As filed with the Securities and Exchange Commission on August 18, 2000
Registration No. 33-18255/811-5380
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. 42 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 43 [x]
(Check appropriate box or boxes.)
FIRSTAR FUNDS, INC.
-------------------
(Exact Name of Registrant as Specified in Charter)
615 East Michigan Street
Milwaukee, WI 53201-3011
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (414) 287-3909
with a copy of communications to:
W. Bruce McConnel, Esquire
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103-6996
Copies of all communications to:
Suzanne E. Riley, Esq.
Firstar Mutual Fund Services, LLC
615 East Michigan Street, 2nd Floor
Milwaukee, WI 53202
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on pursuant to paragraph (b)
[x] 60 days after filing pursuant to paragraph (a)(1)
[ ] on pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on 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 Beneficial Interest
PROSPECTUS
____________ , 2000
SMALL CAP AGGRESSIVE GROWTH FUND
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of this fund or determined if this prospectus
is truthful or complete. Anyone who tells you otherwise is committing a
criminal offense.
FIRSTAR FUNDS
<PAGE>
FIRSTAR FUNDS(R)
_______________ , 2000
TABLE OF CONTENTS
PAGE
THE FUND 1
The Fund's Objective and Strategy, Principal Risks and Expense 1
TYPES OF INVESTMENT RISK 5
INVESTING WITH FIRSTAR FUNDS 10
Share Classes Available 10
Sales Charges and Waivers 11
Purchasing Shares 16
Redeeming Shares 20
Exchanging Shares 21
Additional Shareholder Services 23
ADDITIONAL INFORMATION 24
Dividends, Capital Gains Distributions and Taxes 24
Management of the Fund 25
Net Asset Value and Days of Operation 26
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF FIRSTAR BANK, N.A. AND IS NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY OTHER GOVERNMENT
AGENCY.
<PAGE>
SMALL CAP AGGRESSIVE GROWTH FUND
OBJECTIVE
The investment objective of the Small Cap Aggressive Growth Fund is capital
appreciation. This investment objective may be changed by the Board of
Directors without approval of Shareholders, although no change is currently
anticipated.
PRINCIPAL INVESTMENT STRATEGIES
Common Stocks/Potential Price Appreciation. The Fund selects securities based
on their potential for price appreciation. Most of the securities the Fund
holds will be common stocks of companies incorporated in the U.S.
The Adviser may sell a security for reasons including those relating to
fundamental deterioration or valuation. Fundamental deterioration occurs when a
company is no longer able to achieve the results generally expected by the
investment community due to a specific issue, such as a loss of a customer or
pricing pressure in the industry. The Adviser may sell for reasons relating to
valuation when for example a security's price has reached a target specified by
the Adviser, and the Adviser believes potential increases in price are limited.
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
Small Sized Companies. The Fund generally invests at least 65% of its assets
in small-sized companies with stock market capitalizations up to $2 billion
that the Adviser considers to be well managed and to have attractive
fundamental financial characteristics. If the market capitalization of a
company in which the Fund has invested increases above $2 billion, the Fund
may continue to hold the security. The Fund may also invest a portion of its
assets in companies with larger or smaller market capitalizations.
The Adviser believes 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 intends to invest no more than 10% of net assets in non-investment
grade securities ("junk bonds") at the time of purchase (or unrated securities
of comparable quality).
Other. The Fund may invest up to 25% of total assets in the securities of
foreign issuers, either directly or through sponsored American Depository
Receipts. American Depository Receipts are receipts issued by an American bank
or trust company evidencing ownership of underlying securities issued by a
foreign issuer. American Depository Receipts may be listed on a national
securities exchange or may trade in the over-the-counter market. American
Depository Receipts are denominated in U.S. dollars. The underlying securities
may be denominated in a foreign currency.
The Fund also invests in bonds, notes, debentures and preferred stocks
convertible into common stocks.
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, as rated by at least one rating agency, at
time of purchase or be unrated but deemed comparable by the Adviser. Investment
grade securities are securities rated in the highest four categories by S&P,
Moody's or another nationally recognized rating agency. Average quality for
<PAGE>
the 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.
The Fund may also invest in derivative instruments. Derivative instruments are
securities whose value is based on other securities, currencies, interest rates
or indices. Derivative instruments may include options, futures and options on
futures.
The Fund may engage in short sales. In a short sale, the Fund borrows a
security it does not own and then sells it in anticipation of a fall in the
security's price.
The Fund may emphasize, from time to time, particular companies or market
sectors, such as technology, in attempting to achieve its investment objective.
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.
The Fund may also participate in the initial public offering (IPO) market.
The Fund may engage in frequent trading of securities. The expected maximum
portfolio turnover rate for the Fund for the current fiscal year is expected to
be in excess of 100%.
PRINCIPAL RISKS
The following principal investment risks 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. Market risk
----------- -----------
is the risk that 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. The Fund's expenses in a year may exceed income. There can
be no assurance the investment objective of the Fund will be realized or 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 Fund's investments in debt securities are subject to credit risk and
-----------
interest rate risk. Credit risk is the risk that an issuer of fixed income
------------------ -----------
securities may default on its obligation to pay interest and repay principal.
Interest rate risk is the risk that, when interest rates increase, fixed income
------------------
securities will decline in value. In particular, convertible securities
frequently have speculative characteristics and may be acquired without regard
to minimum quality ratings. 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. 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
<PAGE>
stocks. Small cap stocks tend to be less liquid and are subject to liquidity
---------
risk. Liquidity risk is the risk that certain securities may be difficult or
---- --------------
impossible to sell at a desirable time and price, particularly during periods of
market disruption. There normally is less publicly available information
concerning these securities. Small companies in which the Fund may invest may
have limited product lines, markets or financial resources, or may be dependent
on a small management group. In particular, investments in unseasoned companies
present risks considerably greater than investments in more established
companies.
The Fund's investments in foreign securities and American Depository Receipts
are subject to foreign risks. Foreign risks, which are not typically
------------- -------------
associated with domestic issuers, result from less government regulation, less
public information and less economic, political and social stability. The Fund
will also be subject to the risk of negative foreign currency fluctuations.
Foreign risks will normally be greatest when the Fund invests in issuers located
in emerging countries.
To the extent that the Fund emphasizes particular companies or market sectors,
such as technology, it will be especially susceptible to the risks associated
with investments in those companies or market sectors. Stocks of technology
companies may be subject to greater price volatility than stocks of companies in
other sectors. Technology companies may produce or use products or services
that prove commercially unsuccessful, become obsolete or become adversely
impacted by government regulation. Technology stocks may experience significant
price movements caused by disproportionate investor optimism or pessimism.
IPOs may not be consistently available to the Fund for investing, particularly
as the Fund's asset base grows. As the Fund's assets continue to grow, the
effect of the Fund's investment in IPOs on its total returns may decline, which
could reduce the Fund's total returns.
The Fund's investment in non-investment grade securities are considered
predominately speculative by traditional investment standards. Non-investment
grade securities are subject to the increased risk of an issuer's inability to
meet principal and interest obligations.
The Fund will also be subject to derivative risk to the extent that the Fund
---------------
invests in derivative instruments. Derivative risk is the risk that loss may
result from a Fund's investments in options, futures, options on futures and
other derivative instruments that may be leveraged.
Short sales of securities may result in losses if the Fund sells a security
short and the value of the security rises rather than falls.
A high rate of portfolio turnover (100% or more) involves correspondingly
greater expenses which must be borne by the Fund and its shareholders.
An investment in the Fund is not a deposit of Firstar Bank, N.A. and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. An investment in the Fund involves risk, including the risk
of losing money.
Because the Fund is new, no performance information for the Fund is included in
this Prospectus.
<PAGE>
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Small Cap Aggressive Growth Fund.
INSTITUTIONAL RETAIL A RETAIL B Y
SHARES SHARES SHARES SHARES
---------------------------------------
SHAREHOLDER FEES
(fees paid directly from
your investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) None 5.50% None None
Maximum Deferred Sales
Charge (Load) (as a percentage
of offering price) None None 5.00%<F1> None
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends None None None None
Redemption Fees None<F2> None<F2> None<F2> None<F2>
Exchange Fees None None None None
INSTITUTIONAL RETAIL A RETAIL B Y
SHARES SHARES SHARES SHARES
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from
Fund assets)
Management Fees<F3> 1.25% 1.25% 1.25% 1.25%
Distribution and Service
(12b-1) Fees<F4> 0.00% 0.00% 0.75% 0.00%
Other Expenses<F5> 0.95% 1.20% 1.20% 1.20%
Total Annual Fund Operating
Expenses<F6> 2.20% 2.45% 3.20% 2.45%
<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 year
and fourth year, 2% in the fifth year declining to 1% in the sixth year.
Thereafter the Retail B Shares convert to Retail A Shares, which do not
bear a contingent deferred sales charge.
<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 for
which Firstar Bank, N.A. is custodian.
<F3> 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 0.55%
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.
<F4> The total of all 12b-1 fees and shareholder 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. The Fund does not intend to pay more than 0.75% in 12b-1 fees with
respect to the Retail B Shares for the current fiscal year.
<F5> "Other Expenses" is based on estimated amounts for the current fiscal
year and includes (1) estimated administration fees, transfer agency fees
and all other ordinary operating expenses of the Fund not listed above
and (2) for the Retail A, Retail B and Y Shares, the payment of a
shareholder servicing fee to institutions under a Service Plan (described
below under "Investing with Firstar Funds - Shareholder Organizations")
equal to 0.25% of the average daily net assets of the Fund's Retail A
Shares, Retail B and Y Shares.
<F6> As a result of the fee waiver set forth in note 3, the Total Fund
Operating Expenses of the Institutional, Retail A, Retail B and Y Shares
of the Fund are estimated to be 1.50%, 1.75%, 2.50% and 1.75%,
respectively, for the current fiscal year. 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.
EXAMPLE
The following example is intended to help you compare the cost of investing in
the Fund 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
------ -------
Retail A Shares $784 $1,272
Retail B Shares
Assuming complete redemption
at end of period 823 1,286
Assuming no redemption 323 986
Institutional Shares 223 688
Y Shares 248 764
<PAGE>
TYPES OF INVESTMENT RISK
The principal risks of investing in the Fund are described previously 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 Fund.
Risks associated with particular types of investments the Fund makes are
described in this section and in the Additional Statement referred to on the
back page.
GENERAL RISKS OF INVESTING IN THE FUND
Complete Investment Program
An investment in a single Fund, by itself, does not constitute a complete
investment plan.
Credit Risk
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 into which the 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 the 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
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 or otherwise not react in tandem with
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.
European Currency Unification - to the extent the Fund invests in foreign
securities.
Many European countries have adopted a single European currency, the euro. On
January 1, 1999, the euro became legal tender for all countries participating in
the Economic and Monetary Union ("EMU"). A new European Central Bank has been
created to manage the monetary policy of the new unified region. On the same
date, the exchange rates were irrevocably fixed between
<PAGE>
the EMU member countries. National currencies will continue to circulate until
they are replaced by euro coins and bank notes by the middle of 2002.
This change is likely to significantly impact the European capital markets in
which the Fund invests and may result in the Fund facing additional risks in
pursuing its investment objective. These risks, which include, but are not
limited to, uncertainty as to proper tax treatment of the currency conversion,
volatility of currency exchange rates as a result of the conversion, uncertainty
as to capital market reaction, conversion costs that may affect issuer
profitability and creditworthiness, and lack of participation by some European
countries, may increase the volatility of the Fund's net asset value per share.
Foreign Risks
When the 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 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. The
Fund 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 the 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, the Fund may be required to deliver securities
prior to 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 the 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.
The Fund also may invest in foreign currency denominated securities and 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
Fund may hedge against foreign currency risk on unsettled trades, but it is not
required to do so.
<PAGE>
Interest Rate Risk
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
Certain securities may be difficult or impossible to sell at the time and 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, restricted securities which the Fund may purchase, and the futures
contracts in which the 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 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. The Fund may invest up to 15% of
its net assets at the time of purchase, 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 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 the Fund.
Management Risk
A strategy which the Adviser uses may fail to produce the intended results. The
particular securities and types of securities the Fund holds may underperform
other securities and types of securities. There can be no assurance the Fund
will achieve its investment objective. The Adviser may not change certain
investment practices of the Fund without shareholder vote. These policies of
the Fund, which may not be changed without a shareholder vote, are described in
the Additional Statement.
Market Risk
The value of the securities in which the 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. The
Fund's performance results may reflect periods of above average performance
attributable to its investment in certain securities during the initial public
offering, the performance of a limited number of the securities in the Fund, or
other non-recurring factors. It is possible that the performance may not be
repeated in the future.
Nonprincipal Strategy Risks
This Prospectus describes the Fund's principal investment strategies, and the
types of securities in which the Fund principally invests. The 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
The Adviser will not consider the portfolio turnover rate a limiting factor in
making investment decisions for the Fund. The expected maximum portfolio
turnover rate for the Fund for the current fiscal year is expected to be in
excess of 100%. A high rate of portfolio turnover (100%
<PAGE>
or more) involves correspondingly greater expenses which must be borne by the
Fund and its shareholders. It may also result in higher short-term capital
gains taxable to shareholders.
Small and MidCap Stock Risk
Smaller and medium capitalization stocks involve greater risks than those
associated with larger, more established companies. Small and medium 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 and medium cap stocks tend to be less liquid, particularly during periods
of market disruption. There normally is less publicly available information
concerning these securities. Small and medium companies in which the Fund may
invest may have limited product lines, markets or financial resources, or may be
dependent on a small management group. In particular, investments in unseasoned
companies present risks considerably greater than investments in more
established companies.
Temporary Investment Risk
The Fund may invest up to 30% of its assets in money market instruments for
temporary defensive purposes. This may occur for example, when the Fund is
attempting to respond to adverse market, economic, political or other
conditions. (Taxable obligations purchased by the Fund normally will not exceed
20% of total assets at times of purchase.) When the Fund's assets are invested
in these instruments, the Fund may not be achieving its investment objective.
Valuation Risk
This is a risk that the Fund has valued certain securities at a higher or lower
price than the Fund can sell them.
ADDITIONAL RISKS WHICH APPLY TO PARTICULAR TYPES OF SECURITIES
Borrowings, Reverse Repurchase Agreements
The Fund may borrow money to the extent allowed (as described in the Additional
Statement) to meet shareholder redemptions from banks or through reverse
repurchase agreements. These strategies involve leveraging. If the securities
held by the Fund decline 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 the
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
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
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
<PAGE>
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.
The value of options can be highly volatile, and their use can result in loss if
the Adviser is incorrect in its expectation of price fluctuations. The
successful use of options for hedging purposes also depends in part on the
ability of the Adviser to manage future price fluctuations and the degree of
correlation between the options and securities markets.
The Fund may purchase put and call options in an amount not to exceed 5% of its
net assets.
In addition, the Fund may write call options on securities and on various stock
or bond indices. The Fund may write a call option only if the option is
covered. The 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.
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 during the current year. In
order to close out an option position, the 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 Fund may invest in warrants. Warrants are options to purchase equity
securities at a specific price valid for a specific period of time. The
purchase of warrants involves the risk that the Fund could lose the purchase
value of the 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.
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 market for an option.
The Additional Statement includes additional information relating to option
trading practices and related risks.
Futures Contracts and Related Options
A futures contract is a type of 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 the 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 the 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 the Fund sells an option on a futures contract it becomes obligated to
purchase or sell a futures contract if the option is exercised.
Futures contracts and options present the following risks: imperfect correlation
between the change in market value of the 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 Fund may buy and sell
futures contracts and
<PAGE>
related options on foreign exchanges or boards of trade (which do not offer the
same protections as U.S. exchanges).
The 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, the 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, the 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."
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 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 Fund offers four classes of Shares: Retail A, Retail B, Institutional and Y
Shares.
INSTITUTIONAL SHARES
- No sales charge
- Available for;
- Trust, agency or custodial accounts opened through Firstar Bank, N.A.;
- Employer-sponsored qualified retirement plans other than those serviced
by certain external organizations who have service agreements with
Firstar or its affiliates, and other than plans administered by Firstar
with assets of less than $1 million at the time Firstar begins plan
administration (but including plans administered by Firstar which owned
Institutional shares prior to June 18, 1999). Plans administered by
Firstar with assets of less than $1 million at the time Firstar begins
plan administration will become eligible for Institutional shares when
such plans grow to $1 million or greater as further described in the
Additional Statement;
- 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 TD
Waterhouse. Check with your broker-dealer to see if you qualify for
Institutional shares.
RETAIL A SHARES
- Initial sales charge of 5.50% or less
- No deferred sales charge
- Reduced sales charge for larger investments. See "Sales Charges and Waivers"
for more information
- Available to any investor who does not qualify to purchase Institutional
shares
<PAGE>
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 years, 2% in the fifth
year, 1% in the sixth year and 0% thereafter
- Converts to Retail A shares after six years
- Available to any investor who does not qualify to purchase Institutional
shares
Y SHARES
- No sales charge
- Available for:
- All shareholders who were exchanged into Y Shares on ______________, 2000
and who have continuously maintained an account with the Company;
- Financial institutions such as banks, trust companies and thrift
institutions, that are purchasing shares on behalf of discretionary and
non-discretionary accounts for which they do not receive account level
asset based management fees.
A securities dealer, broker, financial institution or other industry
professional ("Shareholder Organization") may charge transaction or other fees
for providing administrative or other services in connection with investments in
Fund shares.
SALES CHARGES AND WAIVERS
INITIAL SALES CHARGES - for Retail A Shares of the Fund:
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 Retail A Shares purchased through reinvestment of
dividends or capital gains distributions. The sales charge is as follows:
Shareholder
Sales Charge Sales Charge Organization
Amount of as a as Percentage Reallowance as
Transaction at Percentage of of Net Asset a Percentage
Offering Price Offering Price Value of Offering
Price
Less than $50,000 5.50% 5.82% 5.00%
$50,000 to $99,999 4.50% 4.71% 4.00%
$100,000 to $249,999 3.50% 3.63% 3.00%
$250,000 to $499,999 2.50% 2.56% 2.00%
$500,000 to $999,999 2.00% 2.04% 1.50%
$1,000,000 and above 0.50% 0.50% 0.40%
You only pay a sales charge when you buy shares. The Distributor may reallow the
entire sales charge to certain shareholder organizations and the amount
reallowed may change periodically. To the extent that 90% or more of the sales
charge is reallowed, shareholder 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 shareholder 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:
<PAGE>
(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, in-law, 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
(e) you are part of an employer-sponsored qualified retirement plan administered
by Firstar with assets of less than $1 million at the time Firstar begins plan
administration, provided such administration commenced on or after June 18, 1999
(f) you purchase through certain broker-dealers who have agreed to provide
certain services with respect to shares of the Fund, including Charles Schwab
Mutual Fund Marketplacea. Check with your broker-dealer to see if you qualify
for this exemption
(g) you received shares of a Fund as part of the reorganization of Mercantile
Mutual Funds, Inc. and Firstar Stellar Funds into Firstar Funds, Inc. and,
prior to the reorganization, you qualified to purhase shares without
a sales load at net asset value and you have continuously owned shares of the
Fund since the reorganization.
REDUCING YOUR SALES CHARGES - RETAIL A SHARES
- Right of Accumulation - Existing Retail A Shares of the Fund and Retail A
Shares of any other Equity, Balanced or Bond Fund of Firstar Funds and
existing Retail A Shares of any Firstar family of funds can be combined with
new purchases for purposes of calculating reduced sales charges.
- Letter of Intent - Fund shares purchased in a 13-month period qualify for the
same reduced sales charge as if purchased all 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 the Fund or Retail A Shares of any other Equity, Balanced
or Bond Fund of Firstar Funds or Retail A Shares of any Firstar family of
funds. Any investments you make during the period receive the discounted
sales charge based on the full amount of your investment commitment. The
Additional Statement includes details about the Letter of Intent.
For purposes of applying the Rights of Accumulation and Letter of Intent
privileges, the sales charge schedule 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 previously listed.
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.
<PAGE>
Number of Years Contingent Deferred Sales Charge
Elapsed Since Purchase (as % of dollar amount 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%
At least six 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 shareholder 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.
Shareholder organizations will receive commissions in connection with sales of
Retail B Shares. A commission equal to 5% of the amount invested is paid to
authorized dealers.
The contingent deferred sales charge a shareholder 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
shareholder 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
shareholder'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;
<PAGE>
(v) redemptions resulting from certain tax-free returns from IRAs of excess
contribution or
(vi) you received shares of a Fund as part of the reorganization of Mercantile
Mutual Funds, Inc. and Firstar Stellar Funds into Firstar Funds, Inc.
and, prior to the reorganization, you qualified to purchase shares
without a sales load at net asset value and you have continuously owned
shares of the Fund since the reorganization.
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 Fund reserves 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 distributions. For example, if a shareholder 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 shareholder'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
shareholder servicing fees borne by Retail B Shares, although they will be
subject to the shareholder servicing fees borne by Retail A Shares.
REINSTATEMENT PRIVILEGE
If you sell shares of a Firstar Fund, or of any Firstar family of funds, you
may reinvest some or all of the proceeds in the Retail A Shares of any Firstar
Fund within 60 days without a sales charge, as long as you notify the transfer
agent or your shareholder organization at the time you reinvest. You may be
subject to taxes as a result of a redemption. Consult your tax adviser
concerning the results of a redemption or reinvestment.
HOW TO DECIDE WHETHER TO BUY RETAIL A OR RETAIL B SHARES
The decision as to which type of Shares 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 may 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.
<PAGE>
SHAREHOLDER ORGANIZATIONS - RETAIL A, RETAIL B AND Y SHARES
The Fund has adopted a distribution and service plan for the Retail A Shares.
The Fund also has adopted a service plan for the Retail A Shares, under which
the Fund may pay service fees for shareholder services to Retail A shareholders.
Under either of these plans, shareholder organizations may be entitled to
receive fees from the Fund at an annual rate of up to 0.25% of the average daily
net asset value of the Shares covered by their respective agreements for
distribution and /or shareholder support services, as the case may be. Fees
under both these plans will not exceed, in the aggregate, the annual rate of
0.25% of the Fund's average daily net assets for the Retail A Shares.
Shareholder support services may include:
- assisting investors in processing purchase, exchange and redemption
requests
- processing dividend and distribution payments from the Fund
- providing information periodically to customers showing their
positions in Fund shares
- providing sub-accounting
- forwarding sales literature and advertising
The Fund has adopted a distribution and service plan for the Retail B Shares.
Under the distribution and service plan for the Retail B Shares, the Distributor
is entitled to receive fees at an annual rate of up to 0.75% of the average
daily net asset value of the Retail B Shares for distribution services with
respect to the Retail B Shares. Also under the distribution and service plan
for Retail B Shares, shareholder organizations may be entitled to receive fees
from the 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 shareholder liaison services.
Shareholder liaison services may include responding to customers' inquiries and
providing information on their investments, and other personal and account
maintenance services within NASD Rules.
The Fund has adopted a service plan for the Retail B Shares, under which the
Fund may pay service fees for shareholder services (as listed above) to Retail B
shareholders. Under the service plan for the Retail B Shares, shareholder
organizations may be entitled to receive fees from the Fund at an annual rate of
up to 0.25% of the average daily net asset value of the shares covered by their
agreement.
The Fund also has adopted a service plan for the Y Shares, under which the Fund
may pay service fees for shareholder services (as listed above) to Y
shareholders. Under the service plan for the Y Shares, shareholder
organizations may be entitled to receive fees from the Fund at an annual rate of
up to 0.25% of the average daily net asset value of the Shares covered by their
agreement.
Distribution 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 Fund's 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.
Payments to shareholder organizations, including affiliates of the Adviser,
under the plans, and to the Distributor under the distribution and service plans
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.
Under these plans, the Fund may enter into agreements with shareholder
organizations, including affiliates of the Adviser (such as Firstar Investment
Services, Inc.). The shareholder
<PAGE>
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 shareholder organizations'
agreements with Firstar. In addition, investors should contact their
shareholder organizations with respect to the availability of shareholder
services and the particular shareholder organization's procedures for purchasing
and redeeming shares. It is the responsibility of shareholder 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.
Conflict-of-interest restrictions may apply to the receipt of compensation paid
by Firstar to a shareholder 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.
PURCHASING SHARES
Shares of the Fund are offered and sold on a continuous basis by the distributor
for the Fund, Quasar Distributors, LLC (the "Distributor"), an affiliate of the
Adviser. The Distributor is a registered broker-dealer with offices at 615 East
Michigan Street, Milwaukee, Wisconsin 53202.
MINIMUM INVESTMENTS
RETAIL SHARES
The minimum initial investment for Retail Shares in the Fund is $1,000. The
minimum subsequent investment is $50. The minimum initial investment will be
waived if you participate in the Periodic Investment Plan.
INSTITUTIONAL SHARES
There is no minimum initial or subsequent investment for Institutional Shares of
the Fund.
Y SHARES
The minimum initial investment for Y Shares in the Fund is $1,000. There is no
minimum subsequent investment for Y Shares. The minimum initial investment will
be waived if you participate in the Periodic Investment Plan.
BUYING SHARES
Purchase requests accompanied by a check or wire payment for the Fund which are
received by the transfer agent before 3:00 p.m. Central time on a business day
for the Fund 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 (normally 3:00
p.m. Central time) will be executed on the next business day after receipt of
both order and payment in proper form.
<PAGE>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
Through a - Contact your - Contact your
Shareholder Shareholder Organization Shareholder Organization
Organization
--------------------------------------------------------------------------------
By Mail - Complete an application - Make your check payable
and mail it along with a to Firstar Funds.
check payable to Firstar Please include your sixteen-
Funds, P.O. Box 3011, digit account number on
Milwaukee, WI 53201-3011: your check and mail it
For overnight delivery to the address at the left.
mail to:
615 E. Michigan St.,
Milwaukee, WI 53202.
--------------------------------------------------------------------------------
Automatically - Call 1-800-677-FUND - Complete a Periodic Investment
(Retail A and to obtain a purchase Plan Application to automatically
Retail B application, which purchase more shares.
Shares) includes information
for a Periodic Open a ConvertiFundR account to
Investment Plan or automatically invest proceeds
ConvertiFundR Account. from one account to another
account of the Firstar Family
of Funds.
------------------------------------------------------------------------------
By Wire - Call 1-800-677-FUND - Call 1-800-677-FUND prior
wire in order to obtain to obtain a confirmation number
a confirmation number and and to ensure prompt and accurate
to ensure prompt and handling of funds. Ask your bank
accurate handling of to transmit immediately available
funds. Ask your bank to funds by wire as described at
transmit immediately the left. Please include your
available funds by wire sixteen-digit account number. The
in the amount of your Fund and its transfer agent are
purchase to: not responsible for the consequences
Firstar Bank, N.A. of delays resulting from the
ABA # 0750-00022 banking or Federal Reserve
Firstar Trust Department Wire system, or from incomplete
Account # 112-952-137 wiring instructions.
for further credit to
[name of Fund]
[name/title on the account].
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.
------------------------------------------------------------------------------
Internet - Not available - Use Firstar Funds Direct to
www.firstarfunds.com 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 1-800-677-FUND to authorize
this service.
------------------------------------------------------------------------------
By Telephone - Call 1-800-677-FUND to - Call 1-800-677-FUND to exchange
Exchange exchange from another from another Firstar Fund account
Firstar Fund account with the same registration
with the same including name, address
registration including and taxpayer ID number.
name, address and
taxpayer ID number.
------------------------------------------------------------------------------
<PAGE>
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 $25 fee will be imposed
by the Fund's 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 the Fund. Prior to the transfer agent receiving a completed application,
investors may make an initial investment. However, redemptions will not be paid
until the transfer agent has received the completed application.
Additional Information on Buying Shares
- The Fund 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 Fund reserves 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 the 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 Fund.
The Fund may authorize one or more brokers and other shareholder organizations
to accept on its behalf purchase, redemption and exchange orders, and may
authorize such shareholder organizations to designate other intermediaries to
accept purchase, redemption and exchange orders on the Fund's behalf. In these
cases, the Fund will be deemed to have received an order when an authorized
shareholder 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 shareholder organization or intermediary. Shareholder
organizations and intermediaries will be responsible for transmitting accepted
orders to the Fund within the period agreed upon by them. Shareholders should
contact their shareholder organization or intermediaries to learn whether they
are authorized to accept orders for the Fund.
It is the responsibility of shareholder organizations 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
previously stated.
For Owners of Institutional Shares
All share purchases are effected pursuant to a customer's account at Firstar
Bank, N.A. Trust Department ("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 shareholder organizations involved.
Firstar Trust and the other shareholder 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 shareholder communications from the Fund will be governed by the
customers' account agreements with Firstar Trust and the other shareholder
organizations. Investors wishing to purchase shares of the Fund should contact
their account representatives.
In the case of participants in certain employee benefit plans investing in the
Fund, 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.
<PAGE>
The Fund may authorize one or more brokers and other shareholder organizations
to accept on their behalf purchase, redemption and exchange orders, and may
authorize such shareholder organizations to designate other intermediaries to
accept purchase, redemption and exchange orders on the Fund's behalf. In these
cases, the Fund will be deemed to have received an order when an authorized
shareholder 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 shareholder organization or intermediary. Shareholder
organizations and intermediaries will be responsible for transmitting accepted
orders to the Fund within the period agreed upon by them. Shareholders should
contact their shareholder organization or intermediaries to learn whether they
are authorized to accept orders for the Fund.
It is the responsibility of shareholder organizations 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
previously stated.
<PAGE>
REDEEMING SHARES
SELLING SHARES
Redemption requests received by the transfer agent before 3:00 p.m. Central time
on a business day for the Fund 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 Shareholder Organization
Shareholder
Organization
--------------------------------------------------------------------------------
By Phone - Call 1-800-677-FUND with your account name, sixteen digit
account number and amount of redemption (minimum $500).
Redemption proceeds will only be sent to a shareholder'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
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 - Use Firstar Funds Direct to redeem up to $25,000. Call
www.firstarfunds.com 1-800-677-FUND to authorize this service.
--------------------------------------------------------------------------------
Automatically - Call 1-800-677-FUND for a Systematic Withdrawal Plan
(Retail A and B application ($5,000 account minimum and $50 minimum per
Shares) transaction).
--------------------------------------------------------------------------------
Guarantees must be signed by an eligible guarantor institution and "Signature
Guaranteed" must appear with the signature.
The Fund 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 as specified above. 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 Firstar Mutual Fund Services, LLC or contact your
registered representative. Each shareholder of the
<PAGE>
account must sign the request. The Fund may request further documentation from
corporations, executors, administrators, trustees and guardians.
The Fund reserves 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 Fund at any time upon notice to shareholders.
During periods of substantial economic or market change, telephone redemptions
may be difficult to implement. If a shareholder 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 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
shareholder is liable for any loss for unauthorized transactions.
Certificates
Certificates are only issued upon shareholder 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 Fund 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 as specified above, except as provided by SEC
rules. HOWEVER, IF ANY PORTION OF THE SHARES TO BE REDEEMED REPRESENTS AN
INVESTMENT MADE BY CHECK, THE FUND WILL DELAY THE PAYMENT OF THE REDEMPTION
PROCEEDS UNTIL THE TRANSFER AGENT IS REASONABLY SATISFIED THAT THE CHECK HAS
BEEN COLLECTED, WHICH MAY TAKE UP TO 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, other than due to market fluctuations, the
Fund may redeem your account. The Fund will impose no charge and will give you
sixty days' written notice and an opportunity to raise the account balance prior
to any redemption. The Fund, 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 for more information on involuntary redemptions.
<PAGE>
EXCHANGING SHARES
You may exchange your Retail A or Retail B shares for Retail A shares of the
money market funds which includes shares of the Money Market Fund (except that
Retail B shares are not exchangeable for Institutional Money Market Fund
shares). Institutional and Y shares will be exchangeable for Institutional
shares of the money market funds when available. Prior to the Institutional
shares of the money market funds being available, Institutional and Y shares
of the Fund will be exchangeable for Retail A shares of the money market funds.
You may also exchange your shares for shares of other Firstar Funds within the
same share class if you are eligible to purchase the class at the time of the
exchange. Currently, there are no other Firstar Funds which offer Y Shares.
Unless you qualify for a sales charge exemption, 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. Retail B shares acquired in an exchange and money market fund
shares acquired in an exchange for Retail B shares will be subject to a
contingent deferred sales charge upon redemption in accordance with this
Prospectus. For purposes of computing the contingent deferred sales charge,
the length of time of ownership will be measured from the date of the original
purchase of Retail B shares.
Telephone exchange privileges automatically apply to each shareholder 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 Fund 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, shareholder 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 shareholder and the exchange privilege may be modified or
terminated at any time. At least sixty days' notice will be given to
shareholders 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, the Fund will 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. If this happens, you may initiate transactions in your
share accounts by mail or as otherwise described in this Prospectus.
Shares of the Fund also may be exchanged with shares of corresponding classes of
the Firstar Stellar Funds and Mercantile Mutual Funds, Inc. Please read the
prospectus for those funds before investing.
<PAGE>
ADDITIONAL SHAREHOLDER SERVICES
Shareholder Reports
Shareholders 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 shareholder reports will be
sent to shareholders with the same mailing address. Shareholders may request
duplicate copies free of charge.
Account statements will be mailed after each purchase, reinvestment of dividends
and redemption. Statements of accounts shall be conclusive if not objected to
in writing within 10 days after transmitted by mail. Generally, the Fund does
not send statements for funds held in brokerage, retirement or other similar
accounts.
Firstar Funds Website (www.firstarfunds.com)
The site offers educational information and interactive financial planning tools
as well as product-specific information.
Generally, Shareholders can request purchases, exchanges and redemptions of Fund
shares online via the Internet after an account is opened. 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 Mutual Fund Services, LLC
at 1-800-677-FUND.
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 Fund 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
Shareholders using a touch-tonea telephone can access information on the Fund
twenty-four hours a day, seven days a week. When calling Firstar Mutual Fund
Services, LLC at 1-800-677-FUND, shareholders 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 Traditional, Roth,
SIMPLE and SEP IRAs. For details concerning Retirement Accounts (including
service fees), please call Firstar Mutual Fund Services, LLC at 1-800-677-FUND.
<PAGE>
ADDITIONAL INFORMATION
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
Dividends and Capital Gains Distributions
Reinvested dividends and distributions receive the same tax treatment as those
paid in cash.
Dividends from net investment income of the Fund are declared and paid annually.
Any capital gains are distributed annually. A shareholder's dividends and
capital gains distributions will be reinvested automatically in additional
shares unless the Fund is notified that the shareholder elects to receive
distributions in cash.
If a shareholder 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 shareholder's address of record, such shareholder'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.
Federal Taxes
The 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). Distributions attributable to
the net capital gain of the 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 subject
to income tax on these distributions regardless of whether they are paid in cash
or reinvested in additional Shares. 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 subject to income tax 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 Fund's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the Fund receives from U.S. domestic
corporations may be eligible, in the hands of the corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. Shareholders who are nonresident
aliens, foreign trusts or estates, or foreign corporations or partnerships, may
be subject to different United States federal income tax treatment. You should
consult your tax adviser for further information regarding federal, state, local
and/or foreign tax consequences relevant to your specific situation.
<PAGE>
State and Local Taxes
Shareholders may also be subject to state and local taxes on distributions and
redemptions. State income taxes may not apply, however, to the portions of the
Fund's distributions, if any, that are attributable to interest on Federal
securities or interest on securities of the particular state or localities
within the state. Shareholders should consult their tax advisers regarding the
tax status of distributions in their state and locality.
MANAGEMENT OF THE FUND
Advisory Services
Firstar Investment Research & Management Company, LLC ("FIRMCO"), a Wisconsin
Limited Liability Company and subsidiary of Firstar Corporation, a bank holding
company, serves as investment adviser to the 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 $35.3 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 investment objective and policies of the Fund, the Adviser manages the
Fund's portfolio securities and maintains records relating to such purchases and
sales.
The Adviser is authorized to allocate purchase and sale orders for portfolio
securities to shareholder organizations, including, in the case of agency
transactions, shareholder 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.
The Adviser will receive from the Fund a fee calculated daily and payable
monthly, at the annual rate (as a percentage of the Fund's average daily net
assets) of 1.25%.
Fund Manager
Joe Frohna, CPA and Matt D'Attilio co-manage the Fund. Mr. Frohna is a Senior
Vice President and Senior Portfolio Manager of FIRMCO and has been with FIRMCO
and its affiliates since 1995. Mr. Frohna has seven years of investment
management experience and has managed the Fund since the Fund's inception. Mr.
D'Attilio is a Senior Vice President and Senior Portfolio Manager of FIRMCO and
has been with FIRMCO and its affiliates since 1993. Mr. D'Attilio has six years
of investment management experience and has managed the Fund since the Fund's
inception.
Administrative Services
Firstar Mutual Fund Services, LLC serves as the Administrator and receives fees
for those services.
Custodian, Transfer and Dividend Disbursing Agent, and Accounting Services Agent
Firstar Mutual Fund Services, LLC, an affiliate of the Adviser, provides
transfer agency, dividend disbursing agency and accounting services for the
Fund and receives fees for these services. Inquiries to the transfer agent may
be sent to: Firstar Mutual Fund Services, LLC, P.O. Box 3011, Milwaukee,
Wisconsin 53201-3011. Firstar Bank, N.A., an affiliate of the Adviser, provides
custodial services for the Fund and receives fees for those services.
NET ASSET VALUE AND DAYS OF OPERATION
The price of the Retail A, Retail B, Institutional and Y Shares (each, a
"class") is based on net asset value per share, plus, in the case of Retail A
Shares, a front-end sales charge, if applicable. 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.
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. Shares of
the Fund are not priced on days the Exchange is closed. For a complete list of
days the Exchange is closed, please see the Additional Statement.
The Fund's 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. The 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 the Fund may
change on days when shareholders will not be able to purchase or redeem the
Fund's shares.
The 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.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S 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 FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR BY
ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
<PAGE>
FOR MORE INFORMATION
STATEMENT OF ADDITIONAL INFORMATION
Additional information about the Fund and its policies is also available in the
Fund's 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 Fund's Additional Statement is available free upon request by calling
Firstar Funds at 1-800-677-FUND or 1-414-287-3808.
To obtain other information and for shareholder inquiries:
By telephone - call 1-800-677-FUND 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 Fund's documents are located online
and may be downloaded from the 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 paying a duplicating fee and sending an electronic request at the following
e-mail address at: [email protected]., or by sending your request and
-------------------
a duplicating fee to the SEC's Public Reference Section, Washington, D.C. 20549-
0102. Information on the operation of the public reference room may be obtained
by calling the SEC at 1-202-942-8090.
The Fund's Investment Company Act File Number is 811-5380
<PAGE>
FIRSTAR FUNDS, INC.
Statement of Additional Information
Small Cap Aggressive Growth Fund
______ __, 2000
TABLE OF CONTENTS
Page
Firstar Funds, Inc................................................ 2
Description of the Fund and its Investments and Risks............. 2
Investment Strategies and Risks................................... 4
Net Asset Value................................................... 19
Additional Purchase and Redemption Information.................... 20
Description of Shares............................................. 26
Additional Information Concerning Taxes........................... 28
Management of the Company......................................... 28
Custodian, Transfer Agent and Accounting Services Agent........... 34
Expenses.......................................................... 35
Independent Accountants........................................... 35
Counsel........................................................... 36
Code of Ethics.................................................... 36
Performance Calculations.......................................... 36
Miscellaneous..................................................... 38
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 ______ __, 2000, for Institutional,
Retail A, Retail B and Y Shares of the Small Cap Aggressive Growth Fund (the
"Fund") and is incorporated by reference in its entirety into the Prospectus.
Copies of the Prospectus for the Fund 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 1-800-677-FUND.
FIRSTAR FUNDS, INC.
Firstar Funds, Inc. (the "Company") is a Wisconsin corporation that 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 Retail A Shares, Retail B Shares, Institutional Shares and Y
Shares of one diversified portfolio, the Small Cap Aggressive Growth Fund (the
"Fund"). The Fund commenced operations on _______ __, 2000. The Company also
offers other investment portfolios that are described in a separate statement of
additional information. For information concerning these other portfolios,
contact Firstar Mutual Fund Services, LLC at 1-800-677-FUND or write to 615 East
Michigan Street, P.O. Box 3011, Milwaukee, Wisconsin 53201-3011.
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
The Company is a diversified, open-end management investment company. The
following policies supplement the Fund's investment objectives and policies as
set forth in the Prospectus.
Portfolio Transactions
----------------------
Subject to the general supervision of the Board of Directors, Firstar
Investment Research & Management Company, LLC ("FIRMCO" or the "Adviser") is
responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for the Fund.
The portfolio turnover rate for the 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 Fund to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making portfolio
decisions, and the 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 that involve the payment of negotiated brokerage
commissions, transactions in foreign securities generally involve the payment of
fixed brokerage commissions that 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 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.
The Fund 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 Fund will engage in this practice, however, only when the Adviser, in its
sole discretion, believes such practice to be in the Fund's interests.
<PAGE>
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 commissions, if any, both
for the specific transaction and on a continuing basis. In addition, the
Agreement authorizes the Adviser to cause the Fund 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 Fund. 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 Fund. The Directors will periodically
review the commissions paid by the Fund to consider whether the commissions paid
over representative periods of time appear to be reasonable in relation to the
benefits inuring to the Fund. 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, the 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, or Quasar Distributors, LLC (the
"Distributor") or an affiliated person of either of them (as such term is
defined in the Investment Company Act of 1940, as amended (the "1940 Act"))
acting as principal. In addition, the Fund will not purchase securities during
the existence of any underwriting or selling group relating thereto of which the
Distributor or its 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 Fund are made independently from those for
other investment companies and accounts advised or managed by its Adviser. Such
other investment companies and accounts may also invest in the same securities
as the Fund. When a purchase or sale of the same security is made at
substantially the same time on behalf of the 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 the 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 the Fund with those to be sold or purchased for other
investment companies or accounts in executing transactions.
<PAGE>
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
the 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 the 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 involved should continue to hold the security. For a more
detailed description of ratings, see Appendix A.
Securities Lending. The Fund 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 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 the 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 the 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, the Fund will maintain
such value by the daily marking-to-market of the collateral.
Money Market Instruments. The Fund 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 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% for temporary defensive purposes during abnormal market
conditions.
<PAGE>
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 Fund will invest in money market obligations
of foreign banks or foreign branches of U.S. banks only where the Adviser
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 the Fund in the
obligations of foreign banks and foreign branches of U.S. banks will not exceed
25% of the Fund's total assets at the time of purchase. The Fund 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 the 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 Fund 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 the Fund as previously described.
The Fund 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, the 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 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, the 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 Fund invests in
variable amount master demand notes only when the Adviser deems the investment
to involve minimal credit risk.
Repurchase Agreements. The 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 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 the 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 Fund's 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. The 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.
<PAGE>
The Fund may invest from time to time in securities issued by other
investment companies that invest in high-quality, short-term debt securities.
Securities of other investment companies will be acquired by the Fund within the
limits prescribed by the 1940 Act. As a shareholder of another investment
company, the Fund would bear, along with other shareholders, 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
shareholders. These expenses would be in addition to the advisory and other
expenses that the Fund bears directly in connection with its own operations.
U.S. Government Obligations. The Fund may invest in a variety of U.S.
---------------------------
Treasury obligations including bonds, notes and bills that mainly differ only in
their interest rates, maturities and time of issuance. The Fund 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.
Bank Obligations. For purposes of the Fund's 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. The 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 Receipts") 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 Fund may invest up to 15% 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 Fund 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 and private placement securities. Private placement securities are
securities that have not been registered under the Securities Act of 1933. Rule
144 Securities are restricted securities that are eligible for resale pursuant
to Rule 144A under the Securities Act of 1933. The Fund may treat a Rule 144A
security as liquid if determined to be so under procedures adopted by the Board.
Borrowings and Reverse Repurchase Agreements. The Fund may borrow money to
--------------------------------------------
the extent allowed (as described under "Additional Investment Limitations"
below) to meet shareholder redemptions from banks or through reverse repurchase
agreements. These strategies involve leveraging. If the securities held by the
Fund should decline in value while borrowings are outstanding, the net asset
value of the Fund's outstanding shares will decline in value by proportionately
more than the decline in value suffered by the Fund's securities. As a result,
the Fund's share price may be subject to greater fluctuation until the borrowing
is paid off.
<PAGE>
Reverse repurchase agreements are considered to be borrowings under the
1940 Act. At the time the 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
ensure that such value is maintained. Reverse repurchase agreements involve the
risks that the interest income earned by the 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 the Fund may decline below the price of
the securities it is obligated to repurchase and that the securities may not be
returned to the Fund.
Preferred Stocks. The 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 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.
When-Issued Purchases, Delayed Delivery and Forward Commitments. The Fund
---------------------------------------------------------------
may purchase or sell particular securities with payment and delivery taking
place at a 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. The Fund's forward commitments and when-issued purchases
are limited to 20% of the value of its total assets absent unusual market
conditions. When the 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 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 commitments ever exceeded 20% 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 than the price or yield
(and therefore the value of a security) available in the market when the
securities delivery takes place.
The Fund 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,
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 capital gain or loss.
When the Fund engages in when-issued, delayed delivery 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 incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.
<PAGE>
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 the 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 the 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.
Equities. The Fund maintains 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 that
meets the Fund's valuation 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 that
meet the Fund's investment criteria. The Fund's investment in equity
securities may include limited partnership interests.
The increase or decrease of cash equivalents in the Fund is primarily the
residual effect of the research process. The portion of the 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 the Fund. Under normal market conditions, at least 65% of the
value of the Fund's total assets will be invested in equity securities. The
Fund does not attempt to "time" the securities market.
Certain securities owned by the 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 and
the Fund may have 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.
Foreign Equities. The Fund's 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 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
<PAGE>
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 Fund does
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 the Fund's net asset value (positively or negatively)
irrespective of the performance of the portfolio securities held by the Fund.
The Fund and its shareholders 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 Fund may be subject to greater fluctuation in price than
securities of domestic companies.
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.
Equity Swaps. The Fund may enter into equity swap contracts to invest in a
------------
market without owning or taking physical custody of securities in circumstances
in which direct investment is restricted for legal reasons or is otherwise
impracticable. Equity swaps may also be used for hedging purposes or to seek to
increase total return. The counterparty to an equity swap contract will
typically be a bank, investment banking firm or broker/dealer. Equity swaps may
be structured in different ways. For example, a counterparty may agree to pay
the Fund the amount, if any, by which the notional amount of the equity swap
contract would have increased in value had it been invested in the particular
stocks (or an index of stocks), plus the dividends that would have been received
on those stocks. In those cases, the Fund may agree to pay to the counterparty
a floating rate of interest on the notional amount of the equity swap contract
plus the amount, if any, by which that notional amount would have decreased in
value had it been invested in such stocks. Therefore, the return to the Fund on
the equity swap contract should be the gain or loss on the notional amount plus
dividends on the stocks less the interest paid by the underlying Fund on the
notional amount. In other cases, the counterparty and the Fund may each agree
to pay the other the difference between the relative investment performances
that would have been achieved if the notional amount of the equity swap contract
had been invested in different stocks (or indices of stocks).
<PAGE>
The Fund will enter into equity swaps only on a net basis, which means that
the two payment streams are netted out, with the Fund receiving or paying, as
the case may be, only the net amount of the two payments. Payments may be made
at the conclusion of an equity swap contract or periodically during its term.
Equity swaps do not involve the delivery of securities or other underlying
assets. Accordingly, the risk of loss with respect to equity swaps is limited
to the net amount of payments that the Fund is contractually obligated to make.
If the other party to an equity swap defaults, the Fund's risk of loss
consists of the net amount of payments that the Fund is contractually entitled
to receive, if any. Inasmuch as these transactions are offset by segregated
cash or liquid assets to cover the Fund's potential exposure, the Fund and the
Adviser believes that these transactions do not constitute senior securities
under the Act and, accordingly, will not treat them as being subject to the
Fund's borrowing restrictions.
The Fund will not enter into equity swap transactions unless the unsecured
commercial paper, senior debt or claims paying ability of the other party
thereto is considered to be investment grade by the Adviser.
Other Portfolio Information
Options Trading. As stated in the Prospectus, the Fund may purchase put
---------------
and call options. Option purchases by the Fund will not exceed 5% of its net
assets. 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. 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 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.
Closing transactions in certain options are usually effected directly with
the same broker-dealer that effected the original option transaction. The 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 the 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.
<PAGE>
The 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, the 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 the 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 the 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 the 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, the Fund may sell covered call
options listed on a national securities exchange. Such options may relate to
particular securities or to various indices. A call option on a security is
covered if the 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 the Fund maintains with its custodian cash or cash
equivalents equal to the contract value. A call option is also covered if the
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 the Fund in cash or cash equivalents in
a segregated account with its custodian. The aggregate value of the Fund's
assets subject to covered options written by the Fund will not exceed 5% of the
value of its net assets during the current year.
The 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 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 transaction costs
may be greater than the premium received upon the original option, in which
event the 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. The 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, the 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 Fund. When the 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
<PAGE>
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 the 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.
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 Fund 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 the 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.
For example, the 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 the Fund to purchase or sell interest rate futures contracts, or
options thereon, which provide for the future delivery of specified fixed-income
securities.
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 the 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
liquid secondary market for futures contracts (or related options) and the
resulting inability of the 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 Adviser's
ability to correctly predict movements in the direction of the market. For
example, if the 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.
<PAGE>
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 the 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 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.
The 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, the 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."
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"). In addition
------------------------------------------------------------
to the direct investments in foreign securities that the Fund may make, the Fund
may invest in sponsored 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
<PAGE>
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 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 the 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 the Fund and distributed to its
shareholders. These distributions must be made from the 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 Fund 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, the 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 the 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; or (2) are unrated and have not been
determined by the Adviser to be of comparable quality to a security rated
investment grade. Securities
<PAGE>
rated below investment grade are predominantly speculative and are commonly
referred to as junk bonds. To the extent the 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 the
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 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 non-investment grade as a
result of these events and that exceed 5% of the Fund's net assets.
As described in the Prospectus, the Fund may invest a portion of its assets
in convertible securities that are rated below investment grade.
Warrants. The Fund 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 the 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 the Fund's net assets will be invested in warrants. This 5% limit includes
warrants that are not listed on any stock exchange.
Short Sales. The Fund may engage in short sales. In a short sale
-----------
transaction, the 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. If
the 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. 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. 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 shareholders 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 shareholders will be closely monitored.
Small Companies and Unseasoned Issuers. Small companies in which the Fund
--------------------------------------
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.
<PAGE>
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 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.
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 Fund when the Adviser believes such investments offer possibilities of
attractive capital appreciation.
Portfolio Turnover. The 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 shareholders. 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.
Investment Limitations
----------------------
The Fund is subject to the investment limitations enumerated in this
subsection which may be changed only by a vote of the holders of a majority of
the Fund's outstanding shares (as defined under "Miscellaneous" below).
The Fund may not:
1. Make loans, except that the 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 the 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.
<PAGE>
5. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as the 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 except that (a) this investment limitation shall not
apply to the Fund's transactions in futures contracts and related
options and short sales against the box, and (b) the 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 the 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.
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) 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) 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.
11. Borrow money or issue senior securities, except that the Fund may
borrow from banks and enter into reverse repurchase agreements for
temporary purposes in amounts up to one-third of the value of the
total assets at the time of borrowing; or mortgage, pledge or
hypothecate any assets, except in connection with any borrowing and in
amounts not in excess of the lesser of the dollar amounts borrowed or
one-third of the value of the Fund's total assets at the time of
borrowing. The Fund will not purchase securities while its borrowings
(including reverse repurchase agreements) in excess of 5% of its total
assets are outstanding. The 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 Prospectus are not deemed to be pledged for purposes of this
limitation.
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 violation of such
limitation.
<PAGE>
The Fund will monitor liquidity on an ongoing basis to determine whether an
adequate level of liquidity is being maintained.
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.
For purposes of investment limitation no. 1, "total assets" includes the
value of the collateral for the securities loaned.
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 the Fund is calculated separately for the
Institutional Shares, Retail A Shares, Retail B Shares and Y Shares by adding
the value of all portfolio securities and other assets belonging to the 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 the Fund consist of the consideration received
upon the issuance of shares of the 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 Fund 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 the Fund are borne by each share of the Fund,
except for: certain payments under the Fund's Distribution and Service Plans
applicable only to Retail A Shares and Retail B Shares; and certain payments
under the Fund's Shareholder Servicing Plans applicable only to Retail A Shares,
Retail B Shares and Y 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 the Fund are conclusive.
Net asset value for purposes of pricing purchase and redemption orders is
determined as of the close of regular trading hours on the New York Stock
Exchange (the "Exchange"), normally, 3:00 p.m. Central Time, on each day the
Exchange is open for trading. Currently, the Exchange observes the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day (observed), Independence Day (observed), Labor Day,
Thanksgiving and Christmas.
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 the 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 at the current bid prices. 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 the Fund is
not calculated. The calculation of the net asset value of the 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 the Fund.
<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Computation of Offering Price of the Fund. An illustration of the
-----------------------------------------
computation of the initial offering price per share of the Retail A Shares based
on the value of the Fund's net assets and number of outstanding securities at
September 1, 2000 follows:
Small Cap
---------
Aggressive
----------
Growth Fund
-----------
Net Asset Value $10.00
Per Share
Sales Charge, 5.50%
of offering price
(5.82% of net asset 0.58
value per share)
Public Offering $10.58
Price
Shareholder organizations or Institutions may be paid by the Fund for
advertising, distribution or shareholder services. Depending on the terms of the
particular account, shareholder 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. Shareholder 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 Fund 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 Fund may also suspend or postpone the recording
of the transfer of its 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 Fund's Prospectus under
"Redemption of Shares," the Fund may redeem shares involuntarily when
appropriate under the 1940 Act, such as to reimburse the Fund for any loss
sustained by reason of the failure of a shareholder to make full payment for
shares purchased by the shareholder or to collect any charge relating to a
transaction effected for the benefit of a shareholder 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 A 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 $1,000, the sales
<PAGE>
charge applicable to the subsequent purchase would be reduced to 3.50% 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.
B. Letter of Intent
As discussed in the Prospectus, Retail A 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 redemptions 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, shareholders
------------------
authorize the transfer agent to act on telephonic or written exchange
instructions from any person representing himself to be the shareholder or in
some cases, the shareholder'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 shareholders.
Exchange transactions described in paragraphs A, B, C, D, E and F below
will be made on the basis of the relative net asset values per share of the
Firstar Funds included in the transaction.
A. Retail A Shares of the Fund 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 other Retail A Shares
of any other Firstar Fund offered by the Company.
B. Retail A Shares of the Fund offered by the Company or Money Market Fund
Shares ("MMF Shares") 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 Firstar 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. Retail B Shares acquired pursuant to an exchange transaction will
continue to be subject to a contingent deferred sales charge. However, Retail B
Shares that have been acquired through an exchange of Retail B Shares may be
exchanged for other Retail B Shares without the payment of a contingent deferred
sales charge at the time of exchange. In determining the holding period for
calculating the contingent deferred sales charge payable on redemption of Retail
B Shares, the holding period of the shares originally held will be added to the
holding period of the shares acquired through exchange.
<PAGE>
D. Retail B Shares may be exchanged for MMF Shares (but not for
Institutional Money Market Fund Shares) without paying a contingent deferred
sales charge. In determining the holding period for calculating the contingent
deferred sales charge payable on redemption of Retail B Shares, the holding
period of the shares originally held will be added to the holding period of the
shares acquired through exchange. If the shareholder subsequently exchanges the
shares back into Retail B Shares of the Fund, the holding period accumulation on
the shares will continue to accumulate. In the event that a shareholder wishes
to redeem MMF Shares acquired by exchange for Retail B Shares of the Fund, the
contingent deferred sales charge applicable to the accumulated Retail B
Shares and Money Market Fund Shares will be charged.
E. Retail A Shares of the Fund may be exchanged without a sales load for
Retail A Shares in any other Firstar Fund that are offered without a sales load.
F. Institutional Shares of the Fund may be exchanged for Institutional
Shares of any other Firstar Fund.
G. Y shares of the Fund may be exchanged for Y Shares of any other Fund
when available. Y Shares of the Fund may be exchanged for Institutional Shares
of a Money Market Fund when available. Prior to the Institutional Shares of the
Money Market Funds being available, Y Shares of the Fund will be exchangeable
for Retail A Shares of the Money Market Funds.
Except as stated above, a sales load will be imposed when shares of the
Fund that were purchased or otherwise acquired without a sales load are
exchanged for Retail A Shares of another Firstar Fund which are sold with a
sales load.
Retail A Shares of the Fund will be exchanged for Institutional Shares if
the shares are registered in the name of an employer-sponsored qualified
retirement plan administered by Firstar and assets equal or exceed $1 million at
the preceding month-end. The date of the exchange will be 15 business days
following the month-end in which the plan assets equal or exceed $1 million.
Shares in a Firstar Fund from which the shareholder 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 Firstar Fund into which the shareholder
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.
As noted in the Prospectus, shares of the Fund may be exchanged with
shares of corresponding classes of the Firstar Stellar Fund and the Mercantile
Mutual Fund, Inc. The Firstar Stellar Fund currently offers the Treasury, Tax-
Free Money Market, Ohio Tax-Free Money Market, Strategic Income, U.S. Government
Income, Insured Tax-Free Bond, Growth Equity, Relative Value, Science and
Technology, Stellar, Capital Appreciation and International Equity Funds. The
Mercantile Mutual Funds, Inc. currently offers the Treasury Money Market, Money
Market, Tax-Exempt Money Market, U.S. Government Securities, Intermediate
Corporate Bond, Bond Index, Government & Corporate Bond, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond, National Municipal Bond, Balanced, Equity
Income, Equity Index, Growth & Income Equity, Growth Equity, Small Cap Equity,
Small Cap Equity Index and International Equity Portfolios. FIRMCO, the Fund's
adviser, also serves as the adviser to Mercantile Mutual Funds, Inc. Prior to
March 1, 2000, Mississippi Valley Advisors Inc. ("MVA") served as adviser to
Mercantile Mutual Funds, Inc. On March 1, 2000, MVA merged into FIRMCO. The
Firstar Stellar Funds are advised by FIRMCO. Firstar Bank, N.A. and FIRMCO are
under the common control of Firstar Corporation.
Exemptions from CDSC. Certain types of redemptions may also qualify for an
--------------------
exemption from the contingent deferred sales charge. To receive exemptions (i),
(ii) or (iii) below, a shareholder 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 Shareholder Organization or
the Distributor at the time Retail B Shares are redeemed. The following is a
more detailed description of certain of the
<PAGE>
instances described in the Prospectus in which the contingent deferred sales
charge with respect to the B Shares is not assessed:
(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"), due to death,
disability or the attainment of a specified age;
(ii) redemptions in connection with the death or disability of a shareholder;
or
(iii) redemptions resulting from certain tax-free returns from IRAs of excess
contributions pursuant to section 408(d)(4) or (5) of the Code.
Retirement Plans: Retail A and Retail B Shares of the Fund
----------------------------------------------------------
Individual Retirement Accounts. The Company has available a plan (the
------------------------------
"Traditional IRA") for use by individuals with compensation for services
rendered (including earned income from self-employment) who wish to use shares
of the Fund as a funding medium for individual retirement saving. However,
except for rollover contributions, an individual who has attained, or will
attain, age 70 1/2 before the end of the taxable year may only contribute to a
Traditional IRA for his or her nonworking spouse under age 70 1/2. Distribution
of an individual's Traditional IRA assets (and earnings thereon) before the
individual attains age 59 1/2 will (with certain exceptions) result in an
additional 10% tax on the amount included in the individual's gross income.
Earnings on amounts contributed to the Traditional IRA are not subject to
federal income tax until distributed.
The Company also has available a Roth Individual Retirement Account (the
"Roth IRA") for retirement saving for use by individuals with compensation for
services rendered. A single individual with adjusted gross income of up to
$110,000 may contribute to a Roth IRA (for married couples filing jointly, the
adjusted gross income limit is $160,000), and contributions may be made even
after the Roth IRA owner has attained age 70 1/2, as long as the account owner
has earned income. Contributions to a Roth IRA are not deductible. Earnings on
amounts contributed to a Roth IRA, however, are not subject to federal income
tax when distributed if the distribution is a "qualified distribution" (i.e.,
the Roth IRA has been held for at least five years beginning with the first tax
year for which a contribution was made to the Roth IRA and the distribution is
due to the account owner's attainment of age 59 1/2, disability or death, or for
qualified first-time homebuyer expenses). A non-qualified distribution of an
individual's Roth IRA assets (and the earnings thereon) will (with certain
exceptions) result in an additional 10% tax on the amount included in the
individual's gross income.
The Company permits certain employers (including self-employed individuals)
to make contributions to employees' Traditional IRAs if the employer establishes
a Simplified Employee Pension ("SEP") plan and/or a Salary Reduction SEP
("SARSEP"). Although SARSEPs may not be established after 1996, employers may
continue to make contributions to SARSEPs established before January 1, 1997,
under the pre-1997 federal tax law. A SEP permits an employer to make
discretionary contributions to all of its employees' Traditional IRAs (employees
who have not met certain eligibility criteria may be excluded) equal to a
uniform percentage of each employee's compensation (subject to certain limits).
If an employer (including a self-employed individual) established a SARSEP
before January 1, 1997, employees may defer a percentage of their compensation -
- pre-tax -- to Traditional IRAs (subject to certain limits). The Code provides
certain tax benefits for contributions by an employer, pursuant to a SEP and/or
SARSEP, to an employee's Traditional IRA. For example, contributions to an
employee's Traditional IRA pursuant to a SEP and/or SARSEP are deductible
(subject to certain limits) and the contributions and earnings thereon are not
taxed until distributed.
Savings Incentive Match Plan for Employees of Small Employers. The Company
-------------------------------------------------------------
also has available a simplified tax-favored retirement plan for employees of
small employers (a "SIMPLE IRA
<PAGE>
Plan"). If an employer establishes a SIMPLE IRA Plan, contributions under the
Plan are made to eligible employees' SIMPLE individual retirement accounts
("SIMPLE IRAs"). Each eligible employee may choose to defer a percentage of his
or her pre-tax compensation to the employee's SIMPLE IRA. The employer must
generally make an annual matching contribution to the SIMPLE IRA of each
eligible employee equal to the employee's salary reduction contributions, up to
a limit of 3 percent of the employee's compensation. Alternatively, the
employer may make an annual non-discretionary contribution to the SIMPLE IRA of
each eligible employee equal to 2 percent of each employee's compensation. As
with contributions to an employee's IRA pursuant to a SEP and/or SARSEP, the
Code provides tax benefits for contributions by an employer, pursuant to a
SIMPLE IRA Plan, to an employee's SIMPLE IRA. For example, contributions to an
employee's SIMPLE IRA are deductible (subject to certain limits) and the
contributions and earnings thereon are not taxed until distributed.
In the SIMPLE IRA Plan and in Traditional and Roth IRAs, distributions of
net investment income and capital gains will be automatically reinvested.
The foregoing brief descriptions are not complete or definitive
explanations of the SIMPLE IRA Plan, the Traditional IRA, or the Roth IRA
available for investment in the Fund. Any person who wishes to establish a
retirement plan account may do so by contacting Investor Services at 800-677-
FUND. The complete Plan documents and applications will be provided to existing
or prospective shareholders upon request, without obligation. The Company
recommends that investors consult their attorneys or tax advisors to determine
if the retirement programs described herein are appropriate for their needs.
Additional Information Regarding Shareholder Services for Retail Shares
-----------------------------------------------------------------------
The Retail A and Retail B Shares of the Fund offer a Periodic Investment
Plan whereby a shareholder may automatically make purchases of shares of the
Fund on a regular, monthly basis ($50 minimum per transaction). Under the
Periodic Investment Plan, a shareholder's designated bank or other financial
institution debits a preauthorized amount on the shareholder'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 the 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 shareholder's account or the shareholder'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 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 Fund permit shareholders to effect
ConvertiFund/R transactions, an automated method by which a Retail shareholder
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.
<PAGE>
The Retail A and Retail B Shares of the Fund offer shareholders a
Systematic Withdrawal Plan, which allows a shareholder who owns shares of the
Fund worth at least $5,000 at current net asset value at the time the
shareholder initiates the Systematic Withdrawal Plan to designate that a fixed
sum ($50 minimum per transaction) be distributed to the shareholder or as
otherwise directed at regular intervals.
Special Procedures for In-Kind Payments
---------------------------------------
Payment for shares of the 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 1-800-677-FUND. In connection with an
in-kind securities payment, the 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"). The class below is divided into four series designated as
Institutional Shares, Retail A Shares, Retail B Shares and Y Shares (each, a
"Series") and consists of the number of shares set forth next to the Fund name
in the table below:
Class-Series of Fund in which Stock Number of Authorized
Common Stock Represents Interest Shares in Each Series
----------------- --------------------------- ---------------------
21-Institutional Small Cap Aggressive Growth 100 Million
21-A 100 Million
Class-Series of Fund in which Stock Number of Authorized
Common Stock Represents Interest Shares in Each Series
----------------- --------------------------- ---------------------
21-B 100 Million
21-Y 100 Million
The Board of Directors has also authorized the issuance of classes 1
through 20 common stock representing interests in twenty other separate
investment portfolios which are described in a separate statement of additional
information. The remaining authorized shares are classified into nine
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 the Fund,
shareholders of the Fund would be entitled to receive the assets available for
distribution belonging to the 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
Fund's Prospectus, shareholders of the Fund are entitled to participate equally
in the net distributable assets of the Fund involved on liquidation, based on
the number of shares of the Fund that are held by each shareholder.
Shareholders of each class of the Fund are entitled to one vote for each
full share held and proportionate fractional votes for fractional shares held.
Shareholders of the Fund, 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 shareholders of a particular
<PAGE>
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
shareholders 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 shareholders of the Company voting together in
the aggregate without regard to particular portfolios. Similarly, on any matter
submitted to the vote of shareholders which only pertains to agreements,
liabilities or expenses applicable to one series of the 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 the Fund represents an equal proportionate interest
with other Retail Shares in the 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 Fund do not have preemptive rights.
When issued for payment as described in the Fund's Prospectus and this
SAI, shares of the Fund 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 shareholders 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
shareholder 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 shareholders 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
The 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 the 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. Moreover, if the Fund were to fail to
make sufficient distributions in a year, the Fund would be subject to corporate
income taxes and/or excise taxes in respect of
<PAGE>
the shortfall or, if the shortfall is large enough, the Fund could be
disqualified as a regulated investment company.
A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute with respect to each calendar year at least 98% of their
ordinary taxable income for the calendar year and capital gain net income
(excess of capital gains over capital losses) for the one year period ending
October 31 of such calendar year and 100% of any such amounts that were not
distributed in the prior year. The Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by the Fund on December 31
of such year if such dividends are actually paid during January of the following
year.
The Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to back-up withholding by the Internal Revenue Service
for failure to properly include on his or her return payments of taxable
interest or dividends, or (iii) has failed to certify to the Fund that he or she
is not subject to back-up withholding when required to do so or that he or she
is an "exempt recipient."
MANAGEMENT OF THE COMPANY
The business and affairs of the Fund are managed under the direction of
the Board of Directors of the Company. The Board is responsible for acting on
behalf of the shareholders.
The Board does not normally hold shareholder meetings except when required
by the 1940 Act or other applicable law. The Board will call a shareholders'
meeting for the purpose of voting on the question of removal of a Director when
requested to do so in writing by the record holders of not less than 10% of the
outstanding shares of the Company that are entitled to vote.
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:
Position(s)
held with the Principal Occupations During Past 5
Name, Address & Age Company Years and Other Affiliations
----------------------------------------------------------------------------
Chairman of the Vice President and Chief Financial
James M. Wade Board Officer, Johnson Controls, Inc. (a
2802 Wind Bluff controls manufacturing company),
Circle January 1987-May 1991.
Wilmington, NC 28409
Age: 57
<PAGE>
Glen R. Bomberger
One Park Plaza Director Executive Vice President, Chief
11270 West Park Place Financial Officer and Director, A.O.
Milwaukee, WI 53224- Smith Corporation (a diversified
3690 manufacturing company) since January
Age: 63 1987; Director of companies
affiliated with A.O. Smith
Corporation; Director, Smith
Investment Company; Director of
companies affiliated with Smith
Investment Company.
Jerry G. Remmel Director Vice President, Treasurer and Chief
16650-A Lake Circle Financial Officer of Wisconsin
Brookfield, WI 53005 Energy Corporation 1994-1996;
Age: 69 Treasurer of 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
400 Three Springs Officer of Weirton Steel since 1995;
Drive Director of Weirton Steel since
Weirton, WV 26062- 1993; Executive Vice President and
4989 Chief Financial Officer, Weirton
Age: 56 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; Trustee of Carnegie
Mellon University since 1997.
Charles R. Roy Director Vice President - Finance, Chief
14245 Heatherwood
Court Rexnord Corporation (an equipment
Elm Grove, WI 53122 manufacturing company), 1988 - 1992;
<PAGE>
Position(s)
held with the Principal Occupations During Past 5
Name, Address & Age Company Years and Other Affiliations
----------------------------------------------------------------------------
Age: 69 Vice President - Finance and
Administration, Rexnord Inc., 1982 -
1988; Officer and Director of
several Rexnord subsidiaries until
1992.
Bruce Laning Director, President and CEO, FIRMCO since
777 E. Wisconsin President and 2000; Director, FIRMCO since 2000;
Avenue, Treasurer Senior Vice President, FIRMCO since
Suite 800 1999; Vice President, FIRMCO since
Milwaukee, WI 53202 1994.
Age: 40
Secretary Partner of the law firm of Drinker
W. Bruce McConnel Biddle & Reath LLP.
One Logan Square
18th & Cherry Streets
Philadelphia, PA
19103
Age: 57
Position(s)
held with the Principal Occupations During Past 5
Name, Address & Age Company Years and Other Affiliations
----------------------------------------------------------------------------
Laura J. Rauman Vice President Senior Vice President of
777 E. Wisconsin Operations, FIRMCO since 1995; Vice
Avenue, President of Mercantile Mutual
Suite 800 Funds, Inc. since 2000; Senior
Milwaukee, WI 53202 Auditor, Price Waterhouse, LLP,
Age: 31 prior thereto.
Joseph C. Neuberger Assistant Senior Vice President, Firstar
615 E. Michigan Street Treasurer Mutual Fund Services, LLC since
Milwaukee, WI 53202 1994; Manager, Arthur Andersen LLP,
Age: 38 prior thereto.
Bronson J. Haase<F1> Director President and CEO of Wisconsin Gas
626 E. Wisconsin Company, WICOR Energy, FieldTech
Avenue and Vice President of WICOR, Inc.
Milwaukee, WI 53202 since 1998; President and CEO of
Age: 56 Ameritech - Wisconsin (formerly
Wisconsin Bell) 1993-1998;
President of Wisconsin Bell
Communications 1988-1993; Board of
Directors, The Marcus Corporation;
Trustee of Roundy Foods; Chairman
of the Wisconsin Utilities
Association.
<F1> Mr. Haase and Mr. Laning 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, 1999 of the Company's Directors.
TOTAL
PENSION OR COMPENSATION
RETIREMENT ESTIMATED FROM
AGGREGATE BENEFITS ANNUAL COMPANY
NAME OF COMPENSATION ACCRUED AS BENEFITS AND FUND
PERSON/ FROM THE PART OF FUND UPON COMPLEX* PAID
POSITION COMPANY EXPENSES RETIREMENT TO DIRECTORS
-------------- ----------- ------------- ----------- -------------
James M. Wade $18,500 $0 $0 $18,500
Chairman of
the Board
Glen R. $15,000 $0 $0 $15,000
Bomberger
Director
Jerry G. $15,000 $0 $0 $15,000
Remmel
Director
Richard K. $15,000 $0 $0 $15,000
Riederer
Director
Charles R. $15,000 $0 $0 $15,000
Roy
Director
Bronson J. $15,000 $0 $0 $15,000
Haase
Director
<F1> The "Fund Complex" includes only the Company. The Company is comprised of
21 separate portfolios.
<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, 1999, the
Directors and Officers received aggregate fees and reimbursed expenses of
$88,492. Mr. Laning, 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 Mr. Laning 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 Senior 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 July 31, 2000, the Directors and Officers of the Company, as a
group, owned less than 1% of the outstanding shares of the Fund.
<PAGE>
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 is the investment adviser to the 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 Fund.
In addition to the compensation stated in the Prospectus, the Adviser is
entitled to 4/10ths of the gross income earned by the 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 Fund.
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 Fund 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.
Regulatory Matters. Conflict of interest restrictions may apply to the
------------------
receipt of compensation paid pursuant to a Servicing Agreement by the Fund to a
financial intermediary in connection with the investment of fiduciary funds in
the Fund's 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, should consult legal counsel before entering into Servicing
Agreements.
Shares of the Fund 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 Fund
involves risks including possible loss of principal.
Administration and Distribution Services
----------------------------------------
Firstar Mutual Fund Services, LLC serves as administrator (the
"Administrator") to the Fund. Under the Fund Administration Servicing
Agreement, the Administrator has agreed to maintain office facilities, furnish
clerical services, stationery and office supplies; monitor the
<PAGE>
company's arrangements with respect to services provided by Shareholder
Organizations and Institutions; and generally assist in the Fund's operations.
The following administrative services are also provided by Firstar Mutual Fund
Services, LLC: compile data for and prepare, with respect to the Fund, timely
Notices to the SEC required pursuant to Rule 24f-2 under the 1940 Act and Semi-
Annual Reports to the SEC and current Shareholders; 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 shareholders and Registration Statements for the
Fund; monitor the Fund's expense accruals and cause all appropriate expenses to
be paid on proper authorization from the Fund; monitor the Fund's status as a
regulated investment company under Subchapter M of the Code; maintain the Fund's
fidelity bond as required by the 1940 Act; and monitor compliance with the
policies and limitations of the Fund as set forth in the Prospectus and SAI.
The Administrator is entitled to receive a fee for its 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 Administrator may voluntarily waive all or a portion of its administrative
fee from time to time. This waiver may be terminated at any time at the
Administrator's discretion.
Under the Fund Administration Servicing Agreement, the Administrator is
not liable for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the performance of the Agreement, except a loss
resulting from willful misconduct, bad faith or negligence on the part of the
Administrator in the performance of its duties.
The Distributor, located at 615 East Michigan Street, Milwaukee, Wisconsin
53202, provides distribution services for the Fund as described in the Fund's
Prospectus pursuant to a Distribution Agreement with the Fund under which the
Distributor, as agent, sells shares of the 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 shareholders of the Fund (excluding
preparation and printing expenses necessary for the continued registration of
the Fund's shares) and of printing and distributing all sales literature. On
January 1, 1995 and until August 1, 2000, B.C. Ziegler and Company ("Ziegler")
served as distributor. For the fiscal year ended October 31, 1999, 1998 and
1997, the distributor received no fees for its distribution services.
Firstar Trust Company became a Co-Administrator to the Funds on September
1, 1994, and assigned its rights and obligations to the Administrator on October
1, 1998. On January 1, 1995 and until August 1, 2000, B.C. Ziegler and Company
served as co-administrator to the Funds (together, the "Co-Administrators").
<PAGE>
Shareholder Organizations
-------------------------
Y Shares
As stated in the Fund's Prospectus, the Fund intends to enter into
agreements from time to time with Shareholder Organizations providing for
support services to customers of the Shareholder Organizations who are the
beneficial owners of Y Shares of the Fund. Under the agreements, the Fund may
pay Shareholder Organizations up to 0.25% (on an annualized basis) of the
average daily net asset value of Y Shares beneficially owned by their customers.
Support services provided by Shareholder Organizations under their 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 shareholder 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. The Funds' arrangements
with Shareholder Organizations under the agreements are governed by the Service
Plan for the Y Shares, which has been adopted by the Board of Directors.
Retail A Shares
As stated in the Fund's Prospectus the Fund intends to enter into
agreements from time to time with Shareholder Organizations providing for
support and/or distribution services to customers of the Shareholder
Organizations who are the beneficial owners of Retail A Shares of the Fund.
Under the agreements, the Fund may pay Shareholder 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 Shareholder
Organizations under their Service Agreements or Distribution and Service
Agreements may include: (i) processing dividend and distribution payments from
the 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 shareholder 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 Fund. In addition, Shareholder
Organizations, under the Distribution and Service Plan 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
Fund's Retail A Shares.
The Fund's arrangements with Shareholder 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 Fund.
Under the Distribution and Service Plan, payments by the Company (i) for
distribution expenses may not exceed 0.75% (annualized) of the average daily
net assets attributable to the Fund's outstanding Retail B Shares; and (ii) for
shareholder
<PAGE>
liaison services may not exceed 0.25% (annualized), respectively, of the average
daily net assets attributable to the Fund's outstanding Retail B Shares. Under
the separate Service Plan for the Retail B Shares, payments by the Company for
shareholder administrative support services may not exceed 0.25% (annualized) of
the average daily net assets attributable to the Fund's outstanding Retail B
Shares.
Because the Distribution and Service Plans contemplate 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 Fund's 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 Fund (as defined in the 1940
Act) and have no direct or indirect financial interest in such arrangements (the
"Disinterested Directors").
The Fund believes that there is a reasonable likelihood that its
arrangements with Shareholder Organizations will benefit the Fund and the
holders of Retail A, Retail B or Y Shares as a way of allowing Shareholder
Organizations to participate with the Fund in the provision of support and
distribution services to customers of the Shareholder Organization who own
Retail A, Retail B or Y Shares. Any material amendment to the arrangements with
Shareholder 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 the Fund must be approved by the holders of a
majority of the outstanding Retail A or Retail B Shares of the Fund. 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 Fund will be committed to the discretion of such Disinterested Directors.
Under the terms of their agreement with Firstar, Shareholder 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 Shareholder
Organizations with respect to the availability of shareholder services and the
particular Shareholder Organization's procedures for purchasing and redeeming
shares. It is the responsibility of Shareholder 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 Shareholder Organization, the transfer agent's charge of $12.00 for
each payment made by wire of redemption proceeds may be billed directly to the
Shareholder Organization.
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES AGENT
Firstar Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45202, serves as
custodian of all the Fund's assets. Under the Custody Agreement, Firstar Bank,
N.A. has agreed to (i) maintain a separate account in the name of the Fund, (ii)
make receipts and disbursements of money on behalf of the Fund, (iii) collect
and receive all income and other payments and distributions on account of the
Fund's portfolio investments, (iv) respond to correspondence from shareholders,
security brokers and others relating to its duties and (v) make periodic reports
to the Company concerning the Fund's operations. Firstar Bank, N.A. may, at its
own expense, open and maintain a custody account or accounts on behalf of the
Fund with other banks or trust companies, provided that Firstar Bank, 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, 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,
N.A., as custodian, is entitled to certain charges for securities transactions
and reimbursement for expenses.
<PAGE>
Firstar Mutual Fund Services, LLC, 615 East Michigan Street, Milwaukee,
Wisconsin 53202, serves as transfer agent and dividend disbursing agent for the
Fund under a Shareholder Servicing Agent Agreement. As transfer and dividend
disbursing agent, Firstar Mutual Fund Services, LLC has agreed to (i) issue and
redeem shares of the Fund, (ii) make dividend and other distributions to
shareholders of the Fund, (iii) respond to correspondence by Fund shareholders
and others relating to its duties, (iv) maintain shareholder accounts, and (v)
make periodic reports to the Fund. 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 shareholder account with an annual minimum of
$24,000 plus a 0.01% asset _ based fee, and certain other transaction charges
and reimbursement for expenses.
In addition, the Fund has 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 Fund in compliance with the 1940 Act and to provide other
accounting services to the Fund. 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 the Fund's assets: $45,000 on the
first $100 million, 0.01875% on the next $200 million, 0.01125% on the balance,
plus out-of-pocket expenses, including pricing expenses.
EXPENSES
Operating expenses of the Fund include taxes, interest, fees and expenses
of Directors and officers, SEC fees, state securities and qualification fees,
advisory fees, administrative fees, Shareholder Organization fees (Retail A,
Retail B and Y 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 shareholders, costs
of shareholder reports and meetings, membership fees in the Investment Company
Institute, and any extraordinary expenses. The Fund also pays any brokerage
fees, commissions and other transactions charges (if any) incurred in connection
with the purchase or sale of portfolio securities.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, independent accountants, 100 East Wisconsin
Avenue, Suite 1500, Milwaukee, Wisconsin, 53202, serve as auditors for the
Company.
COUNSEL
Drinker Biddle & Reath LLP (of which Mr. McConnel, Secretary of the
Company, is a partner), One Logan Square, 18th and Cherry Streets, Philadelphia,
PA 19103-6996, serve as counsel to the Company and will pass upon the legality
of the shares offered by the Fund's Prospectus.
CODE OF ETHICS
The Company and the Adviser have adopted codes of ethics that permit
personnel subject to the codes to invest in securities, including securities
that may be purchased or held by the Fund.
PERFORMANCE CALCULATIONS
From time to time, the total return of the Retail A Shares, Retail B
Shares, Y Shares and Institutional Shares of the Fund may be quoted in
advertisements, shareholder reports or other communications to shareholders.
Performance information is generally available by calling the Firstar Funds
Center at 1-800-677-FUND.
<PAGE>
Total Return Calculations
-------------------------
The Fund computes "average annual total return" separately for its Retail
A, Retail B, Y 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:
P(1 + T)n = ERV
Where: T = average annual total return.
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 Fund may compute aggregate total return, which reflects the total
percentage change in value over the measuring period. The Fund computes its
aggregate total returns separately for the Retail A, Retail B, Institutional and
Y 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 Fund's average
annual total return and aggregate total return reflect the deduction of the
5.50% maximum front-end sales charge in connection with the purchase of Retail A
Shares and the 5.00% maximum sales load charged in connection with redemptions
of Retail B Shares. The Fund 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 of the Fund's Shares may be compared in publications to
those of other mutual funds with similar investment objectives and to stock and
other relevant indices, to rankings, or other information prepared by
independent services or other financial or industry publications that monitor
the performance of mutual funds or to investments for which reliable performance
data is available. For example, the total return of the Fund's shares may be
compared to data prepared by Lipper Analytical Services, Inc. In addition, the
total return of the 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
<PAGE>
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. Total return 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 Fund.
Performance quotations represent past performance, and should not be
considered as representative of future results. 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. The
investment return and principal value of an investment in the 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 the Fund cannot necessarily be used to compare an
investment in the 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 the Fund will not be included in the
Fund's calculations of total return and will reduce the total return received by
the accounts.
In addition, the Fund's average annual total return and aggregate total
return quotations reflect the deduction of the maximum front-end sales charge in
connection with the purchase of Retail A Shares and the deduction of any
applicable contingent deferred sales charge with respect to Retail B Shares.
The Fund 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 the Fund investment are reinvested
by being paid in additional Fund shares, any future income or capital
appreciation of the 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 Fund
may also include discussions or illustrations of the potential investment goals
of a prospective investor, investment management techniques, policies or
investment suitability of the 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 shareholders may summarize the substance of information
contained in shareholder reports (including the investment composition of the
Fund), as well as the views of the 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 the Fund. The
Fund 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 the Fund. In addition, advertisement or shareholder communications may
include a discussion of certain attributes or benefits to be derived by an
investment in the Fund. Such advertisements or communications may include
symbols, headlines or other materials which highlight or summarize the
information discussed in more detail therein.
MISCELLANEOUS
As used in this SAI and in the Fund's Prospectus, a majority of the
outstanding shares of the Company or the Fund means, with respect to the
approval of an investment advisory agreement or a
<PAGE>
charge in a fundamental investment policy, the lesser of (1) 67% of the shares
of the Company or the Fund represented at a meeting at which the holders of more
than 50% of the outstanding shares of the Company or the Fund are present in
person or by proxy, or (2) more than 50% of the outstanding shares of the
Company or the Fund .
As of July 31, 2000, 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 Bank, N.A., 425 Walnut Street, Cincinnati,
Ohio 45202, 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:
Fund Percentage Owned
------ ---------------------
Money Market 12.0%
Institutional Money Market 70.0%
Tax-Exempt Money Market 66.0%
U.S. Treasury Money Market 49.0%
U.S. Government Money Market 83.0%
Short-Term Bond Market 87.0%
Intermediate Bond Market 63.0%
Bond IMMDEX_ 65.0%
Tax-Exempt Intermediate Bond 64.0%
Balanced Income 83.0%
Balanced Growth 72.0%
Growth and Income 65.0%
Equity Index 74.0%
Growth 80.0%
Special Growth 74.0%
MidCap Index 60.0%
Emerging Growth 87.0%
MicroCap 75.0%
Core International Equity 99.0%
International Equity 85.0%
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 commercial paper rating is a current opinion of the
creditworthiness of an obligor with respect to financial obligations 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 Standard & Poor's believes that
such payments will be made during such grace period. The "D" rating will be
used upon the filing of a bankruptcy petition
<PAGE>
or the taking of a similar action if payments on an obligation are jeopardized.
LOCAL CURRENCY AND FOREIGN CURRENCY RISKS
Country risk considerations are a standard part of Standard & Poor's analysis
for credit ratings on any issuer or issue. Currency of repayment is a key
factor in this analysis. An obligor's capacity to repay foreign obligations may
be lower than its capacity to repay obligations in its local currency due to the
sovereign government's own relatively lower capacity to repay external versus
domestic debt. These sovereign risk considerations are incorporated in the debt
ratings assigned to specific issues. Foreign currency issuer ratings are also
distinguished from local currency issuer ratings to identify those instances
where sovereign risks make them different for the same issuer.
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 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
<PAGE>
relatively high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
Fitch 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 securities. The following summarizes the rating categories used
by Fitch for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the best 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 a
capacity for meeting financial commitments which is highly uncertain and solely
reliant upon a sustained, favorable business and economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson Financial BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one
<PAGE>
year or less. The following summarizes the ratings used by Thomson Financial
BankWatch:
"TBW-1" - This designation represents Thomson Financial 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 Financial 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 Financial 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 Financial BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
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.
<PAGE>
"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 taken, but payments on this obligation
are being continued.
"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 Standard & Poor's
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" - The 'r' highlights obligations that Standard & Poor's believes
have significant noncredit risks. Examples of such obligations are securities
with principal or interest return indexed to equities, commodities, or
currencies; certain swaps and options; and interest-only and principal-only
mortgage securities. The absence of an 'r' symbol should not be taken as an
indication that an obligation will exhibit no volatility or variability in total
return.
- N.R. Indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
<PAGE>
"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" - Bonds are judged to have speculative elements; their future cannot
be considered as well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
"B" - Bonds generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
"Caa " - Bonds are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or interest.
"Ca" - Bonds represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
<PAGE>
"C" - Bonds are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
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."
<PAGE>
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 ratings used by Fitch 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. This is the lowest investment grade category.
"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 change 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
<PAGE>
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. The ratings of obligations in
this category are based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have the
highest potential for recovery, around 90%-100% of outstanding amounts and
accrued interest. "DD" indicates potential recoveries in the range of 50%-90%,
and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
- To provide more detailed indications of credit quality, the Fitch
ratings from and including "AA" to "CCC" may be modified by the addition of a
plus (+) or minus (-) sign to denote relative standing within these major rating
categories.
- 'NR' indicates the Fitch does not rate the issuer or issue in question.
<PAGE>
- 'Withdrawn': A rating is withdrawn when Fitch deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
- RatingAlert: Ratings are placed on RatingAlert to notify investors that
there is a reasonable probability of a rating change and the likely direction
of such change. These are designated as "Positive", indicating a potential
upgrade, "Negative", for a potential downgrade, or
"Evolving", if ratings may be raised, lowered or maintained. RatingAlert is
typically resolved over a relatively short period.
Thomson Financial 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," - A rating of BB suggests that the likelihood of default is
considerably less than for lower-rated issues, although there are significant
uncertainties that could affect the ability to adequately service debt
obligations.
"B" - Issues rated B show a higher degree of uncertainty and therefore
greater likelihood of default than higher-rated issues. Adverse developments
could negatively affect the payment of interest and principal on a timely basis.
"CCC" - Issues rated CCC clearly have a high likelihood of default, with
little capacity to address further adverse changes in financial circumstances.
<PAGE>
"CC" - This rating is applied to issues that are subordinate to other
obligations rated CCC and are afforded less protection in the event of
bankruptcy or reorganization.
"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 note rating reflects the liquidity factors and market
access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's 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 a very strong
capacity to pay debt service 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.
<PAGE>
"MIG-2"/"VMIG-2" - This designation denotes high quality. Margins of
protection 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 margins of protection.
Fitch uses the short-term ratings described under Commercial Paper Ratings
for municipal notes.
<PAGE>
APPENDIX B
----------
ADDITIONAL INFORMATION CONCERNING FUTURES AND RELATED
OPTIONS
As stated in the Prospectus, the Fund 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, the 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.
The Fund presently could accomplish a similar result to that which it
hopes 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 the Fund, through using
futures contracts.
Description of Interest Rate Futures Contracts. An interest rate futures
----------------------------------------------
contract sale would create an obligation by the 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 the 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 the 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 the Fund's
entering into a futures contract sale. If the offsetting sale price exceeds
the purchase price, the Fund realizes a gain, and if the purchase price exceeds
the offsetting sale price, the Fund realizes a loss.
<PAGE>
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 Fund 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.
The 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. The 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 the
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. The 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. The 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 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,
<PAGE>
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.
The Fund may sell index futures contracts as set forth in the Prospectus.
The Fund may do so either to hedge the value of its portfolio as a whole, or to
protect against declines, occurring prior to sales of securities, in the value
of the securities to be sold. Conversely, the Fund may purchase index futures
contracts. In a substantial majority of these transactions, the 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, the Fund may utilize index futures contracts in anticipation
of changes in the composition of its portfolio holdings. For example, in the
event that the 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. The Fund may
also sell futures contracts in connection with this strategy, in order to
protect against the
<PAGE>
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
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.
<PAGE>
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
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.
IV. Margin Payments.
----------------
Unlike when the 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
<PAGE>
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 Fund 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 the 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
the 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 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 the 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 that 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, the
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, the 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 the 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 the 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.
<PAGE>
In instances involving the purchase of futures contracts by the 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 that 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. 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 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 that provides a secondary market for such futures. Although the 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, the 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 the Fund is also subject to the Adviser's
ability to predict correctly movements in the direction of the market. For
example, if the 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 that reflect the rising market. The
Fund may have to sell securities at a time when it may be disadvantageous to do
so.
<PAGE>
VI. Options on Futures Contracts.
----------------------------
The 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 series, at which time the person entering into the closing transaction
will realize a gain or loss. The 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, the 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 that the Fund intends to purchase. Similarly, if the
value of the securities held by the 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 the 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 Fund does 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 the 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.
<PAGE>
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.
(14) Amendment No. 13 to Articles of Incorporation filed February
17, 1999 with respect to Retail B Shares is incorporated by
reference to Exhibit (a)(14) to Post-Effective Amendment No.
36.
(15) Amendment No. 14 to Articles of Incorporation filed October
15, 1999 with respect to Core International Equity Fund is
incorporated by reference to Exhibit (a)(15) to Post-
Effective Amendment No. 38.
(16) Amendment No. 15 to Articles of Incorporation filed October
15, 1999 with respect to MidCap Index Fund is incorporated
by reference to Exhibit (a)(16) to Post-Effective Amendment
No. 38.
(17) Amendment No. 16 to Articles of Incorporation filed July 12,
2000 with respect to the Small Cap Aggressive Growth Fund.
(18) Amendment No. 17 to Articles of Incorporation filed August
14, 2000 with respect to the Aggregate Bond Fund, National
Municipal Bond Fund and U.S. Government Securities Fund.
(19) Amendment No. 18 to Articles of Incorporation filed August
14, 2000 with respect to Y Shares.
(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 included as Exhibit (a)(14) and 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.
(12) Investment Sub-Advisory Agreement among the Registrant,
Firstar Investment Research & Management Company, LLC and
The Glenmede Trust Company dated November 1, 1999 with
respect to the Core International Equity Fund is
incorporated by reference to Exhibit (d)(12) to Post-
Effective Amendment No. 38.
(13) Addendum No. 7 to the Investment Advisory Agreement between
Registrant and Firstar Investment Research and Management
Company, LLC dated November 1, 1999 with respect to the Core
International Equity Fund is incorporated by reference to
Exhibit (d)(13) to Post-Effective Amendment No. 38.
(14) Addendum No. 8 to the Investment Advisory Agreement between
Registrant and Firstar Investment Research & Management
Company, LLC dated November 1, 1999 with respect to the
MidCap Index Fund is incorporated by reference to Exhibit
(d)(14) to Post-Effective Amendment No. 38.
(15) Form of Addendum No. 9 to the Investment Advisory Agreement
between Registrant and Firstar Investment Research &
Management Company, LLC, with respect to the Small Cap
Aggressive Growth Fund is incorporated by reference to
Exhibit (d)(15) to Post-Effective Amendment No. 39.
(16) Form of Addendum No. 11 to the Investment Advisory Agreement
between Registrant and Firstar Investment Research and
Management Company, LLC with respect to the Aggregate Bond
Fund, National Municipal Bond Fund and U.S. Government
Securities Fund is incorporated by reference to Exhibit
(d)(16) to Post-Effective Amendment No. 40.
(e) (1) Distribution Agreement between Registrant, Firstar
Investment Research & Management Company, LLC, and Quasar
Distributors, LLC with respect to the 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, MidCap Index
Fund, Special Growth Fund, Emerging Growth Fund, MicroCap
Fund, Small Cap Aggressive Growth Fund, Core International
Equity Fund and International Equity Fund.
(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, LLC,
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.
(14) Assignment dated October 1, 1998 of Custodian Agreement
between Registrant and Firstar Trust Company, dated as of
July 29, 1988 to Firstar Bank Milwaukee, N.A. is
incorporated by reference to Exhibit (g)(14) to Post-
Effective Amendment No. 36.
(15) Letter Agreement dated November 1, 1999 with respect to the
Custodian Agreement between the Registrant and Firstar Bank
Milwaukee, N. A. with respect to the Core International
Equity Fund is incorporated by reference to Exhibit (g)(15)
to Post-Effective Amendment No. 38.
(16) Letter Agreement dated November 1, 1999 with respect to the
Custodian Agreement between the Registrant and Firstar Bank
Milwaukee, N.A. with respect to the MidCap Index Fund is
incorporated by reference to Exhibit (g)(16) to Post-
Effective Amendment No. 38.
(17) Global Custody Agreement dated November 3, 1999 between
Registrant and Chase Manhattan Bank with respect to the
Small Cap Aggressive Growth Fund is incorporated by
reference to Exhibit (g)(17) to Post-Effective Amendment No.
39.
(18) Form of Letter Agreement with respect to the Custodian
Agreement between the Registrant and Firstar Bank, N.A.,
(formerly Firstar Bank Milwaukee, N.A.), with respect to the
Small Cap Aggressive Growth Fund is incorporated by
reference to Exhibit (g)(18) to Post-Effective Amendment No.
39.
(19) Form of Letter Agreement with respect to the Custodian
Agreement between Registrant and Firstar Bank, N.A.
(formerly Firstar Bank Milwaukee, N.A.) with respect to the
Conning Money Market Fund, Ohio Tax-Exempt Money Market
Fund, Aggregate Bond Fund, National Municipal Bond Fund,
Missouri Tax-Exempt Bond Fund, U.S. Government Securities
Fund, Strategic Income Fund, Equity Income Fund, Relative
Value Fund, Large Cap Growth Fund, Science & Technology
Fund, REIT Fund, Small Cap Index Fund and Global Equity Fund
is incorporated by reference to Exhibit (g)(19) to Post-
Effective Amendment No. 40.
(h) (1) Fund Administration Servicing Agreement between Registrant
and Firstar Mutual Fund Services, LLC with respect to the
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, MidCap Index Fund, Special Growth Fund,
Emerging Growth Fund, MicroCap Fund, Small Cap Aggressive
Growth Fund, Core International Equity Fund and
International Equity Fund.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) Revised Fund Valuation and Accounting Fee Schedule dated
January 1, 2000 to the Fund Accounting Servicing Agreement
with respect 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, Intermediate Bond Market Fund,
Bond IMMDEXTM Fund, Tax-Exempt Intermediate Bond Fund,
Balanced Income Fund, Balanced Growth Fund, Growth & Income
Fund, Equity Index Fund, Growth Fund, MidCap Index Fund,
Special Growth Fund, Emerging Growth Fund, MicroCap Fund,
Core International Equity Fund and International Equity Fund
is incorporated by reference to Exhibit (h)(11) to Post-
Effective Amendment No. 38.
(10) Intentionally left blank.
(11) Intentionally left blank.
(12) 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.
(13) 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.
(14) 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.
(15) 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.
(16) 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.
(17) 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.
(18) 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.
(19) 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.
(20) 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.
(21) 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.
(22) 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.
(23) 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.
(24) 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.
(25) Plan of Reorganization is incorporated by reference to
Exhibit (9)(aa) to Post-Effective Amendment No. 28.
(26) Purchase and Assumption Agreement dated February 22, 1988 is
incorporated by reference to Exhibit (9)(ab) to Post-
Effective Amendment No. 28.
(27) 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.
(28) 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.
(29) Intentionally left blank.
(30) 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.
(31) Revised Shareholder Servicing Agent Agreement Fee Schedule
dated January 1, 2000 to the Fund Accounting Servicing
Agreement with respect 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, Intermediate Bond
Market Fund, Bond IMMDEX/TM Fund, Tax-Exempt Intermediate
Bond Fund, Balanced Income Fund, Balanced Growth Fund,
Growth & Income Fund, Equity Index Fund, Growth Fund, MidCap
Index Fund, Special Growth Fund, Emerging Growth Fund,
MicroCap Fund, Core International Equity Fund and
International Equity Fund is incorporated by reference to
Exhibit (h)(34) to Post-Effective Amendment No. 38.
(32) Internet Access Agreement with Firstar Trust Company, dated
April 1998 is incorporated by reference to Exhibit (h)(35)
to Post-Effective Amendment No. 35.
(33) Order Processing Agreement with M and I Trust Company, dated
April 1, 1998 is incorporated by reference to Exhibit
(h)(36) to Post-Effective Amendment No. 35.
.
(34) Service Agreement with Jack White and Company, dated May 12,
1998 is incorporated by reference to Exhibit (h)(37) to
Post-Effective Amendment No. 35.
(35) Service Agreement with National Investors Services
Corporation, dated June 1998 is incorporated by reference to
Exhibit (h)(38) to Post-Effective Amendment No. 35.
(36) Order Processing Agreement with Northern Trust Retirement
Consulting, L.L.C., dated February 1, 1998 is incorporated
by reference to Exhibit (h)(39) to Post-Effective Amendment
No. 36.
(37) 403(b) Comprehensive Agreement with Universal Pensions,
Inc., dated May 4, 1998 is incorporated by reference to
Exhibit (h) (40) to Post-Effective Amendment No. 36.
(38) Assignment dated October 1, 1998 of Fund Accounting
Servicing Agreement between Registrant and Firstar Trust
Company, dated March 23, 1988, to Firstar Mutual Fund
Services, LLC. is incorporated by reference to Exhibit
(h)(41) to Post-Effective Amendment No. 36.
(39) Assignment dated October 1, 1998 of the Shareholder
Servicing Agent Agreement between Registrant and Firstar
Trust Company, dated March 23, 1988, to Firstar Mutual Fund
Services, LLC. is incorporated by reference to Exhibit
(h)(43) to Post-Effective Amendment No. 36.
(40) Confidentiality Agreement dated June 17, 1999 between
Charles Schwab & Co., Inc. and Firstar Investment Research
and Management Company, LLC is incorporated by reference to
Exhibit (h)(44) to Post-Effective Amendment No. 37.
(41) Operating Agreement dated June 17, 1999 among Registrant,
Charles Schwab & Co., Inc. and Firstar Investment Research
and Management Company LLC is incorporated by reference to
Exhibit (h)(45) to Post-Effective Amendment No. 37.
(42) Retirement Plan Order Processing Amendment to the Operating
Agreement dated June 17, 1999 among Registrant, Charles
Schwab & Co., Inc., the Charles Schwab Trust Company and
Firstar Investment Research and Management Company, LLC is
incorporated by reference to Exhibit (h)(46) to Post-
Effective Amendment No. 37.
(43) Services Agreement dated June 17, 1999 among Registrant,
Charles Schwab & Co., Inc. and Firstar Investment Research
and Management Company, LLC is incorporated by reference to
Exhibit (h)(47) to Post-Effective Amendment No. 37.
(44) Letter Agreement dated November 1, 1999 regarding Fund
Accounting Servicing Agreement between Registrant and
Firstar Mutual Fund Services, LLC, with respect to the Core
International Equity Fund is incorporated by reference to
Exhibit (h)(50) to Post-Effective Amendment No. 38.
(45) Letter Agreement dated November 1, 1999 regarding Fund
Accounting Servicing Agreement between Registrant and
Firstar Mutual Fund Services, LLC, with respect to the
MidCap Index Fund is incorporated by reference to Exhibit
(h)(51) to Post-Effective Amendment No. 38.
(46) Letter Agreement dated November 1, 1999 to the Shareholder
Servicing Agent Agreement between the Registrant and Firstar
Mutual Fund Services, LLC, with respect to the Core
International Equity Fund is incorporated by reference to
Exhibit (h)(52) to Post- Effective Amendment No. 38.
(47) Letter Agreement dated November 1, 1999 to the Shareholder
Servicing Agent Agreement between the Registrant and Firstar
Mutual Fund Services, LLC, with respect to the MidCap Index
Fund is incorporated by reference to Exhibit (h)(53) to
Post-Effective Amendment No. 38.
(48) Credit Agreement dated December 29, 1999 for Firstar Funds,
Inc. and Mercantile Mutual Funds, Inc. with Chase Manhattan
Bank is incorporated by reference to Exhibit (h)(54) to
Post-Effective Amendment No. 38.
(49) Exchange Agreement dated November 2, 1999 between Registrant
and Firstar Corporation Pension Trust with respect to the
Small Cap Aggressive Growth Fund is incorporated by
reference to Exhibit (h)(55) to Post-Effective Amendment No.
39.
(50) Form of Letter Agreement to the Fund Accounting Servicing
Agreement between Registrant and Firstar Mutual Fund
Services, LLC, with respect to the Small Cap Aggressive
Growth Fund is incorporated by reference to Exhibit (h)(57)
to Post-Effective Amendment No. 39.
(51) Form of Letter Agreement to the Shareholder Servicing Agent
Agreement between the Registrant and Firstar Mutual Fund
Services, LLC, with respect to the Small Cap Aggressive
Growth Fund is incorporated by reference to Exhibit (h)(58)
to Post-Effective Amendment No. 39.
(52) Form of Amendment to Shareholder Servicing Agent Agreement
dated March 23, 1988 and assigned as of October 1, 1998 with
respect to the Small Cap Aggressive Growth Fund is
incorporated by reference to Exhibit (h)(59) to Post-
Effective Amendment No. 39.
(53) Form of Letter Agreement with respect to the Fund Accounting
Servicing Agreement between Registrant and Firstar Mutual
Fund Services, LLC with respect to the Conning Money Market
Fund, Ohio Tax-Exempt Money Market Fund, Aggregate Bond
Fund, National Municipal Bond Fund, Missouri Tax-Exempt Bond
Fund, U.S. Government Securities Fund, Strategic Income
Fund, Equity Income Fund, Relative Value Fund, Large Cap
Growth Fund, Science & Technology Fund, REIT Fund, Small Cap
Index Fund and Global Equity Fund is incorporated by
reference to Exhibit (h)(60) to Post-Effective Amendment No.
40.
(54) Form of Letter Agreement with respect to the Shareholder
Servicing Agent Agreement between Registrant and Firstar
Mutual Fund Services, LLC with respect to the Conning Money
Market Fund, Ohio Tax-Exempt Money Market Fund, Aggregate
Bond Fund, National Municipal Bond Fund, Missouri Tax-Exempt
Bond Fund, U.S. Government Securities Fund, Strategic Income
Fund, Equity Income Fund, Relative Value Fund, Large Cap
Growth Fund, Science & Technology Fund, REIT Fund, Small Cap
Index Fund and Global Equity Fund is incorporated by
reference to Exhibit (h)(61) to Post-Effective Amendment No.
40.
(i) Opinion of Drinker Biddle & Reath LLP.
(j) (1) Consent of Drinker Biddle & Reath LLP.
(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.
(4) Purchase Agreement dated February 26, 1999 between
Registrant and B.C. Ziegler & Company with respect to the
Series B Shares is incorporated by reference to Exhibit
(l)(4) to Post-Effective Amendment No. 38.
(5) Purchase Agreement dated November 3, 1999 between Registrant
and B.C. Ziegler & Company with respect to the Core
International Equity Fund is incorporated by reference to
Exhibit (l)(5) to Post-Effective Amendment No. 38.
(6) Purchase Agreement dated November 3, 1999 between Registrant
and B.C. Ziegler & Company with respect to the MidCap Index
Fund is incorporated by reference to Exhibit (l)(6) to Post-
Effective Amendment No. 38.
(7) Form of Purchase Agreement between Registrant and B.C.
Ziegler and Company with respect to the Small Cap Aggressive
Growth Fund is incorporated by reference to Exhibit (l)(7)
to Post-Effective Amendment No. 39.
(8) Form of Purchase Agreement between Registrant and B.C.
Ziegler & Company with respect to the Conning Money Market
Fund, Ohio Tax-Exempt Money Market Fund, Aggregate Bond
Fund, National Municipal Bond Fund, Missouri Tax-Exempt Bond
Fund, U.S. Government Securities Fund, Strategic Income
Fund, Equity Income Fund, Relative Value Fund, Large Cap
Growth Fund, Science & Technology Fund, REIT Fund, Small Cap
Index Fund, and Global Equity Fund is incorporated by
reference to Exhibit (l)(8) to Post-Effective Amendment No.
40.
(9) Form of Purchase Agreement with respect to Y Shares of the
Aggregate Bond Fund, National Municipal Bond Fund and U.S.
Government Securities Fund is incorporated by reference to
Exhibit (l)(9) to Post-Effective Amendment No. 40.
(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.
(2) Distribution and Services Plan for the Retail B Shares is
incorporated by reference to Exhibit (m)(2) to Post-
Effective Amendment No. 36.
(3) Services Plan for the Retail B Shares is incorporated by
reference to Exhibit (m)(3) to Post-Effective Amendment No.
36.
(4) Form of Amended and Restated 12b-1 Distribution and Service
Plan with respect to the Retail B Shares is incorporated by
reference to Exhibit (m)(4) to Post-Effective Amendment No.
40.
(5) Form of Amended and Restated Non-12b-1 Service Plan with
respect to the Retail B Shares is incorporated by reference
to Exhibit (m)(5) to Post-Effective Amendment No. 40.
(6) Form of Services Plan with respect to the Y Shares is
incorporated by reference to Exhibit (m)(6) to Post-
Effective Amendment No. 40.
(n) (1) Intentionally left blank.
(2) Amended and Restated Plan Pursuant to Rule 18f-3 for
Operation of a Multi-Series System is incorporated by
reference to Exhibit (n)(2) to Post-Effective Amendment No.
38.
(3) Form of Amended and Restated Plan Pursuant to Rule 18f-3 for
Operation of a Multi-Series System is incorporated by
reference to Exhibit (n)(3) to Post-Effective Amendment No.
39.
(4) Form of Amended and Restated 18f-3 Plan Pursuant to Rule
18f-3 for operation of a Multi-Series System is incorporated
by reference to Exhibit (n)(4) to Post-Effective Amendment
No. 40.
(o) None.
(p) (1) Code of Ethics of Firstar Investment Research and Management
Company, LLC, as Adviser with respect to each Fund of the
Company is incorporated by reference to Exhibit (p)(1) to
Post-Effective Amendment No. 39.
(2) Code of Ethics of Hansberger Global Investors, Inc. as Sub-
Adviser to the International Equity Fund is incorporated by
reference to Exhibit (p)(2) to Post-Effective Amendment
No. 39.
(3) Code of Ethics of The Glenmede Trust Company as Sub-Adviser
to the Core International Equity Fund is incorporated by
reference to Exhibit (p)(3) to Post-Effective Amendment
No. 39.
(4) Code of Ethics of the Registrant is incorporated by
reference to Exhibit (p)(4) to Post-Effective Amendment
No. 39.
Item 24. Persons Controlled By or Under Common Control with Registrant
-------------------------------------------------------------
Registrant is controlled by its Board of Directors.
Item 25. Indemnification
---------------
Article IX of Registrant's Articles of Incorporation, incorporated by
reference as Exhibit (a)(1) 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 (b)(1) 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.
Indemnification of the Registrant, its affiliates, their respective
assigns and their respective officers, directors, employees, agents and servants
against certain losses is provided for in Section 7.2 of the Internet Access
Agreement with Firstar Trust Company incorporated herein by reference as Exhibit
(h)(32).
Indemnification of the Registrant, its transfer agent, its
administrator and their respective affiliates, directors, trustees, officers,
employees and agents, and each person who controls them within the meaning of
the Securities Act of 1933, against certain losses is provided for in Section
12(a) of the Order Processing Agreement with Marshall & Ilsley Trust Company
incorporated herein by reference as Exhibit (h)(33) and Section 9(a) of the
Order Processing Agreement with Northern Trust Retirement Consulting, L.L.C.
incorporated herein by reference to Exhibit (h)(36).
Indemnification of the Registrant, its investment adviser and their
affiliates, directors, managers, employees and shareholders against certain
losses is provided for in Section 9 of the Service Agreement with Jack White &
Company incorporated herein by reference to Exhibit (h)(34).
Indemnification of the Registrant, its investment adviser and their
directors, managers, officers, employees and agents against certain losses is
provided for in Section 6(a) of the Service Agreement with National Investors
Services Corp. incorporated herein by reference as Exhibit (h)(35).
Indemnification of the Registrant and its directors, officers,
employees and agents against certain losses is provided for in Section 13 of the
Retirement Plan Order Processing Amendment to the Operating Agreement with
Charles Schwab & Co., Inc. and The Charles Schwab Trust Company incorporated
herein by reference to Exhibit (h)(42).
Indemnification of the Registrant, its investment adviser and their
directors, officers, employees and agents against certain losses is provided for
in Section 4(a) of the Services Agreement with Charles Schwab and Co., Inc.
incorporated herein by reference as Exhibit (h)(43).
Indemnification of Registrant's principal underwriter, custodians and
transfer agents against certain losses is provided for, respectively, in Section
6 (a) of the Distribution Agreement, incorporated by reference as Exhibit (e)(1)
hereto, Section 11 of the Custodian Agreement, incorporated by reference as
Exhibit (g)(1) hereto, and Section 6(c) of the Shareholder Servicing Agent
Agreement incorporated by reference as Exhibit (h)(14) hereto. Registrant has
obtained from a major insurance carrier a directors' and officers' liability
policy covering certain types of errors and omissions.
Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------
Firstar Investment Research and Management Company, LLC, 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 Fund (formerly the Short-Term Bond Market Fund), Growth
and Income Fund, MidCap Core Equity Fund (formerly the Special Growth Fund),
Bond IMMDEXO Fund, Equity Index Fund, Balanced Growth Fund (formerly the
Balanced Fund), Intermediate Bond Fund (formerly the Intermediate Bond Market
Fund), Large-Cap Core Equity Fund (formerly the Growth Fund), Tax-Exempt
Intermediate Bond Fund, International Value Fund (formerly the International
Equity Fund), Small Cap Core Equity Fund (formerly the Emerging Growth Fund),
MicroCap Fund, Balanced Income Fund, International Growth Fund (formerly the
Core International Equity Fund), MidCap Index Fund, Small Cap Aggressive Growth
Fund, Aggregate Bond Fund, U.S. Government Securities Fund and National
Municipal Bond 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 LLC, 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 LLC 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 LLC 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
----------------- ------------------ -------------- ------------
Robert L. Webster Director Executive Bank
Vice President,
Firstar Bank,
Milwaukee, N.A.
777 E. Wisconsin
Avenue, Milwaukee, WI
53202
Todd Krieg Director
Bruce Laning Director
Marian Zentmyer Director,
Chief Equity
Investment Officer
Hansberger Global Investors, Inc., a wholly-owned subsidiary of
Hansberger, 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.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Position with Other Business
Name and Principal Hansberger Global Connections and
Business Address Investors, Inc. Address<F1> Type of Business
--------------------- ----------------- ----------------------- -------------------
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Thomas L. Hansberger Chairman, CEO, Director, Mutual Fund
President, Director Schroder Korea Fund PLC
and Treasurer 33 Gutter Lane
London,
EC2B-A124 8AS
------------------------------------------------------------------------------------------
Director, Mutual Fund
The Bangkok Fund
Bangkok, Thailand
------------------------------------------------------------------------------------------
Advisory Board Member, Mutual Fund
The India Fund
India
------------------------------------------------------------------------------------------
Kimberly Ann Scott Director, None
Senior Vice
President, Chief
Administrative
Officer, Chief
Compliance Officer
and Secretary
------------------------------------------------------------------------------------------
J. Christopher Jackson Director, None
Senior Vice
President, General
Counsel and
Assistant Secretary
------------------------------------------------------------------------------------------
James Everett Chaney Chief Investment None
Officer
------------------------------------------------------------------------------------------
Lauretta Ann Reeves Director of None
Research
------------------------------------------------------------------------------------------
Francisco Jose Alzuru Managing Director None
------------------------------------------------------------------------------------------
Erik Erwin Bieck Managing Director None
------------------------------------------------------------------------------------------
Wesley Edmond Freeman Managing Director None
------------------------------------------------------------------------------------------
Mark Poon Managing Director None
------------------------------------------------------------------------------------------
Vladimir Tyurenkov Managing Director None
------------------------------------------------------------------------------------------
Ajit Dayal Managing Director None
------------------------------------------------------------------------------------------
Aureole Foong Managing Director None
------------------------------------------------------------------------------------------
Thomas A. Christenson Managing Director None
------------------------------------------------------------------------------------------
</TABLE>
<F1> Address of all individuals: 515 East Las Olas Blvd., Suite 1300, Fort
Lauderdale, FL 33301.
The Glenmede Trust Company serves as sub-investment adviser to the Core
International Equity Fund.
Set forth below is a list of all of the directors, senior officers and
those officers primarily responsible for Registrant's affairs and, with respect
to each such person, the name and business address of the Company (if any) with
which such person has been connected at any time since July 31, 1996, as well as
the capacity in which such person was connected.
THE GLENMEDE TRUST COMPANY
-------------------------------------------------------------------------------
DIRECTOR ORGANIZATION AFFILIATION
-------------------------------------------------------------------------------
SUSAN W. CATHERWOOD The Glenmede Corporation Director
-------------------------------------------------------------------------------
The Glenmede Trust Director
Company
-------------------------------------------------------------------------------
The Glenmede Trust Director
Company of New Jersey
-------------------------------------------------------------------------------
PECO Energy Director
-------------------------------------------------------------------------------
University of Vice Chairman, Board of
Pennsylvania Trustees
-------------------------------------------------------------------------------
The World Affairs Council Member, Board
of Philadelphia
-------------------------------------------------------------------------------
Monell Chemical Senses Director
Center
-------------------------------------------------------------------------------
The Christopher Ludwick Member, Board of
Foundation Managers, Vice Chairman
-------------------------------------------------------------------------------
Executive Service Corps Vice Chairman, Board of
of the Delaware Valley Directors
-------------------------------------------------------------------------------
Montessori Genesis II Member, Advisory Board
-------------------------------------------------------------------------------
United Way of Director
Southeastern Pennsylvania
-------------------------------------------------------------------------------
Thomas Harrison Skelton Board Member
Foundation
-------------------------------------------------------------------------------
The Catherwood Foundation Board Member
-------------------------------------------------------------------------------
JAMES L. KERMES The Glenmede Trust Director
Company
-------------------------------------------------------------------------------
The Glenmede Trust Director
Company of New Jersey
-------------------------------------------------------------------------------
The Glenmede Trust Director, Chairman of the
Company, N.A Board
-------------------------------------------------------------------------------
Rittenhouse Square Board Member and Officer
Indemnity Ltd.
-------------------------------------------------------------------------------
Assoc. for Investment Committee Member-
Mgm't & Research (AIMR) Performance Presentation
Standards
-------------------------------------------------------------------------------
Elwyn, Inc. Board Member
-------------------------------------------------------------------------------
THOMAS W. LANGFITT, M.D. The Glenmede Corporation Director
-------------------------------------------------------------------------------
The Glenmede Trust Director
Company
-------------------------------------------------------------------------------
General Motors Medical Chairman
Committee on Automotive
Safety
-------------------------------------------------------------------------------
University of Board of Trustees
Pennsylvania Medical
Center
-------------------------------------------------------------------------------
Greater Philadelphia Member
Urban Affairs Coalition
-------------------------------------------------------------------------------
The Philadelphia Public Member
School/Business
Partnership for Reform
Governing Board
-------------------------------------------------------------------------------
Secretary's Advisory Member
Committee on Infant
Mortality Department of
Health and Human Services
-------------------------------------------------------------------------------
Institute of Medicine Member
-------------------------------------------------------------------------------
American Philosophical Member
Society
-------------------------------------------------------------------------------
Community College of Director
Philadelphia
-------------------------------------------------------------------------------
Nat'l Museum of American Trustee
History Smithsonian
Institution
-------------------------------------------------------------------------------
ARTHUR E. PEW, III The Glenmede Corporation Director
-------------------------------------------------------------------------------
The Glenmede Trust Director
Company
-------------------------------------------------------------------------------
Manitou Island Member, Board of
Association (White Bear Directors
Lake, MN)
-------------------------------------------------------------------------------
Minnesota Transportation Member, Board of Trustees
Museum, Inc. (Mpls, MN)
-------------------------------------------------------------------------------
Museum of Transport. Chairman, Board of
Development Corp.(St. Directors
Paul, MN)
-------------------------------------------------------------------------------
Osceola & St. Croix Member, Board of
Valley Railway (Osceola, Directors
WI)
-------------------------------------------------------------------------------
G. THOMPSON PEW, JR. The Glenmede Trust Director
Company
-------------------------------------------------------------------------------
The Glenmede Fund, Inc. Director/Trustee
-------------------------------------------------------------------------------
The Glenmede Portfolios Director/Trustee
-------------------------------------------------------------------------------
The Glenmede Equity Fund Advisory Board Member
-------------------------------------------------------------------------------
Opera Company of Vice President and Board
Philadelphia Member, Executive
Committee
-------------------------------------------------------------------------------
Philadelphia Charity Board Member, Past
Ball, Inc. President
-------------------------------------------------------------------------------
Philadelphia Zoo Committee Member
"Zoobilee"
-------------------------------------------------------------------------------
Academy of Music AOM Committee, Board
Philadelphia, Inc. Member
-------------------------------------------------------------------------------
(SEA) Sea Education Board Member
Association
-------------------------------------------------------------------------------
Corinthian Historical President, Board Member
Foundation
-------------------------------------------------------------------------------
Devon Horse Show Trophy Committee Member
-------------------------------------------------------------------------------
Corinthian Yacht Club Committee Member
-------------------------------------------------------------------------------
American Health Care Director
(China)
-------------------------------------------------------------------------------
Benchmark School Chairperson, Annual
Giving
-------------------------------------------------------------------------------
Special Opportunities Board Member
Group (Guilder Assoc.)
-------------------------------------------------------------------------------
J. HOWARD PEW, II The Glenmede Corporation Director
-------------------------------------------------------------------------------
The Glenmede Trust Director
Company
-------------------------------------------------------------------------------
J. N. PEW, III The Glenmede Corporation Director
-------------------------------------------------------------------------------
The Glenmede Trust Director
Company
-------------------------------------------------------------------------------
J. N. PEW, IV, M.D. The Glenmede Corporation Director
-------------------------------------------------------------------------------
The Glenmede Trust Director
Company
-------------------------------------------------------------------------------
The Glenmede Trust Director
Company of New Jersey
-------------------------------------------------------------------------------
Joseph N. Pew, IV, M.D., President
PC
-------------------------------------------------------------------------------
Flying Hills Self President
Storage, Inc.
-------------------------------------------------------------------------------
American Red Cross, Berks Director
County
-------------------------------------------------------------------------------
French & Pickering Creek Director
Conservation Trust, Inc.
-------------------------------------------------------------------------------
R. ANDERSON PEW The Glenmede Corporation Director, Chairman of the
Board
-------------------------------------------------------------------------------
The Glenmede Trust Director
Company
-------------------------------------------------------------------------------
The Glenmede Trust Director
Company, N.A.
-------------------------------------------------------------------------------
Sun Company, Inc. Director
-------------------------------------------------------------------------------
Academy of Music Member, AOM Committee
Philadelphia, Inc.
-------------------------------------------------------------------------------
Aircraft Owners and Chairman of the Board
Pilots Association
-------------------------------------------------------------------------------
AOPA Air Safety Chairman, Board of
Foundation Trustees
-------------------------------------------------------------------------------
Bryn Mawr College Vice Chairman, Board of
Trustees
-------------------------------------------------------------------------------
The Children's Hospital Vice Chairman, Board of
of Philadelphia Trustees
-------------------------------------------------------------------------------
The Curtis Institute of Member, Board of Trustees
Music
-------------------------------------------------------------------------------
The Jackson Laboratory Member, Corporation Board
of Trustees
-------------------------------------------------------------------------------
RICHARD F. PEW The Glenmede Corporation Director
-------------------------------------------------------------------------------
The Glenmede Trust Director
Company
-------------------------------------------------------------------------------
Yellowstone Center for Director
Mountain Environments
-------------------------------------------------------------------------------
Mountain Research Center, Director
Montana State University
-------------------------------------------------------------------------------
Teton Science School; Director
Kelly, Wyoming
-------------------------------------------------------------------------------
REBECCA W. RIMEL The Glenmede Trust Director
Company
-------------------------------------------------------------------------------
Deutsche Banc Alex. Brown Director
Flag Investors Funds
-------------------------------------------------------------------------------
- Deutsche Banc Alex Brown
Cash Reserve Fund
-------------------------------------------------------------------------------
- Communications Income
Fund Inc.
-------------------------------------------------------------------------------
- Real Estate Securities
Fund Inc.
-------------------------------------------------------------------------------
- Equity Partners Fund
Inc.
-------------------------------------------------------------------------------
- Emerging Growth Fund
Inc.
-------------------------------------------------------------------------------
- Short-Intermediate
Income Fund Inc.
-------------------------------------------------------------------------------
- Value Builder Fund Inc.
-------------------------------------------------------------------------------
University of Virginia Campaign Executive
Committee, UVA Alumni
Association Board of
Managers
-------------------------------------------------------------------------------
Thomas Jefferson Memorial Board of Directors
Foundation (Monticello)
-------------------------------------------------------------------------------
Gilder Lehrman Institute Advisory Board
of American History
-------------------------------------------------------------------------------
Council on Foundations Board of Directors,
Robert W. Scrivner Award
Selection Committee
-------------------------------------------------------------------------------
ROBERT G. WILLIAMS The Glenmede Trust Director, Chairman of the
Company Board
-------------------------------------------------------------------------------
The Glenmede Trust Director
Company of New Jersey
-------------------------------------------------------------------------------
Coriell Institute for Trustee, Chairman
Medical Research Investment Committee
-------------------------------------------------------------------------------
Elizabeth Haddon Housing President / Director
Corp (affordable housing)
-------------------------------------------------------------------------------
Estaugh Corporation (aka President / Trustee
Medford Leas)
-------------------------------------------------------------------------------
Upland Corp. President
-------------------------------------------------------------------------------
ETHEL BENSON WISTER The Glenmede Corporation Director
-------------------------------------------------------------------------------
The Glenmede Trust Director
Company
-------------------------------------------------------------------------------
Academy of Music Committee Member
Philadelphia, Inc.
-------------------------------------------------------------------------------
Concerto Soloists Arts Award 1997 Recipient
Orchestra
-------------------------------------------------------------------------------
Scheie Eye Institute - Recipient, Guest of Honor
Department of Award 1998 - Scheie
Ophthalmology University Odyssey Ball
of Pennsylvania
-------------------------------------------------------------------------------
Philadelphia Television Board Member
Network, Inc.
-------------------------------------------------------------------------------
NAME AND PRINCIPAL
Item 27. Principal Underwriter
---------------------
(a) Quasar Distributors, LLC, the Registrant's current principal underwriter,
does not act as principal underwriter for other open-end investment
companies as of the date of filing of this Post-Effective Amendment No. 42.
(b) To the best of Registrant's knowledge, the directors and executive officers
of Quasar Distributors, LLC are as follows:
--------------------------------------------------------------------------------
Name and Principal Position and Offices with Positions and Offices
Business Address Quasar Distributors, LLC with Registrant
--------------------------------------------------------------------------------
James R. Schoenike President, Board Member None
--------------------------------------------------------------------------------
Donna J. Berth Treasurer None
--------------------------------------------------------------------------------
James J. Barresi Secretary None
--------------------------------------------------------------------------------
Joe Redwine Board Member None
--------------------------------------------------------------------------------
Bob Kern Board Member None
--------------------------------------------------------------------------------
Paul Rock Board Member None
--------------------------------------------------------------------------------
Jennie Carlson Board Member None
--------------------------------------------------------------------------------
The address of each of the foregoing is 615 East Michigan Street, Milwaukee,
Wisconsin, 53202.
--------------------------------------------------------------------------------
(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 administrator).
(2) Firstar Investment Research and Management Company, LLC, 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) Quasar Distributors, LLC, 615 East Michigan Street, Milwaukee,
Wisconsin 53202 (records relating to its functions as distributor).
(5) Drinker Biddle & Reath LLP, One Logan Square, 18th and Cherry Streets,
Philadelphia, Pennsylvania 19103 (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).
(7) The Glenmede Trust Company, One Liberty Place, 1650 Market Street,
Suite 1200, Philadelphia, PA 19103 (records relating to its function
as sub-investment adviser for the Core International Equity Fund).
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. 42 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Milwaukee,
and the State of Wisconsin, on the 18th day of August, 2000.
FIRSTAR FUNDS, INC.
Registrant
By: /s/ Bruce R. Laning
------------------------------------
Bruce R. Laning
Director, President & Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 42 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
---------- ------ -------
<F1>James M. Wade
---------------------- Chairman and
(James M. Wade) Director August 18, 2000
/s/Bruce R. Laning
---------------------- Director,
Bruce R. Laning President, Treasurer August 18, 2000
<F1>Richard Riederer Director August 18, 2000
----------------------
(Richard Riederer)
<F1>Jerry Remmel Director August 18, 2000
----------------------
(Jerry Remmel)
<F1>Glen R. Bomberger Director August 18, 2000
----------------------
(Glen R. Bomberger)
<F1>Charles R. Roy Director August 18, 2000
----------------------
(Charles R. Roy)
<F1>Bronson J. Haase Director August 18, 2000
----------------------
(Bronson J. Haase)
<F1>By: /s/ Bruce R. Laning August 18, 2000
---------------------------
Bruce R. Laning
Attorney-in-fact
POWER OF ATTORNEY
-----------------
Glen R. Bomberger, whose signature appears below, does hereby
constitute and appoint James M. Wade, Bruce R. Laning 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: June 16, 2000 /s/Glen R. Bomberger
--------------------
Glen R. Bomberger
POWER OF ATTORNEY
-----------------
James M. Wade, whose signature appears below, does hereby constitute
and appoint Bruce R. Laning 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: June 16, 2000 /s/ James M. Wade
-----------------
James M. Wade
POWER OF ATTORNEY
-----------------
Richard K. Riederer, whose signature appears below, does hereby
constitute and appoint James M. Wade, Bruce R. Laning 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: June 16, 2000 /s/ Richard K. Riederer
-----------------------
Richard K. Riederer
POWER OF ATTORNEY
-----------------
Jerry Remmel, whose signature appears below, does hereby constitute
and appoint James M. Wade, Bruce R. Laning 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: June 16, 2000 /s/ Jerry Remmel
----------------
Jerry Remmel
POWER OF ATTORNEY
-----------------
Bruce R. Laning, whose signature appears below, does hereby constitute
and appoint James M. Wade 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: June 16, 2000 /s/ Bruce R. Laning
-------------------
Bruce R. Laning
POWER OF ATTORNEY
-----------------
Charles R. Roy, whose signature appears below, does hereby constitute
and appoint James M. Wade, Bruce R. Laning 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: June 16, 2000 /s/ Charles R. Roy
------------------
Charles R. Roy
POWER OF ATTORNEY
-----------------
Bronson J. Haase, whose signature appears below, does hereby
constitute and appoint James M. Wade, Bruce R. Laning 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: June 16, 2000 /s/ Bronson J. Haase
-------------------
Bronson J. Haase
FIRSTAR FUNDS, INC.
CERTIFICATE OF SECRETARY
The following resolution was duly adopted by the Board of Directors of
Firstar Funds, Inc. on June 16, 2000 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, Bruce R. Laning and W. Bruce McConnel, 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
--------------------------
W. Bruce McConnel
Secretary
Dated: August 18, 2000
EXHIBIT INDEX
EXHIBIT NO. ITEM
----------- ----
(a)(17) Amendment No. 16 to Articles of Incorporation filed July 12,
2000 with respect to the Small Cap Aggressive Growth Fund.
(a)(18) Amendment No. 17 to Articles of Incorporation filed August 14,
2000 with respect to the Aggregate Bond Fund, National Municipal
Bond Fund and U.S. Government Securities Fund.
(a)(19) Amendment No. 18 to Articles of Incorporation filed August 14,
2000 with respect to Y Shares.
(e)(1) Distribution Agreement between Registrant, Firstar Investment
Research & Management Company, LLC, and Quasar Distributors, LLC
with respect to the 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,
MidCap Index Fund, Special Growth Fund, Emerging Growth Fund,
MicroCap Fund, Small Cap Aggressive Growth Fund, Core
International Equity Fund and International Equity Fund.
(h)(1) Fund Administration Servicing Agreement between Registrant and
Firstar Mutual Fund Services, LLC, with respect to the
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, MidCap Index Fund, Special Growth Fund,
Emerging Growth Fund, MicroCap Fund, Small Cap Aggressive Growth
Fund, Core International Equity Fund and International Equity
Fund.
(i) Opinion of Drinker Biddle & Reath LLP.
(j)(1) Consent of Drinker Biddle & Reath LLP.
