
past performance. Yields will vary. You may call 1-800-228-1024 to obtain the
current 7-day yield of the Tax-Exempt Money Market Fund.
EXPENSES
- ---------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Tax-Exempt Money Market Fund.
SHAREOWNER FEES (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None
Redemption Fees None<F1>
Exchange Fees None
- -----------------------------------------------------------------------------
<F1> A fee of $12.00 is charged for each wire redemption.
<TABLE>
<CAPTION>
Management Distribution Shareowner Other Total Fund
Fees<F2> and Service Servicing Fees Expenses Operating
Fees<F3> Expenses<F4>
<C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund Assets)
Tax-Exempt Money Market Fund 0.50% 0.00% 0.00% 0.27% 0.77%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<F2> The Adviser has voluntarily agreed that a portion of its management fee
will not be imposed on the Tax-Exempt Money Market Fund during the current
fiscal year. As a result of the fee waiver, current management fees of the
Fund are 0.48% of the Fund's average daily net assets. These waivers are
expected to remain in effect for the current fiscal year. However, they
are voluntary and can be modified or terminated at any time without the
Fund's consent.
<F3> The total of all 12b-1 fees and shareowner servicing fees may not exceed,
in the aggregate, the annual rate of 0.25% of the Fund's average daily net
assets for the shares. The Fund does not intend to pay 12b-1 fees with
respect to the shares for the current fiscal year.
<F4> As a result of the fee waiver set forth in note 2, the Total Fund Operating
Expenses of the Fund which are estimated to be incurred are 0.75%.
Although the fee waivers are expected to remain in effect for the current
fiscal year, these waivers are voluntary and may be terminated at any time
at the option of the Adviser.
<PAGE>
EXPENSE EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund (without the fee waivers) with the cost of investing in other mutual
funds. The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 Year 3 Years 5 Years 10 Years
------- ------- ------- ---------
Tax-Exempt Money Market Fund $8 $24 $42 $93
In addition to the compensation itemized above, Shareowner Organizations may
charge fees for providing services in connection with their clients' investments
in the Fund's shares.
TYPES OF INVESTMENT RISK
The risks of investing in each Fund are also described above in this
Prospectus. The following list provides more detail about some of those risks,
along with information on additional types of risks, which may apply, to the
Funds. Risks of particular types of investments each Fund makes are also
described in this section and in the Additional Statement referred to on the
back page.
GENERAL RISKS OF INVESTING IN EACH OF THE FUNDS
- --------------------------------------------------------------------------------
Complete Investment Program - All Funds
- --------------------------------------------------------------------------------
An investment in a single Fund, by itself, does not constitute a complete
investment plan.
- --------------------------------------------------------------------------------
Credit Risk - All Funds
- --------------------------------------------------------------------------------
An issuer of fixed-income securities may default on its obligation to pay
interest and repay principal. Also, changes in the financial strength of an
issuer or changes in the credit rating of a security may affect its value.
Credit risk includes "counterparty risk"-- the risk that the other party to a
transaction will not fulfill its contractual obligation. This risk applies, for
example, to repurchase agreements which each Fund may enter.
Securities rated below investment grade are particularly subject to credit risk.
These securities are predominantly speculative and are commonly referred to as
"junk bonds." To the extent a Fund purchases or holds convertible or other
securities that are below investment grade a greater risk exists as to the
timely repayment of the principal of, and the timely payment of interest or
dividends on, such securities.
- --------------------------------------------------------------------------------
Derivatives Risk - All Funds
- --------------------------------------------------------------------------------
The term "derivative" covers a wide number of investments, but in general it
refers to any financial instrument whose value is derived, at least in part,
from the price of another security or a specified index, asset or rate. Some
derivatives may be more sensitive to interest rate changes or market moves, and
some may be susceptible to changes in yields or values due to their structure or
contract terms. Loss may result from a Fund's investments in structured
securities and other derivative instruments. A Fund may use derivatives to:
increase yield; hedge against a
<PAGE>
decline in principal value; invest with greater efficiency and lower cost than
is possible through direct investment; adjust the Fund's duration; or provide
daily liquidity.
Hedging is the use of one investment to offset the effects of another
investment. To the extent that a derivative is used as a hedge against an
opposite position that the Fund also holds, a loss generated by the derivative
should be substantially offset by gains on the hedged investment, and vice
versa. While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains. Hedging also involves correlation risk _ the risk that changes
in the value of a hedging instrument may not match those of the asset being
hedged
To the extent that a derivative is not used as a hedge, the Fund is directly
exposed to the risks of that derivative. Gains or losses from speculative
positions in a derivative may be substantially greater than the derivative's
original cost.
- --------------------------------------------------------------------------------
Extension Risk - All Funds
- --------------------------------------------------------------------------------
This is the risk that an issuer will exercise its right to pay principal on an
obligation held by a Fund (such as a mortgage- or asset-backed security) later
than expected. This may happen when there is a rise in interest rates. These
events may lengthen the duration and potentially reduce the value of these
securities.
- --------------------------------------------------------------------------------
Interest Rate Risk - All Funds
- --------------------------------------------------------------------------------
When interest rates increase, fixed-income securities tend to decline in value
and when interest rates decrease, fixed-income securities tend to increase in
value. A change in interest rates could cause the value of your investment to
change. Fixed income securities with longer maturities are more susceptible to
interest rate fluctuations than those with shorter maturities. Changes in
interest rates may also extend or shorten the duration of certain types of
instruments, such as asset-backed securities, thereby affecting their value and
the return on your investment.
- --------------------------------------------------------------------------------
Liquidity Risk - All Funds
- --------------------------------------------------------------------------------
Certain securities may be difficult or impossible to sell at the time and the
price that the Fund would like. A Fund may have to lower the price, sell other
securities instead or forego an investment opportunity, any of which could have
a negative effect on fund management or performance. This risk applies, for
example, to: variable and floating rate demand notes, variable amount demand
securities and restricted securities which the Funds may purchase and short-term
funding agreements which the Money Market Fund may purchase. Illiquid
securities also include repurchase agreements and time deposits with
notice/termination dates of greater than seven days and other securities that
are traded in the U.S. but are subject to trading restrictions because they are
not registered under the Securities Act of 1933. There may be no active
secondary market for these securities. Each Fund may invest up to 10% of its net
assets in securities that are illiquid. A domestically traded security which is
not registered under the Securities Act of 1933 will not be considered illiquid
if the Adviser determines that an adequate investment trading market exists for
that security. Because illiquid and restricted securities may be difficult to
sell at an acceptable price, they may be subject to greater volatility and may
result in a loss to a Fund.
- --------------------------------------------------------------------------------
Loss of Money - All Funds
- --------------------------------------------------------------------------------
An investment in the Funds is not a deposit of Firstar Bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. An investment in a Fund involves risk, including the risk of
losing money. Although the Money Market Funds
<PAGE>
attempt to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Money Market Funds.
- --------------------------------------------------------------------------------
Management Risk - All Funds
- --------------------------------------------------------------------------------
A strategy which the Adviser uses may fail to produce the intended results. The
particular securities and types of securities a Fund holds may under perform
other securities and types of securities. There can be no assurance that a Fund
will achieve its investment objective. Certain policies of each Fund which may
not be changed without a shareowner vote are described in the Additional
Statement.
- --------------------------------------------------------------------------------
Market Risk - All Funds
- --------------------------------------------------------------------------------
The value of the securities in which a Fund invests may go up or down in
response to the prospects of individual companies and/or general economic
conditions. Price changes may be temporary or last for extended periods.
- --------------------------------------------------------------------------------
Other Types of Investments - All Funds
- --------------------------------------------------------------------------------
This Prospectus describes each Fund's principal investment strategies, and the
types of securities in which each Fund principally invests. Each Fund may, from
time to time, make other types of investments and pursue other investment
strategies in support of its overall investment goal. These supplemental
investment strategies _ and the risk involved - are described in detail in the
Additional Statement, which is referred to on the back cover of this Prospectus.
- --------------------------------------------------------------------------------
Portfolio Turnover Risk - All Funds
- --------------------------------------------------------------------------------
The Adviser will not consider the portfolio turnover rate a limiting factor in
making investment decisions for a Fund. A high rate of portfolio turnover (100%
or more) involves correspondingly greater expenses which must be borne by a Fund
and its shareowners. It may also result in higher short-term capital gains that
are taxable to shareowners. The Funds may have high portfolio turnover, but
brokerage commissions are not normally paid on Money Market instruments.
Portfolio turnover is not expected to have a material effect on the Funds' net
investment income.
- --------------------------------------------------------------------------------
Prepayment Risk - All Funds
- --------------------------------------------------------------------------------
This is the risk that an issuer will exercise its right to pay principal on an
obligation held by a Fund (such as a mortgage- or asset-backed security) earlier
than expected. This may happen when there is a decline in interest rates.
These events may make a Fund unable to recoup its initial investment and may
result in reduced yields.
- --------------------------------------------------------------------------------
Temporary Investment Risk - All Funds
- --------------------------------------------------------------------------------
Each of the Funds may, for temporary defensive purposes, invest a certain
percentage of its total assets in cash or various short-term instruments. In
particular, the U.S. Treasury Money Market Fund may temporarily hold cash; the
Tax-Exempt Money Market Fund may from time to time hold uninvested cash reserves
or invest in short-term taxable money market obligations (taxable obligations
purchased by the Fund normally will not exceed 20% of total assets at the time
of purchase). When a Fund's assets are invested in these instruments, the Fund
may not be achieving its investment objective.
- --------------------------------------------------------------------------------
Valuation Risk - All Funds
- --------------------------------------------------------------------------------
This is the risk that a Fund has valued certain securities at a higher or lower
price than the Fund can sell them.
<PAGE>
- --------------------------------------------------------------------------------
Year 2000 Risk - All Funds
- --------------------------------------------------------------------------------
Like other investment companies and financial service providers, each Fund could
be adversely affected if the computer systems used by its investment adviser and
the Funds' other service providers do not properly process and calculate date-
related information and data beginning on January 1, 2000. This possibility is
commonly known as the "Year 2000 Problem." The Year 2000 Problem arises because
most computer systems were designed only to recognize a two-digit year, not a
four-digit year. When the year 2000 begins, these computers may interpret "00"
as the year 1900 and either stop processing date-related computations or process
them incorrectly. These failures could have a negative impact on the handling
of securities trades, pricing and account services. FIRMCO, the investment
adviser to each Fund, is taking steps to address the Year 2000 Problem with
respect to the computer systems that it uses and is working with those entities
with which it has business relationships which may impact the services provided
to the Funds to determine the status of their Year 2000 initiatives. As of the
date of this Prospectus, it is not anticipated that shareowners will experience
negative effects on their investment, or on the services provided in connection
therewith, as a result of the Year 2000 Problem relating to the investment
adviser or the Funds' other major service providers. However, there can be no
assurance that these steps taken by these service providers will be successful,
or that interaction with other non-complying computer systems will not adversely
impact the Funds. Also, companies in which the Funds invest could be adversely
affected by the Year 2000 Problem. Also, it is possible that the normal
operations of the Fund will in any event, be disrupted significantly by the
failure of communications and public utility companies, governmental entities,
financial processors or others to perform their services as a result of the Year
2000 Problem.
ADDITIONAL RISKS WHICH APPLY TO INVESTMENT IN CERTAIN OF THE FUNDS
- --------------------------------------------------------------------------------
Foreign Risks - Money Market Fund and Tax-Exempt Money Market Fund - to the
extent they invest in foreign securities
- --------------------------------------------------------------------------------
When a Fund invests in foreign securities, it will be subject to special risks
not typically associated with domestic issuers resulting from less government
regulation, less public information and less economic, political and social
stability. Foreign securities, and in particular foreign debt securities, are
sensitive to changes in interest rates. In addition, investment in the
securities of foreign governments involves the risk that foreign governments may
default on their obligations or may otherwise not respect the integrity of their
debt. A Fund which invests in foreign securities will also be subject to the
diplomatic risk that an adverse change in the diplomatic relations between the
U.S. and another country might reduce the value or liquidity of investments.
Future political and economic developments, the possible imposition of
withholding taxes on dividend income, the possible seizure or nationalization of
foreign holdings, the possible establishment of exchange controls or freezes on
the convertibility of currency, or the adoption of other governmental
restrictions might adversely affect an investment in foreign securities.
Additionally, foreign banks and foreign branches of domestic banks may be
subject to less stringent reserve requirements, and to different accounting,
auditing and recordkeeping requirements.
Investment in foreign securities also involves higher costs than investment in
U.S. securities, including higher transaction and custody costs as well as the
imposition of additional taxes by foreign governments.
<PAGE>
- --------------------------------------------------------------------------------
Tax Risk - Tax-Exempt Money Market Fund and U.S. Treasury Money Market Fund
- --------------------------------------------------------------------------------
These Funds may be more adversely impacted by changes in tax rates and policies
than the other Funds. Because interest income on Municipal Obligations is
normally not subject to regular federal income taxation, the attractiveness of
Municipal Obligations in relation to other investment alternatives is affected
by changes in federal income tax rates applicable to, or the continuing federal
income tax-exempt status of, such interest income. Any proposed or actual
changes in such rates or exempt status, therefore, can significantly affect the
demand for and supply, liquidity and marketability of Municipal Obligations,
which could in turn affect a Fund's ability to acquire and dispose of Municipal
Obligations at desirable yield and price levels.
Investment in tax-exempt securities poses additional risks. In many cases, the
Internal Revenue Service has not ruled on whether the interest received on a
tax-exempt obligation is tax-exempt, and accordingly, purchases of these
securities are based on the opinion of bond counsel to the issuers at the time
of issuance. The Fund and the Adviser rely on these opinions and will not
review the basis for them.
ADDITIONAL RISKS WHICH APPLY TO PARTICULAR TYPES OF SECURITIES
- --------------------------------------------------------------------------------
Other Investment Companies - All Funds
- --------------------------------------------------------------------------------
The Funds may invest their cash balances in other investment companies which
invest in high quality, short-term debt securities. A pro rata portion of the
other investment companies expenses will be borne by the Fund's shareowners.
- --------------------------------------------------------------------------------
Government Obligations - Each Money Market Fund other than the Tax-Exempt Money
Market
- --------------------------------------------------------------------------------
In addition to U.S. Treasury obligations, the Funds may invest in other
securities issued or guaranteed by the U.S. government, its agencies and
instrumentalities. No assurance can be given that the U.S. government will
provide financial support to U.S. government-sponsored agencies or
instrumentalities where it is not obligated to do so by law.
- --------------------------------------------------------------------------------
Borrowings, reverse repurchase agreements - All Funds
- --------------------------------------------------------------------------------
Each Fund may borrow money to the extent allowed (as described in the Additional
Statement) to meet shareowner redemptions from banks or through reverse
repurchase agreements. These strategies involve leveraging. If the securities
held by a Fund declines in value while these transactions are outstanding, the
net asset value of the Fund's outstanding shares will decline in value by
proportionately more than the decline in value of the securities. In addition,
reverse repurchase agreements involve the risks that the interest income earned
by a Fund (from the investment of the proceeds) will be less than the interest
expense of the transaction, that the market value of the securities sold by a
Fund will decline below the price the Fund is obligated to pay to repurchase the
securities, and that the securities may not be returned to the Fund.
INVESTING WITH FIRSTAR FUNDS
This section describes for you the procedures for opening an account and how to
buy, sell or exchange Fund shares.
<PAGE>
PURCHASE OF SHARES
Shares of the Funds are offered and sold on a continuous basis by the
distributor for the Funds, B.C. Ziegler and Company (the "Distributor"), which
is independent of the Adviser. The Distributor is a registered broker-dealer
with offices at 215 North Main Street, West Bend, Wisconsin 53095.
MINIMUM INVESTMENTS
The minimum initial investment for shares in a Fund is $1,000; with the
exception of IRAs, which have a minimum initial investment of $100. The minimum
subsequent investment is $50. The minimum initial investment will be waived if
you participate in the Periodic Investment Plan.
BUYING SHARES
Purchases requests for a Fund received in proper form before 11:30 a.m. Central
Time on a business day for the Funds generally are processed at 11:30 a.m. on
the same day. Payment must be received in immediately available funds wired to
the transfer agent by the close of business. Purchase requests for the Funds
which are received at or after 11:30 a.m. Central Time on a business day for the
Funds will be executed the same day, at that day's closing price provided that
payment is received by the close of regular trading hours. Orders received
after 3:00 p.m. Central Time and orders for which payment is not received by the
close of regular trading hours on the New York Stock Exchange will be executed
on the next business day after receipt of both order and payment in proper form.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C>
Through a - Contact your Shareowner Organization - Contact your Shareowner Organization
Shareowner
Organization
- -----------------------------------------------------------------------------------------------------------------------------------
By Mail - Complete an application and mail it - Make your check payable to Firstar
along with a check payable to Firstar Funds. Please include your sixteen-digit
Funds, P.O. Box 3011, account number on your check and mail
Milwaukee, WI 53201-3011. it to the address at the left.
For overnight delivery mail to; 615 E.
Michigan St., Milwaukee, WI 53202
- ------------------------------------------------------------------------------------------------------------------------------------
Automatically - Call 1-800-228-1024 to obtain a - Complete a Periodic Investment Plan
purchase application, which includes Application to automatically purchase
information for a Periodic Investment more shares.
Plan or ConvertiFundR Account.
- Open a ConvertiFundR account to
automatically invest proceeds from one
account to another account of the Firstar
Family of Funds.
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
By Wire - Call 1-800-228-1024 prior to sending - Call 1-800-228-1024 prior to sending
the wire in order to obtain a the wire in order to obtain a
confirmation number and to ensure confirmation number and to ensure
prompt and accurate handling of funds. prompt and accurate handling of funds.
Ask your bank to transmit immediately Ask your bank to transmit immediately
available funds by wire in the amount of available funds by wire as described at
your purchase to: the left. Please also include your
Firstar Bank Milwaukee, N.A. sixteen-digit account number. The Fund
ABA # 0750-00022 and its transfer agent are not responsible
Firstar Trust Department for the consequences of delays resulting
Account # 112-952-137 from the banking or Federal Reserve
for further credit to [name of Fund] Wire system, or from incomplete wiring
[name /title on the account ]. instructions.
The Fund and its transfer agent are not
responsible for the consequences of
delays resulting from the banking or
Federal Reserve Wire system, or from
incomplete wiring instructions.
- ------------------------------------------------------------------------------------------------------------------------------------
By Telephone Exchange - Call 1-800-228-1024 to exchange from - Call 1-800-228-1024 to exchange from
another Firstar Fund account with the another Firstar Fund account with the
same registration including name, same registration including name,
address and taxpayer ID number. address and taxpayer ID number.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Please Note: All checks must be drawn on a bank located within the United States
and must be payable in U.S. dollars to Firstar Funds. A $20 fee will be
imposed by the Funds' transfer agent if any check used for investment in an
account does not clear, and the investor involved will be responsible for any
loss incurred by a Fund. Investors making initial investments by wire must
promptly complete a Purchase Application and forward it to the transfer
agent. Redemptions will not be paid until the transfer agent has received
the completed application.
- -------------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Additional Information on Buying Shares
- --------------------------------------------------------------------------------
- - The Funds will not accept payment in cash or third party checks for the
purchase of shares.
- - Federal regulations require that each investor provide a Social Security
number or other certified taxpayer identification number upon opening or
reopening an account. The Funds reserve the right to reject applications
without such a number or an indication that a number has been applied for. If a
number has been applied for, the number must be provided and certified within
sixty days of the date of the application. Any accounts opened without a proper
number will be subject to backup withholding at a rate of 31% on all
liquidations and dividend and capital gain distributions.
- - Payment for shares of a Fund in the amount of $1,000,000 or more may, at the
discretion of the Adviser, be made in the form of securities that are
permissible investments for the respective Fund.
<PAGE>
REDEMPTION OF SHARES
SELLING SHARES
Redemption requests for a Fund received by the transfer agent by phone before
11:30 a.m. Central Time on a business day for the Funds generally are processed
at 11:30 a.m. Central Time on the same day. Redemption requests for Funds
received at or after 11:30 a.m. Central Time on a business day for the Funds
will be executed the same day, at that day's closing price. Orders received
after 3:00 p.m. Central Time will be executed on the next business day.
- --------------------------------------------------------------------------------
Through a - Contact your Shareowner Organization
Shareowner
Organization
- -------------------------------------------------------------------------------
By Phone - Call 1-800-228-1024 with your account name, sixteen digit
account number and amount of redemption (minimum $500).
Redemption proceeds will only be sent to a shareowner's
address or bank account of a commercial bank located within
the United States as shown on the transfer agent's records.
(Available only if telephone redemptions have been authorized
on the account application and if there has been no change of
address by telephone within the preceding 15 days).
- --------------------------------------------------------------------------------
By Mail - Mail your instructions to the Firstar Funds, P.O. Box 3011,
Milwaukee, WI 53201-3011 (via overnight delivery to 615 E.
Michigan Street, Milwaukee, WI 53202). Include the number of
shares or the amount to be redeemed, your sixteen-digit
account number and Social Security number or other taxpayer
identification number. Your instructions must be signed by
all persons required to sign for transactions exactly as
their names appear on the account. If the redemption amount
exceeds $50,000, or if the proceeds are to be sent elsewhere
than the address of record, or the address of record has been
changed by telephone within the preceding 15 days, each
signature must be guaranteed in writing by either a
commercial bank that is a member of the FDIC, a trust
company, a credit union, a savings association, a member firm
of a national securities exchange or other eligible guarantor
institution.
- --------------------------------------------------------------------------------
Automatically - Call 1-800-228-1024 for a Systematic Withdrawal Plan
application ($5,000 account minimum and $50 minimum per
transaction).
- --------------------------------------------------------------------------------
Guarantees must be signed by an eligible guarantor institution and "Signature
Guaranteed" must appear with the signature.
- --------------------------------------------------------------------------------
The Funds may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees and guardians. A redemption
request will not be deemed to be properly received until the transfer agent
receives all required documents in proper form.
<PAGE>
Purchases of additional shares concurrently with withdrawals could be
disadvantageous because of the sales charge involved in the additional
purchases.
ADDITIONAL TRANSACTION INFORMATION
- --------------------------------------------------------------------------------
Telephone Requests
- --------------------------------------------------------------------------------
In order to arrange for telephone redemptions after you have opened your account
or to change the bank or account designated to receive redemption proceeds, send
a written request to the Firstar Funds Center or contact your registered
representative. Each shareowner of the account must sign the request. The
Funds may request further documentation from corporations, executors,
administrators, trustees and guardians.
The Funds reserve the right to refuse a telephone redemption if they believe it
is advisable to do so. Procedures for redeeming shares by telephone may be
modified or terminated by the Funds at any time upon notice to shareowners.
During periods of substantial economic or market change, telephone redemptions
may be difficult to implement. If a shareowner is unable to contact the
transfer agent by telephone, shares may also be redeemed by delivering the
redemption request to the transfer agent.
In an effort to prevent unauthorized or fraudulent purchase and redemption
requests by telephone, Firstar employs reasonable procedures to confirm that
such instructions are genuine. Among the procedures used to determine
authenticity, investors electing to transact by telephone will be required to
provide their account number (unless opening a new account). All telephone
transactions will be recorded. Statements of accounts shall be conclusive if
not objected to in writing within 10 days after transmitted by mail. Firstar
may implement other procedures from time to time. If reasonable procedures are
not implemented, Firstar may be liable for any loss due to unauthorized or
fraudulent transactions. In all other cases, the shareowner is liable for any
loss for unauthorized transactions.
- --------------------------------------------------------------------------------
Check Redemption
- --------------------------------------------------------------------------------
You may request on the purchase application or by written request that a Fund
provides Redemption Checks ("Checks"). Checks may be made payable in the amount
of $250 or more. Any checks drawn on a joint account will only require one
signature. There is no charge for the use of the Checks; however, the transfer
agent will impose a $20 charge for stopping payment of a Check upon your
request, or if the transfer agent cannot honor a Check due to insufficient funds
or other valid reason. Because dividends on each Fund accrue daily, Checks may
not be used to close an account, as a small balance is likely to result.
Checks are not available for IRAs or other retirement plans for which Firstar
acts as custodian.
- --------------------------------------------------------------------------------
Certificates
- --------------------------------------------------------------------------------
Certificates are only issued upon shareowner request. If certificates have been
issued, the transfer agent must receive the certificates, properly endorsed or
accompanied by a properly executed stock power and accompanied by signature
guarantees, prior to a redemption request.
- --------------------------------------------------------------------------------
Additional Redemption Information
- --------------------------------------------------------------------------------
<PAGE>
The Funds will make payment for redeemed shares typically within one or two
business days, but no later than the seventh day after receipt by the transfer
agent of a request in proper form, except as provided by SEC rules. HOWEVER, IF
ANY PORTION OF THE SHARES TO BE REDEEMED REPRESENTS AN INVESTMENT MADE BY CHECK,
THE FUNDS WILL DELAY THE PAYMENT OF THE REDEMPTION PROCEEDS UNTIL THE TRANSFER
AGENT IS REASONABLY SATISFIED THAT THE CHECK HAS BEEN COLLECTED, WHICH MAY TAKE
TWELVE DAYS FROM THE PURCHASE DATE. An investor must have filed a purchase
application before any redemption requests can be paid.
- --------------------------------------------------------------------------------
Accounts Below the Minimum Balance
- --------------------------------------------------------------------------------
If your account falls below $1,000 ($100 for IRAs) the Funds may redeem your
account. The Fund will impose no charge and will give you sixty days written
notice prior to any redemption. A Fund may also redeem shares involuntarily if
it is appropriate to do so to carry out the Fund's responsibilities under the
1940 Act and, in certain cases, may make payment for redemption in securities.
Investors would bear any brokerage or other transaction costs incurred in
converting the securities so received to cash. See the Additional Statement
referred to on the last page for examples of when such redemptions might be
appropriate.
- --------------------------------------------------------------------------------
EXCHANGE of SHARES
- --------------------------------------------------------------------------------
You may exchange shares of a money market fund for shares of another money
market fund. You may also exchange your shares for Institutional or Retail A
Shares of a Firstar non-money market fund without a charge by the Fund if you
are eligible to purchase the class at the time of the exchange. An initial
sales charge will be imposed on the exchange if the shares of the Fund being
acquired have an initial sales charge unless you qualify for a sales charge
exemption. Telephone exchange privileges automatically apply to each shareowner
of record unless the transfer agent receives written instructions canceling the
privilege.
Firstar reserves the right to terminate the exchange privilege of any party who
requests more than four exchanges within a calendar year. Firstar may do so
with prior notice based on a consideration of both the number of exchanges and
the time period over which those exchange requests have been made, together with
the level of expense to the Funds or other adverse effects which may result from
the additional exchange requests.
For federal income tax purposes, an exchange of shares is a taxable event and,
accordingly, an investor may realize a capital gain or loss. Before making an
exchange request, an investor should consult a tax or other financial adviser to
determine the tax consequences of a particular exchange. No exchange fee is
currently imposed by Firstar on exchanges. However, Firstar reserves the right
to impose a charge in the future. In addition, Shareowner Organizations may
charge a fee for providing administrative or other services in connection with
exchanges. The Fund reserves the right to reject any exchange request with
prior notice to a shareowner and the exchange privilege may be modified or
terminated at any time. At least sixty days' notice will be given to
shareowners of any material modification or termination except where notice is
not required under SEC regulations. Also keep in mind:
- -- Exchanges are available only in states where exchanges may be legally made.
- -- The minimum amount which may be exchanged is $1,000.
<PAGE>
- -- If any portion of the shares to be exchanged represents an investment made by
check, a Fund may delay the acquisition of new shares in an exchange until the
transfer agent is reasonably satisfied that the check has been collected, which
may take up to twelve days from the purchase date.
- -- It may be difficult to make telephone exchanges in times of drastic economic
or market changes.
Additional Shareowner Services
- --------------------------------------------------------------------------------
Shareowner Reports
- --------------------------------------------------------------------------------
Shareowners will be provided with a report showing portfolio investments and
other information at least semiannually; and after the close of the Fund's
fiscal year with an annual report containing audited financial statements. To
eliminate unnecessary duplication, only one copy of shareowner reports will be
sent to shareowners with the same mailing address. Shareowners may request
duplicates copies free of charge.
Account statements will be mailed to Shareowners monthly, summarizing all
transactions. Generally, the Fund does not send statements for Funds held in
brokerage, retirement or other similar accounts.
- --------------------------------------------------------------------------------
Firstar Funds Web Site (www.firstarfunds.com)
- --------------------------------------------------------------------------------
The site offers educational information and interactive financial planning tools
as well as product-specific information.
Generally, Shareowners can request purchases, exchanges and redemptions of Fund
shares after an account is opened on-line via the Internet. Redemption requests
of up to $25,000 will be accepted through the Internet. Payment for shares
purchased on-line must be made by electronic funds transfer from your banking
institution. To authorize this service, call Firstar Trust Company at 1-800-
228-1024.
Firstar Funds and their agents will not be responsible for any losses resulting
from unauthorized on-line transactions when procedures are followed which are
designed to confirm that the on-line transaction request is genuine. Statements
of accounts shall be conclusive if not objected to in writing within 10 Days
after transmitted by mail. During periods of significant economic or market
change, it may be difficult to reach the Funds on-line. If this happens, you
may initiate transactions in your share accounts by mail or as otherwise
described in the prospectus.
- --------------------------------------------------------------------------------
Automated Teleresponse Service
- --------------------------------------------------------------------------------
Shareowners using a touch-tone telephone can access information on the Funds
twenty-four hours a day, seven days a week. When calling Firstar Mutual Fund
Services, LLC at 1-800-228-1024, shareowners may choose to use the automated
information feature or, during regular business hours (8:00 a.m. to 7:00 p.m.
Central Time, Monday through Friday), speak with a Firstar representative.
- --------------------------------------------------------------------------------
Retirement Plans
- --------------------------------------------------------------------------------
<PAGE>
The Fund offers individual retirement accounts including SIMPLE and SEP IRAs.
For details concerning Retirement Accounts (including service fees), please call
Firstar Funds Center at 1-800-228-1024.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
Dividends and Capital Gains Distributions
Dividends from net investment income, including net realized gains and losses,
if any, earned on the investments held by a Fund, of the Funds are declared on
each business day on the shares that are outstanding immediately after 11:30
a.m. Central Time on the declaration date.
- ----------------
Reinvested
dividends and
distributions
receive the
same tax
treatment as
those paid in
cash.
- ----------------
A shareowner's dividends and capital gains distributions will be reinvested
automatically in additional shares unless the Fund is notified that the
shareowner elects to receive distributions in cash.
If a shareowner has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to shareowner's address of record, such shareowner's distribution
option will automatically be converted to having all dividend and other
distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks. The Funds do
not expect to realize net long-term capital gains.
- --------------------------------------------------------------------------------
Federal Taxes
- --------------------------------------------------------------------------------
Distributions from the Money Market Fund, the U.S. Treasury Money Market
Fund and the U.S. Government Money Market Fund will generally be taxable to
shareholders. Each such fund expects that all, or substantially all, of its
distributions will consist of ordinary income. You will be subject to income
tax on these distributions regardless of whether they are paid in cash or
reinvested in additional shares. The one major exception to these tax
principles is that distributions on shares held in an IRA (or other tax-
qualified plan) will not be currently taxable.
Generally, distributions from the U.S. Treasury Money Market Fund will be
exempt from state and local taxes.
Distribution from the Tax-Exempt Money Market Fund will generally
constitute tax-exempt income for shareholders for federal income tax purposes.
It is possible, depending upon the Tax-Exempt Money Market Fund's investments,
that a portion of its distributions could be taxable to shareholders as ordinary
income or capital gains, but it is not expected that this will be the case.
Moreover, although the distributions are exempt for federal income tax purposes,
they will generally constitute taxable income for state and local income tax
purposes except that, subject to limitations that vary depending on the state,
distributions from interest paid by a state or municipal entity may be exempt
from tax in that state.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Tax-Exempt Money Market Fund generally will not be deductible for
federal income tax purposes.
<PAGE>
You should note that a portion of the exempt-interest dividends paid by the
Tax-Exempt Money Market Fund may constitute an item of tax preference for
purposes of determining federal alternative minimum tax liability. Exempt-
interest dividends will also be considered along with other adjusted gross
income in determining whether any Social Security or railroad retirement
payments received by you are subject to federal income taxes.
You should also consult your tax adviser for further information regarding
the federal, state and local tax consequences with respect to your specific
situation.
- --------------------------------------------------------------------------------
State and Local Taxes
- --------------------------------------------------------------------------------
Shareowners may also be subject to state and local taxes on distributions and
redemptions. State income taxes may not apply, however, to the portions of each
Fund's distributions, if any, that are attributable to interest on Federal
securities or interest on securities of the particular state. Shareowners
should consult their tax advisers regarding the tax status of distributions in
their state and locality.
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
Advisory Services
- --------------------------------------------------------------------------------
FIRMCO, a Wisconsin Limited Liability Company and subsidiary of Firstar
Corporation, a bank holding company, serves as investment adviser to each Fund.
FIRMCO, with principal offices at Firstar Center, 777 East Wisconsin Avenue, 8th
Floor, Milwaukee, Wisconsin 53202, has provided investment advisory services
since 1986. FIRMCO currently has $_____ billion in assets under management.
Firstar Corporation has agreed to permit the Company to use the name "Firstar
Funds" and expansions thereof on a non-exclusive and royalty-free basis in
connection with mutual fund management and distribution services within the
United States, its territories and possessions; this agreement may be terminated
by Firstar Corporation under specified circumstances, including if no affiliate
of Firstar Corporation is serving as investment adviser for any portfolio
offered by the Company.
Subject to the general supervision of the Board of Directors and in accordance
with the respective investment objective and policies of each Fund, the Adviser
manages each Fund's portfolio securities and maintains records relating to such
purchases and sales.
Each Fund's investment objective may be changed by the Board of Directors
without approval of Shareowners.
The Adviser is authorized to allocate purchase and sale orders for portfolio
securities to Shareowner Organizations, including, in the case of agency
transactions, Shareowner Organizations which are affiliated with the Adviser, to
take into account the sale of Fund shares if the Adviser believes that the
quality of the transaction and the amount of the commission are comparable to
what they would be with other qualified brokerage firms.
<PAGE>
For the fiscal year ended October 31, 1998 the Adviser received from each Fund a
fee, calculated daily and payable monthly, at the following annual rates (as a
percentage of the Fund's average daily net assets): 0.37% for the Money Market
Fund, 0.49% for the U.S. Treasury Money Market Fund, 0.50% for the U.S.
Government Money Market Fund and 0.48% for the Tax-Exempt Money Market Fund.
- --------------------------------------------------------------------------------
Administrative Services
- --------------------------------------------------------------------------------
Firstar Mutual Fund Services, LLC and B. C. Ziegler and Company
("Ziegler") serve as the Co-Administrators (the "Co-Administrators") and
receives fees for those services.
- --------------------------------------------------------------------------------
Shareowner Organizations
- --------------------------------------------------------------------------------
The Funds have adopted distribution and service plans. Under the
distribution and service plans, the Funds may pay distribution fees for the sale
and distribution of their shares and service fees for shareowner services.
These fees are regulated by Rule 12b-1 under the Investment Company Act of 1940
and are subject to the NASD Conduct Rules. Because these fees are paid out of
the Funds' assets on an ongoing basis, over time, these fees will increase the
cost of your investment and may cost you more than paying other types of sales
charges.
Under these Plans, the Funds may enter into agreements with
Organizations, including affiliates of the Adviser (such as FIS). The
Shareowner Organizations are required to provide a schedule of any fees that
they may charge to their customers relating to the investment of their assets in
shares covered by the agreements. Investors should read this Prospectus in
light of such fee schedules and under the terms of their Shareowner
Organization's agreement with Firstar. In addition, investors should contact
their Shareowner Organizations with respect to the availability of shareowner
services and the particular Shareowner Organization's procedures for purchasing
and redeeming shares. It is the responsibility of Shareowner Organizations to
transmit purchase and redemption orders and record those orders in customers'
accounts on a timely basis in accordance with their agreements with customers.
For their services with respect to the shares, Shareowner Organizations may be
entitled to receive fees from a Fund at an annual rate of up to 0.25% of the
average daily net asset value of shares covered by their agreement.
The Funds make no payments to their distributor under the Plans. Payments
to Shareowner Organizations, including affiliates of the Adviser, under the
plans are not tied directly to their own out-of-pocket expenses and therefore
may be used as they elect (for example, to defray their overhead expenses), and
may exceed their direct and indirect costs.
Shareowner organizations will provide support and/or distribution services
to their customers who are the shareowners of the Funds. Under the Service
Agreements, shareowner support services may include;
. assisting investors in processing purchase, exchange and redemption requests
. processing dividend and distribution payments from the Funds
. providing information periodically to customers showing their positions in
Fund shares
. providing sub-accounting
. forwarding sales literature and advertising
<PAGE>
The Glass-Steagall Act and other applicable laws, among other things,
prohibit banks from engaging in the business of underwriting securities.
Accordingly, banks will be engaged under agreements with Firstar only to perform
the administrative and investor servicing functions described above, and will
represent to Firstar that in no event will the services provided by them under
the agreements be primarily intended to result in the sale of Fund shares.
Conflict-of-interest restrictions may apply to the receipt of compensation
paid by Firstar to a Shareowner Organization in connection with the investment
of fiduciary funds in Fund shares. Institutions, including banks regulated by
the Comptroller of the Currency and investment advisers and other money managers
subject to the jurisdiction of the SEC, the Department of Labor or state
securities commissions, are urged to consult legal counsel before entering into
agreements with Firstar.
- --------------------------------------------------------------------------------
Custodian, Transfer and Dividend Disbursing Agent, and Accounting Services Agent
- --------------------------------------------------------------------------------
Firstar Mutual Fund Service, LLC, an affiliate of the Adviser, provides
transfer agency and dividend disbursing agency services for all the Funds and
custodial and accounting services for the Funds and receive fees for these
services. Inquiries to the transfer agent may be sent to: Mutual Fund Service,
LLC, P.O. Box 3011, Milwaukee, Wisconsin 53201-3011. Firstar Bank, Milwaukee,
N.A. an affiliate of the Adviser, provides custodial services for the Funds and
receives fees for these services.
NET ASSET VALUE AND DAYS OF OPERATION
The net asset value of the Funds for purposes of pricing purchase and
redemption orders is determined as of 11:30 a.m. Central Time and as of the
close of regular trading hours on the Exchange, normally, 3:00 p.m. Central
Time, on each day on which both the Exchange is open for trading and the Federal
Reserve Banks' Fedline System is open. Net asset value per share is calculated
by dividing the value of all securities and other assets owned by each Fund,
less the liabilities charged to the Fund, by the number of the Fund's
outstanding shares. Net asset value is computed using the amortized cost method
as permitted by SEC rules.
- -----------------------
The Company
intends to use its
best efforts to
maintain the net
asset value of each
Fund at $1.00 per
share, although
there is no
assurance that it will
be able to do so.
- -----------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Fund
<PAGE>
(assuming reinvestment of all dividends and distributions). This information has
been audited by , whose report, along with the Funds' Financial
Statements, are included in the Annual Report which is available upon request.
Contact the Firstar Funds Center for a free copy of the Annual Report or
Additional Statement.
NET ASSET DIVIDENDS
VALUE, NET FROM NET NET ASSET
BEGINNING INVESTMENT INVESTMENT VALUE,
OF PERIOD INCOME INCOME END OF PERIOD
---------- ---------- ---------- -------------
MONEY MARKET FUND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
U.S. TREASURY
MONEY MARKET FUND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
U.S. GOVERNMENT
MONEY MARKET FUND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
TAX-EXEMPT
MONEY MARKET FUND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
SUPPLEMENTAL DATA AND RATIOS
-------------------------------------
NET RATIO OF NET
ASSETS, RATIO OF NET INVESTMENT
END EXPENSES TO INCOME TO
OF PERIOD AVERAGE NET AVERAGE NET TOTAL
(000S) ASSETS ASSETS RETURN
---------- ---------- ---------- -------------
MONEY MARKET FUND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
<PAGE>
Year Ended 1998
U.S. TREASURY
MONEY MARKET FUND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
U.S. GOVERNMENT
MONEY MARKET FUND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
TAX-EXEMPT
MONEY MARKET FUND
Year Ended 1994
Year Ended 1995
Year Ended 1996
Year Ended 1997
Year Ended 1998
<PAGE>
_______________________
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' ADDITIONAL
STATEMENT INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS OR THEIR
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUNDS OR BY
THEIR DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
FOR MORE INFORMATION
ANNUAL/SEMIANNUAL REPORTS
Additional information about the Funds' investments is available in the Funds'
annual and semiannual reports to shareowners.
STATEMENT OF ADDITIONAL INFORMATION
Additional information about the Funds and their policies is also available in
the Funds' Statement of Additional Information ("Additional Statement"). The
Additional Statement is incorporated by reference into this Prospectus (and is
legally considered part of this Prospectus).
The Funds' annual and semiannual reports and the Additional Statement are
available free upon request by calling Firstar Funds at 1-800-228-1024 or 1-414-
287-3808.
To obtain other information and for shareowner inquiries:
By telephone - call 1-800-228-1024 or 1-414-287-3808
By mail Firstar Funds, 615 East Michigan Street
P.O. Box 3011
Milwaukee, Wisconsin 53201-3011
By e-mail - [email protected]
On the Internet - Text only version of the Funds' documents are located online
and may be downloaded from: SEC - http://www.sec.gov
You may review and obtain copies of Fund documents by visiting the SEC's Public
Reference Room in Washington, D.C. You may also obtain copies of Fund documents
by sending your request and a duplicating fee to the SEC's Public Reference
Section, Washington, D.C. 20549-6009. Information on the operation of the
public reference room may be obtained by calling the SEC at 1-800-SEC-0330.
<PAGE>
The Fund's Investment Company Act File Number is 811-5380
<PAGE>
xxxxx
FIRSTAR FUNDS, INC.
Statement of Additional Information
Short-Term Bond Market Fund Balanced Income Fund Special Growth Fund
Intermediate Bond Market Fund Balanced Growth Fund International Equity Fund
Bond IMMDEX TM Fund Growth and Income Fund Emerging Growth Fund
Tax-Exempt Intermediate Bond Equity Index Fund MicroCap Fund
Fund Growth Fund
March 1, 1999
TABLE OF CONTENTS
------------------
Page
-----
Firstar Funds, Inc.
Description of the Funds and their its Investments and Risks
Investment Strategies and Risks
Net Asset Value
Additional Purchase and Redemption Information
Description of Shares
Additional Information Concerning Taxes
Management of the Company
Custodian, Transfer Agent and Accounting Services Agent
Expenses
Independent Accountants and Financial Statements
Counsel
Performance Calculations
Performance History
Miscellaneous
Appendix A A-1
Appendix B B-1
This Statement of Additional Information ("SAI"), which is not a
prospectus, supplements and should be read in conjunction with Firstar Funds,
Inc.' s prospectus ("Prospectus") dated March 1, 1999, for Institutional,
Retail A and Retail B Shares of the Short-Term Bond Market Fund, Intermediate
Bond Market Fund, Tax-Exempt Intermediate Bond Fund, Bond IMMDEX_ Fund, Balanced
Income Fund, Balanced Growth Fund, Growth and Income Fund, Equity Index Fund,
Growth Fund, Special Growth Fund, Emerging Growth Fund, MicroCap Fund and
International Equity Fund (collectively referred to as the "Funds") and is
incorporated by reference in its entirety into the Prospectus. Copies of the
Prospectus for the Funds may be obtained by writing the Firstar Funds Center at
615 East Michigan Street, P.O. Box 3011, Milwaukee, WI 53201-3011 or by calling
1-800-228-1024. The Financial Statements in this SAI are incorporated by
reference from the Funds' Annual Report, which may be obtained by writing the
address above or calling the toll-free number above. No other part of the
Annual Report is incorporated herein by reference.
<PAGE>
FIRSTAR FUNDS, INC.
Firstar Funds, Inc. (the "Company") is a Wisconsin corporation which was
incorporated on February 15, 1988 as a management investment company. The
Company, formerly known as Portico Funds, Inc., changed its name effective
February 1, 1998. The Company is authorized to issue separate classes of shares
of Common Stock representing interests in separate investment portfolios. Each
class of the funds is currently divided into three series, a Retail A, Retail B
and Institutional series. This SAI pertains to Retail A Shares, Retail B Shares
and Institutional Shares of thirteen diversified portfolios, the Short-Term Bond
Market Fund, Intermediate Bond Market Fund, Tax-Exempt Intermediate Bond Fund,
Bond IMMDEX TM Fund, Balanced Income Fund, Balanced Growth Fund, Growth and
Income Fund, Equity Index Fund, Growth Fund, Special Growth Fund, Emerging
Growth Fund, MicroCap Fund and International Equity Fund (collectively the
"Funds"). The Short-Term Bond Market Fund changed its name from Short-
Intermediate Fixed Income Fund effective January 1, 1993. The Growth and Income
Fund changed its name from the Income and Growth Fund effective August 16, 1993.
The Growth Fund changed its name from the MidCore Growth Fund effective May 30,
1997. The Balanced Growth Fund changed its name from the Balanced Fund
effective February 1, 1998 and commenced operations on March 30, 1992. The
Growth and Income Fund, Equity Index Fund, Short-Term Bond Market Fund and Bond
IMMDEX_ Fund commenced operations on December 29, 1989; the Special Growth Fund
commenced operations on December 28, 1989; the Growth Fund commenced operations
on December 29, 1992; the Balanced Income Fund commenced operations on December
1, 1997; the Intermediate Bond Market Fund commenced operations on January 5,
1993; the Tax-Exempt Intermediate Bond Fund commenced operations on February 8,
1993; the International Equity Fund commenced operations on April 28, 1994; the
Emerging Growth Fund commenced operations on August 15, 1997; and the MicroCap
Fund commenced operations on August 1, 1995. The Company also offers other
investment portfolios which are described in a separate statement of additional
information. For information concerning these other portfolios, contact the
Firstar Funds Center at 1-800-982-8909 or write to 615 East Michigan Street,
P.O. Box 3011, Milwaukee, Wisconsin 53201-3011.
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS RISKS
The Company is a diversified, open-end management investment company. The
following policies supplement the Funds' respective investment objectives and
policies as set forth in the Prospectus.
Portfolio Transactions
- ----------------------
Subject to the general supervision of the Board of Directors, the Adviser
is responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for each Fund except the
International Equity Fund. Subject to the general supervision of the Board of
Directors, the Adviser is responsible for the portfolio management of the
International Equity Fund. Pursuant to the terms of the Adviser's Advisory
Agreement with the Fund, the Adviser has delegated certain of its duties to
Hansberger Global Investors, Inc. (the "Sub-Adviser" or "HGI"). Within the
framework of the investment objectives, policies and restrictions of the Fund,
and subject to the supervision of the Adviser, the Sub-Adviser is responsible
for, makes decisions with respect to, and places orders for all purchases and
sales of portfolio securities for the International Equity Fund.
<PAGE>
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of purchases or sales of portfolio securities for the reporting period by
the monthly average value of the portfolio securities owned during the reporting
period. The calculation excludes all securities, including options, whose
maturities or expiration dates at the time of acquisition are one year or less.
Portfolio turnover may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements which enable the Funds to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making portfolio
decisions, and each Fund may engage in short-term trading to achieve its
investment objective.
Transactions on U.S. stock exchanges involve the payment of
negotiated brokerage commissions. On exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers. Unlike
transactions on U.S. stock exchanges which involve the payment of negotiated
brokerage commissions, transactions in foreign securities generally involve the
payment of fixed brokerage commissions which are generally higher than those in
the United States.
Transactions in the over-the-counter market are generally principal
transactions with dealers and the costs of such transactions involve dealer
spreads rather than brokerage commissions. With respect to over-the-counter
transactions, the Adviser and Sub-Adviser will normally deal directly with
dealers who make a market in the securities involved except in those
circumstances where better prices and execution are available elsewhere or as
described below.
Fixed income securities purchased and sold by the Bond and Balanced Funds
are generally traded in the over-the-counter market on a net basis (i.e.,
without commission) through dealers, or otherwise involve transactions directly
with the issuer of an instrument. The cost of securities purchased from
underwriters includes an underwriting commission or concession, and the prices
at which securities are purchased from and sold to dealers include a dealer's
mark-up or mark-down.
The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Funds will engage in this practice, however, only when the Adviser or Sub-
Adviser, in its sole discretion, believes such practice to be in the Funds'
interests.
For the fiscal years ended October 31, 1998, 1997 and 1996 the Company
paid brokerage commissions of $521,009, $403,426 and $364,819 with respect to
the Growth and Income Fund; $912,455,$965,454 and $1,128,115 with respect to the
Special Growth Fund; and $100,414, $101,524 and $109,625 with respect to the
Equity Index Fund, respectively. For the same periods, the Short-Term Bond
Market, Intermediate Bond Market, Tax-Exempt Intermediate Bond, and Bond IMMDEX
TM Funds paid no brokerage commissions. For the fiscal years ended October 31,
1998, 1997 and1996, the Company paid brokerage commissions of $183,767,
$178,114 and $161,362 with respect to the Balanced Growth Fund. For the fiscal
years ended October 31, 1998, 1997 and 1996 the Company paid brokerage
commissions of $187,935, $263,875 and $224,353, with respect to the Growth
Fund. For the fiscal years ended October 31, 1998,1997 and 1996, the Company
paid brokerage commissions of $183,485, $161,449 and $40,498 with respect to the
International Equity Fund. For the fiscal year ended October 31, 1998 and the
fiscal period from August 15, 1997 through October 31, 1997 the Company paid
brokerage commissions of $183,895 and $34,150 with respect to the Emerging
Growth Fund. For the fiscal year ended October 31, 1998, 1997, and fiscal
periods July 1, 1996 through October 31, 1996 and August 1, 1995 through June
30, 1996 the Company paid brokerage commissions of $151,906, $132,772, $75,526
and $62,266 with respect to the MicroCap Fund. For the fiscal year ended
October 31, 1998 the Company paid brokerage commissions of $17,012 with respect
to the Balanced Income Fund. None of the brokerage commissions were paid to
affiliates of the Company, the Adviser, Sub-Adviser or the Co-Administrators.
<PAGE>
The Advisory Agreement between the Company and the Adviser and with
respect to the International Equity Fund, the Sub-Advisory Agreement among the
Company, the Adviser and Sub-Adviser, provides that, in executing portfolio
transactions and selecting brokers or dealers, the Adviser and Sub-Adviser will
seek to obtain the best overall terms available. In assessing the best overall
terms available for any transaction, the Adviser or Sub-Adviser shall consider
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commissions,
if any, both for the specific transaction and on a continuing basis. In
addition, the Agreements authorize the Adviser and Sub-Adviser to cause the
Funds to pay a broker-dealer which furnishes brokerage and research services a
higher commission than that which might be charged by another broker-dealer for
effecting the same transaction, provided that the Adviser or Sub-Adviser
determines in good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided by such broker-dealer,
viewed in terms of either the particular transaction or the overall
responsibilities of the Adviser and Sub-Adviser to the Funds. Such brokerage
and research services might consist of reports and statistics relating to
specific companies or industries, general summaries of groups of stocks or bonds
and their comparative earnings and yields, or broad overviews of the stock, bond
and government securities markets and the economy.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by the Adviser or Sub-Adviser and
does not reduce the advisory fees payable to it by the Funds. The Directors
will periodically review the commissions paid by the Funds to consider whether
the commissions paid over representative periods of time appear to be reasonable
in relation to the benefits inuring to the Funds. It is possible that certain
of the supplementary research or other services received will primarily benefit
one or more other investment companies or other accounts for which investment
discretion is exercised. Conversely, a Fund may be the primary beneficiary of
the research or services received as a result of portfolio transactions effected
for such other account or investment company.
Portfolio securities will not be purchased from or sold to (and savings
deposits will not be made in and repurchase and reverse repurchase agreements
will not be entered into with) the Adviser, the Sub-Adviser, and the Distributor
or an affiliated person of any of them (as such term is defined in the 1940 Act)
acting as principal. In addition, the Funds will not purchase securities
during the existence of any underwriting or selling group relating thereto of
which the Distributor or their Adviser or Sub-Adviser, or an affiliated person
of any of them, is a member, except to the extent permitted by the Securities
and Exchange Commission ("SEC").
Investment decisions for the Funds are made independently from those for
other investment companies and accounts advised or managed by their Adviser or
Sub-Adviser. Such other investment companies and accounts may also invest in
the same securities as the Funds. When a purchase or sale of the same security
is made at substantially the same time on behalf of a Fund and another
investment company or account, the transaction will be averaged as to price and
available investments allocated as to amount, in a manner which the Adviser or
Sub-Adviser believes to be equitable to the Fund and such other investment
company or account. In some instances, this investment procedure may adversely
affect the price paid or received by a Fund or the size of the position obtained
or sold by the Fund. To the extent permitted by law, the Adviser or Sub-Adviser
may aggregate the securities to be sold or purchased for a Fund with those to be
sold or
<PAGE>
purchased for other investment companies or accounts in executing transactions.
As of October 31, 1998, the Company held securities of its regular brokers
or dealers (as defined under the 1940 Act) or their parents as follows: the
Short-Term Bond Market, Intermediate Bond Market, Bond IMMDEX TM and Balanced
Income Funds held securities of Lehman Brothers totaling $10,451,281 $9,391,482,
$20,975,017 and $309,065, respectively; the Money Market, Institutional Money
Market, Intermediate Bond and Bond IMMDEX_ Funds held securities of Goldman
Sachs totaling $12,773,554, $86,295,075, $5,064,265, and $10,128,530,
respectively; the Money Market, Institutional Money Market, Short-Term Bond
Market, Balanced Income and Equity Index Funds held securities of Morgan
Stanley totaling $13,289,712, $80,024,562 $466,931 $328,741 and $2,367,649,
respectively; and the Money Market, Institutional Money Market, Short-Term Bond
Market, Intermediate Bond Market and Equity Index Funds held securities of
Merrill Lynch totaling $9,831,946, $79,292,539, $1,443,344, $128,591 and
$1,250,175, respectively.
INVESTMENT STRATEGIES AND RISKS
Ratings. The ratings of Standard & Poor's, Moody's and other nationally
recognized rating agencies represent their opinions as to the quality of debt
securities. It should be emphasized, however, that ratings are general and are
not absolute standards of quality, and debt securities with the same maturity,
interest rate and rating may have different yields while debt securities of the
same maturity and interest rate with different ratings may have the same yield.
The payment of principal and interest on most debt securities purchased by
a Fund will depend upon the ability of the issuers to meet their obligations.
An issuer's obligations under its debt securities are subject to the provisions
of bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations. The power or ability of an issuer to meet its obligations
for the payment of interest on, and principal of, its debt securities may be
materially adversely affected by litigation or other conditions.
Subsequent to its purchase by a Fund, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser or Sub-Adviser will consider such an event
in determining whether the Fund involved should continue to hold the security.
For a more detailed description of ratings, see Appendix A.
Securities Lending. Although none of the Funds intend to during the
current fiscal year, each of the Funds may lend its portfolio securities to
unaffiliated domestic broker/dealers and other institutional investors pursuant
to agreements requiring that the loans be secured by collateral equal in value
to at least the market value of the securities loaned in order to increase
return on portfolio securities. Collateral for such loans may include cash,
securities of the U.S. Government, its agencies or instrumentalities, or an
irrevocable letter of credit issued by a bank which meets the investment
standards stated below under "Money Market Instruments," or any combination
thereof. There may be risks of delay in receiving additional collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans will be
made only to borrowers deemed by the Adviser (and Sub-Adviser in the case of the
International Equity Fund) to be of
<PAGE>
good standing and when, in the Adviser's (and Sub-Adviser's in the case of the
International Equity Fund) judgment, the income to be earned from the loan
justifies the attendant risks. When a Fund lends its securities, it continues
to receive interest or dividends on the securities loaned and may simultaneously
earn interest on the investment of the cash collateral which will be invested in
readily marketable, high-quality, short-term obligations. Although voting
rights, or rights to consent, attendant to securities on loan pass to the
borrower, such loans may be called at any time and will be called so that the
securities may be voted by a Fund if a material event affecting the investment
is to occur.
Securities lending arrangements with broker/dealers require that the
loans be secured by collateral equal in value to at least the market value of
the securities loaned. During the term of such arrangements, a Fund will
maintain such value by the daily marking-to-market of the collateral.
Money Market Instruments. The Funds may invest from time to time in "money
market instruments," a term that includes, among other things, U.S. government
obligations, repurchase agreements, cash, bank obligations, commercial paper,
variable amount master demand notes and corporate bonds with remaining
maturities of thirteen months or less. These investments are used to help meet
anticipated redemption requests or if other suitable securities are unavailable.
The MicroCap Fund's investments in money market instruments under normal market
conditions are expected to represent less than 10% of the Fund's net assets, but
may increase to 30% during abnormal market conditions. The International Equity
Fund may reduce its holdings in equity and other securities and may invest up to
100% of its assets in certain short-term (less than twelve months to maturity)
and medium-term (not greater than five years to maturity) debt securities and in
cash (U.S. dollars, foreign currencies, or multicurrency units) for temporary
defensive purposes, during periods in which the Adviser (or the Sub-Adviser)
believes changes in economic, financial or political conditions make it
advisable.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits, including U.S. dollar-denominated
instruments issued or supported by the credit of U.S. or foreign banks or
savings institutions. Although the Funds will invest in money market
obligations of foreign banks or foreign branches of U.S. banks only where the
Adviser (and Sub-Adviser in the case of the International Equity Fund)
determines the instrument to present minimal credit risks, such investments may
nevertheless entail risks that are different from those of investments in
domestic obligations of U.S. banks due to differences in political, regulatory
and economic systems and conditions. All investments in bank obligations are
limited to the obligations of financial institutions having more than $1
billion in total assets at the time of purchase, and investments by each Fund in
the obligations of foreign banks and foreign branches of U.S. banks will not
exceed 25% of such Fund's total assets at the time of purchase. The Funds may
also make interest-bearing savings deposits in commercial and savings banks in
amounts not in excess of 5% of its net assets.
Investments by a Fund in commercial paper will consist of issues rated at
the time A-1 and/or P-1 by Standard & Poor's, Moody's or similar rating by
another nationally recognized rating agency. In addition, the Funds may acquire
unrated commercial paper and corporate bonds that are determined by the Adviser
at the time of purchase to be of comparable quality to rated instruments that
may be acquired by such Fund as previously described.
The Funds may also purchase variable amount master demand notes which are
unsecured instruments that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate. Although the notes are
not normally traded and there may be no secondary market in the notes, a Fund
may demand payment of the principal of the instrument at any time. The notes
are not typically rated by credit rating agencies, but issuers of variable
amount master demand notes must satisfy
<PAGE>
the same criteria as set forth above for issuers of commercial paper. If an
issuer of a variable amount master demand note defaulted on its payment
obligation, a Fund might be unable to dispose of the note because of the absence
of a secondary market and might, for this or other reasons, suffer a loss to the
extent of the default. The Funds invest in variable amount master demand notes
only when the Adviser (and Sub-Adviser in the case of the International Equity
Fund) deem the investment to involve minimal credit risk.
Repurchase Agreements. Each Fund may agree to purchase securities from
financial institutions subject to the seller's agreement to repurchase them at
an agreed upon time and price ("repurchase agreements"). During the term of the
agreement, the Adviser (and Sub-Adviser in the case of the International Equity
Fund) will continue to monitor the creditworthiness of the seller and will
require the seller to maintain the value of the securities subject to the
agreement at not less than 102% of the repurchase price. Default or bankruptcy
of the seller would, however, expose the Fund to possible loss because of
adverse market action or delay in connection with the disposition of the
underlying securities. The securities held subject to a repurchase agreement
may have stated maturities exceeding one year, provided the repurchase agreement
itself matures in less than one year.
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the securities underlying the repurchase agreement). Securities subject to
repurchase agreements will be held by the Funds' custodian (or sub-custodian) or
in the Federal Reserve/Treasury book-entry system or other authorized securities
depository. Repurchase agreements are considered to be loans under the 1940
Act.
Investment Companies. Each Fund currently intends to limit its
investments in securities issued by other investment companies so that, as
determined immediately after a purchase of such securities is made: (i) not
more than 5% of the value of the Fund's total assets will be invested in the
securities of any one investment company; (ii) not more than 10% of the value of
its total assets will be invested in the aggregate in securities of investment
companies as a group; and (iii) not more than 3% of the outstanding voting stock
of any one investment company will be owned by the Fund or by the Company as a
whole.
The Funds may invest from time to time in securities issued by other
investment companies which invest in high-quality, short-term debt securities.
Securities of other investment companies will be acquired by the Funds within
the limits prescribed by the 1940 Act. As a shareowner of another investment
company, the Funds would bear, along with other shareowners, its pro rata
portion of the other investment compan''s expenses, including advisory fees, and
such fees and other expenses will be borne indirectly by the Fund's shareowners.
These expenses would be in addition to the advisory and other expenses that the
Funds bear directly in connection with their own operations.
U.S. Government Obligations. The Funds may invest in a variety of U.S.
Treasury obligations including bonds, notes and bills which mainly differ only
in their interest rates, maturities and time of issuance. The Funds may also
invest in other securities issued or guaranteed by the U.S. government, its
agencies and instrumentalities; such as obligations of Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
Federal National Mortgage Association, General Services Administration, Central
Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Maritime Administration, and Resolution Trust Corp.
<PAGE>
No assurance can be given that the U.S. government will provide financial
support to U.S. government-sponsored agencies or instrumentalities if it is not
obligated to do so by law.
Bank Obligations. For purposes of the Fund'' investment policies with
respect to bank obligations, the assets of a bank or savings institution will be
deemed to include the assets of its domestic and foreign branches. A Fund's
investments in the obligations of foreign branches of U.S. banks and of foreign
banks may subject the Fund to investment risks (similar to those
discussed below under "Foreign Securities and American Depository Receipt") that
are different in some respects from those of investments in obligations of U.S.
domestic issuers. Such risks include future political and economic
developments, the possible imposition of withholding taxes on interest income,
possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls or the adoption of other foreign governmental
restrictions which might adversely affect the payment of principal and interest
of such obligations. In addition, foreign branches of U.S. banks and foreign
banks may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting and record keeping standards than those
applicable to domestic branches of U.S. banks.
Restricted Securities. The Funds may invest up to 10% of net assets (15%
of net assets for the MicroCap Fund) in securities that are illiquid at the
time of purchase. While these holdings may offer more potential for growth,
they may present a higher degree of business and financial risk, which can
result in substantial losses. The Funds may have difficulty valuing these
holdings and may be unable to sell these holdings at the time or price desired.
Restricted securities may include Rule 144 Securities.
Borrowings and Reverse Repurchase Agreements. Each Fund may borrow
money to the extent allowed (as described in the under Additional Investment
Limitations below) to meet shareowner redemptions from banks or through "reverse
repurchase agreements." If the securities held by a Fund should decline in value
while borrowings are outstanding, the net asset value of a Fund's outstanding
shares will decline in value by proportionately more than the decline in value
suffered by a Fund's securities. As a result, a Fund's share price may be
subject to greater fluctuation until the borrowing is paid off.
Reverse repurchase agreements are considered to be borrowings under the
1940 Act. At the time a Fund enters into a reverse repurchase agreement (an
agreement under which the Fund sells portfolio securities and agrees to
repurchase them at an agreed-upon date and price), it will place in a segregated
custodial account U.S. government securities or other liquid high-grade debt
securities having a value equal to or greater than the repurchase price
(including accrued interest), and will subsequently monitor the account to
insure that such value is maintained. Reverse repurchase agreements involve the
risk that the market value of the securities sold by the Fund may decline below
the price of the securities it is obligated to repurchase.
Preferred Stocks. The Balanced Income Fund, Balanced Growth Fund,
Growth and Income Fund, Growth Fund, Special Growth Fund, International Equity
Fund, Emerging Growth Fund MicroCap Fund, Short-Term Bond Market Fund,
Intermediate Bond Market Fund and Bond IMMDEX_ Fund may invest in preferred
stocks. Preferred stocks are securities that represent an ownership interest
providing the holder with claims on the issuer's earnings and assets before
common stock but after bond owners. Unlike debt securities, the obligations of
an issuer of preferred stock, including dividend and other payment obligations,
may not typically be accelerated by the holders of such preferred stock on the
occurrence of an event of default (such as a covenant default or filing of a
bankruptcy petition) or other non-compliance by the issuer with the terms of the
preferred stock. Often, however, on the occurrence of any such event of default
or non-compliance by the issuer, preferred stockholders will be entitled to gain
<PAGE>
representation on the issuer's board of directors or increase their existing
board representation. In addition, preferred stockholders may be granted voting
rights with respect to certain issues on the occurrence of any event of default.
Each of the Short-Term Bond Market Fund, Intermediate Bond Market Fund and Bond
IMMDEX_ Fund will limit its investments in preferred stock to no more than 5% of
its respective net assets.
When-Issued Purchases, Delayed Delivery and Forward Commitments.
These Funds may purchase or sell particular securities with payment and delivery
taking place at later date. The price or yield obtained in a transaction may be
less favorable than the price or yield available in the market when the
securities delivery takes place. Each Fund's forward commitments and when-issued
purchases are not expected to exceed 25% (except the MicroCap Fund which is
limited to 20%) of the value of its total assets absent unusual market
conditions. When any Fund agrees to purchase securities on a when-issued or
delayed delivery basis or enter into a forward commitment to purchase
securities, its custodian will set aside cash or liquid high grade debt
securities equal to the amount of the commitment in a segregated account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case the Fund may be required subsequently to
place additional assets in the segregated account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitments. It
may be expected that the market value of a Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because a Fund will set aside cash or
liquid assets to satisfy its purchase commitments in the manner described, the
Fund's liquidity and ability to manage its portfolio might be affected in the
event its commitments ever exceeded 25% of the value of its assets. In the case
of a forward commitment to sell portfolio securities, the Fund's custodian will
hold the portfolio securities themselves in a segregated account while the
commitment is outstanding. When-issued and forward commitment transactions
involve the risk that the price or yield obtained in a transaction (and
therefore the value of a security) may be less favorable then the price or yield
(and therefore the value of a security) available in the market when the
securities delivery takes place.
The Funds will make commitments to purchase securities on a when-issued
basis or to purchase or sell securities on a forward commitment basis only with
the intention of completing the transaction and actually purchasing or selling
the securities. If deemed advisable as a matter of investment strategy,
however, a Fund may dispose of or renegotiate a commitment after it is entered
into, and may sell securities it has committed to purchase before those
securities are delivered to the Fund on the settlement date. In these cases the
Fund may realize a capital gain or loss.
When these Funds engage in when-issued, delayed delivery and forward
commitment transactions, they rely on the other party to consummate the trade.
Failure of such party to do so may result in a Fund incurring a loss or missing
an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their market value, are taken into account when determining the net asset value
of a Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date. When a Fund makes a
forward commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets. Fluctuations in the market value
of the underlying securities are not reflected in the Fund's net asset value as
long as the commitment remains in effect.
<PAGE>
Other Investment Considerations - Emerging Growth Fund and MicroCap Fund
- -------------------------------------------------------------------------
Short Sales. In a short sale transaction, a Fund borrows a security from a
broker and sells it with the expectation that the market price will drop and the
Fund will be able to replace the borrowed security by repurchasing the same
security at a lower price. These transactions may result in gains if a
security's price declines, but may result in losses if a security's price does
not decline.
Other Investment Considerations - Balanced Income Fund, Balanced Growth Fund,
- -----------------------------------------------------------------------------
Growth and Income Fund, Growth Fund, Special Growth Fund, Emerging Growth Fund,
- -----------------------------------------------------------------------------
MicroCap Fund and International Equity Fund
- -------------------------------------------
The Balanced Income, Balanced Growth, Growth and Income, Growth, Special
Growth, Emerging Growth, MicroCap and International Equity Funds maintain a
long-term investment horizon with respect to investments in equity securities.
However, when a company's growth in earnings and valuation results in price
appreciation that reaches a level which meets the Fund's established return
objective, the stock is normally sold. Holdings are also sold if there has been
significant deterioration in the underlying fundamentals of the securities
involved since their acquisition. Sale proceeds are either re-invested in money
market instruments or in other securities which meet the respective Fund's
investment criteria. Each Fund's investment in equity securities may include
limited partnership interests.
The increase or decrease of cash equivalents in a Fund is primarily the
residual effect of the research process. The portion of a Fund invested in cash
equivalents tends to rise when the pool of acceptable securities is limited and
tends to fall when the Fund's valuation screening process identifies a large
number of attractive securities. Short-term forecasts for the economy and
financial markets are not an important determinant of the level of cash
equivalents in a Fund. Under normal market conditions, not more than 65% of the
value of the Balanced Growth Fund's and at least 50% of the value of the Growth
Fund's, Special Growth Fund's and Emerging Growth Fund's total assets and at
least 65% of the value of the MicroCap Fund's and the International Equity
Fund's total assets will be invested in equity securities. The Funds do not
attempt to "time" the securities market.
Certain securities owned by the Special Growth Fund, Emerging Growth Fund
and MicroCap Fund may be traded only in the over-the-counter market or on a
regional securities exchange, may be listed only in the quotation service
commonly known as the "pink sheets" and may not be traded every day or in the
volume typical of trading on a national securities exchange. As a result, there
may be a greater fluctuation in the value of redemptions or for other reasons,
to sell these securities at a discount from market prices, to sell during
periods when such disposition is not desirable, or to make many small sales over
a lengthy period of time.
Other Investment Considerations _ All Funds, Except the Equity Index Fund
- -------------------------------------------------------------------------
Foreign Equities. The Funds' investments in the securities of foreign
issuers may include both securities of foreign corporations and banks, as well
as securities of foreign governments and their political subdivisions.
Investments in foreign securities, whether made directly or through ADRs ,
involve certain inherent risks and considerations not typically associated with
investing in U.S. companies, such as
<PAGE>
political or economic instability of the issuer or the country of issue, the
difficulty of predicting international trade patterns, changes in exchange rates
of foreign currencies and the possibility of adverse changes in investment or
exchange control regulations. There may be less publicly available information
about a foreign company than about a U.S. company. Foreign companies are not
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. In addition,
foreign banks and foreign branches of U.S. banks are subject to less stringent
reserve requirements and to different accounting, auditing, reporting and
recordkeeping standards than those applicable to domestic branches of U.S.
banks. Further, foreign stock markets are generally not as developed or
efficient as those in the U.S., and in most foreign markets volume and liquidity
are less than in the U.S. Fixed commissions on foreign stock exchanges are
generally higher than the negotiated commissions on U.S. exchanges, and there is
generally less government supervision and regulation of foreign stock exchanges,
brokers and companies than in the U.S. With respect to certain foreign
countries, there is a possibility of expropriation or confiscatory taxation,
limitations on the removal of assets or diplomatic developments that could
affect investment within those countries. Additionally, foreign securities and
dividends and interest payable on those securities may be subject to foreign
taxes, including foreign withholding taxes, and other foreign taxes may apply
with respect to securities transactions. See "Taxes." Transactions in foreign
securities may involve greater time from the trade date until the settlement
date than domestic securities transactions, and may involve the risk of possible
losses through the holding of securities in custodians and securities
depositories in foreign countries. Additional costs associated with an
investment in foreign securities may include higher transaction costs and the
cost of foreign currency conversions. Changes in foreign exchange rates will
also affect the value of securities denominated or quoted in currencies other
than the U.S. dollar. In this regard, the Funds, with the exception of the
International Equity Fund, do not intend to hedge against foreign currency risk
(except on unsettled trades). Changes in currency exchange rates will affect
the value of unhedged positions and will impact a Fund's net asset value
(positively or negatively) irrespective of the performance of the portfolio
securities held by the Fund. See the section entitled "Foreign Currency
Transactions" below for the International Equity Fund. The Funds and their
shareowners may encounter substantial difficulties in obtaining and enforcing
judgments against non-U.S. resident individuals and companies. Because of these
and other factors, securities of foreign companies acquired by the Funds
may be subject to greater fluctuation in price than securities of domestic
companies. Furthermore, because the International Equity Fund will invest
substantially all (and in any event, at least 65%) of the value of its total
assets in foreign securities, the net asset value of the International Equity
Fund is expected to be volatile.
Other Investment Considerations - International Equity Fund
- ------------------------------------------------------------
Foreign Futures and Options on Futures. The Adviser and Sub-Adviser may
determine that it would be in the interest of the International Equity Fund to
purchase or sell futures contracts, including interest rate, index, and currency
futures, for the purpose of remaining fully invested and reducing transactions
costs. A stock index futures contract is a bilateral agreement pursuant to which
parties agree to take or make delivery of an amount of cash equal to a specified
dollar amount times the difference between the index value (which assigns
relative values to the securities included in the index) at the close of the
last trading day of the contract and the price at which the futures contract is
originally struck. No physical delivery of the underlying securities in the
index is made.
The International Equity Fund may also purchase put and call
options, and write covered put and call options, on futures in which it is
allowed to invest. The purchase of futures or call options thereon can serve as
a long hedge, and the sale of futures or the purchase of put options thereon can
serve as a short hedge. Writing covered call options on futures contracts can
serve as a limited short hedge, and
<PAGE>
writing covered put options on futures contracts can serve as a limited long
hedge, using a strategy similar to that used for writing covered options in
securities. The Fund's hedging may include purchases of futures as an offset
against the effect of expected increases in securities prices or currency
exchange rates and sales of futures as an offset against the effect of expected
declines in securities prices or currency exchange rates. The Fun''s futures
transactions may be entered into for hedging purposes or risk management. The
Fund may also write put options on futures contracts while at the same time
purchasing call options on the same futures contracts in order to create
synthetically a long futures contract position. Such options would have the
same strike prices and expiration dates. The Fund will engage in this strategy
only when the Adviser (or the Sub-Adviser) believes it is more advantageous to
the Fund than is purchasing the futures contract.
The International Equity Fund intends to limit its transactions in futures
contracts and related options so that not more than 25% of its net assets are at
risk. In connection with a futures transaction, unless the transaction is
covered in accordance with SEC positions, the Fund will maintain a segregated
account with its custodian or sub-custodian consisting of cash or liquid high
grade debt securities equal to the entire amount at risk (less margin deposits)
on a continuous basis.
Futures purchased or sold by the International Equity Fund (and related
options) will normally be traded in foreign securities. Participation in
foreign futures and foreign options transactions involves the execution and
clearing of trades on or subject to the rules of a foreign board of trade.
Neither the National Futures Association nor any domestic exchange regulates
activities of any foreign boards of trade, including the execution, delivery and
clearing of transactions, or has the power to compel enforcement of the rules of
a foreign board of trade or any applicable foreign law. This is true even if
the exchange is formally linked to a domestic market so that a position taken on
the market may be liquidated by a transaction on another market. Moreover, such
laws or regulations will vary depending on the foreign country in which the
foreign futures or foreign options transaction occurs. For these reasons,
customers who trade foreign futures of foreign options contracts may not be
afforded certain of the protective measures provided by the Commodity Exchange
Act, the Commodity Futures Trading Commission's ("CFTC") regulations and the
rules of the National Futures Association and any domestic exchange, including
the right to use reparations proceedings before the CFTC and arbitration
proceedings provided by the National Futures Association or any domestic futures
exchange. In particular, the International Equity Fund's investments in foreign
futures or foreign options transactions may not be provided the same protections
in respect of transactions on United States futures exchanges. In addition, the
price of any foreign futures or foreign options contract and, therefore the
potential profit and loss thereon may be affected by any variance in the foreign
exchange rate between the time an order is placed and the time it is
liquidated, offset or exercised. For a further description of futures contracts
and related options, including a discussion of the limitations imposed by
federal tax law, See Appendix B.
Reverse Repurchase Agreements. The International Equity Fund may engage
in reverse repurchase agreements to facilitate portfolio liquidity, a practice
common in the mutual fund industry, for temporary purposes only. In a reverse
repurchase agreement, the Fund would sell a security and enter into an agreement
to repurchase the security at a specified future date and price. The Fund
generally retains the right to interest and principal payments on the security.
Since the Fund receives cash upon entering into a reverse repurchase agreement,
it may be considered a borrowing. (See "Borrowing" above.) When required by
guidelines of the SEC, the Fund will set aside permissible liquid assets in a
segregated account to secure its obligations to repurchase the security.
Forward Currency Contracts. The International Equity Fund may enter into
forward currency contracts; such transactions may serve as long hedges (for
example, if the Fund seeks to buy a security
<PAGE>
denominated in a foreign currency, it may purchase a forward currency contract
to lock in the $US price of the security) or as short hedges (the Fund
anticipates selling a security denominated in a foreign currency may sell a
forward currency contract to lock in the $US equivalent of the anticipated sales
proceeds).
The International Equity Fund may seek to hedge against changes in
the value of a particular currency by using forward contracts on another foreign
currency or a basket of currencies, the value of which the Adviser or Sub-
Adviser believes will have a positive correlation to the values of the currency
being hedged. In addition, the Fund may use forward currency contracts to shift
exposure to foreign currency fluctuations from one country to another. For
example, if the Fund owns securities denominated in a foreign currency and the
Adviser or Sub-Adviser believes that currency will decline relative to another
currency, it might enter into a forward contract to sell an appropriate amount
of the first foreign currency, with payment to be made in the second currency.
Transactions that use two foreign currencies are sometimes referred to as "cross
hedges." Use of different foreign currency magnifies the risk that movements in
the price of the instrument will not correlate or will correlate unfavorably
with the foreign currency being hedged.
The cost to the International Equity Fund of engaging in forward
currency contracts varies with factors such as the currency involved, the length
of the contract period and the market conditions then prevailing. Because
forward currency contracts are usually entered into on a principal basis, no
fees or commissions are involved. When the Fund enters into a forward currency
contract, it relies on the counterparty to make or take delivery of the
underlying currency at the maturity of the contract. Failure by the
counterparty to do so would result in the loss of any expected benefit of the
transaction.
As is the case with future contracts, holders and writers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by selling or purchasing, respectively, an
instrument identical to the instrument held or written. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contacts only by
negotiating directly with the counterparty. Thus, there can be no assurance
that the International Equity Fund will in fact be able to close out a forward
currency contract at a favorable price prior to maturity. In addition, in the
event of insolvency of the counterparty, the Fund might be unable to close out a
forward currency contract at any time prior to maturity. In either event, the
Fund would continue to be subject to market risk with respect to the position,
and would continue to be required to maintain a position in securities
denominated in the foreign currency or to maintain cash or securities in a
segregated account.
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the foreign
currency contract has been established. Thus, the International Equity Fund
might need to purchase or sell foreign currencies in the spot (cash) market to
the extent such foreign currency market movements is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
Foreign Currency Transactions. Although the International Equity Fund
values its assets daily in U.S. dollars, the Fund is not required to convert its
holdings of foreign currencies to U.S. dollars on a daily basis. The Fund's
foreign currencies generally will be held as "foreign currency call accounts" at
foreign branches of foreign or domestic banks. These accounts bear interest at
negotiated rates and are payable upon relatively short demand periods. If a
bank became insolvent, the Fund could suffer a loss of some or all of the
amounts deposited. The Fund may convert foreign currency to U.S. dollars from
time to time. Although foreign exchange dealers generally do not charge a
stated commission or fee for
<PAGE>
conversion, the prices posted generally include a "spread," which is the
difference between the prices at which the dealers are buying and selling
foreign currencies.
Except where segregated accounts are not required under the 1940 Act, when
this Fund enters into a forward contract or currency futures, the Custodian will
place cash, U.S. government securities, or high-grade debt securities into a
segregated account of this Fund in an amount equal to the value of the Fund's
total assets committed to consummation of forward contracts and currency
futures. If the value of these segregated securities declines, additional cash
or securities will be placed in the account on a daily basis so that the account
value is at least equal to the Fund's commitments to such contracts.
High Risk Debt Securities ("Junk Bonds").
-----------------------------------------
As stated in the International Equity Fund's Prospectus, the Fund may invest
up to 5% of its net assets in non-investment grade debt securities. Debt
securities rated below Baa by Moody's or BBB by S&P, or of comparable
quality, are considered below investment grade. Non-investment grade debt
securities ""high risk debt securities") may include (i) debt not in default
but rated as low as C by Moody's, S&P, or Fitch IBCA, Inc. ""Fitch IBC""), CC
by Thomson BankWatch ""TB"") or CCC by Duff & Phelps, Inc. ""D&""); (ii)
commercial paper rated as low as C (or D if in default) by S&P or Fitch IBCA,
Not Prime by Moody's, Duff 4 (or Duff 5 if in default) by Duff, TBW-4 by
TBW; and (iii) unrated debt securities of comparable quality. Each Fund may
also buy debt in default (rated D by S&P or TBW or Fitch IBCA, DD by Duff,
or of comparable quality) and commercial paper in default (rated D by S&P or
Fitch IBCA, Not Prime by Moody's, Duff 5 by Duff, TBW-4 by TBW, or of
comparable quality). Such securities, while generally offering higher yields
than investment grade securities with similar maturities, involve greater
risks, including the possibility of (or actual) default or bankruptcy.
They are regarded as predominantly speculative with respect to the issue's
capacity to pay interest and repay principal.
The market for high risk debt securities is relatively new and its growth
has paralleled a long economic expansion. It is not clear how this market would
withstand a prolonged recession or economic downturn, which could severely
disrupt this market and adversely affect the value of such securities.
Market values of high risk debt securities tend to reflect individual
corporate developments to a greater extent, and tend to be more sensitive to
economic conditions, than do higher rated securities. As a result, high risk
debt securities generally involve more credit risks than higher rated debt.
During an economic downturn or a sustained period of rising interest rates,
highly leveraged issuers of high risk debt may experience financial stress and
may not have sufficient revenues to meet their payment obligations. An issue's
ability to service its debt obligations may also be adversely affected by
specific corporate developments, its own inability to meet specific projected
business forecasts, or unavailability of additional financing. The risk of loss
due to default by an issuer is significantly greater for high risk debt than for
higher rated debt because the high risk debt is generally unsecured and often
subordinated.
If the issuer of high risk debt defaulted, the International Equity Fund
might incur additional expenses in seeking recovery. Periods of economic
uncertainty and changes would also generally result in increased volatility in
the market prices of these securities and thus in the Fund's net asset value.
If the Fund invested in high risk debt experiences unexpected net
redemptions in a rising interest rate market, it may be forced to liquidate a
portion of its portfolio without regard to their investment merits. Due to the
limited liquidity of high risk debt securities, the Fund may be forced to
liquidate these securities at a substantial discount. Any such liquidation
would reduce the Fund's asset base over which
<PAGE>
expenses could be allocated and could result in a reduced rate of return for the
Fund.
During periods of falling interest rates, issuers of high risk debt
securities that contain redemption, call or prepayment provisions are likely to
redeem or repay the securities and refinance with other debt at a lower interest
rate. If the Fund holds debt securities that are refinanced or otherwise
redeemed, it may have to replace the securities with a lower yielding security,
which would result in a lower return.
Credit ratings evaluate safety of principal and interest payments, but do
not evaluate the market value risk of high risk securities and, therefore, may
not fully reflect the true risks of an investment. In addition, rating agencies
may not make timely changes in a rating to reflect changes in the economy or in
the condition of the issuer that affect the market value of the security.
Consequently, credit ratings are used only as a preliminary indicator of
investment quality. Investments in high risk securities will depend more
heavily on the Sub-Adviser's credit analysis than investment-grade debt
securities. The Adviser (or the Sub-Adviser) will monitor the Fund's
investments and evaluate whether to dispose of or retain high risk securities
whose credit quality may have changed.
The Fund may have difficulty disposing of certain high risk securities with
a thin trading market. Not all dealers maintain markets in all these
securities, and for many such securities there is no established retail
secondary market. The Adviser (or the Sub-Adviser) anticipates that such
securities may be sold only to a limited number of dealers or institutional
investors. To the extent a secondary trading market does exist, it is generally
not as liquid as that for higher-rated securities; a lack of a liquid secondary
market may adversely affect the market price of a security, which may in turn
affect the Fund's net asset value and ability to dispose of particular
securities in order to meet liquidity needs or to respond to a specific economic
event, or may make it difficult for the Fund to obtain accurate market
quotations for valuation purposes. Market quotations on many high risk
securities may be available only from a limited number of dealers and may not
necessarily represent firm bids or prices for actual sales. During periods of
thin trading, the spread between bid and asked prices is likely to increase
significantly, and adverse publicity and investor perceptions (whether or not
based on fundamental analysis) may decrease the value and liquidity of a high
risk security.
Legislation has from time to time been or may be proposed that is designed
to limit the use of certain high risk debt. It is not possible to predict the
effect of such legislation on the market for high risk debt. However, any
legislation that may be proposed or enacted could have a material adverse effect
on the value of these securities, the existence of a secondary trading market
for the securities and, as a result, the Fund's net asset values.
Sovereign Debt. The International Equity Fund may invest up to 5% of its
net assets in obligations of foreign countries and political entities
("Sovereign Debt"), which may trade at a substantial discount from face value.
The Fund may hold and trade Sovereign Debt of emerging market countries in
appropriate circumstances and to participate in debt conversion programs.
Emerging country Sovereign Debt involves a high degree of risk, is
generally lower-quality debt, and is considered speculative in nature. The
issuer or governmental authorities that control Sovereign Debt repayment
"Sovereign Debtor") may be unable or unwilling to repay principal or interest
when due in accordance with the terms of the debt. A Sovereign Debtor's
willingness or ability to repay principal and interest due in a timely manner
may be affected by, among other factors, its cash flow situation, the extent of
its foreign reserves, the availability of sufficient foreign exchange on the
date a payment is due, the relative size of the debt service burden to the
economy as a whole, the Sovereign Debtor's policy towards the International
Monetary Fund (the "IMF'') and the political constraints to which the Sovereign
Debtor may be subject. Sovereign Debtors may also be dependent on expected
disbursements from
<PAGE>
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearage on their debt. The commitment of these third parties to
make such disbursements may be conditioned on the Sovereign Debtor's
implementation of economic reforms or economic performance and the timely
service of the debtor's obligations. The Sovereign Debtor's failure to meet
these conditions may cause these third parties to cancel their commitments to
provide funds to the Sovereign Debtor, which may further impair the debtor's
ability or willingness to timely service its debts. In certain instances, a Fund
may invest in Sovereign Debt that is in default as to payments of principal or
interest. A Fund holding non-performing Sovereign Debt may incur additional
expenses in connection with any restructuring of the issuer's obligations or in
otherwise enforcing its rights thereunder.
Brady Bonds. The International Equity Fund may invest up to 5% of its net
assets in Brady Bonds as part of its investment in Sovereign Debt of countries
that have restructured or are in the process of restructuring their Sovereign
Debt pursuant to the Brady Plan.
Brady Bonds are issued under the framework of the Brady Plan, an initiative
announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a
mechanism for debtor nations to restructure their outstanding external
indebtedness. The Brady Plan contemplates, among other things, the debtor
nation's adoption of certain economic reforms and the exchange of commercial
bank debt for newly issued bonds. In restructuring its external debt under the
Brady Plan framework, a debtor nation negotiates with its existing bank lenders
as well as the World Bank or IMF. The World Bank or IMF supports the
restructuring by providing funds pursuant to loan agreements or other
arrangements that enable the debtor nation to collateralize the new Brady Bonds
or to replenish reserves used to reduce outstanding bank debt. Under these loan
agreements or other arrangements with the World Bank or IMF, debtor nations have
been required to agree to implement certain domestic monetary and fiscal
reforms. The Brady Plan sets forth only general guiding principles for economic
reform and debt reduction, emphasizing that solutions must be negotiated on a
case-by-case basis between debtor nations and their creditors.
Brady Bonds are recent issues and do not have a long payment history.
Agreements implemented under the Brady Plan are designed to achieve debt and
debt-service reduction through specific options negotiated by a debtor nation
with its creditors. As a result, each country offers different financial
packages. Options have included the exchange of outstanding commercial bank debt
for bonds issued at 100% of face value of such debt, bonds issued at a discount
of face value of such debt, and bonds bearing an interest rate that increases
over time and the advancement of the new money for bonds. The principal of
certain Brady Bonds has been collateralized by U.S. Treasury zero coupon bonds
with a maturity equal to the final maturity of the Brady Bonds. Collateral
purchases are financed by the IMF, World Bank and the debtor nation's reserves.
Interest payments may also be collateralized in part in various ways.
Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity;
(ii) the collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds can be viewed as
speculative.
Other Investment Considerations - The Taxable Bond Funds and Balanced Funds
- ---------------------------------------------------------------------------
Mortgage-Backed and Asset-Backed Securities. The Funds may purchase
residential and commercial mortgage-backed as well as other asset-backed
securities (collectively called "asset-backed
<PAGE>
securities") that are secured or backed by automobile loans, installment sale
contracts, credit card receivables or other assets and are issued by entities
such as Government National Mortgage Association "GNMA"), Federal National
Mortgage Association "FNMA"), Federal Home Loan Mortgage Corporation "FHLMC"),
commercial banks, trusts, financial companies, finance subsidiaries of
industrial companies, savings and loan associations, mortgage banks and
investment banks. These securities represent interests in pools of assets in
which periodic payments of interest and/or principal on the securities are made,
thus, in effect passing through periodic payments made by the individual
borrowers on the assets that underlie the securities, net of any fees paid to
the issuer or guarantor of the securities.
The average life of these securities varies with the maturities and the
prepayment experience of the underlying instruments. The average life of a
mortgage-backed instrument may be substantially less than the original maturity
of the mortgages underlying the securities as the result of scheduled principal
payments and mortgage prepayments. The rate of such mortgage prepayments, and
hence the life of the certificates, will be a function of current market rates
and current conditions in the relevant housing and commercial markets. In
periods of falling interest rates, the rate of mortgage prepayments tends to
increase. During such periods, the reinvestment of prepayment proceeds by a
Fund will generally be at lower rates than the rates that were carried by the
obligations that have been prepaid. As a result, the relationship between
mortgage prepayments and interest rates may give some high-yielding mortgage-
related securities less potential for growth in value than non-callable bonds
with comparable maturities. In calculating the average weighted maturity of
each Fund, the maturity of asset-backed securities will be based on estimates of
average life. There can be no assurance that these estimates will be accurate.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-backed securities
and among the securities that they issue. Mortgage-backed securities guaranteed
by GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and interest
by GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA is a wholly owned U.S. government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-backed securities issued by FNMA
include FNMA Guaranteed Mortgage Pass-Through Certificates (also known as
"Fannie Maes") which are solely the obligations of FNMA and are not backed by or
entitled to the full faith and credit of the United States, but are supported by
the right of the issuer to borrow from the Treasury. FNMA is a government-
sponsored organization owned entirely by private stockholders. Fannie Maes are
guaranteed as to timely payment of the principal and interest by FNMA.
Mortgage-backed securities issued by the FHLMC include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress. Freddie Macs are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute a debt or obligation of the United
States or of any Federal Home Loan Bank. Freddie Macs entitle the holder to
timely payment of interest, which is guaranteed by the FHLMC. FHLMC guarantees
either ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When FHLMC does not guarantee timely payment of
principal, FHLMC may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
As stated in the Prospectus for the Funds, mortgage-backed securities such
as collateralized mortgage obligations ("CMOs") may be purchased. There are
several types of mortgage-backed securities which provide the holder with a pro
rata interest in the underlying mortgages, and CMOs
<PAGE>
which provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. CMOs are issued in
multiple classes and their relative payment rights may be structured in many
ways. In many cases, however, payments of principal are applied to the CMO
classes in order of their respective maturities, so that no principal payments
will be made on a CMO class until all other classes having an earlier maturity
date are paid in full. The classes may include accrual certificates (also known
as "Z-Bonds"), which do not accrue interest at a specified rate until other
specified classes have been retired and are converted thereafter to interest-
paying securities. They may also include planned amortization classes "PACs")
which generally require, within certain limits, that specified amounts of
principal be applied to each payment date, and generally exhibit less yield
and market volatility than other classes. Investments in CMO certificates can
expose the Fund to greater volatility and than other types of
mortgage-backed obligations. Prepayments on mortgage-backed securities
generally increase with falling interest rates and decrease with rising interest
rates; furthermore, prepayment rates are influenced by a variety of economic and
social factors. Each Taxable Bond Funds will invest less than 50% of its
respective total assets in CMOs.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected may reduce yield to maturity, while a prepayment rate that is slower
than expected may have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments may increase, while slower than expected prepayments may
decrease, yield to maturity. Moreover, asset-backed securities may involve
certain risks that are not presented by mortgage-backed securities arising
primarily from the nature of the underlying assets (i.e., credit card and
automobile loan receivables as opposed to real estate mortgages). For example,
credit card receivables are generally unsecured and may require the repossession
of personal property upon the default of the debtor which may be difficult or
impracticable in some cases.
Asset-backed securities may be subject to greater risk of default during
periods of economic downturn than other instruments. Also, while the secondary
market for asset-backed securities is ordinarily quite liquid, in times of
financial stress the secondary market may not be as liquid as the market for
other types of securities, which could result in a Fund experiencing difficulty
in valuing, or liquidating such securities.
In general, the collateral supporting non-mortgage asset-backed securities
is of shorter maturity than mortgage loans. Like other fixed-income securities,
when interest rates rise the value of an asset-backed security generally will
decline; however, when interest rates decline, the value of an asset-backed
security with prepayment features may not increase as much as that of other
fixed-income securities.
Non-mortgage asset-backed securities do not have the benefit of the same
security in the collateral as mortgage-backed securities. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
have given debtors the right to reduce the balance due on the credit cards.
Most issuers of automobile receivables permit the servicers to retain possession
of the underlying obligations. If the servicer were to sell these obligations
to another party, there is the risk that the purchaser would acquire an interest
superior to that of the holders of related automobile receivables. In addition,
because of the large number of vehicles involved in a typical issuance and
technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have an effective security interest in all of the
obligations backing such receivables. Therefore, there is a possibility that
payments on the receivables
<PAGE>
together with recoveries on repossessed collateral may not, in some cases, be
able to support payments on these securities.
Variable Rate Medium Term Notes. The Funds may purchase variable rate
medium term notes which provide for periodic adjustments in the interest rates.
The adjustments in interest rates reflect changes in an index (which may be the
Lehman Brothers 1-3 Year Government/Corporate Bond Index, the Lehman Brothers
Intermediate Government/Corporate Bond Index or the Lehman Brothers
Government/Corporate Bond Index).
Other Investment Considerations - Taxable Bond Funds and Balanced Funds.
- ------------------------------------------------------------------------
Stripped Securities. Each Fund may purchase participations in trusts that
hold U.S. Treasury and agency securities (such as TIGRs and CATs) and also may
purchase Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments of U.S. government obligations. These participations are issued at a
discount to their "face value," and may (particularly in the case of stripped
mortgage-backed securities) exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors.
Other Investment Considerations - Balanced Funds and Emerging Growth Fund
- --------------------------------------------------------------------------
Subsequent to its purchase by a Fund, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the security. The Adviser will sell
promptly any securities that are not rated investment grade by at least one
nationally recognized rating agency and that exceed 5% of the Fund's net assets.
Other Investment Considerations - Taxable Bond Funds
- ----------------------------------------------------
In order to reduce a negative deviation in return between each Fund and its
respective bond index, each Fund will normally attempt to be fully invested.
In an effort to make a Fund's duration and return comparable to those of
its respective bond index, the Adviser will monitor a Fund's portfolio and
market changes in accordance with procedures established by the Adviser under
the supervision of the Board of Directors. The calculation of the Fund's
duration and average portfolio maturity will be based on certain estimates
relating to the duration and maturity of the securities held by a Fund. There
can be no assurance that these estimates will be accurate or that the duration
or average portfolio maturity of a Fund will always remain within the maximum
limits described in the Prospectus. The value of each Fund's portfolio, as is
generally the case with each bond index, can be expected to vary inversely from
changes in prevailing interest rates.
Other Investment Considerations- Tax-Exempt Intermediate Bond Fund
- -------------------------------------------------------------------
The Fund's cash balances may be invested in short-term municipal notes and
tax-exempt commercial paper, as well as municipal bonds with remaining
maturities of thirteen months or less and securities issued by other investment
companies which invest in high quality, short-term municipal debt securities.
The value of the Fund's portfolio can be expected to vary inversely to changes
in prevailing interest rates.
<PAGE>
From time to time, on a temporary defensive basis due to market conditions,
the Fund may hold without any limitation uninvested cash reserves and invest
without any limitations in high quality short-term taxable money market
obligations in such proportions as in the opinion of the Adviser, prevailing
market or economic conditions warrant. Uninvested cash reserves will not earn
income. See "Investment Strategies & Risks - Money Market Instruments" above.
Taxable obligations acquired by the Fund will not exceed under normal conditions
20% of the Fund's net assets at the time of purchase.
Municipal Obligations. Municipal Obligations which may be acquired by the
Tax-Exempt Intermediate Bond Fund include debt obligations issued by
governmental entities to obtain funds for various public purposes, including the
construction of a wide range of public facilities, the refunding of outstanding
obligations, the payment of general operating expenses and the extension of
loans to public institutions and facilities.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issue at the time of issuance. Neither the Fund not
the Adviser will review the proceedings relating to the issuance of Municipal
Obligations or the basis for such opinions.
Certain of the Municipal Obligations held by the Fund may be insured at the
time of issuance as to the timely payment of principal and interest. The
insurance policies will usually be obtained by the issuer of the Municipal
Obligation at the time of its original issuance. In the event that the issuer
defaults on interest or principal payment, the insurer will be notified and will
be required to make payment to the bondholders. There is, however, no guarantee
that the insurer will meet its obligations. In addition, such insurance will
not protect against market fluctuations caused by changes in interest rates and
other factors, including credit downgrades, supply and demand. The Fund may,
from time to time, invest more than 25% of its assets in Municipal Obligations
covered by insurance policies.
The payment of principal and interest on most securities purchased by the
Fund will depend upon the ability of the issuers to meet their obligations. An
issuer's obligations under its Municipal Obligations are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by federal or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on, and principal of, its Municipal Obligations may be
materially adversely affected by litigation or other conditions.
Certain types of Municipal Obligations (private activity bonds) have been
or are issued to obtain funds to provide privately operated housing facilities,
pollution control facilities, convention or trade show facilities, mass transit,
airport, port or parking facilities and certain local facilities for water
supply, gas, electricity or sewage or solid waste disposal. Private activity
bonds are also issued on behalf of privately held or publicly owned corporations
in the financing of commercial or industrial facilities. State and local
governments are authorized in most states to issue private activity bonds for
such purposes in order to encourage corporations to locate within their
communities. The principal and interest on these obligations may be payable
from the general revenues of the users of such facilities.
Municipal Obligations purchased by the Fund may be backed by letters of
credit issued by foreign and domestic banks and other financial institutions.
Such letters of credit are not necessarily subject to federal deposit insurance
and adverse developments in the banking industry could have a
<PAGE>
negative effect on the credit quality of the Fund's portfolio securities and its
ability to maintain a stable net asset value and share price. Letters of credit
issued by foreign banks, like other obligations of foreign banks, may involve
certain risks in addition to those of domestic obligations.
The Fund may purchase put options on Municipal Obligations. A put gives
the Fund the right to sell a Municipal Obligation at a specified price at any
time before a specified date. A put will be sold, transferred or assigned only
with the related Municipal Obligation. The Fund will acquire puts only to
enhance liquidity, shorten the maturity of the related municipal security or
permit the Fund to invest its assets at more favorable rates. The aggregate
price of a security subject to a put may be higher than the price which
otherwise would be paid for the security without such an option, thereby
increasing the security's cost and reducing its yield.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Obligations. For example, under the Tax Reform Act of
1986, interest on certain private activity bonds must be included in an
investor's alternative minimum taxable income, and corporate investors must
include all tax-exempt interest in their federal alternative minimum taxable
income. The Company cannot, of course, predict what legislation, if any, may be
proposed in the future as regards the income tax status of interest on Municipal
Obligations, or which proposals, if any, might be enacted. Such proposals,
while pending or if enacted, might materially and adversely affect the
availability of Municipal Obligations for investment by the Fund and the
liquidity and value of the Fund's portfolio. In such an event, the Company
would reevaluate the Fund's investment objective and policies and consider
possible changes in its structure or possible dissolution.
Municipal Lease Obligations. As stated in the Prospectus, the Fund may
acquire municipal lease obligations which are issued by a state or local
government authority to acquire land and a wide variety of equipment and
facilities. These obligations typically are not fully backed by the
municipality's credit, and their interest may become taxable if the lease is
assigned. If the funds are not appropriated for the following year's lease
payments, the lease may terminate, with the possibility of default on the lease
obligation and significant loss to the Fund. Certificates of participation in
municipal lease obligations or installment sale contracts entitle the
holder to a proportionate interests in the lease-purchase payments made. The
Adviser determines and monitors the liquidity of municipal lease obligations
(including certificates of participation) under guidelines approved by the Board
of Directors requiring the Advisor to evaluate the credit quality of such
obligations and report on the nature of and the Fund's trading experience in the
municipal lease market. Under the guidelines, municipal lease obligations that
are not readily marketable and transferable are treated as illiquid. In making
a determination that a municipal lease obligation is liquid, the Adviser may
consider, among other things (i) whether the lease can be canceled; (ii) the
likelihood that the assets represented by the lease can be sold; (iii) the
strength of the lessee's general credit; (iv) the likelihood that the
municipality will discontinue appropriating funds for the leased property
because the property is no longer deemed essential to the operations of the
municipality; and (v) availability of legal recourse in the event of failure to
appropriate. The Fund will not knowingly invest more than 10% of the value of
its net assets in securities, including municipal leases, that are illiquid.
Stand-By Commitments. The Tax-Exempt Intermediate Bond Fund may acquire
"stand-by commitments" with respect to Municipal Obligations held in its
portfolio. Under a "stand-by commitment" a dealer agrees to buy from the Fund,
at the Fund's option, specified Municipal Obligations at a specified price.
"Stand-by commitment" acquired by the Fund may also be referred to in this
Statement of Additional Information as "put" options.
<PAGE>
The amount payable to the Fund upon its exercise of a "stand-by commitment"
is normally (i) the Fund's acquisition cost of the Municipal Obligations
(excluding any accrued interest which the Fund paid on their acquisition), less
any amortized market premium or plus any amortized market or original issue
discount during the period the Fund owned the securities, plus (ii) all
interest accrued on the securities since the last interest payment date during
that period. A stand-by commitment may be sold, transferred or assigned by the
Fund only with the instrument involved.
The Fund expects that "stand-by commitments" will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund may pay for a "stand-by commitment" either
separately in cash or by paying a higher price for the portfolio securities
which are acquired subject to the commitment (thus reducing the yield to
maturity otherwise available for the same securities). The total amount paid in
either manner for outstanding "stand-by commitments" held by the Fund will not
exceed 1/2 of 1% of the value of its total assets calculated immediately after
each "stand-by commitment" is acquired.
The Fund intends to enter into "stand-by commitments" only with dealers,
banks and broker/dealers which, in the investment adviser's opinion, present
minimal credit risks. The Fund's reliance upon the credit of these dealers,
banks and broker/dealers is secured by the value of the underlying Municipal
Obligations that are subject to a commitment.
The Fund would acquire "stand-by commitments" solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a "stand-by commitment" would not affect
the valuation or assumed maturity of the underlying Municipal Securities, which
would continue to be valued in accordance with the ordinary method of valuation
employed by the Fund. ""Stand-by commitment"" which would be acquired by the
Fund would be valued at zero in determining net asset value. Where the Fund
paid any consideration directly or indirectly for a "stand-by commitment" its
cost would be reflected as unrealized depreciation for the period during which
the commitment was held by the Fund.
Variable and Floating Rate Instruments. Municipal Obligations
purchased by the Fund may include variable and floating rate instruments issued
by industrial development authorities and other governmental entities. If such
instruments are unrated, they will be determined by the Fund's Adviser (under
the supervision of the Board of Directors) to be of comparable quality at the
time of purchase to investment grade. While there may be no active secondary
market with respect to a particular variable or floating rate demand instrument
purchased by the Fund, the Fund may (at any time or during specified periods not
exceeding thirteen months, depending upon the instrument involved) demand
payment in full of the principal of the instrument and has the right to resell
the instrument to a third party. The absence of such an active secondary
market, however, could make it difficult for the Fund to dispose of a variable
or floating rate demand instrument if the issuer defaulted on its payment
obligation or during periods that the Fund is not entitled to exercise its
demand rights, and the Fund could, for these or other reasons, suffer a loss
with respect to such instruments.
With respect to the variable and floating rate instruments that may be
acquired by the Tax-Exempt Intermediate Bond Fund the Adviser will consider the
earning power, cash flows and other liquidity ratios of the issuers and
guarantors of such instruments and, if the instrument is subject to a demand
feature, will monitor their financial status to meet payment on demand. In
determining average weighted portfolio maturity, an instrument will usually be
deemed to have a maturity equal to the longer of the period remaining to the
next interest rate adjustment or the time the Fund can recover payment of
principal as specified in the instrument. Variable U.S. Government obligations
held by the Fund,
<PAGE>
however, will be deemed to have maturities equal to the period remaining until
the next interest rate adjustment.
Other Investment Considerations _ MicroCap Fund
- ------------------------------------------------
Small Cap Volatility. Companies in which the Fund primarily invests will
include those that have limited product lines, markets, or financial resources,
or are dependent on a small management group. In addition, because these stocks
are not well-known to the investing public, do not have significant
institutional ownership, and are followed by relatively few security analysts,
there will normally be less publicly available information concerning these
securities compared to what is available for the securities of larger companies.
Adverse publicity and investor perceptions, whether based on fundamental
analysis, can decrease the value and liquidity of securities held by the Fund.
Historically, small capitalization stocks have been more volatile in price than
larger capitalization stocks. Among the reasons for the greater price
volatility of these small company stocks are the less certain growth prospects
of smaller firms, the lower degree of liquidity in the markets for such stocks,
the greater sensitivity of small companies to changing economic conditions and
the fewer market makers and the wider spreads between quoted bid and asked
prices which exist in the over-the-counter market for such stocks. Besides
exhibiting greater volatility, small company stocks may, to a degree, fluctuate
independently of larger company stocks. Small company stocks may decline in
price as large company stocks rise, or rise in price as large company stocks
decline. Investors should therefore expect that the Fund will be more volatile
than, and may fluctuate independently of, broad stock market indices such as the
S&P 500 Index.
Other Investment Considerations _ Equity Index Fund
- ---------------------------------------------------
Equity Index Fund Management Techniques When purchasing securities for the
Equity Index Fund's portfolio, the Adviser will consider initially the relative
market capitalization weightings of the stocks included in the S&P 500 Index.
The weighted capitalization of an issuer is determined by dividing the issuer's
market capitalization by the total market capitalizations of all issuers
included in the S&P 500 Index.
The Adviser will then compare the industry sector diversification of the
stocks in the Fund, acquired solely on the basis of their weighted
capitalizations, with the industry sector diversification of all issuers
included in the S&P 500 Index. This comparison is made because the Adviser
believes, unless the Fund holds all stocks included in the S&P 500 Index which
it currently does not, that the selection of stocks for purchase by the Fund
solely on the basis of their weighted market capitalizations would tend to place
heavier concentration (as compared to the S&P 500 Index) in certain industry
sectors that are dominated by the larger corporations, such as communications,
automobile, oil and energy. As a result, events disproportionately affecting
such industries could affect the performance of the S&P 500 Index. Conversely,
if smaller companies were not purchased by the Fund, industries included in the
S&P 500 Index that are dominated by smaller market-capitalized companies would
be underrepresented (as compared to the S&P 500 Index).
If an issuer drops in ranking, or is eliminated entirely from the S&P 500
Index, the Adviser may be required to sell some or all of the common stock of
such issuer then held by the Fund. Sales of portfolio securities may be made at
times when, if the Adviser were not required to effect purchases and sales of
portfolio securities in accordance with the S&P 500 Index, such securities might
not be sold. Such sales may result in lower prices for such securities than may
have been realized or in losses that may not have been incurred if the Adviser
were not required to effect the purchases and sales. "Adverse events" will not
necessarily be the basis for the disposition of portfolio securities, unless an
event causes
<PAGE>
the issuer to be eliminated entirely from the S&P 500 Index. "Adverse events"
include the failure of an issuer to declare or pay dividends, the institution
against an issuer of materially adverse legal proceedings, the existence or
threat of defaults materially and adversely affecting an issuer's future
declaration and payment of dividends, or the existence of other materially
adverse credit factors. However, although the Adviser does not intend to screen
securities for investment by the Fund by traditional methods of financial and
market analysis, the Adviser will monitor the Fund's investment with a bias
towards removing stocks of companies which may impair for any reason the Fund's
ability to achieve its investment objective.
For these reasons, the Adviser will identify the sectors which are (or,
except for sector balancing, would be) most underrepresented in the Fund's
portfolio and will purchase balancing securities in these sectors until the
portfolio's sector weightings closely match that of the S&P 500 Index. This
process continues until the portfolio is fully invested (except for cash
holdings).
The Fund may occasionally receive securities that are outside of the S&P
500 Index due to corporate reorganizations or spin-offs. The Fund will dispose
of those securities in due course consistent with the Fund's investment
objective.
Other Investment Considerations _ Bond IMMDEX_ Fund
- ---------------------------------------------------
The IMMDEX_ Model. The IMMDEX_ model has been developed and is maintained
by Capital Management Sciences "Capital Management") under the"IMMDEX_ "
trademark. Capital Management is neither a sponsor of the Bond IMMDEX_ Fund nor
affiliated in any way with the Bond IMMDEX_ Fund or the Adviser. Neither is
Capital Management in any way affiliated with Lehman Brothers which
claims no interest in the model or its ability to effectively or accurately
replicate the Lehman Brothers Government/Corporate Bond Index. Further, Capital
Management is not responsible for the management or results of the Bond IMMDEX_
Fund's portfolio. Rather, the Adviser will use the IMMDEX_ model and the other
investment techniques described in the Prospectus in choosing portfolio
securities and executing transactions in an effort to produce an annual rate of
total return for the Bond IMMDEX_ Fund that is comparable, before Fund expenses,
to that of the Lehman Brothers Government/Corporate Bond Index.
Other Portfolio Information
- ---------------------------
Options Trading. As stated in the Prospectus, the Bond Funds, Balanced
Funds and Equity Funds may purchase put and (with the exception of the Tax-
Exempt Intermediate Bond Fund) call options. Option purchases by a Fund (except
the International Equity Fund) will not exceed 5% of its net assets and the
International Equity Fund may purchase put and call options without limit. Such
options may relate to particular securities or to various indices and may or may
not be listed on a national securities exchange and issued by the Options
Clearing Corporation. (In the case of the Equity Index Fund, such options will
relate only to stock indices.) This is a highly specialized activity which
entails greater than ordinary investment risks, including the complete loss of
the amount paid as premiums to the writer of the option. Regardless of how much
the market price of the underlying security or index increases or decreases, the
option buyer's risk is limited to the amount of the original investment for the
purchase of the option. However, options may be more volatile than the
underlying securities or indices, and therefore, on a percentage basis, an
investment in options may be subject to greater fluctuation than an investment
in the underlying securities. In contrast to an option on a particular
security, an option on an index provides the holder with the right to make or
receive a cash settlement upon exercise of the
<PAGE>
option. The amount of this settlement will be equal to the difference between
the closing price of the index at the time of exercise and the exercise price of
the option expressed in dollars, times a specified multiple.
The Tax-Exempt Intermediate Bond Fund will only purchase put options on
Municipal Obligations, and will do so only to enhance liquidity, shorten the
maturity of the related municipal security or permit the Fund to invest its
assets at more favorable rates. The Taxable Bond Funds and International Equity
Fund will engage in unlisted over-the-counter options only with broker-dealers
deemed creditworthy by the Adviser (or the Sub-Adviser). Closing transactions
in certain options are usually effected directly with the same broker-dealer
that effected the original option transaction. A Fund bears the risk that the
broker-dealer will fail to meet its obligations. There is no assurance that a
liquid secondary trading market exists for closing out an unlisted option
position. Furthermore, unlisted options are not subject to the protections
afforded purchasers of listed options by the Options Clearing Corporation, which
performs the obligations of its members who fail to perform in connection with
the purchase or sale of options.
A call option gives the purchaser of the option the right to buy, and a
writer the obligation to sell, the underlying security or index at the stated
exercise price at any time prior to the expiration of the option, regardless of
the market price of the security. The premium paid to the writer is in
consideration for undertaking the obligations under the option contract. A put
option gives the purchaser the right to sell the underlying security or index at
the stated exercise price at any time prior to the expiration date of the
option, regardless of the market price of the security or index. Put and call
options purchased by a Fund will be valued at the last sale price or, in the
absence of such a price, at the mean between bid and asked prices.
Each Fund may purchase put options on portfolio securities at or about the
same time that it purchases the underlying security or at a later time. By
buying a put, a Fund limits its risk of loss from a decline in the market value
of the security until the put expires. Any appreciation in the value of and
yield otherwise available from the underlying security, however, will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. Call options may be purchased by a Fund in order to
acquire the underlying security at a later date at a price that avoids any
additional cost that would result from an increase in the market value of the
security. A call option may also be purchased to increase a Fund's return to
investors at a time when the call is expected to increase in value due to
anticipated appreciation of the underlying security. Prior to its expiration, a
purchased put or call option may be sold in a "closing sale transaction" (a sale
by a Fund, prior to the exercise of the option that it has purchased, of an
option of the same series), and profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the option
plus the related transaction costs. In addition, each Fund (with the exception
of the Tax-Exempt Intermediate Bond Fund) may sell covered call options listed
on a national securities exchange. Such options may relate to particular
securities or to various indices. (In the case of the Equity Index Fund, such
options will relate only to stock indices.) A call option on a security is
covered if a Fund owns the security underlying the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount as required are held in a segregated account by its custodian) upon
conversion or exchange of other securities held by it. A call option on an
index is covered if a Fund maintains with its custodian cash or cash equivalents
equal to the contract value. A call option is also covered if a Fund holds a
call on the same security or index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written, or (ii) greater than the exercise price of the call written provided
the difference is maintained by a Fund in cash or cash equivalents in a
segregated account with
<PAGE>
its custodian. The aggregate value of the Fund's assets subject to covered
options written by the Taxable Bond Funds, Balanced Income, Balanced Growth,
Growth and Income, Equity Index and MicroCap Funds will not exceed 5%, 5%, 25%,
5%, 5% and 5%, respectively, of the value of its net assets during the current
year. The International Equity Fund may write call options on securities and on
various stock indices which will be traded on a recognized securities or futures
exchange or over the counter and during the current year the aggregate value of
the Fund's assets subject to options written by the Fund will not exceed 5% of
the value of its net assets.
A Fund's obligation under a covered call option written by it may be
terminated prior to the expiration date of the option by the Fund's executing a
closing purchase transaction, which is effected by purchasing on an exchange an
option of the same series (i.e., same underlying security or index, exercise
price and expiration date) as the option previously written. Such a purchase
does not result in the ownership of an option. A closing purchase transaction
will ordinarily be effected to realize a profit on an outstanding option, to
prevent an underlying security from being called, to permit the sale of the
underlying security or to permit the writing of a new option containing
different terms. The cost of such a liquidation purchase plus transactions
costs may be greater than the premium received upon the original option, in
which event a Fund will have incurred a loss in the transaction. An option
position may be closed out only on an exchange which provides a secondary market
for an option of the same series. There is no assurance that a liquid secondary
market on an exchange will exist for any particular option. A covered call
option writer, unable to effect a closing purchase transaction, will not be able
to sell an underlying security until the option expires or the underlying
security is delivered upon exercise with the result that the writer in such
circumstances will be subject to the risk of market decline during such period.
A Fund will write an option on a particular security only if the Adviser
believes that a liquid secondary market will exist on an exchange for options of
the same series which will permit the Fund to make a closing purchase
transaction in order to close out its position.
By writing a covered call option on a security, a Fund foregoes the
opportunity to profit from an increase in the market price of the underlying
security above the exercise price except insofar as the premium represents such
a profit, and it is not able to sell the underlying security until the option
expires or is exercised or the Fund effects a closing purchase transaction by
purchasing an option of the same series. Except to the extent that a written
call option on an index is covered by an option on the same index purchased by
the Fund, movements in the index may result in a loss to the Fund; however, such
losses may be mitigated by changes in the value of securities held by the Fund
during the period the option was outstanding. The use of covered call options
will not be a primary investment technique of the Funds. When a Fund writes a
covered call option, an amount equal to the net premium (the premium less the
commission) received by the Fund is included in the liability section of the
Fund's statement of assets and liabilities. The amount of the liability will be
subsequently marked-to-market to reflect the current value of the option
written. The current value of the traded option is the last sale price or, in
the absence of a sale, the average of the closing bid and asked prices. If an
option expires on the stipulated expiration date or if the Fund enters into a
closing purchase transaction, it will realize a gain (or loss if the cost of a
closing purchase transaction exceeds the net premium received when the option is
sold) and the liability related to such option will be eliminated. Any gain on
a covered call option on a security may be offset by a decline in the market
price of the underlying security during the option period. If a covered call
option on a security is exercised, the Fund may deliver the underlying security
held by it or purchase the underlying security in the open market. In either
event, the proceeds of the sale will be increased by the net premium originally
received, and the Fund will realize a gain or loss. Premiums from expired
options written by a Fund and net gains from closing purchase transactions are
treated as short-term capital gains for federal income tax purposes, and losses
on closing purchase transactions are short-term capital losses.
<PAGE>
The International Equity Fund may also write (i.e., sell) covered put
options on securities and various securities indices. The writer of a put
incurs an obligation to buy the security underlying the option from the put's
purchaser at the exercise price at any time on or before the termination date,
at the purchaser's election (certain options the Fund writes will be exercisable
by the purchaser only on a specific date). Generally, a put is "covered" if the
Fund maintains cash, U.S. government securities or other liquid high grade debt
obligations equal to the exercise price of the option or if the Fund holds a put
on the same underlying security with a similar or higher exercise price. By
writing a covered put option on a security, the Fund receives a premium for
writing the option however, the Fund assumes the risk that the value of the
security will decline before the exercise date in which event, the Fund may
incur a loss in excess of the premium received when the put is exercised.
As noted previously, there are several risks associated with transactions
in options on securities and indices. These risks include (i) an imperfect
correlation between the change in market value of the securities the Fund holds
and the prices of options relating to the securities purchased or sold by the
Fund; and (ii) the possible lack of a liquid secondary market for an option. A
decision as to whether, when and how to use options involves the exercise of
skill and judgment, and a transaction may be unsuccessful to some degree because
of market behavior or unexpected events.
Futures Contracts and Related Options. The Adviser may determine
that it would be in the best interest of the Taxable Bond Funds, Balanced Funds
and Equity Funds to purchase or sell futures contracts, or options thereon, as a
hedge against changes resulting from market conditions in the value of the
securities held by a Fund, or of securities which it intends to purchase to
maintain liquidity, to have fuller exposure to price movements in the respective
stock or bond index or to reduce transaction costs. The International Equity
Fund may engage in foreign futures and options (see "Other Investment
Considerations_- International Equity Fund_- Foreign Futures and Options on
Futures"). In addition, the Equity Index Fund will purchase and sell futures
and related options (based only on the S&P 500 Index) to maintain cash reserves
while simulating full investment in the stocks underlying the S&P 500 Index to
keep substantially all of its assets exposed to the market (as represented by
the S&P 500 Index) and to reduce transaction costs. For example, a Fund may
enter into transactions involving a bond or stock index futures contract, which
is a bilateral agreement pursuant to which the parties agree to take or make
delivery of an amount of cash equal to a specified dollar amount times the
difference between the index value (which assigns relative values to the
securities included in the index) at the close of the last trading day of the
contract and the price at which the futures contract is originally struck. No
physical delivery of the underlying bonds or stocks in the index is made. The
Adviser may also determine that it would be in the interest of a Fund to
purchase or sell interest rate futures contracts, or options thereon, which
provide for the future delivery of specified fixed-income securities. In
addition, the Equity Index Fund may purchase and sell futures and related
options (based only on the S&P 500 Index) to maintain cash reserves while
simulating full investment in the stocks underlying the S&P 500 Index, to keep
substantially all of its assets exposed to the market (as represented by the S&P
500 Index), and to reduce transaction costs. The International Equity Fund will
only enter into futures contracts and futures options which are standardized and
traded on a U.S. or foreign exchange, board of trade or similar entity, or in
the case of futures options, for which an established over-the-counter market
exists. The Sub-Adviser of the International Equity Fund anticipates
engaging in transactions from time to time in foreign stock index futures such
as the ALL-ORDS (Australia), CAC-40 (France), TOPIX (Japan) and the FTSE-100
(United Kingdom).
Risks associated with the use of futures contracts and options on futures
include (a) imperfect correlation between the change in market values of the
securities held by a Fund and the prices of related futures contracts and
options on futures purchased or sold by the Fund, and (b) the possible lack of a
<PAGE>
liquid secondary market for futures contracts (or related options) and the
resulting inability of a Fund to close open futures positions, which could have
an adverse impact on the Fund's ability to hedge.
Positions in futures contracts may be closed out only on an exchange which
provides a secondary market for such futures. However, there can be no
assurance that a liquid secondary market will exist for any particular futures
contract at any specific time. Thus, it may not be possible to close a futures
position. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments to maintain its required margin. In
such situations, if the Fund has insufficient cash, it may have to sell
portfolio holdings to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, the Fund may be required to make
delivery of the instruments underlying futures contracts it holds. The
inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively hedge.
Successful use of futures by the Fund is also subject to the Investment
Adviser's (or Sub-Adviser's) ability to correctly predict movements in the
direction of the market. For example, if a Fund has hedged against the
possibility of a decline in the market adversely affecting securities held by
it and securities prices increase instead, the Fund will lose part or all of the
benefit to the increased value of its securities which it has hedged because it
will have approximately equal offsetting losses in its futures positions. In
addition, in some situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. The Fund may have to sell securities at a time when
it may be disadvantageous to do so.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and extremely high
degree of leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (as well as gain) to the investor. For example, if at the time of
purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale
of a futures contract may result in losses in excess of the amount invested in
the contract.
Utilization of futures transactions by a Fund involves the risk of loss by
the Fund of margin deposits in the event of bankruptcy of a broker with whom the
Fund has an open position in a futures contract of related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades
may be made on that day at a price beyond that limit. The daily limit governs
only price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
The trading of futures contracts is also subject to the risk of trading
halts, suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or
<PAGE>
clearing house or other disruptions of normal trading activity, which could at
times make it difficult or impossible to liquidate existing positions or to
recover excess variation margin payments.
Each Fund's commodities transactions must constitute bona fide hedging or
other permissible transactions pursuant to regulations promulgated by the
Commodities and Futures Trading Commissions ("CFTC"). In addition, a Fund may
not engage in such transactions if the sum of the amount of initial margin
deposits and premiums paid for unexpired commodity options, other than for bona
fide hedging transactions, would exceed 5% of the liquidation value of its
assets, after taking into account unrealized profits and unrealized losses on
such contracts it has entered into; provided, however, that in the case of an
option that is in-the-money at the time of purchase, the in-the-money amount may
be excluded in calculating the percentage limitation. In connection with a
futures transaction, unless the transaction is covered in accordance with SEC
positions, the Fund will maintain a segregated account with its custodian or
sub-custodian consisting of cash or liquid high grade debt securities to the
entire amount at risk (less margin deposits) on a continuous basis. The
Company intends to comply with the regulations of the CFTC exempting the Fund
from registrations as a "commodity pool operator."
The Taxable Bond Funds and Growth and Income Fund intend to limit their
transactions in futures contracts and related options so that not more than 5%
of each Fund's respective net assets are at risk. The Equity Index Fund and
International Equity Fund intend to limit their transactions in futures
contracts so that not more than 10% and 25% of each Fund's respective net assets
are at risk. For a more detailed description of futures contracts and futures
options, including a discussion of the limitations imposed by federal tax law,
see Appendix B.
Foreign Securities and American Depository Receipts ("ADRs"). The Taxable
Bond Funds, Balanced Funds, Growth and Income, Growth, Special Growth, Emerging
Growth, MicroCap and International Equity Funds may invest in sponsored ADRs.
The International Equity Fund may also invest in unsponsored ADRs. ADRs are
receipts issued by an American bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. ADRs may be listed on a
national securities exchange or may trade in the over-the-counter market. ADR
prices are denominated in U.S. dollars; the underlying security may be
denominated in a foreign currency. The underlying security may be subject to
foreign government taxes which would reduce the yield on such securities.
Investments in foreign securities and ADRs also involve certain inherent risks,
such as political or economic instability of the country of issue, the
difficulty of predicting international trade patterns and the possibility of
imposition of exchange controls. Such securities may also be subject to greater
fluctuations in price than securities of domestic corporations. In addition,
there may be less publicly available information about a foreign company than
about a domestic company. Foreign companies generally are not subject to
uniform accounting, auditing and financial reporting standards comparable to
those applicable to domestic companies. With respect to certain foreign
countries, there is a possibility of expropriation or confiscatory taxation,
or diplomatic developments which could affect investment in those countries.
While "sponsored" and "unsponsored" ADR programs are similar, there are
differences regarding ADR holders' rights and obligations and the practices of
market participants. A depository may establish an unsponsored facility without
participation by (or acquiescence of) the underlying issuer; typically, however,
the depository requests a letter of non-objection from the underlying issuer
prior to establishing the facility. Holders of unsponsored ADRs generally bear
all the costs of the ADR facility. The depository usually charges fees upon the
deposit and withdrawal of the underlying securities, the conversion of dividends
into U.S. dollars, the disposition of non-cash distribution, and the performance
of other services. The depository of an unsponsored facility frequently is
under no obligation to
<PAGE>
distribute shareholder communications received from the underlying issuer or to
pass through voting rights to ADR holders in respect of the underlying
securities.
Sponsored ADR facilities are created in generally the same manner as
unsponsored facilities, except that sponsored ADRs are established jointly by a
depository and the underlying issuer through a deposit agreement. The deposit
agreement sets out the rights and responsibilities of the underlying issuer, the
depository and the ADR holders. With sponsored facilities, the underlying
issuer typically bears some of the costs of the ADR (such as dividend payment
fees of the depository), although ADR holders may bear costs such as deposit and
withdrawal fees. Depositories of most sponsored ADRs agree to distribute
notices of shareholder meetings, voting instructions, and other shareholder
communications and information to the ADR holders at the underlying issuer's
request.
Zero Coupon Bonds. Zero coupon obligations have greater price volatility
than coupon obligations and will not result in the payment of interest until
maturity, provided that a Fund will purchase such zero coupon obligations only
if the likely relative greater price volatility of such zero coupon obligations
is not inconsistent with the Fund's investment objective. Although zero coupon
securities pay no interest to holders prior to maturity, interest on these
securities is reported as income to a Fund and distributed to its shareowners.
These distributions must be made from a Fund's cash assets or, if necessary,
from the proceeds of sales of portfolio securities. Additional income producing
securities may not be able to be purchased with cash used to make such
distributions and its current income ultimately may be reduced as a result.
Convertible Securities. The Balanced Funds, Growth and Income, Growth,
Special Growth, Emerging Growth, MicroCap and International Equity Funds may
hold convertible securities. Convertible securities entitle the holder to
receive interest paid or accrued on debt or the dividend paid on preferred stock
until the securities mature or are redeemed, converted or exchanged. Prior to
conversion, convertible securities have characteristics similar to ordinary debt
securities in that they normally provide a stable stream of income with
generally higher yields than those of common stock of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure and therefore generally entail less risk than the
corporation's common stock, although the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security. In investing in convertibles, a
Fund is looking for the opportunity, through the conversion feature, to
participate in the capital appreciation of the common stock into which the
securities are convertible, while earning higher current income than is
available from the common stock.
During normal market conditions, no more than 5% of a Fund's net assets
will be purchased or held in convertible or other securities that
(1) are not rated at the time of purchase investment grade by S&P, Moody's or
other nationally recognized rating agencies; (2) are unrated and have not been
determined by the Adviser (or Adviser and Sub-Adviser with regard to the
International Equity Fund) to be of comparable quality to a security rated
investment grade; or (3) in the case of the International Equity Fund, have not
received the foreign equivalent of investment grade by a rating agency
recognized in the local market and determined to be of comparable quality by the
Adviser and Sub-Adviser. Securities rated below investment grade are
predominantly speculative and are commonly referred to as junk bonds. To the
extent a Fund purchases convertibles rated below investment grade or
convertibles that are not rated, a greater risk exists as to the timely
repayment of the principal of, and the timely payment of interest or dividends
on, such securities. Subsequent to its purchase by a Fund, a rated security may
cease to be rated or its rating may be reduced below a minimum rating for
purchase by the Fund. The Adviser (and Sub-Adviser for the International Equity
Fund) will consider such an event in determining whether a Fund should continue
to hold the security. The Adviser (and Sub-Adviser for the
<PAGE>
International Equity Fund) will sell promptly any securities that are non-
investment grade as a result of these events and that exceed 5% of a Fund's net
assets.
As described in the Prospectus, the Funds may invest a portion of their
assets in convertible securities that are rated below investment grade.
Warrants. The Balanced Growth, Balanced Income, Growth and Income, Growth,
Special Growth, Emerging Growth, MicroCap and International Equity Funds may
purchase warrants and similar rights, which are privileges issued by
corporations enabling the owners to subscribe to and purchase a specified number
of shares of the corporation at the specified price during a specified
period of time. Warrants basically are options to purchase equity securities at
a specific price valid for a specific period of time. They do not represent
ownership of the securities, but only the right to buy them. They have no
voting rights, pay no dividends and have no rights with respect to the assets of
the company issuing them. Warrants differ from call options in that warrants
are issued by the issuer of the security which may be purchased on their
exercise, whereas call options may be written or issued by anyone. The prices
of warrants do not necessarily move parallel to the prices of the underlying
securities.
The purchase of warrants involves the risk that a Fund could lose the
purchase value of a warrant if the right to subscribe to additional shares is
not exercised prior to the warrant's expiration. Also, the purchase of warrants
involves the risk that the effective price paid for the warrant added to the
subscription price of the related security may exceed the value of the
subscribed security's market price such as when there is no movement in the
level of the underlying security. During normal market conditions, no more than
5% of each Fund's net assets will be invested in warrants. This 5% limit
includes warrants that are not listed on any stock exchange, and such warrants
are limited to 2% of the International Equity Fund's net assets. Warrants
acquired by the International Equity Fund in units or attached to securities are
not subject to these limits.
Short Sales. The MicroCap Fund may engage in short sales. If the MicroCap
Fund engages in short sales, it need not segregate Fund assets if it "covers"
the position. A position is "covered" if, at the time the Fund sells the
security or thereafter, the Fund also owns that security or holds a call option
on that security with a strike price no higher than the price at which the
security was sold. For federal tax purposes, a short sale is considered
consummated upon delivery of securities to close the short sale. The gains or
losses realized by the Fund from short sale transactions normally will be
characterized as capital gains or losses although short sales that are
part of certain hedging transactions or straddles may receive different tax
treatment. Special rules generally operate to prevent the use of short sales to
convert short-term capital gain into long-term capital gain and long-term
capital loss into short-term capital loss. As a result, these transactions may
increase the amount of short-term capital gain realized by the Fund which is
taxed as ordinary income when distributed to its shareowners and may reduce the
Fund's short-term capital loss available to reduce its ordinary income. The
impact of the tax consequences of short sale transactions engaged in by the Fund
on distributions to shareowners will be closely monitored.
Guaranteed Investment Contracts. The Taxable Bond Funds may make limited
investments in guaranteed investment contracts ("GICs") issued by highly rated
U.S. insurance companies. Pursuant to such contracts, a Fund makes cash
contributions to a separate account of the insurance company which has been
segregated from the general assets of the issuer. The insurance company then
pays to the Fund at the end of the contract an amount equal to the cash
contributions adjusted for the total return of an index. A GIC is a separate
account obligation of the issuing insurance company. A Fund will only purchase
GICs from issuers which, at the time of purchase, are rated A or higher by
Moody's or S&P, have assets of $1 billion or more and meet quality and credit
standards established by the Adviser. Generally, GICs are not assignable or
transferable without the permission of the issuing insurance
<PAGE>
companies, and an active secondary market in GICs does not currently exist.
Therefore, GICs are considered by the Fund to be subject to the 10% limitation
on illiquid investments. Generally, a GIC allows a purchaser to buy an annuity
with the money accumulated under the contract; however, a Fund will not purchase
any such annuities.
Small Companies and Unseasoned Issuers. Small companies in which the
Funds may invest may have limited product lines, markets, or financial
resources, or may be dependent upon a small management group, and their
securities may be subject to more abrupt or erratic market movements than
larger, more established companies, both because their securities are typically
traded in lower volume and because the issuers are typically subject to a
greater degree of change in their earnings and prospects.
Companies in which the MicroCap and Emerging Growth Funds primarily invest
will include those that have limited product lines, markets, or financial
resources, or are dependent upon a small management group. In addition, because
these stocks are not well known to the investing public, do not have significant
institutional ownership, and are followed by relatively few securities analysts,
there will normally be less publicly available information concerning these
securities compared to what is available for the securities of larger companies.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, can decrease the value and liquidity of securities held by the Funds.
Historically small capitalization stocks have been more volatile in price than
larger capitalization stocks. Among the reasons for the greater price
volatility of these small company stocks are the less certain growth prospects
of smaller firms, the lower degree of liquidity in the markets for such stocks,
the greater sensitivity of small companies to changing economic conditions and
the fewer market makers and the wider spreads between quoted bid and asked
prices which exist in the over-the-counter market for such stocks. Besides
exhibiting greater volatility, small company stocks may, to a degree, fluctuate
independently of larger company stocks. Small company stocks may decline in
price as large company stocks rise, or rise in price as large company stocks
decline. Investors should therefore expect that the Funds will be more volatile
than, and may fluctuate independently of, broad stock market indices such as the
S&P 500 Index.
Securities of unseasoned companies, that is, companies with less than three
years' of continuous operation, which present risks considerably greater than
do common stocks of more established companies, may be acquired from time to
time by the Special Growth Fund when the Adviser believes such investments offer
possibilities of attractive capital appreciation.
Each Fund may sell a portfolio investment soon after its acquisition if the
Adviser believes that such a disposition is consistent with attaining the
investment objective of the Fund. Portfolio investments may be sold for a
variety of reasons, such as a more favorable investment opportunity or other
circumstances bearing on the desirability of continuing to hold such
investments. A high rate of portfolio turnover (over 100%, may involve
correspondingly greater brokerage commission expenses and other transaction
costs, which must be borne directly by the Fund and ultimately by its
shareowners. High portfolio turnover may result in the realization of
substantial net capital gains; to the extent short-term capital gains are
realized, distributions relating from such gains will be ordinary income for
federal income tax purposes.
Additional Investment Limitations
- ---------------------------------
<PAGE>
Each Fund is subject to the investment limitations enumerated in this
subsection which may be changed with respect to a particular Fund only by a vote
of the holders of a majority of such Fund's outstanding shares (as defined under
"Miscellaneous" below).
No Fund may:
1. Make loans, except that a Fund may purchase and hold debt instruments
and enter into repurchase agreements in accordance with its investment
objective and policies and may lend portfolio securities in an amount not
exceeding 30% of its total assets.
2. Purchase securities of companies for the purpose of exercising
control.
3. Purchase or sell real estate or with respect to the International
Equity Fund, real estate limited partnerships, except that each Fund may
purchase securities of issuers which deal in real estate and may purchase
securities which are secured by interests in real estate.
4. Acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or acquisition
of assets or where otherwise permitted by the 1940 Act.
5. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as a Fund might be deemed to be an
underwriter upon the disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of securities directly from the issuer thereof in accordance with
the Fund's investment objective, policies and limitations may be deemed to be
underwriting.
6. Write or sell put options, call options, straddles, spreads, or any
combination thereof, except for transactions in options on securities, indices
of securities, futures contracts and options on futures contracts.
7. Purchase securities on margin, make short sales of securities or
maintain a short position (in an amount exceeding one-third of the Fund's net
assets, with respect to the MicroCap Fund), except that (a) this investment
limitation shall not apply to a Fund's transactions in futures contracts and
related options and, with respect to MicroCap Fund, short sales against the
box, and (b) a Fund may obtain short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities.
8. Purchase or sell commodity contracts, or invest in oil, gas or mineral
exploration or development programs, except that each Fund may, to the extent
appropriate to its investment objective, purchase publicly traded securities of
companies engaging in whole or in part in such activities and may enter into
futures contracts and related options.
9. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, or more than 10% of
the issuer's outstanding voting securities would be owned by the Fund or the
Company, except that up to 25% of the value of the Fund's total assets may be
invested without regard to these limitations. For purposes of this limitation,
a security is considered to be issued by the entity (or entities) whose assets
and revenues back the security. A guarantee of a security shall not be deemed
to be a security issued by the guarantor when the value of all securities issued
and guaranteed by the guarantor, and owned by the Fund, does not exceed 10% of
the value of the Fund's total assets.
<PAGE>
10. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry; provided that, (a) with regard to all Funds except the Tax-Exempt
Intermediate Bond Fund, there is no limitation with respect to instruments
issued or guaranteed by the United States, its agencies or instrumentalities and
repurchase agreements secured by such instruments; (b) with regard to the Tax-
Exempt Intermediate Bond Fund, there is no limitation with respect to
instruments issued or guaranteed by the United States, any state, territory or
possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions and
repurchase agreements secured by such instruments; (c) wholly owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents; and
(d) utilities will be divided according to their services, for example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry.
11. Borrow money or issue senior securities, except that each Fund may
borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of the total assets (one-third of the
value of the total assets, with respect to the MicroCap Fund) at the time of
such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of the Fund's total assets (one-
third of the value of the total assets, with respect to the MicroCap Fund) at
the time of such borrowing. A Fund will not purchase securities while its
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding. The MicroCap Fund may not enter into reverse
repurchase agreements exceeding in the aggregate one-third of its total assets.
Securities held in escrow or separate accounts in connection with the Fund's
investment practices described in this SAI or in the Prospectuses are not deemed
to be pledged for purposes of this limitation.
12. With respect to the Tax-Exempt Intermediate Bond Fund, invest less
than 80% of its net assets in securities the interest on which is exempt from
federal income tax except during defensive periods or during unusual market
conditions. For purposes of this fundamental policy, Municipal Obligations that
are subject to federal alternative minimum tax are considered taxable.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
the Fund's portfolio securities will not constitute a violation of such
limitation.
If due to market fluctuations or other reasons, the amount of borrowings
and reverse repurchase agreements exceed the limit stated above, the Funds
(except the MicroCap Fund) will promptly reduce such amount. With respect to
the MicroCap Fund, if due to market fluctuations or other reasons, the total
assets of the Fund fall below 300% of its borrowings, the Fund will reduce its
borrowings in compliance with the 1940 Act. Except as otherwise provided in
Investment Restriction No. 10 above, for the purpose of such restriction, in
determining industry classification with respect to the International Equity
Fund, the Company intends to use the Morgan Stanley Capital International
classification titles.
With respect to investment limitation No. 3 under "Additional Investment
Limitations" as it relates to the Tax-Exempt Intermediate Bond Fund, real estate
shall include real estate mortgages. Although the foregoing investment
limitations would permit the Tax-Exempt Intermediate Bond Fund to invest in
options, futures contracts, options on futures contracts and engage in
securities lending, the Fund, during the current fiscal year, does not intend to
trade in such instruments (except that the Fund may purchase put options on
Municipal Obligations as described in the Prospectus) or lend portfolio
<PAGE>
securities. Prior to engaging in any such transactions, the Fund will provide
its shareowners with notice and add any additional descriptions concerning the
instruments to the Prospectus and this SAI as may be required. With respect to
investment limitation No. 10 under "Additional Investment Limitations," asset-
backed securities will be divided according to the type of assets
underlying the security. For example, automobile loans, credit card receivables
and installment sales contracts will each be considered a separate industry.
NET ASSET VALUE
The net asset value per share of each Fund is calculated separately for the
Institutional Shares, Retail A Shares and Retail B Shares by adding the value of
all portfolio securities and other assets belonging to the particular Fund that
are allocated to a particular series, subtracting the liabilities charged to
that series, and dividing the result by the number of outstanding shares of that
series. Assets belonging to a Fund consist of the consideration received upon
the issuance of shares of the particular Fund together with all net investment
income, realized gains/losses and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of the Company not belonging to a particular investment portfolio. The
liabilities that are charged to a Fund are borne by each share of the Fund,
except for certain payments under the Funds' Distribution and Service Plans and
Shareowner Servicing Plans applicable only to Retail A Shares and the Funds'
Services Plan applicable only to Retail B Shares. Subject to the provisions of
the Articles of Incorporation, determinations by the Board of Directors as to
the direct and allocable liabilities, and the allocable portion of any general
assets, with respect to a particular Fund are conclusive.
Shares which are traded on a recognized domestic stock exchange are valued
at the last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
The value of a Fund's portfolio securities that are traded on stock exchanges
outside the United States are based upon the price on the exchange as of the
close of business of the exchange immediately preceding the time of valuation,
except when an occurrence subsequent to the time a value was so established is
likely to have changed such value. Exchange- traded securities for which
there were no transactions are valued on the average of the current bid and
asked prices for the International Equity Fund and at the current bid prices for
the other Funds. Securities traded on only over-the-counter markets are valued
on the basis of closing over-the-counter bid prices. Securities trading in over-
the-counter markets in European and Pacific Basin countries is normally
completed well before 3:00 P.M. Central Time. In addition, European and Pacific
Basin securities trading may not take place on all business days. Furthermore,
trading takes place in Japanese markets on certain Saturdays and in various
foreign markets on days which are not business days in New York and on which the
net asset value of a Fund, including the International Equity Fund, is not
calculated. The calculation of the net asset value of a Fund, including the
International Equity Fund, may not take place contemporaneously with the
determination of the prices of portfolio securities used in such calculation.
Events affecting the values of portfolio securities that occur between the time
their prices are determined and 3:00 P.M. Central Time, and at other times, may
not be reflected in the calculation of net asset value of a Fund.
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Computation of Offering Price of the Funds. An illustration of the
computation of the initial offering price per share of the Retail A Shares based
on the value of each such Fund's net assets and number of outstanding securities
at October 31, 1998, revised to reflect sales loads in effect commencing January
1, 1999 as follows:
Short-Term Intermediate Tax-Exempt Bond
Bond Market Bond Market Intermediate IMMDEX TM
Fund Fund Fund Fund
----- ----- ----- -----
Net Assets (000s) $75,410 $29,550 $32,466 $95,301
Number of Shares
Outstanding (000s) 7,291 2,813 3,087 3,285
Net Asset Value
Per Share 10.34 10.50 10.52 29.01
Sales Charge, 3.75%
of offering price
(3.90% of net asset 0.40 0.41 0.39 1.13
value per share)
Public Offering Price 10.74 10.91 10.93 30.14
Balanced Balanced Growth Equity
Income Growth and Income Index
Fund Fund Fund Fund
----- ----- ----- -----
Net Assets (000s) $10,614 $59,659 $190,329 $110,129
Number of Shares
Outstanding (000s) 965 2,001 4,286 1,477
Net Asset Value
Per Share 11.00 29.82 44.41 74.58
Sales Charge, 4.50%
of offering price
(4.71% of net asset 0.52 1.41 2.09 3.51
value per share)
Public Offering Price 11.52 31.23 46.50 78.09
Special Emerging
Growth Growth Growth MicroCap
Fund Fund Fund Fund
----- ----- ----- -----
Net Assets (000s) $38,212 $136,146 $12,884 $12,419
Number of Shares
Outstanding (000s) 1,059 3,622 1,348 1,003
Net Asset Value
Per Share 35.72 37.59 9.56 12.38
Sales Charge, 4.50%
of offering price
(4.71% of net asset 1.68 1.77 0.45 0.58
value per share)
Public Offering Price 7.40 39.36 10.04 12.96
International
Equity
Fund
-----
Net Assets (000s) $6,486
Number of Shares
Outstanding (000s) 427
Net Asset Value
Per Share 15.18
Sales Charge, 4.50%
<PAGE>
of offering price
(4.71% of net asset .72
value per share)
Public Offering Price 15.90
Shareowner Organizations or Institutions may be paid by the Funds for
advertising, distribution or shareowner services. Depending on the terms of the
particular account, Shareowner Organizations or Institutions also may
charge their customers fees for automatic investment, redemption and other
services provided. Such fees may include, for example, account maintenance
fees, compensating balance requirements or fees based upon account transactions,
assets or income. Shareowner Organizations or Institutions are responsible for
providing information concerning these services and any charges to any customer
who must authorize the purchase of Fund shares prior to such purchase.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment for shares during any period when (a) trading on
the Exchange is restricted by applicable rules and regulations of the SEC; (b)
the Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC. (The Funds may also suspend or postpone the recording
of the transfer of their shares upon the occurrence of any of the foregoing
conditions.)
The Company has filed an election pursuant to Rule 18f-1 under the 1940
Act which provides that each portfolio of the Company is obligated to redeem
shares solely in cash up to $250,000 or 1% of such portfolio's net asset value,
whichever is less, for any one shareholder within a 90-day period. Any
redemption beyond this amount may be made in proceeds other than cash.
In addition to the situations described in the Funds' Prospectus under
"Redemption of Shares," the Funds may redeem shares involuntarily to reimburse
the Funds for any loss sustained by reason of the failure of a shareowner to
make full payment for shares purchased by the shareowner or to collect any
charge relating to a transaction effected for the benefit of a shareowner which
is applicable to Fund shares as provided in the Prospectus from time to time.
Reducing Your Sales Charge on Retail A Shares.
- ----------------------------------------------
A. Rights of Accumulation
As stated in the Prospectus, a reduced sales charge applies to any purchase
of Retail Shares of any Firstar Fund that is sold with a sales charge (an
"Eligible Fund") where an investor's then current aggregate investment is
$100,000 or more. "Aggregate investment" means the total of (a) the dollar
amount of the then current purchase of shares of an Eligible Fund, and (b) the
value (based on current net asset value) of previously purchased and
beneficially owned shares of any Eligible Fund on which a sales charge has been
paid. If, for example, an investor beneficially owns shares of one or more
Eligible Fund, with an aggregate current value of $99,000 on which a sales
charge has been paid and subsequently purchases shares of an Eligible Fund which
is an Equity Fund having a current value of $1000, the sales charge applicable
to the subsequent purchase would be reduced to 3.75% of the offering price.
Similarly, each subsequent investment in Eligible Fund shares may be added to an
investor's aggregate investment at the time of purchase to determine the
applicable sales charge.
<PAGE>
B. Letter of Intent
As discussed in the Prospectus, Shares of the Company purchased over a 13-
month period through a Letter of Intent qualify for the same reduced sales
charge as if all purchased at once. During the term of the Letter of Intent,
the transfer agent will hold in escrow shares equal to 5% of the amount
indicated in the Letter of Intent for payment of a higher sales charge if an
investor does not purchase the full amount indicated in the Letter of Intent.
The escrow will be released when an investor fulfills the terms of the
Letter of Intent by purchasing the specified amount. Any redemption made during
the 13-month period will be subtracted from the amount of purchases in
determining whether the Letter of Intent has been completed. If total purchases
qualify for a further sales charge reduction, the sales charge will be adjusted
to reflect an investor's total purchases. If total purchases are less than the
amount specified in the Letter of Intent, an investor will be requested to remit
an amount equal to the difference between the sales charge actually paid and the
sales charge applicable to the total purchases. If such remittance is not
received within 20 days, the transfer agent, as attorney-in-fact pursuant to the
terms of the Letter of Intent and at the Distributor's direction, will redeem an
appropriate number of shares held in escrow to realize the difference. Signing
a Letter of Intent does not bind an investor to purchase the full amount
indicated as the sales charge in effect at the time of signing, but an investor
must complete the intended purchase in accordance with the terms of the Letter
of Intent to obtain the reduced sales charge. To apply, an investor must
indicate his or her intention to do so under a Letter of Intent at the time of
purchase of Shares.
Exchange Privilege. By use of the exchange privilege, shareowners
authorize the transfer agent to act on telephonic or written exchange
instructions from any person representing himself to be the shareowner or in
some cases, the shareowner's registered representative or account representative
of record, and believed by the transfer agent to be genuine. The transfer
agent's records of such instructions are binding. The exchange privilege may be
modified or terminated at any time upon notice to shareowners.
Exchange transactions described in paragraphs A, B, and C below will be
made on the basis of the relative net asset values per share of the Funds
involved in the transaction.
A. Retail Shares of any Fund purchased with a sales charge may be exchanged
without a sales charge for Retail Shares of any other Fund offered by the
Company with a sales charge. Retail B Shares may be exchanged without the
payment of any CDSC at the time the exchange is made. In determining the
holding period for calculating the CDSC payable on redemptions of Retail B
Shares, the holding period of the Retail B Shares originally held will be added
to the holding period of the Retail B Shares acquired through exchange.
B. Shares of any Fund offered by the Company acquired by a previous
exchange transaction involving Retail Shares on which a sales charge has
directly or indirectly been paid (e.g. shares purchased with a sales charge or
issued in connection with an exchange involving shares that had been purchased
with a sales charge) as well as additional Shares acquired through reinvestment
of dividends or distributions on such Shares may be exchanged without a sales
charge for Retail Shares of any other Fund offered by the Company with a sales
charge. To accomplish an exchange under the provisions of this paragraph,
investors must notify the transfer agent of their prior ownership of Retail
Shares and their account number.
C. Shares of any Fund offered by the Company may be exchanged without a
sales charge for Shares of any other Fund of the Company that is offered without
a sales charge.
<PAGE>
Shares in a Fund from which the shareowner is withdrawing an investment
will be redeemed at the net asset value per share next determined on the date of
receipt. Shares of the new Fund into which the shareowner is investing will be
purchased at the net asset value per share next determined (plus any applicable
sales charge) after acceptance of the request by the Company in accordance with
the policies for accepting investments. Exchanges of Shares will be available
only in states where they may legally be made.
Exemptions from CDSC. Certain types of redemptions may also qualify for an
exemption from the contingent deferred sales charge. To receive exemptions (vi)
or (viii) below, a shareowner must explain the status of his or her redemption.
If you think you may be eligible for a contingent deferred sales charge waiver
listed below, be sure to notify your Shareowner Organization or the Distributor
at the time Retail B Shares are redeemed. The following are more detailed
descriptions of certain of the instances in which certain of the contingent
deferred sales charge will not be assessed, as summarized in the prospectus.
(i) redemptions in connection with required (or, in some cases discretionary)
distributions to participants or beneficiaries of an employee pension, profit
sharing or other trust or qualified retirement or Keogh plan, individual
retirement account or custodial account maintained pursuant to Section 403(b)(7)
of the Internal Revenue Code of 1986, as amended (the "Code");
(ii) redemptions in connection with required (or, in some cases discretionary)
distributions to participants in qualified retirement or Keogh plans, individual
retirement accounts or custodial account maintained pursuant to Section
403(b)(7) of the Code due to death, disability or the attainment of a specified
age;
(iii) redemptions in connection with the death or disability of a shareowner; or
(iv) redemptions resulting from a certain tax-free return of an excess
contribution.
Additional Information Regarding Shareowner Services for Retail Shares
----------------------------------------------------------------------
The Retail A and Retail B Shares of the Funds offer a Periodic
Investment Plan whereby a shareowner may automatically make purchases of shares
of a Fund on a regular, monthly basis ($50 minimum per transaction). Under the
Periodic Investment Plan, a shareowner's designated bank or other financial
institution debits a preauthorized amount on the shareowner's account each month
and applies the amount to the purchase of Retail A and Retail B Shares. The
Periodic Investment Plan must be implemented with a financial institution that
is a member of the Automated Clearing House. No service fee is currently
charged by a Fund for participation in the Periodic Investment Plan. A $20 fee
will be imposed by the transfer agent if sufficient funds are not available in
the shareowner's account or the shareowner's account has been closed at the time
of the automatic transaction.
The Periodic Investment Plan permits an investor to use "Dollar Cost
Averaging" in making investments. Instead of trying to time market performance,
a fixed dollar amount is invested in Retail A or Retail B Shares at
predetermined intervals. This may help investors to reduce their average cost
per share because the agreed upon fixed investment amount allows more Retail A
or Retail B Shares to be purchased during periods of lower Retail A or Retail B
Share prices and fewer Retail A or Retail B Shares to be purchased during
periods of higher Retail A or Retail B Share prices. In order to be effective,
Dollar Cost Averaging should usually be followed on a sustained, consistent
basis. Investors
<PAGE>
should be aware, however, that Retail A or Retail B Shares bought using Dollar
Cost Averaging are purchased without regard to their price on the day of
investment or to market trends. Dollar Cost Averaging does not assure a profit
and does not protect against losses in a declining market. In addition, while
investors may find Dollar Cost Averaging to be beneficial, it will not prevent a
loss if an investor ultimately redeems his Retail A or Retail B Shares at a
price which is lower than their purchase price. An investor may want
to consider his financial ability to continue purchases through periods of low
price levels.
The Retail A and Retail B Shares of the Funds permit shareowners to effect
ConvertiFund R transactions, an automated method by which a Retail shareowner
may invest proceeds from one account to another account of the Retail A or
Retail B Shares of the Firstar family of funds, as the case may be. Such
proceeds include dividend distribution, capital gain distributions and
systematic withdrawals. ConvertiFund R transactions may be used to invest funds
from a regular account to another regular account, from a qualified plan account
to another qualified plan account, or from a qualified plan account to a regular
account.
The Retail A and Retail B Shares of the Funds offer shareowners a
Systematic Withdrawal Plan, which allows a shareowner who owns shares of a Fund
worth at least $5,000 at current net asset value at the time the shareowner
initiates the Systematic Withdrawal Plan to designate that a fixed sum ($50
minimum per transaction) be distributed to the shareowner or as otherwise
directed at regular intervals.
Special Procedures for In-Kind Payments
- ----------------------------------------
Payment for shares of a Fund may, in the discretion of the Fund, be made in
the form of securities that are permissible investments for the Fund as
described in its Prospectus. For further information about this form of
payment, contact Investor Services at 414-287-3710. In connection with an
in-kind securities payment, a Fund will require, among other things, that the
securities be valued on the day of purchase in accordance with the pricing
methods used by the Fund; that the Fund receive satisfactory assurances that it
will have good and marketable title to the securities received by it; that the
securities be in proper form for transfer to the Fund; that adequate
information be provided to the Fund concerning the basis and other tax matters
relating to the securities; and that the amount of the purchase be at least
$1,000,000.
DESCRIPTION OF SHARES
The Company's Articles of Incorporation authorize the Board of Directors to
issue up to 150,000,000,000 full and fractional shares of common stock, $.0001
par value per share, which is divided into thirty classes (each, a "class" or
"fund"). Each class below is divided into three series designated as
Institutional Shares, Retail A Shares and Retail B Shares (each, a "Series") and
consists of the number of shares set forth next to its Fund name in the table
below:
Class-Series of Fund in which Stock Number of Authorized
Common Stock Represents Interest Shares in Each Series
- --------------- -------------------- -----------------------
6-Institutional Special Growth 500 Million
6-A 500 Million
6-B 500 Million
7-Institutional Bond IMMDEX TM 500 Million
7-A 500 Million
<PAGE>
7-B 500 Million
8-Institutional Equity Index 500 Million
8-A 500 Million
8-B 500 Million
9-Institutional Growth and Income 500 Million
9-A 500 Million
9-B 500 Million
10-Institutional Short-Term Bond Market 500 Million
10-A 500 Million
10-B 500 Million
11-Institutional Balanced Growth 500 Million
11-A 500 Million
11-B 500 Million
12-Institutional Growth 500 Million
12-A 500 Million
12-B 500 Million
13-Institutional Intermediate Bond Market 500 Million
13-A 500 Million
13-B 500 Million
14-Institutional Tax-Exempt Intermediate Bond 500 Million
14-A 500 Million
14-B 500 Million
15-Institutional International Equity 500 Million
15-A 500 Million
15-B 500 Million
16-Institutional MicroCap 50 Million
16-A 50 Million
16-B 50 Million
17-Institutional Balanced Income 100 Million
17-A 100 Million
17-B 100 Million
18-Institutional Emerging Growth 100 Million
18-A 100 Million
18-B 100 Million
The Board of Directors has also authorized the issuance of classes 1
through 5 common stock representing interests in five other separate
investment portfolios which are described in a separate statement of additional
information. The remaining authorized shares are classified into eleven
additional classes representing interests in other potential future investment
portfolios of the Company. The Directors may similarly classify or reclassify
any particular class of shares into one or more additional series.
In the event of a liquidation or dissolution of the Company or an
individual Fund, shareowners of a particular Fund would be entitled to receive
the assets available for distribution belonging to such Fund, and a
proportionate distribution, based upon the relative assets of the Company's
respective investment portfolios, of any general assets not belonging to any
particular portfolio which are available for distribution. Subject to the
allocation of certain costs, expenses, charges and reserves attributed to the
operation of a particular series as described in the Funds' Prospectuses,
shareowners of a Fund are entitled to participate equally in the net
distributable assets of the particular Fund involved on liquidation, based on
the number of shares of the Fund that are held by each shareowner.
<PAGE>
Shareowners of each class of the Funds are entitled to one vote for each
full share held and proportionate fractional votes for fractional shares held.
Shareowners of the Funds, as well as those of any other investment portfolio
offered by the Company, will vote together in the aggregate and not separately
on a portfolio-by -portfolio basis, except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareowners of a particular class or a particular series
within a class. Rule 18f-2 under the 1940 Act provides that any matter required
to be submitted to the holders of the outstanding voting securities of an
investment company such as the Company shall not be deemed to have been
effectively acted upon unless approved by the shareowners of each portfolio
affected by the matter. A portfolio is affected by a matter unless it is clear
that the interests of each portfolio in the matter are substantially identical
or that the matter does not affect any interest of the portfolio. Under the
Rule, the approval of an investment advisory agreement or any change in a
fundamental investment policy would be effectively acted upon with respect to a
portfolio only if approved by a majority of the outstanding shares of such
portfolio. However, the Rule also provides that the ratification of the
appointment of independent accountants, the approval of principal underwriting
contracts and the election of Directors may be effectively acted upon by
shareowners of the Company voting together in the aggregate without regard to
particular portfolios. Similarly, on any matter submitted to the vote of
shareowners which only pertains to agreements, liabilities or expenses
applicable to one series of a Fund (such as a Distribution and Service Plan
applicable to Retail A or B Shares) but not the other series of the same Fund,
only the affected series will be entitled to vote. Each Retail Share of a Fund
represents an equal proportionate interest with other Retail Shares in that
Fund. Shares are entitled to such dividends and distributions earned on its
assets as are declared at the discretion of the Board of Directors. Shares of
the Funds do not have preemptive rights.
When issued for payment as described in the Funds' Prospectus and this
SAI, shares of the Funds will be fully paid and non-assessable by the Company,
except as provided in Section 180.0622(2)(b) of the Wisconsin Business
Corporation Law, as amended, which in general provides for personal liability on
the part of a corporation's shareowners for unpaid wages of employees. The
Company does not intend to have any employees and, to that extent, the foregoing
statute will be inapplicable to holders of Fund shares and will not have a
material effect on the Company.
The Articles of Incorporation authorize the Board of Directors, without
shareowner approval (unless otherwise required by applicable law), to: (a) sell
and convey the assets belonging to a series of shares to another management
investment company for consideration which may include securities issued by
the purchaser and, in connection therewith, to cause all outstanding shares of
such series to be redeemed at a price which is equal to their net asset value
and which may be paid in cash or by distribution of the securities or other
consideration received from the sale and conveyance; (b) sell and convert the
assets belonging to a series of shares into money and, in connection therewith,
to cause all outstanding shares of such series to be redeemed at their net asset
value; or (c) combine the assets belonging to a series of shares with the assets
belonging to one or more other series of shares if the Board of Directors
reasonably determines that such combination will not have a material adverse
effect on the shareowners of any series participating in such combination and,
in connection therewith, to cause all outstanding shares of any such series to
be redeemed or converted into shares of another series of shares at their net
asset value.
ADDITIONAL INFORMATION CONCERNING TAXES
<PAGE>
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute out its income to
shareholders each year, so that the Fund itself generally will be relieved of
federal income and excise taxes. If a Fund were to fail to so qualify: (1) the
Fund would be taxed at regular corporate rates without any deduction for
distributions to shareholders; and (2) shareholders would be taxed as if they
received ordinary dividends, although corporate shareholders could be eligible
for the dividends received deduction.
The Tax Exempt Intermediate Bond Fund intends to invest all or
substantially all, of its assets in debt obligations, the interest on which is
exempt for federal income tax purposes. For the Fund to pay tax-exempt
dividends for any taxable year, at least 50% of the aggregate value of the
Fund's assets at the close of each quarter of the Fund's taxable year must
consist of exempt-interest obligations.
The Tax-Exempt Intermediate Bond Fund is designed to provide investors
with current tax-exempt interest income. The Fund is not intended to constitute
a balanced investment program and is not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Fund may not be suitable for tax-exempt institutions,
or for retirement plans qualified under Section 401 of the Internal Revenue Code
of 1986 (the "Code"), H.R. 10 plans and individual retirement accounts because
such plans and accounts are generally tax-exempt and, therefore, not only would
not gain any additional benefit from the Fund's dividends being tax-exempt, but
such dividends ultimately would be taxable to the beneficiaries when distributed
to them. In addition, the Fund may not be an appropriate investment for
entities which are "substantial users" of facilities financed by private
activity bonds or "related persons" thereof. "Substantial user" is defined
under U.S. Treasury Regulations to include a non-exempt person who regularly
uses a part of such facilities in his trade or business and whose gross revenues
derived with respect to the facilities financed by the issuance of bonds are
more than 5% of the total revenues derived by all users of such facilities, who
occupies more than 5% of the usable area of such facilities ,or for whom such
facilities, or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S Corporation and its
shareowners.
MANAGEMENT OF THE COMPANY
The business and affairs of the Funds are managed under the direction of
the Board of Directors of the Company. The Board is responsible for acting on
behalf of the shareowners.
The Board does not normally hold shareholder meetings except when required
by the 1940 Act or other applicable law. For example the Board will call a
shareowner meeting to vote on the question or removal of a board member.
Directors and Officers
- ----------------------
The Directors and Officers of the Company, their addresses,
principal occupations during the past five years and other affiliations are as
follows:
<TABLE>
<CAPTION>
Position(s) held Principal Occupations During Past 5 Years and
Name, Address & Age with the Company Other Affiliations
- ------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
James M. Wade Chairman of the Board Vice President and Chief Financial Officer,
2802 Wind Bluff Circle Johnson Controls, Inc. (a controls manufacturing
Wilmington, NC 28409 company)
Age: 55 January 1987-May 1991.
Glen R. Bomberger Director Executive Vice President, Chief Financial
One Park Plaza Officer and Director, A.O. Smith Corporation (a
11270 West Park Place diversified manufacturing company) since
Milwaukee, WI 53224-3690 January 1987; Director of companies affiliated
Age: 61 with A.O. Smith Corporation; Chief Financial
Officer, Director and Vice President, Smith
Investment Company; Officer and Director of
companies affiliated with Smith Investment
Company.
Jerry G. Remmel Director Vice President, Treasurer and Chief Financial
16650A Lake Circle Officer of Wisconsin Energy Corporation 1994-
Brookfield, WI 53005 1996; Treasurer of Wisconsin Electric Power
Age: 67 Company 1973-1996; Director of Wisconsin
Electric Power Company 1989-1996; Senior
Vice President, Wisconsin Electric Power
Company 1988 - 1994; Chief Financial Officer,
Wisconsin Electric Power Company 1983-1996;
Vice President and Treasurer, Wisconsin
Electric Power Company, 1983 - 1989.
Richard K. Riederer Director President and Chief Executive Officer of
400 Three Springs Drive Weirton Steel since 1995; Director of Weirton
Weirton, WV 26062-4989 Steel since 1993; Executive Vice President and
Age: 54 Chief Financial Officer, Weirton Steel January
1994 - 1995; Vice President of Finance and
Chief Financial Officer, Weirton Steel January
1989-1994; Member, Board of Directors of
American Iron and Steel Institute since 1995;
Member, Board of Directors, National
Association of Manufacturers since 1995;
Member, Board of Directors, WESBANCO
since September 1997.
Charles R. Roy* Director Vice President - Finance, Chief Financial
14245 Heatherwood Court Officer and Secretary, Rexnord Corporation (an
Elm Grove, WI 53122 equipment manufacturing company), 1988 -
Age: 68 1992; Vice President - Finance and
Administration, Rexnord Inc., 1982 - 1988;
Officer and Director of several Rexnord
subsidiaries until 1992.
Mary Ellen Stanek Director, President President of FIRMCO since 1994 and Chief
777 E. Wisconsin Avenue, and Treasurer Executive Officer, FIRMCO since 1998;
Suite 800 Director of FIRMCO since 1992 and Director
Milwaukee, WI 53202 Fixed Income Securities of FIRMCO since
<PAGE>
Age: 42 1990.
Bruce McConnel, III Secretary Partner of the law firm of Drinker Biddle &
Philadelphia National Bank Building Reath LLP.
1345 Chestnut Street
Philadelphia, PA 19107
Age: 55
Laura J. Rauman Vice President Vice President of Operations, FIRMCO since
777 E. Wisconsin Avenue, 1995; Senior Auditor, Price Waterhouse, LLP,
Suite 800 prior thereto
Milwaukee, WI 53202
Age: 29
Joseph C. Neuberger Assistant Treasurer Vice President, Firstar Mutual Fund Services,
615 E. Michigan Street LLC since 1994; Manager,
Milwaukee, WI 53202 Arthur Andersen LLP, prior thereto.
Age: 37
Bronson J. Haase Director President and CEO of Wisconsin Bell
626 E. Wisconsin Avenue Communications since 1993; President of
Milwaukee, WI 53202 Ameritech-Wisconsin since 1993; President
Age: 54 and CEO of Wisconsin Gas Company,
WICOR Energy, FieldTech and Vice President
of WICOR, Inc. since 1998; Trustee of
Roundy Foods.
</TABLE>
* Messrs. Haase, Roy and Stanek are considered by the Company to be "interested
persons" of the Company as defined in the 1940 Act.
<PAGE>
The following chart provides certain information about the Director fees
for the year ended October 31, 1998 of the Company's Directors.
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM
BENEFITS ESTIMATED COMPANY
COMPENSATION ACCRUED AS ANNUAL AND FUND
NAME OF FROMETHEE PART OF FUND BENEFITS UPON COMPLEX<F1> PAID
PERSON/POSITION COMPANY EXPENSES RETIREMENT TO DIRECTORS
- --------------- ------- -------- ---------- ------------
James M. Wade $18,500 $0 $0 $18,500
Chairman of the
Board
Glen R. $15,000<F2> $0 $0 $15,000
Bomberger
Director
Jerry G. Remmel $15,000 $0 $0 $15,000
Director
Richard K. $15,000 $0 $0 $15,000
Riederer
Director
Charles R. Roy $15,000 $0 $0 $15,000
Director
Bronson J. Haase $3,500 $0 $0 $3,500
Director
<F1> The "Fund Complex" includes only the Company.
<F2> Includes $15,000 which Mr. Bomberger elected to defer under the
Company's deferred compensation plan.
Each Director receives an annual fee of $10,000, a $1,000 per meeting
attendance fee and reimbursement of expenses incurred as a Director. The
Chairman of the Board is entitled to receive an additional $3,500 per annum for
services in such capacity. For the fiscal year ended October 31, 1998, the
Directors and Officers received aggregate fees and reimbursed expenses of
$82,754. Ms. Stanek, Ms. Rauman and Mr. Neuberger receive no fees from the
Company for their services as President and Treasurer, Vice President and
Assistant Treasurer respectively, although FIRMCO, of which Ms. Stanek and Ms.
Rauman are President and Vice President, respectively, receives fees from the
Company for advisory services and Firstar Mutual Fund Services, LLC of which Mr.
Neuberger is Vice President, receives fees from the Company for administration,
transfer agency and accounting services. FIRMCO is a wholly owned subsidiary of
Firstar Corporation. Drinker Biddle & Reath LLP, of which Mr. McConnel is a
partner, receives legal fees as counsel to the Company. As of the date of this
SAI, the Directors and Officers of the Company, as a group, owned less than 1%
of the outstanding shares of each Fund.
Directors, employees, retirees and their families of Firstar
Corporation or its affiliates are exempt and do not have to pay front-end sales
charges (provided the status of the investment is explained at the time of
investment) on purchases of Retail A Shares. These exemptions to the imposition
of a front-end sales charge are due to the nature of the investors and/or the
reduced sales efforts that will be needed in obtaining such investments.
Advisory Services
- ------------------
<PAGE>
FIRMCO became the investment adviser to the Short-Term Bond Market Fund,
Special Growth Fund, Bond IMMDEX_ Fund and Equity Index Fund as of February 3,
1992 and became the investment adviser to the Growth and Income Fund effective
June 17, 1993. Prior thereto, investment advisory services were provided by
Firstar Trust Services, an affiliate of FIRMCO. Firstar Corporation has
guaranteed all obligations incurred by FIRMCO in connection with its Investment
Advisory Agreement. FIRMCO is also the investment adviser to the Growth Fund,
Intermediate Bond Market Fund, Balanced Income Fund, Balanced Growth Fund, Tax-
Exempt Intermediate Bond Fund, Emerging Growth Fund, MicroCap Fund and
International Equity Fund. In its Investment Advisory Agreement, the Adviser
has agreed to pay all expenses incurred by it in connection with its advisory
activities, other than the cost of securities and other investments, including
brokerage commissions and other transaction charges, if any, purchased or sold
for the Funds.
In addition to the compensation stated in the Prospectus, the Adviser is
entitled to 4/10ths of the gross income earned by each Fund on each loan of its
securities, excluding capital gains or losses, if any. Pursuant to current
policy of the SEC, the Adviser does not intend to receive compensation for such
securities lending activity. The Adviser may voluntarily waive advisory fees
otherwise payable by the Funds.
For the services provided and expenses assumed by the Adviser under its
Investment Advisory Agreement in effect for the fiscal years ended October 31,
1998, 1997 and1996, the Adviser earned and waived advisory fees as follows:
Advisory Fees Earned (Advisory Fees Waived)
----------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<C> <C> <C>
Short-Term Bond Market Fund $1,079,885 (528,964) $669,603 (605,038) $552,764 (556,286)
Special Growth Fund 5,243,197 (24) 5,168,254 (0) 4,279,091 (250)
Bond IMMDEX TM Fund 1,551,355 (0) 1,294,766 (0) 1,074,956 (1,673)
Equity Index Fund 1,256,499 (179,779) 815,050 (0) 555,115 (0)
Intermediate Bond Market Fund 1,490,958 (410,430) 778,669 (345,403) 562,082 (288,147)
Growth Fund 1,663,120 (72) 1,470,245 (2,052) 1,245,050 (8,639)
Balanced Growth Fund 1,748,712 (403,169) 1,056,380 (334,926) 789,896 (309,983)
Growth and Income Fund 4,513,188 (0) 3,086,069 (45) 1,870,213 (18,262)
Tax-Exempt Intermediate Bond Fund 424,521 (207,408) 109,101 (176,855) 40,050 (159,121)
International Equity Fund 861,332 (219,464) 422,050 (370,710) 302,570 (332,273)
Emerging Growth Fund 500,944 (135,525) 46,258 (28,226) <F1>
Balanced Income Fund 237,395 (177,189) <F3>
MicroCap Fund 609,196 (72,149) <F2>
1,687,713 (2,576) 1,318,931 (33) 356,130 (135)
</TABLE>
- ------------------------
<F1> From inception (August 15, 1997) to October 31,1997.
<F2> For the fiscal periods August 1, 1995 through June 30,1996 and July 1,1996
through October 31,1996.
<F3> From inception (December 1,1997) to October 1,1998.
<PAGE>
Under its Investment Advisory Agreement, the Adviser is not liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of such Agreement, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its duties or from
its reckless disregard of its duties and obligations under the Agreement.
With regard to the International Equity Fund, under the Investment
Advisory Agreement, the Adviser is authorized to delegate its responsibilities
to another adviser. The Adviser has appointed Hansberger Global Investors, Inc.
as Sub-Adviser to the International Equity Fund. The Sub-Adviser determines the
securities to be purchased, retained or sold by the Fund. See "Sub-Adviser"
below.
Sub-Adviser. The International Equity Fund receives sub-advisory services
from Hansberger Global Investors, Inc. (the "Sub-Adviser"). Under the terms of
the Sub-Advisory Agreement between the Adviser and Sub-Adviser, the Sub-Adviser
furnishes investment advisory and portfolio management services to the
International Equity Fund with respect to its investments. The Sub-Adviser is
responsible for decisions to buy and sell the International Equity Fund's
investments and all other transactions related to investment therein. The Sub-
Adviser negotiates brokerage commissions and places orders of purchases and
sales of the International Equity Fund's portfolio securities. During the
term of the Sub-Advisory Agreement, the Sub-Adviser will bear all expenses
incurred by it in connection with its services under such agreement.
Pursuant to the Sub-Advisory Agreement, in the absence of willful
misfeasance, bad faith or gross negligence on the part of the Sub-Adviser or
reckless disregard of its obligations and duties thereunder, or loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation for
services, the Sub-Adviser will not be subject to any liability to the Adviser,
the International Equity Fund or the Company, or to any shareowner of the
International Equity Fund or the Company, for any act or omission in the course
of, or connected with, rendering services under the Sub-Advisory Agreement. See
"Banking Laws and Regulations" below for information regarding certain banking
laws and regulations and their applicability to the Sub-Adviser and its services
under the Sub-Adviser agreement.
Prior to September 2, 1997, State Street Bank and Trust Company served as
sub-adviser to the International Equity Fund. For the services provided under
the sub-advisory agreements in effect for the fiscal years ended October 31,
1998, 1997 and 1996, the Sub-Adviser and State Street Bank and Trust Company
earned and waived sub-advisory fees as follows:
Sub-Advisory Fees Earned (Sub-Advisory Fees Waived)
1998 1997 1996
----- ----- -----
International Equity 381,819 (0) 227,372 (0) 161,584 (0)
Fund
Banking Laws and Regulations. Banking laws and regulations, including the
Glass-Steagall Act as presently interpreted by the Board of Governors of the
Federal Reserve System, presently (a) prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from underwriting securities, but (b) do not prohibit such a bank holding
company or affiliate or banks generally from acting as investment adviser,
transfer agent or custodian to such an investment company or from purchasing
shares of such a company as agent and upon order of a
<PAGE>
customer. In 1971, the United States Supreme Court held in Investment Company
Institute vs. Camp that the Glass-Steagall Act prohibits a national bank from
operating a fund for the collective investment of managing agency accounts.
Subsequently, the Board of Governors of the Federal Reserve System (the "Board")
issued a regulation and interpretation to the effect that the Glass-Steagall Act
and such decision forbid a bank holding company registered under the Federal
Bank Holding Company Act of 1956 (the "Holding Company Act"), or any non-bank
affiliate thereof from sponsoring, organizing or controlling a registered, open-
end investment company continuously engaged in the issuance of its shares, but
did not prohibit such a holding company or affiliate from acting as investment
adviser, transfer agent and custodian to such an investment company. In 1981,
the United States Supreme Court held in Board of Governors of the Federal
Reserve System v. Investment Company Institute that the Board did not exceed its
authority under the Holding Company Act when it adopted its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisers to registered closed-end investment companies.
FIRMCO and Firstar Trust Services ("Firstar Trust") are subject to such banking
laws and regulations.
FIRMCO and Firstar Trust believe that they may perform the services for
the Funds contemplated by their respective agreements with the Company without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations. These companies further believe that, if the question were
properly presented, a court should hold that these companies may each perform
such activities without violation of the Glass-Steagall Act or other applicable
banking laws and or regulations. It should be noted, however, there have been
no cases deciding whether banks and their affiliates may perform services
comparable to those performed by these companies, and future changes in either
federal or state statutes and regulations relating to permissible activities of
banks or trust companies and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent such companies from continuing to
perform such services for the Funds. If the companies were prohibited from
continuing to perform advisory, accounting, shareowner servicing and custody
services for the Funds, it is expected that the Board of Directors would
recommend that the Funds enter into new agreements or would consider the
possible termination of the Funds. Any new advisory or sub-advisory agreement
would be subject to shareowner approval.
Shares of the Funds are not bank deposits, are neither endorsed by,
insured by, or guaranteed by, obligations of, nor otherwise supported by the
FDIC, the Federal Reserve Board, Firstar Bank, N.A. or FIRMCO, their affiliates
or any other bank, or any other governmental agency. An investment in the Funds
involves risks including possible loss of principal.
Administration and Distribution Services
- -------------------------------------------
Firstar Trust Company became a Co-Administrator to the Funds on September
1, 1994, and assigned its rights and obligations to Firstar Mutual Fund
Services, LLC on October 1, 1998, and B. C. Ziegler and Company ("Ziegler")
became a Co-Administrator to the Funds on January 1, 1995. Under the Co-
Administration Agreement, the following administrative services are provided
jointly by the Co-Administrators: assist in maintaining office facilities,
furnish clerical services, stationery and office supplies; monitor the company's
arrangements with respect to services provided by Shareowner Organizations and
Institutions; and generally assist in the Funds' operations. The following
administrative services are provided by Ziegler: review and comment upon the
registration statement and amendments thereto prepared by Firstar Mutual Fund
Services, LLC or counsel to the Company, as
<PAGE>
requested by Firstar Mutual Fund Services, LLC; review and comment upon sales
literature and advertising relating to the Company, as requested by Firstar
Mutual Fund Services, LLC; assist in the administration of the marketing budget;
periodically review Blue Sky registration and sales reports for the Funds;
attend meetings of the Board of Directors, as requested by the Board of
Directors of the Company; and such other services as may be requested in writing
and expressly agreed to by Ziegler. The following administrative services are
provided by Firstar Mutual Fund Services, LLC: compile data for and prepare,
with respect to the Funds, timely Notices to the SEC required pursuant to Rule
24f-2 under the 1940 Act and Semi-Annual Reports to the SEC and current
Shareowners; coordinate execution and filing by the Company of all federal and
state tax returns and required tax filings other than those required to be made
by the Company's custodian and transfer agent; prepare compliance filings and
Blue Sky registrations pursuant to state securities laws with the advice of the
Company's counsel; assist to the extent requested by the Company with the
Company's preparation of Annual and Semi-Annual reports to Fund shareowners and
Registration Statements for the Funds; monitor each Fund's expense accruals and
cause all appropriate expenses to be paid on proper authorization from each
Fund; monitor each Fund's status as a regulated investment company under
Subchapter M of the Code; maintain each Fund's fidelity bond as required by the
1940 Act; and monitor compliance with the policies and limitations of each Fund
as set forth in the Prospectus, SAI, By-laws and Articles of Incorporation.
The Co-Administrators are entitled to receive a fee for their
administrative services, computed daily and payable monthly, at the annual rate
of 0.125% of the Company's first $2 billion of average aggregate daily net
assets, plus 0.10% of the Company's average aggregate daily net assets in excess
of $2 billion. The Co-Administrators may voluntarily waive all or a portion of
their administrative fee from time to time. These waivers may be terminated at
any time at the Co-Administrators' discretion.
Each of the Co-Administrators has agreed to pay all expenses incurred by
it in connection with its administrative activities. Under the Co-
Administration Agreement, the Co-Administrators are not liable for any error of
judgment or mistake of law or for any loss suffered by the Funds in connection
with the performance of the Co-Administration Agreement, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the Co-
Administrators in the performance of their respective duties or from their
reckless disregard of their duties and obligations under the Agreement.
The Distributor provides distribution services for each Fund as described
in the Funds' Prospectus pursuant to a Distribution Agreement with the Funds
under which the Distributor, as agent, sells shares of each Fund on a continuous
basis. The Distributor has agreed to use its best efforts to solicit orders for
the sale of shares, although it is not obliged to sell any particular amount of
shares. The Distributor causes expenses to be paid for the cost of printing and
distributing prospectuses to persons who are not shareowners of the Funds
(excluding preparation and printing expenses necessary for the continued
registration of the Funds' shares) and of printing and distributing all sales
literature. For the fiscal year ended October 31, 1998, 1997, and 1996 Ziegler
received no fees for its distribution services.
For its administrative services for the fiscal years ended October 31, 1998,
1997 and 1996, the Co-Administrators earned and waived the following
administrative fees:
<TABLE>
<CAPTION>
Administration Fees Earned (Administration Fees Waived)
------------------------------------------------------------
1998 1997 1996
---- ---- ----
<C> <C> <C>
Short-Term Bond Market Fund $196,314 (126,882) $86,550 (149,862) $83,969 (127,339)
Special Growth Fund 762,353 (492,978) 245,929 (521,369) 257,995 (394,054)
Bond IMMDEX TM Fund 564,889 (364,601) 167,223 (318,234) 159,028 (251,337)
<PAGE>
Equity Index Fund 549,395 (353,692) 134,156 (229,162) 159,028 (251,337)
Intermediate Bond Market Fund 325,630 (210,207) 79,413 (171,118) 78,123 (116,341)
Growth Fund 242,192 (156,347) 71,750 (146,715) 75,054 (115,984)
Balanced Income Fund 34,604 (22,106)<F3>
Balanced Growth Fund 254,629 (164,087) 73,298 (133,271) 65,092 (102,563)
Growth and Income Fund 657,554 (423,689) 171,898 (286,778) 65,092 (102,563)
Tax-Exempt Intermediate Bond Fund 92,760 (59,803) 22,619 (41,122) 20,315 (25,259)
International Equity Fund 69,690 (44,829) 20,840 (38,741) 20,015 (30,231)
MicroCap Fund 23,766 (30,742)<F1>
122,665 (79,285) 29,709 (68,284) 12,113 (12,058)
Emerging Growth Fund 73,031 (46,986) 3,488 (7,567)<F2>
</TABLE>
<F1> For the fiscal periods August 1, 1995 through June 30, 1996 and July 1,
1996 through October 31, 1996.
<F2> From inception (August 15, 1997) to October 31, 1997.
<F3> From inception (December 1,1997) to October 31, 1998.
Shareowner Organizations
- -------------------------
<PAGE>
Retail A Shares
As stated in the Funds' Prospectus the Funds intend to enter into
agreements from time to time with Shareowner Organizations providing for support
and/or distribution services to customers of the Shareowner Organizations who
are the beneficial owners of Retail A Shares of the Fund. Under the agreements,
the Funds may pay Shareowner Organizations up to 0.25% (on an annualized basis)
of the average daily net asset value of Retail A Shares beneficially owned by
their customers. Support services provided by Shareowner Organizations under
their Service Agreements or Distribution and Service Agreements may include:
(i) processing dividend and distribution payments from a Fund; (ii) providing
information periodically to customers showing their share positions; (iii)
arranging for bank wires; (iv) responding to customer inquiries; (v) providing
sub-accounting with respect to shares beneficially owned by customers or the
information necessary for sub-accounting; (vi) forwarding shareowner
communications; (vii) assisting in processing share purchase, exchange and
redemption requests from customers; (viii) assisting customers in changing
dividend options, account designations and addresses; and (ix) other similar
services requested by the Funds. In addition, Shareowner Organizations, under
the Distribution and Service Plans applicable to Retail A Shares, may provide
assistance (such as the forwarding of sales literature and advertising to their
customers) in connection with the distribution of Retail A Shares. All fees
paid under these agreements are borne exclusively by the Funds' Retail A Shares.
The Funds' arrangements with Shareowner Organizations under the agreements
are governed by two Plans (a Service Plan and a Distribution and Service Plan)
for the Retail A Shares, which have been adopted by the Board of Directors.
Retail B Shares
The Company has also adopted a Distribution and Service Plan pursuant to
Rule 12b-1 and a Service Plan with respect to the Retail B Shares of the Funds.
Under the Distribution and Service Plan, payments by the Company (i) for
distribution expenses may not exceed .__% (annualized) of the average daily net
assets attributable to a Fund's outstanding Retail B Shares; (ii) for
shareholder liaison services and/or administrative support services may not
exceed .25% (annualized) and .__% (annualized), respectively, of the average
daily net assets attributable to each Fund's outstanding Retail B Shares. Under
the separate Service Plan for the Retail B Shares, payments by the Company for
shareholder liaison services and/or administrative support services may not
exceed .25% (annualized) and .25% (annualized), respectively, of the average
daily net assets attributable to each Fund's outstanding Retail B Shares. The
Company intends to limit the Funds' payments for shareholder liaison and
administrative support services to an aggregate of not more than [.25]% (on an
annualized basis) of the average daily net asset value of Retail B Shares.
Because the Distribution and Service Plan contemplates the provision of
services related to the distribution of Retail A and Retail B Shares (in
addition to support services), those Plans have been adopted in accordance with
Rule 12b-1 under the 1940 Act. In accordance with the Plans, the Board of
Directors reviews, at least quarterly, a written report of the amounts expended
in connection with the Funds' arrangements under the Plans and the purposes for
which the expenditures were made. In addition, the arrangements must be
approved annually by a majority of the Directors, including a majority of the
Directors who are not "interested persons" of the Funds (as defined in
the 1940 Act) and have no direct or indirect financial interest in such
arrangements (the "Disinterested Directors").
The Funds believe that there is a reasonable likelihood that their
arrangements with Shareowner Organizations will benefit each Fund and the
holders of Retail A or Retail B Shares as a way of allowing Shareowner
Organizations to participate with the Funds in the provision of support and
distribution services to customers of the Shareowner Organization who own Retail
A or Retail B Shares. Any material amendment to the arrangements with
Shareowner Organizations under other agreements must be approved by a majority
of the Board of Directors (including a majority of the Disinterested Directors),
and any amendment to increase materially the costs under the Distribution and
Service Plan with respect to a Fund must be approved by the holders of a
majority of the outstanding Retail A or Retail B Shares of the Fund involved.
So long as the Plans are in effect, the selection and nomination of the members
of the Board of Directors who are not "interested persons" (as defined in the
1940 Act) of the Funds will be committed to the discretion of such Disinterested
Directors.
The Funds paid fees to Shareowner Organizations, none of which were
affiliated with the Adviser, pursuant to the Service Plan for Retail A Shares
for the fiscal year ended October 31, 1998 as follows:
Fees Earned by Non-Affiliated
Shareowner Organizations
----------------------------
Short-Term Bond Market Fund $773
Special Growth Fund 2,163
Bond IMMDEX TM Fund 0
Equity Index 4,301
Intermediate Bond Market Fund 83
<PAGE>
Growth Fund 5
Balanced Income 0
Balanced Growth Fund 395
Growth and Income Fund 1,068
Tax-Exempt Intermediate Bond Fund 0
International Equity Fund 0
MicroCap Fund 0
Emerging Growth 0
The Funds paid fees to Shareowner Organizations, all of which were
affiliated with the Adviser, pursuant to the Service Plan for Retail A Shares
for the fiscal year ended October 31, 1998 as follows:
Fees Earned by Affiliated
Shareowner Organizations
---------------------------
Short-Term Bond Market Fund $169,222
Special Growth Fund 381,221
Bond IMMDEX TM Fund 196,204
Equity Index Fund 239,637
Intermediate Bond Market Fund 62,191
Balanced Income Fund 10,544
Growth Fund 81,362
Balanced Growth Fund 135,464
Growth and Income Fund 414,008
Tax-Exempt Intermediate Bond Fund 61,560
International Equity Fund 17,228
MicroCap Fund 39,987
Emerging Growth Fund 23,438
Under the terms of their agreement with Firstar, Shareowner Organizations
are required to provide a schedule of any fees that they may charge to their
customers relating to the investment of their assets in shares covered by the
agreements. In addition, investors should contact their Shareowner
Organizations with respect to the availability of shareowner services and the
particular Shareowner Organization's procedures for purchasing and redeeming
shares. It is the responsibility of Shareowner Organizations to transmit
purchase and redemption orders and record those orders in customers' accounts on
a timely basis in accordance with their agreements with customers. At the
request of a Shareowner Organization, the transfer agent's charge of $12.00 for
each payment made by wire of redemption proceeds may be billed directly to the
Shareowner Organization. No amounts were paid under the Plans applicable to the
Retail B Shares during the fiscal year ended October 31, 1998.
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES AGENT
Firstar Bank Milwaukee, N.A. serves as custodian of all the Funds' assets.
Under the Custody Agreement, Firstar Bank Milwaukee, N.A. has agreed to (i)
maintain a separate account in the name of each Fund, (ii) make receipts and
disbursements of money on behalf of each Fund, (iii) collect and
<PAGE>
receive all income and other payments and distributions on account of each
Fund's portfolio investments, (iv) respond to correspondence from
shareowners, security brokers and others relating to its duties and (v) make
periodic reports to the Company concerning each Fund's operations. Firstar Bank
Milwaukee, N.A. may, at its own expense, open and maintain a custody account or
accounts on behalf of each Fund with other banks or trust companies, provided
that Firstar Bank Milwaukee, N.A. shall remain liable for the performance of all
of its duties under the Custody Agreement notwithstanding any delegation. For
its services as custodian, Firstar Bank Milwaukee, N.A. is entitled to receive a
fee, payable monthly, based on the annual rate of 0.02% of the Company's first
$2 billion of total assets, plus 0.015% of the Company's next $2 billion of
total assets, and 0.01% of the Company's next $1 billion and 0.005% on the
balance. In addition, Firstar Bank Milwaukee, N.A., as custodian, is entitled
to certain charges for securities transactions and reimbursement for expenses.
The Chase Manhattan Bank performs certain foreign custodial services related to
the International Equity Fund.
Firstar Mutual Fund Services, LLC, 615 East Michigan Street, Milwaukee,
Wisconsin 53202, serves as transfer agent and dividend disbursing agent for each
Fund under a Shareowner Servicing Agent Agreement. As transfer and dividend
disbursing agent, Firstar Mutual Fund Services, LLC has agreed to (i) issue and
redeem shares of the Funds, (ii) make dividend and other distributions to
shareowners of the Funds, (iii) respond to correspondence by Fund shareowners
and others relating to its duties, (iv) maintain shareowner accounts, and (v)
make periodic reports to the Funds. For its transfer agency and dividend
disbursing services, Firstar Mutual Fund Services, LLC is entitled to receive a
fee at the rate of $15.00 per shareowner account with an annual minimum of
$24,000 per Fund, plus certain other transaction charges and reimbursement for
expenses.
In addition, all of the Funds have entered into a Fund Accounting
Servicing Agreement with Firstar Mutual Fund Services, LLC pursuant to which
Firstar Mutual Fund Services, LLC has agreed to maintain the financial accounts
and records of the Funds in compliance with the 1940 Act and to provide other
accounting services to the Funds. For its accounting services, Firstar Mutual
Fund Services, LLC is entitled to receive fees, payable monthly, at the
following annual rates of the market value of each Fund's assets; Balanced
Income Fund, Balanced Growth Fund, Growth and Income Fund, Equity Index Fund,
Growth Fund, Special Growth Fund, Emerging Growth Fund, MicroCap Fund -- $27,500
on the first $40 million, 0.0125% on the next $200 million, and 0.00625% on the
balance, plus out-of-pocket expenses, including pricing expenses; and Short-Term
Bond Market Fund, Intermediate Bond Market Fund, Tax-Exempt Intermediate Bond
Fund, Bond IMMDEX_ Fund and International Equity Fund -- $31,250 on the first
$40 million, 0.025% on the next $200 million, 0.0125% on the next $200 million,
0.00625% on the balance, plus out-of-pocket expenses, including pricing
expenses.
EXPENSES
Operating expenses of the Funds include taxes, interest, fees and expenses
of Directors and officers, SEC fees, state securities and qualification fees,
advisory fees, administrative fees, Shareowner Organization fees (Retail A
Shares only), charges of the custodian and transfer agent, dividend disbursing
agent and accounting services agent, certain insurance premiums, auditing and
legal expenses, costs of preparing and printing prospectuses for regulatory
purposes and for distribution to shareowners, costs of shareowner reports and
meetings, membership fees in the Investment Company Institute, and any
extraordinary expenses. The Funds also pay any brokerage fees, commissions and
other transactions charges (if any) incurred in connection with the purchase or
sale of portfolio securities.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
<PAGE>
, independent accountants, serve as auditors for the
Company. The Company's Annual Report to Shareholders with respect to the Funds
for the fiscal year ended October 31, 1998 has been filed with the SEC. The
financial statements and notes thereto in such Annual Report (the "Financial
Statements") are incorporated by reference into this Statement of Additional
Information. The Financial Statements in such Annual Report have been
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
COUNSEL
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of the
Company, is a partner), Philadelphia National Bank Building, 1345 Chestnut
Street, Philadelphia, Pennsylvania 19107, serve as counsel to the Company and
will pass upon the legality of the shares offered by the Funds' Prospectuses.
PERFORMANCE CALCULATIONS
From time to time, the total return of the Retail A Shares, Retail B
Shares and Institutional Shares of each Fund and the yields of such shares of
the Short-Term Bond Market Fund, Intermediate Bond Market Fund, Tax-Exempt
Intermediate Bond Fund and Bond IMMDEX_ Fund (each, a "Bond Fund") may be
quoted in advertisements, shareowner reports or other communications to
shareowners. Performance information is generally available by calling the
Firstar Funds Center at 1-800-228-1024.
Yield Calculations
- -------------------
Yield is computed based on the net income of a series of shares of a Bond
Fund during a 30-day (or one-month) period, which will be identified in
connection with the particular yield quotation, more specifically, the yield of
a series of shares is calculated by dividing the net investment income per share
for that series (as described below) earned during a 30-day (or one-month)
period by the net asset value per share for that series (including the maximum
front end sales charge of 3.75% for the Retail A Shares of the Bond Funds) on
the last day of the period and annualizing the result on a semiannual basis by
adding one to the quotient, raising the sum to the power of six, subtracting one
from the result and then doubling the difference. Net investment income per
share earned during the period attributable to that series is based on the
average daily number of shares of the series outstanding during the period
entitled to receive dividends and includes dividends and interest earned during
the period attributable to that series minus expenses accrued for the period,
attributable to that series net of reimbursements.
This calculation can be expressed as follows:
a-b 6
Yield = 2 [(----- + 1) - 1]
c x d
Where: a = dividends and interest earned during the period.
<PAGE>
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = Maximum offering price per share on the last day
of the period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the portfolio. A Fund calculates
interest earned on any debt obligations held in its portfolio by computing the
yield to maturity of each obligation held by it based on the market value of the
obligation (including actual accrued interest) at the close of business on the
last business day of each month, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest) and dividing
the result by 360 and multiplying the quotient by the market value of the obli-
gation (including actual accrued interest) in order to determine the interest
income on the obligation for each day of the subsequent month that the
obligation is in the portfolio. For purposes of this calculation, it is assumed
that each month contains 30 days. The maturity of an obligation with a call
provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations.
Interest earned on tax-exempt obligations of the Tax-Exempt Intermediate
Bond Fund that are issued without original issue discount and have a current
market discount is calculated by using the coupon rate of interest instead of
the yield to maturity. In the case of tax-exempt obligations that are issued
with original issue discount but which have discounts based on current market
value that exceed the then-remaining portion of the original issue discount
(market discount), the yield to maturity is the imputed rate based on
the original issue discount calculation. On the other hand, in the case of tax-
exempt obligations that are issued with original issue discount but which have
the discounts based on current market value that are less than the then-
remaining portion of the original issue discount (market premium), the yield to
maturity is based on the market value.
With respect to mortgage or other receivables-backed obligations which are
expected to be subject to monthly payments of principal and interest ("pay
downs"), (a) gain or loss attributable to actual monthly pay downs are accounted
for as an increase or decrease to interest income during the period; and (b) a
Fund may elect either (i) to amortize the discount and premium on the remaining
security, based on the cost of the security, to the weighted average maturity
date, if such information is available, or to the remaining term of the
security, if any, if the weighted average maturity date is not available, or
(ii) not to amortize discount or premium on the remaining security.
Undeclared earned income may be subtracted from the net asset value per
share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the 30-day base period, has not been
declared as a dividend, but is reasonably expected to be and is declared as a
dividend shortly thereafter.
In addition, the Tax-Exempt Intermediate Bond Fund may advertise a "tax-
equivalent yield" which shows the level of taxable yield needed to produce an
after-tax equivalent to the tax-free yield of the Fund. This is done by
increasing the yield of the series of shares (calculated as stated above) by the
<PAGE>
amount necessary to reflect the payment of federal income taxes at a stated
rate. This is computed by: (a) dividing the portion of the Fund's yield for a
particular series (as calculated above) that is exempt from federal income tax
by one minus a stated federal income tax rate; and (b) adding the figure
resulting from (a) above to that portion, if any, of the Fund's yield that is
not exempt from federal income tax. The "tax-equivalent" yield will always be
higher than the "yield of the Fund.
For the 30-day period ended October 31, 1998, the annualized yields for
Institutional Shares of the Short-Term Bond Market Fund, Intermediate Bond
Market Fund, Tax-Exempt Intermediate Bond Fund and Bond IMMDEX TM Fund were
5.28%, 5.05%, 3.69% and 5.35%, respectively. Without fees waived by the Adviser
and the Co-Administrators during such period, the annualized yields would have
been 4.94%, 4.85%, 3.38% and 5.28%, respectively. For the same period, the tax-
equivalent annualized yield for the Tax-Exempt Intermediate Bond Fund same
period would have been 5.35% (assuming a federal income tax rate of 31%).
Without fees waived by the Adviser and Co-Administrators during such period, the
tax-equivalent annualized yield for such Fund would have been 4.90%.
For the 30-day period ended October 31, 1998, the annualized yields,
assuming the maximum sales charge, for Retail Shares of the Short-Term Bond
Market Fund, Intermediate Bond Market Fund, Tax-Exempt Intermediate Bond Fund
and Bond IMMDEX TM Fund were 4.92%, 4.70%, 3.37% and 5.00%, respectively.
Without fees waived by the Adviser and the Co-Administrators during such period,
the annualized yields would have been 4.58%, 4.50%, 3.06% and 4.93%,
respectively. For the same period, the tax-equivalent annualized yield for the
Tax-Exempt Intermediate Bond Fund would have been 4.88% (assuming a federal
income tax rate of 31%). Without fees waived by the Adviser and Co-
Administrators during such period, the tax-equivalent annualized yield for such
Fund would have been 4.43%.
For the 30-day period ended October 31, 1998, the annualized yields for
Retail Shares of the Short-Term Bond Market Fund, Intermediate Bond Market Fund,
Tax-Exempt Intermediate Bond Fund and Bond IMMDEX TM Fund purchased without a
front-end sales charge were 5.02%, 4.79%, 3.44% and 5.10%, respectively.
Without fees waived by the Adviser and the Co-Administrators during such period,
the annualized yields would have been 4.68%, 4.59%, 3.13% and 5.03%,
respectively. For the same period, the tax-equivalent annualized yield for the
Tax-Exempt Intermediate Bond Fund purchased without a front-end sales charge
would have been 4.99% (assuming a federal income tax rate of 31%). Without fees
waived by the Adviser and Co-Administrators during such period, the tax-
equivalent annualized yield for such Fund would have been 4.54%.
Total Return Calculations.
- ---------------------------
Each Fund computes "average annual total return" separately for its Retail
A, Retail B and Institutional Shares. Average annual total return reflects the
average annual percentage change in value of an investment in shares of a series
over the measuring period. This is computed by determining the average annual
compounded rates of return during specified periods that equate the initial
amount invested in a particular series to the ending redeemable value of such
investment in the series. This is done by dividing the ending redeemable value
of a hypothetical $1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
n
P(1 + T) = ERV
Where: T = average annual total return.
<PAGE>
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in
terms of years.
The Funds may compute aggregate total return, which reflects the total
percentage change in value over the measuring period. The Funds compute their
aggregate total returns separately for the Retail A, Retail B and Institutional
Series, by determining the aggregate rates of return during specified periods
that likewise equate the initial amount invested in a particular series to the
ending redeemable value of such investment in the series. The formula for
calculating aggregate total return is as follows:
ERV
T = [(-----) - 1]
P
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations. In addition, the Funds' average
annual total return and aggregate total return reflect the deduction of the
4.50% maximum front-end sales charge for equity funds and 3.75% maximum front
end sales charge for fixed income funds in connection with the purchase of
Retail A Shares and the maximum sales load charged in connection with
redemptions of Retail B Shares (5.00%). The Funds may also advertise total
return data without reflecting sales charges in accordance with the rules of the
Securities and Exchange Commission. Quotations that do not reflect the
sales charge will, of course, be higher than quotations that do reflect the
sales charge.
The total return and yield of a Fund's Shares may be compared to
those of other mutual funds with similar investment objectives and to stock,
bond and other relevant indices or to rankings prepared by independent services
or other financial or industry publications that monitor the performance of
mutual funds. For example, the total return and yield, as appropriate, of a
Fund's shares may be compared to data prepared by Lipper Analytical Services,
Inc. The total return of a bond or balanced Fund's shares may be compared to
the Lehman Brothers 1-3 Year Government/Corporate Bond Index; the Merrill Lynch
1-2.99 U.S. Treasury Bond Index; the Lehman Brothers Intermediate
Government/Corporate Bond Index; the Lehman Brothers 5-Year General Obligation
Bond Index; the Lehman Brothers Government/Corporate Bond Index; and the
Consumer Price Index. In addition, the total return of an equity Fund's shares
may be compared to the S&P 500 Index; the S&P MidCap 400 Index, the S&P SmallCap
600 Index, the NASDAQ Composite Index, an index of unmanaged groups of common
stocks of domestic companies that are quoted on the National Association of
Securities Quotation System; the Dow Jones Industrial Average, a recognized
unmanaged index of common stocks of 30 industrial companies listed on the New
York Stock Exchange; the Wilshire Top 750 Index, an index of all domestic equity
issues which are traded over the national exchanges; the Russell 2000 Index; the
Value Line Composite Index, an unmanaged index of nearly 1,700 stocks reviewed
in Ratings & Reports; the Russell MidCap; the Wilshire Next 1750 Index; the
Wilshire MidCap 750 Index; and the Consumer Price Index. In addition, the
total return of a series of shares of the International Equity Fund will be
compared to the GDP EAFE Index and may be compared to the Salomon-Russell
Indices, Russell Universe Indices, Lipper International Indices, and the
domestic indices listed above. Total return and
<PAGE>
yield data as reported in national financial publications, such as Money
Magazine, Forbes, Barron's, Morningstar Mutual Funds, Mutual Funds Magazine,
Kiplinger's Personal Finance Magazine, The Wall Street Journal and The New York
Times, or in publications of a local or regional nature, may also be used in
comparing the performance of the Funds.
Performance quotations represent past performance, and should not
be considered as representative of future results. The investment return and
principal value of an investment in a Fund's series of shares will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than their
original cost. Since performance will fluctuate, performance data for a Fund
cannot necessarily be used to compare an investment in a Fund's series of shares
with bank deposits, savings accounts and similar investment alternatives which
often provide an agreed or guaranteed fixed yield for a stated period of time.
Investors should remember that performance is generally a function of the kind
and quality of the investments held in a portfolio, portfolio maturity,
operating expenses and market conditions. Any fees charged by Institutions
directly to their customer accounts in connection with investments in a Fund
will not be included in the Fund's calculations of yield and total return and
will reduce the yield and total return received by the accounts.
PERFORMANCE HISTORY
AVERAGE ANNUAL TOTAL RETURN<F1>
INSTITUTIONAL SHARES
1 Year 5 Years 10 Years Since inception
(inception date)
SHORT-TERM BOND MARKET
INTERMEDIATE BOND MARKET
TAX-EXEMPT INTERMEDIATE BOND
BOND IMMDEX TM
BALANCED INCOME
BALANCED GROWTH
GROWTH AND INCOME
EQUITY INDEX
GROWTH
SPECIAL GROWTH
FIRMCO'S COLLECTIVE INVESTMENT "B FUND"
EMERGING GROWTH*
MICROCAP
INTERNATIONAL EQUITY
<PAGE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN<F1>
RETAIL SHARES
1 Year 5 Years 10 Years Since inception
(inception date)
SHORT-TERM BOND MARKET
INTERMEDIATE BOND MARKET
TAX-EXEMPT INTERMEDIATE BOND
BOND IMMDEX TM
BALANCED INCOME
BALANCED GROWTH
GROWTH AND INCOME
EQUITY INDEX
GROWTH
SPECIAL GROWTH
FIRMCO'S COLLECTIVE INVESTMENT "B FUND"
EMERGING GROWTH
MICROCAP
INTERNATIONAL EQUITY
<F1> Average annual total return calculations are for periods ended
October 31, 1998, but reflect loads in effect commencing January 1, 1999.
The performance of the Short-Term Bond Market, Bond IMMDEX TM and Equity
Index Funds for the period prior to December 29, 1989 and for Balanced Income
Fund for the period prior to December 1, 1997 is represented by the performance
of collective investment funds which operated prior to the effectiveness of the
registration statement of the Firstar Short-Term Bond Market, Bond IMMDEX TM and
Equity Index and Balanced Income Funds. At the time of the Firstar Short-Term
Bond Market, Bond IMMDEX TM, Equity Index and Balanced Income Funds' inception,
each collective investment fund was operated using materially equivalent
investment objectives, policies, guidelines and restrictions as its
corresponding Firstar fund. In connection with the Firstar Short-Term Bond
Market, Bond IMMDEX TM and Equity Index Funds' commencement of operations, on
December 29, 1989 and Balance Income Funds' commencement of operations, on
December 1, 1997, each collective investment fund transferred its assets to its
Firstar Fund equivalent. The Special Growth Fund is managed by
<PAGE>
FIRMCO using substantially the same investment objectives, policies and
restrictions as the FIRMCO managed collective investment fund Special Equity
Growth Fund B (the "B Fund").
The collective investment funds were not and the B Fund is not registered
under the 1940 Act and were and are not subject to certain restrictions that are
imposed by the 1940 Act and the Internal Revenue Code. If the collective
investment funds and the B Fund had been registered under the 1940 Act,
performance may have been adversely affected. Performance of the collective
investment funds has been restated to reflect the Firstar Short-Term Bond
Market, Bond IMMDEX TM, Equity Index and Balanced Income Funds' respective
actual expenses during each such Fund's first fiscal year. The performance of
the B Fund has been restated to reflect the Special Growth Fund's current
expenses for retail shares and its maximum 4.00% sales charge and for
institutional shares. Performance quotations of each Collective Investment
Fund and of the B Fund present past performance of the FIRMCO managed
collective funds, which are separate and distinct from Firstar Special Growth
Fund, Short-Term Bond Market Fund, Bond IMMDEX Fund, Equity Index Fund and
Balanced Income Fund, do not represent past performance o those Funds and should
not be considered as representative of future results of those Funds.
Prior to January 10, 1995, the Funds offered to retail and institutional
investors one series of shares with neither a sales charge nor a 0.25% service
organization fee. Retail Share performance reflects the deduction of the
current maximum sales charge of 4.50% for equity funds and 3.75% for fixed
income funds, but for periods prior to January 10, 1995, Retail Share
performance does not reflect service organization fees. If service organization
fees had been reflected, performance would be reduced.
Performance assumes the reinvestment of all net investment income and
capital gains and reflects fee waivers. In the absence of fee waivers,
performance would be reduced. Performance quotations represent past
performance, and should not be considered as representative of future results.
The Funds may also from time to time include discussions or illustrations
of the effects of compounding in advertisements. "Compounding" refers to the
fact that, if dividends or other distributions on a Fund investment are
reinvested by being paid in additional Fund shares, any future income or capital
appreciation of a Fund would increase the value, not only of the original Fund
investment, but also of the additional Fund shares received through
reinvestment. As a result, the value of the Fund investment would increase more
quickly than if dividends or other distribution had been paid in cash. The
Funds may also include discussions or illustrations of the potential investment
goals of a prospective investor, investment management techniques, policies or
investment suitability of a Fund, economic conditions, the effects of inflation
and historical performance of various asset classes, including but not
limited to, stocks, bonds and Treasury bills. From time to time advertisements
or communications to shareowners may summarize the substance of information
contained in shareowner reports (including the investment composition of a
Fund), as well as the views of the Adviser or Sub-Adviser as to market,
economic, trade and interest trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to a Fund. The Funds may also include in advertisements, charts,
graphs or drawings which illustrate the potential risks and rewards of
investment in various investment vehicles, including but not limited to stocks,
bonds, treasury bills and shares of a Fund. In addition, advertisement or
shareowner communications may include a discussion of certain attributes or
benefits to be derived by an investment in a Fund. Such advertisements or
communications may include symbols, headlines or other materials which highlight
or summarize the information discussed in more detail therein.
<PAGE>
MISCELLANEOUS
As used in this SAI and in the Funds' Prospectuses, a majority of the
outstanding shares of a Fund or portfolio means, with respect to the approval of
an investment advisory agreement or a charge in a fundamental investment policy,
the lesser of (1) 67% of the shares of the particular Fund or portfolio
represented at a meeting at which the holders of more than 50% of the
outstanding shares of such Fund or portfolio are present in person or by proxy,
or (2) more than 50% of the outstanding shares of such Fund or portfolio.
As of November 30, 1998, the Adviser and its affiliates held of record
substantially all of the outstanding shares of each of the Company's investment
portfolios as agent, custodian, trustee or investment adviser on behalf of
their customers. At such date, Firstar Trust Services, P.O. Box 2054,
Milwaukee, Wisconsin 53201, and its affiliated banks held as beneficial owner
five percent or more of the outstanding shares of the following investment
portfolios of the Company because they possessed sole voting or investment power
with respect to such shares: Money Market Fund: 1.0%; Institutional Money Market
Fund: 84%; Tax-Exempt Money Market Fund: 52%; U.S. Treasury Money Market Fund:
32%; U.S. Government Money Market Fund: 73%; Growth and Income Fund: 66%; Short-
Term Bond Market Fund: 57%; Special Growth Fund: 73%; Bond IMMDEX TM Fund: 74%;
Equity Index Fund: 76%; Balanced Income Fund: 75%, Balanced Growth Fund: 74%;
Intermediate Bond Market Fund: 82%; Growth Fund: 80%; Tax-Exempt Intermediate
Bond Fund: 63%; International Equity Fund: 85%; MicroCap Fund: 80%, and
Emerging Growth Fund: 77%. At such date, no other person was known by the
Company to hold of record or beneficially 5% or more of the outstanding shares
of any investment portfolio of the Company.
The Equity Index Fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). S&P
makes no representation or warranty, express or implied, to the shareholders of
the Equity Index Fund or any member of the public regarding the advisability of
investing in securities generally or in the Equity Index Fund particularly or
the ability of the S&P 500 Index to track general stock market performance.
S&P's only relationship to the Company is the licensing of certain trademarks
and trade names of S&P and of the S&P 500 Index which is determined, composed
and calculated by S&P without regard to the Company or the Equity Index Fund.
S&P has no obligation to take the needs of the Company or shareholders of the
Equity Index Fund into consideration in determining, composing or calculating
the S&P 500 Index. S&P is not responsible for and has not participated in the
determination of the prices and amount of the Equity Index Fund or the timing of
the issuance or sale of the Equity Index Fund or in the determination or
calculation of the equation by which the Equity Index Fund is to be
converted into cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Equity Index Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED,
<PAGE>
AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.
S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
<PAGE>
APPENDIX A
COMMERCIAL PAPER RATINGS
- -------------------------
A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of
A-1
<PAGE>
fixed financial charges and high internal cash generation; and well-established
access to a range of financial markets and assured sources of alternate
liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance
A-2
<PAGE>
securities. The following summarizes the rating categories used by Fitch IBCA
for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+"to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to non-
investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's second-
highest category and indicates that while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
A-3
<PAGE>
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- -----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have
some quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
A-4
<PAGE>
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The "D" rating also will
be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or
commodities; obligations exposed to severe prepayment risk _ such as interest-
only or principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca" and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
A-5
<PAGE>
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa". The modifier 1 indicates that
the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater
economic stress.
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD" and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
A-6
<PAGE>
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate
that there is a possibility of credit risk developing, particularly as the
result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC," "CC" and "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "B" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.
A-7
<PAGE>
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC" and "CC" - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- -----------------------
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
A-8
<PAGE>
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with margins
of protection that are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-9
<PAGE>
APPENDIX B
ADDITIONAL INFORMATION CONCERNING FUTURES AND RELATED
OPTIONS
As stated in the Prospectuses, certain of the Funds may enter into futures
contracts and options for hedging or other purposes. Such transactions are
described in this Appendix.
I. Interest Rate Futures Contracts
------------------------------
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, a Fund may use interest rate futures
as a defense, or hedge, against anticipated interest rate changes and not for
speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
A Fund presently could accomplish a similar result to that which they hope
to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market the protection
is more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by a Fund, through using futures contracts.
Description of Interest Rate Futures Contracts. An interest rate futures
contract sale would create an obligation by a Fund as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for a specified price. A futures contract purchase
would create an obligation by a Fund, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price. The specific securities delivered or taken, respectively, at settlement
date, would not be determined until at or near that date. The determination
would be in accordance with the rules of the exchange on which the futures
contract sale or purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly,
the closing out of a futures contract purchase is effected by a Fund's entering
into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the
B-1
<PAGE>
Fund realizes a gain, and if the purchase price exceeds the offsetting sale
price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges - principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds
would deal only in standardized contracts on recognized exchanges. Each
exchange guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term U.S. Treasury Bonds and Notes; Government
National Mortgage Association (GNMA) modified pass-through mortgage-backed
securities; three-month U.S. Treasury Bills; and ninety-day commercial paper. A
Fund may trade in any futures contract for which there exists a public market,
including, without limitation, the foregoing instruments.
Examples of Futures Contract Sale. A Fund would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term
securities prices. Assume that the market value of a certain security in a
Fund's portfolio tends to move in concert with the futures market prices of
long-term U.S. Treasury bonds ("Treasury bonds"). The Adviser wishes to fix
the current market value of this portfolio security until some point in the
future. Assume the portfolio security has a market value of 100, and the
Adviser believes that, because of an anticipated rise in interest rates, the
value will decline to 95. The Fund might enter into futures contract sales of
Treasury bonds for an equivalent of 98. If the market value of the portfolio
security does indeed decline from 100 to 95, the equivalent futures market
price for the Treasury bonds might also decline from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The Adviser could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by
the loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Examples of Futures Contract Purchase. A Fund might engage in an
interest rate futures contract purchase when it is not fully invested in long-
term bonds but wishes to defer for a time the purchase of long-term bonds in
light of the availability of advantageous interim investments, e.g., shorter-
term securities whose yields are greater than those available on long-term
bonds. A Fund's basic motivation would be to maintain for a time the income
advantage from investment in the short-term securities; the Fund would be
endeavoring at the same time
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<PAGE>
to eliminate the effect of all or part of an expected increase in market price
of the long-term bonds that the fund may purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with
futures market prices of Treasury bonds. The Adviser wishes to fix the current
market price (and thus 10% yield) of the long-term bond until the time (four
months away in this example) when it may purchase the bond. Assume the
long-term bond has a market price of 100, and the Adviser believes that,
because of an anticipated fall in interest rates, the price will have risen to
105 (and the yield will have dropped to about 9 1/2%) in four months. The Fund
might enter into futures contracts purchases of Treasury bonds for an
equivalent price of 98. At the same time, the Fund could, for example, assign
a pool of investments in short-term securities that are either maturing in four
months or earmarked for sale in four months, for purchase of the long-term bond
at an assumed market price of 100. Assume these short-term securities are
yielding 15%. If the market price of the long-term bond does indeed rise from
100 to 105, the equivalent futures market price for Treasury bonds might also
rise from 98 to 103. In that case, the 5-point increase in the price that the
Fund pays for the long-term bond would be offset by the 5-point gain realized
by closing out the futures contract purchase.
The Adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or
below, it is possible that the Fund would continue with its purchase program
for long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will
be reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase.
In each transaction, expenses would also be incurred.
II. Index Futures Contracts.
------------------------
A stock or bond index assigns relative values to the stocks or bonds
included in the index and the index fluctuates with changes in the market
values of the stocks or bonds included. Some stock index futures contracts are
based on broad market indexes, such as the Standard & Poor's 500 or the New
York Stock Exchange Composite Index. In contrast, certain exchanges offer
futures contracts on narrower market indexes, such as the Standard & Poor's 100
or indexes based on an industry or market segment, such as oil and gas stocks.
Futures contracts are traded on organized exchanges regulated by the Commodity
Futures Trading Commission. Transactions on such exchanges are cleared through
a clearing corporation, which guarantees the performance of the parties to each
contract.
A Fund may sell index futures contracts as set forth in the Prospectuses.
A Fund may do so either to hedge the value of its portfolio as a whole, or to
protect against declines,
B-3
<PAGE>
occurring prior to sales of securities, in the value of the securities to be
sold. Conversely, a Fund may purchase index futures contracts. In a
substantial majority of these transactions, a Fund will purchase such
securities upon termination of the long futures position, but a long futures
position may be terminated without a corresponding purchase of securities.
In addition, a Fund may utilize index futures contracts in anticipation of
changes in the composition of its portfolio holdings. For example, in the
event that a Fund expects to narrow the range of industry groups
represented in its holdings it may, prior to making purchases of the actual
securities, establish a long futures position based on a more restricted index,
such as an index comprised of securities of a particular industry group. A
Fund may also sell futures contracts in connection with this strategy, in order
to protect against the possibility that the value of the securities to be sold
as part of the restructuring of the portfolio will decline prior to the time of
sale.
The following are examples of transactions in stock index futures (net of
commissions and premiums, if any).
ANTICIPATORY PURCHASE HEDGE: Buy the Future Hedge
Objective: Protect Against Increasing Price
Portfolio Futures
---------- ----------
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures=$62,500/Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/Contract
Increase in Purchase Price = $2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
B-4
<PAGE>
Portfolio Beta Relative to the Index = 1.0
Portfolio Futures
---------- ---------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio - Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Value = $40,000 Gain on Futures = $40,000
If, however, the market moved in the opposite direction, that is, market value
decreased and the Fund had entered into an anticipatory purchase hedge, or
market value increased and the Fund had hedged its stock portfolio, the results
of the Fund's transactions in stock index futures would be as set forth below.
Portfolio Futures
---------- ----------
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures=$62,500/Contract
Portfolio Futures
---------- ----------
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/Contract
Decrease in Purchase Price = $2,500 Loss on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
B-5
<PAGE>
Portfolio Futures
---------- ----------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio - Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio Value = $40,000 Loss on Futures = $40,000
III. Futures Contracts on Foreign Currencies
------------------------------------------
A futures contract on foreign currency creates a binding obligation on one
party to deliver, and a corresponding obligation on another party to accept
delivery of, a stated quantity of foreign currency for an amount fixed in U.S.
dollars. Foreign currency futures may be used by the International Equity Fund
to hedge against exposure to flucuations in exchange rates between the U.S.
dollar and other currencies arising from multinational transactions.
IV. Margin Payments.
------------------
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract.
Initially, in accordance with the terms of the exchange on which such futures
contract is traded, the Fund may be required to deposit with the broker or in a
segregated account with the Fund's custodian an amount of cash or cash
equivalents, the value of which may vary but is generally equal to 10% or less
of the value of the contract. This amount is known as initial margin. The
nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not
involve the borrowing of funds by the customer to finance the transactions.
Rather, the initial margin is in the nature of a performance bond or good faith
deposit on the contract which is returned to the Fund upon termination of the
futures contract assuming all contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the broker, will be
made on a daily basis as the price of the underlying security or index
fluctuates making the long and short positions in the futures contract more or
less valuable, a process known as marking to the market. For example, when a
Fund has purchased a futures contract and the price of the contract has risen
in response to a rise in the underlying instruments, that position will have
increased in value and the Fund will be entitled to receive from the broker a
variation margin payment equal to that increase in value. Conversely, where a
Fund has purchased a futures contract and the price of the future contract has
declined in response to a decrease in the underlying instruments, the position
would be less valuable and the Fund would be required to make a variation
margin payment to the broker. At any time prior to expiration of the futures
contract, the Adviser and, where applicable, the Sub-Adviser may elect to close
the position by taking an opposite position, subject to the availability of a
secondary market, which will operate to terminate the Fund's position in the
futures contract. A final determination of variation margin is then made,
additional cash is required to be paid by or released to the Fund, and the Fund
realizes a loss or gain.
V. Risks of Transactions in Futures Contracts.
--------------------------------------------
There are several risks in connection with the use of futures by a Fund as
a hedging device. One risk arises because of the imperfect correlation between
movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may
move more than or less than the price of the securities being hedged. If the
price of the future moves less than the price of the securities which are the
subject of the hedge, the hedge will not be fully effective but, if the price
of the securities being hedged has moved in an unfavorable direction, the Fund
would be in a better position than if it had not hedged at all. If the price
of the securities being hedged has moved in a favorable direction, this
advantage will be partially offset by the loss on the future. If the price of
the future moves more than the price of the hedged securities, the Fund
involved will experience either a loss or gain on the future which will not be
completely offset by movements in the price of the securities which are the
subject of the hedge. To compensate for the imperfect correlation of movements
in the price of securities being hedged and movements in the price of futures
contracts, a Fund may buy or sell futures contracts in a greater dollar amount
than the dollar amount of securities being hedged if the volatility over a
particular time period of the prices of such securities has been greater than
the volatility over such time period of the future, or if otherwise deemed to
be appropriate by the Adviser. Conversely, a Fund may buy or sell fewer
futures contracts if the volatility over a particular time period of the prices
of the securities being hedged is less than the volatility over such time
period of the futures contract being used, or if otherwise deemed to be
appropriate by the Adviser. It is also possible that, where a Fund has sold
futures to hedge its portfolio against a decline in the market, the market may
advance and the value of securities held by the Fund may decline. If this
occurred, the Fund would lose money on the future and also experience a decline
in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in
the price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest
in securities or options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the
futures contract that is not offset by a reduction in the price of securities
purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the securities
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets. Second, with respect to financial
futures contracts, the liquidity of the futures market depends on participants
entering into off-setting transactions rather than making or taking delivery.
To the extent participants decide to make or take delivery, liquidity in the
futures market could be reduced thus producing distortions. Third, from the
point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions.
B-7
<PAGE>
Due to the possibility of price distortion in the futures market, and because
of the imperfect correlation between the movements in the cash market and
movements in the price of futures, a correct forecast of general market trends
or interest rate movements by the Adviser and, where applicable, Sub-Adviser
may still not result in a successful hedging transaction over a short time
frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although a Fund
intends to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, a Fund would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have
been used to hedge portfolio securities, such securities will not be sold until
the futures contract can be terminated. In such circumstances, an increase in
the price of the securities, if any, may partially or completely offset losses
on the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation
margin payments.
Successful use of futures by a Fund is also subject to the Adviser's or,
where applicable, the Sub-Adviser's ability to predict correctly movements in
the direction of the market. For example, if a Fund has hedged against the
possibility of a decline in the market adversely affecting securities held in
its portfolio and securities prices increase instead, the Fund will lose part
or all of the benefit to the increased value of its securities which it has
hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. A Fund may have to sell securities at a time when
it may be disadvantageous to do so.
VI. Options on Futures Contracts.
----------------------------
A Fund may purchase options on the futures contracts described above and,
if permitted by its investment objective and policies, may also write options
on futures contracts. A futures option gives the holder, in return for the
premium paid, the right to buy (call) from or sell (put) to the writer of the
option a futures contract at a specified price at any time during the period of
the option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer,
of an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing, an option of the same
B-8
<PAGE>
series, at which time the person entering into the closing transaction will
realize a gain or loss. A Fund will be required to deposit initial margin and
variation margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements similar to those described
above. Net option premiums received will be included as initial margin
deposits. As an example, in anticipation of a decline in interest rates, a
Fund may purchase call options on futures contracts as a substitute for the
purchase of futures contracts to hedge against a possible increase in the price
of securities which the Fund intends to purchase. Similarly, if the value of
the securities held by a Fund is expected to decline as a result of an increase
in interest rates, the Fund might purchase put options or write call options on
futures contracts rather than sell futures contracts.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the
purchase or sale of an option also entails the risk that changes in the value
of the underlying futures contract will not be fully reflected in the value of
the option purchased. Depending on the pricing of the option compared to
either the futures contract upon which it is based, or upon the price of the
securities being hedged, an option may or may not be less risky than ownership
of the futures contract or such securities. In general, the market prices of
options can be expected to be more volatile than the market prices on the
underlying futures contract. Compared to the purchase or sale of futures
contracts, however, the purchase of call or put options on futures contracts
may frequently involve less potential risk to a Fund because the maximum amount
at risk is the premium paid for the options (plus transaction costs). Although
permitted by their fundamental investment policies, the Funds do not currently
intend to write futures options, and will not do so in the future absent any
necessary regulatory approvals.
VII. Accounting and Tax Treatment.
-----------------------------
Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.
The tax principles applicable to futures contracts and options are complex
and, in some cases, uncertain. Such investments may cause a Fund to recognize
taxable income prior to the receipt of cash, thereby requiring the Fund to
liquidate other positions, or to borrow money, so as to make sufficient
distributions to shareholders to avoid corporate-level tax. Moreover, some or
all of the taxable income recognized may be ordinary income or short-term
capital gain, so that the distributions may be taxable to shareholders as
ordinary income.
B-9
<PAGE>
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<PAGE>
xxxxx
FIRSTAR FUNDS, INC.
Statement of Additional Information
Money Market Fund
Institutional Money Market Fund
U.S. Treasury Money Market Fund
U.S. Government Money Market Fund
Tax-Exempt Money Market Fund
March 1, 1999
TABLE OF CONTENTS
-----------------
Page
----
Firstar Funds, Inc.................................................. 2
Descriptions of the Funds and their Investment Risks................ 2
Investment Strategies and
Risks............................................................... 4
Net Asset Value..................................................... 14
Additional Purchase and Redemption Information...................... 15
Description of Shares............................................... 18
Additional Information Concerning Taxes............................. 19
Management of the Company........................................... 20
Custodian, Transfer Agent, Disbursing Agent and
Accounting Services Agent........................................ 27
Expenses............................................................ 28
Independent Accountants and Financial Statements.................... 28
Counsel............................................................. 28
Yield and Other Performance Information............................. 29
Miscellaneous....................................................... 30
Appendix A.......................................................... A-1
This Statement of Additional Information ("SAI"), which is not a
prospectus, supplements and should be read in conjunction with Firstar Funds,
Inc.'s prospectus ("Prospectuses") dated March 1, 1999, for Money Market Fund,
Institutional Money Market Fund, U.S. Treasury Money Market Fund, U.S.
Government Fund and Tax-Exempt Money Market Fund (collectively referred to as
the "Funds") and is incorporated by reference in its entirety into the
Prospectuses. Copies of the Prospectuses for the Funds may be obtained by
writing the Firstar Funds Center at 615 East Michigan Street, P.O. Box 3011,
Milwaukee, WI 53201-3011 or by calling 1-800-228-1024. The Financial
Statements in this SAI are incorporated by reference from the Funds' Annual
Report, which may be obtained by writing the address above or calling the toll-
free number above. No other part of the Annual Report is incorporated herein
by reference.
<PAGE>
FIRSTAR FUNDS, INC.
Firstar Funds, Inc. (the "Company") is a Wisconsin corporation which was
incorporated on February 15, 1988 as a management investment company. The
Company, formerly known as Portico Funds, Inc., changed its name effective
February 1, 1998. The Company is authorized to issue separate classes of
shares of Common Stock representing interests in separate investment portfolios.
This SAI pertains to five diversified portfolios, the Money Market Fund,
Institutional Money Market Fund, U.S. Treasury Money Market Fund, U.S.
Government Money Market Fund and Tax-Exempt Money Market Fund. The Money Market
Fund, Institutional Money Market Fund, U.S. Treasury Money Market Fund, U.S.
Government Money Market Fund and Tax-Exempt Money Market Fund commenced
operations on March 16, 1988, April 26, 1991, April 29, 1991, August 1, 1988 and
June 27, 1988, respectively. The Company also offers other investment portfolios
which are described in a separate statement of additional information. For
information concerning these other portfolios, contact the Firstar Funds Center
at 615 East Michigan Street, P.O. Box 3011, Milwaukee, Wisconsin 53201-3011 or
by calling 1-800-982-8909 or 414-287-3710 (Milwaukee area).
DESCRIPTIONS OF THE FUNDS AND THEIR INVESTMENT RISKS
The Company is a diversified, open-end management company. The following
policies supplement the Funds' respective investment objectives and policies as
set forth in the Prospectus.
Portfolio Transactions
- ----------------------
Subject to the general supervision of the Board of Directors, the Adviser
is responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for each Fund.
Securities purchased and sold by each Fund are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
With respect to over-the-counter transactions, the Adviser will normally deal
directly with dealers who make a market in the instruments involved except in
those circumstances where more favorable prices and execution are available
elsewhere.
The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Funds will engage in this practice, however, only when the Adviser, in its
sole discretion, believes such practice to be in the Funds' interests.
The Funds do not intend to seek profits from short-term trading. Because
the Funds will invest only in short-term debt instruments, their annual
portfolio turnover rates will be relatively high, but brokerage commissions are
normally not paid on money market instruments,
<PAGE>
and portfolio turnover is not expected to have a material effect on the Funds'
net investment income. For regulatory purposes, the Fund's annual portfolio
turnover rates are expected to be zero.
The Advisory Agreement between the Company and the Adviser provides that,
in executing portfolio transactions and selecting brokers or dealers, the
Adviser will seek to obtain the best overall terms available. In assessing the
best overall terms available for any transaction, the Adviser shall consider
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. In addition, the Agreement
authorizes the Adviser to cause the Funds to pay a broker-dealer which furnishes
brokerage and research services a higher commission than that which might be
charged by another broker-dealer for effecting the same transaction, provided
that the Adviser determines in good faith that such commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either the particular transaction or the
overall responsibilities of the Adviser to the Funds. Such brokerage and
research services might consist of reports and statistics relating to specific
companies or industries, general summaries of groups of stocks or bonds and
their comparative earnings and yields, or broad overviews of the stock, bond and
government securities markets and the economy.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by the Adviser and does not reduce
the advisory fees payable to it by the Funds. The Directors will periodically
review the commissions paid by the Funds to consider whether the commissions
paid over representative periods of time appear to be reasonable in relation to
the benefits inuring to the Funds. It is possible that certain of the
supplementary research or other services received will primarily benefit one or
more other investment companies or other accounts for which investment
discretion is exercised. Conversely, a Fund may be the primary beneficiary of
the research or services received as a result of portfolio transactions effected
for such other account or investment company.
Portfolio securities will not be purchased from or sold to (and savings
deposits will not be made in and repurchase and reverse repurchase agreements
will not be entered into with) the Adviser, the Distributor or an affiliated
person of either of them (as such term is defined in the 1940 Act) acting as
principal. In addition, the Funds will not purchase securities during the
existence of any underwriting or selling group relating thereto of which the
Distributor or the Adviser, or an affiliated person of either of them, is a
member, except to the extent permitted by the Securities and Exchange Commission
("SEC").
Investment decisions for the Funds are made independently from those for
other investment companies and accounts advised or managed by the Adviser. Such
other investment companies and accounts may also invest in the same securities
as the Funds. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Fund and another investment company
or account, the transaction will be averaged as to price and available
investments allocated as to amount, in a manner which the Adviser believes to be
equitable to the Fund and such other investment company or account. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or sold by the Fund. To
the extent permitted by law, the Adviser may aggregate the securities to be sold
or purchased for a Fund with those to be sold or purchased for other investment
companies or accounts in executing transactions.
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As of October 31, 1998, the Company held securities of its regular brokers
or dealers (as defined under the 1940 Act) or their parents as follows: the
Money Market and Institutional Money Market Funds held securities of Goldman
Sachs totaling $12,773,554 and $86,295,075, respectively; the Money Market and
Institutional Money Market Funds held securities of Morgan Stanley totaling
$13,289,712 and $80,024,562, respectively; and the Money Market and
Institutional Money Market Funds held securities of Merrill Lynch totaling
$9,831,946 and $79,292,539, respectively.
INVESTMENT STRATEGIES AND RISKS
Ratings. Subsequent to its purchase by a Fund, a rated security may cease
to be rated or its rating may be reduced below the minimum rating required for
purchase by a Fund. The Board of Directors or the Adviser, pursuant to
guidelines adopted by the Board, will, in accordance with Rule 2a-7 under the
1940 Act, consider such an event in determining whether the Fund involved should
continue to hold the security. In addition, it is possible that unregistered
securities purchased by a Fund in reliance upon Rule 144A under the Securities
Act of 1933 could have the effect of increasing the level of the Fund's
illiquidity to the extent that qualified institutional buyers become, for a
period, uninterested in purchasing these securities.
The Money Market Fund will purchase only "First Tier Eligible Securities"
(as defined by the SEC) that present minimal credit risks as determined by the
Adviser pursuant to guidelines approved by the Board of Directors of the
Company. First Tier Eligible Securities include, generally, (1) securities that
either (a) have short-term debt ratings at the time of purchase in the highest
rating category by at least two unaffiliated nationally recognized statistical
rating organizations ("NRSROs") (or one NRSRO if the security was rated by only
one NRSRO), or (b) are issued or guaranteed by persons with such ratings, and
(2) certain securities that are unrated (including securities of issuers that
have long-term but not short-term ratings) but are of comparable quality as
determined in accordance with guidelines approved by the Board of Directors.
The Appendix to this Statement of Additional Information includes a description
of applicable NRSRO ratings. The following descriptions illustrate the types of
instruments in which the Funds invest.
Variable and Floating Rate Instruments. The Money Market Fund may purchase
variable and floating rate instruments, which may have a stated maturity in
excess of thirteen months but will permit the Fund to demand payment of the
instrument at least once every thirteen months upon not more than thirty days'
notice (unless the instrument is guaranteed by the U.S. Government or an agency
or instrumentality thereof). Such instruments may include variable amount
master demand notes, which are unsecured instruments that permit the
indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. Unrated variable and floating rate
instruments will be determined by the Adviser (under the supervision of the
Board of Directors) to be of comparable quality at the time of purchase to First
Tier Eligible Securities. An active secondary market may not exist, however,
with respect to particular variable and floating rate instruments, and usually
will not exist with respect to variable amount master demand notes. The absence
of a secondary market could make it difficult for the Fund to dispose of a
variable or floating rate instrument if the issuer defaulted on its payment
obligation or during periods that the Fund could not exercise its demand rights,
<PAGE>
and the Fund could, for these or other reasons, suffer a loss with respect to
such instruments. With respect to the variable and floating rate instruments
that may be acquired by the Money Market, Tax-Exempt Money Market and
Institutional Money Market Funds, the Adviser will consider the earning power,
cash flows and other liquidity ratios of the issuers and guarantors of such
instruments and, if the instrument is subject to a demand feature, will monitor
their financial status to meet payment on demand. In determining average
weighted portfolio maturity, an instrument will usually be deemed to have a
maturity equal to the longer of the period remaining to the next interest rate
adjustment or the time the Fund involved can recover payment of principal as
specified in the instrument. Variable U.S. Government obligations held by a
Fund, however, will be deemed to have maturities equal to the period remaining
until the next interest rate adjustment.
The variable and floating rate demand instruments that the Tax-Exempt Money
Market Fund may purchase include participations in Municipal Obligations
purchased from and owned by financial institutions, primarily banks.
Participation interests provide the Fund with a specified undivided interest (up
to 100%) in the underlying obligation and the right to demand payment of the
unpaid principal balance plus accrued interest on the participation interest
from the institution upon a specified number of days' notice, not to exceed
thirty days. Each participation interest is backed by an irrevocable letter of
credit or guarantee of a bank that the Adviser has determined meets the
prescribed quality standards for the Fund. The bank typically retains fees out
of the interest paid on the obligation for servicing the obligation, providing
the letter of credit and issuing the repurchase commitment.
Bank Obligations. The Money Market Fund may purchase bank obligations, such
as certificates of deposit, bankers' acceptances and time deposits, including
U.S. dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. Investments by the Fund in the obligations of
foreign banks and foreign branches of U.S. banks will not exceed 25% of the
value of the Fund's total assets at the time of investment. The Fund may also
make interest-bearing savings deposits in commercial and savings banks in
amounts not in excess of 5% of its total assets.
The Money Market Fund may acquire certain types of bank instruments issued
or supported by the credit of foreign banks or foreign branches of domestic
banks where the Adviser deems the instrument to present minimal credit risks.
Such instruments nevertheless entail risks that are different from those of
investments in domestic obligations of U.S. banks. Such risks include future
political and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on such instruments, the possible
seizure or nationalization of foreign deposits or the adoption of other foreign
government restrictions which might adversely affect the payment of principal
and interest on such instruments. In addition, foreign banks and foreign
branches of U.S. banks are subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping standards than those
applicable to domestic branches of U.S. banks. Because the Fund invests in
securities backed by banks and other financial institutions, changes in the
credit quality of these institutions could cause losses to the Fund and affect
its share price.
U.S. Government Obligations. The Funds may invest in a variety of U.S.
Treasury obligations including bonds, notes and bills which mainly differ only
in their interest rates, maturities and time of issuance. The Funds may also
invest in other securities issued or
<PAGE>
guaranteed by the U.S. government, its agencies and instrumentalities;
such as obligations of Federal Home Loan Banks, Federal Farm Credit
Banks, Federal Land Banks, the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States,
Small Business Administration, Government National Mortgage Association,
Federal National Mortgage Association, General Services Administration, Central
Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Maritime Administration, and Resolution Trust Corp.
and Tennessee Valley Authority.
Obligations of certain agencies and instrumentalities of the U.S.
Government, such as those of the Governmental National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, are
supported by only by the credit of the agency or instrumentality issuing the
obligation. No assurance can be given that the U.S. Government would provide
financial support to U.S. government-sponsored agencies or instrumentalities if
it is not obligated to do so by law.
No assurance can be given that the U.S. government will provide financial
support to U.S. government-sponsored agencies or instrumentalities if it is not
obligated to do so by law.
Although substantially all of the instruments acquired by the U.S. Treasury
Money Market Fund and U.S. Government Money Market Fund will be U.S. government
obligations (or repurchase agreements collateralized by such obligations),
shares of the U.S. Treasury Money Market Fund and U.S. Government Money Market
Fund are not themselves issued or guaranteed by any government agency. U.S.
government obligations that have maturities in excess of thirteen months but
have variable or floating interest rates may be acquired by the Funds in
accordance with SEC rules.
Stripped U.S. Government Obligations and Government-Backed Trusts. The
Money Market Fund, U.S. Government Money Market Fund and Institutional Money
Market Fund may acquire U.S. government obligations and their unmatured interest
coupons which have been separated ("stripped") by their holder, typically a
custodian bank or investment brokerage firm. Having separated the interest
coupons from the underlying principal of the U.S. government obligations, the
holder will resell the stripped securities in custodial receipt programs with a
number of different names, including Treasury Income Growth Receipts ("TIGRs")
and Certificate of Accrual on Treasury Securities ("CATs"). The stripped
coupons are sold separately from the underlying principal, which is sold at a
deep discount because the buyer receives only the right to receive a future
fixed payment on the security and does not receive any rights to periodic
interest (cash) payments. Purchasers of stripped securities acquire, in effect,
discount obligations that are economically identical to the zero coupon
securities that the Treasury Department sells itself. The underlying U.S.
Treasury bonds and notes themselves are held in book-entry form at the Federal
Reserve Bank or, in the case of bearer securities (i.e., unregistered securities
which are owned ostensibly by the bearer or holder), in trust on behalf of the
owners. Counsel to the underwriters of these certificates or other evidences of
ownership of the U.S. Treasury securities have stated that, in their opinion,
purchasers of the stripped securities, such as the Funds, most likely will be
deemed the beneficial holders of the underlying U.S. government obligations for
federal tax and security purposes. The SEC staff believes that participations
in CATs and TIGRs and other similar trusts are not U.S. government securities.
<PAGE>
The Treasury Department has also facilitated transfers of ownership of zero
coupon securities by accounting separately for the beneficial ownership of
particular interest coupon and principal payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities." Under
the STRIPS program, a Fund will be able to have its beneficial ownership of zero
coupon securities recorded directly in the book-entry record-keeping system in
lieu of having to hold certificates or other evidences of ownership of the
underlying U.S. Treasury securities.
The Money Market Fund, U.S. Government Money Market Fund and Institutional
Money Market Fund may also invest in certificates issued by government-backed
trusts (such as TIGRs and CATs). Such certificates represent an undivided
fractional interest in the respective government-backed trust's assets. The SEC
staff believes that participation in CATs and TIGRs and other similar trusts are
not U.S. government securities. These participations are issued at a discount
to their "face value," and may exhibit greater price volatility than ordinary
debt securities because of the manner in which their principal and interest are
returned to investors. The U.S. Government Money Market Fund may also invest in
government-backed trusts which hold obligations of foreign governments that are
guaranteed or backed by the full faith and credit of the United States. The
assets of each government-backed trust consist of (i) a promissory note issued
by a foreign government (the "Note"), (ii) a guaranty by the U.S. Government,
acting through the Defense Security Assistance Agency of the Department of
Defense, of the due and punctual payment of 90% of all principal and interest
due on such Note and (iii) a beneficial interest in a government securities
trust holding U.S. Treasury bills, notes and other direct obligations of the
U.S. Treasury sufficient to provide the Trust with funds in an amount equal to
at least 10% of all principal and interest payments due on the Note. No more
than 35% of the value of a Fund's total assets will be invested in stripped
securities not purchased through the Federal Reserve's STRIPS program and
government-backed trusts.
Investment Companies. The Funds may invest from time to time in securities
issued by other investment companies which invest in high-quality, short-term
debt securities. Securities of other investment companies will be acquired by
the Funds within the limits prescribed by the 1940 Act. As a shareowner of
another investment company, the Funds would bear, along with other shareowners,
its pro rata portion of the other investment company's expenses, including
advisory fees, and such fees and other expenses will be borne indirectly by the
Fund's shareowners. These expenses would be in addition to the advisory and
other expenses that the Funds bear directly in connection with their own
operations.
Each Fund currently intends to limit its investments in securities issued by
other investment companies so that, as determined immediately after a purchase
of such securities is made: (i) not more than 5% of the value of the Fund's
total assets will be invested in the securities of any one investment company;
(ii) not more than 10% of the value of its total assets will be invested in the
aggregate in securities of investment companies as a group; and (iii) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund or by the Company as a whole.
Funding Agreements. The Money Market Fund may invest in short-term funding
agreements. A funding agreement is a contract between an issuer and a purchaser
that obligates the issuer to pay a guaranteed rate of interest on a principal
sum deposited by the purchaser. Funding agreements will also guarantee the
return of principal and may guarantee a stream of
<PAGE>
payments over time. A funding agreement has a fixed maturity and may have
either a fixed rate or variable interest rate that is based on an index
and guaranteed for a set time period. Because there is no secondary market
for these investments, any such funding agreement purchased by the Money
Market Fund will be regarded as illiquid.
Repurchase Agreements. Each Fund (except the Tax-Exempt Money Market Fund)
may agree to purchase securities from financial institutions subject to the
seller's agreement to repurchase them at an agreed upon time and price
("repurchase agreements"). During the term of the agreement, the Adviser will
continue to monitor the creditworthiness of the seller and will require the
seller to maintain the value of the securities subject to the agreement at not
less than 102% of the repurchase price. Default or bankruptcy of the seller
would, however, expose the Fund to possible loss because of adverse market
action or delay in connection with the disposition of the underlying securities.
The securities held subject to a repurchase agreement may have stated maturities
exceeding thirteen months, provided the repurchase agreement itself matures in
less than one year.
The repurchase price under the repurchase agreements described in the
Prospectuses generally equals the price paid by a Fund plus interest negotiated
on the basis of current short-term rates (which may be more or less than the
rate on the securities underlying the repurchase agreement). Securities subject
to repurchase agreements will be held by the Funds' custodian (or sub-custodian)
or in the Federal Reserve/Treasury book-entry system or other authorized
securities depository. Repurchase agreements are considered to be loans under
the 1940 Act.
Restricted Securities. The Funds may invest up to 10% of net assets in
securities that are illiquid at the time of purchase. While these holdings may
offer more potential for growth, they may present a higher degree of business
and financial risk, which can result in substantial losses. The Funds may have
difficulty valuing these holdings and may be unable to sell these holdings at
the time or price desired. Restricted securities may include Rule 144
Securities.
Reverse Repurchase Agreements. Reverse repurchase agreements are
considered to be borrowings under the 1940 Act. At the time a Fund enters into
a reverse repurchase agreement (an agreement under which a Fund sells portfolio
securities and agrees to repurchase them at an agreed-upon date and price), it
will place in a segregated custodial account U.S. government securities or other
liquid high-grade debt securities having a value equal to or greater than the
repurchase price (including accrued interest), and will subsequently monitor the
account to insure that such value is maintained. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the price of the securities it is obligated to repurchase.
Securities Lending. Although none of the Funds intend to during the
current fiscal year, each of the Funds may lend its portfolio securities to
unaffiliated domestic broker/dealers and other institutional investors pursuant
to agreements requiring that the loans be secured by collateral equal in value
to at least the market value of the securities loaned in order to increase
return on portfolio securities. Collateral for such loans may include cash,
securities of the U.S. Government, its agencies or instrumentalities, or an
irrevocable letter of credit issued by a bank which meets the investment
standards of the Fund," or any combination thereof. Such loans will not be made,
if, as a result, the aggregate of all outstanding loans of the Fund exceeds 30%
of the value of its total assets. There may be risks of delay in receiving
additional
<PAGE>
collateral or in recovering the securities loaned or even a loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans will be made only to borrowers deemed by the Adviser to be of
good standing and when, in the Adviser's judgment, the income to be earned from
the loan justifies the attendant risks. When a Fund lends its securities, it
continues to receive interest or dividends on the securities loaned and may
simultaneously earn interest on the investment of the cash collateral which will
be invested in readily marketable, high-quality, short-term obligations.
Although voting rights, or rights to consent, attendant to securities on loan
pass to the borrower, such loans may be called at any time and will be called so
that the securities may be voted by a Fund if a material event affecting the
investment is to occur.
Securities lending arrangements with broker/dealers require that the loans
be secured by collateral equal in value to at least the market value of the
securities loaned. During the term of such arrangements, a Fund will maintain
such value by the daily marking-to-market of the collateral.
Other Investment Considerations - Tax-Exempt Money Market Fund.
Municipal Obligations which may be acquired by the Tax-Exempt Money Market
Fund include debt obligations issued by governmental entities to obtain funds
for various public purposes, including the construction of a wide range of
public facilities, the refunding of outstanding obligations, the payment of
general operating expenses and the extension of loans to public institutions and
facilities.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issue at the time of issuance. Neither the Fund nor
the Adviser will review the proceedings relating to the issuance of Municipal
Obligations or the basis for such opinions.
The two principal classifications of Municipal Obligations which may be
held by the Tax-Exempt Money Market Fund are General Obligation securities and
Revenue securities. The Fund may also acquire Moral Obligation securities.
"Moral Obligation" securities are normally issued by special purpose
authorities. If the issuer of Moral Obligation securities is unable to meet
its debt service obligations from current revenues, it may draw on a reserve
fund, the restoration of which is a moral commitment but not a legal obligation
of the state or municipality which created the issue.
There are, of course, variations in the quality of Municipal Obligations
both within a particular classification and between classifications, and the
yields on Municipal Obligations depend upon a variety of factors, including
general money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings of NRSROs
represent their opinions as to the quality of Municipal Obligations. It should
be emphasized, however, that ratings are general and are not absolute standards
of quality, and Municipal Obligations with the same maturity, interest rate and
rating may have different yields while Municipal Obligations of the same
maturity and interest rate with different ratings may have the same yield.
<PAGE>
The payment of principal and interest on most securities purchased by the
Tax-Exempt Money Market Fund will depend upon the ability of the issuers to meet
their obligations. An issuer's obligations under its Municipal Obligations are
subject to the provisions of bankruptcy, insolvency, and other laws affecting
the rights and remedies of creditors, such as the Federal Bankruptcy Code, and
laws, if any, which may be enacted by federal or state legislatures extending
the time for payment of principal or interest, or both, or imposing other
constraints upon enforcement of such obligations or upon the ability of
municipalities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest on, and principal of, its Municipal
Obligations may be materially adversely affected by litigation or other
conditions.
Certain of the Municipal Obligations held by the Tax-Exempt Money Market
Fund may be insured at the time of issuance as to the timely payment of
principal and interest. The insurance policies will usually be obtained by the
issuer of the Municipal Obligation at the time of its original issuance. In the
event that the issuer defaults on interest or principal payment, the insurer
will be notified and will be required to make payment to the bondholders. There
is, however, no guarantee that the insurer will meet its obligations. In
addition, such insurance will not protect against market fluctuations caused by
changes in interest rates and other factors. The Tax-Exempt Money Market Fund
may, from time to time, invest more than 25% of its assets in Municipal
Obligations covered by insurance policies.
Municipal Obligations acquired by the Tax-Exempt Money Market Fund may
include short-term General Obligation Notes, Tax Anticipation Notes, Bond
Anticipation Notes, Revenue Anticipation Notes, Tax-Exempt Commercial Paper,
Construction Loan Notes and other forms of short-term tax-exempt loans. Such
instruments are issued with a short-term maturity in anticipation of the receipt
of tax funds, the proceeds of bond placements or other revenues. In addition,
the Fund may invest in bonds and other types of tax-exempt instruments provided
they have remaining maturities of thirteen months or less at the time of
purchase.
Private activity bonds (e.g., bonds issued by industrial development
authorities) that are issued by or on behalf of public authorities to finance
various privately operated facilities are included within the term "Municipal
Obligations" if the interest paid thereon is exempt (subject to federal
alternative minimum tax) from federal income tax. (The Fund, however, does not
currently intend to acquire private activity bonds that are subject to the
federal alternative minimum tax.) Private activity bonds are in most cases
Revenue securities and are not payable from the unrestricted revenues of the
issuer. The credit quality of such bonds is usually directly related to the
credit standing of the corporate user of the facility involved. Private
activity bonds may be issued to obtain funds to provide privately operated
housing facilities, pollution control facilities, convention or trade show
facilities, mass transit, airport, port or parking facilities and certain local
facilities for water supply, gas, electricity or sewage or solid waste disposal.
Private activity bonds are also issued on behalf of privately held or publicly
owned corporations in the financing of commercial or industrial facilities.
State and local governments are authorized in most states to issue private
activity bonds for such purposes in order to encourage corporations to locate
within their communities. The principal and interest on these obligations may
be payable from the general revenues of the users of such facilities.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Obligations. For example, under the Tax Reform Act of
1986, interest on certain private activity
<PAGE>
bonds must be included in an investor's alternative minimum taxable income,
and corporate investors must include all tax-exempt interest in their
federal alternative minimum taxable income. The Company cannot, of course,
predict what legislation, if any, may be proposed in the future as regards
the income tax status of interest on Municipal Obligations, or which
proposals, if any, might be enacted. Such proposals, while pending or
if enacted, might materially and adversely affect the availability of
Municipal Obligations for investment by the Tax-Exempt Money Market
Fund and the liquidity and value of the Fund's portfolio. In such an
event, the Company would reevaluate the Fund's investment objective and policies
and consider possible changes in its structure or possible dissolution.
Municipal Obligations purchased by the Fund may be backed by letters of
credit issued by foreign and domestic banks and other financial institutions.
Such letters of credit are not necessarily subject to federal deposit insurance
and adverse developments in the banking industry could have a negative effect on
the credit quality of the Fund's portfolio securities and its ability to
maintain a stable net asset value and share price. Letters of credit issued by
foreign banks, like other obligations of foreign banks, may involve certain
risks in addition to those of domestic obligations. Because the Fund invests in
securities backed by banks and other financial institutions, changes in the
credit facility of these institutions could cause losses to the Fund and affect
its share price.
Municipal Obligations purchased by the Fund may include variable and
floating rate instruments issued by industrial development authorities and other
governmental entities. If such instruments are unrated, they will be determined
by the Fund's Adviser (under the supervision of the Board of Directors) to be of
comparable quality at the time of purchase to First Tier Eligible Securities.
While there may be no active secondary market with respect to a particular
variable or floating rate demand instrument purchased by the Fund, the Fund may
(at any time or during specified periods not exceeding thirteen months,
depending upon the instrument involved) demand payment in full of the principal
of the instrument and may re-sell the instrument to a third party. The absence
of such an active secondary market, however, could make it difficult for the
Fund to dispose of a variable or floating rate demand instrument if the issuer
defaulted on its payment obligation or during periods that the Fund is not
entitled to exercise its demand rights, and the Fund could, for these or other
reasons, suffer a loss with respect to such instruments.
Although the Tax-Exempt Money Market Fund does not presently intend to do
so on a regular basis, it may invest more than 25% of its total assets in
Municipal Obligations, the issuers of which are located in the same state or the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent
that the Fund's assets are concentrated in Municipal Obligations payable from
revenues on similar projects or issued by issuers in the same state, the Fund
will be subject to the peculiar economic, political and business risks
represented by the laws and economic conditions relating to such states and
projects to a greater extent than it would be if the Fund's assets were not so
concentrated. Furthermore, payment of Municipal Obligations of certain projects
may be secured by mortgages or deeds of trust. In the event of a default,
enforcement of the mortgages or deeds of trust will be subject to statutory
enforcement procedures and limitations, including rights of redemption and
limitations on obtaining deficiency judgements. In the event of a foreclosure,
collection of the proceeds of the foreclosure may be delayed and the amount of
proceeds from the foreclosure may not be sufficient to pay the principal of and
accrued interest on the defaulted Municipal Obligations.
When-Issued Purchases and Forward Commitments. The Tax-Exempt Money Market
Fund may purchase securities on a "when-issued" or "forward commitment" basis.
These transactions, which involve a commitment by the Fund to purchase
particular securities with payment and delivery taking place beyond the normal
settlement date, permit the Fund to lock in a price or yield on a security it
intends to purchase, regardless of future changes in interest rates. When-
issued and forward commitment transactions involve the risk, however, that the
price or yield obtained in a transaction (and therefore the value of the
security) may be less favorable than the price or yield (and therefore the value
of the security) available in the market when the securities delivery takes
place. The Fund expects that its when- issued purchases and forward commitments
will not exceed 25% of the value of its assets absent unusual market conditions,
and that a forward commitment or commitment to purchase when-issued securities
will not exceed forty-five days. The Fund does not intend to engage in when-
issued purchases and forward commitments for speculative purposes but only in
furtherance of its investment objective. When the Tax-Exempt Money Market Fund
agrees to purchase securities on a when-issued or forward commitment basis, the
custodian will set aside cash or liquid high-grade debt securities equal to the
amount of the commitment in a segregated account. Normally, the custodian will
set aside portfolio securities to satisfy a purchase commitment, and in such a
case the Fund may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of the Fund's commitments. It may be expected that the market
value of the Fund's net assets will fluctuate to a greater degree when it sets
aside portfolio securities to cover such purchase commitments than when it sets
aside cash. Because the Fund will set aside cash or liquid assets to satisfy
its purchase commitments in the manner described, the Fund's liquidity and
ability to manage its portfolio might be affected in the event its forward
commitments and commitments to purchase when-issued securities ever exceeded
25% of the value of its assets.
The Tax-Exempt Money Market Fund will purchase securities on a when-issued
or forward commitment basis only with the intention of completing the
transaction and actually purchasing the securities. If deemed advisable as a
matter of investment strategy, however, the Fund may dispose of or renegotiate a
commitment after it is entered into, and may sell securities it has committed to
purchase before those securities are delivered to the Fund on the settlement
date. In these cases the Fund may realize a taxable capital gain or loss.
When the Tax-Exempt Money Market Fund engages in when-issued and forward
commitment transactions, it relies on the other party to consummate the trade.
Failure of such party to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their market value, are taken into account when determining the market value of
the Tax-Exempt Money Market Fund starting on the day the Fund agrees to purchase
the securities. The Fund does not earn interest on the securities it has
committed to purchase until they are paid for and delivered on the settlement
date.
Stand-By Commitments. The Tax-Exempt Money Market Fund may acquire "stand-
by commitments" with respect to Municipal Obligations held in its portfolio.
Under a stand-by
<PAGE>
commitment, a dealer or bank agrees to purchase at the Fund's option
specified Municipal Obligations at a specified price. Stand-by
commitments may be exercisable by the Fund at any time before the maturity of
the underlying Municipal Obligations and may be sold, transferred or assigned
only with the instruments involved.
The amount payable to the Fund upon its exercise of a stand-by commitment
is normally (i) the Fund's acquisition cost of the Municipal Obligations
(excluding any accrued interest which the Fund paid on their acquisition), less
any amortized market premium or plus any amortized market or original issue
discount during the period the Fund owned the securities, plus (ii) all interest
accrued on the securities since the last interest payment date during that
period. A "stand-by commitment" may be sold, transferred or assigned by the
Fund only with the instrument involved.
The Fund expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). Where the Fund has paid any
consideration directly or indirectly for a stand-by commitment, its cost would
be reflected as unrealized loss for the period during which the commitment was
held by the Fund and will be reflected in realized gain or loss when the
commitment is exercised or expires. The total amount paid in either manner for
outstanding stand-by commitments held by the Fund will not exceed 1/2 of 1% of
the value of its total assets calculated immediately after each stand-by
commitment is acquired.
The Fund intends to enter into stand-by commitments only with dealers,
banks and broker-dealers which, in the Adviser's opinion, present minimal credit
risks. The Fund's reliances upon the credit of those dealers, banks and
broker/dealers is secured by the value of the underlying Municipal Obligations
that are subject to a commitment.
The Fund would acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The acquisition of a stand-by commitment will not affect the
valuation or assumed maturity of the underlying Municipal Obligations which will
continue to be valued in accordance with the ordinary method of valuation
employed by the Fund. Stand-by commitments acquired by the Fund would be valued
at zero in determining net asset value where the Fund paid any consideration
directly or indirectly for a stand-by commitment; its cost would be reflected as
unrealized depreciation for the period in which the commitment was held by the
Fund.
During the current fiscal year, the Adviser expects that not more than 5%
of the net assets of the Tax-Exempt Money Market Fund will be invested at any
time in a particular class of taxable obligations described in the Prospectuses.
Investment Limitations
- ----------------------
Each Fund is subject to the investment limitations enumerated in this
subsection which may be changed with respect to a particular Fund only by a vote
of the holders of a majority of such Fund's outstanding shares (as defined under
"Miscellaneous" below).
<PAGE>
No Fund may:
1. Make loans, except that a Fund may purchase and hold debt instruments and
enter into repurchase agreements in accordance with its investment objective and
policies and may lend portfolio securities in an amount not exceeding 30% of its
total assets.
2. Purchase securities of companies for the purpose of exercising control.
3. Purchase or sell real estate, except that each Fund may purchase securities
of issuers which deal in real estate and may purchase securities which are
secured by interests in real estate.
4. Acquire any other investment company or investment company security except
in connection with a merger, consolidation, reorganization or acquisition of
assets or where otherwise permitted by the 1940 Act.
5. Act as an underwriter of securities within the meaning of the Securities
Act of 1933 except insofar as a Fund might be deemed to be an underwriter upon
the disposition of portfolio securities acquired within the limitation on
purchases of restricted securities and except to the extent that the purchase of
obligations directly from the issuer thereof in accordance with the Fund's
investment objective, policies and limitations may be deemed to be underwriting.
6. Write or sell put options, call options, straddles, spreads, or any
combination thereof, except for transactions in options on securities, indices
of securities, futures contracts and options on futures contracts.
7. Borrow money or issue senior securities, except that each Fund may borrow
from banks and enter into reverse repurchase agreements for temporary purposes
in amounts up to 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge or hypothecate any assets, except in connection
with any such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of a Fund's total assets at the time of
such borrowing. No Fund will purchase securities while its borrowings
(including reverse repurchase agreements) in excess of 5% of its total assets
are outstanding. Securities held in escrow or separate accounts in connection
with a Fund's investment practices described in this SAI or in its Prospectus
are not deemed to be pledged for purposes of this limitation.
8. Purchase securities on margin, make short sales of securities or maintain a
short position, except that (a) this investment limitation shall not apply to a
Fund's transactions in futures contracts and related options, and (b) a Fund may
obtain short-term credit as may be necessary for the clearance of purchases and
sales of portfolio securities.
9. Purchase or sell commodity contracts, or invest in oil, gas or mineral
exploration or development programs, except that each Fund may, to the extent
appropriate to its investment objective, purchase publicly traded securities of
companies engaging in whole or in part in such activities and may enter into
futures contracts and related options.
In addition, no Fund may:
10. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities ("U.S.
government securities")) if, immediately
<PAGE>
after such purchase, more than 5% of the value of the Fund's total assets
would be invested in the securities of such issuer, or more than 10%
of the issuer's outstanding voting securities would be owned by the
Fund or the Company, except that up to 25% of the value of the Fund's total
assets may be invested without regard to these limitations. For purposes
of this limitation, a security is considered to be issued by the entity
(or entities) whose assets and revenues back the security. A guarantee of a
security shall not be deemed to be a security issued by the guarantor when the
value of all securities issued and guaranteed by the guarantor, and owned by the
Fund, does not exceed 10% of the value of the Fund's total assets. In
accordance with current SEC regulations, the Money Market Fund and Institutional
Money Market Fund intend (as a matter of nonfundamental policy) to limit
investments in the securities of any single issuer (other than U.S. government
securities, certain fully collateralized repurchase agreements, securities with
certain guarantees and, under certain circumstances, securities of certain money
market funds) to not more than 5% of the Fund's total assets, provided that the
Fund may invest up to 25% of its total assets in the securities of any one
issuer for a period of up to three business days. Compliance with the
diversification requirements of SEC Rule 2a-7 will be deemed to be compliance
with the fundamental diversification restriction above.
11. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the same
industry; provided that, (a) there is no limitation with respect to (i)
instruments issued or guaranteed by the United States, any state, territory or
possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions; (ii)
instruments issued by domestic branches of U.S. banks; and (iii) repurchase
agreements secured by the instruments described in clauses (i) and (ii); (b)
wholly owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents; and (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry.
In addition, the Tax-Exempt Money Market Fund may not:
12. Invest less than 80% of its net assets in securities the interest on
which is exempt from federal income tax, except during defensive periods or
during periods of unusual market conditions. For purposes of this fundamental
policy, Municipal Obligations that are subject to federal alternative minimum
income tax are considered taxable.
With respect to Investment Limitation No. 10, in accordance with current
SEC regulations, the Money Market Fund intends (as a matter of nonfundamental
policy) to limit investments in the securities of a single issuer (other than
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, certain fully collateralized repurchase agreements,
securities with certain guarantees and, under certain circumstances, securities
of certain money market Funds) to no more than 5% of the Fund's total assets at
the time of purchase, provided that the Fund may invest up to 25% of its total
assets in the securities of any one issuer for a period of up to three business
days. Compliance with the diversification requirements of SEC Rule 2a-7 will be
deemed to be compliance with the fundamental diversification restriction above.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
a Fund's portfolio securities will not
<PAGE>
constitute a violation of such limitation. If due to market fluctuations
or other reasons, the amount of borrowings exceed the limit stated above,
a Fund will promptly reduce such amount.
Although the foregoing investment limitations would permit the Funds to
invest in options, futures contracts and options on future contracts, the Funds,
during the current fiscal year, do not intend to trade in such instruments.
Prior to making any such investments, the Funds would notify their shareowners
and add appropriate descriptions concerning the instruments to the Prospectuses
and this SAI.
NET ASSET VALUE
The net asset value per share of each Fund described in this SAI is
calculated separately by adding the value of all portfolio securities and other
assets belonging to the particular Fund, subtracting the liabilities charged to
the Fund, and dividing the result by the number of outstanding shares of that
Fund. Assets belonging to a Fund consist of the consideration received upon the
issuance of shares of the particular Fund together with all net investment
income, realized gains/losses and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of the Company not belonging to a particular investment portfolio. Assets
belonging to a particular Fund are charged with the direct liabilities of that
Fund and with a share of the general liabilities of the Company which are
normally allocated in proportion to the relative net asset values of all of the
Company's investment portfolios at the time of allocation. Subject to the
provisions of the Articles of Incorporation, determinations by the Board of
Directors as to the direct and allocable liabilities, and the allocable portion
of any general assets, with respect to a particular Fund are conclusive.
The Company uses the amortized cost method of valuation to value each
Fund's portfolio securities, pursuant to which an instrument is valued at its
cost initially and thereafter a constant amortization to maturity of any
discount or premium is assumed, regardless of the impact of fluctuating interest
rates on the market value of the instrument. This method may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price a Fund would receive if it sold the instrument. The market value of
portfolio securities held by a Fund can be expected to vary inversely with
changes in prevailing interest rates.
Each Fund attempts to maintain a dollar-weighted average portfolio
maturity appropriate to its objective of maintaining a stable net asset value
per share. In this regard, except for securities subject to repurchase
agreements, each Fund will neither purchase a security deemed to have a
remaining maturity of more than thirteen months within the meaning of the 1940
Act nor maintain a dollar-weighted average maturity which exceeds 90 days. The
Board of Directors has also established procedures that are intended to
stabilize the net asset value per share of each Fund for purposes of sales and
redemptions at $1.00. These procedures include the determination, at such
intervals as the Directors deem appropriate, of the extent, if any, to which the
net asset value per share of each Fund calculated by using available market
quotations deviates from $1.00 per share. In the event such deviation exceeds
one-half of one percent, the Board will promptly consider what action, if any,
should be initiated. If the Board believes that the extent of any deviation
from a $1.00 amortized cost price per share may result in material dilution or
other unfair results to new or existing investors, it has agreed to take such
steps as it considers appropriate to eliminate or reduce to the extent
reasonably practicable any such
<PAGE>
dilution or unfair results. These steps may include selling portfolio
instruments prior to maturity; shortening the average portfolio maturity;
withholding or reducing dividends; redeeming shares in kind; reducing the
number of outstanding shares without monetary consideration; or utilizing
a net asset value per share determined by using available market quotations.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of each Fund described in this SAI are sold without a sales charge
imposed by the Company, although Shareowner Organizations may be paid by the
Company for advertising, distribution, or shareowner services. Depending on the
terms of the particular account, Shareowner Organizations may charge their
customers fees for automatic investment, redemption and other services provided.
Such fees may include, for example, account maintenance fees, compensating
balance requirements or fees based upon account transactions, assets or income.
Shareowner Organizations are responsible for providing information concerning
these services and any charges to any customer who must authorize the purchase
of Fund shares prior to such purchase.
Investors redeeming shares by check generally will be subject to the same
rules and regulations that the transfer agent applies to checking accounts,
although the election of this privilege creates only a shareowner-transfer agent
relationship with the transfer agent. Because dividends on each Fund accrue
daily, checks may not be used to close an account, as a small balance is likely
to result.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment for shares during any period when (a) trading on
the Exchange is restricted by applicable rules and regulations of the SEC; (b)
the Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC. (The Funds may also suspend or postpone the recording
of the transfer of their shares upon the occurrence of any of the foregoing
conditions.)
The Company's Articles of Incorporation permit a Fund to redeem an account
involuntarily, upon sixty days' notice, if redemptions cause the account's net
asset value to remain at less than $1000.
The Company has filed an election pursuant to Rule 18f-1 under the 1940
Act which provides that each portfolio of the Company is obligated to redeem
shares solely in cash up to $250,000 or 1% of such portfolio's net asset value,
whichever is less, for any one shareholder within a 90-day period. Any
redemption beyond this amount may be made in proceeds other than cash.
In addition to the situations described in the Funds' Prospectuses under
"Redemption of Shares" and in the SAI under "Net Asset Value," the Company may
redeem shares involuntarily to reimburse the Funds for any loss sustained by
reason of the failure of a shareowner to make full payment for shares purchased
by the shareowner or to collect any charge relating to a transaction effected
for the benefit of a shareowner which is applicable to Fund shares as provided
in the Prospectuses from time to time.
Exchange Privilege
- ------------------
By use of the exchange privilege, shareowners of the Funds authorize the
transfer agent to act on telephonic or written exchange instructions from any
person representing himself to be the shareowner or in some cases, the
shareowner's registered representative or account representative of record, and
believed by the transfer agent to be genuine. The transfer agent's records of
such instructions are binding. The exchange privilege may be modified or
terminated at any time upon notice to shareowners.
Exchange transactions involving shares of the Funds and described in paragraphs
A, B and C below will be made on the basis of the relative net asset values per
share of the funds involved in the transactions.
A.Retail A Shares of any Equity or Bond Fund purchased with a sales charge may
be exchanged without a sales charge for Retail A Shares of any other Equity
or Bond Fund offered by the Company with a sales charge.
B.Shares of any Equity or Bond Fund offered by the Company acquired by a
previous exchange transaction involving Retail A Shares on which a sales
charge has directly or indirectly been paid (e.g., shares purchased with a
sales charge or issued in connection with an exchange involving shares that
had been purchased with a sales charge) as well as additional Shares acquired
through reinvestment of dividends or distributions on such Shares may be
exchanged without a sales charge for Retail A Shares of any other fund
offered by the Company with a sales charge. To accomplish an exchange under
the provisions of this paragraph, investors must notify the transfer agent of
their prior ownership of Retail A Shares and their account number.
C.Shares of any fund offered by the Company (including shares of each money
market fund offered by the Company) may be exchanged without a sales charge
for shares of any other fund of the Company that is offered without a sales
charge (including shares of each money market fund offered by the Company).
Except as stated above, a sales charge will be imposed when shares of a
Fund that were purchased or otherwise acquired without a sales charge (including
shares of each money market fund offered by the Company) are redeemed and the
proceeds are used to purchase Retail A Shares of another fund of the Company
with a sales charge.
Shares in a fund from which the shareowner is withdrawing an investment
will be redeemed at the net asset value per share next determined on the date of
receipt. Shares of the new fund into which the shareowner is investing will be
purchased at the net asset value per share next determined (plus any applicable
sales charge) after acceptance of the request by the Company in accordance with
the Company's customary policies for accepting investments. Exchanges of shares
will be available only in states where they may legally be made.
For federal income tax purposes, share exchanges are treated as sales on
which the shareowner may realize a gain or loss, depending upon whether the
value of the shares to be given up in exchange is more or less than the basis in
such shares at the time of the exchange. Investors exercising the exchange
privilege should request and review the prospectus for the shares to be acquired
in the exchange prior to making an exchange.
<PAGE>
Special Procedures for In-Kind Payments
- ---------------------------------------
Payment for shares of a Fund may, in the discretion of the Fund, be made
in the form of securities that are permissible investments for the Fund as
described in the Prospectuses. For further information about this form of
payment, contact the Firstar Funds Center at 414-287-3710. In connection with
an in-kind securities payment, a Fund will require, among other things, that the
securities be valued on the day of purchase in accordance with the pricing
methods used by the Fund; that the Fund receives satisfactory assurances that it
will have good and marketable title to the securities received by it; that the
securities be in proper form for transfer to the Fund; that adequate information
be provided to the Fund concerning the basis and other tax matters relating to
the securities; and that the amount of the purchase be at least $1,000,000.
ADDITIONAL INFORMATION REGARDING SHAREOWNER SERVICES
Periodic Investment Plan
- ------------------------
The Funds offer a Periodic Investment Plan whereby a shareowner may
automatically make purchases of shares of a Fund on a regular, monthly basis
($50 minimum per transaction). Under the Periodic Investment Plan, a
shareowner's designated bank or other financial institution debits a
preauthorized amount on the shareowner's account each month and applies the
amount to the purchase of Fund shares. The Periodic Investment Plan must be
implemented with a financial institution that is a member of the Automated
Clearing House. No service fee is currently charged by a Fund for participation
in the Periodic Investment Plan. A $20 fee will be imposed by the transfer
agent if sufficient funds are not available in the shareowner's account or the
shareowner's account has been closed at the time of the automatic transaction.
ConvertiFund/R Transactions
- ---------------------------
The Funds permit shareowners to effect ConvertiFundR transactions, an
automated method by which a shareowner may invest proceeds from one account to
another account of the Firstar family of funds. Such proceeds include dividend
distributions, capital gain distributions and systematic withdrawals.
ConvertiFundR transactions may be used to invest funds from a regular account
to another regular account, from a qualified plan account to another qualified
plan account, or from a qualified plan account to a regular account.
Investments in the non-money market funds will be subject to the applicable
sales charges.
Systematic Withdrawal Plan
- --------------------------
The Funds offer shareowners a Systematic Withdrawal Plan, which allows a
shareowner who owns shares of a Fund worth at least $5,000 at current net asset
value at the time the shareowner initiates the Systematic Withdrawal Plan to
designate that a fixed sum ($50 minimum per transaction) be distributed to the
shareowner or as otherwise directed at regular intervals.
DESCRIPTION OF SHARES
<PAGE>
The Company's Articles of Incorporation authorize the Board of Directors
to issue up to 150 billion full and fractional shares of common stock, $.0001
par value per share that shall be divided into thirty classes (each a designated
"class" or "fund"). Each class of the Money Market Funds is further divided
into two series designated as Institutional Shares and Retail A Shares (each, a
"Series") and, with respect to the Funds, consists of shares set forth next to
its name in the table below:
Class-Series of Common Stock Fund in Which Stock
Number of
Authorized
Shares in
Each Initial
Represents Interest Series
-------------------
1-Institutional Money Market 5 billion
1-A 5 billion
2-Institutional Tax-Exempt Money Market 5 billion
2-A 5 billion
3-Institutional U.S. Government Money Market 5 billion
3-A 5 billion
4-Institutional Institutional Money Market 5 billion
4-A 5 billion
5-Institutional U.S. Treasury Money Market 5 billion
5-A 5 billion
Currently, only Series A Shares of the Money Market Funds have been
offered by the Company. The Board of Directors has also authorized the issuance
of classes 6 through 18 common stock representing interests in thirteen other
separate investment portfolios which are described in a separate statement of
additional information. The remaining authorized shares have been classified by
the Board into twelve additional classes representing interests in other
potential future investment portfolios of the Company. The Directors may
similarly classify or reclassify any particular class of shares into one or more
additional series.
In the event of a liquidation or dissolution of the Company or an
individual Fund, shareowners of a particular Fund would be entitled to receive
the assets available for distribution belonging to such Fund, and a
proportionate distribution, based upon the relative assets of the Company's
respective investment portfolios, of any general assets not belonging to any
particular portfolio which are available for distribution. Subject to the
allocation of certain costs, expenses, charges and reserves attributable to the
operation of a particular series, shareowners of a Fund are entitled to
participate equally in the net distributable assets of the particular Fund
involved on liquidation, based on the number of shares of the Fund that are held
by each shareowner.
Shareowners of each class of the Funds are entitled to one vote for each
full share held and proportionate fractional votes for fractional shares held.
Shareowners of the Funds, as well as those of any other investment portfolio
offered by the Company, will vote together in the aggregate and not separately
on a portfolio-by-portfolio basis, except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the
<PAGE>
interests of the shareowners of a particular class or a particular series
within a class. Rule 18f-2 under the 1940 Act provides that any matter required
to be submitted to the holders of the outstanding voting securities of an
investment company such as the Company shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each portfolio affected by the matter. A portfolio is
affected by a matter unless it is clear that the interests of each portfolio in
the matter are substantially identical or that the matter does not affect any
interest of the portfolio. Under the Rule, the approval of an investment
advisory agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to a portfolio only if approved by a
majority of the outstanding shares of such portfolio. However, the Rule also
provides that the ratification of the appointment of independent accountants,
the approval of principal underwriting contracts and the election of Directors
may be effectively acted upon by shareowners of the Company voting together in
the aggregate without regard to particular portfolios. Similarly, on any matter
submitted to the vote of shareowners which only pertains to agreements,
liabilities or expenses applicable to one series of a Fund (such as a
Distribution and Service Plan applicable to Retail A or B Shares) but not the
other series of the same Fund, only the affected series will be entitled to
vote. Each Retail Share of a Fund represents an equal proportionate interest
with other Retail Shares in that Fund. Shares are entitled to such dividends
and distributions earned on its assets as are declared at the discretion of the
Board of Directors. Shares of the Funds do not have preemptive rights.
When issued for payment as described in the Funds' Prospectuses and this
SAI, shares of the Funds will be fully paid and non-assessable by the Company,
except as provided in Section 180.0622(2)(b) of the Wisconsin Business
Corporation Law, as amended, which in general provides for personal liability on
the part of a corporation's shareowners for unpaid wages of employees. The
Company does not intend to have any employees and, to that extent, the foregoing
statute will be inapplicable to holders of Fund shares and will not have a
material effect on the Company.
The Articles of Incorporation authorize the Board of Directors, without
shareowner approval (unless otherwise required by applicable law), to: (a) sell
and convey the assets belonging to a series of shares to another management
investment company for consideration which may include securities issued by the
purchaser and, in connection therewith, to cause all outstanding shares of such
series to be redeemed at a price which is equal to their net asset value and
which may be paid in cash or by distribution of the securities or other
consideration received from the sale and conveyance; (b) sell and convert the
assets belonging to a series of shares into money and, in connection therewith,
to cause all outstanding shares of such series to be redeemed at their net asset
value; or (c) combine the assets belonging to a series of shares with the assets
belonging to one or more other series of shares if the Board of Directors
reasonably determines that such combination will not have a material adverse
effect on the shareowners of any series participating in such combination and,
in connection therewith, to cause all outstanding shares of any such series to
be redeemed or converted into shares of another series of shares at their net
asset value.
ADDITIONAL INFORMATION CONCERNING TAXES
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute out its income to
shareholders each year, so that each Fund itself generally will be relieved of
federal income and excise taxes. If a Fund were to fail to so qualify: (1) the
Fund would be taxed at regular corporate rates without any deduction for
distributions to shareholders; and (2) shareholders would be taxed as if they
received ordinary dividends, although corporate shareholders could be eligible
for the dividends received deduction.
For the Tax-Exempt Money Market Fund to pay tax-exempt dividends for any
taxable year, at least 50% of the aggregate value of the Fund's assets at the
close of each quarter of the Fund's taxable year must consist of exempt-interest
obligations.
MANAGEMENT OF THE COMPANY
The business and affairs of the Funds are managed under the direction of
the Board of Directors of the Company. The Board is responsible for acting on
behalf of the shareowners.
The Board does not normally hold shareholder meetings except when required
by the 1940 Act or other applicable law. For example the Board will call a
shareowner meeting to vote on the question or removal of a board member.
Directors and Officers
- ----------------------
The Directors and Officers of the Company, their addresses, principal
occupations during the past five years and other affiliations are as follows:
<TABLE>
<CAPTION>
Principal Occupations
Position(s) held During Past 5 Years and
Name, Address & Age with the Company Other Affiliations
<C> <C> <C>
James M. Wade Chairman of Vice President and Chief Financial
2802 Wind Bluff the Board Officer, Johnson Controls, Inc. (a
Circle controls manufacturing company)
Wilmington, January 1987-May 1991.
NC 28409
Age: 55
Glen R. Bomberger Director Executive Vice President, Chief Financial
One Park Plaza Officer and Director, A.O. Smith
11270 West Park Place Corporation (a diversified manufacturing
Milwaukee, WI 53224-3690 company) since January 1987; Director of
Age: 61 companies affiliated with A.O. Smith
Corporation; Chief Financial Officer,
Director and Vice President, Smith
Investment Company; Officer and Director
of companies affiliated with Smith
Investment Company.
Jerry G. Remmel Director Vice President, Treasurer and Chief
16650A Lake Circle Financial Officer of Wisconsin Energy
Brookfield, WI 53005 Corporation 1994-1996; Treasurer of
Age: 67 Wisconsin Electric Power Company 1973-
1996; Director of Wisconsin Electric Power
Company 1989-1996; Senior Vice
President, Wisconsin Electric Power
Company 1988 - 1994; Chief Financial
Officer, Wisconsin Electric Power
Company 1983-1996; Vice President and
Treasurer, Wisconsin Electric Power
Company, 1983 - 1989.
Richard K. Riederer Director President and Chief Executive Officer of
400 Three Springs Drive Weirton Steel since 1995; Director of
Weirton, WV 26062-4989 Weirton Steel since 1993; Executive Vice
Age: 54 President and Chief Financial Officer,
Weirton Steel January 1994 - 1995; Vice
President of Finance and Chief Financial
Officer, Weirton Steel January 1989-1994;
Member, Board of Directors of American
Iron and Steel Institute since 1995;
Member, Board of Directors,
National Association of
Manufacturers since 1995; Member, Board
of Directors, WESBANCO since
September 1997.
<PAGE>
Charles R. Roy<F1> Director Vice President - Finance, Chief Financial
14245 Heatherwood Court Officer and Secretary, Rexnord Corporation
Elm Grove, WI 53122 (an equipment manufacturing company),
Age: 68 1988 - 1992; Vice President - Finance and
Administration, Rexnord Inc., 1982 - 1988;
Officer and Director of several Rexnord
subsidiaries until 1992.
Mary Ellen Stanek Director, President of FIRMCO since
777 E. Wisconsin President 1994 and Chief Executive Officer, FIRMCO
Avenue, and Treasurer since 1998; Director of FIRMCO since 1992
Suite 800 and Director Fixed Income Securities of
Milwaukee, WI 53202 FIRMCO since 1990.
Age: 42
W. Bruce McConnel, III Secretary Partner of the law firm of
Philadelphia National Drinker, Biddle & Reath LLP.
Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Age: 55
Laura J. Rauman Vice President Vice President of Operations, FIRMCO
777 E. Wisconsin Avenue, since 1995; Senior Auditor, Price
Suite 800 Waterhouse, LLP, prior thereto.
Milwaukee, WI 53202
Age: 29
Joseph C. Neuberger Assistant Vice President, Firstar Mutual Fund
615 E. Michigan Treasurer Services, LLC since 1994; Manager,
Street, Arthur Andersen LLP, prior thereto.
Milwaukee, WI 53202
Age: 37
Bronson J. Haase Director President and CEO of Wisconsin Bell
626 E. Wisconsin Avenue Communications since 1993; President of
Milwaukee, WI 53202 Ameritech-Wisconsin since 1993; President
Age: 54 and CEO of Wisconsin Gas Company,
WICOR Energy, FieldTech and Vice
President of WICOR, Inc. since 1998;
Trustee of Roundy Foods.
</TABLE>
<F1> Messrs. Haase, Roy and Stanek are considered by the Company to be
"interested persons" of the Company as defined in the 1940 Act.
The following chart provides certain information about the Director fees
for the year ended October 31, 1998 of the Company's Directors.
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM COMPANY
AGGREGATE BENEFITS ESTIMATED AND FUND
COMPENSATION ACCRUED AS ANNUAL COMPLEX<F1>
NAME OF FROM THE PART OF FUND BENEFITS UPON PAID TO
PERSON/POSITION COMPANY EXPENSES RETIREMENT DIRECTORS
- --------------- ------- -------- ---------- ---------
James M. Wade
Chairman of the Board $18,500 $0 $0 $18,500
Glen R. Bomberger
Director $15,000<F2> $0 $0 $15,000
Jerry G. Remmel
Director $15,000 $0 $0 $15,000
Richard K. Riederer
Director $15,000 $0 $0 $15,000
Charles R. Roy
Director $15,000 $0 $0 $15,000
Bronson J. Haase
Director $3,500 $0 $0 $3,500
<F1> The "Fund Complex" includes only the Company.
<F2> Includes $15,000 which Mr. Bomberger elected to defer under the Company's
deferred compensation plan.
Each Director receives an annual fee of $10,000, a $1,000 per meeting
attendance fee and reimbursement of expenses incurred as a Director. The
Chairman of the Board is entitled to receive an additional $3,500 per annum for
services in such capacity. For the fiscal year ended October 31, 1998, the
Directors and Officers received aggregate fees and reimbursed expenses of
$82,754. Ms. Stanek, Ms. Rauman and Mr. Neuberger receive no fees from the
Company for their services as President and Treasurer, Vice President and
Assistant Treasurer respectively, although FIRMCO, of which Ms. Stanek and Ms.
Rauman are President and Vice President of Operations, respectively, receives
fees from the Company for advisory services and Firstar Mutual Fund Services,
LLC of which Mr. Neuberger is Vice President, receives fees from the Company for
administration, transfer agency and accounting services. FIRMCO is a wholly
owned subsidiary of Firstar Corporation. Drinker Biddle & Reath LLP, of which
Mr. McConnel is a partner, receives legal fees as counsel to the Company. As of
the date of this SAI, the Directors and Officers of the Company, as a group,
owned less than 1% of the outstanding shares of each Fund.
Directors, employees, retirees and their families of Firstar Corporation
or its affiliates are exempt and do not have to pay front-end sales charges
(provided the status of the investment is explained at the time of investment)
on purchases of Retail A Shares. These exemptions to the imposition of a front-
end sales charge are due to the nature of the investors and/or the reduced sales
efforts that will be needed in obtaining such investments.
Advisory Services
- -----------------
FIRMCO became the investment adviser to the Funds as of February 3, 1992.
Prior thereto, investment advisory services were provided by Firstar Trust
Services ("Firstar Trust"), an affiliate of the Adviser. Firstar Corporation
has guaranteed all obligations incurred by FIRMCO in connection with its
Investment Advisory Agreement with the Funds. In its Investment Advisory
Agreement, the Adviser has agreed to pay all expenses incurred by it in
connection with its advisory activities, other than the cost of securities and
other investments, including brokerage commissions and other transaction
charges, if any, purchased or sold for the Funds.
In addition to the compensation stated in the Prospectuses, the Adviser is
entitled to 4/10ths of the gross income earned by each Fund on each loan of its
securities, excluding capital gains or losses, if any. Pursuant to current
policy of the SEC, the Adviser does not intend to receive compensation for such
securities lending activity. The Adviser may voluntarily waive additional
advisory fees otherwise payable by the Funds.
For the services provided and expenses assumed by the Adviser under its
Investment Advisory Agreement for the fiscal years ended October 31, 1998, 1997
and 1996, the Adviser earned and waived advisory fees as follows:
<TABLE>
<CAPTION>
Advisory Fees Earned (Advisory Fees Waived)
1998 1997 1996
Money Market Fund $1,302,278 (493,088) $770,065 (401,147) $702,547 (266,408)
<C> <C> <C> <C>
U.S. Treasury
Money Market Fund 387,268 (74,162) 264,236 (69,017) 228,672 (84,582)
<PAGE>
U.S. Government
Money Market Fund 85,743 (81,346) 933,618 (50,816) 886,823 (74,691)
Tax-Exempt
Money Market Fund 542,385 (88,110) 384,622 (72,448) 307,395 (88,415)
Institutional
Money Market Fund 6,108,531 (2,555,949) 2,758,246 (2,045,957) 2,207,362 (1,670,748)
</TABLE>
Under its Investment Advisory Agreement, the Adviser is not liable for any
error of judgment or mistake of law or for any loss suffered by the Company in
connection with the performance of such Agreement, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its duties or from
its reckless disregard of its duties and obligations under the Agreement.
Banking Laws and Regulations. Banking laws and regulations, including the
Glass-Steagall Act as presently interpreted by the Board of Governors of the
Federal Reserve System, presently (a) prohibit a bank holding company registered
under the Federal Bank Holding Company Act of 1956 or any bank or non-bank
affiliate thereof from sponsoring, organizing, controlling or distributing the
shares of a registered, open-end investment company continuously engaged in the
issuance of its shares, and prohibit banks generally from underwriting
securities, but (b) do not prohibit such a bank holding company or affiliate or
banks generally from acting as investment adviser, transfer agent or custodian
to such an investment company or from purchasing shares of such a company as
agent and upon order of a customer. In 1971, the United States Supreme Court
held in Investment Company Institute vs. Camp that the Glass-Steagall Act
prohibits a national bank from operating a fund for the collective investment of
managing agency accounts. Subsequently, the Board of Governors of the Federal
Reserve System (the "Board") issued a regulation and interpretation to the
effect that the Glass-Steagall Act and such decision forbid a bank holding
company registered under the Federal Bank Holding Company Act of 1956 (the
"Holding Company Act"), or any non-bank affiliate thereof from sponsoring,
organizing or controlling a registered, open-end investment company continuously
engaged in the issuance of its shares, but did not prohibit such a holding
company or affiliate from acting as investment adviser, transfer agent and
custodian to such an investment. company. In 1981, the United States Supreme
Court held in Board of Governors of the Federal Reserve System vs. Investment
Company Institute that the Board did not exceed its authority under the Holding
Company Act when it adopted its regulation and interpretation authorizing bank
holding companies and their non-bank affiliates to act as investment advisers to
registered closed-end investment companies. FIRMCO and Firstar Trust are subject
to such banking laws and regulations.
The Adviser and Firstar Trust believe that they may perform the services
for the Funds contemplated by their respective agreements with the Company
without violation of the Glass-Steagall Act or other applicable banking laws or
regulations. These companies further believe that, if the question were properly
presented, a court should hold that these companies may each perform such
activities without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. It should be noted, however, there have been no
cases deciding whether banks and their affiliates may perform services
comparable to those performed by these companies, and future changes in either
federal or state statutes and regulations relating to permissible activities of
banks or trust companies and their subsidiaries or affiliates, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent such companies from continuing to
perform such services for the Funds. If the companies were prohibited from
continuing to perform advisory, accounting, shareowner servicing and custody
services for the Funds, it is expected that the Board of Directors would
recommend that the Funds enter into new agreements or would consider the
possible termination of the Funds.
Shares of the Funds are not bank deposits, are not insured by the FDIC or
any other governmental agency, are not endorsed, insured or guaranteed by
Firstar Trust or FIRMCO and are not obligations of or otherwise supported by
Firstar Trust or FIRMCO.
Administration and Distribution Services
- ----------------------------------------
Firstar Trust became a Co-Administrator to the Funds on September 1, 1994,
and assigned its rights and obligations to Firstar Mutual Fund Services, LLC on
October 1, 1998, and B. C. Ziegler and Company ("Ziegler") became a Co-
Administrator to the Funds on January 1, 1995. Under the Co-Administration
Agreement, the following administrative services are provided jointly by the Co-
Administrators: assist in maintaining office facilities, furnish clerical
services, stationery and office supplies; monitor the company's arrangements
with respect to services provided by Shareowner Organizations and Institutions;
and generally assist in the Funds' operations. The following administrative
services are provided by Ziegler: review and comment upon the registration
statement and amendments thereto prepared by Firstar Mutual Fund Services, LLC
or counsel to the Company, as requested by Firstar Mutual Fund Services, LLC;
review and comment upon sales literature and advertising relating to the
Company, as requested by Firstar Mutual Fund Services, LLC; assist in the
administration of the marketing budget; periodically review Blue Sky
registration and sales reports for the Funds; attend meetings of the Board of
Directors, as requested by the Board of Directors of the Company; and such other
services as may be requested in writing and expressly agreed to by Ziegler. The
following administrative services are provided by Firstar Mutual Fund Services,
LLC: compile data for and prepare, with respect to the Funds, timely Notices to
the SEC required pursuant to Rule 24f-2 under the 1940 Act and Semi-Annual
Reports to the SEC and current Shareowners; coordinate execution and filing by
the Company of all federal and state tax returns and required tax filings other
than those required to be made by the Company's custodian and transfer agent;
prepare compliance filings and Blue Sky registrations pursuant to state
securities laws with the advice of the Company's counsel; assist to the extent
requested by the Company with the Company's preparation of Annual and Semi-
Annual reports to Fund shareowners and Registration Statements for the Funds;
monitor each Fund's expense accruals and cause all appropriate expenses to be
paid on proper authorization from each Fund; monitor each Fund's status as a
regulated investment company under Subchapter M of the Code; maintain each
Fund's fidelity bond as required by the 1940 Act; and monitor compliance with
the policies and limitations of each Fund as set forth in the Prospectus, SAI,
By-laws and Articles of Incorporation.
The Co-Administrators are entitled to receive a fee for their
administrative services, computed daily and payable monthly, at the annual rate
of 0.125% of the Company's first $2 billion of average aggregate daily net
assets, plus 0.10% of the Company's average aggregate daily net assets in excess
of $2 billion. The Co-Administrators may voluntarily waive all or a portion of
their administrative fee from time to time. These waivers may be terminated at
any time at the Co-Administrators' discretion.
<PAGE>
Each of the Co-Administrators has agreed to pay all expenses incurred by
it in connection with its administrative activities. Under the Co-
Administration Agreement, the Co-Administrators are not liable for any error of
judgment or mistake of law or for any loss suffered by the Funds in connection
with the performance of the Co-Administration Agreement, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the Co-
Administrators in the performance of their respective duties or from their
reckless disregard of their duties and obligations under the Agreement.
The Distributor provides distribution services for each Fund as described
in the Funds' Prospectus pursuant to a Distribution Agreement with the Funds
under which the Distributor, as agent, sells shares of each Fund on a continuous
basis. The Distributor has agreed to use its best efforts to solicit orders for
the sale of shares, although it is not obliged to sell any particular amount of
shares. The Distributor causes expenses to be paid for the cost of printing and
distributing prospectuses to persons who are not shareowners of the Funds
(excluding preparation and printing expenses necessary for the continued
registration of the Funds' shares) and of printing and distributing all sales
literature. For the fiscal year ended October 31, 1998, 1997, and 1996 Ziegler
received no fees for its distribution services.
For the fiscal years ended October 31, 1998, 1997 and 1996, the following
administrative fees were earned and waived:
Administration Fees Earned (Administration Fees Waived)
-------------------------------------------------------
1998 1997 1996
Money Market Fund $284,215 (184,778) $92,516 (158,431) $73,082 (148,206)
U.S. Treasury
Money Market Fund 4,519 (54,772) 25,971 (48,185) 29,446 (42,094)
U. S. Government
Money Market Fund 215,131 (139,922) 77,457 (141,599) 84,282 (135,306)
Tax-Exempt
Money Market Fund 118,375 (77,310) 35,787 (65,920) 37,207 (53,187)
Institutional
Money Market Fund 1,333,153 (1,046,264) 199,081 (869,952) 205,168 (680,504)
Shareowner Organizations (Money Market, U.S. Government Money Market, U.S.
Treasury Money Market and Tax-Exempt Money Market Funds)
As stated in the Funds' Prospectus, the Funds intend to enter into
agreements from time to time with Shareowner Organizations providing for support
and/or distribution services to customers of the Shareowner Organizations who
are the beneficial owners of Fund shares. Under the agreements, the Funds may
pay Shareowner Organizations up to 0.25% (on an annualized basis) of the average
daily net asset value of the shares beneficially owned by their customers.
Support services provided by Shareowner Organizations under their Service
Agreements or Distribution and Service Agreements may include: (i) processing
dividend and distribution payments from a Fund; (ii) providing information
periodically to customers showing their share positions; (iii) arranging for
bank wires; (iv) responding to customer inquiries; (v)
<PAGE>
providing sub-accounting with respect to shares beneficially owned by
customers or the information necessary for sub-accounting; (vi)
forwarding shareowner communications; (vii) assisting in processing
share purchase, exchange and redemption requests from customers;
(viii) assisting customers in changing dividend options, account designations
and addresses; and (ix) other similar services requested by the Funds.
In addition, under the Distribution and Service Plan, Shareowner Organizations
may provide assistance (such as the forwarding of sales literature and
advertising to their customers) in connection with the distribution of Fund
shares.
The Funds' arrangements with Shareowner Organizations under the agreements
are governed by two Plans (a Service Plan and a Distribution and Service Plan),
which have been adopted by the Board of Directors. Because the Distribution and
Service Plan contemplates the provision of services related to the distribution
of Fund shares (in addition to support services), that Plan has been adopted in
accordance with Rule 12b-1 under the 1940 Act. In accordance with the Plans,
the Board of Directors reviews, at least quarterly, a written report of the
amounts expended in connection with the Funds' arrangements under the Plans and
the purposes for which the expenditures were made. In addition, the
arrangements must be approved annually by a majority of the Directors, including
a majority of the Directors who are not "interested persons" of the Funds as
defined in the 1940 Act and have no direct or indirect financial interest in
such arrangements (the "Disinterested Directors").
The Funds believe that there is a reasonable likelihood that their
arrangements with Shareowner Organizations have benefited each Fund and its
shareowners as a way of allowing Shareowners Organizations to participate with
the Funds in the provision of support and distribution services to customers of
the Shareowner Organizations who own Fund shares. Any material amendment to the
arrangements with Shareowner Organizations under the agreements must be approved
by a majority of the Board of Directors (including a majority of the
Disinterested Directors), and any amendment to increase materially the costs
under the Distribution and Service Plan with respect to a Fund must be approved
by the holders of a majority of the outstanding shares of the Fund involved. So
long as the Distribution and Service Plan is in effect, the selection and
nomination of the members of the Board of Directors who are not "interested
persons" (as defined in the 1940 Act) of the Funds will be committed to the
discretion of such Disinterested Directors.
Shareowner Organizations, which are affiliated with the Adviser, pursuant
to the Service Plan received no fees for the fiscal years ended October 31,
1998, 1997 and 1996.
The Funds paid fees to Shareowner Organizations, none of which were
affiliated with the Adviser, pursuant to the Distribution and Service Plan for
the fiscal years ended October 31, 1998, 1997 and 1996 as follows:
Fees Earned by Non-Affiliated Shareowner Organizations
------------------------------------------------------
1998 1997 1996
Money Market Fund $79,567 $61,140 $45,429
U.S. Government Money Market Fund 1,205 218 501
Tax-Exempt Money Market Fund 1,203 366 140
Institutional Money Market Fund 0 0 0
U.S. Treasury Money Market Fund 102 0 0
CUSTODIAN, TRANSFER AGENT, DISBURSING AGENT AND ACCOUNTING SERVICES AGENT
Firstar Bank Milwaukee, N.A. serves as custodian of the Funds' assets.
Under the Custody Agreement, Firstar Bank Milwaukee, N.A. has agreed to (i)
maintain a separate account in the name of each Fund, (ii) make receipts and
disbursements of money on behalf of each Fund, (iii) collect and receive all
income and other payments and distributions on account of each Fund's portfolio
investments, (iv) respond to correspondence from shareowners, security brokers
and others relating to its duties and (v) make periodic reports to the Company
concerning each Fund's operations. Firstar Bank Milwaukee, N.A. may, at its own
expense, open and maintain a custody account or accounts on behalf of each Fund
with other banks or trust companies, provided that Firstar Bank Milwaukee, N.A.
shall remain liable for the performance of all of its duties under the Custody
Agreement notwithstanding any delegation. For its services as custodian,
Firstar Bank Milwaukee, N.A. is entitled to receive a fee, payable monthly,
based on the annual rate of 0.02% of the Company's first $2 billion of total
assets, plus 0.015% of the Company's next $2 billion of total assets, and 0.01%
of the Company's next $1 billion and 0.005% on the balance. In addition,
Firstar Bank Milwaukee, N.A., as custodian, is entitled to certain charges for
securities transactions and reimbursement for expenses.
Firstar Mutual Fund Services, LLC, 615 East Michigan Street, Milwaukee,
Wisconsin 53202, serves as transfer agent and dividend disbursing agent for each
Fund under a Shareowner Servicing Agent Agreement. As transfer and dividend
disbursing agent, Firstar Mutual Fund Services, LLC has agreed to (i) issue and
redeem shares of the Funds, (ii) make dividend and other distributions to
shareowners of the Funds, (iii) respond to correspondence by Fund shareowners
and others relating to its duties, (iv) maintain shareowner accounts, and (v)
make periodic reports to the Funds. For its transfer agency and dividend
disbursing services, Firstar Mutual Fund Services, LLC is entitled to receive a
fee at the rate of $20.00 per shareowner account with an annual minimum of
$12,000 per Fund, plus certain other transaction charges and reimbursement for
expenses.
In addition, the Funds have entered into a Fund Accounting Servicing
Agreement with Firstar Mutual Fund Services, LLC pursuant to which Firstar
Mutual Fund Services, LLC has agreed to maintain the financial accounts and
records of the Funds in compliance with the 1940 Act and to provide other
accounting services to the Funds. For its accounting services, Firstar Mutual
Fund Services, LLC is entitled to receive fees, payable monthly, at the annual
rate of $25,000 on the first $40 million of each Fund's assets, 0.01% on the
next $200 million of such assets, and 0.005% on the balance, plus out-of-pocket
expenses, including pricing expenses. The annual fee for the Institutional
Money Market Fund is capped at $55,000.
EXPENSES
Operating expenses of the Funds include taxes, interest, fees and expenses
of Directors and officers, SEC fees, state securities qualification fees,
advisory fees, administrative fees,
<PAGE>
Shareowner Organization fees, charges of the custodian and transfer agent,
dividend disbursing agent and accounting services agent, certain insurance
premiums, auditing and legal expenses, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to shareowners,
membership fees in the Investment Company Institute, costs of shareowner
reports and meetings and any extraordinary expenses. The Funds also
pay any brokerage fees, commissions and other transaction charges (if any)
incurred in connection with the purchase and sale of portfolio securities.
INDEPENDENT ACCOUNTANTS
, independent accountants serve as auditors for the Company. The Company's
- ----
Annual Report to Shareholders with respect to the Funds for the fiscal year
ended October 31, 1998 has been filed with the SEC. The financial statements
and notes thereto in such Annual Report (the "Financial Statements") are
incorporated by reference into this Statement of Additional Information. The
Financial Statements in such Annual Report have been incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
COUNSEL
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of the
Company, is a partner), Philadelphia National Bank Building, 1345 Chestnut
Street, Philadelphia, Pennsylvania 19107, serve as counsel to the Company and
will pass upon the legality of the shares offered by the Funds' Prospectuses.
YIELD AND OTHER PERFORMANCE INFORMATION
From time to time each Fund may quote its "yield" and "effective yield,"
and the Tax-Exempt Money Market Fund may also quote its "tax-equivalent yield,"
in advertisements or in communications to shareowners. Each yield figure is
based on historical earnings and is not intended to indicate future performance.
The "yield" of a Fund refers to the income generated by an investment in the
Fund over a seven-day period identified in the advertisement. This income is
then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment. The
"yield" and "effective yield" of each Fund are calculated according to formulas
prescribed by the SEC. The standardized seven-day yield for each Fund is
computed separately by determining the net change, exclusive of capital changes
and income other than investment income, in the value of a hypothetical pre-
existing account in the particular Fund involved having a balance of one share
at the beginning of the period, dividing the net change in account value by the
value of the account at the beginning of the base period to obtain the base
period return, and multiplying the base period return by (365/7). The net
change in the value of an account in a Fund includes the value of additional
shares
<PAGE>
purchased with dividends from the original share, and dividends declared
on both the original share and any such additional shares and all fees, other
than nonrecurring account sales charges, that are charged to all shareowner
accounts in proportion to the length of the base period and the Fund's average
account size. The capital changes to be excluded from the calculation of the
net change in account value are realized gains and losses from the sale of
securities and unrealized appreciation and depreciation. The effective
annualized yield for each Fund is computed by compounding a particular Fund's
unannualized base period return (calculated as above) by adding 1 to the base
period return, raising the sum to a power equal to 365 divided by 7, and
subtracting one from the result. The fees which may be imposed by financial
intermediaries directly on their customers for cash management services are not
reflected in the Company's calculations of yields for the Funds.
The "tax-equivalent yield" of the Tax-Exempt Money Market Fund shows the
level of taxable yield needed to produce an after-tax equivalent to the Fund's
tax-free yield. This is done by increasing the Fund's yield (calculated as
above) by the amount necessary to reflect the payment of federal income tax at a
stated tax rate. The Fund's standardized "tax-equivalent yield" is computed by:
(a) dividing the portion of the Fund's yield (as calculated above) that is
exempt from federal income tax by one minus a stated federal income tax rate;
and (b) adding the figure resulting from (a) above to that portion, if any, of
the Fund's yield that is not exempt from federal income tax. The "tax-
equivalent yield" will always be higher than the "yield" of the Tax-Exempt Money
Market Fund.
Each Fund may compute "average annual total return." Average annual total
return reflects the average annual percentage change in value of an investment
in shares of a series over the measuring period. Each Fund may compute
aggregate total return, which reflects the total percentage change in value over
the measuring period.
Additionally, the total returns and yields of the Funds may be compared in
such advertisements or reports to shareowners to those of other mutual funds
with similar investment objectives and to other relevant indices or to rankings
prepared by independent services or other financial or industry publications
that monitor the performance of mutual funds. For example, the yields of the
Money Market Fund and the Institutional Money Market Fund may be compared to the
Donoghue's Money Fund Average, the yields of the U.S. Treasury Money Market Fund
and the U.S. Government Money Market Fund may be compared to the Donoghue's
Government Money Fund Average, and the yields of the Tax-Exempt Money Market
Fund may be compared to the Donoghue's Tax-Free Money Fund Average, which are
averages compiled by IBC/Donoghue's Money Fund Report, a widely recognized
independent publication that monitors the performance of money market funds. In
addition, the yields of the Money Market, Institutional Money Market, U.S.
Treasury Money Market and the U.S. Government Money Market Funds may be compared
to the average yields reported by the Bank Rate Monitor for money market deposit
accounts offered by the 50 leading banks and thrift institutions in the top five
standard metropolitan statistical areas.
Yield data and total return as reported in national financial publications
including Money Magazine, Forbes, Barron's, Morningstar Mutual Funds, The Wall
Street Journal, Mutual Funds Magazine, Kiplingers Personal Finance and The New
York Times, or in publications of a local or regional nature, may also be used
in comparing the yields of the Funds.
Since performance fluctuates, performance data cannot necessarily be used
to compare an investment in a Fund's shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time.
<PAGE>
Investors should remember that performance and yield are generally functions
of the kind and quality of the instruments held in a portfolio, portfolio
maturity, operating expenses, and market conditions. Any fees charged by
Shareowner Organizations directly to their customer accounts in connection
with investments in shares of the Funds will not be included in the Funds'
calculations of yield and total return.
The current yield for each of the Funds may be obtained by calling Firstar
Mutual Fund Services, LLC at 1-800-228-1024. For the seven-day period ended
October 31, 1998, the annualized yields of the Money Market Fund, Institutional
Money Market Fund, U.S. Treasury Money Market Fund, U.S. Government Money Market
Fund and Tax-Exempt Money Market Fund were 4.85%, 5.08%, 4.14%, 4.53% and 2.62%,
respectively. Without fees waived by the Adviser and Co-Administrators during
such period, the annualized yields of such Funds would have been 4.61%, 4.79%,
3.99%, 4.43% and 2.48%, respectively. For the seven-day period ended October
31, 1998, the effective yields of the Money Market Fund, Institutional Money
Market Fund, U.S. Treasury Money Market Fund, U.S. Government Money Market Fund
and Tax-Exempt Money Market Fund were 4.97%, 5.21%, 4.22%, 4.63% and 2.66%,
respectively. Without fees waived by the Adviser and Co-Administrators during
such period, the effective yields of such Funds would have been 4.73%, 4.92%,
4.07%, 4.53% and 2.52%, respectively. For the seven-day period ended October
31, 1998, the tax-equivalent yield of the Tax-Exempt Money Market Fund was 3.86%
(assuming a federal income tax rate of 31%). Without fees waived by the Adviser
and Co-Administrators during such period, the tax-equivalent yield of such Fund
would have been 3.65%.
MISCELLANEOUS
As used in this SAI and in the Funds' Prospectuses, a "majority of the
outstanding shares" of a Fund or portfolio means, with respect to the approval
of an investment advisory agreement or change in a fundamental investment
policy, the lesser of (1) 67% of the shares of the particular Fund or portfolio
represented at a meeting at which the holders of more than 50% of the
outstanding shares of such Fund or portfolio are present in person or by proxy,
or (2) more than 50% of the outstanding shares of such Fund or portfolio.
As of November 30, 1998, the Adviser and its affiliates held of record
substantially all of the outstanding shares of each of the Company's investment
portfolios as agent, custodian, trustee or investment adviser on behalf of their
customers. At such date, Firstar Trust Services, P.O. Box 2054, Milwaukee,
Wisconsin 53201, and its affiliated banks held as beneficial owner five percent
or more of the outstanding shares of the following investment portfolios of the
Company because they possessed sole voting or investment power with respect to
such shares: Money Market Fund: 1.0%; Institutional Money Market Fund: 84%; Tax-
Exempt Money Market Fund: 52%; U.S. Treasury Money Market Fund: 32%; U.S.
Government Money Market Fund: 73%; Growth and Income Fund: 66%; Short-Term Bond
Market Fund: 57%; Special Growth Fund: 73%; Bond IMMDEX/TM Fund: 74%; Equity
Index Fund: 76%; Balanced Income Fund: 75%, Balanced Growth Fund: 74%;
Intermediate Bond Market Fund: 82%; Growth Fund: 80%; Tax-Exempt Intermediate
Bond Fund: 63%; International Equity Fund: 85%; MicroCap Fund: 80%, and
Emerging Growth Fund: 77%. At such date, no other person was known by the
Company to hold of record or beneficially 5% or more of the outstanding
shares of any investment portfolio of the Company.
<PAGE>
APPENDIX A
----------
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating that
the obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and are
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The "D" rating will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with
<PAGE>
moderate reliance on debt and ample asset protection; broad margins in
earnings coverage of fixed financial charges and high internal cash generation;
and well-established access to a range of financial markets and assured sources
of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance
<PAGE>
securities. The following summarizes the rating categories used by Fitch IBCA
for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+"to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.
"F3" - Securities possess fair credit quality. This designation
indicates that the capacity for timely payment of financial commitments is
adequate; however, near-term adverse changes could result in a reduction to non-
investment grade.
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's second-
highest category and indicates that while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
<PAGE>
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have
some quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to the obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
<PAGE>
"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The "D" rating also will
be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk _ such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca" and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
<PAGE>
Con. (---) - Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa". The modifier 1 indicates that
the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater
economic stress.
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD" and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt
rated "B" possesses the risk that obligations will not be met when due. Debt
rated "CCC" is well below investment grade and has considerable uncertainty as
to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate
and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit
quality. These ratings denote that there is currently a low expectation of
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate
that there is a possibility of credit risk developing, particularly as the
result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC," "CC" and "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the highest
potential for recovery of amounts outstanding on any securities involved and "D"
represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "B" may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major rating
categories.
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation indicates that the ability to repay principal
and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis, with limited incremental risk compared
to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC" and "CC" - These designations are assigned by
Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit risk and long-term
risk. The following summarizes the ratings by Moody's Investors Service, Inc.
for short-term notes:
"MIG-1"/"VMIG-1" - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality, with margins
of protection that are ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
xxxxx
PART C. OTHER INFORMATION
Item 23. Exhibits.
(a)(1) Articles of Incorporation filed February 19, 1988 is incorporated
by reference to Exhibit (1)(a) to Post-Effective Amendment No. 28
to the Registration Statement, filed February 15, 1996 ("Post-
Effective Amendment No. 28").
(2) Amendment No. 1 to the Articles of Incorporation filed June 30,
1989 is incorporated by reference to Exhibit (1)(b) to Post-
Effective Amendment No. 28.
(3) Amendment No. 2 to the Articles of Incorporation filed June 30,
1989 is incorporated by reference to Exhibit (1)(c) to Post-
Effective Amendment No. 28.
(4) Amendment No. 3 to the Articles of Incorporation filed November
12, 1991 is incorporated by reference to Exhibit (1)(d) to Post-
Effective Amendment No. 28.
(5) Amendment No. 4 to the Articles of Incorporation filed August 18,
1992 is incorporated by reference to Exhibit (1)(e) to Post-
Effective Amendment No. 28.
(6) Amendment No. 5 to the Articles of Incorporation filed October 23,
1992 is incorporated by reference to Exhibit (1)(f) to Post-
Effective Amendment No. 28.
(7) Amendment No. 6 to the Articles of Incorporation filed January 26,
1993 is incorporated by reference to Exhibit (1)(g) to Post-
Effective Amendment No. 28.
(8) Amendment No. 7 to the Articles of Incorporation filed February
10, 1994 is incorporated by reference to Exhibit (1)(h) to Post-
Effective Amendment No. 28.
(9) Amendment No. 8 to the Articles of Incorporation filed December
29, 1994 is incorporated by reference to Exhibit (1)(i) to Post-
Effective Amendment No. 28.
(10) Amendment No. 9 to the Articles of Incorporation filed July 20,
1995 is incorporated by reference to Exhibit (1)(j) to Post-
Effective Amendment No. 28.
(11) Amendment No. 10 to the Articles of Incorporation filed November
10, 1995 is incorporated by reference to Exhibit (1)(k) to Post-
Effective Amendment No. 28.
(12) Amendment No. 11 to Articles of Incorporation filed July 21, 1997
with respect to the Emerging Growth Fund is incorporated by
reference to Exhibit (1)(l) to Post-Effective Amendment No. 32.
(13) Amendment No. 12 to Articles of Incorporation filed January 12,
1998 with respect to change of name to Firstar Funds, Inc. is
incorporated by reference to Exhibit (1)(m) to Post-Effective
Amendment No. 34.
(b)(1) Registrant's By-laws dated September 9, 1988 are incorporated by
reference to Exhibit (2)(a) to Post-Effective Amendment No. 28.
(2) Amendment to By-Laws as approved by the Registrant's Board of
Directors on February 23, 1990 is incorporated by reference to
Exhibit (2)(b) to Post-Effective Amendment No. 28.
(3) Amendment to By-Laws as approved by the Registrant's Board of
Directors on February 15, 1991 is incorporated by reference to
Exhibit (2)(c) to Post-Effective Amendment No. 28.
(4) Amendment to By-Laws as approved by the Registrant's Board of
Directors on June 21, 1991 is incorporated by reference to
Exhibit (2)(d) to Post-Effective Amendment No. 28.
(c)(1) See Articles V and VII of the Articles of Incorporation which are
incorporated by reference to Exhibits (1)(a) and (1)(i) to Post-
Effective Amendment No. 28 and Article II, Sections 1, 9 and 10 of
Article III, Sections 1, 2 and 3 of Article V and Section II of
Article VII of the By-laws which are incorporated by reference to
Exhibits 2(a)-2(d) of Post-Effective Amendment No. 28.
(d)(1) Investment Advisory Agreement between Registrant and First
Wisconsin Trust Company dated August 29, 1991 with respect to the
Money Market Fund, U.S. Government Money Market Fund, Tax-Exempt
Money Market Fund, Income and Growth Fund, Short-Intermediate
Fixed Income Fund, Special Growth Fund, Bond IMMDEXO Fund, Equity
Index Fund, Institutional Money Market Fund and U.S. Federal Money
Market Fund is incorporated by reference to Exhibit (5)(a) to
Post-Effective Amendment No. 28.
(2) Assumption and Guarantee Agreement between First Wisconsin Trust
Company and First Wisconsin Asset Management dated February 3,
1992 is incorporated by reference to Exhibit (5)(b) to Post-
Effective Amendment No. 28.
(3) Investment Advisory Agreement between Registrant and First
Wisconsin Asset Management dated March 27, 1992 with respect to
the Balanced Fund is incorporated by reference to Exhibit (5)(c)
to Post-Effective Amendment No. 28.
(4) Addendum No. 1 dated December 27, 1992 to Investment Advisory
Agreement between Registrant and Firstar Investment Research and
Management Company dated March 27, 1992 with respect to the Growth
Fund (formerly the MidCore Growth Fund) and Intermediate Bond
Market Fund is incorporated by reference to Exhibit (5)(d) to
Post-Effective Amendment No. 28.
(5) Addendum No. 2 dated February 5, 1993, to Investment Advisory
Agreement between the Registrant and Firstar Investment Research
and Management Company dated March 27, 1992 with respect to the
Tax-Exempt Intermediate Bond Fund is incorporated by reference to
Exhibit (5)(e) to Post-Effective Amendment No. 28.
(6) Assumption and Guarantee Agreement between Firstar Trust Company
and Firstar Investment Research and Management Company dated
June 17, 1993 with respect to the Income and Growth Fund is
incorporated by reference to Exhibit (5)(f) to Post-Effective
Amendment No. 28.
(7) Addendum No. 3 dated September 2, 1997, to Investment Advisory
Agreement between the Registrant and Firstar Investment Research
and Management Company dated March 27, 1992 with respect to the
International Equity Fund is incorporated by reference to Exhibit
(5)(g) to Post-Effective Amendment No. 32.
(8) Amended and Restated Sub-Advisory Agreement among Firstar
Investment Research and Management Company, the Registrant and
Hansberger Global Investors, Inc. dated June 15, 1997 with respect
to the International Equity Fund is incorporated by reference to
Exhibit (5)(h) to Post-Effective Amendment No. 32.
(9) Addendum No. 4 to the Investment Advisory Agreement between
Registrant and Firstar Investment Research and Management Company
dated March 27, 1992 with respect to the MicroCap Fund is
incorporated by reference to Exhibit (5)(i) to Post-Effective
Amendment No. 28.
(10) Addendum No. 6 to the Investment Advisory Agreement between
Registrant and Firstar Investment Research & Management Company
dated December 1, 1997 with respect to the Balanced Income Fund is
incorporated by reference to Exhibit (5)(j) to Post-Effective
Amendment No. 34.
(11) Addendum No. 5 to the Investment Advisory Agreement between
Registrant and Firstar Investment Research & Management Company
dated as of August 15, 1997 with respect to the Emerging Growth
Fund is incorporated by reference to Exhibit (5)(k) to Post-
Effective Amendment No. 32.
(e)(1) Distribution Agreement between Registrant and B.C. Ziegler &
Company dated as of January 1, 1995, with respect to Money Market
Fund, U.S. Government Money Market Fund, Tax-Exempt Money Market
Fund, Growth and Income Fund, Short-Term Bond Market Fund, Special
Growth Fund, Bond IMMDEXO Fund, Equity Index Fund, Institutional
Money Market Fund, U.S. Treasury Money Market Fund, Balanced Fund,
Intermediate Bond Market Fund, Growth Fund (formerly the MidCore
Growth Fund), Tax-Exempt Intermediate Bond Fund and International
Equity Fund is incorporated by reference to Exhibit (6)(a) to
Post-Effective Amendment No. 28.
(2) Addendum No. 1 to the Distribution Agreement between Registrant
and B.C. Ziegler and Company dated as of January 1, 1995 with
respect to the MicroCap Fund is incorporated by reference to
Exhibit (6)(b) to Post-Effective Amendment No. 28.
(3) Addendum No. 3 to the Distribution Agreement between Registrant
and B.C. Ziegler and Company dated as of December 1, 1997 with
respect to the Balanced Income Fund is incorporated by reference
to Exhibit (6)(c) to Post-Effective Amendment No. 34.
(4) Addendum No. 2 to the Distribution Agreement between Registrant
and B.C. Ziegler and Company dated as of August 15, 1997 with
respect to the Emerging Growth Fund is incorporated by reference
to Exhibit (6)(d) to Post-Effective Amendment No. 32.
(f) Deferred Compensation Plan dated September 16, 1994 and Deferred
Compensation Agreement between Registrant and its Directors is
incorporated by reference to Exhibit (7) to Post-Effective
Amendment No. 28.
(g)(1) Custodian Agreement between Registrant and First Wisconsin Trust
Company dated July 29, 1988 is incorporated by reference to
Exhibit (8)(a) to Post-Effective Amendment No. 28.
(2) Letter dated December 28, 1989 with respect to the Custodian
Agreement with respect to the Equity Index Fund is incorporated by
reference to Exhibit (8)(b) to Post-Effective Amendment No. 28.
(3) Revised Mutual Fund Custodial Agent Service Annual Fee Schedule
dated March 1, 1997 to the Custodian Agreement with respect to the
Money Market Fund, U.S. Government Money Market Fund, Intermediate
Bond Market Fund, Bond IMMDEXO Fund, Growth and Income Fund,
MidCore Growth Fund, MicroCap Fund, Tax-Exempt Money Market Fund,
U.S. Treasury Money Market Fund, Short-Term Bond Market Fund, Tax-
Exempt Intermediate Bond Fund, Balanced Fund, Equity Index Fund,
Special Growth Fund and International Equity Fund is incorporated
by reference to Exhibit (8)(c) to Post-Effective Amendment No. 34.
(4) Amendment dated May 1, 1990 to the Custodian Agreement between
Registrant and First Wisconsin Trust Company is incorporated by
reference to Exhibit (8)(d) to Post-Effective Amendment No. 28.
(5) Letter dated April 19, 1991 with respect to the Custodian
Agreement with respect to the Institutional Money Market Fund and
U.S. Federal Money Market Fund is incorporated by reference to
Exhibit (8)(e) to Post-Effective Amendment No. 28.
(6) Letter dated March 27, 1992 with respect to the Custodian
Agreement with respect to the Balanced Fund is incorporated by
reference to Exhibit (8)(f) to Post-Effective Amendment No. 28.
(7) Letter dated December 27, 1992 with respect to the Custodian
Agreement with respect to the Intermediate Bond Market Fund and
Growth Fund (formerly the MidCore Growth Fund) is incorporated by
reference to Exhibit (8)(g) to Post-Effective Amendment No. 28.
(8) Letter dated February 5, 1993 with respect to the Custodian
Agreement with respect to the Tax-Exempt Intermediate Bond Fund is
incorporated by reference to Exhibit (8)(h) to Post-Effective
Amendment No. 28.
(9) Letter Agreement with respect to the Custodian Agreement dated as
of September 2, 1997 with respect to the International Equity Fund
is incorporated by reference to Exhibit No. (8)(i) to Post-
Effective Amendment No. 32.
(10) Letter Agreement dated August 1, 1995 with respect to the
Custodian Agreement with respect to the MicroCap Fund is
incorporated by reference to Exhibit No. (8)(j) to Post-Effective
Amendment No. 28.
(11) Letter Agreement with respect to the Custodian Agreement with
respect to the Balanced Income Fund dated December 1, 1997 is
incorporated by reference to Exhibit (8)(k) to Post-Effective
Amendment No. 34.
(12) Letter Agreement with respect to the Custodian Agreement with
respect to the Emerging Growth Fund dated as of March 1, 1997 is
incorporated by reference to Exhibit (8)(l) to Post-Effective
Amendment No. 34.
(13) Foreign Custodian Monitoring Agreement between Registrant and
Firstar Investment Research and Management Company dated June 13,
1997 with respect to the International Equity Fund is incorporated
by reference to Exhibit 8(m) to Post-Effective Amendment No. 32.
(h)(1) Co-Administration Agreement Among the Registrant, B.C. Ziegler &
Company and Firstar Trust Company dated as of January 1, 1995 is
incorporated by reference to Exhibit (9)(a) to Post-Effective
Amendment No. 28.
(2) Addendum No. 1 to the Co-Administration Agreement among the
Registrant, B.C. Ziegler and Company and Firstar Trust Company
dated as of January 1, 1995 with respect to the MicroCap Fund is
incorporated by reference to Exhibit (9)(b) to Post-Effective
Amendment No. 28.
(3) Addendum No. 3 to the Co-Administration Agreement among the
Registrant, B.C. Ziegler and Company and Firstar Trust Company
dated as of January 1, 1995 with respect to the Balanced Income
Fund is incorporated by reference to Exhibit (9)(c) to Post-
Effective Amendment No. 34.
(4) Fund Accounting Servicing Agreement dated March 23, 1988 between
Registrant and First Wisconsin Trust Company is incorporated by
reference to Exhibit (9)(d) to Post-Effective Amendment No. 28.
(5) Letter dated July 29, 1988 with respect to the Fund Accounting
Servicing Agreement is incorporated by reference to Exhibit (9)(e)
to Post-Effective Amendment No. 28.
(6) Letter dated December 28, 1989 with respect to the Fund Accounting
Servicing Agreement with respect to the Equity Index Fund is
incorporated by reference to Exhibit (9)(f) to Post-Effective
Amendment No. 28.
(7) Letter dated April 19, 1991 with respect to the Fund Accounting
Servicing Agreement with respect to the Institutional Money Market
Fund and U.S. Federal Money Market Fund is incorporated by
reference to Exhibit (9)(g) to Post-Effective Amendment No. 28.
(8) Letter dated March 27, 1992 with respect to the Fund Accounting
Servicing Agreement with respect to the Balanced Fund is
incorporated by reference to Exhibit (9)(h) to Post-Effective
Amendment No. 28.
(9) Letter dated December 27, 1992 with respect to the Fund Accounting
Servicing Agreement with respect to the Intermediate Bond Market
Fund and Growth Fund (formerly the MidCore Growth Fund) is
incorporated by reference to Exhibit (9)(i) to Post-Effective
Amendment No. 28.
(10) Letter dated February 5, 1993 with respect to the Fund Accounting
Servicing Agreement with respect to the Tax-Exempt Intermediate
Bond Fund is incorporated by reference to Exhibit (9)(j) to Post-
Effective Amendment No. 29.
(11) Revised Fund Valuation and Accounting Fee Schedule dated March 1,
1997 to the Fund Accounting Servicing Agreement with respect to
the Money Market Fund, Tax-Exempt Money Market Fund, U.S.
Government Money Market Fund, U.S. Treasury Money Market Fund,
Institutional Money Market Fund, Short-Term Bond Market Fund, Tax-
Exempt Intermediate Bond Fund, Bond IMMDEXO Fund, International
Equity Fund, Balanced Fund, Growth and Income Fund, Equity Index
Fund, MidCore Growth Fund, Special Growth Fund and MicroCap Fund
is incorporated by reference to Exhibit (9)(k) to Post-Effective
Amendment No. 34.
(12) Intentionally left blank.
(13) Intentionally left blank.
(14) Letter Agreement dated August 1, 1995 with respect to the Fund
Accounting Servicing Agreement with respect to the MicroCap Fund
is incorporated by reference to Exhibit (9)(n) to Post-Effective
Amendment No. 28.
(15) Letter Agreement with respect to the Fund Accounting Servicing
Agreement with respect to the Balanced Income Fund dated December
1, 1990 is incorporated by reference to Exhibit (9)(o) to Post-
Effective Amendment No. 34.
(16) Shareholder Servicing Agent Agreement dated March 23, 1988 between
Registrant and First Wisconsin Trust Company is incorporated by
reference to Exhibit (9)(p) to Post-Effective Amendment No. 28.
(17) Letter dated July 29, 1988 with respect to Shareholder Servicing
Agent Agreement is incorporated by reference to Exhibit (9)(q) to
Post-Effective Amendment No. 28
(18) Letter dated December 28, 1989 with respect to the Shareholder
Servicing Agent Agreement with respect to the Equity Index Fund is
incorporated by reference to Exhibit (9)(r) to Post-Effective
Amendment No. 28.
(19) Letter dated April 23, 1991 with respect to the Shareholder
Servicing Agent Agreement with respect to the Institutional Money
Market Fund and U.S. Federal Money Market Fund is incorporated by
reference to Exhibit (9)(s) to Post-Effective Amendment No. 28.
(20) Letter dated March 27, 1992 with respect to the Shareholder
Servicing Agent Agreement with respect to the Balanced Fund is
incorporated by reference to Exhibit (9)(t) to Post-Effective
Amendment No. 28.
(21) Letter dated December 27, 1992 with respect to the Shareholder
Servicing Agent Agreement with respect to the Intermediate Bond
Market Fund and Growth Fund (formerly the MidCore Growth Fund) is
incorporated by reference to Exhibit (9)(u) to Post-Effective
Amendment No. 28.
(22) Letter dated February 5, 1993 with respect to the Shareholder
Servicing Agent Agreement with respect to the Tax-Exempt
Intermediate Bond Fund is incorporated by reference to Exhibit
(9)(v) to Post-Effective Amendment No. 29.
(23) Letter dated April 26, 1994 with respect to the Shareholder
Servicing Agent Agreement with respect to the International Equity
Fund is incorporated by reference to Exhibit (9)(w) to Post-
Effective Amendment No. 28.
(24) Amendment dated May 1, 1990 to the Shareholder Servicing Agent
Agreement between Registrant and First Wisconsin Trust Company is
incorporated by reference to Exhibit (9)(x) to Post-Effective
Amendment No. 28.
(25) Letter Agreement dated August 1, 1995 with respect to the
Shareholder Servicing Agent Agreement with respect to the MicroCap
Fund is incorporated by reference to Exhibit (9)(y) to Post-
Effective Amendment No. 28.
(26) Letter with respect to Shareholder Servicing Agent Agreement with
respect to the Balanced Income Fund dated December 1, 1997 is
incorporated by reference to Exhibit (9)(z) to Post-Effective
Amendment No. 34.
(27) Plan of Reorganization is incorporated by reference to Exhibit
(9)(aa) to Post-Effective Amendment No. 28.
(28) Purchase and Assumption Agreement dated February 22, 1988 is
incorporated by reference to Exhibit (9)(ab) to Post-Effective
Amendment No. 28.
(29) Addendum No. 2 to the Co-Administration Agreement among the
Registrant, B.C. Ziegler and Company and Firstar Trust Company
with respect to the Emerging Growth Fund is incorporated by
reference to Exhibit (9)(ac) to Post-Effective Amendment No. 32.
(30) Letter Agreement with respect to the Fund Accounting Servicing
Agreement with respect to the Emerging Growth Fund is incorporated
by reference to Exhibit (9)(ad) to Post-Effective Amendment No.
32.
(31) Letter Agreement with respect to Shareholder Servicing Agent
Agreement with respect to the Emerging Growth Fund dated August
15, 1997 is incorporated by reference to Exhibit (9)(ae) to Post-
Effective Amendment No. 34.
(32) Intentionally left blank.
(33) License Agreement between Registrant and Firstar Corporation for
use of Firstar name is incorporated by reference to Exhibit
(9)(ag) to Post-Effective Amendment No. 34.
(34) Revised Shareholder Servicing Agent Agreement Fee Schedule dated
March 1, 1997 with respect to the Money Market Fund, Tax-Exempt
Money Market Fund, U.S. Government Money Market Fund, U.S.
Treasury Money Market Fund, Institutional Money Market Fund,
Short-Term Bond Market Fund, Tax-Exempt Intermediate Bond Fund,
Balanced Fund, Equity Index Fund, Special Growth Fund,
International Equity Fund, Intermediate Bond Market Fund, Bond
IMMDEXO Fund, Growth and Income Fund, MidCore Growth Fund and
MicroCap Fund is incorporated by reference to Exhibit (9)(ah) to
Post-effective Amendment No. 34.
(35) Internet Access Agreement with Firstar Trust Company, dated
April 1998.
(36) Order Processing Agreement with M and I Trust Company, dated
April 1, 1998.
(37) Service Agreement with Jack White and Company, dated May 12, 1998.
(38) Service Agreement with National Investors Services
Corporation, dated June 1998.
(i) To be filed by amendment.
(j)(1) Consent of Drinker Biddle & Reath LLP.
(2) To be filed by amendment.
(k) None.
(l)(1) Purchase Agreement between Registrant and ALPS Securities, Inc. is
incorporated by reference to Exhibit (13)(a) to Post-Effective
Amendment No. 29.
(2) Purchase Agreement between ALPS Securities, Inc. and Sunstone
Financial Group, Inc. is incorporated by reference to Exhibit
(13)(b) to Post-Effective Amendment No. 29.
(3) Purchase Agreement between Firstar Trust (Wisconsin) and the
Registrant relating to startup of Balanced Income Fund is
incorporated by reference to Exhibit (13)(c) to Post-Effective
Amendment No. 34.
(m)(1) Amended and Restated Distribution and Service Plan and Form of
Distribution and Servicing Agreement is incorporated by reference
to Exhibit (14)(a) to Post-Effective Amendment No. 30.
(n) To be filed by amendment.
(o)(1) Form of Amended and Restated Plan Pursuant to Rule 18f-3 for
Operation of a Multi-Series System is incorporated by reference to
Exhibit 18(a) to Post-Effective Amendment No. 32.
Item 24. Persons Controlled By or Under Common Control with Registrant
-------------------------------------------------------------
Registrant is controlled by its Board of Directors.
Item 25. Indemnification
---------------
Indemnification of Registrant's principal underwriter, custodians and
transfer agents against certain losses is provided for, respectively, in Section
1.9 of the Distribution Agreement, incorporated by reference as Exhibit (6)(a)
hereto, Section 11 of the Custodian Agreement, incorporated by reference as
Exhibit (8)(a) hereto, and Section 6(c) of the Shareholder Servicing Agent
Agreement incorporated by reference as Exhibit (9)(p) hereto. Registrant has
obtained from a major insurance carrier a directors' and officers' liability
policy covering certain types of errors and omissions.
Article IX of Registrant's Articles of Incorporation, incorporated by
reference as Exhibit (1)(a) hereto, provides for the indemnification of
Registrant's directors and officers to the full extent permitted by the
Wisconsin Business Corporation Law and the Investment Company Act of 1940.
Article VII of the By-laws of the Registrant, incorporated by
reference as Exhibit (2)(a) hereto, provides that officers and directors of the
Registrant shall be indemnified by the Registrant against judgments, penalties,
fines, excise taxes, settlements and reasonable expenses (including attorney's
fees) incurred in connection with a legal action, suit or proceeding to the full
extent permissible under the Wisconsin Business Corporation Law, the Securities
Act of 1933 and the Investment Company Act of 1940.
In no event will Registrant indemnify any of its directors or officers
against any liability to which such person would otherwise be subject by reason
of his willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office. Registrant will comply
with Rule 484 under the Securities Act of 1933 and Release No. 11330 under the
Investment Company Act of 1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------
Firstar Investment Research and Management Company, investment adviser
to the Money Market Fund, Institutional Money Market Fund, U.S. Treasury Money
Market Fund, U.S. Government Money Market Fund, Tax-Exempt Money Market Fund,
Short-Term Bond Market Fund, Growth and Income Fund, Special Growth Fund, Bond
IMMDEXO Fund, Equity Index Fund, Balanced Growth Fund, Intermediate Bond Market
Fund, Growth Fund (formerly the MidCore Growth Fund), Tax-Exempt Intermediate
Bond Fund, Balanced Income Fund, Emerging Growth Fund, International Equity Fund
and MicroCap Fund, is a registered investment adviser under the Investment
Advisers Act of 1940.
To Registrant's knowledge, none of the directors or senior executive
officers of Firstar Investment Research and Management Company, except those set
forth below, is, or has been at any time during Registrant's past two fiscal
years, engaged in any other business, profession, vocation or employment of a
substantial nature, except that certain directors and officers of Firstar
Investment Research and Management Company also hold various positions with, and
engage in business for, their respective affiliates. Set forth below are the
names and principal businesses of the directors and certain of the senior
executive officers of Firstar Investment Research and Management Company who are
or have been engaged in any other business, profession, vocation or employment
of a substantial nature.
FIRSTAR INVESTMENT RESEARCH AND MANAGEMENT COMPANY
Position with
Firstar Investment
Research and Other Business Type of
Name Management Company Connections Business
- ---- ------------------ -------------- --------
John A. Becker Director Vice Chairman and
Chief Operating
Officer, Firstar Bank
Corporation, 777 E. Holding Co.
Wisconsin Avenue,
Milwaukee, WI 53201
Mary Ellen Stanek Director, Chief President and
Executive Officer, Treasurer, Investment
Chief Investment Firstar Funds, Inc. Company
Officer and Firstar Funds
President Center, 615 East
Michigan Street,
P.O. Box 3011,
Milwaukee, WI 53201-
3011
Robert L. Webster Director President, Bank
Firstar Bank,
Milwaukee, N.A.
777 E.Wisconsin
Avenue, Milwaukee, WI
53202
Hansberger Global Investors, Inc. serves as sub-investment
adviser to the International Equity Fund.
To Registrant's knowledge, none of the directors or senior
executive officers of Hansberger Global Investors, Inc. except those set forth
below, is, or has been at any time during Registrant's past two fiscal years,
engaged in any other business, profession, vocation or employment of a
substantial nature, except that certain directors and officers of Hansberger
Global Investors, Inc. also hold various positions with, and engage in business
for, their respective affiliates. Set forth below are the names and principal
businesses of the directors and certain of the senior executive officers of
Hansberger Global Investors, Inc. who are or have been engaged in any other
business, profession, vocation or employment of a substantial nature.
HANSBERGER GLOBAL INVESTORS, INC.
Position with Other Business Type
Name and Principal Hansberger Global Connections and of
Business Address Investors, Inc. Address* Business
- ------------------ ----------------- --------------- --------
Thomas L. Hansberger Chairman, CEO, Director, Mutual Fund
President, Director Schroder Korea
and Treasurer Fund PLC
33 Gutter Lane
London,
EC2B-A124 8AS
Director, Mutual Fund
The Bangkok Fund
Bangkok, Thailand
Advisory Board Mutual Fund
Member, The India
Fund
India
Alberto Cribiore Director Director, Privately-owned
WESCO distributor of
Distribution, electrical products
Inc.
Pittsburgh, PA
Director, Privately-owned
Riverwood supplier of
International paperboard
Corp. packaging and
Atlanta, GA producer of coated
unbleached Kraft
paperboard
Member & Chairman Distributor
of the Board, electronically of
McCarthy, financial
Crizanti & information
Maffel, Inc.
One Chase
Manhattan Way
37th Floor
New York, NY
10005
Director, Publicly-owned
Tyco Inter- conglomerate
national Ltd.
Exeter, NH
Member & Managing Private equity
Principal interest firm
Brera Capital
Partners, LLC
590 Madison Avenue
Suite 18C
New York, NY
10022
Max C. Chapman, Jr. Director Management Financial services
Financial
Committee Member,
Tudor/Nomura Group
Trading
Partnership
2 World Financial
Center
Bldg. B
New York, NY
10281-1198
Director, Investment Advisor
McCarthy,
Crisanti & Maffel,
Inc.
One Chase
Manhattan Plaza
New York, NY
10005
Director, Holding Company
MCM Group, Inc.
One Chase
Manhattan Plaza
New York, NY
10005
Chairman, Holding Company
Nomura Holding
America, Inc.
2 World Financial
Center
Bldg. B
New York, NY
10281-1198
Director & Financial Services
Managing Director,
Nomura Securities
Co. LTD
Tokyo, Japan
Chairman & Financial Services
Director,
Nomura Grand
Caymen LTD
Caymen Islands
Chairman & CEO, Financial Services
Nomura American
Foundation
2 World Financial
Center
Bldg. B
New York, NY
10281-1198
Director, Financial Services
Nomura
International PLC
London, England
Chairman, Financial Services
Nomura Asset
Securitization
Corp.
New York, NY
Chairman & Financial Services
Director
Nomura Asset
Capital
Corporation
New York, NY
Chairman, Holding Company
Director & CEO,
NCP Holding
Company
Salah Al-Maousberji Director Director, Paper Manufacturer
Gulf Paper
Kuwait
President, Corporate Finance
Mashora
Consulting
Services
Virgil Cumming Director Chief Investment Brokerage/Advisory
Officer, Smith
Barney Inc.
New York, NY
James Everett Chaney Chief Investment None
Officer
Kimberly Ann Scott Senior Vice None
President and Chief
Compliance Officer
J. Christopher Senior Vice None
Jackson President and
General Counsel
Louretta Ann Reeves Director of None
Research
Francisco Jose Managing Director None
Alzuru
Erik Erwin Bieck Managing Director None
Wesley Edmond Managing Director None
Freeman
Mark Poon Managing Director None
Vladimir Tyurenkov Managing Director None
* Address of all individuals: 515 East Las Olas Blvd., Suite 1300, Fort
Lauderdale, FL 33301.
Item 27. Principal Underwriter
---------------------
(a) B.C. Ziegler & Company ("B.C. Ziegler"), the Registrant's current
principal underwriter, serves as principal underwriter of the shares of the
Principal Preservation Funds, American Tax-Exempt Bond Trust, Series 1 (and
subsequent series); Ziegler U.S. Government Securities Trust, Series 1 (and
subsequent series); American Income Trust, Series 1 (and subsequent series);
Ziegler Money Market Trust; and The Insured American Tax-Exempt Bond Trust,
Series 1 (and subsequent series).
(b) To the best of Registrant's knowledge, the directors and
executive officers of B.C. Ziegler & Company are as follows:
Positions and
Name and Principal Position and Offices Offices with
Business Address with B. C. Ziegler Registrant
- ------------------ -------------------- -------------
Peter D. Ziegler Chairman, President, Chief None
Executive Officer and Director
S. Charles O'Meara Senior Vice President and General None
Counsel, Corporate Secretary and
Director
D. A. Wallestad Senior Vice President - None
Acquisition
Chief Financial Officer and
Director
Donald A. Carlson, Jr. Senior Vice President None
J.C. Wagner Senior Vice None
President -
Retail Sales and Director
Michael P. Doyle Senior Vice President - Retail None
Operations
Ronald N. Spears Senior Vice President None
Jeffrey C. Vredenbregt Vice President, Treasurer, None
Controller and Director
Charles G. Stevens Vice President - Marketing None
Director
Jack H. Downer Vice President - None
MIS Director
Robert J. Tuszynski Senior Vice President None
Gerry Aman Vice President - Insurance None
Sheila K. Hittman Vice President - Personnel None
Robert J. Johnson Vice President - Compliance None
James M. Bushman Vice President - Recruiting and None
Training Coordinator
Lay C. Rosenheimer Vice President - Bond None
Sales Control
Darrell P. Frank Vice President - Director of None
Strategic Change
M.L. McBain Vice President - None
Equity Securities
James L. Brendemuehl Vice President - Managed Products None
Ronald C. Strzok Senior Vice President - None
Administration
Roxanne Dalnodar Vice President - Operations None
Kathleen A. Lochen Assistant Secretary None
The address of each of the foregoing is 215 North Main Street, West
Bend, Wisconsin 53095, (414) 334-5521.
(c) None.
Item 28. Location of Accounts and Records
--------------------------------
(1) Firstar Mutual Fund Services LLC, 615 E. Michigan Street, Milwaukee,
WI 53202 (records relating to its function as custodian, transfer agent, fund
accounting servicing agent, shareholder servicing agent and co-administrator).
(2) Firstar Investment Research and Management Company, Firstar Center,
777 E. Wisconsin Avenue, Suite 800, Milwaukee, WI 53202 (records relating to its
function as investment adviser).
(3) Hansberger Global Investors, Inc., 515 East Las Olas Blvd., Suite
1300, Fort Lauderdale, FL 33301 (records relating to its function as sub-
investment adviser for the International Equity Fund).
(4) B.C. Ziegler & Company, 215 North Main Street, West Bend, Wisconsin
53095-3348 (records relating to its functions as distributor and co-
administrator).
(5) Drinker Biddle & Reath LLP, Philadelphia National Bank Building, 1345
Chestnut Street, Philadelphia, Pennsylvania 19107 (Registrant's Articles of
Incorporation, By-laws and Minute Books).
(6) The Chase Manhattan Bank, 4 Chase Metro Tech Center, Brooklyn, NY
11245, ATTN: Global Investor Services, Investment Management Group (records
relating to its function as foreign subcustodian).
Item 29. Management Services
-------------------
None.
Item 30. Undertakings
------------
None.
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Post-
Effective Amendment No. 35 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Philadelphia, and Commonwealth of Pennsylvania, on 22nd day of December, 1998.
FIRSTAR FUNDS, INC.
Registrant
By /s/ Mary Ellen Stanek*
---------------------
Director, President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 35 to the Registration Statement of the Registrant has
been signed by the following persons in the capacities and on the dates
indicated:
Signature Title Date
--------- ----- ----
*James M. Wade Chairman and December 22, 1998
- ------------------ Director
(James M. Wade)
*Richard Riederer Director December 22, 1998
- ------------------
(Richard Riederer)
/s/Mary Ellen Stanek Director, President December 22, 1998
- ------------------ Treasurer
(Mary Ellen Stanek)
*Jerry Remmel Director December 22, 1998
- ------------------
(Jerry Remmel)
*Glen R. Bomberger Director December 22, 1998
- ------------------
(Glen R. Bomberger)
*Charles R. Roy Director December 22, 1998
- ------------------
(Charles R. Roy)
*Bronson J. Haase Director December 22, 1998
- ------------------
(Bronson J. Hasse)
*By /s/Mary Ellen Stanek December 22, 1998
--------------------
Mary Ellen Stanek
Attorney-in-fact
xxxxx
POWER OF ATTORNEY
------------------
Glen R. Bomberger, whose signature appears below, does hereby
constitute and appoint James M. Wade, Mary Ellen Stanek and W. Bruce McConnel,
III, and each and any of them, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorneys and agents, or each and
any of them, may deem necessary or advisable or which may be required to enable
Firstar Funds, Inc. (the "Company") to comply with the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended (the "Acts"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the filing and effectiveness of the
Company's Registration Statement under the said Acts, and any and all amendments
(including post-effective amendments) thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director and/or officer
of the Company said Registration Statement and any and all such amendments
thereto that are filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or each and any of them, shall do or cause to be done by virtue hereof.
Date: December 18, 1998 /s/Glen R. Bomberger
--------------------
Glen R. Bomberger
POWER OF ATTORNEY
------------------
James M. Wade, whose signature appears below, does hereby constitute
and appoint each of Mary Ellen Stanek and W. Bruce McConnel, III, and either of
them, his true and lawful attorneys and agents, with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable Firstar Funds, Inc.
(the "Company") to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended (the "Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of the Company's
Registration Statement under the said Acts, and any and all amendments
(including post-effective amendments) thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director and/or officer
of the Company said Registration Statement and any and all such amendments
thereto that are filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
Date: December 18, 1998 /s/James M. Wade
------------------
James M. Wade
POWER OF ATTORNEY
------------------
Richard K. Riederer, whose signature appears below, does hereby
constitute and appoint each of James M. Wade, Mary Ellen Stanek and W. Bruce
McConnel, III, and each and any of them, his true and lawful attorneys and
agents, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorneys and agents,
or each and any of them, may deem necessary or advisable or which may be
required to enable Firstar Funds, Inc. (the "Company") to comply with the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended (the "Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Company's Registration Statement under the said
Acts, and any and all amendments (including post-effective amendments) thereto,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a director and/or officer of the Company said Registration Statement and any and
all such amendments thereto that are filed with the Securities and Exchange
Commission under said Acts, and any other instruments or documents related
thereto, and the undersigned does hereby ratify and confirm all that said
attorneys and agents, or each and any of them, shall do or cause to be done by
virtue hereof.
Date: December 18, 1998 /s/Richard K. Riederer
----------------------
Richard K. Riederer
POWER OF ATTORNEY
------------------
Jerry Remmel, whose signature appears below, does hereby constitute
and appoint each of James M. Wade, Mary Ellen Stanek and W. Bruce McConnel, III,
and each and any of them, his true and lawful attorneys and agents, with power
of substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, or each and any
of them, may deem necessary or advisable or which may be required to enable
Firstar Funds, Inc. (the "Company") to comply with the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended (the "Acts"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the filing and effectiveness of the
Company's Registration Statement under the said Acts, and any and all amendments
(including post-effective amendments) thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director and/or officer
of the Company said Registration Statement and any and all such amendments
thereto that are filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or each and any of them, shall do or cause to be done by virtue hereof.
Date: December 18, 1998 /s/Jerry Remmel
------------------
Jerry Remmel
POWER OF ATTORNEY
------------------
Charles R. Roy, whose signature appears below, does hereby constitute
and appoint each of James M. Wade, Mary Ellen Stanek and W. Bruce McConnel, III,
and each and any of them, his true and lawful attorneys and agents, with power
of substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, or each and any
of them, may deem necessary or advisable or which may be required to enable
Firstar Funds, Inc. (the "Company") to comply with the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended (the "Acts"), and
any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the filing and effectiveness of the
Company's Registration Statement under the said Acts, and any and all amendments
(including post-effective amendments) thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director and/or officer
of the Company said Registration Statement and any and all such amendments
thereto that are filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or each and any of them, shall do or cause to be done by virtue hereof.
Date: December 18, 1998 /s/Charles R. Roy
------------------
Charles R. Roy
POWER OF ATTORNEY
------------------
Bronson J. Haase, whose signature appears below, does hereby
constitute and appoint each of James M. Wade, Mary Ellen Stanek and W. Bruce
McConnel, III, and each and any of them, his true and lawful attorneys and
agents, with power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments which said attorneys and
agents, or each and any of them, may deem necessary or advisable or which may
be required to enable Firstar Funds, Inc. (the "Company") to comply with the
Investment Company Act of 1940, as amended, and the Securities Act of 1933,
as amended (the "Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Company's Registration Statement under the said
Acts, and any and all amendments (including post-effective amendments) thereto,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a director and/or officer of the Company said Registration Statement and any and
all such amendments thereto that are filed with the Securities and Exchange
Commission under said Acts, and any other instruments or documents related
thereto, and the undersigned does hereby ratify and confirm all that said
attorneys and agents, or each and any one of them, shall do or cause to be done
by virtue hereof.
Date: December 18, 1998 /s/Bronson J. Haase
---------------------
Bronson J. Haase
POWER OF ATTORNEY
------------------
Mary Ellen Stanek, whose signature appears below, does hereby
constitute and appoint each of James M. Wade and W. Bruce McConnel, III, and
either of them, her true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable Firstar Funds,
Inc. (the "Company") to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended (the "Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of the Company's
Registration Statement under the said Acts, and any and all amendments
(including post-effective amendments) thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director and/or officer
of the Company said Registration Statement and any and all such amendments
thereto that are filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
Date: December 18, 1998 /s/ Mary Ellen Stanek
---------------------
Mary Ellen Stanek
xxxxx
FIRSTAR FUNDS, INC.
CERTIFICATE OF SECRETARY
The following resolution was duly adopted by the Board of Directors of
Firstar Funds, Inc. on December 18, 1998 and remains in effect on the
-----------
date hereof:
FURTHER RESOLVED, that the directors and officers of the Company who
may be required to execute any amendments to the Registration Statement of the
Company be, and each of them hereby is, authorized to execute a Power of
Attorney appointing James M. Wade, Mary Ellen Stanek and W. Bruce McConnel, III,
and each and any of them, their true and lawful attorney or attorneys, to
execute in their name, place and stead, in their capacity as director or
officer, or both, of the Company any and all amendments to said Registration
Statement, and all instruments necessary or incidental in connection therewith,
and to file the same with the Securities and Exchange Commission; and each and
any of said attorneys shall have the power to act thereunder with or without the
other said attorney and shall have full power of substitution and
resubstitution; and each and any of said attorneys shall have full power and
authority to do in the name and on behalf of said directors and officers, or
any or all of them, in any and all capacities, every act whatsoever requisite
or necessary to be done in the premises, as fully and to all intents and
purposes as each of said directors or officers, or any or all of them, might
or could do in person, said acts of said attorneys, or each and any of them,
being hereby ratified and approved.
FIRSTAR FUNDS, INC.
By: /s/W. Bruce McConnel, III
---------------------------
W. Bruce McConnel, III
Secretary
Dated: December 22, 1998
------------------
xxxxx
EXHIBIT INDEX
Exhibit No. Item
- ----------- ----
(h) (35) Internet Access Agreement with Firstar Trust
Company, dated April 1998.
(h) (36) Order Processing Agreement with M and I Trust Co,
dated April 1, 1998.
(h) (37) Service Agreement with Jack White and Company,
dated May 12, 1998.
(h) (38) Service Agreement with National Investors Services
Corp., dated June 1998.
(j) (1) Consent of Drinker Biddle & Reath LLP
EXHIBIT NO. (h) (35)
INTERNET ACCESS AGREEMENT
This Internet Access Agreement is among Firstar Trust Company ("FTC"), Firstar
Funds, Inc. ("Customer"), and Firstar Investment Research & Management Company,
LLC ("Customers Adviser") and is entered into this _______ day of April, 1998.
RECITAL
--------
Customer desires to purchase from FTC, and FTC wishes to sell to customer, those
electronic interactive transaction processing services described on Schedule I
attached hereto (collectively, the "Services") that Customer my select, from
time to time, for use by its shareholders ("End Users'") to make inquiries and
perform transactions to their account(s) with the mutual funds listed on Exhibit
A hereto and such other funds as Customer and FTC shall mutually agree from time
to time (each a "Fund").
AGREEMENT
---------
1. TERM; RENEWAL; TERMINATION
---------------------------
1.1 The initial term of this Agreement shall be for a period commencing on the
date that the Services are first provided and ending one year from that
date.
1.2 This Agreement shall automatically renew for subsequent periods of one (1)
year each unless either party shall elect not to renew the Agreement by
providing written notice of nonrenewal to the other party at least ninety
(90) days prior to the expiration of any term.
1.3 Customer may terminate this Agreement at any time (a) upon providing ninety
(90) days prior written notice of termination to FTC or (b) immediately by
written notice to FTC in the event that (i) FTC is no longer serving as the
Customer's transfer agent, (ii) Customer determines that amendments to
procedures provided to it under Section 3.5 are unacceptable to Customer or
(iii) Customer determines to terminate this Agreement as permitted under
Section 7.2. Termination of this Agreement prior to the expiration of any
term not entitle Customer to a rebate of any Annual Maintenance Fee
previously paid unless termination is pursuant to this section 1.3(b).
2. CHARGES
-------
Customer agrees to pay the fees and other charges set forth on Schedule 2
attached hereto.
3. RESPONSIBILITIES OF FTC
------------------------
3.1 FTC will use its best reasonable efforts to cause the Services to be
available 24 hours a day, 7 days a week, subject to scheduled maintenance
and downtime. FTC will use its best efforts to not schedule routine
maintenance during the hours of 8:00 a.m. to 3:00 p.m. Central Time.
3.2 FTC will issue to each End User who desires to use the Services a unique
personal identification number (PIN) for authentication purposes, which may
be changed upon End User's reasonable request in accordance with policies
to be determined by FTC and Customer. FTC will require an End User to
provide his/her PIN in order to access the Services.
3.3 FTC will provide the End User with a transaction confirmation number for
each completed purchase, redemption, or exchange of mutual fund shares.
3.4 FTC will utilize encryption and secure transport protocols intended to
prevent fraud and ensure confidentiality of End User accounts and
transactions. In no event shall FTC use encryption weaker than 40-bit RC4
Stream. FTC will take reasonable actions to protect the Internet website
which provides the Services and its related network against viruses, worms
and other data corruption or disabling devices, and unauthorized,
fraudulent or illegal use by using appropriate virus detection and
destructive software and by adopting such other security procedures as may
be necessary.
3.5 FTC will establish and provide to Customer written procedures, which may be
amended from time to time by FTC with the written consent of Customer,
regarding End User access to the Services. The current procedures are
attached to this Agreement. Such written procedures shall establish
security standards for the Services, including, without limitation:
(a) Encryption/secure transport protocols.
(b) End User lockout standards (e.g., lockout after three
unsuccessful attempts to gain access to the Services).
(c) PIN issuance and reissuance standards.
(d) Access standards, including limits on access to End Users whose
accounts are coded for privilege.
(e) Automatic logoff standards (e.g., if the session is inactive for
longer than 15 minutes).
3.6 FTC will provide Customer and Customer's Adviser with daily reports of
transactions listing all purchases or transfers made by each End User
separately. FTC shall also furnish Customer and Customer's Adviser with
monthly reports summarizing activity without listing all transactions.
3.7 FTC will annually engage a third party to audit its internal controls for
the services and will provide Customer and Customer's Adviser with a copy
of the auditor's report promptly.
3.8 FTC WARRANTS AND REPRESENTS THAT IT WILL PERFORM THE SERVICES AS DESCRIBED
IN SCHEDULE I AND/OR ANY OTHER DOCUMENTATION PROVIDED TO CUSTOMER BY FTC.
EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, THE SERVICES ARE PROVIDED
BY FTC "AS IS" WITHOUT WARRANTY OF ANY KIND AND FTC EXPRESSLY DISCLAIMS ALL
WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES INCLUDING,
WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. FTC WILL PROMPTLY NOTIFY CUSTOMER OF ANY PROBLEMS OR
ERRORS WITH THE SERVICES OF WHICH FTC BECOMES AWARE.
4. RESPONSIBILITIES OF CUSTOMER
----------------------------
Customer assumes exclusive responsibility for the consequences of any
instructions it may give to FTC, for Customer's or its End User's failure
to properly access the Services in the manner prescribed by FTC, and for
Customer's failure to supply accurate information to FTC.
5. RESPONSIBILITIES OF CUSTOMER'S ADVISER
--------------------------------------
5.1 Customer's Adviser shall be responsible to maintain one or more web sites
through which End Users may access the Services. Customer's Adviser shall
provide FTC with the name of the host of Customer's web site server and
shall notify FTC of any change to Customer's web site server host.
5.2 Customer's Adviser shall provide FTC with such information and/or access to
each Fund's web site(s) as is necessary for FTC to provide the Services to
End Users.
5.3 Customer's Adviser shall promptly notify Customer and FTC of any problems
or errors with the Services reported by End Users.
6. FILE SECURITY AND RETENTION; CONFIDENTIALITY
---------------------------------------------
6.1 FTC and its agents will provide reasonable security provisions to ensure
that third parties do not have access to Customer's data bases, files, and
other information provided by Customer to FTC for use with the Services, or
to End User transaction or account data (collectively "Customer Files").
FTC's security provisions for Customer and Customer's End Users will be no
less protective than FTC's security provisions with respect to its own
proprietary information. FTC agrees that any and all Customer Files
maintained by FTC for Customer pursuant to this Agreement shall be
available for inspection by Customer's regulatory authorities during
regular business hours, upon reasonable prior written notice to FTC and
will be maintained and retained in accordance with applicable requirements
of the Investment Company Act of 1940. Except in the normal course of
business and in conformity with Federal copyright law or with Customer's
consent, FTC shall not copy, decompile or reverse engineer any software
provided to FTC by Customer. FTC will take such actions as are necessary
to protect the intellectual property contained within the Customer's
website or any software, written materials, or pictorial materials
describing or creating the Customer's website, including all interface
designs or specifications. The Customer grants FTC a non-exclusive license
for the duration of this Agreement to copy the appearance of the Customer's
website interface for the limited purpose of emulating the look and feel of
that website. Such emulation is solely for the purpose of ensuring
seamless integration between the Customer's website and the website on
which the Services will be provided. FTC will take such actions as are
necessary to protect all rights to the source code and interface of
Customer's website.
6.2 FTC agrees, in accordance with its own policies used to protect its own
information of similar confidentiality, to use its best reasonable efforts
to refrain from and prevent the use or disclosure of any confidential
information of the Customer, except when such use or disclosure is for the
purpose of providing the Services. Without limiting the foregoing, FTC
will not use, or permit the use of, names of End Users for the purpose of
soliciting any business, product, or service whatsoever except where the
communication is necessary and appropriate for FTC's delivery of the
Services.
FTC shall treat as confidential and not disclose or otherwise make
available any of the customer lists, customer information, trade secrets,
processes, proprietary data, information or documentation of Customer
(collectively the "confidential Information"), in any form, to any person
other than agents, employees or consultants of FTC. FTC will instruct its
agents, employees and consultants who have access to the Confidential
Information to keep such information confidential by using the same care
and discretion that FTC uses with respect to its own confidential property
and trade secrets. Upon the termination of this Agreement for any reason
and upon Customer's request, FTC shall return to Customer, or destroy and
certify to Customer that it has destroyed, any and all copies of
Confidential Information which are in its possession.
FTC will not have an obligation of confidentiality under this Paragraph 6.2
with regard to information that (1) was known to it prior to disclosure
under this Agreement, (2) is or becomes publicly available other than as a
result of a breach of this Agreement, (3) is disclosed to it by a third
party not subject to a duty of confidentiality or (4) is required to be
disclosed under law or by order of court or governmental agency.
7. LIMITED LIABILITY; INDEMNIFICATION
----------------------------------
7.1 Subject to Section 3.1, FTC cannot and does not guarantee availability of
the Services. Accordingly, FTC's sole liability to Customer or any third
party (including End Users) for any claims, notwithstanding the form of
such claims (e.g., contract, negligence, or otherwise), arising out of the
delay of or interruption in the Services provided or to be provided by FTC
hereunder shall be to use its best reasonable efforts to commence or resume
the Services as promptly as is reasonably possible.
7.2 FTC shall, at its sole cost and expense, defend, indemnify, and hold
harmless Customer, its affiliates, their respective assigns, and their
respective officers, directors, employees, agents, and servants, from and
against any and all claims, actions, suits, proceedings, costs, expenses,
damages and liabilities, including without limitation, reasonable
attorneys' fees and expenses arising out of or relating to (a) any
infringement, or claim of infringement, of any United States patent,
trademark, copyright, trade secret, or other proprietary rights based on
the use or potential use of the Services, (b) FTC's negligence, intentional
wrongful acts and willful misconduct in the performance of its services
hereunder, and (c) the provision of confidential information of any End
User to a person other than a person who has provided proper identification
for such End User as specified in Section 3.2. This indemnity shall
continue in full force and effect, notwithstanding the termination of this
Agreement.
If an injunction shall be obtained against Customer's use of the Services
by reasons of infringement of a patent, copyright, trademark, or other
proprietary rights of a third party, FTC shall, at its own option and
expense, either (i) procure for Customer the right to continue to use the
Services on substantially the same terms and conditions as specified in
this Agreement, or (ii) after notification to Customer, replace or modify
the Services so that they become noninfringing, provided that, in
Customer's sole judgment, such replacement or modifications does not
materially and adversely affect the performance of the Services or
significantly lessen their utility to Customer. If in Customer's sole
judgment, such replacement or modification does materially adversely affect
the performance of the Services or significantly lessen their utility to
Customer, Customer may terminate this Agreement immediately on notice to
FTC.
7.3 Each party hereto shall be excused from performance hereunder for any
period and to the extent that it is prevented from performing any services
pursuant hereto, in whole or in part, as a result of unforeseen events
beyond the control and without fault or negligence of the party including,
without limitation, delays caused by the other party or an act of God, war,
civil disturbance, court order, labor dispute or third party
nonperformance, and such nonperformance shall not be a default hereunder or
grounds for termination hereof so long as the nonperforming party shall
undertake all reasonable efforts to rectify the situation that is the cause
of the nonperformance.
7.4 FTC shall not be responsible for the accuracy of input material nor the
resultant output derived from inaccurate input. The accuracy of input and
output shall be judged as received at FTC's data center as determined by
the records maintained by FTC.
7.5 IN NO EVENT WILL EITHER PARTY BE RESPONSIBLE FOR SPECIAL, INCIDENTAL,
INDIRECT, OR CONSEQUENTIAL DAMAGES WHICH THE OTHER PARTY MAY INCUR OR
EXPERIENCE ON ACCOUNT OF ENTERING INTO, RELYING ON, OR PERFORMING THIS
AGREEMENT, REGARDLESS OF WHETHER THE DAMAGES ARE FOUNDED IN CONTRACT,
NEGLIGENCE, OR OTHER FORM OF ACTION, EVEN IF SUCH PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, NEITHER PARTY SHALL BE LIABLE FOR LOST PROFITS, LOST BUSINESS,
OR LOST GOODWILL OF THE OTHER PARTY.
8. NOTICES
-------
All notices hereunder shall be in writing and shall be sent, if to FTC, to
615 E. Michigan Street, Milwaukee, WI 53202; if to Customer, to Firstar
Funds, Lewis Center 1 W, 615 E. Michigan Street, Milwaukee, WI 53202, and
if to Customer's Adviser, to Firstar Investment Research and Management
Company, LLC, 777 E. Wisconsin Avenue, Milwaukee, WI 53202
9. MISCELLANEOUS
-------------
This Agreement shall be governed and construed according to the internal
laws of the State of Wisconsin, excluding conflicts of law rules. This
Agreement may not be assigned by either party without the prior written
consent of the other party. No waiver of any right or obligation hereunder
shall be effective unless in writing and signed by the waiving party. If
any provision of this Agreement (or any portion thereof) shall be held to
be invalid, illegal, or unenforceable, the validity, enforceability, or
legality of the remainder of the Agreement shall not in any way be affected
or impaired thereby.
FIRSTAR TRUST COMPANY FIRSTAR FUNDS, INC.
By: /s/ Joseph D. Redwine By: /s/ Mary Ellen Stanek
- -------------------------------- --------------------------------
Title: Senior Vice President Title: Vice President
- -------------------------------- --------------------------------
AGREED to the provisions in paragraph 5.
FIRSTAR INVESTMENT RESEARCH &
MANAGEMENT COMPANY, LLC
By: /s/ J. Scott Harkness
- --------------------------------
Title: Chairman
- --------------------------------
EXHIBIT NO. (H) (36)
DAILY VALUATION
SERVICE AGREEMENT
This Agreement is entered into as of April 1, 1998 among Marshall & Ilsley
Trust Company ("Service Provider"), a registered transfer agent, Firstar Funds,
Inc., an open-end investment management company (the "Company"), and Firstar
Trust Company, transfer agent and co-administrator for the Company ("Transfer
Agent/Co-Administrator").
Service Provider provides certain administrative services comprised of, but
not limited to, recordkeeping, reporting and processing services (the
"Administrative Services") to the qualified employee benefit plan or plans
identified on Schedule A attached hereto (the "Plan(s)"). Administrative
Services for the Plan(s) include processing and transfer arrangements for the
investment and reinvestment of Plan assets in investments specified by an
investment adviser, sponsor, or administrative committee of the Plan(s) (a "Plan
Representative") generally upon the direction of Plan beneficiaries (the
"Participants"). The Administrative Services are provided by Service Provider
under service agreements with the Plan(s).
The Company includes the portfolios identified on Schedule A attached
hereto (collectively, the "Funds" and individually, a "Fund"). The Company is
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended (the "Company Act").
The Transfer Agent/Co-Administrator services as transfer agent and co-
administrator to each of the Funds.
The Service Provider and the Company desire to facilitate the purchase and
redemption of shares of the Funds (the "Shares") on behalf of the Plan(s) and
Participants through one or more accounts in the Funds (individually an
"Account," and collectively the "Accounts) subject to the terms and conditions
of this Agreement.
Accordingly, the parties hereto agree as follows:
1. Procedures. The operating procedures (the "Procedures")
governing the responsibilities of the parties under this
Agreement are set forth in Schedule B, which is attached hereto
and specifically made a part of this Agreement. The Procedures
shall be consistent with the terms of each Fund's prospectus, the
requirements of the Company Act and the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and all other
applicable laws and regulations.
2. Pricing Information. Transfer Agent/Co-Administrator, or its
designee, will furnish Service Provider, via fax, on each day
that the New York Stock Exchange or the Funds are open for
business ("Business Day"), with (a) per share net asset value
information as of the close of trading (currently 4:00 p.m.
Eastern Time) on the New York Stock Exchange, or as of such
earlier times at which the Funds' net asset values are calculated
as specified in the Funds' then current prospectuses ("Close of
Trading"), and (b) per share dividend and capital gains
information respecting the Funds as it becomes available.
Transfer Agent/Co-Administrator shall provide such information to
Service Provider by 5:30 p.m. Central time on the same Business
Day.
3. Maintenance of Records.
(a) Each party shall maintain and preserve all records it is
required by law to maintain and preserve in connection with
the matters contemplated by this Agreement.
(b) Subject to any applicable confidentiality obligations, each
party hereby agrees to make available copies of all records
such party is required to maintain hereunder that are
reasonably requested by any other party to ensure compliance
with applicable law. Such copies shall be furnished at the
expense of the requesting party.
4. Compliance with Laws. At all times during the term of this
Agreement, each party shall comply with all applicable laws,
rules and regulations.
5. Operation of the Funds. In no way shall the provisions of this
Agreement limit the authority of the Company or the Funds to take
such lawful action as they may deem appropriate or advisable in
connection with all matters relating to the operation of the
Funds and the sale of their shares.
6. Representations with respect to the Funds. Service Provider and
its agents shall not make representations concerning the Company
or its shares except in strict accordance with the information
contained in: (A) a Fund's then current prospectus; and (b)
current sales literature respecting a Fund furnished by the
Company or the Transfer Agent/Co-Administrator; or (c) written
information approved in advance by the Company.
7. Expenses.
(a) Except as otherwise provided in this Agreement, each party
shall bear all expenses incidental to the performance of its
obligations under this Agreement.
(b) Transfer Agent/Co-Administrator shall distribute, or cause
to be distributed, to Service Provider Fund prospectuses,
any Fund proxy solicitation materials, periodic reports to
Fund shareholders, and other materials that the Company may
be required by law to distribute to Plan(s) as shareholders
of the Funds.
8. Relationship of Parties. Except to the limited extent provided
in Paragraph 2(c) of the Procedures, it is understood and agreed
that all services performed hereunder by Service Provider shall
be as an independent contractor and not as an employee or agent
of the Company.
9. Use of the Company's Name. Except as otherwise expressly
provided herein, Service Provider shall not use, nor shall it
allow its employees or agents to use, the name or logo of the
Company for advertising, trade, or other commercial or
noncommercial purposes without the express prior written consent
of the Company.
10. Insurance and Bonding. Each of the parties shall maintain
fidelity bond coverage for its employees and authorized agents in
such amount as may be required by applicable law.
11. Termination. This Agreement may be terminated by any party at
any time upon at least sixty (60) days' prior written notice to
the other parties. Notwithstanding the foregoing, any party may
terminate this Agreement immediately upon written notice to such
party of the institution of formal proceedings against any other
party with respect to the arrangements documented herein by the
Securities and Exchange Commission or any other regulatory body.
12. Indemnification.
(a) Service Provider agrees to indemnify and hold harmless
Transfer Agent/Co-Administrator, the Company, the Company's
administrators, and each of their respective affiliates,
directors, trustees, officers, employees, agents, and each
person, if any, who controls them within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"),
against any losses, claims, damages, settlements,
liabilities, or expenses (including, without limitation,
reasonable attorneys' fees and expenses whether or not
involving a thirty party) (collectively, "Claims") to the
extent any such Claim arises out of or is based upon (i) the
provision of Administrative Services by Service Provider;
(ii) Service Provider's negligence, bad faith, or willful
misconduct in performing its obligations hereunder; (iii)
any breach by Service Provider of any material provision of
this Agreement; or (iv) any breach by Service Provider of a
representation, warranty, or covenant made in this
Agreement; and Service Provider shall reimburse the persons
indemnified hereunder for any legal or other expenses
reasonably incurred, as incurred, by them in connection with
investigating or defending such Claim. This indemnity shall
continue in full force and effect, notwithstanding the
termination of this Agreement.
(b) Transfer Agent/Co-Administrator agrees to indemnify and hold
harmless Service Provider and each of its respective
affiliates, directors, officers, employees, agents, and each
person, if any, who controls them within the meaning of the
Securities Act against any Claims to the extent any such
Claim arises out of or is based upon (i) any breach by
Transfer Agent/Co-Administrator of any material provision of
this Agreement; (ii) Transfer Agent/Co-Administrator's
negligence, bad faith, or willful misconduct in carrying out
its duties and responsibilities under this Agreement; or
(iii) any breach by Transfer Agent/Co-Administrator of a
representation, warranty, or covenant made in this
Agreement; and Transfer Agent/Co-Administrator shall
reimburse the persons indemnified hereunder for any legal or
other expenses reasonably incurred, as incurred, by them in
connection with investigating or defending such Claim. This
indemnity shall continue in full force and effect,
notwithstanding the termination of this Agreement.
(c) Upon the assertion of a Claim for which a party may be
required to indemnify another party, the party seeking
indemnification ("Indemnitee") shall promptly notify the
indemnifying party ("Indemnitor") in writing of such
assertion and of any relevant facts or background known by
Indemnitee with respect to such Claim. Indemnitor shall
elect whether to participate with Indemnitee in the defense
of such Claim or to defend against such Claim in the name of
Indemnitees or in the name of Indemnitors. If Indemnitor
elects to defend and control the course of any defense,
Indemnitee shall cooperate with Indemnitor in connection
with such defense. If Indemnitor elects not to control the
defense, Indemnitee shall have the right to select counsel
of its choice and participate in such defense. In any
event, Indemnitor shall not be responsible for any Claim
settled or compromised, or for any confessions of judgment,
without its prior written consent.
13. Notice. Each notice required by this Agreement shall be given in
writing and delivered personally or mailed by certified mail or
overnight courier service to the other party at the following
address or such other addresses as each party may give notice to
the other:
If to Service Provider, to:
Marshall & Ilsley Trust Company
1000 North Water Street
Milwaukee, WI 53202
Attn: Legal Department
If to the Company, to:
Firstar Funds, Inc.
615 E. Michigan Street
Milwaukee WI 53202
Attn: Investor Service Manager
If to Transfer Agent/Co-Administrator, to:
Firstar Trust Company
P.O. Box 701
Milwaukee, WI 53201
Attn: Andrea McVoy
A notice given pursuant to this Section 13 shall be deemed given
immediately when delivered personally, three (3) business days
after the date of certified mailing, and one (1) business day
after delivery by overnight courier service.
14. Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Wisconsin
applicable to agreements fully executed and to be performed
therein.
15. Additional Representations, Warranties, and Covenants. Each
party represents, warrants, and covenants that it has full power
and authority under applicable law, and has taken all action
necessary, to enter into and perform this Agreement, and that it
is free to enter into this Agreement, and that by doing so it
will not breach or otherwise impair any other agreement or
understanding with any person, corporation, or other entity.
16. Complete Agreement. This Agreement contains the full and
complete understanding of the parties and supersedes all prior
representations, promises, statements, arrangements, agreements,
warranties, and understandings between the parties with respect
to the subject matter hereof, whether oral or written, express or
implied.
17. Modification. This Agreement may be modified or amended, and the
terms of this Agreement may be waived, only by a writing signed
by each of the parties.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same Agreement.
19. Assignment. This Agreement shall not be assigned by a party,
without the prior written consent of the other parties, except
that a party may assign this Agreement to an affiliate having the
same ultimate ownership and regulatory licenses or qualifications
as the assigning party without such prior consent, buy only upon
at least 10 days' prior written notice to the other parties.
20. Non-exclusivity. Each of the parties acknowledges and agrees
that this Agreement and the arrangement described herein are
intended to be non-exclusive and that each of the parties is free
to enter into similar agreements and arrangements with other
entities.
MARSHALL & ILSLEY TRUST COMPANY
By: /s/ illegible
----------------------------------------------------
Title: Vice President
-------------------------------------------------
By: /s/ Tracy L. Straub
----------------------------------------------------
Title: Trust Officer
-------------------------------------------------
FIRSTAR FUNDS, INC.
By: /s/ Mary Ellen Stanek
----------------------------------------------------
Title: Vice President
-------------------------------------------------
FIRSTAR TRUST COMPANY
By: /s/ Andrea McVoy
----------------------------------------------
Title: Assistant Vice President
--------------------------------------------
SCHEDULE A
EMPLOYEE BENEFIT PLAN
- ---------------------
A. O. Smith Corporation
FIRSTAR FUND(S)
- ---------------
Firstar Growth and Income Fund Institutional
CUSIP 337938781
Ticker FIGCX
SCHEDULE B
DAILY VALUATION REQUIREMENTS
----------------------------
Due to the increase in volume and dollar amounts of daily valuation or defined
contribution trades, it is essential that strict and uniform procedures be in
place for the communication and settlement of trades. Effective immediately the
requirements listed below must be followed to ensure accurate and timely posting
of daily valuation transactions to the appropriate accounts.
SETTLEMENT INSTRUCTIONS:
- ------------------------
. New Wiring Instructions
Wire to: Firstar Bank Milwaukee WI 53202
ABA #075000022
For Credit To: MFS Institutional Acct. # 112-952-305
For Further Credit to (Fund Name; Account #; and Acct Name,
"Daily val trade")
SETTLEMENT REQUIREMENTS:
- ------------------------
. Wires received on or after July 1, 1997, to any other Firstar account for
accounts covered under Schedule A of the Servicing Agreement among Firstar
Funds, Firstar Trust Company and Service Provider will automatically be
rejected.
. Wires must be received by Firstar no later than 12:00 Noon, EST, trade date
plus one.
. Transmit one wire per each Firstar Fund 16 digit account number per day.
. Aggregation of wires for multiple accounts, funds or trades are not
permitted.
TRADING REQUIREMENTS:
- ---------------------
. Trade communication must be received by Firstar no later than 7:30 a.m. CST
T+1 (trade date +1), on each day the Fund is open even if no activity takes
place.
. The plan recordkeeper must notify Firstar a minimum of 24 hours in advance of
the first daily valuation trade that takes place in a new account or in an
existing account that converts to daily valuation.
. The plan recordkeeper must notify Firstar a minimum of 24 hours in advance of
any changes or addition to current accounts covered by daily valuation
servicing agreements.
TRADE REJECTION AND CANCELLATION:
- ---------------------------------
. Beginning July 1, wires not directed to MFS Institutional Acct. #112-952-
305, will automatically be returned to the originating bank.
. Wires received with incomplete fund name/account will be returned to the
originating bank.
. Wires for amounts other than communicated trade amounts will be returned to
the originating bank.
. Wires received for which no trade communication has been received will be
returned to the originating bank.
. Wires received after the 1:00 p.m., EST, cutoff will be subject to shares
being sold, interest penalties, and losses, if any, to the Fund(s), unless
otherwise agreed upon.
To the extent the time frames above differ from those stated in the agreement
among the fund group, the recordkeeper and the transfer agent, those time
frames in such agreement shall control.
FIRSTAR TRUST COMPANY FIRSTAR FUNDS
/s/ Andrea McVoy /s/ Mary Ellen Stanek
- -------------------- --------------------
Received and Acknowledged by:
MARSHAL & ILSLEY TRUST COMPANY
By: /s/ illegible
----------------------------------------------------------------------------
Title: Vice President
-------------------------------------------------------------------------
By: /s/ Tracey Straub
----------------------------------------------------------------------------
Title: EB Trust Officer
-------------------------------------------------------------------------
Exhibit No. (h) (37)
Jack White
& Company
California's First Discount Broker. Since 1973
SERVICE AGREEMENT
NOFEE NETWORK MUTUAL FUND SERVICE
Firstar Funds, Inc. ("Funds"), Firstar Investment Research & Management Company,
LLC ("FIRMCO") and Jack White & Company hereby agree as follows:
1.
Funds of certain services described herein as part of its NoFee Network (No
Transaction Fee) Service. In consideration of such services, FIRMCO agrees
to pay Jack White & Company a service fee as set forth herein. Jack White &
Company agrees to waive its usual transaction fees, subject to exceptions in
paragraph 5 herein, for transactions of shares of the mutual funds related to
this Agreement.
2. SERVICES. Jack White & Company agrees to perform or arrange for the
performance of the following Services and such other services as FIRMCO or Funds
may reasonably request.
Process all purchase, redemption and exchange orders by customers;
transmit or arrange for the transmission to each Fund purchase or
redemption orders reflecting purchase, redemption and exchange orders
Jack White
& Company
received by it with respect to subaccounts. Jack White & Company may
process orders directly, or through a clearing agent, or through
NSCC's FundServ facility, or through other agencies or systems
accepted by Funds.
Record Maintenance
-------------------
Jack White & Company shall:
Fund in an account with Jack White & Company, which records shall
include: number of shares; date and price of purchases and redemptions
(including dividend reinvestments) and dates and amounts of dividends
paid for at least the current year to date; name and address of such
customers; records of distributions and dividend payments; any
transfers of shares; and overall control records.
Local (619) 587-2000 Toll Free 1-800-233-3411
La Jolla Gateway Building, Suite 220 9191 Towne Center Drive,
Jack White
& Company
Shareholder Communications
Mail Fund prospectuses and statements of additional information
("SAIs") upon customer request and, as applicable, upon confirmation
of customer purchases to the extent required by law and mail any
supplements to prospectuses and SAIs.
Produce and mail to customer's confirmation statements reflecting
purchases and redemptions of shares of each Fund in a customer's
account.
Produce and mail statements to customers on a monthly basis (or, as to
accounts in which there has been no activity in a particular month, no
less frequently than quarterly) showing, among other things, the
number of shares of each Fund owned by such customers and the net
asset values of such shares as of a recent date.
Respond to customer inquiries regarding, among other things, share
prices, account balances, dividend amounts and dividend payment dates.
-------------------------------------
Jack White & Company will arrange for the preparation of and filing
with the appropriate governmental agencies such information returns
and reports as are required to be so filed for reporting (i) dividends
and other distributions made, (ii) amounts withheld on dividends and
other distributions and payments under applicable federal and state
Jack White
& Company
laws, rules and regulations, and (iii) gross proceeds of sales
transactions as required.
Jack White & Company will withhold on dividends and distributions as
may be required by state or federal authorities from time to time.
Jack White & Company represents and warrants that it has and will continue
at all times to have the necessary facilities, equipment and personnel to
perform the services hereunder in a businesslike and competent manner and its
system complies with all applicable laws, rules and regulations related to the
services to be provided under this Agreement, including the maintenance and
preservation of all records and registrations required by any applicable laws,
rules and regulations.
Jack White & Company will make adequate disclosure to its customers to
ensure that the customers of Jack White & Company are aware that they are
transacting business with Jack White & Company and not FIRMCO or Funds. Jack
White & Company shall maintain all historical shareholder records, consistent
with requirements of all applicable laws, rules and regulations.
Jack White & Company shall not make any statement or representation
concerning a Fund that is not contained in the Fund's registration statement,
annual report or proxy statement or any advertising or promotional material
generated by or on behalf of any Fund.
Jack White & Company will not make any offer or sale of Fund shares (a) in
any state or jurisdiction in which such shares are not qualified for sale or
exempt from the requirements of the relevant securities laws at any time after
it has been provided with written notice that such Fund is not so qualified or
exempt in such state or jurisdiction, (b) in any state or jurisdiction in which
it is not properly licensed or authorized to make offers or sales, or (c) at any
Jack White
& Company
time after it has been provided with written notice that such Fund is not then
currently offering shares to the public.
3. ROLE OF PARTIES. The parties acknowledge and agree that the Services under
this Agreement are shareholder services only and are not the services of an
underwriter or a principal underwriter within the meaning of the Securities Act
of 1933, as amended, or the Investment Company Act of 1940, as amended. This
Agreement does not constitute Jack White & Company as an agent of Funds for
purposes of selling shares of any Fund to any dealer or to the public. To the
extent Jack White & Company is involved in the purchase of shares of any Fund by
customers, such involvement in these purchases will be as agent of such
customers only.
4. FEES. For performance of Services, Jack White & Company shall receive a Fee
(the "Fee") which will be calculated and paid as provided in the Agreement.
Fees are for shareholder servicing and other administrative services provided by
Jack White & Company and do not constitute payment in any manner for investment
advisory, trustee, or custodial services.
Fund shares purchased through accounts held within Jack White & Company; (ii)
additional Fund shares received through dividends reinvested in the same fund;
and (iii) Fund shares transferred into Jack White & Company accounts from other
brokerage firms, the Fund, its transfer agent, or other service agents.
averaged through the exact number of days in the month to arrive at the average
daily net asset value of outstanding Fund shares held in Jack White & Company's
accounts. Fees will be billed monthly in arrears at the annual rate of 0.25%
(25 basis points) of the market value of shares of each Fund held in Jack White
& Company accounts.
Jack White
& Company
hold fund positions directly with Funds or as correspondent broker through one
or more clearing broker/dealer relationships. Currently, Donaldson, Lufkin &
Jenrette, Perishing Division, acts as Jack White & Company's sole clearing
agent.
Jack White
& Company
5. TRANSACTION FEES. Jack White & Company maintains a policy that, in order for
customers to avoid transaction fees, customers shall adhere to a limitation on
short-term redemptions. The limitation currently states as follows:
purchased within 90 days (60 days for accounts controlled by financial
advisors) of the redemption trade date. A transaction fee or a Short
Term Redemption Fee will apply to short term redemptions.
If a customer makes 15 short-term redemptions in a calendar year, transaction
fees will apply on all of the customer's purchase, redemption and exchange
transactions for the remainder of the year. Jack White & Company reserves the
right to modify at any time its policies and limitations regarding short-term
redemptions.
Jack White & Company may from time to time enter into institutional
relationships which require ancillary brokerage or administrative services
related to processing fund transactions. Jack White & Company may charge
nominal transaction fees to such institutional customers for its services.
Jack White & Company agrees to inform customers of all transaction fees Jack
White & Company may charge as well as the circumstances under which such fees
may be imposed.
6. REPRESENTATIONS. Jack White & Company is registered as a broker-dealer under
the Securities Exchange Act of 1934 in all 50 states and in the District of
Columbia and is qualified to act as a broker-dealer in the states or other
jurisdictions where it transacts business, and is a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD"), and has the
requisite authority to enter into this Agreement and to carry out all the
Jack White
& Company
services. Jack White & Company shall be, for purposes herein, deemed to be an
independent contractor, and is not an agent of and shall have no authority to
act for or represent FIRMCO, Funds, or the Funds' distributor(s).
Representatives of Jack White & Company do not solicit orders to buy or sell
mutual fund shares. All orders entered by Jack White & Company to buy or sell
mutual funds are unsolicited.
7. USE OF FIRMCO AND FUNDS NAME. Jack White & Company acknowledges and agrees
that FIRMCO and Funds and/or its affiliates own all right, title and interest in
and to the name "Firstar Investment Research & Management Company, LLC" and
"Firstar Funds," respectively. Prior to its use of any advertising, sales
literature or other promotional materials that feature Funds, Jack White &
Company shall give FIRMCO a reasonable opportunity to review and comment upon
such materials, and no such materials shall be used if FIRMCO objects. Subject
to the foregoing sentence, FIRMCO and Funds, respectively hereby authorize Jack
White & Company to use the names and other identifying marks of FIRMCO or any
Fund in connection with the operation of Jack White & Company's mutual fund
program. FIRMCO or Funds may withdraw this authorization as to any particular
use of any such name or identifying marks at any time
Jack White
& Company
(i) upon FIRMCO's or Fund's reasonable determination that such use would have a
material adverse effect on the reputation or marketing efforts of FIRMCO or such
Fund or (ii) if no investment company, or series or class of shares of any
investment company advised by FIRMCO continues to be available through Jack
White & Company's mutual fund program; provided, however, that Jack White &
Company may, in its discretion, continue to use materials prepared or printed
prior to the withdrawal of such authorization.
FIRMCO and Funds understand that upon the addition of a Fund to the NoFee
Network, Jack White & Company will update its listing of participating funds to
indicate their availability in the service. Such listings are sent to existing
and prospective customers. Participating funds may also be named on a
"messages" section of customer account statements. Fund participating in the
program will be highlighted in Jack White & Company's regularly mutual fund
lists.
Each Fund acknowledges that Jack White & Company intends to market its
NoFee Network to its current and prospective customers via direct mailing and
regular advertising in regional and national financial publications, trade
conferences, and other media and that Jack White & Company may include reference
in such media to FUNDS participation in the NoFee Network.
Jack White & Company will furnish Funds or its designees with such
information as it or they may reasonably request in connection with the
preparation of reports to Funds' Board of Directors concerning this Agreement,
Funds' annual audit, and any other reports or filings that may be required by
law.
Jack White
& Company
8. TERMINATION. Participation in the NoFee Network may be terminated (i) upon
no less than 30 days' advance notification in writing either by FIRMCO, Funds or
by Jack White & Company; or (ii) upon such shorter notice as is required by law,
order, or instruction from a court of competent jurisdiction, regulatory body,
or self-regulatory organization with jurisdiction over the terminating party.
Upon termination as to a Fund, FIRMCO will not be obligated to pay the
Fee with respect to any shares of the Fund that become part of a Jack White &
Company customer account after the date of such termination. However,
notwithstanding any such termination, FIRMCO will remain obligated to pay Jack
White & Company the Fee as to each share of such Fund that was considered when
calculating the fee as of the date of termination (a "Pre-Termination Share"),
for so long as such Pre-Termination Share is held in any Jack White & Company
brokerage account and Jack White & Company continues to perform the Services as
to such shares. For so long as Jack White & Company continues to perform the
Services as to any Pre-Termination Shares pursuant to this section, the
provisions of this Agreement will remain in full force and effect as to such
Pre-Termination shares.
Jack White
& Company
9. INDEMNIFICATION. Jack White & Company shall indemnify FIRMCO, the Funds, and
their affiliates, directors, managers, employees, and shareholders for any loss
(including without limitation litigation costs and expenses and reasonable
attorney's and expert's fees) directly resulting from its negligent or willful
act, omission or error in the performance of its duties under this Agreement or
its breach of this Agreement. Such indemnification will survive the termination
of the Agreement.
FIRMCO shall indemnify Jack White & Company and its affiliates, directors,
employees, and shareholders for any loss (including without limitation
litigation costs and expenses and reasonable attorney's and expert's fees)
directly resulting from its negligent or willful act, omission or error in the
performance of its duties under this Agreement or its breach of this Agreement.
Such indemnification will survive the termination of the Agreement.
10. CONFIDENTIALITY. Each party acknowledges and understands that any and all
technical, trade secret or business information including, without limitation,
financial information, business or marketing strategies or plans, or product
development or customer information, including customer name and address, which
is disclosed to the others or is otherwise obtained by the others during the
term of the Agreement and which is identified in writing as proprietary
information by the disclosing party at the time of disclosure ("Proprietary
Information") is confidential and proprietary, constitutes trade secrets of the
owner, and is of great value and importance to the success of the owner's
business. Each party agrees to use its best efforts (the same being not less
than those employed to protect its own proprietary information) to safeguard the
other's Proprietary Information and to prevent the unauthorized, negligent or
inadvertent use or disclosure thereof. No party shall, without the prior
written approval of an authorized officer of the other, directly or indirectly,
disclose the Proprietary Information to any person or entity except for its
employees, attorneys, accountants, affiliates and other advisers on a need-to-
Jack White
& Company
know basis or as may be required by law or regulation or demanded by any court
or administrative agency. Each party shall promptly notify the other in writing
of any unauthorized, negligent or inadvertent use or disclosure of the other's
Proprietary Information. This section shall continue in full force and effect
notwithstanding the termination of this Agreement.
11. NONEXCLUSIVITY. Each Party acknowledges that the other may enter into
Agreements, similar to this one, with other parties, for the performances of
services similar to those to be provided under this Agreement, unless otherwise
agreed to in writing by the parities.
12. ASSIGNABILITY. This Agreement may be assigned by any party with the other
parties' written consent.
13. ENTIRE AGREEMENT-AMENDMENT. This Agreement constitutes the entire Agreement
between the parties with regard to the subject matter herein. Additionally,
these materials supersede any and all Agreements, representations and warranties
made prior to the execution
Jack White
& Company
of this Agreement. This Agreement may be amended only by a writing executed by
each party to be bound by the amendment.
14. GOVERNING LAW. This Agreement will be governed by, and interpreted under,
the laws of the State of California as applied to contracts entered into and to
be performed entirely within that State.
15. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which will be deemed an original, but all of which together shall
constitute one instrument.
IN WITNESS WHEREOF the parties hereto have delivered and executed this
Agreement.
For Firstar Investment Research & Management Company, LLC:
By: /s/ J. Scott Harkness
----------------------------------
Title: Chairman
----------------------------------
Date: 5-12-98
----------------------------------
For Firstar Funds, Inc:
By: /s/ Mary Ellen Stanek
----------------------------------
Title: Vice President
----------------------------------
Date: 5-17-98
----------------------------------
Jack White
& Company
For Jack White & Company:
By: /s/illegible
----------------------------------
Title: Executive Vice President
----------------------------------
Date: 5-14-98
----------------------------------
EXHIBIT NO. (H) (38)
NO TRANSACTION FEE FUND SERVICING AGREEMENT
This Agreement is made as of June , 1998, among National Investor
-------
Services Corp. ("NISC"), located at 55 Water Street, New York, NY, Firstar
Funds. Inc., (the "Fund"), located at 615 East Michigan Street, Milwaukee, WI;
and Firstar Investment Research & Management Company, LLC ("FIRMCO"), located at
777 East Wisconsin Avenue, Milwaukee, WI.
WHEREAS, NISC functions as a clearing agent for introducing broker-
dealer/correspondents ("participating correspondents") and in such capacity
performs traditional operational functions, including execution and clearance of
trades and custody of Client-shareholders' funds and securities;
WHEREAS, NISC or participating correspondents will execute orders for new
shares free of transaction charges to the Client-shareholders, provided certain
minimum purchase amount criteria are met, as same may be modified from time to
time ("Program shares");
WHEREAS, the Fund and FIRMCO desires to have NISC perform certain
recordkeeping, shareholder communication, and other services;
NOW THEREFORE, in consideration of the foregoing and the mutual promises
set forth below, the parties agree as follows:
1. Services
--------
a. NISC agrees to perform certain services for the Client-
shareholders as more particularly set forth below. "Client-
shareholders" shall mean those participating correspondent clients who
maintain an interest in an omnibus account with the Fund registered in
NISC's name for their exclusive benefit and who receive services from
NISC under this Agreement.
b. NISC represents and warrants that it has and will continue at all
times to maintain necessary facilities, equipment and personnel to
perform its services hereunder and to comply with applicable laws,
rules and regulations including the maintenance and preservation of
all required records and registrations.
c. NISC represents and warrants that all Client-shareholders are
aware that they are transacting business with NISC and not the Fund,
and that they will look only to NISC and not to the Fund for
resolution of problems or discrepancies in their accounts.
d. NISC agrees that it will establish with the Fund one or more
omnibus accounts registered in NISC's name for the exclusive benefit
of its customers who are Client-shareholders in the Fund, and will
perform various services for the Client-shareholders in those
accounts, including without limitation: mailing the Fund's
prospectuses and statements of additional information upon customer
request and, as applicable, upon confirmation of customer purchases to
the extent required by law, and mailing any supplements; establishing
and maintaining records of Client-shareholders' accounts; processing
purchase and redemption transactions; confirming Client-shareholder
transactions; answering routine client inquiries regarding the Fund;
producing and mailing statements to Client-shareholders on a monthly
basis (or, as to accounted in which there has been no activity in a
particular month, no less frequently than quarterly) showing, among
other things, the number of shares of each fund owned by such Client-
shareholders and the net asset values of such shares as of a recent
date: providing assistance to Client-shareholders in effecting
changes to their dividend options, account designations and addresses;
[withholding taxes on non-resident alien accounts;] [?] disbursing
income dividends and capital gains distributions; reinvesting
dividends and distributions; preparing and delivering to Client-
shareholders, and state and federal authorities including the United
States Internal Revenue Service, such information respecting dividends
and distributions paid by the Fund as may be required by law, rule or
regulation; withholding on dividends and distributions as may be
required by state or Federal authorities from time to time; and such
other services as the Fund or FIRMCO may reasonably request. NISC
shall not make any statement or representation concerning the Fund
that is not contained in the Fund's registration statement, annual
report or proxy statement or any advertising or promotional materials
generated by or on behalf of the Fund.
e. NISC shall maintain all historical Client-shareholder records
consistent with requirements of all applicable laws, rules and
regulations. Upon request of the Fund or FIRMCO, NISC shall provide
copies of written communications regarding the Fund to or from such
Client-shareholders. NISC shall upon request make available to the
Fund and FIRMCO such records or communications as may be necessary to
determine the number of Client-shareholders in each NISC omnibus
account. If, at any time, the Fund or FIRMCO determines NISC's
practices, procedures or controls to be inadequate, written notice of
such inadequacy shall be given to NISC, and NISC shall have fifteen
(15) days plus any additional time as provided by the Fund and FIRMCO
to correct such inadequacy. In the event such inadequacy is not
corrected by NISC, the Fund or FIRMCO shall have the right to
immediately terminate this Agreement. Nothing in this Agreement shall
impose upon the Fund or FIRMCO the obligation to review NISC's
practices, procedures and controls. NISC will wish the Fund or its
designee with such information as it or they may reasonably request in
connection with the preparation of reports to the Fund's Board of
Directors concerning this Agreement, the Fund's annual audit, and any
other reports or filings that may be required by law.
f. The official records of transactions of NISC's omnibus accounts
and the number of shares in such accounts shall be as determined by
the Fund, FIRMCO, or the Fund's designee. NISC shall bear
responsibility for any discrepancies between its omnibus accounts and
the Client-shareholder accounts and for the maintenance of all records
regarding the Client-shareholders, the Client-shareholders'
transactions, and the Client-shareholders' interest in omnibus
accounts.
g. NISC assumes sole responsibility for reconciliation of customer
accounts with its omnibus account at the Fund. The Fund and FIRMCO
agrees to assist NISC with such reconciliation where necessary.
h. The Fund or its designee shall have sole authority and
responsibility under this Agreement for countersigning securities of
the Fund, monitoring the issuance of securities of the Fund with a
view to preventing unauthorized issuance, registering the transfer of
securities of the Fund, exchanging or converting securities of the
Fund or transferring record ownership of securities of the Fund by
bookkeeping entry without physical issuance of securities certificates
of the Fund.
2. Fees
-----
a. For performance of the services described herein, NISC shall
receive a fee (the "Fee") from FIRMCO which will be paid at the end of
each month at the annual rate applicable to the average aggregate
daily net asset value of shares of the Fund in the accounts for which
NISC provides services. Fees are solely for shareholder servicing and
other administrative services provided by NISC and do not constitute
payment in any manner for investment advisory, distribution, trustee,
or custodial services. The terms, conditions and amounts of such
payments are set forth in Schedule A to this Agreement.
b. In computing NISC's fee, one-twelfth of the applicable fee rate
set forth in Schedule A shall be applied to the average aggregate
daily net asset value of shares of the Fund in accounts for which NISC
provides services during the month in question. For the month in
which this Agreement becomes effective or terminates, there shall be
an appropriate proration based on the number of days that the
Agreement is in effect during the month.
c. Except as otherwise agreed in writing with the Fund and FIRMCO
with respect to specific expenditures by NISC, NISC shall bear sole
responsibility for all costs and expenses of providing services under
this Agreement.
3. Transaction Charges
-------------------
NISC shall not, during the term of this Agreement, assess against, or
collect from, Client-shareholders, any transaction fee upon the purchase or
redemption of any of the Fund's shares that meet the minimum purchase
criteria set forth in this Agreement, except as noted in Section 4 below.
Client-shareholder purchases not meeting the criteria as set forth herein
may be charged a transaction fee and any such fee shall not be included in
service fee invoices presented for payment.
4. Short Term Redemptions and Transfers
------------------------------------
a. It is hereby agreed that NISC may apply a redemption fee for any
short-term redemption of shares purchased within specified time
frames.
b. NISC reserves the right to apply a fee for the transfer of any
fund position purchased within specified time frames.
c. Any such charges shall be imposed in such manner as to make it
clear to the redeeming Client-shareholder that the fee is not being
charged by the fund or FIRMCO.
5. Relationship of Parties
-----------------------
a. The relationship among NISC, the Fund and FIRMCO shall be that of
independent contractors and no party shall be or represent itself to
be an agent, employee, partner or joint venturer of the other, nor
shall any party have or represent itself to have any power or
authority to act for, bind or commit the other. Notwithstanding the
foregoing, FIRMCO is the investment adviser to the Fund and has the
powers and authority as agreed to between FIRMCO and the Fund.
b. The parties acknowledge and agree that the services under this
Agreement are recordkeeping, shareholder communication, and related
services only and are not the services of an underwriter or a
principal underwriter within the meaning of the Securities Act of
1933, as amended, or the Investment Company Act of 1940, as amended
(the "1940 Act"). This Agreement does not grant NISC any right to
purchase shares as a principal from the Fund, nor does it constitute
NISC an agent of the Fund for purposes of selling shares of the Fund
to any dealer or to the public. To the extent NISC is involved in the
purchase of shares of any fund by Client-shareholders, such
involvement will be as agent of such Client-shareholders only.
6. Indemnification
---------------
a. NISC shall indemnify and hold harmless FIRMCO, the Fund, and
their directors, managers, officers, employees, and agents
(hereinafter "Indemnified Parties") from and against any and all
losses, claims, liabilities and expenses (including, but not limited
to, reasonable attorney's fees) incurred by any of them and arising as
a result of: (i) NISC's dissemination of information regarding the
Fund that is materially incorrect and that was not provided to NISC by
the Fund or FIRMCO, or approved by the Fund, its affiliated persons
(as defined in the 1940 Act), or agents; or (ii) NISC's willful
misconduct or gross negligence in the performance of, or failure to
perform, its obligations under this Agreement, or its breach of this
Agreement, except to the extent the losses are a result of the gross
negligence, willful misconduct, or breach of this Agreement by an
Indemnified Party. This section 6(a) will survive the termination of
this Agreement.
b. The Fund hereby agrees to indemnify NISC against any and all
losses, claims, damages and liabilities to which NISC may become
subject as a result of any untrue statement of a material fact
contained in the Fund's prospectus or statement of additional
information, as amended or supplemented from time to time, or the
omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading.
c. In any event, neither party shall be liable for any special,
consequential or incidental damages.
7. Information to be Provided
--------------------------
The Fund or its designee shall provide to NISC, prior to the
effectiveness of Agreement, or as soon thereafter as possible, a copy
of the current prospectus and statement of additional information.
The Fund or its designee shall provide NISC with written copies of any
amendments to, or changes in such documents as soon as possible after
such amendments or changes become available. The Fund or its designee
shall additionally provide NISC with reasonable supplies of
prospectuses upon request.
8. Notices
-------
All notices required under this Agreement must be in writing and
delivered either personally or via first class mail. Such notices will be
deemed to be received as of the date of actual receipt, or three (3) days
after deposit -in the United States mail, whichever is earlier.
All such notices shall be made, if to NISC, to: Thomas F. Quercia,
Senior Vice President, 55 Water Street, New York, NY 10041; if to Fund, to:
_________________, ________________, 615 East Michigan Street, P.O. Box
3011, Milwaukee, WI 53201-3011; and if to FIRMCO to: ________________,
_________________ 777 East Wisconsin Avenue. Suite 800, Milwaukee, WI
53202.
9. Nonexclusivity
--------------
Each party acknowledges that the others may enter into agreements,
similar to this one, with other parties, for the performance of services
similar to those to be provided under this Agreement, unless otherwise
agreed to in writing by the parties.
10. Severability
------------
If any provision of this Agreement should be invalid, illegal or in
conflict with any applicable state or federal law or regulation, such law
or regulation shall control, to the extent of such conflict, without
affecting the remaining provisions of this Agreement.
11. Licenses
--------
NISC represents and warrants that it is a corporation duly organized
under the laws of the State of New York and is duly licensed and/or
qualified as a broker/dealer with the SEC, the NASD and in every state or
territory of the United States of America (including the District of
Columbia) where such licensing or qualification is required and has the
requisite authority to enter into this Agreement and to carry out the
services contemplated herein. NISC will not make any offer or sale of fund
shares (a) in any state or jurisdiction in which such shares are not
qualified for sale or exempt from the requirements of the relevant
securities laws at any time after it has been provided with written notice
that such fund is not so qualified or exempt in such state or jurisdiction,
(b) in any state or jurisdiction in which it is not properly licensed or
authorized to make offers or sales, or (c) at any time after it has been
provided with written notice that a fund is not then currently offering
shares to the public.
12. Entire Agreements; Amendment
----------------------------
This Agreement, including any exhibits attached hereto, constitute the
entire agreement between the parties with regard to the subject matter
herein. Additionally, these materials supersede any and all agreements,
representations and warranties, whether written or oral, made prior to the
execution of this Agreement. This Agreement and the exhibits attached
hereto may be amended only by a writing signed by all parties.
13. Term and Termination
--------------------
This Agreement shall become effective as of the date it is accepted by
NISC and will continue in effect until terminated in writing upon sixty
(60) days prior notification by any party to the others; provided, that
NISC shall be entitled to receive all Fees it has earned up to and
including the effective date of the termination.
14. Assignability
-------------
This Agreement is not assignable by any party without the other
parties' prior written consent. Any attempted assignment in contravention
hereof shall be null and void; provided, however, that NISC may assign its
rights and obligations under this Agreement to any affiliate of NISC.
15. Governing Law
--------------
This Agreement shall be governed by, and interpreted in accordance
with the laws of the State of New York, without reference to conflicts of
law provisions thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
the day and year first above written.
NATIONAL INVESTOR SERVICES CORP.
By: /s/Thomas Quercia
--------------------------------
Name: Thomas Quercia
--------------------------------
Title: Senior Vice President
--------------------------------
FIRSTAR FUNDS INC.
By: /s/Mary Ellen Stanek
--------------------------------
Name: Mary Ellen Stanek
--------------------------------
Title: Vice President
--------------------------------
FIRSTAR INVESTMENT RESEARCH &
MANAGEMENT COMPANY, LLC
By: /s/J. Scott Harkness
--------------------------------
Name: J. Scott Harkness
--------------------------------
Title: Chairman
--------------------------------
EXHIBIT (J)(1)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference
to our Firm under the caption "Counsel" in the Statement of Additional
Information that is included in Post-Effective Amendment No. 35 to the
Registration Statement (No. 33-18255) on Form N-1A under the Securities Act of
1933 and the Investment Company Act of 1940, as amended, of Firstar Funds, Inc.
This consent does not constitute a consent under Section 7 of the Securities Act
of 1933, and in consenting to the use of our name and the references to our Firm
under such caption we have not certified any part of the Registration Statement
and do not otherwise come within the categories of persons whose consent is
required under said Section 7 or the rules and regulations of the Securities and
Exchange Commission thereunder.
/s/ DRINKER BIDDLE & REATH LLP
-------------------------------
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
December 22, 1998
