As filed with the Securities and Exchange Commission on July 6, 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. 41 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 42 [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
PRELIMINARY PROSPECTUS DATED JULY 6, 2000
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
U.S. TREASURY MONEY MARKET FUND
U.S. GOVERNMENT MONEY MARKET FUND
TAX-EXEMPT MONEY MARKET FUND
SHORT-TERM BOND FUND
INTERMEDIATE BOND FUND
BOND IMMDEX/TM FUND
TAX-EXEMPT INTERMEDIATE BOND FUND
BALANCED INCOME FUND
BALANCED GROWTH FUND
GROWTH AND INCOME FUND
EQUITY INDEX FUND
LARGE CAP CORE EQUITY FUND
MIDCAP INDEX FUND
MIDCAP CORE EQUITY FUND
SMALL CAP CORE EQUITY FUND
MICROCAP FUND
INTERNATIONAL GROWTH FUND
INTERNATIONAL VALUE FUND
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these funds or determined if this
prospectus is truthful or complete. Anyone who tells you otherwise is
committing a criminal offense.
FIRSTAR FUNDS
FIRSTAR FUNDS/R
July 6, 2000
TABLE OF CONTENTS
--------------------
Learn about each
Fund's Objective,
Principal Investment
Strategies,
Principal Risks,
Performance and
Expenses.
--------------------
Page
----
THE FUNDS
U.S. TREASURY MONEY MARKET FUND
U.S. GOVERNMENT MONEY MARKET FUND
TAX-EXEMPT MONEY MARKET FUND
SHORT-TERM BOND FUND
INTERMEDIATE BOND FUND
BOND IMMDEX/TM FUND
TAX-EXEMPT INTERMEDIATE BOND FUND
BALANCED INCOME FUND
BALANCED GROWTH FUND
GROWTH AND INCOME FUND
EQUITY INDEX FUND
LARGE CAP CORE EQUITY FUND
MIDCAP INDEX FUND
MIDCAP CORE EQUITY FUND
SMALL CAP CORE EQUITY FUND
MICROCAP FUND
INTERNATIONAL GROWTH FUND
INTERNATIONAL VALUE FUND
TYPES OF INVESTMENT RISK
INVESTING WITH FIRSTAR FUNDS
Share Classes Available
Purchasing Shares
Redeeming Shares
Exchanging Shares
Additional Shareholder Services
ADDITIONAL INFORMATION
Dividends, Capital Gains Distributions and Taxes
Management of the Funds
Net Asset Value and Days of Operation
APPENDIX
Financial Highlights
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF FIRSTAR BANK, N.A. AND IS NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH EACH MONEY MARKET FUND SEEKS TO PRESERVE THE VALUE OF YOUR
INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE
FUNDS.
FIRSTAR FUNDS, INC. ("Firstar" or the "Company") is a mutual fund family
that offers a variety of investment objectives designed to meet the needs of
institutional and individual investors. The Company offers multiple classes of
shares. This Prospectus offers Class Y shares which are available for four bond
funds and eleven equity funds, and Institutional Shares which are available for
three money market funds.
MONEY MARKET FUNDS
The U.S. Treasury Money Market Fund seeks to provide a high level of
current income exempt from state income taxes consistent with liquidity, the
preservation of capital and a stable net asset value.
The U.S. Government Money Market Fund seeks to provide a high level of
taxable current income consistent with liquidity, preservation of capital and a
stable net asset value (irrespective of state income tax consideration).
The Tax-Exempt Money Market Fund seeks to provide a high level of current
income exempt from federal income taxes consistent with liquidity, the
preservation of capital and a stable net asset value.
BOND FUNDS
The Short-Term Bond Fund (formerly Short-Term Bond Market Fund) seeks to
provide an annual rate of total return, before Fund expenses, comparable to the
annual rate of total return of the Lehman Brothers 1-3 Year Government/Corporate
Bond Index (the "Lehman 1-3 Index").
The Intermediate Bond Fund (formerly Intermediate Bond Market Fund) seeks
to provide an annual rate of total return, before Fund expenses, comparable to
the annual rate of total return of the Lehman Brothers Intermediate
Government/Corporate Bond Index (the "Lehman Intermediate Index").
The Bond IMMDEX/TM Fund seeks to provide an annual rate of total return,
before Fund expenses, comparable to the annual rate of total return of the
Lehman Brothers Government/Corporate Bond Index (the "Lehman Index").
The Tax-Exempt Intermediate Bond Fund seeks to provide current income that
is substantially exempt from federal income tax and emphasize total return with
relatively low volatility of principal.
EQUITY FUNDS
The Balanced Income Fund seeks to provide current income and the
preservation of capital by investing in a balanced portfolio of dividend-paying
equity and fixed-income securities.
The Balanced Growth Fund seeks to achieve a balance of capital appreciation
and current income with relatively low volatility of capital.
The Growth and Income Fund seeks both reasonable income and long-term
capital appreciation.
The Equity Index Fund seeks returns, before Fund expenses, comparable to
the price and yield performance of publicly traded common stocks in the
aggregate, as represented by the S&P 500 Index.
The Large Cap Core Equity Fund (formerly Growth Fund) seeks capital
appreciation through investment in securities of large-sized companies.
The MidCap Index Fund seeks returns, before Fund expenses, comparable to
the price and yield performance of publicly traded common stocks in the
aggregate, as represented by the S&P MidCap 400 Index.
The MidCap Core Equity Fund (formerly Special Growth Fund) seeks capital
appreciation through investment in securities of medium-sized companies.
The Small Cap Core Equity Fund (formerly Emerging Growth Fund) seeks
capital appreciation through investment in securities in small-sized companies.
The MicroCap Fund seeks capital appreciation through investment in
securities of micro capitalization companies.
The MicroCap Fund is currently closed to new investors and to additional
share purchases except for reinvestment of dividends of the Fund. The Fund may
reopen from time-to-time at the Company's discretion.
The International Growth Fund (formerly Core International Equity Fund)
seeks to provide maximum, long-term total return consistent with reasonable risk
to principal.
The International Value Fund (formerly International Equity Fund) seeks
capital appreciation through investing in foreign securities which the Sub-
Adviser believes are undervalued.
(For more information about Firstar's other portfolios, including charges
and expenses, obtain a prospectus from Firstar Funds Center at the address and
telephone number on the back page. Read it carefully before you send any
money.)
U.S. TREASURY MONEY MARKET FUND AND U.S. GOVERNMENT MONEY MARKET FUND
OBJECTIVES
The investment objective of the U.S. Treasury Money Market Fund is to
provide a high level of current income exempt from state income taxes consistent
with liquidity, the preservation of capital and a stable net asset value.
The investment objective of the U.S. Government Money Market Fund is to
provide a high level of taxable current income consistent with liquidity, the
preservation of capital and a stable net asset value (irrespective of state
income tax considerations).
Each of these investment objectives may be changed by the Board of
Directors without approval of Shareholders, although no change is currently
anticipated.
PRINCIPAL INVESTMENT STRATEGIES
The U.S. Treasury Money Market Fund invests in short term, dollar-
denominated debt obligations generally maturing in 397 days or less, issued or
guaranteed as to principal and interest by the U.S. Treasury. During normal
market conditions, the Fund intends to invest at least 65% of its total assets
in these obligations.
The U.S. Government Money Market Fund invests in short term debt
obligations generally maturing in 397 days or less, issued or guaranteed as to
principal and interest by the U.S. government, its agencies or
instrumentalities. Under normal market conditions, the Fund intends to invest
at least 65% of its total assets in these obligations. The Fund also invests in
variable and floating rate instruments and repurchase agreements.
Each Fund maintains an average maturity of 90 days or less.
PRINCIPAL RISKS
The following principal investment risks are described in more detail under
the heading "Types of Investment Risk." Some additional risks which apply to the
Funds are also described under that heading.
The rate of income on Fund shares will vary from day to day so that the
dividends on your investment will vary. The Funds are subject to credit risk
and interest rate risk. 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.
-------------------------
Even though the U.S.
Treasury Money Market
Fund and U.S. Government
Money Market Fund
purchase mostly U.S.
government obligations,
shares of the Funds are
not themselves issued or
guaranteed by any
government agency.
-------------------------
For the U.S. Government Money Market Fund, there can be no assurance that
the U.S. government will provide financial support to U.S. government-sponsored
agencies or instrumentalities where it is not obligated to do so by law.
An investment in the Funds is not a deposit of Firstar Bank, N.A. and is
not insured by the Federal Deposit Insurance Corporation, or any other
government agency. Although each Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Funds.
BAR CHART AND PERFORMANCE TABLE
Institutional Shares of the U.S. Treasury Money Market Fund and U.S. Government
Money Market Fund are new and have no performance history. For this reason, the
performance information shown below is for another class of shares (Retail A
Shares) that is not offered in this prospectus but would have substantially
similar annual returns because both classes of shares will be invested in the
same portfolio of securities. Annual returns will differ only to the extent
that the classes do not have the same expenses.
The following bar chart and table provide an indication of the risks of
investing in the U.S. Treasury Money Market Fund and U.S. Government Money
Market Fund by showing changes in the performance of the Funds' Retail A shares
from year to year. The bar charts and performance tables assume reinvestment of
dividends and distributions. Remember, past performance is not indicative of
future results. Performance reflects fee waivers in effect. If fee waivers
were not in place, performance would be reduced.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31/EACH YEAR (%)
RETAIL A SHARES<F1>
90 91 92 93 94 95 96 97 98 99
--------------------------------------------------------------------------------
U.S. TRESURY
MONEY MARKET 3.30 2.61 3.76 5.39 4.92 4.97 4.95 4.41
U.S. GOVERNMENT
MONEY MARKET 7.71 5.56 3.19 2.57 3.57 5.21 4.76 4.78 4.65 4.05
<F1> The total return for Retail A Shares of the U.S. Treasury Money Market Fund
and U.S. Government Money Market Fund for the six month period ended June
30, 2000 was ___% and ___%, respectively.
U.S. U.S.
TREASURY GOVERNMENT
MONEY MARKET MONEY MARKET
FUND FUND
BEST QUARTER: Q 2 '95 1.34% Q 2 '89 2.24%
WORST QUARTER: Q 2 '93 0.62% Q 2 '93 0.63%
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/99 (RETAIL A SHARES)
--------------------------------------------------------------------------------
1 Year 5 Years 10 Years Since inception
(inception date)
U.S. TREASURY MONEY
MARKET FUND 4.05% 4.69% -- 4.17%
(April 29,1991)
U.S. GOVERNMENT
MONEY MARKET FUND 4.41% 4.92% 4.75% --
The 7-day yield for the period ended on 12/31/99 for the U.S. Treasury Money
Market Fund and the U.S. Government Money Market Fund was 4.55% and 4.66%,
respectively, and without giving effect to fee waivers was 4.54% and 4.66%,
respectively. Figures reflect past performance. Yields will vary. You may call
1-800-677-FUND to obtain the current 7-day yield of the U.S. Treasury Money
Market Fund and the U.S. Government Money Market Fund.
EXPENSES OF THE FUND (INSTITUTIONAL SHARES)
-------------------------------------------
This table describes the expenses that you may pay if you buy and hold
Institutional shares of the U.S. Treasury Money Market Fund and U.S. Government
Money Market Fund.
U.S. U.S.
Treasury Government
Money Market Money Market
Fund Fund
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted
from Fund assets)
Management Fees<F1> 0.44% 0.50%
Shareholder Servicing Fees<F2> 0.25% 0.25%
Other Expenses<F3> 0.14% 0.42%
----- -----
Total Annual Fund Operating 0.91% 1.17%
Expenses<F4> ===== =====
--------------------------------------------------------------------------------
<F1> The Adviser has voluntarily agreed that a portion of its management fee
will not be imposed on the U.S. Government Money Market Fund during the
current fiscal year. As a result of the fee waivers, current management
fees of the U.S. Government Money Market Fund are 0.30% of the Fund's
average daily net assets. These waivers are expected to remain in effect
for the current fiscal year. However, they are voluntary and can be
modified or terminated at any time without the Fund's consent.
<F2> The Adviser has agreed to limit the Shareholder Servicing Fees of the U.S.
Treasury Money Market Fund and U.S. Government Money Market Fund to 0.21%
and 0.07%, respectively, of the Fund's average daily net assets. This
expense limitation is expected to remain in effect for the current fiscal
year; however, it is voluntary and may be modified or terminated at any
time without the Fund's consent.
<F3> "Other Expenses" is based on estimated amounts for the current fiscal year
and includes estimated administration fees, transfer agency fees and all
other ordinary operating expenses of the Fund not listed above.
<F4> As a result of the fee waivers and expense limitations described above, the
Total Annual Fund Operating Expenses for the Institutional Shares of the
U.S. Treasury Money Market Fund and U.S. Government Money Market Fund are
estimated to be 0.79% and 0.79% , respectively, for the current fiscal
year. Although the fee waiver and expense limitations are expected to
remain in effect for the current fiscal year, they are voluntary and may be
terminated at any time at the option of the Adviser.
A fee of $12.00 is charged for each wire redemption and $15.00 for each non-
systematic withdrawal from a retirement account for which Firstar Bank, N.A. is
custodian.
EXAMPLE
The following example is intended to help you compare the cost of investing in
Institutional Shares of 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 5 Years 10 Years
------ ------- ------- --------
U.S. Treasury Money Market Fund $- $- $- $-
U.S. Government Money Market Fund $- $- $- $-
TAX-EXEMPT MONEY MARKET FUND
OBJECTIVE
The investment objective of the Tax-Exempt Money Market Fund is to provide
a high level of current income exempt from federal income taxes consistent with
liquidity, the preservation of capital and a stable net asset value. This
investment objective may be changed by the Board of Directors without approval
of Shareholders, although no change is currently anticipated.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests principally in a diversified portfolio of dollar-
denominated debt obligations ("municipal obligations") issued by or on behalf of
states, territories and possessions of the United States, the District of
Columbia and their authorities, agencies, instrumentalities and political sub-
divisions. The Fund will acquire only securities which are rated in the highest
short-term rating category by at least two rating agencies (or by the only
rating agency providing a rating), or are issued or guaranteed by, or otherwise
provide the right to demand payment from, entities with those ratings. If the
security is unrated, it must be of comparable quality to securities with those
ratings, as determined at the time of acquisition. During normal market
conditions, the Fund will invest at least 80% of its net assets in municipal
obligations which are exempt from federal income taxes with remaining maturities
of 13 months or less. (Securities which are subject to demand features and
certain U.S. government obligations may have longer maturities). The Fund
maintains an average portfolio maturity of 90 days or less.
The two principal classifications of municipal obligations which the Tax-
Exempt Money Market Fund invests in are:
GENERAL OBLIGATION SECURITIES REVENUE SECURITIES
----------------------------- ------------------
General obligation securities are Revenue securities are payable only
secured by the issuer's pledge of from the revenues derived from a
its full faith, credit and taxing particular facility or class of
power for the payment of principal facilities or, in some cases, from
and interest. the proceeds of a special excise
tax or other specific revenue
source such as the issuer of the
facility being financed.
Municipal obligations purchased by the Fund may include variable and
floating rate instruments which are instruments with interest rates that are
adjusted either on a schedule or when an index or benchmark changes. While
there may be no active secondary market with respect to a particular variable or
floating rate demand instrument, the Fund may demand payment in full of the
principal and interest.
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 rate of income on Fund shares will vary from day to day so that
dividends on your investment will vary. The Fund is 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.
Municipal obligations which the Fund purchases may be backed by letters of
credit issued by banks and other financial institutions. Adverse developments
affecting banks could have a negative effect on the Fund's portfolio securities.
The Fund may invest more than 25% of its total assets in municipal
obligations issued by entities located in the same state and the interest on
which is paid solely from revenues of similar projects. As a result, changes in
economic, business or political conditions relating to a particular state or
types of projects may have a disproportionate impact on the Fund's share price.
Municipal obligations which the Fund may acquire include municipal lease
obligations which are issued by a state or local government or authority to
acquire land and a wide variety of equipment and facilities. If the funds are
not appropriated for the following year's lease payments, the lease may
terminate, with the possibility of default on the lease obligation and
significant loss to the Fund.
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. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
BAR CHART AND PERFORMANCE TABLE
Institutional Shares of the Tax-Exempt Money Market Fund are new and have no
performance history. For this reason, the performance information shown below
is for another class of shares (Retail A Shares) that is not offered in this
prospectus but would have substantially similar annual returns because both
classes of shares will be invested in the same portfolio of securities. Annual
returns will differ only to the extent that the classes do not have the same
expenses.
The following bar chart and table provide an indication of the risks of
investing in the Tax-Exempt Money Market Fund by showing changes in the
performance of the Fund's shares from year to year. The bar charts and
performance tables assume reinvestment of dividends and distributions.
Remember, past performance is not indicative of future results. Performance
reflects fee waivers in effect. If fee waivers were not in place, the Fund's
performance would be reduced.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31/ EACH YEAR (%)
(RETAIL A SHARES)<F1>
90 5.48
91 4.24
92 2.64
93 2.06
94 2.49
95 3.44
96 3.06
97 3.13
98 2.97
99 2.58
<F1> The total return for Retail A Shares for the six month period ended June
30, 2000 was ___%.
BEST QUARTER: Q 2 '89 1.58%
WORST QUARTER: Q 1 '94 0.50%
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/99 (RETAIL A SHARES)
--------------------------------------------------------------------------------
1 Year 5 Years 10 Years
TAX-EXEMPT MONEY MARKET FUND 2.58% 3.03% 3.20%
The 7-day yield for the period ended on 12/31/99 for the Tax-Exempt Money Market
Fund was 3.66%. Figures reflect past performance. Yields will vary. You may
call 1-800-677-FUND to obtain the current 7-day yield of the Tax-Exempt Money
Market Fund.
EXPENSES OF THE FUND (INSTITUTIONAL SHARES)
-------------------------------------------
This table describes the expenses that you may pay if you buy and hold
Institutional shares of the Tax-Exempt Money Market Fund.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted
from Fund assets)
Management Fees 0.50%
Shareholder Servicing Fees<F1> 0.25%
Other Expenses <F2> 0.18%
-----
Total Annual Fund Operating 0.93%
Expenses<F3> =====
--------------------------------------------------------------------------------
<F1> The Adviser has voluntarily agreed to limit the Shareholder Servicing Fees
of the Fund to 0.11% of the Fund's average daily net assets. This expense
limitation is expected to remain in effect for the current fiscal year;
however, it is voluntary and may be modified or terminated at any time
without the Fund's consent.
<F2> "Other Expenses" is based on estimated amounts for the current fiscal year
and includes administration fees, transfer agency fees and all other
ordinary operating expenses of the Fund not listed above.
<F3> As a result of the expense limitations described above, the Total Annual
Fund Operating Expenses for the Institutional Shares of the Fund are
estimated to be 0.79% for the current fiscal year. Although the expense
limitation is expected to remain in effect for the current fiscal year, the
waiver is voluntary and may be terminated at any time at the option of the
Adviser.
A fee of $12.00 is charged for each wire redemption and $15.00 for each non-
systematic withdrawal from a retirement account for which Firstar Bank, N.A. is
custodian.
EXAMPLE
The following example is intended to help you compare the cost of investing in
Institutional Shares of the Tax-Exempt Money Market 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 5 Years 10 Years
Tax-Exempt Money Market Fund -
Institutional Shares $- $- $- $-
SHORT-TERM BOND FUND, INTERMEDIATE BOND FUND AND BOND IMMDEX/TM FUND
OBJECTIVES
The investment objective of the Short-Term Bond Fund (formerly Short-Term
Bond Market Fund) is to provide an annual rate of total return, before Fund
expenses, comparable to the annual rate of total return of the Lehman Brothers
1-3 Year Government/Corporate Bond Index (the "Lehman 1-3 Index").
The investment objective of the Intermediate Bond Fund (formerly
Intermediate Bond Market Fund) is to provide an annual rate of total return,
before Fund expenses, comparable to the annual rate of total return of the
Lehman Brothers Intermediate Government/Corporate Bond Index (the "Lehman
Intermediate Index").
The investment objective of the Bond IMMDEX/TM Fund is to provide an annual
rate of total return, before Fund expenses, comparable to the annual rate of
total return of the Lehman Brothers Government/Corporate Bond Index (the "Lehman
Index").
Each of these investment objectives may be changed by the Board of
Directors without approval of Shareholders, although no change is currently
anticipated.
PRINCIPAL INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
DURATION DEFINED:
"Duration" is the average time it takes to receive expected cash flows
(discounted to their present value) on a particular fixed-income instrument or a
portfolio of instruments. Duration usually defines the effect of interest rate
changes on bond prices. However, for large interest rate changes (generally
changes of 1% or more) this measure does not completely explain the interest
rate sensitivity of a bond.
FOR EXAMPLE:
The duration of a 5-year zero coupon bond which pays no interest or
principal until the maturity of the bond is 5 years. This is because a zero
coupon bond produces no cash flow until the maturity date.
On the other hand, a coupon bond that pays interest semiannually and
matures in 5 years will have a duration of less than 5 years reflecting the
semiannual cash flows resulting from coupon payments.
--------------------------------------------------------------------------------
The Adviser attempts to make each Fund's duration and return comparable to
those of its respective bond index, and to maintain an overall interest rate
sensitivity for each Fund equivalent to its respective bond index.
The Adviser generally will sell a security when it, on a relative basis and
in the Adviser's opinion, will no longer help a Fund to maintain overall
interest sensitivity and return objectives.
The effective dollar-weighted average portfolio maturity of each Fund will
be more than one year but less than three years for the Short-Term Bond Fund;
more than three years but less than ten for the Intermediate Bond Fund; and more
than five years for the Bond IMMDEX/TM Fund during normal market conditions.
Each Fund typically holds less than 200 securities.
The Adviser will attempt to keep each Fund fully invested. Each Fund's policy
is to invest at least 65 % of total assets in the following types of debt
securities:
- U.S. government - U.S. government agencies
- Stripped U.S. government - Corporate
- Collateralized mortgage - Medium-term notes
obligations - Eurobonds
- Asset-backed and mortgage-
backed obligations
--------------------------------------------------------------------------------
INVESTMENT GRADE SECURITIES ARE:
securities rated in the highest 4 categories by S&P, Moody's or another
nationally recognized rating agency.
--------------------------------------------------------------------------------
Debt obligations acquired by each Fund will be "investment grade," as rated
by at least one rating agency. The Adviser may purchase unrated obligations that
are determined by the Adviser to be comparable in quality to the rated
obligations. Average quality for each Fund is expected to be at least the
second highest rating category of S&P or Moody's. After purchase, a security
may cease to be rated or may have its rating reduced below the minimum rating
required by the Fund for purchase. The Adviser will consider whether to
continue to hold the security. If over 5% of the Fund's net assets consist of
obligations which have fallen below the minimum rating, the Adviser will
immediately sell the securities.
--------------------------------------------------------------------------------
Although these Funds attempt to achieve returns comparable to those of their
respective benchmark indices by maintaining a comparable duration (see
"Strategies" for definition), these Funds are NOT index funds. Each Fund may
invest more than 50% of their assets in securities not included in the index.
--------------------------------------------------------------------------------
Description of Bond Indices. The bond indices measure the price changes of
securities and the income provided by the securities. The bond indices are
intended to measure performance of fixed-rate debt markets over given time
intervals. The difference between the indices is the maturity range of the
securities included. Each index is comprised of:
- U.S. Treasury securities
- U.S. government agency securities
- dollar denominated debt of certain foreign sovereign or
supranational entities
- investment-grade corporate debt obligations
The indices require that investment-grade corporate debt obligations must:
- be fixed-rate debt (as opposed to variable-rate debt);
- have at least one year until maturity;
- have a minimum outstanding par value of $100 million
- have a minimum quality rating of Baa by Moody's, BBB by S&P, or BBB by
Fitch IBCA.
The indices also require the following maturities for each debt obligation:
--------------------------------------------------------------------------------
Index Length of Maturity
--------------------------------------------------------------------------------
Lehman 1-3 Index From one to three years remaining until maturity
Lehman Intermediate Index From one to 10 years remaining until maturity
Lehman Index From one to 30 years or more remaining
until maturity
--------------------------------------------------------------------------------
The following chart depicts the number of bond issues and their aggregate dollar
values as represented by the indices on October 31, 1999.
-----------------------------------------------------
Bond Issues Dollar Value
-----------------------------------------------------
LEHMAN 1-3 INDEX 956 $966 billion
LEHMAN INTERMEDIATE INDEX 3,282 $2.4 trillion
LEHMAN INDEX 4,665 $3.5 trillion
-----------------------------------------------------
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
Funds are also described under that heading.
The rate of income on Fund shares will vary from day to day so that
dividends on your investment will vary. The Funds 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. Obligations rated in the lowest of the top
four rating categories are considered to have speculative characteristics and
are subject to greater credit and interest rate risk than higher rated
securities.
Because of the smaller number of issues held by a Fund than its respective
bond index, material events affecting a Fund's portfolio (for example, an
issuer's decline in credit quality) may influence the performance of the Fund to
a greater degree than such events will influence its respective bond index and
may prevent the Fund from attaining its investment objective for particular
periods.
While the Adviser believes purchasing securities which are not in each
Fund's respective index or not consistent with the "mix" of the index provides
the opportunity to achieve an enhanced gross return compared to the index, the
Adviser may err in its choices of securities or portfolio mixes. Further, the
Adviser calculates the Funds' duration and average maturity based on certain
estimates relating to the duration and maturity of the securities held by the
Fund. The estimates used may not always be accurate, so the Adviser's
calculations may be incorrect. Such errors could result in a negative return
and a loss to you. In the event the performance of a Fund is not comparable to
the performance of its respective index, the Board of Directors will examine the
reasons for the deviation and the availability of corrective measures.
An investment in the Funds 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 a Fund involves risk, including the
risk of losing money.
BAR CHART AND PERFORMANCE TABLE
Y Shares of the Funds are new and have no performance history. For this reason,
the performance information shown below is for another class of shares (Retail A
Shares) that is not offered in this prospectus but would have substantially
similar annual returns because both classes of shares will be invested in the
same portfolio of securities. Annual returns will differ only to the extent
that the classes do not have the same expenses.
The following bar chart and table provide an indication of the risks of
investing in a Fund by showing: (a) changes in the performance of a Fund's
Retail A Shares from year to year; and (b) how the average annual returns of a
Fund's Retail A Shares compare to those of a broad-based securities market
index. The bar chart and performance table assume reinvestment of dividends and
distributions. Remember, past performance is not indicative of future results.
Prior to January 10, 1995, the Fund offered to investors one series of shares
with neither a sales charge nor a service fee. For periods prior to January 10,
1995, performance does not reflect service organization fees. If the service
organization fees were reflected, performance would be reduced. Performance
does not reflect the sales load applicable to Retail A shares. If the sales
load were reflected, performance would be reduced. Performance reflects fee
waivers in effect. If fee waivers were not in place, a Fund's performance would
be reduced.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%) (RETAIL A SHARES)<F1>
INSERT PLOT POINTS HERE
<F1> The total return for Retail A Shares of the Short-Term Bond Fund,
Intermediate Bond Fund and Bond IMMDEX/TM Fund for the six month period ended
June 30, 2000 was __%, __% and __%, respectively.
BOND
SHORT-TERM INTERMEDIATE IMMDEX/TM
BOND FUND BOND FUND FUND
BEST QUARTER:
___% ___% ___%
WORST
QUARTER: ___% ___% ___%
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/99 (RETAIL A SHARES)
--------------------------------------------------------------------------------
1 Year 5 Years 10 Years Since inception
(inception date)
SHORT-TERM BOND FUND
-- Retail A Shares ___% __% ___% ___%
LEHMAN BROTHERS 1-3 YEAR
GOVERNMENT/CORPORATE --
BOND INDEX 3.15% 6.55% 6.64%
INTERMEDIATE BOND FUND
-- Retail A Shares ___% ___% ___% ___%
(January 5, 1993)
LEHMAN BROTHERS
INTERMEDIATE
GOVERNMENT/CORPORATE
BOND INDEX 0.39% 7.10% 7.26% 5.94%
(January 5, 1993)
BOND IMMDEX/TM FUND -
-- Retail A Shares ___% ___% __% --
LEHMAN BROTHERS
GOVERNMENT/CORPORATE
BOND INDEX -2.15% 7.61% 7.65% --
Each of the Lehman Brothers 1-3 Year Government/Corporate Bond Index,
Intermediate Government/Corporate Bond Index and Government/Corporate Bond Index
is a widely-recognized unmanaged index of bond prices compiled by Lehman
Brothers. The Index figures do not reflect any fees or expenses. Investors
cannot invest directly in the Index.
Securities included in the Lehman Brothers 1-3 Year Gov't./Corp. Bond Index must
meet the following criteria: not less than one year to maturity; not more than
three years remaining to maturity.
Securities included in the Lehman Brothers Intermediate Gov't. Corp. Bond Index
must meet the following criteria: remaining maturity of one to ten years; and
rated investment grade or higher by Moody's, Standard & Poor's, or Fitch, in
that order.
Securities included in the Lehman Brothers Gov't./Corp. Bond Index must meet the
following criteria: not less than one year to maturity; and rated investment
grade or higher by Moody's, Standard & Poor's, or Fitch, in that order.
EXPENSES OF THE FUND (Y SHARES)
-------------------------------
This table describes the expenses that you may pay if you buy and hold Y shares
of the Short-Term Bond Fund, Intermediate Bond Fund and Bond IMMDEX/TM Fund.
Bond
Short-Term Intermediate IMMDEX/TM
Bond Fund Bond Fund Fund
---------- ------------ ---------
ANNUAL FUND OPERATING
EXPENSES (expenses that
are deducted from Fund
assets)
Management Fees<F1> 0.60% 0.50% 0.30%
Shareholder Servicing 0.25% 0.25% 0.25%
Fees
Other Expenses<F2> 0.27% 0.20% 0.18%
----- ----- -----
Total Annual Fund
Operating Expenses 1.12% 0.95% 0.73%
===== ===== =====
--------------------------------------------------------------------------------
<F1> The Adviser has voluntarily agreed that a portion of its management fee
will not be imposed on the Short-Term Bond Fund and Intermediate Bond Fund
during the current fiscal year. As a result of the fee waiver, current
management fees of the Short-Term Bond and Intermediate Bond Funds, are 0.32%
and 0.40%, respectively, of such Fund's average daily net assets. These waivers
are expected to remain in effect for the current fiscal year. However, they are
voluntary and can be modified or terminated at any time without the Funds'
consent.
<F2> "Other Expenses" is based on estimated amounts for the current fiscal year
and includes administration fees, transfer agency fees and all other ordinary
operating expenses of the Funds not listed above.
<F3> As a result of the fee waivers set forth above, the Total Annual Fund
Operating Expenses of the Short-Term Bond Fund and Intermediate Bond Fund are
estimated to be 0.85% and 0.85% for the Y Shares of each Fund, respectively, for
the current fiscal year. Although the fee waivers are expected to remain in
effect for the current fiscal year, these waivers are voluntary and may be
terminated at any time at the option of the Adviser.
A fee of $12.00 is charged for each wire redemption and $15.00 for each non-
systematic withdrawal from a retirement account for which Firstar Bank, N.A. is
custodian.
EXAMPLE
The following example is intended to help you compare the cost of investing in Y
Shares of 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 Years 10 Years
------ ------ ------ --------
Short-Term Bond Fund $- $- $- $-
Intermediate Bond Fund $- $- $- $-
Bond IMMDEX/TM $- $- $- $-
TAX-EXEMPT INTERMEDIATE BOND FUND
OBJECTIVE
The investment objective of the Tax-Exempt Intermediate Bond Fund is to
provide current income that is substantially exempt from federal income tax and
emphasize total return with relatively low volatility of principal. This
investment objective may be changed by the Board of Directors without approval
of Shareholders, although no change is currently anticipated.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests principally in investment-grade intermediate-term
municipal obligations issued by state and local governments exempt from federal
income tax. Except during temporary defensive periods, the Fund will invest at
least 80% of its net assets in securities, the interest on which is exempt from
regular federal income and alternative minimum taxes and will invest at least
65% of its total assets in bonds and debentures. The Fund intends to maintain
an average weighted maturity between three and ten years. There is no limit on
the maturity of any individual security in the Fund, and the Fund may invest in
short-term municipal obligations and tax-exempt commercial paper.
The Adviser generally will sell a security when it, on a relative basis and
in the Adviser's opinion, will no longer help a Fund to maintain overall
interest rate sensitivity and return objectives.
In pursuing its investment objective, the Fund invests in a diversified
portfolio of municipal obligations (as defined above under "Tax-Exempt Money
Market Fund"). Municipal obligations purchased by the Fund will be:
- investment grade at the time of purchase (i.e., BBB by S&P or Fitch IBCA
or Baa by Moody's, or in the highest 4 categories by another nationally
recognized rating agency)
- unrated at the time of purchase but determined to be of comparable
quality by the Adviser
- municipal notes and other short-term obligations rated SP-1 by S&P or
MIG-1 by Moody's
- tax-exempt commercial paper rated A-1 or higher by S&P or VMIG-1 by
Moody's
After purchase, a security may cease to be rated or may have its rating
reduced below the minimum rating required for purchase by the Fund. At that
time, the Adviser will consider whether to continue to hold the security. The
Adviser will sell promptly any securities that are not rated investment grade by
at least one nationally recognized rating agency if the securities exceed 5% of
the Fund's net assets.
PRINCIPAL RISKS
The 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 rate of income on Fund shares will vary from day to day so that
dividends on your investment will vary. The Fund is subject to credit risk,
interest rate risk and tax 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. Tax risk is the risk that the
Fund may be more adversely impacted by changes in tax rates and policies than
other funds. Obligations rated in the lowest of the top four rating categories
are considered to have speculative characteristics and are subject to greater
credit and interest rate risk than higher rated securities.
The Fund may invest more than 25% of its total assets in municipal
obligations issued by persons located in the same state and the interest on
which is paid solely from revenues of similar projects. As a result, changes in
economic, business or political conditions relating to a particular state or
types of projects may have a disproportionate impact on the Fund's share price.
Municipal obligations which the Fund may acquire include municipal lease
obligations, which are issued by a state or local government or authority to
acquire land and a wide variety of equipment and facilities. If the funds are
not appropriated for the following year's lease payments, the lease may
terminate, with the possibility of default on the lease obligation and
significant loss to the Fund.
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 a Fund involves risk, including the risk of
losing money.
BAR CHART AND PERFORMANCE TABLE
Y Shares of the Funds are new and have no performance history. For this reason,
the performance information shown below is for another class of shares (Retail A
Shares) that is not offered in this prospectus but would have substantially
similar annual returns because both classes of shares will be invested in the
same portfolio of securities. Annual returns will differ only to the extent
that the classes do not have the same expenses.
The following bar chart and table provide an indication of the risks of
investing in the Tax-Exempt Intermediate Bond Fund by showing: (a) changes in
the performance of the Fund's Retail A Shares from year to year; and (b) how the
average annual returns of the Fund's Retail A Shares compare to those of a
broad-based securities market index. The bar chart and performance table assume
reinvestment of dividends and distributions. Remember, past performance is not
indicative of future results. Prior to January 10, 1995, the Fund offered to
investors one series of shares with neither a sales charge nor a service fee.
For periods prior to January 10, 1995, performance does not reflect service
organization fees. If the service organization fees were reflected, performance
would be reduced. Performance does not reflect the sales load applicable to
Retail A shares. If the sales load were reflected, performance would be
reduced. Performance reflects fee waivers in effect. If fee waivers were not
in place, the Fund's performance would be reduced.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%) (RETAIL A SHARES)<F1>
INSERT PLOT POINTS HERE
<F1> The total return for Retail A Shares for the six month period ended June
30, 2000 was __%.
BEST Q____ ___ ___%
QUARTER:
WORST Q____ ___ ___%
QUARTER:
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/99 (RETAIL A SHARES)
--------------------------------------------------------------------------------
1 Year 5 Years 10 Years Since inception
(February 8,
1993)
TAX-EXEMPT INTERMEDIATE
BOND FUND ___% ___% ___% ___%
--Retail A Shares
LEHMAN BROTHERS 5-YEAR
GENERAL OBLIGATION BOND
INDEX 0.71% 5.81% -- 5.03%
The Lehman Brothers 5-year General Obligation Bond Index is a widely recognized
unmanaged index of bond prices compiled by Lehman Brothers. The Index figures
do not reflect any fees or expenses. Investors cannot invest directly in the
Index. To be included in this Index, a municipal bond must be a state or local
General Obligation bond; have a minimum credit rating of at least Baa; have been
issued as part of an offering of at least $50 million; have a minimum amount
outstanding of at least $3 million; have been issued within the last five years;
and have a maturity of four to six years.
EXPENSES OF THE FUND (Y SHARES)
-------------------------------
This table describes the expenses that you may pay if you buy and hold Y shares
of the Tax-Exempt Intermediate Bond Fund.
ANNUAL FUND OPERATING
EXPENSES (expenses that are
deducted from Fund assets)
Management Fees<F1> 0.50%
Shareholder Servicing Fees 0.25%
Other Expenses<F2> 0.36%
-----
Total Annual Operating
Expenses<F3> 1.11%
=====
--------------------------------------------------------------------------------
<F1> 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 0.39% 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.
<F2> "Other Expenses" is based on estimated amounts for the current fiscal year
and includes administration fees, transfer agency fees and all other
ordinary operating expenses of the Fund not listed above.
<F3> As a result of the fee waiver set forth in note 1, the Total Annual Fund
Operating Expenses of the Y Shares of the Fund are estimated to be 1.00%
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.
A fee of $12.00 is charged for each wire redemption and $15.00 for each non-
systematic withdrawal from a retirement account for which Firstar Bank, N.A. is
custodian.
EXAMPLE
The following example is intended to help you compare the cost of investing in Y
Shares of the Tax-Exempt Intermediate Bond 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 5 Years 10 Years
------ ------- ------- --------
Tax-Exempt Intermediate Bond
Fund - Y Shares $___ $___ $___ $___
BALANCED INCOME FUND
OBJECTIVE
The investment objective of the Balanced Income Fund is to provide current
income and the preservation of capital by investing in a balanced portfolio of
dividend-paying equity and fixed-income securities. This investment objective
may be changed by the Board of Directors without approval of Shareholders,
although no change is currently anticipated.
PRINCIPAL INVESTMENT STRATEGIES
The Fund selects and purchases common stocks of domestic companies that
have a history of paying dividends. The Fund selects fixed-income securities,
which the Adviser believes will provide an annual rate of total return similar
to that of the Lehman Intermediate Index. That Index is described under "Bond
Funds-Description of Bond Indices."
The 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 Fund plans to use a 50/50 method to invest its total assets--that means
50% in equity securities and 50% in fixed-income securities.
-----------------------------------------------
Equity Fixed Income
Securities Securities
-----------------------------------------------
50% 50%
(no les than 20%, (no less than 40%)
no more than 60%)
-----------------------------------------------
--------------------------------------------------------------------------------
NOTE: THE ACTUAL PERCENTAGE OF ASSETS INVESTED IN FIXED INCOME AND EQUITY
SECURITIES WILL VARY FROM TIME TO TIME, DEPENDING ON THE JUDGMENT OF THE ADVISER
AS TO THE GENERAL MARKET AND ECONOMIC CONDITIONS, TRENDS AND YIELDS, INTEREST
RATES AND FISCAL AND MONETARY DEVELOPMENTS.
--------------------------------------------------------------------------------
Equity Securities. The Fund primarily invests in common stock of domestic
companies the Adviser considers to be well managed and to have "attractive
fundamental financial characteristics." The Adviser also generally looks for
companies with stock market capitalizations over $750 million. Stock market
capitalizations are calculated by multiplying the total number of common shares
outstanding by the market price per share.
--------------------------------------------------------------------------------
The 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.
--------------------------------------------------------------------------------
The Fund may also acquire bonds, notes, debentures and preferred stocks
convertible into common stocks if they provide a current interest or dividend
stream, and may invest up to 5% of its net assets in other types of domestic
securities having common stock characteristics, such as rights and warrants to
purchase equity securities.
Fixed Income. The Fund may purchase the following types of fixed-income
securities. There are no maturity limitations.
- Corporate - U.S. Treasury
- U.S. government agency - stripped U.S. government
- Asset-backed and mortgage-backed obligations - money market instruments
- U.S. government
Except for convertible securities, the Fund will purchase only debt
obligations rated investment grade by at least one rating agency or unrated
obligations deemed by the Adviser to be comparable in quality. See "Taxable
Bond Funds" for a description of investment-grade securities. After purchase, a
security may cease to be rated or may have its rating reduced below the minimum
rating required for purchase by the Fund. The Adviser will consider whether to
continue to hold the security.
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 rate of income on Fund shares will vary from day to day so that
dividends on your investment will vary. The Fund is subject to market risk.
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. Fixed-income securities in which the Fund invests
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. The Fund intends
to invest no more than 5% of net assets in securities rated non-investment grade
by at least one rating agency at the time of purchase or unrated securities of
comparable quality. Convertible securities and obligations rated in the lowest
of the top four rating categories are subject to greater credit and interest
rate risk than higher rated securities. Stripped securities are subject to
greater interest rate risk than other more typical fixed income securities.
Certain securities in which the Fund invests pose additional risks. The
Additional Statement describes risks of collateralized mortgage obligations and
mortgage- and asset-backed securities, which are subject to derivatives risk,
extension risk and prepayment risk. Extension risk is the risk that an issuer
will exercise its right to pay principal on an obligation held by a Fund (such
as a mortgage- or asset-backed security) later than expected. This may happen
when there is a rise in interest rates. Under such circumstances, the value of
the obligation will decrease and a Fund will also suffer from the inability to
invest in higher yielding securities. Prepayment risk is the risk that an
issuer will exercise its right to pay principal on an obligation held by a Fund
(such as a mortgage- or asset-backed security) earlier than expected. This may
happen when there is a decline in interest rates. These events may make a Fund
unable to recoup its initial investment and may result in reduced yields.
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 a Fund involves risk, including the risk of
losing money.
BAR CHART AND PERFORMANCE TABLE
Y Shares of the Funds are new and have no performance history. For this reason,
the performance information shown below is for another class of shares (Retail A
Shares) that is not offered in this prospectus but would have substantially
similar annual returns because both classes of shares will be invested in the
same portfolio of securities. Annual returns will differ only to the extent
that the classes do not have the same expenses.
The following bar chart and table provide an indication of the risks of
investing in the Balanced Income Fund by showing: (a) changes in the performance
of the Fund's Retail A Shares from year to year; and (b) how the average annual
returns of the Fund's Retail A Shares compare to those of a broad-based
securities market index. The bar chart and performance table assume
reinvestment of dividends and distributions. Remember, past performance is not
indicative of future results. Prior to January 10, 1995, the Fund offered to
investors one series of shares with neither a sales charge nor a service fee.
For periods prior to January 10, 1995, performance does not reflect service
organization fees. If the service organization fees were reflected, performance
would be reduced. Performance does not reflect the sales load applicable to
Retail A shares. If the sales load were reflected, performance would be
reduced. Performance reflects fee waivers in effect. If fee waivers were not
in place, the Fund's performance would be reduced.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%) (RETAIL A SHARES)<F1>
INSERT PLOT POINTS HERE
<F1> The total return for Retail A Shares for the six-month period ended June
30, 2000 was __%.
BEST QUARTER: Q___ ___
WORST Q___ ___
QUARTER:
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/99 (RETAIL A SHARES)
--------------------------------------------------------------------------------
1 Year 5 Years 10 Years
BALANCED INCOME FUND
- Retail A Shares ___% ___% ___%
S&P 500 INDEX 21.04% 28.86% 18.21%
LIPPER BALANCED FUND INDEX 8.98% 16.33% 12.26%
The S&P 500 Index is an unmanaged index of 500 common stocks that is generally
considered representative of the U.S. stock market. The Index is heavily
weighted towards stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks. The Lipper Balanced Fund Index is composed of the 30 largest mutual
funds whose primary objective is to conserve principal by maintaining a balanced
portfolio of stocks and bonds. The S&P 500 Index figures do not reflect any
fees or expenses. Investors cannot invest directly in the Index.
The performance of Firstar Balanced Income Fund for the period prior to December
1, 1997 is the performance of a common trust fund managed by FIRMCO which
operated during the periods prior to commencement of operations of the Firstar
Balanced Income Fund using materially equivalent investment objectives,
policies, guidelines and restrictions as Firstar Balanced Income Fund. The
common trust fund transferred its assets to the Balanced Income Fund at the
commencement of operations. At the time of the transfer, the Adviser did not
manage any other collective investment or common trust funds using materially
equivalent investment objectives, policies, guidelines and restrictions to those
of the Balanced Income Fund. The common trust fund was not registered under the
Investment Company Act of 1940 (the "1940 Act"), and was not subject to certain
restrictions that are imposed by the 1940 Act and the Internal Revenue Code. If
the common trust fund had been registered under the 1940 Act, performance may
have been adversely affected. The performance of the common trust fund has been
restated to reflect Firstar Balanced Income Fund's expenses for its first year
of operations.
EXPENSES OF THE FUND (Y SHARES)
-------------------------------
This table describes the expenses that you may pay if you buy and hold Y shares
of the Balanced Income Fund.
ANNUAL FUND OPERATING
EXPENSES (expenses that are
deducted from Fund assets)
Management Fees<F1> 0.75%
Shareholder Servicing Fees 0.25%
Other Expenses<F2> 0.33%
-----
Total Annual Fund Operating
Expenses<F3> 1.33%
=====
--------------------------------------------------------------------------------
<F1> 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 0.64% 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.
<F2> "Other Expenses" is based on estimated amounts for the current fiscal year
and includes administration fees, transfer agency fees and all other ordinary
operating expenses of the Fund not listed above.
<F3> As a result of the fee waiver set forth in note 1, the Total Annual Fund
Operating Expenses of the Y Shares are estimated to be 1.22% 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.
A fee of $12.00 is charged for each wire redemption and $15.00 for each non-
systematic withdrawal from a retirement account for which Firstar Bank, N.A. is
custodian.
EXAMPLE
The following example is intended to help you compare the cost of investing in Y
Shares of the Balanced Income 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 5 Years 10 Years
------ ------- ------- --------
Balanced Income Fund - Y Shares $___ $___ $___ $___
BALANCED GROWTH FUND
OBJECTIVE
The investment objective of the Balanced Growth Fund is to achieve a
balance of capital appreciation and current income with relatively low
volatility of capital. This investment objective may be changed by the Board of
Directors without approval of Shareholders, although no change is anticipated.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests principally in a diversified portfolio of fixed-income and
equity securities. Equity securities are selected on the basis of their
potential for capital appreciation. The Fund selects fixed-income securities
which the Adviser believes will provide an annual rate of total return similar
to that of the Lehman Brothers Government/Corporate Bond Index. That Index is
described under "Bond Fund -- Description of Bond Indices."
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 Fund's policy is to invest at least 25% of the value of its total
assets in fixed-income senior securities and at least 50% and no more than 65%
in equity securities at all times.
Investment Policy
----------------------------------------------
Fixed Income Equity Securities
----------------------------------------------
At least 25% at least 50% (no more than 65%)
----------------------------------------------
--------------------------------------------------------------------------------
NOTE: THE ACTUAL PERCENTAGE OF ASSETS INVESTED IN FIXED-INCOME AND EQUITY
SECURITIES WILL VARY FROM TIME TO TIME, DEPENDING ON THE JUDGMENT OF THE ADVISER
AS TO THE GENERAL MARKET AND ECONOMIC CONDITIONS, TRENDS AND YIELDS, INTEREST
RATES AND FISCAL AND MONETARY DEVELOPMENTS.
--------------------------------------------------------------------------------
Equity Securities. The Fund primarily invests in common stock of domestic
and foreign companies that the Adviser considers to be well managed and to have
attractive fundamental financial characteristics (see box on page ___ for
examples of these characteristics). The Adviser also generally looks for
companies with stock market capitalizations between $100 million and $100
billion. The Fund may also invest from time to time a portion of its assets in
companies with larger or smaller market capitalizations.
The Fund may also acquire preferred stocks. In addition, the Fund may
invest in domestic securities convertible into common stock, such as certain
bonds and preferred stocks, and may invest up to 5% of its net assets in other
types of domestic securities having common stock characteristics, such as rights
and warrants to purchase equity securities.
Fixed Income. The Fund may purchase the following types of fixed income
securities. There are no maturity limitations.
- Corporate - U.S. Treasury
- U.S. government agency - stripped U.S. government
- Asset-backed and mortgage-backed - money market instruments
obligations
- U.S. government
Except for convertible securities the Fund will only acquire debt
obligations that are rated "investment- grade" by at least one rating agency or
unrated obligations deemed by the Adviser to be comparable in quality. See
"Taxable Bond Funds" for a description of investment grade securities. After
purchase, a security may cease to be rated or may have its rating reduced below
the minimum rating required for purchase by the Fund. The Adviser will consider
whether to continue to hold the security.
PRINCIPAL RISKS
The 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 rate of income on Fund shares will vary from day to day so that
dividends on your investment will vary. The Fund is subject to market risk.
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. Fixed income securities in which the Fund invests
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. The Fund intends
to invest no more than 5% of net assets in securities rated non-investment grade
by at least one rating agency at the time of purchase or unrated securities of
comparable quality. Convertible securities and obligations rated in the lowest
of the top four rating categories are subject to greater credit and interest
rate risk than higher rated securities. Stripped securities are subject to
greater interest rate risk than other more typical fixed income securities.
Certain securities in which the Fund invests pose additional risks. The
Additional Statement describes risks of collateralized mortgage obligations and
mortgage- and asset- backed securities, which are subject to derivatives risk,
extension risk and prepayment risk. Derivatives risk is the risk of loss from
transactions which may be more sensitive to or otherwise react in tandem with
interest rate changes or market moves and may be leveraged. Extension risk is
the risk that an issuer will exercise its right to pay principal on an
obligation held by a Fund (such as a mortgage- or asset-backed security) later
than expected. This may happen when there is a rise in interest rates. Under
such circumstances, the value of the obligation will decrease and a Fund will
also suffer from the inability to invest in higher yielding securities.
Prepayment risk is the risk that an issuer will exercise its right to pay
principal on an obligation held by a Fund (such as a mortgage- or asset-backed
security) earlier than expected. This may happen when there is a decline in
interest rates. These events may make a Fund unable to recoup its initial
investment and may result in reduced yields.
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 a Fund involves risk, including the risk of
losing money.
BAR CHART AND PERFORMANCE TABLE
Y Shares of the Funds are new and have no performance history. For this reason,
the performance information shown below is for another class of shares (Retail A
Shares) that is not offered in this prospectus but would have substantially
similar annual returns because both classes of shares will be invested in the
same portfolio of securities. Annual returns will differ only to the extent
that the classes do not have the same expenses.
The following bar chart and table provide an indication of the risks of
investing in the Balanced Growth Fund by showing: (a) changes in the performance
of the Fund's Retail A Shares from year to year; and (b) how the average annual
returns of the Fund's Retail A Shares compare to those of a broad-based
securities market index. The bar chart and performance table assume
reinvestment of dividends and distributions. Remember, past performance is not
indicative of future results. Prior to January 10, 1995, the Fund offered to
investors one series of shares with neither a sales charge nor a service fee.
For periods prior to January 10, 1995, performance does not reflect service
organization fees. If the service organization fees were reflected, performance
would be reduced. Performance does not reflect the sales load applicable to
Retail A shares. If the sales load were reflected, performance would be
reduced. Performance reflects fee waivers in effect. If fee waivers were not
in place, the Fund's performance would be reduced.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%) (RETAIL A SHARES)<F1>
INSERT PLOT POINTS HERE
<F1> The total return for Retail A Shares for the six month period ended June
30, 2000 was ___%.
BEST QUARTER: Q___ ___ ___%
WORST
QUARTER: Q___ ___ ___%
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/99 (RETAIL A SHARES)
--------------------------------------------------------------------------------
(Since inception
1 Year 5 Years 10 Years March 30, 1992)
BALANCED GROWTH FUND
- Retail A Shares ___% __% ___% ___%
S&P 500 INDEX 21.04% 28.86% - 20.78%
LIPPER BALANCED FUND INDEX 8.98% 16.33% - 12.52%
The S&P 500 Index is an unmanaged index of 500 common stocks that is generally
considered representative of the U.S. stock market. The Index is heavily
weighted towards stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks. The Lipper Balanced Fund Index is composed of the 30 largest mutual
funds whose primary objective is to conserve principal by maintaining a balanced
portfolio of stocks and bonds. The S&P 500 Index figures do not reflect any fees
or expenses. Investors cannot invest directly in the Index.
EXPENSES OF THE FUND (Y SHARES)
-------------------------------
This table describes the expenses that you may pay if you buy and hold Y Shares
of the Balanced Growth Fund.
ANNUAL FUND OPERATING
EXPENSES (expenses that are
deducted from Fund assets)
Management Fees 0.75%
Shareholder Servicing Fees 0.25%
Other Expenses<F1> 0.24%
-----
Total Annual Fund Operating
Expenses 1.24%
=====
-------------------------------------------------------------------------------
<F1> "Other Expenses" is based on estimated amounts for the current fiscal year
and includes administration fees, transfer agency fees and all other ordinary
operating expenses of the Fund not listed above.
A fee of $12.00 is charged for each wire redemption and $15.00 for each non-
systematic withdrawal from a retirement account for which Firstar Bank, N.A. is
custodian.
EXAMPLE
The following example is intended to help you compare the cost of investing in Y
Shares of the Balanced Growth 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 5 Years 10 Years
----- ------- ------- --------
Balanced Growth Fund - Y Shares. $___ $___ $___ $___
GROWTH AND INCOME FUND
OBJECTIVE
The investment objective of the Growth and Income Fund is to seek both
reasonable income and long-term 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. The Fund selects common stocks primarily from a universe of
domestic companies that have established dividend-paying histories. During
normal market conditions, at least 50% of the Fund's net assets will be invested
in equities. The Fund will not purchase a non-dividend paying security if
immediately after giving effect to such purchase less than 80% of the net assets
of the Fund will be invested in dividend paying securities.
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.
Medium- to Large- Sized Companies. The Fund generally invests in medium- to
large-sized companies with stock market capitalizations over $1 billion that the
Adviser considers to be well managed and to have attractive fundamental
financial characteristics (see box on page ___ for examples of these
characteristics). The Fund may also invest a portion of its assets in
companies with smaller market capitalizations.
Other. The Fund also invests in bonds, notes, debentures and preferred
stocks convertible into common stocks, if they provide a current interest or
dividend payment.
To the extent consistent with its objective, the Fund may purchase non-
convertible debt and preferred stocks that in the opinion of the Adviser present
opportunities for capital appreciation. These obligations must be investment
grade at time of purchase or unrated but deemed comparable by the Adviser. See
"Taxable Bond Funds" for a description of investment-grade securities. 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.
PRINCIPAL RISKS
The principal investment risks below are described in more detail under the
heading "Types of Investment Risk." Some additional risks which apply to the
Fund are also described under that heading.
The Fund is subject to market risk. 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 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. The Fund intends to invest no more than 5% of net
assets in securities rated non-investment grade at the time of purchase or
unrated securities of comparable quality. Convertible securities and
obligations rated in the lowest of the top four rating categories have
speculative characteristics and are subject to greater credit and interest rate
risk than higher rated securities. The Fund's options and futures transactions
involve derivatives risk. Derivatives risk is the risk of loss from
transactions which may be more sensitive to or otherwise not react in tandem
with interest rate changes or market moves and may be leveraged.
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 a Fund involves risk, including the risk of
losing money.
BAR CHART AND PERFORMANCE TABLE
Y Shares of the Funds are new and have no performance history. For this reason,
the performance information shown below is for another class of shares (Retail A
Shares) that is not offered in this prospectus but would have substantially
similar annual returns because both classes of shares will be invested in the
same portfolio of securities. Annual returns will differ only to the extent
that the classes do not have the same expenses.
The following bar chart and table provide an indication of the risks of
investing in the Growth and Income Fund by showing: (a) changes in the
performance of the Fund's Retail A Shares from year to year; and (b) how the
average annual returns of the Fund's Retail A Shares compare to those of a
broad-based securities market index. The bar chart and performance table assume
reinvestment of dividends and distributions. Remember, past performance is not
indicative of future results. Prior to January 10, 1995, the Fund offered to
investors one series of shares with neither a sales charge nor a service fee.
For periods prior to January 10, 1995, performance does not reflect service
organization fees. If the service organization fees were reflected, performance
would be reduced. Performance does not reflect the sales load applicable to
Retail A shares. If the sales load were reflected, performance would be
reduced. Performance reflects fee waivers in effect. If fee waivers were not
in place, the Fund's performance would be reduced.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)(RETAIL A SHARES)<F1>
INSERT PLOT POINTS HERE
<F1> The total return for Retail A Shares for the six month period ended June
30, 2000 was ___%.
BEST QUARTER: Q___ ___ _____%
WORST
QUARTER: Q___ ___ _____%
--------------------------------------------------------------------------------
1 Year 5 Years 10 Years
GROWTH AND INCOME FUND
- Retail A Shares ___% ___% ___%
S&P 500 INDEX 21.04% 28.56% 18.21%
The S&P 500 Index is an unmanaged index of 500 common stocks that is generally
considered representative of the U.S. stock market. The Index is heavily
weighted towards stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks. The Index figures do not reflect any fees or expenses. Investors
cannot invest directly in the Index.
EXPENSES OF THE FUND (Y SHARES)
-------------------------------
This table describes the expenses that you may pay if you buy and hold Y shares
of the Growth and Income Fund.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted
from Fund assets)
Management Fees 0.75%
Shareholder Servicing Fees 0.25%
Other Expenses<F1> 0.19%
-----
Total Annual Fund Operating
Expenses 1.19%
=====
--------------------------------------------------------------------------------
<F1> "Other Expenses" is based on estimated amounts for the current fiscal year
and includes administration fees, transfer agency fees and all other ordinary
operating expenses of the Fund not listed above.
A fee of $12.00 is charged for each wire redemption and $15.00 for each non-
systematic withdrawal from a retirement account for which Firstar Bank, N.A. is
custodian.
EXAMPLE
The following example is intended to help you compare the cost of investing in Y
Shares of the Growth and Income 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 5 Years 10 Years
----- ------- ------- --------
Growth and Income Fund - Y Shares $___ $___ $___ $___
EQUITY INDEX FUND
OBJECTIVE
The investment objective of the Equity Index Fund is to seek returns,
before Fund expenses, comparable to the price and yield performance of publicly
traded common stocks in the aggregate, as represented by the S&P 500 Index. The
investment objective may be changed by the Board of Directors without approval
of Shareholders, although no change is currently anticipated.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund intends to invest substantially
all of its total assets in securities included in the S&P 500 Index, and in any
event the Fund will invest at least 80% of its net assets in securities included
in that index. The Fund uses the S&P 500 Index as the standard performance
comparison because it represents approximately two-thirds of the total market
value of all domestic common stocks and is well known to investors.
The S&P 500 Index consists of 500 selected common stocks, most of which are
listed on the New York Stock Exchange. Standard & Poor's selects the stocks
included in the S&P 500 Index on a market capitalization basis, and the S&P 500
Index is heavily weighted toward stocks with large market capitalizations.
Rather than using traditional methods of investment management, index funds
such as the Equity Index Fund are managed with the aid of a computer program.
The Adviser purchases and sells securities for the Fund in an attempt to produce
investment results that substantially duplicate the performance of the common
stocks of the issuers represented in the S&P 500 Index.
In general, the Fund expects to hold all of the stocks included in the S&P
500 Index. The Adviser believes that it will be able to construct and maintain
the Fund's investment portfolio so that it reasonably tracks the performance of
the S&P 500 Index by using a capitalization weighting and sector balancing
technique.
The Adviser believes the quarterly performance of the Fund and the S&P 500
Index will be within +0.3% under normal market conditions. The Adviser believes
that through the application of a capitalization weighting and sector balancing
technique that it will be able to construct and maintain the Fund's investment
portfolio so that it reasonably tracks the performance of the S&P 500 Index. In
the event the performance of the Fund is not comparable to the performance of
the S&P 500 Index, the Board of Directors will examine the reasons for the
deviation and the availability of corrective measures. These measures would
include additional fee waivers by the Adviser and Co-Administrators or
adjustments to the Adviser's portfolio management practices. If substantial
deviation in the Fund's performance continued for extended periods, it is
expected the Board of Directors would consider possible changes to the Fund's
investment objective.
The Fund may invest in futures contracts. 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. The Fund may invest in futures contracts and
options on futures contracts for hedging purposes, to have fuller exposure to
price movements in a stock or bond index, to increase total return or to
maintain liquidity to meet potential shareholder redemptions, invest cash
balances or dividends or minimize trading costs. In addition, the Fund may
purchase and sell futures and related options (based only on the S&P 500 Index)
to maintain cash reserves while simulating full investment in the stocks
underlying the S&P 500 Index, to keep substantially all of its assets exposed to
the market (as represented by the S&P 500 Index), and to reduce transaction
costs.
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 is subject to market risk. 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. Your
investment follows the large-cap portion of the U.S. stock market, as measured
by the S&P 500 Index, during upturns as well as downturns. Because of its
indexing strategy, the Fund cannot take steps to reduce market volatility or to
lessen the effects of a declining market. Whenever large-cap stocks perform
less than mid- or small-cap stocks, the Fund may under-perform funds that have
exposure to those segments. Further, the Fund will not necessarily dispose of a
security in response to adverse events affecting the issuer of a security (such
as adverse credit factors or failure to pay dividends).
If a large number of shareholders were to redeem shares, however, the Adviser
may be forced to reduce the number of issuers represented in the portfolio.
This could have an adverse effect on the accuracy with which the Fund matches
the performance of the S&P 500 Index.
The Adviser may be required to sell common stock if the issuer is
eliminated from the S&P 500 Index. Such sales may result in:
- lower prices, or
- losses, that may not have been incurred if the Adviser did not have
to purchase or sell the securities.
The Fund's futures transactions involve derivatives risk. Derivatives risk
is the risk of loss from transactions which may be more sensitive to or
otherwise not react in tandem with interest rate changes or market moves and may
be leveraged. Futures contracts could cause the Fund to track the Index less
closely if they don't perform as expected.
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 a Fund involves risk, including the risk of
losing money.
Standard & Poor's makes no representation or warranty regarding the
advisability of investing in index funds or the ability of the S&P 500 Index to
track general stock market performance.
BAR CHART AND PERFORMANCE TABLE
Y Shares of the Funds are new and have no performance history. For this reason,
the performance information shown below is for another class of shares (Retail A
Shares) that is not offered in this prospectus but would have substantially
similar annual returns because both classes of shares will be invested in the
same portfolio of securities. Annual returns will differ only to the extent
that the classes do not have the same expenses.
The following bar chart and table provide an indication of the risks of
investing in the Equity Index Fund by showing: (a) changes in the performance of
the Fund's Retail A Shares from year to year; and (b) how the average annual
returns of the Fund's Retail A Shares compare to those of a broad-based
securities market index. The bar chart and performance table assume
reinvestment of dividends and distributions. Remember, past performance is not
indicative of future results. Prior to January 10, 1995, the Fund offered to
investors one series of shares with neither a sales charge nor a service fee.
For periods prior to January 10, 1995, performance does not reflect service
organization fees. If the service organization fees were reflected, performance
would be reduced. Performance does not reflect the sales load applicable to
Retail A shares. If the sales load were reflected, performance would be
reduced. Performance reflects fee waivers in effect. If fee waivers were not
in place, the Fund's performance would be reduced.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)(RETAIL A SHARES)<F1>
INSERT PLOT POINTS HERE
<F1> The total return for Retail A Shares for the six month period ended June
30, 2000 was ___%,
BEST QUARTER: ____ ___%
WORST
QUARTER: ____ ___%
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/99 (RETAIL A SHARES)
--------------------------------------------------------------------------------
1 Year 5 Years 10 Years
EQUITY INDEX FUND
- Retail A Shares ___% ____% ____%
S&P 500 INDEX 21.04% 28.56% 18.21%
The S&P 500 Index is an unmanaged index of 500 common stocks that is generally
considered representative of the U.S. stock market. The Index is heavily
weighted towards stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks. Index figures do not reflect any fees or expenses. Investors cannot
invest directly in the Index.
EXPENSES OF THE FUND (Y SHARES)
------------------------------
This table describes the expenses that you may pay if you buy and hold Y shares
of the Equity Index Fund.
ANNUAL FUND OPERATING
EXPENSES (expenses that are
deducted from Fund assets)
Management Fees<F1> 0.25%
Shareholder Servicing Fees 0.25%
Other Expenses<F2> 0.18%
-----
Total Annual Fund Operating
Expenses<F3> 0.68%
=====
--------------------------------------------------------------------------------
<F1> The Adviser has voluntarily agreed that a portion of its management fee
will not be imposed on the Fund during the current fiscal year. As a result of
the fee waiver, current management fees for the Fund are 0.19% of the Fund's
average daily net assets. This waiver is expected to remain in effect for the
current fiscal year. However, it is voluntary and can be modified or terminated
at any time without the Fund's consent.
<F2> "Other Expenses" is based on estimated amounts for the current fiscal year
and includes administration fees, transfer agency fees and all other ordinary
operating expenses of the Fund not listed above.
<F3> As a result of the fee waiver set forth in note 1, the Total Fund Operating
Expenses of the Y Shares of the Fund are estimated to be 0.62% 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.
A fee of $12.00 is charged for each wire redemption and $15.00 for each non-
systematic withdrawal from a retirement account for which Firstar Bank, N.A. is
custodian.
EXAMPLE
The following example is intended to help you compare the cost of investing in Y
Shares of the Equity Index 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 your investment has a 5% return each year and
that the Fund's operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Equity Index Fund - Y Shares $___ $___ $___ $___
LARGE CAP CORE EQUITY FUND
OBJECTIVE
The Large Cap Core Equity Fund (formerly Growth Fund) seeks capital
appreciation through investment in securities of large-sized companies. This
investment objective may be changed by the Board of Directors without approval
of Shareholders, although no change is currently anticipated.
PRINCIPAL INVESTMENT STRATEGIES
Equity Securities. During normal market conditions, the Fund invests at
least 50% of total assets in equity securities. Most of these equity securities
are publicly traded common stocks of companies incorporated in the U.S.
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.
Large-Sized Companies. The Fund generally invests in large-sized companies
with stock market capitalizations over $3 billion that the Adviser considers to
be well-managed and to have attractive fundamental financial characteristics
(see box on page ___ for examples of these characteristics). The Fund may also
invest a portion of its assets in companies with market capitalizations below $3
billion.
Other. The Fund also invests in bonds, notes, debentures and preferred
stocks convertible into common stocks, if, in the Adviser's opinion, they
present opportunities for capital appreciation.
To the extent consistent with its objective, the Fund may purchase non-
convertible debt and preferred stocks that, in the opinion of the Adviser,
present opportunities for capital appreciation. These obligations must be
investment grade at time of purchase or unrated but deemed comparable by the
Adviser. See "Taxable Bond Funds" for a description of investment grade
securities. 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.
PRINCIPAL RISKS
The principal investment risks below are described in more detail under the
heading "Types of Investment Risk." Some additional risks which apply to the
Fund are also described under that heading.
The Fund is subject to market risk. 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 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. The Fund intends to invest no more than 5% of net
assets in securities rated non-investment grade at the time of purchase, or
unrated securities of comparable quality. Convertible securities and
obligations rated in the lowest of the top four rating categories have
speculative characteristics, and are subject to greater credit and interest rate
risk than higher rated securities.
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.
BAR CHART AND PERFORMANCE TABLE
Y Shares of the Funds are new and have no performance history. For this reason,
the performance information shown below is for another class of shares (Retail A
Shares) that is not offered in this prospectus but would have substantially
similar annual returns because both classes of shares will be invested in the
same portfolio of securities. Annual returns will differ only to the extent
that the classes do not have the same expenses.
The following bar chart and table provide an indication of the risks of
investing in the Large Cap Core Equity Fund by showing: (a) changes in the
performance of the Fund's Retail A Shares from year to year; and (b) how the
average annual returns of the Fund's Retail A Shares compare to those of a
broad-based securities market index. The bar chart and performance table assume
reinvestment of dividends and distributions. Remember, past performance is not
indicative of future results. Prior to January 10, 1995, the Fund offered to
investors one series of shares with neither a sales charge nor a service fee.
For periods prior to January 10, 1995, performance does not reflect service
organization fees. If the service organization fees were reflected, performance
would be reduced. Performance does not reflect the sales load applicable to
Retail A shares. If the sales load were reflected, performance would be
reduced. Performance reflects fee waivers in effect. If fee waivers were not
in place, the Fund's performance would be reduced.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)(RETAIL A SHARES)<F1>
INSERT PLOT POINTS HERE
<F1> The total return for the Retail A Shares for the six month period ended
June 30, 2000 was ___%.
BEST QUARTER: ____ ____%
WORST
QUARTER: ____ ____%
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/99 (RETAIL A SHARES)
--------------------------------------------------------------------------------
1 Year Years 10 Years Since Inception
(Dec. 29, 1992)
LARGE CAP CORE EQUITY FUND
- Retail A Shares ___% ___% ___% ___%
S&P 500 INDEX 21.04% 28.56% -- 21.53%
The S&P 500 Index is an unmanaged index of 500 common stocks that is generally
considered representative of the U.S. stock market. The Index is heavily
weighted towards stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks. The Index figures do not reflect any fees or expenses. Investors
cannot invest directly in the Index.
EXPENSES OF THE FUND (Y SHARES)
-------------------------------
This table describes the expenses that you may pay if you buy and hold Y shares
of the Large Cap Core Equity Fund.
ANNUAL FUND OPERATING
EXPENSES (expenses that are
deducted from Fund assets)
Management Fees 0.75%
Shareholder Servicing Fees 0.25%
Other Expenses<F1> 0.20%
-----
Total Annual Fund Operating
Expenses 1.20%
=====
<F1> "Other Expenses" is based on estimated amounts for the current fiscal year
and includes administration fees, transfer agency fees and all other ordinary
operating expenses of the Fund not listed above.
A fee of $12.00 is charged for each wire redemption and $15.00 for each non-
systematic withdrawal from a retirement account for which Firstar Bank, N.A. is
custodian.
EXPENSE EXAMPLE
The following example is intended to help you compare the cost of investing in Y
Shares of the Large Cap Core Equity 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 5 Years 10 Years
------ ------- ------- --------
Large Cap Core Equity Fund - Y Shares $___ $___ $___ $___
MIDCAP INDEX FUND
OBJECTIVE
The investment objective of the MidCap Index Fund is to seek returns,
before Fund expenses, comparable to the price and yield performance of publicly
traded common stocks in the aggregate, as represented by the S&P MidCap 400
Index. The investment objective may be changed by the Board of Directors
without approval of Shareholders, although no change is currently anticipated.
PRINCIPAL INVESTMENT STRATEGIES
Under normal market conditions, the Fund intends to invest substantially
all of its total assets in securities included in the S&P MidCap 400 Index, and
in any event the Fund will invest at least 80% of its net assets in securities
included in that index. The Fund uses the S&P MidCap 400 Index as the standard
performance comparison because it is composed of 400 selected common stocks of
medium-size domestic companies with market capitalizations between approximately
$148 million and $13 billion.
The S&P MidCap 400 Index is an unmanaged, capitalization-weighted index of
common stocks representing all major industries in the mid-range of the U.S.
stock market.
Rather than using traditional methods of investment management, index funds
such as the Firstar MidCap Index Fund are managed with the aid of a computer
program. The Adviser purchases and sells securities for the Fund in an attempt
to produce investment results that substantially duplicate the performance of
the common stocks of the issuers represented in the S&P MidCap 400 Index.
The Fund does not expect to hold all of the stocks included in the S&P
MidCap 400 Index at any particular time; however, the Adviser believes it will
be able to construct and maintain the Fund's investment portfolio so that it
reasonably tracks the performance of the S&P MidCap 400 Index by using a
capitalization weighting and sector balancing technique.
The Adviser believes the quarterly performance of the Fund and the S&P
MidCap 400 Index will be within +0.3% under normal market conditions. The
Adviser believes that through the application of a capitalization weighting and
sector balancing technique it will be able to construct and maintain the Fund's
investment portfolio so it reasonably tracks the performance of the S&P MidCap
400 Index. In the event the performance of the Fund is not comparable to the
performance of the S&P MidCap 400 Index, the Board of Directors will examine the
reasons for the deviation and the availability of corrective measures. These
measures would include additional fee waivers by the Adviser and Co-
Administrators or adjustments to the Adviser's portfolio management practices.
If substantial deviation in the Fund's performance continued for extended
periods, it is expected the Board of Directors would consider possible changes
to the Fund's investment objective.
The Fund may invest in futures contracts. 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. The Fund may invest in futures contracts and
options on futures contracts for hedging purposes, to have fuller exposure to
price movements in a stock or bond index, to increase total return or to
maintain liquidity to meet potential shareholder redemptions, invest cash
balances or dividends or minimize trading costs. In addition, the Fund may
purchase and sell futures and related options (based only on the S&P MidCap 400
Index) to maintain cash reserves while simulating full investment in the stocks
underlying the S&P MidCap 400 Index, to keep substantially all of its assets
exposed to the market (as represented by the S&P MidCap 400 Index), and to
reduce transaction costs.
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 is subject to market risk. Market risk is the risk that 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. Your
investment follows the mid-cap portion of the U.S. stock market, as measured by
the S&P MidCap 400 Index, during upturns as well as downturns. Because of its
indexing strategy, the Fund cannot take steps to reduce market volatility or to
lessen the effects of a declining market. Whenever mid-cap stocks underperform
large- or small-cap stocks, the Fund may underperform funds that have exposure
to those segments. Further, the Fund will not necessarily dispose of a security
in response to adverse events affecting the issuer of a security (such as
adverse credit factors or failure to pay dividends) if disposal would not be
consistent with the Fund's indexing strategy.
The Adviser may be required to sell common stock if the issuer is
eliminated from the S&P MidCap 400 Index. Such sales may result in:
- lower prices, or
- losses that may not have been incurred if the Adviser did not have to sell
the securities.
The Fund's futures transactions involve derivatives risk. Derivatives risk
is the risk of loss from transactions which may be more sensitive to or
otherwise not react in tandem with interest rate changes or market moves and may
be leveraged. Futures contracts could cause the Fund to track the Index less
closely if they don't perform as expected.
The Fund's ability to duplicate the performance of the S&P MidCap 400 Index
will depend to some extent on the size and timing of cash flows into and out of
the Fund, as well as the Fund's expenses.
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 investment risks,
including the risk that you may lose money.
Standard & Poor's makes no representation or warranty regarding the
advisability of investing in index funds or the ability of the S&P MidCap 400
Index to track general stock market performance.
There is no performance information in this section for the Fund because it
commenced operations on November 4, 1999.
EXPENSES OF THE FUND (Y SHARES)
-------------------------------
This table describes the expenses you may pay if you buy and hold Y shares of
the MidCap Index Fund.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from
Fund assets)
Management Fees<F1> 0.25%
Shareholder Servicing Fees 0.25%
Other Expenses<F2> 0.35%
-----
Total Annual Fund Operating
Expenses<F3> 0.85%
=====
--------------------------------------------------------------------------------
<F1> 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 0.15% 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.
<F2> "Other Expenses" is based on estimated amounts for the current fiscal year
and includes administration fees, transfer agency fees and all other ordinary
operating expenses of the Fund not listed above.
<F3> As a result of the fee waiver set forth above, the Total Fund Operating
Expenses of the Y Shares of the Fund are estimated to be 0.75% 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.
A fee of $12.00 is charged for each wire redemption and $15.00 for each non-
systematic withdrawal from a retirement account for which Firstar Bank, N.A. is
custodian.
EXAMPLE
The following example is intended to help you compare the cost of investing in Y
Shares of the MidCap Index 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 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
------ -------
MidCap Index Fund - Y Shares $___ $___
MIDCAP CORE EQUITY FUND
OBJECTIVE
The MidCap Core Equity Fund (formerly Special Growth Fund) seeks 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
Equity Securities/Potential Price Appreciation. The Fund selects
securities based on their potential for price appreciation. During normal
market conditions, the Fund invests at least 50% of total assets in equity
securities. Most of these equity securities are publicly traded common stocks
of companies incorporated in the U.S.
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.
Medium-Sized Companies. The Fund generally invests in medium-sized
companies with stock market capitalizations between $700 million and $10 billion
that the Adviser considers to be well-managed and to have attractive fundamental
financial characteristics (see box on page for examples of these
characteristics). The Fund may also invest a portion of its assets in companies
with smaller or larger market capitalizations.
Other. The Fund also invests in bonds, notes, debentures and preferred
stocks convertible into common stocks, and may invest up to 5% of net assets in
other types of securities having common stock characteristics, such as rights
and warrants to purchase equity securities.
The Fund may purchase non-convertible debt and preferred stocks that, in
the opinion of the Adviser, present opportunities for capital appreciation.
These obligations must be investment-grade at time of purchase or unrated but
deemed comparable by the Adviser. See "Taxable Bond Funds" for a description of
investment grade securities. 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.
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 risk in search of
long-term capital appreciation. The Adviser believes, however, that there is
greater potential for price appreciation among medium-sized companies in which
the Fund invests, since they tend to be less widely followed by other securities
analysts and thus may be more likely to be undervalued by the market.
The Fund is subject to market risk. 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 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. Convertible securities frequently have
speculative characteristics and may be acquired without regard to minimum
quality ratings. The Fund intends to invest no more than 5% of net assets in
securities rated non-investment grade at the time of purchase or unrated
securities of comparable quality. Convertible securities and obligations rated
in the lowest of the top four rating categories are subject to greater credit
and interest rate risk than higher rated securities.
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.
BAR CHART AND PERFORMANCE TABLE
Y Shares of the Funds are new and have no performance history. For this reason,
the performance information shown below is for another class of shares (Retail A
Shares) that is not offered in this prospectus but would have substantially
similar annual returns because both classes of shares will be invested in the
same portfolio of securities. Annual returns will differ only to the extent
that the classes do not have the same expenses.
The following bar chart and table provide an indication of the risks of
investing in the MidCap Core Equity Fund by showing: (a) changes in the
performance of the Fund's Retail A Shares from year to year; and (b) how the
average annual returns of the Fund's Retail A Shares compare to those of a
broad-based securities market index. The bar chart and performance table assume
reinvestment of dividends and distributions. Remember, past performance is not
indicative of future results. Prior to January 10, 1995, the Fund offered to
investors one series of shares with neither a sales charge nor a service fee.
For periods prior to January 10, 1995, performance does not reflect service
organization fees. If the service organization fees were reflected, performance
would be reduced. Performance does not reflect the sales load applicable to
Retail A shares. If the sales load were reflected, performance would be
reduced. Performance reflects fee waivers in effect. If fee waivers were not
in place, the Fund's performance would be reduced.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)(RETAIL A SHARES)<F1>
INSERT PLOT POINTS HERE
<F1> The total return for Retail A Shares for the six month period ended June
30, 2000 was ___%.
BEST QUARTER: ____ ____%
WORST
QUARTER: ____ ____%
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/99 (RETAIL A SHARES)
--------------------------------------------------------------------------------
1 Year Years 10 Years
MIDCAP CORE EQUITY FUND
- Retail A Shares ___% ___% ___%
S&P 500 INDEX 21.04% 28.56% 18.21%
S&P MIDCAP 400 INDEX 14.72% 23.05% --
The S&P 500 Index is an unmanaged index of 500 common stocks that is generally
considered representative of the U.S. stock market. The Index is heavily
weighted towards stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks. The S&P MidCap 400 Index is a capitalization weighted index that
represents the aggregate market value of the common equity of 400 stocks chosen
by S&P with a median capitalization of approximately $700 million and measures
the performance of the mid-range sector of the U.S. stock market. The Index
figures do not reflect any fees or expenses. Investors cannot invest directly
in the Index.
EXPENSES OF THE FUND (Y SHARES)
-------------------------------
This table describes the expenses that you may pay if you buy and hold Y shares
of the MidCap Core Equity Fund.
ANNUAL FUND OPERATING
EXPENSES
(expenses that are deducted
from Fund assets)
Management Fees 0.75%
Shareholder Servicing Fees 0.25%
Other Expenses<F1> 0.21%
-----
Total Annual Fund Operating
Expenses 1.21%
=====
--------------------------------------------------------------------------------
<F1> "Other Expenses" is based on estimated amounts for the current fiscal year
and includes administration fees, transfer agency fees and all other ordinary
operating expenses of the Fund not listed above.
A fee of $12.00 is charged for each wire redemption and $15.00 for each non-
systematic withdrawal from a retirement account for which Firstar Bank, N.A. is
custodian.
EXAMPLE
The following example is intended to help you compare the cost of investing in Y
Shares of the MidCap Core Equity 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 5 Years 10 Years
------ ------- ------- --------
MidCap Core Equity Fund - Y Shares. $___ $___ $___ $___
SMALL CAP CORE EQUITY FUND
OBJECTIVE
The Small Cap Core Equity Fund (formerly Emerging Growth Fund) seeks
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
Equity Securities/Potential Price Appreciation. The Fund selects
securities based on their potential for price appreciation. During normal
market conditions, the Fund invests at least 50% of total assets in equity
securities. Most of these equity securities will be publicly traded common
stocks of companies incorporated in the U.S.
The 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.
Small-Sized Companies. The Fund generally invests in small-sized companies
with stock market capitalizations between $250 million and $2 billion that the
Adviser considers to be well managed and to have attractive fundamental
financial characteristics (see box on page for examples of these
characteristics). The Fund may also invest a portion of its assets in companies
with larger or smaller market capitalizations.
--------------------------------------------------------------------------------
The Fund invests primarily in small-sized companies with stock market
capitalizations between $250 million and $2 billion.
--------------------------------------------------------------------------------
Other. The Fund also invests in bonds, notes, debentures and preferred
stocks convertible into common stocks, and may invest up to 5% of net assets in
other types of securities having common stock characteristics, such as rights
and warrants to purchase equity securities.
At a meeting of the Firstar Board of Directors ("Firstar Board") on
_______, 2000, the Firstar Board unanimously approved the reorganization of the
mutual fund portfolios of Mercantile Mutual Funds, Inc. into the corresponding
portfolio of the Company. As part of the reorganization, the Mercantile Small
Cap Equity Portfolio will be reorganized into the Firstar Small Cap Core Equity
Fund upon approval of the Funds' shareholders. Once the reorganization is
consummated, the Firstar Small Cap Core Equity Fund will adopt the investment
policies of the Mercantile Small Cap Equity Portfolio, which are set forth
below.
Small-Sized Companies/Potential Price Appreciation. Under normal
conditions, the Fund will invest at least 65% of its total assets in common
stocks of small- to medium-sized companies with market capitalizations from $100
million to $2 billion at the time of purchase and which the Adviser believes
have above-average prospects for capital appreciation. Stocks purchased by the
Fund may be listed on a national securities exchange or may be unlisted
securities with or without an established over-the-counter market.
The Fund also may invest a portion of its assets in larger companies that
the Adviser believes offer improved growth possibilities because of rejuvenated
management, product changes or other developments likely to stimulate earnings
or asset growth. The Fund also invests in stocks the Adviser believes are
undervalued or to a limited extent in initial public offerings (IPOs) of new
companies that demonstrate the potential for price appreciation. The Adviser
selects stocks based on a number of factors, including historical and projected
earnings, asset value, potential for price appreciation and earnings growth, and
quality of the products manufactured or services offered. The Adviser uses a
screening process involving a variety of quantitative techniques in evaluating
prospects for capital appreciation.
The Fund may emphasize, from time to time, particular companies or market
sectors, such as technology, in attempting to achieve its investment objective.
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. The Adviser
believes, however, that there is greater potential for price appreciation among
small-sized companies in which the Fund invests, since they tend to be less
widely followed by other securities analysts and thus may be more likely to be
undervalued by the market.
The Fund is subject to market risk. 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 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. The Fund intends to invest no more than 5% of net
assets in securities rated non-investment grade at the time of purchase or
unrated securities of comparable quality. Convertible securities and
obligations rated in the lowest of the top four rating categories are subject to
greater credit and interest rate risk than higher rated securities.
The Fund's 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 stocks. Small cap stocks tend to be less liquid,
particularly during periods of market disruption. There normally is less
publicly available information concerning these securities. Small companies in
which the 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.
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.
The Fund's performance results may reflect periods of above-average
performance attributable to its investing a portion of its assets in the
securities of companies offering shares in IPOs. It is possible that the above-
average performance of such companies may not be repeated in the future. The
Adviser evaluates the rewards and risks presented by all securities purchased by
the Fund and how they may advance the Fund's investment objective. It is
possible, however, that these evaluations will prove to be inaccurate.
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.
BAR CHART AND PERFORMANCE TABLE
Y Shares of the Funds are new and have no performance history. For this reason,
the performance information shown below is for another class of shares (Retail A
Shares) that is not offered in this prospectus but would have substantially
similar annual returns because both classes of shares will be invested in the
same portfolio of securities. Annual returns will differ only to the extent
that the classes do not have the same expenses.
The following bar chart and table provide an indication of the risks of
investing in the Small Cap Core Equity Fund by showing: (a) changes in the
performance of the Fund's Retail A Shares from year to year; and (b) how the
average annual returns of the Fund's Retail A Shares compare to those of a
broad-based securities market index. The bar chart and performance table assume
reinvestment of dividends and distributions. Remember, past performance is not
indicative of future results. Performance does not reflect the sales load
applicable to Retail A shares. If the sales load were reflected, performance
would be reduced. Performance reflects fee waivers in effect. If fee waivers
were not in place, the Fund's performance would be reduced.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)(RETAIL A SHARES)<F1>
INSERT PLOT POINTS HERE
<F1> The total return for Retail A Shares for the six month period ended June
30, 2000 was __%.
BEST QUARTER: ____ ___%
WORST
QUARTER: ____ ___%
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/99 (RETAIL A SHARES)
--------------------------------------------------------------------------------
1 Year 5 Years 10 Years Since
inception
(August 15,
1997)
SMALL CAP CORE EQUITY FUND
-Retail A Shares ___% -- -- ____%
S&P SMALLCAP 600 12.40% -- -- 7.44%
WILSHIRE NEXT 1750 INDEX 25.32% -- -- 13.51%
RUSSELL 2000 INDEX 21.26% 16.69% -- 13.38%
The S&P SmallCap 600 Index is a capitalization weighted index that measures the
performance of selected U.S. stocks with small market capitalizations. The
Wilshire Next 1750 Index is an unmanaged index, which shows the next largest
1750 companies after the Top 750 of the Wilshire 5000 Stock Index. The Russell
2000, an unmanaged index, consists of the smallest 2,000 companies in a group of
3,000 U.S. companies in the Russell 3000 Index, as ranked by total market
capitalization. The Index figures do not reflect any fees or expenses.
Investors cannot invest directly in an Index.
The Fund currently uses the S&P SmallCap 600 Index and Wilshire Next 1750 Index
as benchmarks to assist investors measure the Fund's performance. In
conjunction with the reorganization, however, it is anticipated that the Russell
2000 Index, the current benchmark of the Mercantile Small Cap Equity Portfolio,
will replace the S&P SmallCap 600 Index and Wilshire Next 1750 Index as the
benchmark to measure Fund performance.
EXPENSES OF THE FUND (Y SHARES)
-------------------------------
This table describes the expenses that you may pay if you buy and hold Y shares
of the Small Cap Core Equity Fund.
ANNUAL FUND OPERATING
EXPENSES (expenses that are
deducted from Fund assets)
Management Fees 0.75%
Shareholder Servicing Fees 0.25%
Other Expenses<F1> 0.21%
-----
Total Annual Fund Operating
Expenses 1.21%
=====
--------------------------------------------------------------------------------
<F1> "Other Expenses" is based on estimated amounts for the current fiscal year
and includes administration fees, transfer agency fees and all other ordinary
operating expenses of the Fund not listed above.
A fee of $12.00 is charged for each wire redemption and $15.00 for each non-
systematic withdrawal from a retirement account for which Firstar Bank, N.A. is
custodian.
EXAMPLE
The following example is intended to help you compare the cost of investing in Y
Shares of the Small Cap Core Equity 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 5 Years 10 Years
------ ------- ------- --------
Small Cap Core Equity Fund - Y Shares $___ $___ $___ $___
MICROCAP FUND
The MicroCap Fund is currently closed to new investors. Please see the
"Purchasing Shares" section below for additional information.
OBJECTIVE
The investment objective of the MicroCap 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.
Micro Capitalization Companies. At least 65% of the Fund's total assets
will be invested in equity and debt securities of micro capitalization companies
that, in general, the Adviser considers to be well managed and to have
attractive fundamental financial characteristics (see box on page ___ for
examples of these characteristics). Micro capitalization companies are those
with capitalizations at the time of purchase below the median market
capitalization of the Russell 2000 Index, which is currently approximately $481
million. The Fund may invest up to 35% of its assets at the time of purchase in
companies in excess of the median market capitalization of the Russell 2000
Index. If the market capitalization of a company in which the Fund has invested
increases above the median market capitalization of the Russell 2000 Index, the
Fund may continue to hold the security.
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 5% of net assets in securities
rated non-investment grade 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 at time of purchase or be unrated but
deemed comparable by the Adviser. See "Taxable Bond Funds" for a description of
investment- grade securities. After purchase, a security may cease to be rated
or may have its rating reduced below the minimum rating required by the Fund for
purchase. The Adviser will consider whether to continue to hold the security.
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,
and a significant portion of the Fund's returns have been attributable to its
investments in IPOs. However, 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.
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 gain. 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 micro cap stock risks. Micro
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. Also securities of micro cap companies are 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. There normally is less publicly available information concerning
these securities. In addition, the Fund's investments in unseasoned companies
present risks considerably greater than investments in more established
companies. Further, the securities in which the Fund invests will often be
traded only in the over-the-counter market or on a regional securities exchange,
may be listed only in the quotation service commonly known as the "pink sheets,"
and may not be traded every day or in the volume typical of trading on a
national securities exchange. They may be subject to wide fluctuations in
market value. The trading market for any given security may be sufficiently
thin as to make it difficult for the Fund to dispose of a substantial block of
such securities. These securities are less liquid than other more widely traded
securities. The disposition by the Fund of portfolio securities to meet
redemptions or otherwise may require the Fund to sell these securities at a
discount from market prices or during periods when, in the Adviser's judgment,
such disposition is not desirable or to make many small sales over a lengthy
period of time.
The Fund's investments in foreign securities and 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.
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.
BAR CHART AND PERFORMANCE TABLE
Y Shares of the Funds are new and have no performance history. For this reason,
the performance information shown below is for another class of shares (Retail A
Shares) that is not offered in this prospectus but would have substantially
similar annual returns because both classes of shares will be invested in the
same portfolio of securities. Annual returns will differ only to the extent
that the classes do not have the same expenses.
The following bar chart and table provide an indication of the risks of
investing in the MicroCap Fund by showing: (a) changes in the performance of the
Fund's Retail A Shares from year to year; and (b) how the average annual returns
of the Fund's Retail A Shares compare to those of a broad-based securities
market index. The bar chart and performance table assume reinvestment of
dividends and distributions. Remember, past performance is not indicative of
future results. Performance does not reflect the sales load applicable to
Retail A shares. If the sales load were reflected, performance would be
reduced. Performance reflects fee waivers in effect. If fee waivers were not
in place, the Fund's performance would be reduced.
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)(RETAIL A SHARES)<F1>
INSERT PLOT POINTS HERE
<F1> The total return for Retail A Shares for the six month period ended June
30, 2000 was ___%.
BEST QUARTER: ____ ___%
WORST
QUARTER: ____ ___%
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/99 (RETAIL A SHARES)
--------------------------------------------------------------------------------
1 Year 5 Years 10 Years Since inception
(August 1, 1995)
MICROCAP FUND -
Retail A Shares ___% ____% ____% ____%
RUSSELL 2000 21.26% -- -- 14.06%
The Russell 2000, an unmanaged index, consists of the smallest 2,000 companies
in a group of 3,000 U.S. companies in the Russell 3000 Index, as ranked by total
market capitalization. The Index figures do not reflect any fees or expenses.
Investors cannot invest directly in the Index.
EXPENSES OF THE FUND (Y SHARES)
-------------------------------
This table describes the expenses that you may pay if you buy and hold Y shares
of the MicroCap Fund.
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted
from Fund assets)
Management Fees 1.50%
Shareholder Servicing Fees 0.25%
Other Expenses<F1> 0.18%
-----
Total Annual Fund Operating
Expenses 1.93%
=====
<F1> "Other Expenses" is based on estimated amounts for the current fiscal year
and includes administration fees, transfer agency fees and all other ordinary
operating expenses of the Fund not listed above.
A fee of $12.00 is charged for each wire redemption and $15.00 for each non-
systematic withdrawal from a retirement account for which Firstar Bank, N.A. is
custodian.
EXAMPLE
The following example is intended to help you compare the cost of investing in Y
Shares of the MicroCap 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 5 Years 10 Years
------ ------- ------- --------
MicroCap Fund - Y Shares $___ $___ $___ $___
INTERNATIONAL GROWTH FUND
OBJECTIVE
The investment objective of the International Growth Fund (formerly Core
International Equity Fund) is to provide maximum, long-term total return
consistent with reasonable risk to principal. This investment objective may be
changed by the Board of Directors without approval of Shareholders, although no
change is currently anticipated.
PRINCIPAL INVESTMENT STRATEGIES
The Glenmede Trust Company (the "Sub-Adviser" or "Glenmede") attempts to
achieve the Fund's objective by investing primarily in common stocks and other
equity securities of companies located outside the United States. The Fund
expects to derive its income from primarily dividends on equity securities and
also from investments in fixed income securities. The Fund is expected to
diversify its investments across companies located in a number of foreign
countries, which may include, but are not limited to, Japan, the United Kingdom,
Germany, France, Switzerland, the Netherlands, Sweden, Australia, Hong Kong and
Singapore. The Fund will invest at least 65% of its total assets in securities,
such as equity securities, securities convertible into equity securities and
debt, of companies based in at least three different countries, other than the
United States.
Factors considered by the Sub-Adviser in the selection of securities to buy
and sell for this Fund include both country selection and stock selection.
Countries are primarily selected by evaluating countries' valuations relative to
their historical valuations. Economic growth, government policies and other
factors are also considered. Securities are primarily selected by evaluating a
security's valuation relative to the valuations of other securities in the same
country. Prospective growth in company earnings, industry fundamentals, and
other factors, such as low valuations relative to the universe of stocks which
the Sub-Adviser would normally consider for investment, are also considered in
determining which securities to buy and sell.
When a company's growth in earnings and valuation results in price
appreciation that reaches a level which 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. Securities may also be sold for other
reasons, such as a more favorable investment opportunity.
As part of the reorganization between the mutual fund portfolios of the
Company and Mercantile Mutual Funds, Inc., the Mercantile International Equity
Portfolio will be reorganized into the Firstar International Growth Fund upon
approval of the Funds' shareholders. In conjunction with the proposed
reorganization with the Mercantile Mutual Funds, however, the Adviser has
recommended the hiring of Clay Finlay, Inc. ("Clay Finlay") - the current sub-
adviser to the Mercantile International Equity Portfolio - to provide sub-
advisory services to the Firstar International Growth Fund. The hiring of Clay
Finlay is contingent upon the approval of a new sub-advisory agreement by the
Fund's shareholders at a meeting scheduled to be held on _______, 2000. If
approved, the Adviser anticipates that Clay Finlay will begin serving as the new
Sub-Adviser to the Fund on or around __________, 2000. It is anticipated that
upon consummation of the reorganization the Firstar International Growth Fund
will adopt the investment policies of the Mercantile International Equity
Portfolio, set forth below.
The Fund invests primarily in foreign common stocks, most of which will be
denominated in foreign currencies. During normal market conditions, the Fund
will invest substantially all (at least 80%) of its total assets in the
securities of companies that derive more than 50% of their gross revenues
outside the United States or have more than 50% of their assets outside the
United States. Under normal market conditions, the Fund invests in equity
securities from at least three foreign countries. Generally, at least 50% of the
Fund's total assets will be invested in securities of companies located either
in the developed countries of Western Europe or in Japan. The Fund also may
invest in other developed countries in the Far East and in countries with
emerging markets or economies. By investing in various foreign stocks, the
Fund attempts to achieve broad diversification and to take advantage of
differences between economic trends and the performance of securities markets in
different countries, regions and geographic areas. In selecting stocks, the Sub-
Adviser determines which companies represent the best values relative to their
long-term growth prospects and local markets through the use of a screening tool
which focuses on valuation ranges. The Sub-Adviser focuses on companies with
steady, sustainable earnings growth rates that sell at a multiple lower than the
average for that growth rate in the local market. The Sub-Adviser also uses
fundamental analysis by evaluating balance sheets, market share and strength of
management.
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 for the
long-term and are not seeking to speculate on short-term stock market movements.
The Fund's value is expected to be volatile as a result of its investment in
foreign securities.
The Fund is subject to market risk. Market risk is the risk that 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. The
Fund's investments in foreign securities are subject to foreign risks. Foreign
stocks involve special risks not typically associated with U.S. stocks. The
stocks held by the Fund may underperform other types of stocks, and they may not
increase or may decline in value. Foreign investments may be riskier than U.S.
investments because of factors such as foreign government restrictions, changes
in currency exchange rates, incomplete financial information about the issuers
of securities, and political or economic instability. Foreign stocks may be
more volatile and less liquid than U.S. stocks.
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 investment risks,
including the risk that you may lose money.
There is no performance information in this section for the Fund because it
commenced operations on November 4, 1999.
EXPENSES OF THE FUND (Y SHARES)
-------------------------------
This table describes the expenses you may pay if you buy and hold Y shares of
the International Growth Fund.
ANNUAL FUND OPERATING EXPENSES (expenses
that are deducted from Fund assets)
Management Fees<F1> 1.25%
Shareholder Servicing Fees 0.25%
Other Expenses<F2> 0.26%
-----
Total Annual Fund Operating Expenses<F3> 1.76%
=====
-----------------------------------------------------------------------------
<F1> The Adviser has voluntarily agreed that a portion of its management fee
will not be imposed on the Fund during the current fiscal year. As a result of
the fee waiver, current management fees for the Fund are 1.00% 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.
<F2> "Other Expenses" is based on estimated amounts for the current fiscal year,
and includes administration fees, transfer agency fees and all other ordinary
operating expenses of the Fund not listed above.
<F3>As a result of the fee waiver set forth in note 1, the Total Annual Fund
Operating Expenses of the Y Shares of the Fund are estimated to be 1.51% 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.
A fee of $12.00 is charged for each wire redemption and $15.00 for each non-
systematic withdrawal from a retirement account for which Firstar Bank, N.A. is
custodian.
EXAMPLE
The following example is intended to help you compare the cost of investing in Y
Shares of the International Growth 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
------ -------
International Growth Fund - Y Shares $___ $___
INTERNATIONAL VALUE FUND
OBJECTIVE
The investment objective of the International Value Fund (formerly
International Equity Fund) is to seek capital appreciation through investing in
foreign securities which the Sub-Adviser believes are undervalued. This
investment objective may be changed by the Board of Directors without approval
of Shareholders, although no change is currently anticipated.
-----------------------------------------------------------------------------
The Fund's policy under normal market conditions is to invest at least 65% of
its total assets in foreign common stocks, convertible securities, rights to
purchase equity securities, and warrants. UNDER NORMAL MARKET CONDITIONS, AT
LEAST 80% OF ASSETS WILL BE INVESTED IN THREE COUNTRIES OTHER THAN THE U.S.
-----------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES
Hansberger Global Investors, Inc. (the "Sub-Adviser" or "HGI") chooses
securities based on a long-term investment perspective. The Sub-Adviser seeks
opportunities to invest in many countries and believes that this international
search provides flexibility to shift portfolio investments not only from company
to company and industry to industry, but also country to country, in search of
undervalued securities.
The Sub-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 Sub-Adviser may sell for reasons relating
to valuation when for example a security's price has reached a target specified
by the Sub-Adviser, and the Sub-Adviser believes potential increases in price
are limited.
The Fund generally invests in common stocks, but may also invest in
preferred stocks and certain rated or unrated debt securities when the Sub-
Adviser believes there's a potential for appreciation. The Fund may also invest
in warrants or rights to subscribe to or purchase such securities, and sponsored
or unsponsored:
- American Depository Receipts
- European Depository Receipts
- Global Depository Receipts, and
- other depository receipts
American Depository Receipts are receipts issued by an American bank or
trust company evidencing ownership of underlying securities issues 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 may also invest in:
- closed-end investment companies holding foreign securities
- options on securities and securities indices
- futures contracts and related options
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 for the
long-term and are not seeking to speculate on short-term stock market movements.
The Fund's value is expected to be volatile as a result of its investment in
foreign securities.
The Fund is subject to market risk. The Fund's investments in foreign
securities, ADRs, EDRs and GDRs are subject to foreign risks. In unsponsored
ADR programs, the issuer may not be directly involved in arranging its
securities to be traded in the form of depository receipts. Although regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, in some cases it may be easier to obtain financial information from an
issuer that has participated in the creation of a sponsored program.
Accordingly, there may be less information available regarding issuers of
securities underlying unsponsored programs and there may not be a correlation
between such information and the market value of the Depository Receipts. EDRs
are receipts issued by a European financial institution evidencing ownership of
underlying foreign securities. GDRs are receipts structured similarly to EDRs
and are issued and traded in several international financial markets. The
underlying security may be subject to foreign government taxes, which would
reduce the yield on such securities.
The Fund's investments in convertible securities are subject to credit
risk. Convertible securities frequently have speculative characteristics and
may be acquired without regard to minimum quality ratings. The Fund intends to
invest no more than 5% of net assets in securities rated non-investment grade
(or equivalent rating by an agency recognized in the local market) at the time
of purchase (or unrated securities deemed to be of comparable quality).
Convertible securities and obligations rated in the lowest of the top four
rating categories are subject to greater credit and interest rate risk than
higher rated securities.
The emerging country securities in which the Fund may invest are subject to
significant risk and will not be required to meet any minimum rating standard.
The Fund's investments in options and futures involve derivatives risk.
This is the risk of loss from transactions which may be more sensitive to or
otherwise not react in tandem with interest rate changes or market moves and may
be leveraged.
Secondary markets generally do not exist for forward foreign currency
contracts, and there is no assurance that the Fund will be able to close out a
forward currency contract or close it out at a favorable price.
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.
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.
BAR CHART AND PERFORMANCE TABLE
Y Shares of the Funds are new and have no performance history. For this reason,
the performance information shown below is for another class of shares (Retail A
Shares) that is not offered in this prospectus but would have substantially
similar annual returns because both classes of shares will be invested in the
same portfolio of securities. Annual returns will differ only to the extent
that the classes do not have the same expenses.
The following bar chart and table provide an indication of the risks of
investing in the International Value Fund by showing: (a) changes in the
performance of the Fund's Retail A Shares from year to year; and (b) how the
average annual returns of the Fund's Retail A Shares compare to those of a
broad-based securities market index. The bar chart and performance table assume
reinvestment of dividends and distributions. Remember, past performance is not
indicative of future results. Prior to January 10, 1995, the Fund offered to
investors one series of shares with neither a sales charge nor a service fee.
For periods prior to January 10, 1995, performance does not reflect service
organization fees. If the service organization fees were reflected, performance
would be reduced. Performance does not reflect the sales load applicable to
Retail A shares. If the sales load were reflected, performance would be
reduced. Performance reflects fee waivers in effect. If fee waivers were not
in place, the Fund's performance would be reduced.
Effective September 2, 1997, Hansberger Global Investors, Inc. became investment
Sub-Adviser to the Fund.
YEAR-BY-YEAR TOTRAL RETURN AS OF 12/31 EACH YEAR (%)(RETAIL A SHARES)<F1>
Insert plot points here
1995
1996
1997
1999
<F1>The total return for Retail A Shares for the six month period ended June 30,
2000 was ___%.
BEST QUARTER: ___ ___%
WORST QUARTER: ___ ___%
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/99 (RETAIL A SHARES)
---------------------------------------------------------------------------
1 Year 5 Years 10 Years Since inception
(April 28, 1994)
INTERNATIONAL VALUE FUND
- Retail A Shares _____% ____% -- ____%
MSCI/EAFE INDEX 26.96% 12.83% -- 11.21%
The Morgan Stanley Capital International Europe, Australia and Far East Index
("MSCI/EAFE") is a widely recognized unmanaged index composed of 20 European and
Pacific Basin countries. The Index figures do not reflect any fees or expenses.
Investors cannot invest directly in the Index.
EXPENSES OF THE FUND (Y SHARES)
-------------------------------
This table describes the expenses that you may pay if you buy and hold Y shares
of the International Value Fund.
ANNUAL FUND OPERATING EXPENSES (expenses
that are deducted from Fund assets)
Management Fees<F1> 1.34%
Shareholder Servicing Fees 0.25%
Other Expenses<F2> 0.42%
-----
Total Annual Fund Operating Expenses<F3> 2.01%
=====
------------------------------------------------------------------------------
<F1>The Adviser has voluntarily agreed that a portion of its management fee will
not be imposed on the Fund during the current fiscal year. As a result of the
fee waiver, current management fees for the Fund are 1.15% 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.
<F2> "Other Expenses" is based on estimated amounts for the current fiscal year
and includes administration fees, transfer agency fees and all other ordinary
operating expenses of the Fund not listed above.
<F3>As a result of the fee waiver set forth in note 1 the Total Annual Fund
Operating Expenses of the Y Shares of the Fund are estimated to be 1.82% 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.
A fee of $12.00 is charged for each wire redemption and $15.00 for each non-
systematic withdrawal from a retirement account for which Firstar Bank, N.A. is
custodian.
EXAMPLE
The following example is intended to help you compare the cost of investing in Y
Shares of the International Value 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 5 Years 10 Years
------ ------- ------- --------
International Value Fund - Y Shares. $___ $___ $___ $___
TYPES OF INVESTMENT RISK
The principal risks of investing in each 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 Funds. Risks associated with particular types of investments each Fund
makes are described in this section and in the Additional Statement referred to
on the back page.
GENERAL RISKS OF INVESTING IN EACH OF THE FUNDS
-------------------------------------------------------------------------------
Complete Investment Program - All Funds
-------------------------------------------------------------------------------
An investment in a single Fund, by itself, does not constitute a complete
investment plan.
-------------------------------------------------------------------------------
Credit Risk - Money Market Funds, Bond Funds, Balanced Funds, and any other
Fund to the extent that it invests in fixed- income securities
-------------------------------------------------------------------------------
An issuer of fixed-income securities may default on its obligation to pay
interest and repay principal. Also, changes in the financial strength of an
issuer or changes in the credit rating of a security may affect its value.
Credit risk includes "counterparty risk"-- the risk that the other party to a
transaction will not fulfill its contractual obligation. This risk applies, for
example, to repurchase agreements which each Fund may enter.
Securities rated below investment grade are particularly subject to credit risk.
These securities are predominantly speculative and are commonly referred to as
"junk bonds." To the extent a Fund purchases or holds convertible or other
securities that are below investment grade, a greater risk exists as to the
timely repayment of the principal of, and the timely payment of interest or
dividends on, such securities.
-------------------------------------------------------------------------------
Derivatives Risk _ All Funds
-------------------------------------------------------------------------------
The term derivative covers a wide number of investments, but in general it
refers to any financial instrument whose value is derived, at least in part,
from the price of another security or a specified index, asset or rate. Some
derivatives may be more sensitive to 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.
Investment by the Taxable Bond Funds in collateralized mortgage obligations and
mortgage- and asset-backed securities are subject to derivatives risk.
To the extent that a derivative is not used as a hedge, the Fund is directly
exposed to the risks of that derivative. Gains or losses from speculative
positions in a derivative may be substantially greater than the derivative's
original cost.
-------------------------------------------------------------------------------
Interest Rate Risk - Money Market Funds, Bond Funds, Balanced Funds and any
other Fund to the extent that it invests in fixed- income securities
-------------------------------------------------------------------------------
When interest rates increase, fixed-income securities tend to decline in value
and when interest rates decrease, fixed-income securities tend to increase in
value. A change in interest rates could cause the value of your investment to
change. Fixed income securities with longer maturities are more susceptible to
interest rate fluctuations than those with shorter maturities. Therefore, the
risk of interest rate fluctuation is greater in the case of the Bond IMMDEX/TM
Fund and the Tax-Exempt Intermediate Bond Fund than in the case of the Short-
Term Bond Fund or the Money Market Funds. 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.
Stripped securities in which the Taxable Bond Funds and Balanced Funds may
invest and zero coupon securities in which the Taxable Bond Funds may invest are
subject to greater interest rate risk than may of the more typical fixed income
securities.
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Liquidity Risk - All Funds
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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 and restricted securities which the Funds may purchase, short-term
funding agreements which the Money Market Fund and Institutional Money Market
Fund may purchase, the GICs which the Taxable Bond Funds may purchase and the
futures contracts in which the Taxable Bond Funds, Growth and Income Fund,
Equity Index Fund, MicroCap Fund, International Growth Fund and International
Value 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. Each Fund may invest up to 15% of its net assets at the time
of purchase, in securities that are illiquid, except that each Money Market Fund
may invest up to 10% 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 (or
Sub-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 a Fund.
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Management Risk - All Funds
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A strategy which the Adviser (or Sub-Adviser) uses may fail to produce the
intended results. The particular securities and types of securities a Fund
holds may underperform other securities and types of securities. There can be
no assurance a Fund will achieve its investment objective. The Adviser and each
Sub-Adviser may not change certain investment practices of the Fund without
shareholder vote. These policies of each Fund, which may not be changed without
a shareholder vote, are described in the Additional Statement.
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Market Risk - All Funds
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The value of the securities in which a Fund invests may go up or down in
response to the prospects of individual companies and/or general economic
conditions. Price changes may be temporary or last for extended periods. Each
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.
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Nonprincipal Strategy Risks - All Funds
-------------------------------------------------------------------------------
This Prospectus describes each Fund's principal investment strategies, and the
types of securities in which each Fund principally invests. Each Fund may, from
time to time, make other types of investments and pursue other investment
strategies in support of its overall investment goal. These supplemental
investment strategies _ and the risk involved - are described in detail in the
Additional Statement, which is referred to on the back cover of this Prospectus.
-------------------------------------------------------------------------------
Portfolio Turnover Risk _ All Funds
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The Adviser and Sub-Advisers will not consider the portfolio turnover rate a
limiting factor in making investment decisions for a Fund. A high rate of
portfolio turnover (100% or more) involves correspondingly greater expenses
which must be borne by a Fund and its shareholders. It may also result in
higher short-term capital gains taxable to shareholders. See "Financial
Highlights" for the Funds' historical portfolio turnover rates. The Money
Market Funds may have high portfolio turnover, but brokerage commissions are not
normally paid on Money Market instruments. Portfolio turnover is not expected
to have a material effect on the Money Market Funds' net investment income.
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Valuation Risk - All Funds
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This is a risk that a Fund has valued certain securities at a higher or lower
price than the Fund can sell them.
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Year 2000 Risk - All Funds
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Over the past several years, the Adviser and the Funds' other major service
providers expended considerable time and money in addressing the computer and
technology problems associated with the transition to the Year 2000. As a
result of those efforts, the Funds did not experience any material disruptions
in their operations as a result of the transition to the 21st century. The
Adviser and the Funds' other major service providers are continuing to monitor
the Year 2000 or Y2K problem, however, and there can be no assurances that there
will be no adverse impact to the Funds as a result of future computer-related
Y2K difficulties.
ADDITIONAL RISKS WHICH APPLY TO INVESTMENT IN CERTAIN OF THE FUNDS
-------------------------------------------------------------------------------
Extension Risk - Taxable Bond Funds, Balanced Funds and Money Market Funds
-------------------------------------------------------------------------------
This is the risk that an issuer will exercise its right to pay principal on an
obligation held by a Fund (such as a mortgage- or asset-backed security) later
than expected. This may happen when there is a rise in interest rates. These
events may lengthen the duration and potentially reduce the value of these
securities.
Foreign Risks - International Growth Fund; International Value Fund; each other
Fund - other than the U.S. Treasury Money Market Fund and U.S. Government Money
Market Fund - to the extent it invests in foreign securities When a Fund invests
in foreign securities, it will be subject to special risks not typically
associated with domestic issuers resulting from less government regulation, less
public information and less economic, political and social stability. Foreign
securities, and in particular foreign debt securities, are sensitive to changes
in interest rates. In addition, investment in securities of foreign governments
involves the risk that foreign governments may default on their obligations or
may otherwise not respect the integrity of their debt. A Fund which invests in
foreign securities will also be subject to the diplomatic risk that an adverse
change in the diplomatic relations between the U.S. and another country might
reduce the value or liquidity of investments. Future political and economic
developments, the possible imposition of withholding taxes on dividend income,
the possible seizure or nationalization of foreign holdings, the possible
establishment of exchange controls or freezes on the convertibility of currency,
or the adoption of other governmental restrictions might adversely affect an
investment in foreign securities. Additionally, foreign banks and foreign
branches of domestic banks may be subject to less stringent reserve
requirements, and to different accounting, auditing and recordkeeping
requirements.
Foreign risks will normally be greatest when a Fund invests in issuers located
in emerging markets. Securities issued in emerging market countries, in
particular, may be more sensitive to certain economic changes and less liquid.
These countries are located in the Asia/Pacific region, Eastern Europe, Latin
and South America and Africa. In general, the securities markets of these
countries are less liquid, are subject to greater price volatility, have smaller
market capitalizations and have problems with securities registration and
custody. In addition, because the securities settlement procedures are less
developed in these countries, a Fund may be required to deliver securities 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 a Fund.
Investment in foreign securities also involves higher costs than investment in
U.S. securities, including higher transaction and custody costs as well as the
imposition of additional taxes by foreign governments.
Each of the Funds, other than the money market funds, may invest in foreign
currency denominated securities. A Fund which invests in foreign currency
denominated securities will also be subject to the risk of negative foreign
currency rate fluctuations. A change in the exchange rate between U.S. dollars
and foreign currency may reduce the value of an investment made in a security
denominated in that foreign currency. The International Value Fund and
International Growth Fund may hedge against foreign currency risk, and the
other Funds may do so on unsettled trades, but none of the Funds is required to
do so.
The International Value Fund also may invest in obligations of foreign countries
and political entities ("sovereign debt") which may trade at a substantial
discount from face value. An issuer of sovereign debt may be unwilling or
unable to repay interests and principal as due. The Fund may purchase Brady
Bonds as part of its investment in sovereign debt of countries that have
restructured or are restructuring their sovereign debt pursuant to the Brady
Plan. The Brady Plan is an initiative announced by former U.S. Treasury
Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to
restructure their external debt. Investments in Brady bonds can be viewed as
speculative.
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European Currency Unification - International Growth Fund; International Value
Fund; each other Fund - other than the U.S. Treasury Money Market Fund and U.S.
Government Money Market Fund - to the extent it invests in foreign securities.
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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 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 a Fund invests and may result in a 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 a Fund's net asset value per share.
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Prepayment Risk - Taxable Bond Funds, Balanced Funds and Money Market Funds
-------------------------------------------------------------------------------
This is the risk that an issuer will exercise its right to pay principal on an
obligation held by a Fund (such as a mortgage- or asset-backed security) earlier
than expected. This may happen when there is a decline in interest rates.
These events may make a Fund unable to recoup its initial investment and may
result in reduced yields.
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Small and MidCap Stock Risk - MidCap Core Equity Fund, MidCap Index Fund, Small
Cap Core Equity Fund and MicroCap Fund (with respect to Small Cap Stock)
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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 Funds 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.
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Tax Risk - Tax-Exempt Money Market Fund, U.S. Treasury Money Market Fund and
Tax-Exempt Intermediate Bond Fund
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These Funds may be more adversely impacted by changes in tax rates and policies
than the other Funds. Because interest income on municipal obligations is
normally not subject to regular federal income taxation, the attractiveness of
municipal obligations in relation to other investment alternatives is affected
by changes in federal income tax rates applicable to, or the continuing federal
income tax-exempt status of, such interest income. Any proposed or actual
changes in such rates or exempt status, therefore, can significantly affect the
demand for and supply, liquidity and marketability of municipal obligations,
which could in turn affect a Fund's ability to acquire and dispose of municipal
obligations at desirable yield and price levels.
Investment in tax-exempt securities poses additional risks. In many cases, the
Internal Revenue Service has not ruled on whether the interest received on a
tax-exempt obligation is tax-exempt, and accordingly, purchases of these
securities are based on the opinion of bond counsel to the issuers at the time
of issuance. The Fund and the Adviser rely on these opinions and will not
review the basis for them.
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Temporary Investment Risk - All Funds other than the Index Funds
-------------------------------------------------------------------------------
Each of the Funds may, for temporary defensive purposes, invest a percentage of
its total assets, without limitation, in cash or various short-term instruments
(except for the MicroCap Fund, which may invest up to 30% of its assets in money
market instruments for temporary defensive purposes). This may occur for
example, when a Fund is attempting to respond to adverse market, economic,
political or other conditions. In particular, the U.S. Treasury Money Market
Fund may temporarily hold cash; the Tax-Exempt Money Market Fund and the Tax-
Exempt Intermediate Bond Fund may, from time to time, hold uninvested cash
reserves or invest in short-term taxable money market obligations (taxable
obligations purchased by each Fund normally will not exceed 20% of total assets
at the time of purchase); and the International Value Fund and International
Growth Fund may invest in money market securities denominated in U.S. or foreign
currency. When a Fund's assets are invested in these instruments, the Fund may
not be achieving its investment objective.
ADDITIONAL RISKS WHICH APPLY TO PARTICULAR TYPES OF SECURITIES
-------------------------------------------------------------------------------
Government Obligations - Money Market Funds other than the Tax-Exempt Money
Market Fund, Taxable Bond Funds, Balanced Funds
-------------------------------------------------------------------------------
In addition to U.S. Treasury obligations, the Funds may invest in other
securities issued or guaranteed by the U.S. government, its agencies and
instrumentalities. No assurance can be given that the U.S. government will
provide financial support to U.S. government-sponsored agencies or
instrumentalities where it is not obligated to do so by law.
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Mortgage-Backed and Asset-Backed Securities - Taxable Bond Funds and Balanced
Funds
-------------------------------------------------------------------------------
Each of these Funds may purchase residential and commercial mortgage-backed as
well as other asset-backed securities (i.e., securities backed by credit card
receivables, automobile loans or other assets). In addition to credit and
market risk, mortgage- and asset-backed securities involve prepayment risk
because the underlying assets (loans) may be prepaid at any time. The value of
these securities may also change because of actual or perceived changes in the
creditworthiness of the originator, the servicing agent, the financial
institution providing the credit support, or the counterparty. Like other
fixed-income securities, when interest rates rise the value of an asset-backed
security generally will decline. However when interest rates decline the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities. The relative payment rights of certain
types of mortgage-backed securities may make them subject to greater volatility
and interest rate risk than other types of mortgage-backed securities. In
addition, non-mortgage asset-backed securities involve certain risks not
presented by mortgage-backed securities. Primarily, these securities do not
have the benefit of the same security interest in the underlying collateral.
Credit card receivables are generally unsecured, and the debtors are entitled to
the protection of a number of state and federal consumer credit laws.
Automobile receivables are subject to the risk that the trustee for the holders
of the automobile receivables may not have an effective security interest in all
of the obligations backing the receivables. In times of financial stress, the
secondary market for asset-backed securities may not be as liquid as the market
for other types of securities which could result in a Fund experiencing
difficulty in valuing or liquidating such securities.
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Borrowings, Reverse Repurchase Agreements - All Funds
-------------------------------------------------------------------------------
Each 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 a Fund declines in value while these transactions are outstanding, the
net asset value of the Fund's outstanding shares will decline in value by
proportionately more than the decline in value of the securities. In addition,
reverse repurchase agreements involve the risks that the interest income earned
by a Fund (from the investment of the proceeds) will be less than the interest
expense of the transaction, that the market value of the securities sold by a
Fund will decline below the price the Fund is obligated to pay to repurchase the
securities, and that the securities may not be returned to the Fund.
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Short Sales - MicroCap Fund, Small Cap Core Equity Fund
-------------------------------------------------------------------------------
Short selling is the selling of securities which have been borrowed on the
expectation that the market price will drop. These transactions may result in
gains if a security's price declines, but may result in losses if a security's
price does not decline in price.
-------------------------------------------------------------------------------
Options - Taxable Bond Funds, Balanced Funds and Equity Funds other than the
International Growth Fund
-------------------------------------------------------------------------------
An option is a type of derivative instrument that gives the holder the right
(but not the obligation) to buy (a "call") or sell (a "put") an asset in the
future at an agreed upon price prior to the expiration date of the option.
Options can be used to manage exposure to certain markets, enhance income or
hedge against a decline in value of portfolio securities. Options may relate to
particular securities or various stock or bond indices and may or may not be
listed on a national securities exchange and issued by the Options Clearing
Corporation. Purchasing options is a specialized investment technique which
entails a substantial risk of a complete loss of the amount paid as premiums to
the writer of the option.
The value of options can be highly volatile, and their use can result in loss if
the Adviser or Sub-Adviser is incorrect in its expectation of price
fluctuations. The successful use of options for hedging purposes also depends
in part on the ability of the Adviser or Sub-Adviser to manage future price
fluctuations and the degree of correlation between the options and securities
markets.
The Funds, other than the International Value Fund, may purchase put and call
options in an amount not to exceed 5% of their respective net assets. The
International Value Fund may purchase put and call options without limit.
The Taxable Bond Funds and International Value Fund will engage in unlisted
over-the-counter options only with broker-dealers deemed creditworthy by the
Adviser (or the Sub-Adviser). Closing transactions in certain options are
usually effected directly with the same broker-dealer that effected the original
option transaction. A Fund bears the risk that the broker-dealer will fail to
meet its obligations. There is no assurance a liquid secondary trading market
exists for closing out an unlisted option position. Furthermore, unlisted
options are not subject to the protections afforded purchasers of listed options
by the Options Clearing Corporation, which performs the obligations of its
members who fail to perform in connection with the purchase or sale of options.
In addition, each Fund may write call options on securities and on various stock
or bond indices. Each Fund may write a call option only if the option is
covered. A Fund may cover a call option by owning the security underlying the
option or through other means which would allow for immediate satisfaction of
its obligation. Such options will be listed on a national securities exchange.
The aggregate value of the Fund's assets subject to options written by the
Taxable Bond Funds, Growth and Income, Equity Index, MicroCap, MidCap Index,
MidCap Core Equity and Small Cap Core Equity Funds will not exceed 5%, 25%, 5%,
5%, 5%, 5% and 5%, respectively, of the value of its net assets during the
current year. The International Value Fund may write call options on securities
and on various stock indices which will be traded on a recognized securities or
futures exchange or over the counter. During the current year the aggregate
value of the International Value Fund's assets subject to options written by the
Fund will not exceed 5% of the value of its net assets. In order to close out
an option position, a Fund will be required to enter into a "closing purchase
transaction" (the purchase of a call option on a security or an index with the
same exercise price and expiration date as the call option which it previously
wrote on the same security or index).
The MidCap Core Equity Fund, Small Cap Core Equity Fund, MicroCap Fund,
International Value Fund and the Balanced Funds 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.
The International Value Fund may also write (i.e., sell) covered put options on
securities and various securities indices. The writer of a put incurs an
obligation to buy the security underlying the option from the put's purchaser at
the exercise price at any time on or before the termination date, at the
purchaser's election (certain options the Fund writes will be exercisable by the
purchaser only on a specific date). Generally, a put is "covered" if the Fund
maintains cash, U.S. government securities or other liquid high grade debt
obligations equal to the exercise price of the option or if the Fund holds a put
on the same underlying security with a similar or higher exercise price. By
writing a covered put option on a security, the Fund receives a premium for
writing the option; however the Fund assumes the risk that the value of the
security will decline before the exercise date, in which event, the Fund may
incur a loss in excess of the premium received when the put is exercised.
Risks associated with the use of options on securities include (i) imperfect
correlation between the change in market value of the securities the Fund holds
and the prices of options relating to the securities purchased or sold by the
Fund; and (ii) the possible lack of a liquid secondary market for an option.
The Additional Statement includes additional information relating to option
trading practices and related risks.
-------------------------------------------------------------------------------
Futures Contracts and Related Options - Taxable Bond Funds, Balanced Funds and
Equity Funds
-------------------------------------------------------------------------------
A futures contract is a type 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 a Fund, at maturity, to take or make delivery of
certain domestic or foreign securities, the cash value of a securities index or
a stated quantity of a foreign currency. The International Growth Fund may
invest in futures but may not invest in options. When a Fund purchases an
option on a futures contract, it has the right to assume a position as a
purchaser or seller of a futures contract at a specified exercise price during
the option period. When a Fund sells an option on a futures contract it becomes
obligated to purchase or sell a futures contract if the option is exercised.
Futures contracts and options present the following risks: imperfect correlation
between the change in market value of a Fund's securities and the price of
futures contracts and options; the possible inability to close a futures
contract when desired; losses due to unanticipated market movements which are
potentially unlimited; and the possible inability of the investment management
team to correctly predict the direction of securities prices, interest rates,
currency exchange rates and other economic factors. The Funds may buy and sell
futures contracts and related options on foreign exchanges or boards of trade
(which do not offer the same protections as U.S. exchanges).
Each Fund's commodities transactions must constitute bona fide hedging or other
permissible transactions pursuant to regulations promulgated by the Commodities
and Futures Trading Commission ("CFTC"). In addition, a Fund may not engage in
such transactions if the sum of the amount of initial margin deposits and
premiums paid for unexpired commodity options, other than for bona fide hedging
transactions, would exceed 5% of the liquidation value of its assets, after
taking into account unrealized profits and unrealized losses on such contracts
it has entered into; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded in
calculating the percentage limitation. Pursuant to SEC requirements, a Fund may
be required to segregate cash or high quality money market instruments in
connection with its commodities transactions in an amount generally equal to the
value of the underlying commodity. The Company intends to comply with the
regulations of the CFTC exempting the Fund from registration as a "commodity
pool operator."
The Taxable Bond Funds and Growth and Income Fund intend to limit their
transactions in futures contracts and related options so that not more than 5%
of each Fund's respective net assets are at risk. The Equity Index Fund, MidCap
Index Fund and International Value Fund intend to limit their transactions in
futures contracts so that not more than 10%, 10% and 25% of each Fund's
respective net assets are at risk. For a more detailed description of futures
contracts and futures options, including a discussion of the limitations imposed
by federal tax law, see Appendix B to the Additional Statement.
Guaranteed Investment Contracts and Zero Coupon Securities - Taxable Bond Funds
The Taxable Bond Funds may purchase guaranteed investment contracts
("GIC's") issued by highly rated U.S. insurance companies, and zero coupon
securities. GIC's are subject to liquidity risk, which is the risk that certain
securities may be difficult or impossible to sell at a desirable time and price.
INVESTING WITH FIRSTAR FUNDS
This section describes for you the procedures for opening an account and how to
buy, sell or exchange Fund shares.
Share Classes Available
The Firstar Funds offer two classes of Shares in the Money Market Funds, Retail
A Shares and Institutional Shares, and four classes of Shares in the Non-Money
Market Funds; Retail A, Retail B, Y and Institutional. Institutional Shares of
the Money Market Funds and Y Shares of the non-Money Market Funds are only
offered in this prospectus. Other share classes are subject to different fees
and expenses (which affect performance), and are entitled to different services.
Information regarding those other share classes may be obtained by calling the
number on the back cover of this prospectus.
INSTITUTIONAL SHARES (MONEY MARKET FUNDS)
No sales charge
- Available for:
- All shareholders of the Money Market Funds who were exchanged into
Institutional Shares on ____________, 2000 and who have continuously
maintained an account with the Company;
- 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 SAI;
- all clients of FIRMCO;
- 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.
Y SHARES
No sales charge
- Available for:
- All shareholders of the Non-Money Market Funds 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.
SHAREHOLDER ORGANIZATIONS
The Funds have adopted a service plan for the Institutional Shares of the Money
Market Funds, and for the Y Shares of the non-Money Market Funds (the "Plan"),
under which the Funds may pay service fees for shareholder services to
Institutional and Y shareholders. Under the Plan, shareholder organizations may
be entitled to receive fees from a Fund at an annual rate of up to 0.25% of the
average daily net asset value of the shares covered by their respective
agreements for shareholder support services. Fees under the plan will not
exceed, in the aggregate, the annual rate of 0.25% of a Fund's average daily net
assets for the Y 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
Payments to shareholder organizations, including affiliates of the Adviser,
under the Plan, 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 the Plan, a Fund may enter into agreements with shareholder organizations,
including affiliates of the Adviser (such as Firstar Investment Services, Inc.).
The 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. 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
The MicroCap Fund closed to new investors on January 14, 2000. However, this
Fund will continue to accept additional share purchases from existing
shareholders in existing accounts or new accounts of which an existing
shareholder is a full or partial owner. The Fund will also accept purchases
through reinvestment of dividend and capital gain distributions. The Fund may
open to new investors in the future at the discretion of the Adviser based on
various factors, including assets under management and current investment
opportunities.
Shares of the Funds are offered and sold on a continuous basis by the
distributor for the Funds, B.C. Ziegler and Company (the "Distributor"), which
is not an affiliate of the Adviser. The Distributor is a registered broker-
dealer with offices at 215 North Main Street, West Bend, Wisconsin 53095.
MINIMUM INVESTMENTS
INSTITUTIONAL SHARES
The minimum initial investment in the Institutional Shares of a Money Market
Fund is $1,000,000 by an individual or combination of accounts. There is no
minimum initial or subsequent investment for Institutional Shares of other
Funds. The maximum investment for the MicroCap Fund is $5,000,000.
Y SHARES
The minimum initial investment for Y Shares in a 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 with the
exception of the MicroCap Fund. For the MicroCap Fund the maximum investment is
$5,000,000.
BUYING SHARES
Purchase requests for a Money Market Fund received in proper form before 11:30
a.m. Central time on a business day for the Funds generally are processed at
11:30 a.m. Central time on the same day. In order to be processed at 11:30 a.m.
Central time, payment must be received in immediately available funds wired to
the transfer agent by the close of business. All checks received will be
processed at that day's closing price.
Purchase requests accompanied by a check or wire payment for the Money Market
Funds which are received at or after 11:30 a.m. Central time, and purchase
requests accompanied by a check or wire payment for any other Fund which are
received by the transfer agent before 3:00 p.m. Central time on a business day
for the Funds will be executed the same day, at that day's closing price
provided that payment is received by the close of regular trading hours. Orders
received after 3:00 p.m. Central time and orders for which payment is not
received by the close of regular trading hours on the New York Stock Exchange
(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.
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OPENING AN ACCOUNT ADDING TO AN ACCOUNT
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Through a - Contact your Shareholder - Contact your Shareholder
Shareholder Organization Organization
Organization
-------------------------------------------------------------------------------
By Mail - Complete an application and - Make your check payable to
mail it along with a check Firstar Funds. Please include
payable to Firstar Funds, P.O. your sixteen-digit account
Box 3011, number on your check and mail
Milwaukee, WI 53201-3011: it to the address at the left.
For overnight delivery mail
to; 615 E. Michigan St.,
Milwaukee, WI 53202.
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- Call 1-800-677-FUND to obtain a - Complete a Periodic Investment
purchase application, which Plan Application to
includes information for a automatically purchase more
Periodic Investment Plan or shares.
ConvertiFund, Account.
- Open a ConvertiFund/R account
to automatically invest
proceeds from one account to
another account of the Firstar
Family of Funds.
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By Wire - Call 1-800-677-FUND prior to - Call 1-800-677-FUND prior to
sending the wire in order to sending the wire in order to
obtain a confirmation number obtain a confirmation number
and to ensure prompt and and to ensure prompt and
accurate handling of funds. accurate handling of funds.
Ask your bank to transmit Ask your bank to transmit
immediately available funds by immediately available funds by
wire in the amount of your wire as described at the left.
purchase to: Please include your sixteen-
Firstar Bank, N.A. digit account number. The Fund
ABA # 0750-00022 and its transfer agent are not
Firstar Trust Department responsible for the
Account # 112-952-137 consequences of delays
for further credit to [name of resulting from the banking or
Fund] Federal Reserve Wire system,
[name /title on the account ]. or from incomplete wiring
The Fund and its transfer instructions.
agent are not responsible for
the consequences of delays
resulting from the banking or
Federal Reserve Wire system,
or from incomplete wiring
instructions.
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Internet - Not available - Use Firstar Funds Direct to
www.firstar exchange from another Firstar
funds.com 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.
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By Telephone- Call 1-800-677-FUND to exchange - Call 1-800-677-FUND to exchange
Exchange from another Firstar Fund from another Firstar Fund
account with the same account with the same
registration including name, registration including name,
address and taxpayer ID number. address and taxpayer ID number.
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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 Funds'transfer agent if any check used for investment in an account does
not clear, and the investor involved will be responsible for any loss incurred
by a Fund. 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.
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Additional Information on Buying Shares
-------------------------------------------------------------------------------
- The Funds will not accept payment in cash or third party checks for the
purchase of shares.
-.Federal regulations require that each investor provide a Social Security
number or other certified taxpayer identification number upon opening or
reopening an account. The Funds reserve the right to reject applications
without such a number or an indication that a number has been applied for. If a
number has been applied for, the number must be provided and certified within
sixty days of the date of the application. Any accounts opened without a proper
number will be subject to backup withholding at a rate of 31% on all
liquidations and dividend and capital gain distributions.
- Payment for shares of a Fund in the amount of $1,000,000 or more may, at the
discretion of the Adviser, be made in the form of securities that are
permissible investments for the respective Fund.
The Funds 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 Funds' behalf. In these
cases, a 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 Funds 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 Funds.
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.
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For Owners of Institutional Shares
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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 Funds should contact
their account representatives.
In the case of participants in certain employee benefit plans investing in
certain Funds, purchase and redemption orders will be processed on a particular
day based on whether a service organization acting on their behalf received the
order by the close of regular trading on that day.
The Funds may authorize one or more brokers and other 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 Funds' behalf. In these
cases, a 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 Funds 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 Funds.
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.
REDEEMING SHARES
SELLING SHARES
Redemption requests for a Money Market Fund received by the transfer agent by
phone before 11:30 a.m. Central time on a business day for the Funds generally
are processed at 11:30 a.m. Central time on the same day. Redemption requests
for Money Market Funds received at or after 11:30 a.m. Central time and
redemption requests for other Funds received by the transfer agent before 3:00
p.m. Central time on a business day for the Funds will be executed the same day,
at that day's closing price. Orders received after 3:00 p.m. Central time will
be executed on the next business day.
-----------------------------------------------------------------------------
Through a - 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).
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By Mail - Mail your instructions to the Firstar Funds, P.O. Box 3011,
Milwaukee, WI 53201-3011 (via overnight delivery to 615 E.
Michigan Street, Milwaukee, WI 53202). Include the number
of shares or the amount to be redeemed, your sixteen-digit
account number and Social Security number or other taxpayer
identification number. Your instructions must be signed by
all persons required to sign for transactions exactly as
their names appear on the account. If the redemption
amount exceeds $50,000, or if the proceeds are to be sent
elsewhere than the address of record, or the address of
record has been changed by telephone within the preceding
15 days, each signature must be guaranteed in writing by
either a commercial bank that is a member of the FDIC, a
trust company, a credit union, a savings association, a
member firm of a national securities exchange or other
eligible guarantor institution.
-----------------------------------------------------------------------------
Internet Firstar Funds Direct to redeem up to $25,000. Call 1-
www.firstar - 800-677-FUND to authorize this service.
funds.com
-----------------------------------------------------------------------------
Automatically - Call 1-800-677-FUND for a Systematic Withdrawal Plan
application ($5,000 account minimum and $50 minimum per
transaction).
-----------------------------------------------------------------------------
Guarantees must be signed by an eligible guarantor institution and "Signature
Guaranteed" must appear with the signature.
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The Funds may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees and guardians. A redemption
request will not be deemed to be properly received until the transfer agent
receives all required documents in proper form as specified above. Purchases of
additional shares concurrently with withdrawals could be disadvantageous because
of the sales charge involved in the additional purchases.
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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 account must sign the
request. The Funds may request further documentation from corporations,
executors, administrators, trustees and guardians.
The Funds reserve the right to refuse a telephone redemption if they believe it
is advisable to do so. Procedures for redeeming shares by telephone may be
modified or terminated by the Funds at any time upon notice to 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, except for transactions in Money Market
Funds, confirmed in writing. Statements of accounts shall be conclusive if not
objected to in writing within 10 days after transmitted by mail. Firstar may
implement other procedures from time to time. If reasonable procedures are not
implemented, Firstar may be liable for any loss due to unauthorized or
fraudulent transactions. In all other cases, the shareholder is liable for any
loss for unauthorized transactions.
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Check Redemption (U.S. Treasury Money Market Fund Only)
-------------------------------------------------------------------------------
You may request on the purchase application or by written request that a Fund
provides Redemption Checks ("Checks"). Checks may be made payable in the amount
of $250 or more. Any Checks drawn on a joint account will only require one
signature. There is no charge for the use of the Checks; however, the transfer
agent will impose a $25 charge for stopping payment of a Check upon your
request, or if the transfer agent cannot honor a Check due to insufficient funds
or other valid reason. Because dividends on each Fund accrue daily, Checks may
not be used to close an account, as a small balance is likely to result.
CHECKS ARE NOT AVAILABLE FOR NON-MONEY MARKET FUNDS, U.S. GOVERNMENT MONEY
MARKET FUND, TAX-EXEMPT MONEY MARKET FUND, IRAS OR OTHER RETIREMENT PLANS FOR
WHICH FIRSTAR ACTS AS CUSTODIAN.
-------------------------------------------------------------------------------
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.
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Additional Redemption Information
-------------------------------------------------------------------------------
The Funds will make payment for redeemed shares typically within one or two
business days, but no later than the seventh day after receipt by the transfer
agent of a request in proper form 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 FUNDS WILL DELAY THE PAYMENT OF THE REDEMPTION
PROCEEDS UNTIL THE TRANSFER AGENT IS REASONABLY SATISFIED THAT THE CHECK HAS
BEEN COLLECTED, WHICH MAY TAKE UP TO TWELVE DAYS FROM THE PURCHASE DATE. An
investor must have filed a purchase application before any redemption requests
can be paid.
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Accounts Below the Minimum Balance
-------------------------------------------------------------------------------
If your account falls below $1,000, other than due to market fluctuations, the
Funds 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. A 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.
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EXCHANGING SHARES
-------------------------------------------------------------------------------
Without a sales charge, you may exchange Institutional shares of a Money Market
Fund for Institutional shares of another Money Market Fund. You may also
exchange Institutional shares of a Money Market Fund for Institutional Shares of
a non-Money Market Fund. You may exchange your Y Shares of a non-Money Market
Fund shares for other Y shares of another non-Money Market Fund or for Retail A
Shares of a Money Market Fund.
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 Funds or other adverse effects which may result from
the additional exchange requests.
For federal income tax purposes, an exchange of shares is a taxable event and,
accordingly, an investor may realize a capital gain or loss. Before making an
exchange request, an investor should consult a tax or other financial adviser to
determine the tax consequences of a particular exchange. No exchange fee is
currently imposed by Firstar on exchanges. However, Firstar reserves the right
to impose a charge in the future. In addition, 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, a 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.
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 to Money Market Shareholders monthly,
summarizing all transactions. For all other funds, 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, a 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 online 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 Funds on-line. If this happens, you
may initiate transactions in your share accounts by mail or as otherwise
described in the prospectus.
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Automated Teleresponse Service
-------------------------------------------------------------------------------
Shareholders using a touch-tonea telephone can access information on the Funds
twenty-four hours a day, seven days a week. When calling Firstar Mutual Fund
Services, LLC at 1-800-677-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.
ADDITIONAL INFORMATION
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
-------------------------------------------------------------------------------
Dividends and Capital Gains Distributions
-------------------------------------------------------------------------------
Dividends from net investment income, including net realized gains and losses,
if any, earned on the investments held by a Fund, of the Money Market Funds are
declared on each business day on the shares that are outstanding immediately
after 11:30 a.m. Central time (12:30 P.M. Central time for Institutional Money
Market) on the declaration date.
Dividends from net investment income of the Bond Funds are declared and paid
monthly. Dividends from net investment income of the Balanced Income, Balanced
Growth, Growth and Income and Equity Index Funds are declared and paid
quarterly.
Dividends from net investment income of the Growth, MidCap Core Equity, Small
Cap Core Equity, MicroCap and International Value Funds 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.
-------------------------------------------------------------------------------
Reinvested dividends and distributions receive the same tax treatment as those
paid 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
-------------------------------------------------------------------------------
Each Fund contemplates declaring as dividends each year all, or substantially
all, of its taxable income, including its net capital gain (the excess of long-
term capital gain over short-term capital loss). Distributions attributable to
the net capital gain of a Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your Shares. Other Fund distributions will
generally be taxable as ordinary income. You will be 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.
In the case of any Fund other than a Money Market Fund, you should note that if
you purchase Shares just prior to a capital gain distribution, the purchase
price will reflect the amount of the upcoming distribution, but you will be
taxable on the entire amount of the distribution received, even though, as an
economic matter, the distribution simply constitutes a return of capital. This
is known as "buying into a dividend."
You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the Shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held Shares.) Any loss
realized on Shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends that were received on
the shares.
The one major exception to these tax principles is that distributions on, and
sales, exchanges and redemptions of, Shares held in an IRA (or other tax-
qualified plan) will not be currently taxable.
A 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 International Value Fund and International Growth Fund. It is expected that
the International Value Fund and International Growth Fund will be subject to
foreign withholding taxes with respect to dividends or interest received from
sources in foreign countries. The International Value Fund and International
Growth Fund may make an election to treat a proportionate amount of such taxes
as constituting a distribution to each Shareholder, which would allow each
Shareholder either (1) to credit such proportionate amount of taxes against U.S.
federal income tax liability or (2) to take such amount as an itemized
deduction.
The Tax-Exempt Money Market Fund and Tax-Exempt Intermediate Bond Fund. It is
expected that the Tax-Exempt Money Market Fund and Tax-Exempt Intermediate Bond
Fund will distribute dividends derived from interest earned on Exempt
Securities, and these "exempt interest dividends" will be exempt income for
Shareholders for federal income tax purposes. However, distributions, if any,
derived from net capital gains will generally be taxable to you as capital
gains. It is expected that the Tax-Exempt Intermediate Bond Fund may pay such
capital gains distributions from time to time. Dividends, if any, derived from
taxable interest income will be taxable to you as ordinary income.
Interest on indebtedness incurred by a Shareholder to purchase or carry shares
of the Tax-Exempt Money Market Fund and Tax-Exempt Intermediate Bond Fund
generally will not be deductible for federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by the Tax-
Exempt Money Market Fund and Tax-Exempt Intermediate Bond Fund may constitute an
item of tax preference for purposes of determining federal alternative minimum
tax liability. Exempt-interest dividends will also be considered along with
other adjusted gross income in determining whether any Social Security or
railroad retirement payments received by you are subject to federal income
taxes.
If you receive an exempt-interest dividend with respect to any Share and the
Share is held by you for six months or less, any loss on the sale or exchange of
the Share will be disallowed to the extent of such dividend amount.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. 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.
-------------------------------------------------------------------------------
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
each 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 FUNDS
-------------------------------------------------------------------------------
Advisory Services
-------------------------------------------------------------------------------
FIRMCO, a Wisconsin Limited Liability Company and subsidiary of Firstar
Corporation, a bank holding company, serves as investment adviser to each Fund.
FIRMCO, with principal offices at Firstar Center, 777 East Wisconsin Avenue, 8th
Floor, Milwaukee, Wisconsin 53202, has provided investment advisory services
since 1986. FIRMCO currently has $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 respective investment objective and policies of each Fund, the Adviser
manages each Fund's portfolio securities and maintains records relating to such
purchases and sales (except for the International Growth and International Value
Funds). Subject to the general supervision of the Board of Directors and in
accordance with the respective investment objectives and policies of the
International Growth and International Value Funds, the Adviser is responsible
for each Fund's investment program, general investment criteria and policies.
The Adviser has retained Hansberger Global Investors, Inc. ("HGI") as Sub-
Adviser for the International Value Fund, a Delaware corporation founded in
1994, with its principal office at 515 East Las Olas Boulevard, Suite 1300, Fort
Lauderdale, Florida 33301, currently has $2.9 billion in assets under
management. Subject to the oversight and supervision of the Fund's Board of
Directors and Adviser, HGI formulates and implements a continuous investment
program for the International Value Fund.
The Adviser has retained The Glenmede Trust Company as Sub-Adviser for the
International Growth Fund. Glenmede is a limited purpose trust company
chartered in 1956, with principal offices at One Liberty Place, 1650 Market
Street, Suite 1200, Philadelphia, Pennsylvania 19103. Glenmede currently has
over $17 billion in assets in the accounts for which it serves in various
capacities including as executor, trustee or investment advisor. Subject to the
oversight and supervision of the Fund's Board of Directors and Adviser, Glenmede
formulates and implements a continuous investment program for the International
Growth Fund.
At a meeting of the Firstar Board of Directors ("Firstar Board") on _______,
2000, the Adviser recommended, and the Firstar Board unanimously approved, the
reorganization of the mutual fund portfolios of Mercantile Mutual Funds, Inc.
into the corresponding portfolio of the Company. As part of the reorganization,
the International Equity Portfolio of Mercantile Mutual Funds, Inc. will be
reorganized into the International Growth Fund. In conjunction with the
reorganization, the Adviser also recommended the hiring of Clay Finlay _ the
current sub-adviser to the Mercantile International Equity Portfolio _ to
provide sub-advisory services to the Firstar International Growth Fund. The
hiring of Clay Finlay is contingent upon the approval of a new sub-advisory
agreement by the Fund's shareholders at a meeting scheduled to be held on
_______, 2000. If approved, the Adviser anticipates that Clay Finlay will begin
serving as the new sub-adviser on or around ________, 2000.
Clay Finlay, Inc. ("Clay Finlay"), which was formed in 1982, is a registered
investment adviser and a wholly owned subsidiary of United Asset Management
Corporation, a financial services holding company. Clay Finlay's principal
office is located at 200 Park Avenue, 56th Floor, New York, NY 10166.
The Adviser (or Sub-Adviser for the International Growth Fund and International
Value Fund, respectively) 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 (or Sub-Advisers), to take into account the sale of Fund shares if the
Adviser (or Sub-Adviser for the International Growth Fund or International Value
Fund, respectively) believes that the quality of the transaction and the amount
of the commission are comparable to what they would be with other qualified
brokerage firms.
For the fiscal year ended October 31, 1999, the Adviser received from each Fund
a fee, calculated daily and payable monthly, at the following annual rates (as a
percentage of the Fund's average daily net assets): 0.49% for the U.S. Treasury
Money Market Fund, 0.50% for the U.S. Government Money Market Fund, 0.49% for
the Tax-Exempt Money Market Fund, 0.32% for the Short-Term Bond Fund, 0.35% for
the Intermediate Bond Fund, 0.32% for the Tax-Exempt Intermediate Bond Fund,
0.30% for the Bond IMMDEXa Fund, 0.45% for the Balanced Income Fund, 0.68% for
the Balanced Growth Fund, 0.75% for the Growth and Income Fund, 0.18% for the
Equity Index Fund, 0.75% for the Large Cap Core Equity Fund, 0.01% for the
MidCap Index Fund, 0.73% for the MidCap Core Equity Fund, 0.72% for the Small
Cap Core Equity Fund, 1.50% for the MicroCap Fund, 1.08% for the International
Value Fund and 0.03% for the International Growth Fund.
Glenmede is entitled to a fee, payable by the Adviser, for its services and
expenses incurred with respect to the International Growth Fund. The fee is
computed daily and paid monthly at the following annual rates (as a percentage
of the Fund's average daily net assets): 0.50% on the Fund's first $50 million
and 0.30% of the Fund's average daily net assets in excess of $50 million.
If the new sub-advisory agreement is approved by shareholders, Clay Finlay will
be entitled to a fee, computed daily and paid monthly, at the following annual
rates: 0.75% of the first $50 million of the Fund's average daily net assets,
plus 0.25% of the Fund's average daily net assets in excess of $100 million.
HGI is entitled to a fee, payable by the Adviser, for its services and expenses
incurred with respect to the International Value Fund. The fee is computed
daily and paid monthly at the following annual rates (as a percentage of the
Fund's average daily net assets): 0.75% on the Fund's first $25 million, 0.50%
of the next $75 million and 0.35% of the Fund's average daily net assets in
excess of $100 million.
-------------------------------------------------------------------------------
Fund Managers
-------------------------------------------------------------------------------
Richard Burling, CFA and Bradley Peters, CFA co-manage the Short-Term Bond Fund.
Mr. Burling is a Senior Vice President and Senior Portfolio Manager of FIRMCO.
He has been with FIRMCO and its affiliates since 1980 and has 17 years of
investment management experience. Mr. Peters is a Vice President and Portfolio
Manager of FIRMCO. He has been with FIRMCO since 1993 and has 18 years of
investment management experience. Mr. Peters is a Certified Public Accountant, a
Certified Financial Planner, and a Certified Management Accountant. Mr. Burling
and Mr. Peters have managed the Fund since February 14, 2000.
David Bethke, CFA and Steven Jones co-manage the Intermediate Bond Fund. Mr.
Bethke has 19 years of investment management experience and has been with FIRMCO
and its affiliates since 1987. Mr. Jones has 19 years of investment management
experience and has been with FIRMCO and its affiliates since 1990. Mr. Bethke
and Mr. Jones have managed the Fund since February 14, 2000.
Peter Merzian manages the Tax-Exempt Intermediate Bond Fund. Mr. Merzian joined
FIRMCO and its affiliates in 1993 and has 12 years of investment management
experience. He has managed the Fund since February 14, 2000.
George Schupp, CFA and David Bethke, CFA co-manage the Bond IMMDEX/TM Fund. Mr.
Schupp serves as FIRMCO's Director of Fixed Income Services. He has 24 years of
investment management experience and has been with Firstar since 1983. Mr.
Schupp and Mr. Bethke have managed the Fund since February 14, 2000.
Marian Zentmyer, CFA and David Bethke co-manage the Balanced Income Fund. Ms.
Zentmyer serves as FIRMCO's Chief Equity Investment Officer. She has been with
FIRMCO and its affiliates since 1982 and has 21 years of investment management
experience. Ms. Zentmyer is a Certified Financial Planner. Ms. Zentmyer has
managed the Fund since its inception on December 1, 1997. Mr. Bethke has
managed the Fund since February 14, 2000.
Walter Dewey, CFA and George Schupp co-manage the Balanced Growth Fund. Mr.
Dewey serves as a Senior Vice President and Senior Portfolio Manager with
FIRMCO. He has been with FIRMCO and its affiliates since 1986 and has 16 years
of investment management experience. Mr. Dewey has managed the Fund since
November 8, 1999. Mr. Schupp has managed the Fund since February 14, 2000.
Marian Zentmyer, CFA and David Lettenberger, CFA co-manage the Growth and Income
Fund. Ms. Zentmyer has managed the Fund since February 22, 1993. Mr.
Lettenberger is a Vice President and Portfolio Manager with FIRMCO and has been
with FIRMCO and its affiliates since 1999. He has seven years of investment
management experience and has been a portfolio manager of the Fund since
November 8, 1999.
Walter Dewey manages the Large Cap Core Equity Fund. Mr. Dewey has managed the
Fund since July 7, 1997.
Todd Krieg, CFA and Matt D'Attilio, CFA co-manage the MidCap Core Equity Fund.
Mr. Krieg is a Senior Vice President and Senior Portfolio Manager of FIRMCO.
Mr. Krieg has been with FIRMCO and its affiliates since 1992 and has seven years
of investment management experience. Mr. Krieg has managed the Fund since
September 1, 1994. Mr. D'Attilio is a Senior Vice President and Senior
Portfolio Manager of FIRMCO and has been with FIRMCO and its affiliates since
1993. He has six years of investment management experience and has managed the
Fund since December 1, 1998.
Robert Anthony and Gregory Glidden co-manage the Small Cap Core Equity Fund.
Mr. Anthony is a Senior Portfolio Manager with FIRMCO and has been with FIRMCO
and its affiliates since 1973. He has 26 years of investment management
experience. Mr. Anthony has managed the Fund since November 8, 1999. Mr.
Glidden is the Director of Equity Research and is a Senior Portfolio Manager of
FIRMCO. Mr. Glidden has managed the Fund since February 28, 2000.
Joe Frohna, CFA, CPA manages the MicroCap Fund. Mr. Frohna is a Senior Vice
President and Senior Portfolio Manager of FIRMCO and has been with FIRMCO and
its affiliates since 1995. He has seven years of investment management
experience and has managed the Fund since September 9, 1997.
The portfolio management team of James Chaney, John Fenley, John Hock and
Victoria Gretzky manages the International Value Fund for HGI. Mr. Chaney is
primarily responsible for the day to day management of the Fund. Mr. Chaney
joined HGI as Chief Investment Officer in 1996 and has 15 years of investment
management experience. Prior to joining HGI, he was Executive Vice President of
Templeton Worldwide, Inc. and a senior member of its Portfolio
Management/Strategy Committee. John Fenley joined HGI in 1997 as a Vice
President of Research and has 10 years of investment management experience.
Prior to joining HGI, he developed and managed the Institutional Investment
Department for SunTrust Bank, South Florida. John Hock joined HGI in 1996 as a
research analyst. Prior to joining HGI, he was a senior analyst in the global
securities research and economics group at Merrill Lynch. Victoria Gretzky
joined HGI in 1995 as a research analyst. From 1993 to 1996, prior to joining
HGI, she was a research analyst for Optimum Consulting, a Russian based firm
which specialized in restructuring Russian companies during privatization.
Andrew B. Williams manages the International Growth Fund for Glenmede. Mr.
Williams joined Glenmede in 1985, has been a portfolio manager with Glenmede
since 1988 and a Senior Vice President of Glenmede since 1997.
If the sub-advisory agreement with Clay Finlay is approved, Frances Dakers will
manage the International Growth Fund for Clay Finlay. Ms. Dakers is a principal
and senior portfolio manager of Clay Finlay. Ms. Dakers has been with Clay
Finlay since January 1992 and has managed the Mercantile International Equity
Fund since it began operations in 1994.
-------------------------------------------------------------------------------
Administrative Services
-------------------------------------------------------------------------------
Firstar Mutual Fund Services, LLC and B. C. Ziegler and Company ("Ziegler")
serve as the Co-Administrators (the "Co-Administrators") and receive 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
Funds and receive 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 Funds and receives fees for those services.
NET ASSET VALUE AND DAYS OF OPERATION
The price of the Y Shares is based on net asset value per share. This amount is
calculated separately for the Y class of shares by dividing the value of all
securities and other assets attributable to the Y class, less the liabilities
attributable to the class, by the number of outstanding shares of the class.
The price at which a purchase or redemption is effected is based on the next
calculation of net asset value after the order is accepted.
-------------------------------------------------------------------------------
Money Market Funds
-------------------------------------------------------------------------------
The net asset value of the money market funds for purposes of pricing purchase
and redemption orders is determined as of 11:30 a.m. Central time and as of the
close of regular trading hours on the Exchange, normally, 3:00 p.m. Central
time, on each day on which both the Exchange is open for trading and the Federal
Reserve Banks' Fedline System is open. Shares of the Funds are not priced on
days the Exchange is closed. For a complete list of days the exchange is
closed, please see the Additional Statement. Net asset value per share is
calculated by dividing the value of all securities and other assets owned by
each Fund, less the liabilities charged to the Fund, by the number of the Fund's
outstanding shares.
-------------------------------------------------------------------------------
The Company intends to use its bets efforts to maintain the net asset value of
each Money Market Fund at $1.00 per share, although there is no assurance that
it will be able to do so.
-------------------------------------------------------------------------------
Net asset value is computed using the amortized cost method as permitted by
SEC rules.
-------------------------------------------------------------------------------
Non-Money Market Funds
-------------------------------------------------------------------------------
Net asset value for purposes of pricing purchase and redemption orders is
determined as of the close of regular trading hours on the Exchange, normally,
3:00 p.m. Central time, on each day the Exchange is open for trading. For a
complete list of days the exchange is closed, please see the Additional
Statement.
The Funds' investments are valued based on market quotations, except that
restricted securities and securities for which market quotations are not readily
available and other assets are valued at fair value by the Adviser under the
supervision of the Board of Directors. Short-term investments having a maturity
of 60 days or less are valued at amortized cost, unless the amortized cost does
not approximate market value.
Portfolio securities which are primarily traded on foreign securities
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, except when an occurrence subsequent
to the time a value was so established is likely to have changed such value. In
such an event, the fair value of those securities will be determined through the
consideration of other factors by or under the direction of the Board of
Directors. A Fund's foreign securities may trade on weekends or other days when
the Fund does not price its shares. Accordingly, the net asset value per share
of a Fund may change on days when shareholders will not be able to purchase or
redeem the Fund's shares.
Each Fund's securities may be valued based on valuations provided by an
independent pricing service. The Adviser reviews these valuations. If the
Adviser believes that a valuation received from the service does not represent a
fair value, it values the security by a method that the Board of Directors
believes will determine a fair value. Any pricing service used may employ
electronic data processing techniques, including a "matrix" system, to determine
valuations.
Quotations of foreign securities in foreign currency are converted to U.S.
dollar equivalents using the foreign exchange quotation in effect at the time
net asset value is computed. Foreign securities held by the International Value
Fund may trade in their local markets on days the Fund is closed, and the Fund's
net asset value may, therefore, change on days when investors may not purchase
or redeem Fund shares.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information, except for the period
ended April 30, 2000, has been audited by PricewaterhouseCoopers LLP, whose
report, along with the Fund's financial statements, are included in the Annual
Report, and incorporated by reference into the Additional Statement, both of
which are available upon request. Contact Firstar Mutual Fund Services, LLC for
a free copy of the Annual Report or Additional Statement. During the periods
shown, the Funds did not offer Y Shares, nor Institutional Shares for its Money
Market Funds. Accordingly, there are no financial highlights for these Classes.
MONEY MARKET FUNDS
NET ASSET DIVIDENDS NET ASSET
VALUE, FROM NET VALUE,
BEGINNING INVESTMENT INVESTMENT END OF
OF PERIOD INCOME INCOME PERIOD
--------- ---------- ---------- -------
U.S. TREASURY
MONEY MARKET FUND
Year Ended October 31, 1995 1.00 0.05 (0.05) 1.00
Year Ended October 31, 1996 1.00 0.05 (0.05) 1.00
Year Ended October 31, 1997 1.00 0.05 (0.05) 1.00
Year Ended October 31, 1998 1.00 0.05 (0.05) 1.00
Year Ended October 31, 1999 1.00 0.04 (0.04) 1.00
Period Ended April 30, 2000 ____ ____ ____ ____
U.S. GOVERNMENT
MONEY MARKET FUND
Year Ended October 31, 1995 1.00 0.05 (0.05) 1.00
Year Ended October 31, 1996 1.00 0.05 (0.05) 1.00
Year Ended October 31, 1997 1.00 0.05 (0.05) 1.00
Year Ended October 31, 1998 1.00 0.05 (0.05) 1.00
Year Ended October 31, 1999 1.00 0.04 (0.04) 1.00
Period Ended April 30, 2000 ____ ____ ____ ____
TAX-EXEMPT
MONEY MARKET FUND
Year Ended October 31, 1995 1.00 0.03<F4> (0.03) 1.00
Year Ended October 31, 1996 1.00 0.03<F4> (0.03) 1.00
Year Ended October 31, 1997 1.00 0.03<F4> (0.03) 1.00
Year Ended October 31, 1998 1.00 0.03<F4> (0.03) 1.00
Year Ended October 31, 1999 1.00 0.03<F4> (0.03) 1.00
Period Ended April 30, 2000 ____ ____ ____ ____
SUPPLEMENTAL DATA AND RATIOS
-----------------------------
RATIO OF
NET RATIO OF NET
ASSETS, NET INVESTMENT
END EXPENSES TO INCOME TO
OF PERIOD AVERAGE NET AVERAGE NET TOTAL
(000S) ASSETS ASSETS RETURN
--------- ----------- ---------- --------
U.S. TREASURY
MONEY MARKET FUND
Year Ended October 31, 1995 64,655 0.60%<F1> 5.04%<F1> 5.16%
Year Ended October 31, 1996 53,430 0.60%<F1> 4.70%<F1> 4.80%
Year Ended October 31, 1997 78,478 0.60%<F1> 4.67%<F1> 4.80%
Year Ended October 31, 1998 91,872 0.60%<F1> 4.62%<F1> 4.71%
Year Ended October 31, 1999 95,539 0.71%<F1> 3.94%<F1> 4.01%
Period Ended April 30, 2000 ____ ____ ____ ____
U.S. GOVERNMENT
MONEY MARKET FUND
Year Ended October 31, 1995 163,068 0.60%<F2> 5.24%<F2> 5.37%
Year Ended October 31, 1996 198,334 0.60%<F2> 4.84%<F2> 4.96%
Year Ended October 31, 1997 198,592 0.60%<F2> 4.83%<F2>
4.99%
Year Ended October 31, 1998 233,176 0.60%<F2> 4.90%<F2>
4.97%
Year Ended October 31, 1999 209,015 0.68%<F2> 4.30%<F2> 4.37%
Period Ended April 30, 2000 ____ ____ ____ ____
TAX-EXEMPT
MONEY MARKET FUND<F4>
Year Ended October 31, 1995 84,084 0.60%<F3> 3.36%<F3> 3.42%
Year Ended October 31, 1996 79,328 0.60%<F3> 3.09%<F3> 3.13%
Year Ended October 31, 1997 108,639 0.60%<F3> 3.06%<F3> 3.12%
Year Ended October 31, 1998 122,451 0.60%<F3> 3.02%<F3> 3.04%
Year Ended October 31, 1999 153,189 0.71%<F3> 2.51%<F3> 2.53%
Period Ended April 30, 2000 ____ ____ ____ ____
<F1>Without fees waived, ratios of net expenses to average net assets for the
fiscal years ended October 31, 1999, 1998, 1997, 1996, 1995 would have been
0.74%, 0.77%, 0.78%, 0.80%, 0.83%, respectively; and ratios of net
investment income to average net assets for the fiscal years ended October
31, 1999, 1998, 1997, 1996, 1995 would have been 3.91%, 4.45%, 4.49%,
4.50%, 4.81%, respectively.
<F2>Without fees waived, ratios of net expenses to average net assets for the
fiscal years ended October 31, 1999, 1998, 1997, 1996, 1995 would have been
0.69%, 0.71%, 0.70%, 0.71%, 0.75%, respectively; and ratios of net
investment income to average net assets for the fiscal years ended October
31, 1999, 1998, 1997, 1996, 1995 would have been 4.29%, 4.79%, 4.73%, 4.73%,
5.09% respectively.
<F3>Without fees waived, ratios of net expenses to average net assets for the
fiscal years ended October 31, 1999, 1998, 1997, 1996, 1995, 1994 would have
been 0.73%, 0.75%, 0.75%, 0.78%, 0.84%, respectively; and ratios of net
investment income to average net assets for the fiscal years ended October
31, 1999, 1998, 1997, 1996, 1995 would have been 2.49%, 2.87%, 2.91%, 2.91%,
3.12%, respectively.
<F4>For the Tax-Exempt Money Market Fund, substantially all investment income is
exempt from federal income tax.
<TABLE>
<CAPTION>
RETAIL A SHARE BOND FUNDS
INCOME FROM INVESTMENT OPERATIONS
---------------------------------
NET REALIZED
AND
NET ASSET UNREALIZED
VALUE, NET GAINS OR TOTAL FROM
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT
OF PERIOD INCOME<F1> SECURITIES OPERATIONS
--------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
SHORT-TERM BOND
Year Ended October 31, 1995<F7> $10.03 $0.61 $0.24 $0.85
Year Ended October 31, 1996 10.28 0.58<F8> (0.03) 0.55
Year Ended October 31, 1997 10.25 0.60 0.02 0.62
Year Ended October 31, 1998 10.27 0.58 0.07 0.65
Year Ended October 31, 1999 10.34 0.54 (0.22) 0.32
Period Ended April 30, 2000 ____ ____ ____ _____
INTERMEDIATE BOND
Year Ended October 31, 1995<F7> 9.67 0.60 0.53 1.13
Year Ended October 31, 1996 10.21 0.56<F8> (0.02) 0.54
Year Ended October 31, 1997 10.19 0.58 0.12 0.70
Year Ended October 31, 1998 10.31 0.57 0.19 0.76
Year Ended October 31, 1999 10.50 0.56 (0.39) 0.17
Period Ended April 30, 2000 ____ ____ ____ ____
TAX-EXEMPT INTERMEDIATE BOND
Year Ended October 31, 1995<F7> 9.78 0.42 0.45 0.87
Year Ended October 31, 1996 10.23 0.40<F8> (0.01) 0.39
Year Ended October 31, 1997 10.21 0.42 0.14 0.56
Year Ended October 31, 1998 10.35 0.41 0.17 0.58
Year Ended October 31, 1999 10.52 0.42 (0.40) 0.02
Period Ended April 30, 2000 ____ ____ _____
____
BOND IMMDEX/TM
Year Ended October 31, 1995<F7> 25.67 1.68 2.30 3.98
Year Ended October 31, 1996 27.82 1.61<F8> (0.26) 1.35
Year Ended October 31, 1997 27.54 1.66 0.64 2.30
Year Ended October 31, 1998 28.16 1.64 0.85 2.49
Year Ended October 31, 1999 29.01 1.64 (1.66) (0.02)
Period Ended April 30, 2000 ____ ____ ____ _____
</TABLE>
<TABLE>
<CAPTION>
LESS DISTRIBUTIONS
----------------------------------------------
DIVIDENDS FROM DISTRIBUTIONS
NET INVESTMENT FROM TOTAL NET ASEND VALUE,
INCOME CAPITAL GAINS DISTRIBUTIONS OF PERIOD
-------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
SHORT-TERM BOND
Year Ended October 31, 1995<F7> $(0.60) $- $(0.60) $10.28
Year Ended October 31, 1996 (0.58) - (0.58) 10.25
Year Ended October 31, 1997 (0.60) - (0.60) 10.27
Year Ended October 31, 1998 (0.58) - (0.58) 10.34
Year Ended October 31, 1999 (0.54) - (0.54) 10.12
Period Ended April 30, 2000 ____ _____ ____ ____
INTERMEDIATE BOND
Year Ended October 31, 1995<F7> (0.59) - (0.59) 10.21
Year Ended October 31, 1996 (0.56) - (0.56) 10.19
Year Ended October 31, 1997 (0.58) - (0.58) 10.31
Year Ended October 31, 1998 (0.57) - (0.57) 10.50
Year Ended October 31, 1999 (0.56) (0.01) (0.57) 10.10
Period Ended April 30, 2000 ____ _____ ____ ____
TAX-EXEMPT INTERMEDIATE BOND
Year Ended October 31, 1995<F7> (0.42) - (0.42) 10.23
Year Ended October 31, 1996 (0.41) - (0.41) 10.21
Year Ended October 31, 1997 (0.42) - (0.42) 10.35
Year Ended October 31, 1998 (0.41) - (0.41) 10.52
Year Ended October 31, 1999 (0.41) (0.01) (0.42) 10.12
Period Ended April 30, 2000 ____ _____ ____ ____
BOND IMMDEX/TM
Year Ended October 31, 1995<F7> (1.79) (0.04) (1.83) 27.82
Year Ended October 31, 1996 (1.63) - (1.63) 27.54
Year Ended October 31, 1997 (1.68) - (1.68) 28.16
Year Ended October 31, 1998 (1.64) - (1.64) 29.01
Year Ended October 31, 1999 (1.63) - (1.63) 27.36
Period Ended April 30, 2000 ____ _____ ____ ____
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL DATA AND RATIOS
RATIO OF RATIO OF
NET NET
NET EXPENSES INVESTMENT
ASSETS, TO AVERAGE INCOME TO PORTFOLIO
TOTAL END OF NET AVERAGE TURNOVER
RETURN<F2> PERIOD (000S) ASSETS NET ASSETS RATE
-------- ------------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
SHORT-TERM BOND
Year Ended October 31, 1995 8.74% $ 47,730 0.69%<F3> 6.04%<F3> 100.58%
Year Ended October 31, 1996 5.54% 58,843 0.75%<F3> 5.67%<F3> 59.62%
Year Ended October 31, 1997 6.21% 65,567 0.75%<F3> 5.79%<F3> 77.12%
Year Ended October 31, 1998 6.58% 75,410 0.75%<F3> 5.67%<F3> 78.20%
Year Ended October 31, 1999 3.16% 65,490 0.81%<F3> 5.27%<F3> 52.28%
Period Ended April 30, 2000 ____ ____ ____ ____ ____
INTERMEDIATE BOND
Year Ended October 31, 1995 12.04% 11,576 0.69%<F4> 6.07%<F4> 66.69%
Year Ended October 31, 1996 5.51% 17,392 0.75%<F4> 5.59%<F4> 59.29%
Year Ended October 31, 1997 7.09% 20,691 0.75%<F4> 5.71%<F4> 40.61%
Year Ended October 31, 1998 7.57% 29,550 0.75%<F4> 5.50%<F4> 27.29%
Year Ended October 31, 1999 1.66% 33,779 0.81%<F4> 5.47%<F4> 64.07%
Period Ended April 30, 2000 ____ ____ ____ ____ ____
TAX-EXEMPT INTERMEDIATE BOND
Year Ended October 31, 1995 9.07% 7,711 0.71%<F5> 4.25%<F5> 44.13%
Year Ended October 31, 1996 3.87% 10,690 0.75%<F5> 3.99%<F5> 30.46%
Year Ended October 31, 1997 5.60% 19,199 0.75%<F5> 4.11%<F5> 11.22%
Year Ended October 31, 1998 5.73% 32,466 0.75%<F5> 4.00%<F5> 14.38%
Year Ended October 31, 1999 0.14% 20,016 0.89%<F5> 3.91%<F5> 21.77%
Period Ended April 30, 2000 ____ ____ _____ ____ _____
BOND IMMDEX/TM
Year Ended October 31, 1995 16.05% 21,875 0.64%<F6> 6.31%<F6> 41.67%
Year Ended October 31, 1996 5.06% 42,671 0.68%<F6> 5.98%<F6> 33.38%
Year Ended October 31, 1997 8.68% 64,144 0.67%<F6> 6.08%<F6> 35.12%
Year Ended October 31, 1998 9.11% 95,301 0.67%<F6> 5.77%<F6> 20.07%
Year Ended October 31, 1999 (0.05)% 95,635 0.72%<F6> 5.80%<F6> 57.04%
Period Ended April 30, 2000 ____ ____ ____ _____ _____
</TABLE>
<F1> For the Tax-Exempt Intermediate Bond Fund, substantially all investment
income is exempt from federal income tax.
<F2> The total return calculation for the Funds does not reflect the maximum
sales charge of 3.75%.
<F3> Without fees waived, ratios of net expenses to average net assets for the
fiscal years ended October 3l, 1999, 1998, 1997, 1996, 1995 would have been
1.09%, 1.11%, 1.11%, 1.12%, 1.10%, respectively; and ratios of net
investment income to average net assets for the fiscal years ended October
31, 1999, 1998, 1997, 1996, 1995 would have been 4.99%, 5.31%, 5.43%,
5.30%, 5.63%, respectively.
<F4> Without fees waived, ratios of net expenses to average net assets for the
fiscal years ended October 3l, 1999, 1998, 1997, 1996, 1995 would have been
0.95%, 0.96%, 0.98%, 0.99%, 0.98%, respectively; and ratios of net
investment income to average net assets for the fiscal years ended October
31, 1999, 1998, 1997, 1996, 1995 would have been 5.33%, 5.29%, 5.48%,
5.35%, 5.78%, respectively.
<F5> Without fees waived, ratios of net expenses to average net assets for the
fiscal years ended October 3l, 1999, 1998, 1997, 1996, 1995 would have been
1.07%, 1.06%, 1.13%, 1.22%, 1.20%, respectively; and ratios of net
investment income to average net assets for the fiscal years ended October
31, 1999, 1998, 1997, 1996, 1995 would have been 3.73%, 3.69%, 3.73%,
3.52%, 3.76%, respectively.
<F6> Without fees waived, ratios of net expenses to average net assets for the
fiscal years ended October 3l, 1999, 1998, 1997, 1996, 1995 would have been
0.74%, 0.74%, 0.74% ,0.75%, 0.71%, respectively; and ratios of net
investment income to average net assets for the fiscal years ended October
31, 1999, 1998, 1997, 1996, 1995 would have been 5.78%, 5.70%, 6.01%,
5.91%, 6.24%, respectively.
<F7> On January 9, 1995, all previously existing series of shares of each Fund
were reclassified as Series A shares. Effective January 9, 1995,
Institutional shareowners exchanged their Series A shares for the Funds'
Institutional series shares. For the year ended October 31, 1995, the
Financial Highlights ratios of net expenses to average net assets, ratios
of net investment income to average net assets, total return and the per
share income from investment operations and distributions are presented on
a basis whereby the Funds' net investment income, net expenses, net
realized and unrealized gains (losses) and distributions for the period
November 1, 1994, through January 9, 1995, were allocated to each class of
shares based upon the relative net assets of each class of shares as of the
close of business on January 9, 1995, and the results thereof combined with
the results of operations and distributions for each applicable class for
the period January 10, 1995, through October 31, 1995.
<F8> Net investment income per share is calculated using ending balances prior
to consideration of adjustments for permanent book and tax differences.
<F9> Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
<TABLE>
<CAPTION>
RETAIL A SHARE EQUITY FUNDS
INCOME FROM INVESTMENT OPERATIONS
---------------------------------
NET
REALIZED
AND
UNREALIZED
NET ASSET NET GAINS OR
VALUE, INVESTMENT (LOSSES) TOTAL FROM
BEGINNING INCOME ON INVESTMENT
OF PERIOD (LOSS) SECURITIES OPERATIONS
BALANCED INCOME ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Dec. 1, 1997<F1> through
Oct. 31,1998 $10.00 $0.28<F17> $0.96 $1.24
Year Ended October 31, 1999 11.00 0.28 0.38 0.66
Period Ended April 30, 2000 ____ ____ ____ ____
BALANCED GROWTH
Year Ended October 31, 1995<F14> 22.10 0.49<F15> 3.77 4.26
Year Ended October 31, 1996 25.89 0.47 2.64 3.11
Year Ended October 31, 1997 27.98 0.58 4.19 4.77
Year Ended October 31, 1998 30.48 0.56 1.86 2.42
Year Ended October 31, 1999 29.82 0.49 1.19 1.68
Period Ended April 30, 2000 ____ ___ ____ ____
GROWTH AND INCOME
Year Ended October 31, 1995<F14> 23.09 0.37 5.14 5.51
Year Ended October 31, 1996 27.62 0.42<F15> 6.61 7.03
Year Ended October 31, 1997 33.07 0.37 8.92 9.29
Year Ended October 31, 1998 39.24 0.36 6.55 6.91
Year Ended October 31, 1999 44.41 0.29 4.92 5.21
Period Ended April 30, 2000 ____ ____ ____ ____
EQUITY INDEX
Year Ended October 31, 1995<F14> 33.41 0.70<F15> 7.70 8.40
Year Ended October 31, 1996 41.07 0.77 8.69 9.46
Year Ended October 31, 1997 49.40 0.80<F17> 14.33 15.13
Year Ended October 31, 1998 63.11 0.84 12.58 13.42
Year Ended October 31, 1999 74.58 0.80 17.75 18.55
Period Ended April 30, 2000 ____ ____ ____ ____
LARGE CAP CORE EQUITY
Year Ended October 31, 1995<F14> 21.47 (0.02) 4.16 4.14
Year Ended October 31, 1996 25.58 (0.07)<F15> 4.81 4.74
Year Ended October 31, 1997 30.32 0.05<F17> 6.30 6.25
Year Ended October 31, 1998 35.27 (0.02)<F17> 5.66 5.64
Year Ended October 31, 1999 35.72 (0.12)<F17> 6.42 6.30
Period Ended April 30, 2000 ____ ____ ____ ____
MIDCAP CORE EQUITY
Year Ended October 31, 1995<F14> 33.19 (0.07) 8.49 8.42
Year Ended October 31, 1996 41.40 (0.13)<F15> 4.70 4.57
Year Ended October 31, 1997 41.38 (0.20)<F15> 8.44 8.24
Year Ended October 31, 1998 44.36 (0.24)<F17> (2.07) (2.31)
Year Ended October 31, 1999 37.59 (0.08)<F17> 0.60 0.52
Period Ended April 30, 2000 ____ ____ ____ ____
SMALL CAP CORE EQUITY
Aug. 15, 1997<F1> through
Oct 31,1997 10.00 0.02 0.29 0.31
Year Ended October 31, 1998 10.31 0.03<F17> (0.71) (0.68)
Year Ended October 31, 1999 9.56 (0.02) (0.24) (0.26)
Period Ended April 30, 2000 ____ ____ ____ ____
MICROCAP
Aug. 1, 1995<F1> through
June 30, 1996 10.00 (0.02) 6.10 6.08
July 1, 1996 through Oct. 31,
1996 15.42 (0.08)<F15> 0.82 0.74
Year Ended October 31, 1997 16.16 (0.18)<F15> 4.24 4.06
Year Ended October 31, 1998 17.47 (0.25)<F17> (3.17) (3.42)
Year Ended October 31, 1999 12.38 (0.26)<F17> 9.71 9.45
Period Ended April 30, 2000 ____ ____ ____ ____
INTERNATIONAL VALUE<F18>
Year Ended October 31, 1995<F14> 19.99 0.08 (0.87) (0.79)
Year Ended October 31, 1996 19.15 0.07<F15> 1.43 1.50
Year Ended October 31, 1997 20.21 0.06<F15> (1.10) (1.04)
Year Ended October 31, 1998 18.58 0.20<F11> (3.15) (2.95)
Year Ended October 31, 1999 15.18 0.03 3.62 3.65
Period Ended April 30, 2000 ____ ____ ____ ____
</TABLE>
<TABLE>
<CAPTION>
LESS DISTRIBUTIONS
----------------------------------------
DIVIDENDS NET ASSET
FROM NET DISTRIBUTIONS VALUE,
INVESTMENT FROM TOTAL END
INCOME CAPITAL GAINS DISTRIBUTIONS OF PERIOD
---------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
BALANCED INCOME
Dec. 1, 1997<F1> through
Oct. 31,1998 $(0.24) $- $(0.24) $11.00
Year Ended October 31, 1999 (0.28) (0.44) (0.72) 10.94
Period Ended April 30, 2000 ____ ____ ____ ____
BALANCED GROWTH
Year Ended October 31, 1995 (0.47) - (0.47) 25.89
Year Ended October 31, 1996 (0.47) (0.55) (1.02) 27.98
Year Ended October 31, 1997 (0.59) (1.68) (2.27) 30.48
Year Ended October 31, 1998 (0.58) (2.50) (3.08) 29.82
Year Ended October 31, 1999 (0.49) (0.95) (1.44) 30.06
Period Ended April 30, 2000 ____ ____ ____ ____
GROWTH AND INCOME
Year Ended October 31, 1995 (0.38) (0.60) (0.98) 27.62
Year Ended October 31, 1996 (0.39) (1.19) (1.58) 33.07
Year Ended October 31, 1997 (0.39) (2.73) (3.12) 39.24
Year Ended October 31, 1998 (0.35) (1.39) (1.74) 44.41
Year Ended October 31, 1999 (0.35) (3.21) (3.56) 46.06
Period Ended April 30, 2000 ____ _____ ____ ____
EQUITY INDEX
Year Ended October 31, 1995 (0.68) (0.06) (0.74) 41.07
Year Ended October 31, 1996 (0.78) (0.35) (1.13) 49.40
Year Ended October 31, 1997 (0.81) (0.61) (1.42) 63.11
Year Ended October 31, 1998 (0.84) (1.11) (1.95) 74.58
Year Ended October 31, 1999 (0.83) (0.47) (1.30) 91.83
Period Ended April 30, 2000 _____ ____ _____ _____
LARGE CAP CORE EQUITY
Year Ended October 31, 1995 (0.03) - (0.03) 25.58
Year Ended October 31, 1996 - - - 30.32
Year Ended October 31, 1997 - (1.30) (1.30) 35.27
Year Ended October 31, 1998 (0.02) (5.17) (5.19) 35.72
Year Ended October 31, 1999 (0.02) (4.04) (4.06) 37.96
Period Ended April 30, 2000 _____ ______ ______ _____
MIDCAP CORE EQUITY
Year Ended October 31, 1995 - (0.21) (0.21) 41.40
Year Ended October 31, 1996 - (4.59) (4.59) 41.38
Year Ended October 31, 1997 - (5.26) (5.26) 44.36
Year Ended October 31, 1998 - (4.46) (4.46) 37.59
Year Ended October 31, 1999 - (0.31) (0.31) 37.80
Period Ended April 30, 2000 _____ _____ _____ _____
SMALL CAP CORE EQUITY
Aug. 15, 1997<F1> through
Oct 31, 1997 - - - 10.31
Year Ended October 31, 1998 (0.02) (0.05) (0.07) 9.56
Year Ended October 31, 1999 (0.01) - (0.01) 9.29
Period Ended April 30, 2000 ____ ____ ____ ____
MICROCAP
Aug. 1, 1995<F1> through
June 30, 1996 (0.04) (0.62) (0.66) 15.42
July 1, 1996 through
Oct. 31,1996 - - - 16.16
Year Ended October 31, 1997 - (2.75) (2.75) 17.47
Year Ended October 31, 1998 - (1.67) (1.67) 12.38
Year Ended October 31, 1999 - (0.03) (0.03) 21.80
Period Ended April 30, 2000 ___ ____ ____ ____
INTERNATIONAL VALUE<F18>
Year Ended October 31, 1995 (0.04) (0.01) (0.05) 19.15
Year Ended October 31, 1996 (0.07) (0.37) (0.44) 20.21
Year Ended October 31, 1997 (0.13) (0.46) (0.59) 18.58
Year Ended October 31, 1998 (0.08) (0.37) (0.45) 15.18
Year Ended October 31, 1999 (0.30) - (0.30) 18.53
Period Ended April 30, 2000 ____ ____ ____ ____
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL DATA AND RATIOS
---------------------------------------------------
NET RATIO OF NET
ASSETS, RATIO OF NET INVESTMENT
END OF EXPENSES TO INCOME (LOSS) TO PORTFOLIO
TOTAL PERIOD AVERAGE NET AVERAGE NET TURNOVER
RETURN<F13> (000S) ASSETS ASSETS RATE<F16>
----------- -------- ------------ ----------------- ---------
<S> <C> <C> <C> <C> <C>
BALANCED INCOME
Dec. 1, 1997<F1> through 12.46%<F2> $10,614<F2> 1.00%<F3><F4> 2.82%<F3><4> 58.33%<F2>
Oct. 31,1998
Year Ended October 31, 1999 6.01% 13,087 1.18%<F4> 2.59%<F4> 48.46%
Period Ended April 30, 2000 ____ _____ ____ ____ ____
BALANCED GROWTH
Year Ended October 31, 1995 19.55% 21,832 0.94%<F5> 2.05%<F5> 61.87%
Year Ended October 31, 1996 12.30% 29,034 1.00%<F5> 1.80%<F5> 63.91%
Year Ended October 31, 1997 18.07% 44,026 1.00%<F5> 2.06%<F5> 69.90%
Year Ended October 31, 1998 8.60% 59,657 1.00%<F5> 1.91%<F5> 56.44%
Year Ended October 31, 1999 5.56% 53,807 1.18%<F5> 1.59%<F5> 69.42%
Period Ended April 30, 2000 ____ _____ ____ ____ ____
GROWTH AND INCOME
Year Ended October 31, 1995 24.75% 42,424 1.09%<F6> 1.51%<F6> 47.85%
Year Ended October 31, 1996 26.62% 71,310 1.15%<F6> 1.42%<F6> 51.37%
Year Ended October 31, 1997 30.47% 128,070 1.12%<F6> 1.09%<F6> 31.36%
Year Ended October 31, 1998 18.08% 190,331 1.12%<F6> 0.86%<F6> 48.56%
Year Ended October 31, 1999 11.78% 194,089 1.17%<F6> 0.74%<F6> 62.20%
Period Ended April 30, 2000 ____ _____ ____ ____ ____
EQUITY INDEX
Year Ended October 31, 1995 25.79% 18,663 0.66%7 2.14%<F7> 4.61%
Year Ended October 31, 1996 23.36% 39,656 0.66%7 1.76%<F7> 7.48%
Year Ended October 31, 1997 31.08% 76,866 0.63%7 1.40%<F7> 9.81%
Year Ended October 31, 1998 21.63% 110,129 0.58%7 1.18%<F7> 2.91%
Year Ended October 31, 1999 25.01% 142,247 0.61%7 0.92%<F7> 13.95%
Period Ended April 30, 2000 ____ _____ ____ ____ ____
LARGE CAP CORE EQUITY
Year Ended October 31, 1995 19.31% 10,105 1.09%<F8> (0.06)%<F8> 49.84%
Year Ended October 31, 1996 18.53% 16,636 1.15%<F8> (0.29)%<F8> 56.75%
Year Ended October 31, 1997 21.30% 25,043 1.14%<F8> (0.16)%<F8> 62.09%
Year Ended October 31, 1998 18.58% 38,213 1.14%<F8> (0.05)%<F8> 51.82%
Year Ended October 31, 1999 17.92% 47,238 1.19%<F8> (0.31)%<F8> 59.35%
Period Ended April 30, 2000 ____ _____ ______ _____ _____
MIDCAP CORE EQUITY
Year Ended October 31, 1995 25.56% 87,269 1.09%<F9> (0.19)%<F9> 79.25%
Year Ended October 31, 1996 12.27% 111,159 1.13%<F9> (0.35)%<F9> 103.34%
Year Ended October 31, 1997 22.18% 147,396 1.12%<F9> (0.50)%<F9> 97.40%
Year Ended October 31, 1998 (5.91)% 136,146 1.13%<F9> (0.57)%<F9> 77.39%
Year Ended October 31, 1999 1.31% 95,758 1.19%<F9> (0.21)%<F9> 139.91%
Period Ended April 30, 2000 ____ _____ ______ _____ _____
SMALL CAP CORE EQUITY
Aug. 15, 1997<F1> through
Oct 31,1997 3.10%<F2> 5,355 1.15%<F3><F10> 0.93%<F3><F10> 14.51%<F3>
Year Ended October 31, 1998 (6.58)% 12,884 1.15%<F10> 0.24%<F10> 132.63%
Year Ended October 31, 1999 (2.72)% 9,957 1.30%<F10> (0.35)%<F10> 115.65%
Period Ended April 30, 2000 ____ _____ ______ _____ _____
MICROCAP
Aug. 1,1995<F1> through
June 30, 1996 63.52%<F2> 9,036 1.99%<F3><F11> (0.36)%<F3><F11> 283.67%<F3>
July 1, 1996 through Oct. 31,
1996 4.80%<F2> 9,273 1.97%<F3><F11> (1.69)%<F3><F11> 64.44%<F3>
Year Ended October 31, 1997 29.78% 16,793 1.95%<F11> (1.45)%<F11> 158.39%
Year Ended October 31, 1998 (21.71)% 12,419 1.99%<F11> (1.63)%<F11> 135.61%
Year Ended October 31, 1999 76.54% 21,988 2.01%<F11> (1.43)%<F11> 200.09%
Period Ended April 30, 2000 ____ _____ _____ _____ _____
INTERNATIONAL VALUE<F18>
Year Ended October 31, 1995 (3.95)% 1,633 1.70%<F12> 0.46%<F12> 15.12%
Year Ended October 31, 1996 7.95% 3,769 1.75%<F12> 0.37%<F12> 31.57%
Year Ended October 31, 1997 (5.30)% 6,502 1.75%<F12> 0.25%<F12> 97.09%
Year Ended October 31, 1998 (16.16)% 6,486 1.75%<F12> 1.12%<F12> 43.96%
Year Ended October 31, 1999 24.48% 6,418 1.81%<F12> 0.56%<F12> 45.50%
Period Ended April 30, 2000 ____ _____ _____ _____ _____
</TABLE>
<F1> Commencement of operations.
<F2> Not annualized.
<F3> Annualized.
<F4> Without fees waived, ratios of net expenses to average net assets for the
fiscal year ended October 31, 1999 and the period ended October 31, 1998
would have been 1.48%, 1.63% , respectively; and ratio of net investment
income to average net assets for the fiscal year ended October 31, 1999 and
the period ended October 31, 1998 would have been 2.29%, 2.19%.,
respectively.
<F5> Without fees waived, ratios of net expenses to average net assets for the
fiscal years ended October 31, 1999, 1998, 1997,1996, 1995 would have been
1.25%, 1.24%, 1.25%, 1.28%, 1.25%, respectively; and ratios of net
investment income to average net assets for the fiscal years ended October
31, 1999, 1998, 1997,1996, 1995 would have been 1.52%, 1.67%, 1.80%, 1.52%,
1.74%, respectively.
<F6> Without fees waived, ratios of net expenses to average net assets for the
fiscal years ended October 31, 1999, 1998, 1997, 1996, 1995 would have been
1.18%, 1.19%, 1.19%, 1.23%, 1.20%, respectively; and ratios of net
investment income to average net assets for the fiscal years ended October
31, 1999, 1998, 1997, 1996, 1995 would have been 0.73%, 0.79%, 1.02%,
1.35%, 1.40%, respectively.
<F7> Without fees waived, ratios of net expenses to average net assets for the
fiscal years ended October 31, 1999, 1998, 1997, 1996, 1995 would have been
0.68%, 0.69%, 0.70%, 0.73%, 0.73%, respectively; and ratios of net
investment income to average net assets for the fiscal years ended October
31, 1999, 1998, 1997, 1996, 1995 would have been 0.85%, 1.07%, 1.33%,
1.69%, 2.07%, respectively.
<F8> Without fees waived, ratios of net expenses to average net assets for the
fiscal years ended October 31, 1999, 1998, 1997, 1996, 1995 would have been
1.20%, 1.21%, 1.21%, 1.23%, 1.21%, respectively; and ratios of net
investment income to average net assets for the fiscal years ended October
31, 1999, 1998, 1997, 1996, 1995 would have been 0.32%, 0.12%, 0.24%,
0.36%, 0.18%, respectively.
<F9> Without fees waived, ratios of net expenses to average net assets for the
fiscal years ended October 31, 1999, 1998, 1997, 1996, 1995 would have been
1.21%, 1.20%, 1.20%, 1.20%, 1.17%, respectively; and ratios of net
investment income to average net assets for the fiscal years ended October
31, 1999, 1998, 1997, 1996, 1995 would have been 0.23%, 0.64%, 0.57%,
0.42%, 0.27%, respectively.
<F10>Without fees waived, ratios of net expenses to average net assets for the
fiscal years ended October 31, 1999, 1998 and the period ended October 31,
1997 would have been 1.32%, 1.42%,1.59%, respectively; and ratios of net
investment income to average net assets for the fiscal years ended October
31, 1999, 1998 and the period ended October 31, 1997 would have been
0.37%, 0.03%, 0.59%, respectively.
<F11>Without fees waived, the ratio of net expenses to average net assets for
the fiscal years ended October 31, 1999, 1998, 1997, 1996 and June 30, 1996
would have been 2.02%, 2.06%, 2.03%, 2.04% and 2.22%, respectively, and
the ratio of net investment income (loss) to average net assets for the
fiscal years ended October 31, 1999, 1998, 1997, 1996 and June 30, 1996
would have been 1.44%, 1.70%, 1.53%), 1.76%, 0.59%, respectively.
<F12>Without fees waived, ratios of net expenses to average net assets for the
fiscal year ended October 31, 1999, 1998, 1997, 1996, 1995 would have been
2.10%, 2.16%, 2.50%, 2.61%, 2.85% , respectively; and ratios of net
investment income to average net assets for the fiscal years ended October
31, 1999, 1998, 1997, 1996, 1995 would have been 0.27%, 0.71%, 0.50%,
0.48%, 0.69%, respectively.
<F13>The total return calculations for the Funds do not reflect the maximum
sales charge of 4.50%.
<F14>On January 9, 1995, all previously existing series of shares of each Fund
were reclassified as Series A shares. Effective January 9, 1995,
Institutional shareowners exchanged their Series A shares for the Funds'
Institutional series shares. For the year ended October 31, 1995, the
Financial Highlights ratios of net expenses to average net assets, ratios
of net investment income to average net assets, total return and the per
share income from investment operations and distributions are presented on
a basis whereby the Funds' net investment income, net expenses, net
realized and unrealized gains (losses) and distributions for the period
November 1, 1994, through January 9, 1995, were allocated to each class of
shares based upon the relative net assets of each class of shares as of the
close of business on January 9, 1995, and the results thereof combined with
the results of operations and distributions for each applicable class for
the period January 10, 1995, through October 31, 1995.
<F15>Net investment income (loss) per share is calculated using ending balances
prior to consideration of adjustments for permanent book and tax
differences.
<F16>Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
<F17>Net investment income (loss) per share represents net investment income
dividend by the average shares outstanding throughout the period.
<F18>Effective September 2, 1997, Hansberger Global Investors assumed the
investment sub-advisory responsibilities of State Street Global Advisors.
-----------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' ADDITIONAL
STATEMENT INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE OFFERING MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS OR THEIR
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUNDS OR BY
THEIR DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
"STANDARD & POOR'S/R", S&P/R", "S&P 500/R", "STANDARD & POOR'S 500", "500",
"S&P MIDCAP 400 INDEX" AND "STANDARD & POOR'S MIDCAP 400 INDEX" ARE TRADEMARKS
OF THE MCGRAW HILL COMPANIES, INC. AND HAVE BEEN LICENSED FOR USE BY FIRSTAR
FUNDS. THE EQUITY INDEX FUND IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY
STANDARD & POOR'S AND STANDARD & POOR'S MAKES NO REPRESENTATION REGARDING THE
ADVISABILITY OF INVESTING IN THE EQUITY INDEX FUND OR MIDCAP INDEX FUND.
THE LEHMAN BROTHERS 1-3 YEAR GOVERNMENT/CORPORATE BOND INDEX, THE LEHMAN
BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX AND THE LEHMAN BROTHERS
GOVERNMENT/CORPORATE BOND INDEX ARE TRADEMARKS OF LEHMAN BROTHERS. THE FUND,
ITS ADVISER AND THE CO-ADMINISTRATORS ARE NOT AFFILIATED IN ANY WAY WITH LEHMAN
BROTHERS. INCLUSION OF A SECURITY IN THE BOND INDEX IN NO WAY IMPLIES AN
OPINION BY LEHMAN BROTHERS AS TO ITS ATTRACTIVENESS OR APPROPRIATENESS AS AN
INVESTMENT. LEHMAN BROTHERS' PUBLICATION OF THE BOND INDEX IS NOT MADE IN
CONNECTION WITH ANY SALE OR OFFER FOR SALE OF SECURITIES OR ANY SOLICITATIONS OF
ORDERS FOR THE PURCHASE OF SECURITIES.
FOR MORE INFORMATION
ANNUAL/SEMIANNUAL REPORTS
Additional information about the Funds' performance and investments is available
in the Funds' annual and semiannual reports to shareholders. In the Funds'
annual reports, you will find a discussion of the market conditions and
investment strategies that significantly affected the Funds' performance during
its last fiscal year.
a. STATEMENT OF ADDITIONAL INFORMATION
Additional information about the Funds and their policies is also available in
the Funds' Statement of Additional Information ("Additional Statement"). The
Additional Statement is incorporated by reference into this Prospectus (and is
legally considered part of this Prospectus).
The Funds' annual and semiannual reports and the Additional Statement are
available free upon request by calling Firstar Funds at 1-800-677-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 Funds' documents are located online
and may be downloaded from: - 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
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED JULY 6, 2000
SUBJECT TO COMPLETION
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR
SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY STATE.
FIRSTAR FUNDS, INC.
Statement of Additional Information
U.S. Treasury Money Market Fund
U.S. Government Money Market Fund
Tax-Exempt Money Market Fund
Short-Term Bond Fund
Intermediate Bond Fund
Bond IMMDEX/TM Fund
Tax-Exempt Intermediate Bond Fund
Balanced Income Fund
Balanced Growth Fund
Growth and Income Fund
Equity Index Fund
Large-Cap Core Equity Fund
MidCap Core Equity Fund
MidCap Index Fund
Small-Cap Core Equity Fund
MicroCap Fund
International Growth Fund
International Value Fund
July 6, 2000
TABLE OF CONTENTS
Page
Firstar Funds, Inc................................................
Descriptions of the Funds and their Investments and Risks.........
Investment Strategies and Risks...................................
Net Asset Value...................................................
Additional Purchase and Redemption Information....................
Description of Shares.............................................
Additional Information Concerning Taxes...........................
Management of the Company.........................................
Custodian, Transfer Agent and Accounting Services Agent...........
Expenses..........................................................
Independent Accountants and Financial Statements..................
Counsel...........................................................
Performance Calculations..........................................
Performance History...............................................
Miscellaneous.....................................................
Appendix A........................................................ A-1
Appendix B........................................................ B-1
This Statement of Additional Information ("SAI"), which is not a
prospectus, supplements and should be read in conjunction with Firstar Funds,
Inc.' s prospectus ("Prospectus") dated July 6, 2000 for Institutional Shares
of the U.S. Treasury Money Market Fund, U.S. Government Money Market Fund and
Tax-Exempt Money Market Fund (the "Money Market Funds"), and Class Y Shares for
the Short-Term Bond Fund, Intermediate Bond Fund, Tax-Exempt Intermediate Bond
Fund, Bond IMMDEX/TM Fund, Balanced Income Fund, Balanced Growth Fund, Growth
and Income Fund, Equity Index Fund, Large-Cap Core Equity Fund, MidCap Core
Equity Fund, MidCap Index Fund, Small-Cap Core Equity Fund, MicroCap Fund,
International Growth Fund and International Value Fund (each, a "Non-Money
Market Fund," and collectively with the Money Market Funds, the "Funds"), and is
incorporated by reference in its entirety into the Prospectus. Copies of the
Prospectus for the Funds may be obtained by writing the Firstar Funds Center at
615 East Michigan Street, P.O. Box 3011, Milwaukee, WI 53201-3011 or by calling
1-800-677-FUND. The Financial Statements and the Independent Accountants report
thereon from the Funds' Annual Report are incorporated by reference. The
Financial Statements from the Funds' Semi-Annual Report are also incorporated by
reference. The Annual and Semi-Annual Reports may be obtained by writing the
address above or calling the toll-free number above. No other parts of the
Annual Report or Semi-Annual Report are incorporated herein by reference.
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. Each
class of the Money Market Funds is currently divided into two series, a Retail A
and Institutional series. Each class of the Non-Money Market Funds is currently
divided into four series, Retail A, Retail B, Institutional and Y Shares. This
SAI pertains to the Institutional Shares of the Money Market Funds, and to the
Class Y Shares of the Non-Money Market Funds. The Short-Term Bond Fund changed
its name from Short-Term Bond Market Fund effective _________, 2000. The
Intermediate Bond Fund changed its name from the Intermediate Bond Market Fund
effective ___________, 2000. The Growth and Income Fund changed its name from
the Income and Growth Fund effective August 16, 1993. The Large-Cap Core Equity
Fund changed its name from the Growth Fund effective ______, 2000. The MidCap
Core Equity Fund changed its name from the Special Growth Fund effective
________, 2000. The Small-Cap Core Equity Fund changed its name from the
Emerging Growth Fund effective _________, 2000. The International Growth Fund
changed its name from the Core International Equity Fund effective _______,
2000. The International Value Fund changed its name from the International
Equity Fund effective ______, 2000. The Balanced Growth Fund changed its name
from the Balanced Fund effective February 1, 1998. The U.S. Treasury Money
Market Fund commenced operations on March 16, 1988. The U.S. Government Money
Market Fund commenced operations on April 26, 1991. The Tax-Exempt Money Market
Fund commenced operations on April 29, 1991. The Balanced Growth Fund commenced
operations on March 30, 1992. The Growth and Income Fund, Equity Index Fund,
Short-Term Bond Fund and Bond IMMDEXa Fund commenced operations on December 29,
1989; the MidCap Core Equity Fund commenced operations on December 28, 1989; the
Large-Cap Core Equity Fund commenced operations on December 29, 1992; the
Balanced Income Fund commenced operations on December 1, 1997; the Intermediate
Bond Fund commenced operations on January 5, 1993; the Tax-Exempt Intermediate
Bond Fund commenced operations on February 8, 1993; the International Value Fund
commenced operations on April 28, 1994; the Small-Cap Core Equity Fund commenced
operations on August 15, 1997; the MidCap Index Fund and International Growth
Fund commenced operations on November 4, 1999 and the MicroCap Fund commenced
operations on August 1, 1995. 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 FUNDS AND THEIR INVESTMENTS AND RISKS
The Company is a diversified, open-end management investment company. The
following policies supplement the Funds' respective investment objectives and
policies as set forth in the Prospectus.
Portfolio Transactions
----------------------
Subject to the general supervision of the Board of Directors, the Adviser
is responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for each Fund except the
International Value Fund and International Growth Fund. Subject to the general
supervision of the Board of Directors, the Adviser is responsible for the
portfolio management of the International Value Fund and International Growth
Fund. Pursuant to the terms of the Adviser's Advisory Agreements with the
Funds, the Adviser has delegated certain of its duties to Hansberger Global
Investors, Inc. ("HGI") and The Glenmede Trust Company ("Glenmede") (HGI and
Glenmede are collectively referred to as the "Sub-Advisers"). Within the
framework of the investment objectives, policies and restrictions of each Fund,
and subject to the supervision of the Adviser, HGI and Glenmede each is
responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for the International Value Fund and
International Growth Fund, respectively.
At a meeting of the Firstar Board of Directors ("Firstar Board") on
_______, 2000, the Adviser recommended, and the Firstar Board unanimously
approved, the reorganization of the mutual fund portfolios of Mercantile Mutual
Funds, Inc. into the corresponding portfolio of the Company. In conjunction
with the reorganization, the Adviser recommended the hiring of Clay Finlay - the
current sub-adviser to the Mercantile International Equity Portfolio - to
provide sub-advisory services to the Firstar International Growth Fund. The
hiring of Clay Finlay is contingent upon the approval of a new sub-advisory
agreement by the Fund's shareholders at a meeting scheduled to be held on
_______, 2000. If approved, the Adviser anticipates that Clay Finlay will begin
serving as the new sub-adviser on or around ________, 2000.
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of purchases or sales of portfolio securities for the reporting period by
the monthly average value of the portfolio securities owned during the reporting
period. The calculation excludes all securities, including options, whose
maturities or expiration dates at the time of acquisition are one year or less.
Portfolio turnover may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements which enable the Funds to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making portfolio
decisions, and each Fund may engage in short-term trading to achieve its
investment objective. The expected maximum portfolio turnover rate for the
International Value Fund for the current fiscal year is 75%, and the expected
maximum portfolio turnover rate for the MidCap Index Fund for the current fiscal
year is 30%.
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 and Sub-Advisers will normally deal directly with
dealers who make a market in the securities involved except in those
circumstances where better prices and execution are available elsewhere or as
described below.
Fixed income securities purchased and sold by the Short-Term Bond,
Intermediate Bond, Bond IMMEDEX/TM, Tax-Exempt Intermediate Bond, Balanced
Income and Balanced Growth Funds are generally traded in the over-the-counter
market on a net basis (i.e., without commission) through dealers, or otherwise
involve transactions directly with the issuer of an instrument. The cost of
securities purchased from underwriters includes an underwriting commission or
concession, and the prices at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down.
The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Funds will engage in this practice, however, only when the Adviser (or the
respective Sub-Adviser), in its sole discretion, believes such practice to be in
the Funds' interests.
The Money Market Funds do not intend to seek profits from short-term
trading. Because the Money Market Funds will invest only in short-term debt
instruments, their annual portfolio turnover rates will be relatively high, but
brokerage commissions are normally not paid on money market instruments, and
portfolio turnover is not expected to have a material effect on the Funds' net
investment income. For regulatory purposes, the annual portfolio turnover rates
of the Money Market Funds are expected to be zero.
For the fiscal years ended October 31, 1999, 1998 and 1997, the company paid
brokerage commissions as follows:
Fund 1999 1998 1997
---- ---- ---- ----
Short-Term Bond $ 0 $ 0 $ 0
Intermediate Bond 0 0 0
Tax-Exempt Intermediate Bond 0 0 0
Bond IMMDEXTM 0 0 0
Balanced Income 35,386 17,012 N/A
Balanced Growth 269,930 183,767 178,114
Growth and Income 944,299 521,009 403,426
Equity Index Fund 103,834 100,414 101,524
Large-Cap Core Equity 347,203 187,935 263,875
MidCap Core Equity 1,732,758 912,455 965,454
MidCap Index N/A N/A N/A
Small-Cap Core Equity 262,171 183,895 34,150
MicroCap 171,579 151,906 132,772<F1>
International Growth N/A N/A N/A
International Value 125,280 183,485 161,449
<F1> For the fiscal period from August 15, 1997 through October 31, 1997.
None of the brokerage commissions were paid to affiliates of the Company, the
Adviser, Sub-Advisers or the Co-Administrators.
The Advisory Agreement between the Company and the Adviser, with respect to
the International Value Fund, the Sub-Advisory Agreement among the Company, the
Adviser and HGI, and with respect to the International Growth Fund, the Sub-
Advisory Agreement among the Company, the Adviser and Glenmede, provide that, in
executing portfolio transactions and selecting brokers or dealers, the Adviser
and Sub-Advisers will seek to obtain the best overall terms available. In
assessing the best overall terms available for any transaction, the Adviser (or
the respective Sub-Adviser) shall consider factors it deems relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer, and the
reasonableness of the commissions, if any, both for the specific transaction and
on a continuing basis. In addition, the Agreements authorize the Adviser and
Sub-Adviser to cause the Funds to pay a broker-dealer which furnishes brokerage
and research services a higher commission than that which might be charged by
another broker-dealer for effecting the same transaction, provided that the
Adviser or respective Sub-Adviser determines in good faith that such commission
is reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either the particular
transaction or the overall responsibilities of the Adviser and Sub-Adviser to
the Funds. Such brokerage and research services might consist of reports and
statistics relating to specific companies or industries, general summaries of
groups of stocks or bonds and their comparative earnings and yields, or broad
overviews of the stock, bond and government securities markets and the economy.
Supplementary research information so received is in addition to, and not
in lieu of, services required to be performed by the Adviser or Sub-Advisers and
does not reduce the advisory fees payable to it by the Funds. The Directors
will periodically review the commissions paid by the Funds to consider whether
the commissions paid over representative periods of time appear to be reasonable
in relation to the benefits inuring to the Funds. It is possible that certain
of the supplementary research or other services received will primarily benefit
one or more other investment companies or other accounts for which investment
discretion is exercised. Conversely, a Fund may be the primary beneficiary of
the research or services received as a result of portfolio transactions effected
for such other account or investment company.
Portfolio securities will not be purchased from or sold to (and savings
deposits will not be made in and repurchase and reverse repurchase agreements
will not be entered into with) the Adviser, the Sub-Advisers, and the
Distributor or an affiliated person of any of them (as such term is defined in
the 1940 Act) acting as principal. In addition, the Funds will not purchase
securities during the existence of any underwriting or selling group relating
thereto of which the Distributor or their Adviser or Sub-Advisers, or an
affiliated person of any of them, is a member, except to the extent permitted by
the Securities and Exchange Commission ("SEC").
Investment decisions for the Funds are made independently from those for
other investment companies and accounts advised or managed by their Adviser or
Sub-Advisers. Such other investment companies and accounts may also invest in
the same securities as the Funds. When a purchase or sale of the same security
is made at substantially the same time on behalf of a Fund and another
investment company or account, the transaction will be averaged as to price and
available investments allocated as to amount, in a manner which the Adviser or
respective Sub-Adviser believes to be equitable to the Fund and such other
investment company or account. In some instances, this investment procedure may
adversely affect the price paid or received by a Fund or the size of the
position obtained or sold by the Fund. To the extent permitted by law, the
Adviser or respective Sub-Adviser may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for other investment
companies or accounts in executing transactions.
As of October 31, 1999, the Company held securities of its regular brokers or
dealers (as defined under the 1940 Act) or their parents as follows:
Fund Broker/Dealer Total Holdings
---- ------------- --------------
Short-Term Bond Goldman Sachs $1,947,516
Lehman Brothers 4,929,414
First Chicago 2,362,444
Paine Webber 993,597
Bear Stearns 829,747
Intermediate Bond Goldman Sachs 4,868,790
Merrill Lynch 6,828,738
Donaldson Lufkin and Jenrette 2,927,700
Lehman Brothers 10,177,970
Salomon 1,953,249
Paine Webber 5,588,483
Prudential 4,921,624
Bear Stearns 2,217,476
Bond IMMDEX/TM Goldman Sachs 9,737,580
Merrill Lynch 4,808,450
Lehman Brothers 15,907,006
Salomon 5,533,178
Paine Webber 6,449,671
General Motors Acceptance Corp. 2,849,856
Balanced Income Goldman Sachs 389,503
Merrill Lynch 233,742
Morgan Stanley 312,459
Donaldson Lufkin and Jenrette 195,180
Lehman Brothers 838,575
Salomon 691,795
American Express 492,600
General Electric 366,019
Balanced Growth Goldman Sachs 1,460,637
Merrill Lunch 862,712
Morgan Stanley 1,158,281
Lehman Brothers 2,303,524
Salomon 1,262,048
Paine Webber 1,038,413
General Motors Acceptance Corp. 1,003,905
Growth and Income Bank of New York 14,966,125
American Express 10,841,800
Household International 5,645,063
Equity Index Morgan Stanley 3,901,311
American Express 4,158,000
General Motors Acceptance Corp. 2,824,050
Lehman Brothers 530,550
Bear Stearns 313,294
Household International 1,325,630
Large-Cap Core
Equity Fund Morgan Stanley 4,930,969
INVESTMENT STRATEGIES AND RISKS
Ratings. The ratings of Standard & Poor's, Moody's and other nationally
recognized rating agencies represent their opinions as to the quality of debt
securities. It should be emphasized, however, that ratings are general and are
not absolute standards of quality, and debt securities with the same maturity,
interest rate and rating may have different yields while debt securities of the
same maturity and interest rate with different ratings may have the same yield.
The payment of principal and interest on most debt securities purchased by
a Fund will depend upon the ability of the issuers to meet their obligations.
An issuer's obligations under its debt securities are subject to the provisions
of bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Code, and laws, if any, which may be
enacted by federal or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations. The power or ability of an issuer to meet its obligations
for the payment of interest on, and principal of, its debt securities may be
materially adversely affected by litigation or other conditions.
Subsequent to its purchase by a Fund, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser or respective Sub-Adviser will consider such
an event in determining whether the Fund involved should continue to hold the
security. For a more detailed description of ratings, see Appendix A.
Repurchase Agreements. Each Fund (except the Tax-Exempt Money Market Fund)
may agree to purchase securities from financial institutions subject to the
seller's agreement to repurchase them at an agreed upon time and price
("repurchase agreements"). During the term of the agreement, the Adviser (and
Sub-Adviser in the case of the International Value Fund or International Growth
Fund) will continue to monitor the creditworthiness of the seller and will
require the seller to maintain the value of the securities subject to the
agreement at not less than 102% of the repurchase price. Default or bankruptcy
of the seller would, however, expose the Fund to possible loss because of
adverse market action or delay in connection with the disposition of the
underlying securities. The securities held subject to a repurchase agreement
may have stated maturities exceeding one year (with respect to the Non-Money
Market Funds) and thirteen months (with respect to the Money Market Funds),
provided the repurchase agreement itself matures in less than one year.
The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by a Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the securities underlying the repurchase agreement). Securities subject to
repurchase agreements will be held by the Funds' custodian (or sub-custodian) or
in the Federal Reserve/Treasury book-entry system or other authorized securities
depository. Repurchase agreements are considered to be loans under the 1940
Act.
Investment Companies. Each Fund currently intends to limit its investments
in securities issued by other investment companies so that, as determined
immediately after a purchase of such securities is made: (i) not more than 5%
of the value of the Fund's total assets will be invested in the securities of
any one investment company; (ii) not more than 10% of the value of its total
assets will be invested in the aggregate in securities of investment companies
as a group; and (iii) not more than 3% of the outstanding voting stock of any
one investment company will be owned by the Fund or by the Company as a whole.
The Funds may invest from time to time in securities issued by other
investment companies that invest in high-quality, short-term debt securities.
Securities of other investment companies will be acquired by the Funds within
the limits prescribed by the 1940 Act. As a shareholder of another investment
company, the Funds 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 Funds bear directly in connection with their own operations.
U.S. Government Obligations. The Funds may invest in a variety of U.S.
Treasury obligations including bonds, notes and bills that mainly differ only in
their interest rates, maturities and time of issuance. The Funds may also
invest in other securities issued or guaranteed by the U.S. government, its
agencies and instrumentalities; such as obligations of Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
Federal National Mortgage Association, General Services Administration, Central
Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Maritime Administration, Resolution Trust Corp. and
Tennessee Valley Authority.
Obligations of certain agencies and instrumentalities of the U.S.
government, such as those of the Governmental National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. government to purchase the agency's obligations; still others, are
supported by only by the credit of the agency or instrumentality issuing the
obligation. No assurance can be given that the U.S. government would provide
financial support to U.S. government-sponsored agencies or instrumentalities if
it is not obligated to do so by law.
Although substantially all of the instruments acquired by the U.S. Treasury
Money Market Fund and U.S. Government Money Market Fund will be U.S. government
obligations (or repurchase agreements collateralized by such obligations),
shares of the U.S. Treasury Money Market Fund and U.S. Government Money Market
Fund are not themselves issued or guaranteed by any government agency. U.S.
government obligations that have maturities in excess of thirteen months but
have variable or floating interest rates may be acquired by the Funds in
accordance with SEC rules.
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. A Fund's
investments in the obligations of foreign branches of U.S. banks and of foreign
banks may subject the Fund to investment risks (similar to those discussed below
under "Foreign Securities and American Depository 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 Money Market Funds may invest up to 10% of net
assets in securities that are illiquid at the time of purchase. Each of the
Non-Money Market Funds 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 Funds may have difficulty valuing
these holdings and may be unable to sell these holdings at the time or price
desired. Restricted securities may include Rule 144 Securities. These
securities are restricted securities that are eligible for resale pursuant to
Rule 144A under the Securities Act of 1933. A Fund may treat a Rule 144A
security as liquid if determined to be so under procedures adopted by the Board.
Other Investments: Non-Money Market Funds
-----------------------------------------
Securities Lending. Each of the Funds may lend its portfolio securities
to unaffiliated domestic broker/dealers and other institutional investors
pursuant to agreements requiring that the loans be secured by collateral equal
in value to at least the market value of the securities loaned in order to
increase return on portfolio securities. Collateral for such loans may include
cash, securities of the U.S. government, its agencies or instrumentalities, or
an irrevocable letter of credit issued by a bank which meets the investment
standards stated below under "Money Market Instruments," or any combination
thereof. Such loans will not be made, if, as a result, the aggregate of all
outstanding loans of the Fund exceeds 30% of the value of its total assets
(including the value of the collateral for securities loaned). There may be
risks of delay in receiving additional collateral or in recovering the
securities loaned or even a loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Adviser (and Sub-Adviser in the case of the
International Value Fund or International Growth Fund) to be of good standing
and when, in the Adviser's (and Sub-Adviser's in the case of the International
Value Fund or International Growth Fund) judgment, the income to be earned from
the loan justifies the attendant risks. When a Fund lends its securities, it
continues to receive interest or dividends on the securities loaned and may
simultaneously earn interest on the investment of the cash collateral which will
be invested in readily marketable, high-quality, short-term obligations.
Although voting rights, or rights to consent, attendant to securities on loan
pass to the borrower, such loans may be called at any time and will be called so
that the securities may be voted by a Fund if a material event affecting the
investment is to occur.
Securities lending arrangements with broker/dealers require that the loans
be secured by collateral equal in value to at least the market value of the
securities loaned. During the term of such arrangements, a Fund will maintain
such value by the daily marking-to-market of the collateral.
Money Market Instruments. The Funds may invest from time to time in "money
market instruments," a term that includes, among other things, U.S. government
obligations, repurchase agreements, cash, bank obligations, commercial paper,
variable amount master demand notes and corporate bonds with remaining
maturities of thirteen months or less. These investments are used to help meet
anticipated redemption requests or if other suitable securities are unavailable.
The MicroCap Fund's investments in money market instruments under normal market
conditions are expected to represent less than 10% of the Fund's net assets, but
may increase to 30% for temporary defensive purposes during abnormal market
conditions. The International Value Fund and International Growth Fund may
reduce its holdings in equity and other securities and may invest up to 100% of
its assets in certain short-term (less than twelve months to maturity) and
medium-term (not greater than five years to maturity) debt securities and in
cash (U.S. dollars, foreign currencies, or multicurrency units) for temporary
defensive purposes, during periods in which the Adviser (or the respective Sub-
Adviser) believes changes in economic, financial or political conditions make it
advisable.
Bank obligations include bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits, including U.S. dollar-denominated
instruments issued or supported by the credit of U.S. or foreign banks or
savings institutions. Although the Funds will invest in money market
obligations of foreign banks or foreign branches of U.S. banks only where the
Adviser (and Sub-Adviser in the case of the International Value Fund or
International Growth Fund) determines the instrument to present minimal credit
risks, such investments may nevertheless entail risks that are different from
those of investments in domestic obligations of U.S. banks due to differences in
political, regulatory and economic systems and conditions. All investments in
bank obligations are limited to the obligations of financial institutions having
more than $1 billion in total assets at the time of purchase, and investments by
each Fund in the obligations of foreign banks and foreign branches of U.S. banks
will not exceed 25% of such Fund's total assets at the time of purchase. The
Funds may also make interest-bearing savings deposits in commercial and savings
banks in amounts not in excess of 5% of its net assets.
Investments by a Fund in commercial paper will consist of issues rated at
the time A-1 and/or P-1 by Standard & Poor's, Moody's or similar rating by
another nationally recognized rating agency. In addition, the Funds may acquire
unrated commercial paper and corporate bonds that are determined by the Adviser
at the time of purchase to be of comparable quality to rated instruments that
may be acquired by such Fund as previously described.
The Funds may also purchase variable amount master demand notes which are
unsecured instruments that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate. Although the notes are
not normally traded and there may be no secondary market in the notes, a Fund
may demand payment of the principal of the instrument at any time. The notes
are not typically rated by credit rating agencies, but issuers of variable
amount master demand notes must satisfy the same criteria as set forth above for
issuers of commercial paper. If an issuer of a variable amount master demand
note defaulted on its payment obligation, a Fund might be unable to dispose of
the note because of the absence of a secondary market and might, for this or
other reasons, suffer a loss to the extent of the default. The Funds invest in
variable amount master demand notes only when the Adviser (and Sub-Adviser in
the case of the International Value Fund or International Growth Fund) deem the
investment to involve minimal credit risk.
Borrowings and Reverse Repurchase Agreements. A 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 a
Fund should decline in value while borrowings are outstanding, the net asset
value of a Fund's outstanding shares will decline in value by proportionately
more than the decline in value suffered by a Fund's securities. As a result, a
Fund's share price may be subject to greater fluctuation until the borrowing is
paid off.
Reverse repurchase agreements are considered to be borrowings under the
1940 Act. At the time a Fund enters into a reverse repurchase agreement (an
agreement under which the Fund sells portfolio securities and agrees to
repurchase them at an agreed-upon date and price), it will place in a segregated
custodial account U.S. government securities or other liquid high-grade debt
securities having a value equal to or greater than the repurchase price
(including accrued interest), and will subsequently monitor the account to
insure that such value is maintained. Reverse repurchase agreements involve the
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 Balanced Income Fund, Balanced Growth Fund, Growth
and Income Fund, Large-Cap Core Equity Fund, MidCap Core Equity Fund,
International Value Fund, International Growth Fund, Small-Cap Core Equity Fund,
MicroCap Fund, Short-Term Bond Fund, Intermediate Bond Fund and Bond IMMDEX/TM
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. Each of the Short-Term Bond
Fund, Intermediate Bond Fund and Bond IMMDEX/TM Fund will limit its investments
in preferred stock to no more than 5% of its respective net assets.
When-Issued Purchases, Delayed Delivery and Forward Commitments. These
Funds may purchase or sell particular securities with payment and delivery
taking place at 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. Each Fund's forward commitments and when-issued
purchases are not expected to exceed 25% (except the MicroCap Fund which is
limited to 20%) of the value of its total assets absent unusual market
conditions. When any Fund agrees to purchase securities on a when-issued or
delayed delivery basis or enter into a forward commitment to purchase
securities, its custodian will set aside cash or liquid high grade debt
securities equal to the amount of the commitment in a segregated account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case the Fund may be required subsequently to
place additional assets in the segregated account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitments. It
may be expected that the market value of a Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because a Fund will set aside cash or
liquid assets to satisfy its purchase commitments in the manner described, the
Fund's liquidity and ability to manage its portfolio might be affected in the
event its commitments ever exceeded 25% of the value of its assets. In the case
of a forward commitment to sell portfolio securities, the Fund's custodian will
hold the portfolio securities themselves in a segregated account while the
commitment is outstanding. When-issued and forward commitment transactions
involve the risk that the price or yield obtained in a transaction (and
therefore the value of a security) may be less favorable then the price or yield
(and therefore the value of a security) available in the market when the
securities delivery takes place.
The Funds will make commitments to purchase securities on a when-issued
basis or to purchase or sell securities on a forward commitment basis only with
the intention of completing the transaction and actually purchasing or selling
the securities. If deemed advisable as a matter of investment strategy, however,
a Fund may dispose of or renegotiate a commitment after it is entered into, and
may sell securities it has committed to purchase before those securities are
delivered to the Fund on the settlement date. In these cases the Fund may
realize a capital gain or loss.
When these Funds engage in when-issued, delayed delivery and forward
commitment transactions, they rely on the other party to consummate the trade.
Failure of such party to do so may result in a Fund incurring a loss or missing
an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their market value, are taken into account when determining the net asset value
of a Fund starting on the day the Fund agrees to purchase the securities. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date. When a Fund makes a
forward commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Fund's assets. Fluctuations in the market value
of the underlying securities are not reflected in the Fund's net asset value as
long as the commitment remains in effect.
Other Investment Considerations - Small-Cap Core Equity Fund and MicroCap Fund -
--------------------------------------------------------------------------------
Short Sales.
------------
In a short sale transaction, a Fund borrows a security from a broker and
sells it with the expectation that the market price will drop and the Fund will
be able to replace the borrowed security by repurchasing the same security at a
lower price. These transactions may result in gains if a security's price
declines, but may result in losses if a security's price does not decline.
Other Investment Considerations - Balanced Income Fund, Balanced Growth Fund,
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Growth and Income Fund, Large-Cap Core Equity Fund, MidCap Core Equity Fund,
----------------------------------------------------------------------------
Small-Cap Core Equity Fund, MicroCap Fund, International Value Fund and
-----------------------------------------------------------------------
International Growth Fund
-------------------------
The Balanced Income, Balanced Growth, Growth and Income, Large-Cap Core
Equity, MidCap Core Equity, Small-Cap Core Equity, MicroCap, International Value
and International Growth Funds maintain a long-term investment horizon with
respect to investments in equity securities. However, when a company's growth
in earnings and valuation results in price appreciation that reaches a level
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 respective Fund's investment criteria. Each Fund's investment in equity
securities may include limited partnership interests.
The increase or decrease of cash equivalents in a Fund is primarily the
residual effect of the research process. The portion of a Fund invested in cash
equivalents tends to rise when the pool of acceptable securities is limited and
tends to fall when the Fund's valuation screening process identifies a large
number of attractive securities. Short-term forecasts for the economy and
financial markets are not an important determinant of the level of cash
equivalents in a Fund. Under normal market conditions, not more than 65% of the
value of the Balanced Growth Fund's and at least 50% of the value of the Large-
Cap Core Equity Fund's, MidCap Core Equity Fund's and Small-Cap Core Equity
Fund's total assets and at least 65% of the value of the MicroCap Fund's and the
International Value Fund's total assets will be invested in equity securities.
The Funds do not attempt to "time" the securities market.
Certain securities owned by the MidCap Core Equity Fund, Small-Cap Core
Equity Fund and MicroCap Fund may be traded only in the over-the-counter market
or on a regional securities exchange, may be listed only in the quotation
service commonly known as the "pink sheets" and may not be traded every day or
in the volume typical of trading on a national securities exchange. As a
result, there may be a greater fluctuation in the value of redemptions or for
other reasons, to sell these securities at a discount from market prices, to
sell during periods when such disposition is not desirable, or to make many
small sales over a lengthy period of time.
Other Investment Considerations - All Funds, Except the Money Market Funds,
---------------------------------------------------------------------------
Equity Index Fund and MidCap Index Fund
---------------------------------------
Foreign Equities. The Funds' investments in the securities of foreign
issuers may include both securities of foreign corporations and banks, as well
as securities of foreign governments and their political subdivisions.
Investments in foreign securities, whether made directly or through ADRs ,
involve certain inherent risks and considerations not typically associated with
investing in U.S. companies, such as political or economic instability of the
issuer or the country of issue, the difficulty of predicting international trade
patterns, changes in exchange rates of foreign currencies and the possibility of
adverse changes in investment or exchange control regulations. There may be
less publicly available information about a foreign company than about a U.S.
company. Foreign companies are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. In addition, foreign banks and foreign branches of U.S. banks are
subject to less stringent reserve requirements and to different accounting,
auditing, reporting and recordkeeping standards than those applicable to
domestic branches of U.S. banks. Further, foreign stock markets are generally
not as developed or efficient as those in the U.S., and in most foreign markets
volume and liquidity are less than in the U.S. Fixed commissions on foreign
stock exchanges are generally higher than the negotiated commissions on U.S.
exchanges, and there is generally less government supervision and regulation of
foreign stock exchanges, brokers and companies than in the U.S. With respect to
certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, limitations on the removal of assets or diplomatic
developments that could affect investment within those countries. Additionally,
foreign securities and dividends and interest payable on those securities may be
subject to foreign taxes, including foreign withholding taxes, and other foreign
taxes may apply with respect to securities transactions. See "Taxes."
Transactions in foreign securities may involve greater time from the trade date
until the settlement date than domestic securities transactions, and may involve
the risk of possible losses through the holding of securities in custodians and
securities depositories in foreign countries. Additional costs associated with
an investment in foreign securities may include higher transaction costs and the
cost of foreign currency conversions. Changes in foreign exchange rates will
also affect the value of securities denominated or quoted in currencies other
than the U.S. dollar. In this regard, the Funds, with the exception of the
International Value Fund and International Growth Fund, do not intend to hedge
against foreign currency risk (except on unsettled trades). Changes in currency
exchange rates will affect the value of unhedged positions and will impact a
Fund's net asset value (positively or negatively) irrespective of the
performance of the portfolio securities held by the Fund. See the section
entitled "Foreign Currency Transactions" below for the International Value Fund
and International Growth Fund. The Funds and their 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 Funds may be subject to greater
fluctuation in price than securities of domestic companies. Furthermore,
because the International Value Fund and International Growth Fund will invest
substantially all (and in any event, at least 65%) of the value of its total
assets in foreign securities, the net asset value of the International Value
Fund and International Growth Fund is expected to be volatile.
Other Investment Considerations - International Value Fund and International
----------------------------------------------------------------------------
Growth Fund
-----------
Foreign Futures and Options on Futures. The Adviser and Sub-Advisers may
determine that it would be in the interest of the International Value Fund and
International Growth Fund to purchase or sell futures contracts, including
interest rate, index, and currency futures for the International Value Fund, and
forward foreign currency contracts and currency futures for the International
Growth Fund, for the purpose of remaining fully invested and reducing
transactions costs. A stock index futures contract is a bilateral agreement
pursuant to which parties agree to take or make delivery of an amount of cash
equal to a specified dollar amount times the difference between the index value
(which assigns relative values to the securities included in the index) at the
close of the last trading day of the contract and the price at which the futures
contract is originally struck. No physical delivery of the underlying
securities in the index is made.
The International Value Fund may also purchase put and call options, and
write covered put and call options, on futures in which it is allowed to invest.
The purchase of futures or call options thereon can serve as a long hedge, and
the sale of futures or the purchase of put options thereon can serve as a short
hedge. Writing covered call options on futures contracts can serve as a limited
short hedge, and writing covered put options on futures contracts can serve as a
limited long hedge, using a strategy similar to that used for writing covered
options in securities. The Fund's hedging may include purchases of futures as
an offset against the effect of expected increases in securities prices or
currency exchange rates and sales of futures as an offset against the effect of
expected declines in securities prices or currency exchange rates. The Fund's
futures transactions may be entered into for hedging purposes or risk
management. The Fund may also write put options on futures contracts while at
the same time purchasing call options on the same futures contracts in order to
create synthetically a long futures contract position. Such options would have
the same strike prices and expiration dates. The Fund will engage in this
strategy only when the Adviser (or the Sub-Adviser) believes it is more
advantageous to the Fund than is purchasing the futures contract.
The International Value Fund intends to limit its transactions in futures
contracts and related options so that not more than 25% of its net assets are at
risk. The International Growth Fund may invest in futures contracts for hedging
purposes only. In connection with a futures transaction, unless the transaction
is covered in accordance with SEC positions, the Fund will maintain a segregated
account with its custodian or sub-custodian consisting of cash or liquid high
grade debt securities equal to the entire amount at risk (less margin deposits)
on a continuous basis.
Futures purchased or sold by the International Growth Fund or
International Value Fund (and related options) will normally be traded in
foreign securities. Participation in foreign futures and foreign options
transactions involves the execution and clearing of trades on or subject to the
rules of a foreign board of trade. Neither the National Futures Association nor
any domestic exchange regulates activities of any foreign boards of trade,
including the execution, delivery and clearing of transactions, or has the power
to compel enforcement of the rules of a foreign board of trade or any applicable
foreign law. This is true even if the exchange is formally linked to a domestic
market so that a position taken on the market may be liquidated by a transaction
on another market. Moreover, such laws or regulations will vary depending on
the foreign country in which the foreign futures or foreign options transaction
occurs. For these reasons, customers who trade foreign futures of foreign
options contracts may not be afforded certain of the protective measures
provided by the Commodity Exchange Act, the Commodity Futures Trading
Commission's ("CFTC") regulations and the rules of the National Futures
Association and any domestic exchange, including the right to use reparations
proceedings before the CFTC and arbitration proceedings provided by the National
Futures Association or any domestic futures exchange. In particular, the
International Value Fund's investments in foreign futures or foreign options
transactions may not be provided the same protections in respect of transactions
on United States futures exchanges. In addition, the price of any foreign
futures or foreign options contract and, therefore the potential profit and loss
thereon may be affected by any variance in the foreign exchange rate between
the time an order is placed and the time it is liquidated, offset or exercised.
For a further description of futures contracts and related options, including a
discussion of the limitations imposed by federal tax law, See Appendix B.
Reverse Repurchase Agreements. The International Value Fund and
International Growth Fund may engage in reverse repurchase agreements to
facilitate portfolio liquidity, a practice common in the mutual fund industry,
for temporary purposes only. In a reverse repurchase agreement, a Fund would
sell a security and enter into an agreement to repurchase the security at a
specified future date and price. The Fund generally retains the right to
interest and principal payments on the security. Since the Fund receives cash
upon entering into a reverse repurchase agreement, it may be considered a
borrowing. (See "Borrowings and Reverse Repurchase Agreements" above.) When
required by guidelines of the SEC, a Fund will set aside permissible liquid
assets in a segregated account to secure its obligations to repurchase the
security.
Forward Currency Contracts. The International Value Fund and
International Growth Fund may enter into forward currency contracts. Forward
foreign currency exchange contracts provide for the purchase of or sale of an
amount of a specified currency at a future date. This Fund may use forward
contracts to protect against a foreign currency's decline against the U.S.
dollar between the trade date and the settlement date for a securities
transaction, or to lock in the U.S. dollar value of dividends declared on
securities it holds, or generally to protect the U.S. dollar value of the
securities it holds against exchange rate fluctuations. Such transactions may
serve as long hedges (for example, if a Fund seeks to buy a security denominated
in a foreign currency, it may purchase a forward currency contract to lock in
the $US price of the security) or as short hedges (if a Fund anticipates selling
a security denominated in a foreign currency it may sell a forward currency
contract to lock in the $US equivalent of the anticipated sales proceeds). This
Fund may also use forward contracts to protect against fluctuating exchange
rates and exchange control regulations.
The International Value Fund and International Growth Fund may seek to
hedge against changes in the value of a particular currency by using forward
contracts on another foreign currency or a basket of currencies, the value of
which the Adviser or the respective Sub-Adviser believes will have a positive
correlation to the values of the currency being hedged. In addition, the Funds
may use forward currency contracts to shift exposure to foreign currency
fluctuations from one country to another. For example, if a Fund owns
securities denominated in a foreign currency and the Adviser or Sub-Adviser
believes that currency will decline relative to another currency, it might enter
into a forward contract to sell an appropriate amount of the first foreign
currency, with payment to be made in the second currency. Transactions that
use two foreign currencies are sometimes referred to as "cross hedges." Use of
different foreign currency magnifies the risk that movements in the price of the
instrument will not correlate or will correlate unfavorably with the foreign
currency being hedged.
The cost to the International Value Fund and International Growth Fund of
engaging in forward currency contracts varies with factors such as the currency
involved, the length of the contract period and the market conditions then
prevailing. Because forward currency contracts are usually entered into on a
principal basis, no fees or commissions are involved. When a Fund enters into a
forward currency contract, it relies on the counterparty to make or take
delivery of the underlying currency at the maturity of the contract. Failure by
the counterparty to do so would result in the loss of any expected benefit of
the transaction.
As is the case with future contracts, holders and writers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by selling or purchasing, respectively, an
instrument identical to the instrument held or written. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contacts only by
negotiating directly with the counterparty. Thus, there can be no assurance
that the International Value Fund or International Growth Fund will in fact be
able to close out a forward currency contract at a favorable price prior to
maturity. In addition, in the event of insolvency of the counterparty, a Fund
might be unable to close out a forward currency contract at any time prior to
maturity. In either event, the Fund would continue to be subject to market risk
with respect to the position, and would continue to be required to maintain a
position in securities denominated in the foreign currency or to maintain cash
or securities in a segregated account.
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the foreign
currency contract has been established. Thus, the International Value Fund and
International Growth Fund might need to purchase or sell foreign currencies in
the spot (cash) market to the extent such foreign currency market movements is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Forward contracts may limit the Fund's losses due
to exchange rate fluctuation, but they will also limit any gains that the Fund
might otherwise have realized.
Foreign Currency Transactions. Although the International Value Fund and
International Growth Fund value their respective assets daily in U.S. dollars,
the Funds are not required to convert their holdings of foreign currencies to
U.S. dollars on a daily basis. The Funds' foreign currencies generally will be
held as "foreign currency call accounts" at foreign branches of foreign or
domestic banks. These accounts bear interest at negotiated rates and are
payable upon relatively short demand periods. If a bank became insolvent, the
Funds could suffer a loss of some or all of the amounts deposited. The Funds
may convert foreign currency to U.S. dollars from time to time. Although
foreign exchange dealers generally do not charge a stated commission or fee for
conversion, the prices posted generally include a "spread," which is the
difference between the prices at which the dealers are buying and selling
foreign currencies.
Except where segregated accounts are not required under the 1940 Act, when
these Funds enter into a forward contract or currency futures, the Custodian
will place cash, U.S. government securities, or high-grade debt securities into
segregated accounts of these Funds in an amount equal to the value of each
Fund's total assets committed to consummation of forward contracts and currency
futures. If the value of these segregated securities declines, additional cash
or securities will be placed in the appropriate account on a daily basis so that
the account value is at least equal to the Funds' commitments to such contracts.
Foreign Currency Futures Contracts. The International Value Fund and
International Growth Fund may also hedge their foreign exchange rate risk by
entering into foreign currency futures contracts. The forecasting of short-term
currency market movements is extremely difficult and whether short-term hedging
strategies would be successful is highly uncertain.
Other Investment Considerations - International Value Fund
----------------------------------------------------------
High Risk Debt Securities ("Junk Bonds"). As stated in the International
Value Fund's Prospectus, the Fund may invest up to 5% of its net assets in non-
investment grade debt securities. Debt securities rated below Baa by Moody's or
BBB by S&P, or of comparable quality, are considered below investment grade.
Non-investment grade debt securities ""high risk debt securities") may include
(i) debt not in default but rated as low as C by Moody's, S&P, or Fitch IBCA,
Inc. ""Fitch IBC""), CC by Thomson BankWatch ""TB"") or CCC by Duff & Phelps,
Inc. ""D&""); (ii) commercial paper rated as low as C (or D if in default) by
S&P or Fitch IBCA, Not Prime by Moody's, Duff 4 (or Duff 5 if in default) by
Duff, TBW-4 by TBW; and (iii) unrated debt securities of comparable quality.
The Fund may also buy debt in default (rated D by S&P or TBW or Fitch IBCA, DD
by Duff, or of comparable quality) and commercial paper in default (rated D by
S&P or Fitch IBCA, Not Prime by Moody's, Duff 5 by Duff, TBW-4 by TBW, or of
comparable quality). Such securities, while generally offering higher yields
than investment grade securities with similar maturities, involve greater risks,
including the possibility of (or actual) default or bankruptcy. They are
regarded as predominantly speculative with respect to the issue's capacity to
pay interest and repay principal.
The market for high risk debt securities is relatively new and its growth
has paralleled a long economic expansion. It is not clear how this market would
withstand a prolonged recession or economic downturn, which could severely
disrupt this market and adversely affect the value of such securities.
Market values of high risk debt securities tend to reflect individual
corporate developments to a greater extent, and tend to be more sensitive to
economic conditions, than do higher rated securities. As a result, high risk
debt securities generally involve more credit risks than higher rated debt.
During an economic downturn or a sustained period of rising interest rates,
highly leveraged issuers of high risk debt may experience financial stress and
may not have sufficient revenues to meet their payment obligations. An issuer's
ability to service its debt obligations may also be adversely affected by
specific corporate developments, its own inability to meet specific projected
business forecasts, or unavailability of additional financing. The risk of loss
due to default by an issuer is significantly greater for high risk debt than for
higher rated debt because the high risk debt is generally unsecured and often
subordinated.
If the issuer of high risk debt defaulted, the International Value Fund
might incur additional expenses in seeking recovery. Periods of economic
uncertainty and changes would also generally result in increased volatility in
the market prices of these securities and thus in the Fund's net asset value.
If the Fund invested in high risk debt experiences unexpected net
redemptions in a rising interest rate market, it may be forced to liquidate a
portion of its portfolio without regard to their investment merits. Due to the
limited liquidity of high risk debt securities, the Fund may be forced to
liquidate these securities at a substantial discount. Any such liquidation
would reduce the Fund's asset base over which expenses could be allocated and
could result in a reduced rate of return for the Fund.
During periods of falling interest rates, issuers of high risk debt
securities that contain redemption, call or prepayment provisions are likely to
redeem or repay the securities and refinance with other debt at a lower interest
rate. If the Fund holds debt securities that are refinanced or otherwise
redeemed, it may have to replace the securities with a lower yielding security,
which would result in a lower return.
Credit ratings evaluate safety of principal and interest payments, but do
not evaluate the market value risk of high risk securities and, therefore, may
not fully reflect the true risks of an investment. In addition, rating agencies
may not make timely changes in a rating to reflect changes in the economy or in
the condition of the issuer that affect the market value of the security.
Consequently, credit ratings are used only as a preliminary indicator of
investment quality. Investments in high risk securities will depend more
heavily on the Sub-Adviser's credit analysis than investment-grade debt
securities. The Adviser (or the Sub-Adviser) will monitor the Fund's
investments and evaluate whether to dispose of or retain high risk securities
whose credit quality may have changed.
The Fund may have difficulty disposing of certain high risk securities with
a thin trading market. Not all dealers maintain markets in all these
securities, and for many such securities there is no established retail
secondary market. The Adviser (or the Sub-Adviser) anticipates that such
securities may be sold only to a limited number of dealers or institutional
investors. To the extent a secondary trading market does exist, it is generally
not as liquid as that for higher-rated securities; a lack of a liquid secondary
market may adversely affect the market price of a security, which may in turn
affect the Fund's net asset value and ability to dispose of particular
securities in order to meet liquidity needs or to respond to a specific economic
event, or may make it difficult for the Fund to obtain accurate market
quotations for valuation purposes. Market quotations on many high risk
securities may be available only from a limited number of dealers and may not
necessarily represent firm bids or prices for actual sales. During periods of
thin trading, the spread between bid and asked prices is likely to increase
significantly, and adverse publicity and investor perceptions (whether or not
based on fundamental analysis) may decrease the value and liquidity of a high
risk security.
Legislation has from time to time been or may be proposed that is designed
to limit the use of certain high risk debt. It is not possible to predict the
effect of such legislation on the market for high risk debt. However, any
legislation that may be proposed or enacted could have a material adverse effect
on the value of these securities, the existence of a secondary trading market
for the securities and, as a result, the Fund's net asset values.
Sovereign Debt. The International Value Fund may invest up to 5% of its net
assets in obligations of foreign countries and political entities ("Sovereign
Debt"), which may trade at a substantial discount from face value. The Fund may
hold and trade Sovereign Debt of emerging market countries in appropriate
circumstances and to participate in debt conversion programs. Emerging country
Sovereign Debt involves a high degree of risk, is generally lower-quality debt,
and is considered speculative in nature. The issuer or governmental authorities
that control Sovereign Debt repayment "Sovereign Debtor") may be unable or
unwilling to repay principal or interest when due in accordance with the terms
of the debt. A Sovereign Debtor's willingness or ability to repay principal and
interest due in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the Sovereign Debtor's policy
towards the International Monetary Fund (the "IMF") and the political
constraints to which the Sovereign Debtor may be subject. Sovereign Debtors may
also be dependent on expected disbursements from foreign governments,
multilateral agencies and others abroad to reduce principal and interest
arrearage on their debt. The commitment of these third parties to make such
disbursements may be conditioned on the Sovereign Debtor's implementation of
economic reforms or economic performance and the timely service of the debtor's
obligations. The Sovereign Debtor's failure to meet these conditions may cause
these third parties to cancel their commitments to provide funds to the
Sovereign Debtor, which may further impair the debtor's ability or willingness
to timely service its debts. In certain instances, the Fund may invest in
Sovereign Debt that is in default as to payments of principal or interest. The
Fund holding non-performing Sovereign Debt may incur additional expenses in
connection with any restructuring of the issuer's obligations or in otherwise
enforcing its rights thereunder.
Brady Bonds. The International Value Fund may invest up to 5% of its net
assets in Brady Bonds as part of its investment in Sovereign Debt of countries
that have restructured or are in the process of restructuring their Sovereign
Debt pursuant to the Brady Plan.
Brady Bonds are issued under the framework of the Brady Plan, an initiative
announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a
mechanism for debtor nations to restructure their outstanding external
indebtedness. The Brady Plan contemplates, among other things, the debtor
nation's adoption of certain economic reforms and the exchange of commercial
bank debt for newly issued bonds. In restructuring its external debt under the
Brady Plan framework, a debtor nation negotiates with its existing bank lenders
as well as the World Bank or IMF. The World Bank or IMF supports the
restructuring by providing funds pursuant to loan agreements or other
arrangements that enable the debtor nation to collateralize the new Brady Bonds
or to replenish reserves used to reduce outstanding bank debt. Under these loan
agreements or other arrangements with the World Bank or IMF, debtor nations have
been required to agree to implement certain domestic monetary and fiscal
reforms. The Brady Plan sets forth only general guiding principles for economic
reform and debt reduction, emphasizing that solutions must be negotiated on a
case-by-case basis between debtor nations and their creditors.
Brady Bonds are recent issues and do not have a long payment history.
Agreements implemented under the Brady Plan are designed to achieve debt and
debt-service reduction through specific options negotiated by a debtor nation
with its creditors. As a result, each country offers different financial
packages. Options have included the exchange of outstanding commercial bank debt
for bonds issued at 100% of face value of such debt, bonds issued at a discount
of face value of such debt, and bonds bearing an interest rate that increases
over time and the advancement of the new money for bonds. The principal of
certain Brady Bonds has been collateralized by U.S. Treasury zero coupon bonds
with a maturity equal to the final maturity of the Brady Bonds. Collateral
purchases are financed by the IMF, World Bank and the debtor nation's reserves.
Interest payments may also be collateralized in part in various ways.
Brady Bonds are often viewed as having three or four valuation components:
(i) the collateralized repayment of principal at final maturity; (ii) the
collateralized interest payments; (iii) the uncollateralized interest payments;
and (iv) any uncollateralized principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In light of the residual risk of Brady
Bonds and, among other factors, the history of defaults with respect to
commercial bank loans by public and private entities of countries issuing Brady
Bonds, investments in Brady Bonds can be viewed as speculative.
Other Investment Considerations - The International Growth Fund
---------------------------------------------------------------
Derivatives Risk. The International Growth Fund may invest in
derivatives. 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
the Fund's investment in options, futures, swaps, structured securities and
other derivative instruments that may be leveraged. The 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 by 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.
Emerging Market Countries. The International Growth Fund may invest in
emerging market countries. Developing countries may impose restrictions on a
Fund's ability to repatriate investment income or capital. Even where there is
no outright restriction on repatriation of investment income or capital, the
mechanics of repatriation may affect certain aspects of the operations of the
Fund. For example, funds may be withdrawn from the People's Republic of China
only in U.S. or Hong Kong dollars and only at an exchange rate established by
the government once each week.
Some of the currencies in emerging markets have experienced devaluations
relative to the U.S. dollar, and major adjustments have been made periodically
in certain of such currencies. Certain developing countries face serious
exchange constraints.
Lastly, governments of some developing countries exercise substantial
influence over many aspects of the private sector. In some countries, the
government owns or controls many companies, including the largest in the
country. As such, government actions in the future could have a significant
effect on economic conditions in developing countries in these regions, which
could affect private sector companies, a portfolio and the value of its
securities. Furthermore, certain developing countries are among the largest
debtors to commercial banks and foreign governments. Trading in debt
obligations issued or guaranteed by such governments or their agencies and
instrumentalities involves a high degree of risk.
Mortgage-Backed and Asset-Backed Securities. The Funds may purchase
residential and commercial mortgage-backed as well as other asset-backed
securities (collectively called "asset-backed securities") that are secured or
backed by automobile loans, installment sale contracts, credit card receivables
or other assets and are issued by entities such as Government National Mortgage
Association "GNMA"), Federal National Mortgage Association "FNMA"), Federal Home
Loan Mortgage Corporation "FHLMC"), commercial banks, trusts, financial
companies, finance subsidiaries of industrial companies, savings and loan
associations, mortgage banks and investment banks. These securities represent
interests in pools of assets in which periodic payments of interest and/or
principal on the securities are made, thus, in effect passing through periodic
payments made by the individual borrowers on the assets that underlie the
securities, net of any fees paid to the issuer or guarantor of the securities.
The average life of these securities varies with the maturities and the
prepayment experience of the underlying instruments. The average life of a
mortgage-backed instrument may be substantially less than the original maturity
of the mortgages underlying the securities as the result of scheduled principal
payments and mortgage prepayments. The rate of such mortgage prepayments, and
hence the life of the certificates, will be a function of current market rates
and current conditions in the relevant housing and commercial markets. In
periods of falling interest rates, the rate of mortgage prepayments tends to
increase. During such periods, the reinvestment of prepayment proceeds by a
Fund will generally be at lower rates than the rates that were carried by the
obligations that have been prepaid. As a result, the relationship between
mortgage prepayments and interest rates may give some high-yielding mortgage-
related securities less potential for growth in value than non-callable bonds
with comparable maturities. In calculating the average weighted maturity of
each Fund, the maturity of asset-backed securities will be based on estimates of
average life. There can be no assurance that these estimates will be accurate.
There are a number of important differences among the agencies and
instrumentalities of the U.S. government that issue mortgage-backed securities
and among the securities that they issue. Mortgage-backed securities guaranteed
by GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and interest
by GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA is a wholly owned U.S. government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-backed securities issued by FNMA
include FNMA Guaranteed Mortgage Pass-Through Certificates (also known as
"Fannie Maes") which are solely the obligations of FNMA and are not backed by or
entitled to the full faith and credit of the United States, but are supported by
the right of the issuer to borrow from the Treasury. FNMA is a government-
sponsored organization owned entirely by private stockholders. Fannie Maes are
guaranteed as to timely payment of the principal and interest by FNMA.
Mortgage-backed securities issued by the FHLMC include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress. Freddie Macs are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute a debt or obligation of the United
States or of any Federal Home Loan Bank. Freddie Macs entitle the holder to
timely payment of interest, which is guaranteed by the FHLMC. FHLMC guarantees
either ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When FHLMC does not guarantee timely payment of
principal, FHLMC may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
As stated in the Prospectus for the Funds, mortgage-backed securities such
as collateralized mortgage obligations ("CMOs") may be purchased. There are
several types of mortgage-backed securities which provide the holder with a pro
rata interest in the underlying mortgages, and CMOs which provide the holder
with a specified interest in the cash flow of a pool of underlying mortgages or
other mortgage-backed securities. CMOs are issued in multiple classes and their
relative payment rights may be structured in many ways. In many cases, however,
payments of principal are applied to the CMO classes in order of their
respective maturities, so that no principal payments will be made on a CMO class
until all other classes having an earlier maturity date are paid in full. The
classes may include accrual certificates (also known as "Z-Bonds"), which do not
accrue interest at a specified rate until other specified classes have been
retired and are converted thereafter to interest-paying securities. They may
also include planned amortization classes ("PACs") which generally require,
within certain limits, that specified amounts of principal be applied to each
payment date, and generally exhibit less yield and market volatility than other
classes. Investments in CMO certificates can expose the Fund to greater
volatility and interest rate risk than other types of mortgage-backed
obligations. Prepayments on mortgage-backed securities generally increase with
falling interest rates and decrease with rising interest rates; furthermore,
prepayment rates are influenced by a variety of economic and social factors.
Each Taxable Bond Funds will invest less than 50% of its respective total assets
in CMOs.
The yield characteristics of asset-backed securities differ from
traditional debt securities. A major difference is that the principal amount of
the obligations may be prepaid at any time because the underlying assets (i.e.,
loans) generally may be prepaid at any time. As a result, if an asset-backed
security is purchased at a premium, a prepayment rate that is faster than
expected may reduce yield to maturity, while a prepayment rate that is slower
than expected may have the opposite effect of increasing yield to maturity.
Conversely, if an asset-backed security is purchased at a discount, faster than
expected prepayments may increase, while slower than expected prepayments may
decrease, yield to maturity. Moreover, asset-backed securities may involve
certain risks that are not presented by mortgage-backed securities arising
primarily from the nature of the underlying assets (i.e., credit card and
automobile loan receivables as opposed to real estate mortgages). For example,
credit card receivables are generally unsecured and may require the repossession
of personal property upon the default of the debtor, which may be difficult or
impracticable in some cases.
Asset-backed securities may be subject to greater risk of default during
periods of economic downturn than other instruments. Also, while the secondary
market for asset-backed securities is ordinarily quite liquid, in times of
financial stress the secondary market may not be as liquid as the market for
other types of securities, which could result in a Fund experiencing difficulty
in valuing, or liquidating such securities.
In general, the collateral supporting non-mortgage asset-backed securities
is of shorter maturity than mortgage loans. Like other fixed-income securities,
when interest rates rise the value of an asset-backed security generally will
decline; however, when interest rates decline, the value of an asset-backed
security with prepayment features may not increase as much as that of other
fixed-income securities.
Non-mortgage asset-backed securities do not have the benefit of the same
security in the collateral as mortgage-backed securities. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
have given debtors the right to reduce the balance due on the credit cards.
Most issuers of automobile receivables permit the servicers to retain possession
of the underlying obligations. If the servicer were to sell these obligations
to another party, there is the risk that the purchaser would acquire an interest
superior to that of the holders of related automobile receivables. In addition,
because of the large number of vehicles involved in a typical issuance and
technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have an effective security interest in all of the
obligations backing such receivables. Therefore, there is a possibility that
payments on the receivables together with recoveries on repossessed collateral
may not, in some cases, be able to support payments on these securities.
Variable Rate Medium Term Notes. The Funds may purchase variable rate
medium term notes that provide for periodic adjustments in the interest rates.
The adjustments in interest rates reflect changes in an index (which may be the
Lehman Brothers 1-3 Year Government/Corporate Bond Index, the Lehman Brothers
Intermediate Government/Corporate Bond Index or the Lehman Brothers
Government/Corporate Bond Index).
Stripped Securities. The Funds may purchase participations in trusts that
hold U.S. Treasury and agency securities (such as TIGRs and CATs) and also may
purchase Treasury receipts and other "stripped" securities that evidence
ownership in either the future interest payments or the future principal
payments of U.S. government obligations. These participations are issued at a
discount to their "face value," and may (particularly in the case of stripped
mortgage-backed securities) exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors.
Other Investment Considerations - Balanced Funds and Small-Cap Core Equity Fund
-------------------------------------------------------------------------------
Subsequent to its purchase by a Fund, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the security. The Adviser will sell
promptly any securities that are not rated investment grade by at least one
nationally recognized rating agency and that exceed 5% of the Fund's net assets.
Other Investment Considerations - Taxable Bond Funds
----------------------------------------------------
In order to reduce a negative deviation in return between each Fund and its
respective bond index, each Fund will normally attempt to be fully invested.
In an effort to make a Fund's duration and return comparable to those of
its respective bond index, the Adviser will monitor a Fund's portfolio and
market changes in accordance with procedures established by the Adviser under
the supervision of the Board of Directors. The calculation of the Fund's
duration and average portfolio maturity will be based on certain estimates
relating to the duration and maturity of the securities held by a Fund. There
can be no assurance that these estimates will be accurate or that the duration
or average portfolio maturity of a Fund will always remain within the maximum
limits described in the Prospectus. The value of each Fund's portfolio, as is
generally the case with each bond index, can be expected to vary inversely from
changes in prevailing interest rates.
Other Investment Considerations-- Tax-Exempt Intermediate Bond Fund and
-----------------------------------------------------------------------
Tax-Exempt Money Market Fund
----------------------------
Municipal Obligations. Municipal obligations which may be acquired by the
Tax-Exempt Intermediate Bond Fund and Tax-Exempt Money Market Fund include debt
obligations issued by governmental entities to obtain funds for various public
purposes, including the construction of a wide range of public facilities, the
refunding of outstanding obligations, the payment of general operating expenses
and the extension of loans to public institutions and facilities.
Opinions relating to the validity of municipal obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
the Adviser will review the proceedings relating to the issuance of municipal
obligations or the basis for such opinions.
Certain of the municipal obligations held by the Funds may be insured at
the time of issuance as to the timely payment of principal and interest. The
insurance policies will usually be obtained by the issuer of the municipal
obligation at the time of its original issuance. In the event that the issuer
defaults on interest or principal payment, the insurer will be notified and will
be required to make payment to the bondholders. There is, however, no guarantee
that the insurer will meet its obligations. In addition, such insurance will
not protect against market fluctuations caused by changes in interest rates and
other factors, including credit downgrades, supply and demand. The Fund may,
from time to time, invest more than 25% of its assets in municipal obligations
covered by insurance policies.
Municipal obligations acquired by the Tax-Exempt Money Market Fund may
include short-term General Obligation Notes, Tax Anticipation Notes, Bond
Anticipation Notes, Revenue Anticipation Notes, Tax-Exempt Commercial Paper,
Construction Loan Notes and other forms of short-term tax-exempt loans. Such
instruments are issued with a short-term maturity in anticipation of the receipt
of tax funds, the proceeds of bond placements or other revenues. In addition,
the Fund may invest in bonds and other types of tax-exempt instruments provided
they have remaining maturities of thirteen months or less at the time of
purchase.
The two principal classifications of municipal obligations which may be
held by the Tax-Exempt Money Market Fund are General Obligation securities and
Revenue securities. The Fund may also acquire Moral Obligation securities.
"Moral Obligation" securities are normally issued by special purpose
authorities. If the issuer of Moral Obligation securities is unable to meet its
debt service obligations from current revenues, it may draw on a reserve fund,
the restoration of which is a moral commitment but not a legal obligation of the
state or municipality that created the issue.
There are, of course, variations in the quality of municipal obligations
both within a particular classification and between classifications, and the
yields on municipal obligations depend upon a variety of factors, including
general money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings of NRSROs
represent their opinions as to the quality of municipal obligations. It should
be emphasized, however, that ratings are general and are not absolute standards
of quality, and municipal obligations with the same maturity, interest rate and
rating may have different yields while municipal obligations of the same
maturity and interest rate with different ratings may have the same yield.
The payment of principal and interest on most securities purchased by the
Fund will depend upon the ability of the issuers to meet their obligations. An
issuer's obligations under its municipal obligations are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by federal or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon the ability of municipalities to levy
taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on, and principal of, its municipal obligations may be
materially adversely affected by litigation or other conditions.
Certain types of municipal obligations (private activity bonds) have been
or are issued to obtain funds to provide privately operated housing facilities,
pollution control facilities, convention or trade show facilities, mass transit,
airport, port or parking facilities and certain local facilities for water
supply, gas, electricity or sewage or solid waste disposal. Private activity
bonds are also issued on behalf of privately held or publicly owned corporations
in the financing of commercial or industrial facilities. State and local
governments are authorized in most states to issue private activity bonds for
such purposes in order to encourage corporations to locate within their
communities. The principal and interest on these obligations may be payable
from the general revenues of the users of such facilities.
Private activity bonds (e.g., bonds issued by industrial development
authorities) that are issued by or on behalf of public authorities to finance
various privately operated facilities are included within the term "municipal
obligations" if the interest paid thereon is exempt (subject to federal
alternative minimum tax) from federal income tax. (The Tax-Exempt Money Market
Fund, however, does not currently intend to acquire private activity bonds that
are subject to the federal alternative minimum tax.) Private activity bonds are
in most cases Revenue securities and are not payable from the unrestricted
revenues of the issuer. The credit quality of such bonds is usually directly
related to the credit standing of the corporate user of the facility involved.
Municipal obligations purchased by the Funds may be backed by letters of
credit issued by foreign and domestic banks and other financial institutions.
Such letters of credit are not necessarily subject to federal deposit insurance
and adverse developments in the banking industry could have a negative effect on
the credit quality of the Fund's portfolio securities and its ability to
maintain a stable net asset value and share price. Letters of credit issued by
foreign banks, like other obligations of foreign banks, may involve certain
risks in addition to those of domestic obligations. Because each Fund invests
in securities backed by banks and other financial institutions, changes in the
credit facility of these institutions could cause losses to the Fund and affect
its share price.
Although the Tax-Exempt Money Market Fund does not presently intend to do
so on a regular basis, it may invest more than 25% of its total assets in
municipal obligations, the issuers of which are located in the same state or the
interest on which is paid solely from revenues of similar projects if such
investment is deemed necessary or appropriate by the Adviser. To the extent
that the Fund's assets are concentrated in municipal obligations payable from
revenues on similar projects or issued by issuers in the same state, the Fund
will be subject to the peculiar economic, political and business risks
represented by the laws and economic conditions relating to such states and
projects to a greater extent than it would be if the Fund's assets were not so
concentrated. Furthermore, payment of municipal obligations of certain projects
may be secured by mortgages or deeds of trust. In the event of a default,
enforcement of the mortgages or deeds of trust will be subject to statutory
enforcement procedures and limitations, including rights of redemption and
limitations on obtaining deficiency judgements. In the event of a foreclosure,
collection of the proceeds of the foreclosure may be delayed and the amount of
proceeds from the foreclosure may not be sufficient to pay the principal of and
accrued interest on the defaulted municipal obligations.
The Tax-Exempt Intermediate Bond Fund may purchase put options on municipal
obligations. A put gives the Fund the right to sell a municipal obligation at a
specified price at any time before a specified date. A put will be sold,
transferred or assigned only with the related municipal obligation. The Fund
will acquire puts only to enhance liquidity, shorten the maturity of the related
municipal security or permit the Fund to invest its assets at more favorable
rates. The aggregate price of a security subject to a put may be higher than
the price which otherwise would be paid for the security without such an option,
thereby increasing the security's cost and reducing its yield.
The Tax-Exempt Intermediate Bond Fund's cash balances may be invested in
short-term municipal notes and tax-exempt commercial paper, as well as municipal
bonds with remaining maturities of thirteen months or less and securities issued
by other investment companies which invest in high quality, short-term municipal
debt securities. The value of the Fund's portfolio can be expected to vary
inversely to changes in prevailing interest rates.
From time to time, on a temporary defensive basis due to market conditions,
the Fund may hold without any limitation uninvested cash reserves and invest
without any limitations in high quality short-term taxable money market
obligations in such proportions as in the opinion of the Adviser, prevailing
market or economic conditions warrant. Uninvested cash reserves will not earn
income. See "Investment Strategies & Risks - Money Market Instruments" above.
Taxable obligations acquired by the Fund will not exceed under normal conditions
20% of the Fund's net assets at the time of purchase.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal obligations. For example, under the Tax Reform Act of
1986, interest on certain private activity bonds must be included in an
investor's alternative minimum taxable income, and corporate investors must
include all tax-exempt interest in their federal alternative minimum taxable
income. The Company cannot, of course, predict what legislation, if any, may be
proposed in the future as regards the income tax status of interest on municipal
obligations, or which proposals, if any, might be enacted. Such proposals,
while pending or if enacted, might materially and adversely affect the
availability of municipal obligations for investment by the Fund and the
liquidity and value of the Fund's portfolio. In such an event, the Company
would reevaluate the Fund's investment objective and policies and consider
possible changes in its structure or possible dissolution.
Municipal Lease Obligations. The Tax-Exempt Intermediate Bond Fund may
acquire municipal lease obligations that are issued by a state or local
government authority to acquire land and a wide variety of equipment and
facilities. These obligations typically are not fully backed by the
municipality's credit, and their interest may become taxable if the lease is
assigned. If the funds are not appropriated for the following year's lease
payments, the lease may terminate, with the possibility of default on the lease
obligation and significant loss to the Fund. Certificates of participation in
municipal lease obligations or installment sale contracts entitle the holder to
a proportionate interests in the lease-purchase payments made. The Adviser
determines and monitors the liquidity of municipal lease obligations (including
certificates of participation) under guidelines approved by the Board of
Directors requiring the Advisor to evaluate the credit quality of such
obligations and report on the nature of and the Fund's trading experience in the
municipal lease market. Under the guidelines, municipal lease obligations that
are not readily marketable and transferable are treated as illiquid. In making
a determination that a municipal lease obligation is liquid, the Adviser may
consider, among other things (i) whether the lease can be canceled; (ii) the
likelihood that the assets represented by the lease can be sold; (iii) the
strength of the lessee's general credit; (iv) the likelihood that the
municipality will discontinue appropriating funds for the leased property
because the property is no longer deemed essential to the operations of the
municipality; and (v) availability of legal recourse in the event of failure to
appropriate. The Fund will not knowingly invest more than 10% of the value of
its net assets in securities, including municipal leases, that are illiquid.
Stand-By Commitments. The Funds may acquire "stand-by commitments" with
respect to municipal obligations held in each Fund's portfolio. Under a
"stand-by commitment" a dealer agrees to buy from the Fund, at the Fund's
option, specified municipal obligations at a specified price. "Stand-by
commitments" may be exercisable by the Funds at any time before maturity of the
underlying municipal obligations and may be sold, transferred or assigned only
with the instruments involved. "Stand-by commitment" acquired by the Tax-Exempt
Intermediate Bond Fund may also be referred to in this Statement of Additional
Information as "put" options.
The amount payable to the Fund upon its exercise of a "stand-by commitment"
is normally (i) the Fund's acquisition cost of the municipal obligations
(excluding any accrued interest which the Fund paid on their acquisition), less
any amortized market premium or plus any amortized market or original issue
discount during the period the Fund owned the securities, plus (ii) all interest
accrued on the securities since the last interest payment date during that
period. A stand-by commitment may be sold, transferred or assigned by the Fund
only with the instrument involved.
The Fund expects that "stand-by commitments" will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Fund may pay for a "stand-by commitment" either
separately in cash or by paying a higher price for the portfolio securities
which are acquired subject to the commitment (thus reducing the yield to
maturity otherwise available for the same securities). The total amount paid in
either manner for outstanding "stand-by commitments" held by the Fund will not
exceed 1/2 of 1% of the value of its total assets calculated immediately after
each "stand-by commitment" is acquired.
The Fund intends to enter into "stand-by commitments" only with dealers,
banks and broker/dealers which, in the investment adviser's opinion, present
minimal credit risks. The Fund's reliance upon the credit of these dealers,
banks and broker/dealers is secured by the value of the underlying municipal
obligations that are subject to a commitment.
The Fund would acquire "stand-by commitments" solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. The acquisition of a "stand-by commitment" would not affect
the valuation or assumed maturity of the underlying Municipal Securities, which
would continue to be valued in accordance with the ordinary method of valuation
employed by the Fund. "Stand-by commitment" which would be acquired by the Fund
would be valued at zero in determining net asset value. Where the Fund paid any
consideration directly or indirectly for a "stand-by commitment" its cost would
be reflected as unrealized depreciation for the period during which the
commitment was held by the Fund.
Variable and Floating Rate Instruments. The Tax-Exempt Money Market Fund
may purchase variable and floating rate instruments, which may have a stated
maturity in excess of thirteen months but will permit a Fund to demand payment
of the instrument at least once every thirteen months upon not more than thirty
days' notice (unless the instrument is guaranteed by the U.S. Government or an
agency or instrumentality thereof). Such instruments may include variable
amount master demand notes, which are unsecured instruments that permit the
indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. Unrated variable and floating rate
instruments will be determined by the Adviser (under the supervision of the
Board of Directors) to be of comparable quality at the time of purchase to First
Tier Eligible Securities. An active secondary market may not exist, however,
with respect to particular variable and floating rate instruments, and usually
will not exist with respect to variable amount master demand notes. The absence
of a secondary market could make it difficult for a Fund to dispose of a
variable or floating rate instrument if the issuer defaulted on its payment
obligation or during periods that the Fund could not exercise its demand rights,
and a Fund could, for these or other reasons, suffer a loss with respect to such
instruments.
The variable and floating rate demand instruments that the Tax-Exempt Money
Market Fund may purchase include participations in municipal obligations
purchased from and owned by financial institutions, primarily banks.
Participation interests provide the Fund with a specified undivided interest (up
to 100%) in the underlying obligation and the right to demand payment of the
unpaid principal balance plus accrued interest on the participation interest
from the institution upon a specified number of days' notice, not to exceed
thirty days. Each participation interest is backed by an irrevocable letter of
credit or guarantee of a bank that the Adviser has determined meets the
prescribed quality standards for the Fund. The bank typically retains fees out
of the interest paid on the obligation for servicing the obligation, providing
the letter of credit and issuing the repurchase commitment.
Municipal obligations purchased by the Tax-Exempt Intermediate Bond Fund
may include variable and floating rate instruments issued by industrial
development authorities and other governmental entities. If such instruments
are unrated, they will be determined by the Fund's Adviser (under the
supervision of the Board of Directors) to be of comparable quality at the time
of purchase to investment grade. While there may be no active secondary market
with respect to a particular variable or floating rate demand instrument
purchased by the Fund, the Fund may (at any time or during specified periods not
exceeding thirteen months, depending upon the instrument involved) demand
payment in full of the principal of the instrument and has the right to resell
the instrument to a third party. The absence of such an active secondary
market, however, could make it difficult for the Fund to dispose of a variable
or floating rate demand instrument if the issuer defaulted on its payment
obligation or during periods that the Fund is not entitled to exercise its
demand rights, and the Fund could, for these or other reasons, suffer a loss
with respect to such instruments.
With respect to the variable and floating rate instruments that may be
acquired by each Fund, the Adviser will consider the earning power, cash flows
and other liquidity ratios of the issuers and guarantors of such instruments
and, if the instrument is subject to a demand feature, will monitor their
financial status to meet payment on demand. In determining average weighted
portfolio maturity, an instrument will usually be deemed to have a maturity
equal to the longer of the period remaining to the next interest rate adjustment
or the time the Fund involved can recover payment of principal as specified in
the instrument. Variable U.S. Government obligations held by a Fund, however,
will be deemed to have maturities equal to the period remaining until the next
interest rate adjustment.
When-Issued Purchases and Forward Commitments. The Tax-Exempt Money Market
Fund may purchase securities on a "when-issued" or "forward commitment" basis.
These transactions, which involve a commitment by the Fund to purchase
particular securities with payment and delivery taking place beyond the normal
settlement date, permit the Fund to lock in a price or yield on a security it
intends to purchase, regardless of future changes in interest rates. When-
issued and forward commitment transactions involve the risk, however, that the
price or yield obtained in a transaction (and therefore the value of the
security) may be less favorable than the price or yield (and therefore the value
of the security) available in the market when the securities delivery takes
place. The Fund expects that its when- issued purchases and forward commitments
will not exceed 25% of the value of its assets absent unusual market conditions,
and that a forward commitment or commitment to purchase when-issued securities
will not exceed forty-five days. The Fund does not intend to engage in when-
issued purchases and forward commitments for speculative purposes but only in
furtherance of its investment objective.
When the Tax-Exempt Money Market Fund agrees to purchase securities on a
when-issued or forward commitment basis, the custodian will set aside cash or
liquid high-grade debt securities equal to the amount of the commitment in a
segregated account. Normally, the custodian will set aside portfolio securities
to satisfy a purchase commitment, and in such a case the Fund may be required
subsequently to place additional assets in the separate account in order to
ensure that the value of the account remains equal to the amount of the Fund's
commitments. It may be expected that the market value of the Fund's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. Because the Fund
will set aside cash or liquid assets to satisfy its purchase commitments in the
manner described, the Fund's liquidity and ability to manage its portfolio might
be affected in the event its forward commitments and commitments to purchase
when-issued securities ever exceeded 25% of the value of its assets.
The Tax-Exempt Money Market Fund will purchase securities on a when-issued
or forward commitment basis only with the intention of completing the
transaction and actually purchasing the securities. If deemed advisable as a
matter of investment strategy, however, the Fund may dispose of or renegotiate a
commitment after it is entered into, and may sell securities it has committed to
purchase before those securities are delivered to the Fund on the settlement
date. In these cases the Fund may realize a taxable capital gain or loss.
When the Tax-Exempt Money Market Fund engages in when-issued and forward
commitment transactions, it relies on the other party to consummate the trade.
Failure of such party to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their market value, are taken into account when determining the market value of
the Tax-Exempt Money Market Fund starting on the day the Fund agrees to purchase
the securities. The Fund does not earn interest on the securities it has
committed to purchase until they are paid for and delivered on the settlement
date.
Other Investment Considerations: U.S. Government Money Market Fund
------------------------------------------------------------------
Stripped U.S. Government Obligations and Government-Backed Trusts. The
U.S. Government Money Market Fund may acquire U.S. government obligations and
their unmatured interest coupons which have been separated ("stripped") by their
holder, typically a custodian bank or investment brokerage firm. Having
separated the interest coupons from the underlying principal of the U.S.
government obligations, the holder will resell the stripped securities in
custodial receipt programs with a number of different names, including Treasury
Income Growth Receipts ("TIGRs") and Certificate of Accrual on Treasury
Securities ("CATs"). The stripped coupons are sold separately from the
underlying principal, which is sold at a deep discount because the buyer
receives only the right to receive a future fixed payment on the security and
does not receive any rights to periodic interest (cash) payments. Purchasers of
stripped securities acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury
Department sells itself. The underlying U.S. Treasury bonds and notes
themselves are held in book-entry form at the Federal Reserve Bank or, in the
case of bearer securities (i.e., unregistered securities which are owned
ostensibly by the bearer or holder), in trust on behalf of the owners. Counsel
to the underwriters of these certificates or other evidences of ownership of the
U.S. Treasury securities have stated that, in their opinion, purchasers of the
stripped securities, such as the Funds, most likely will be deemed the
beneficial holders of the underlying U.S. government obligations for federal tax
and security purposes. The SEC staff believes that participations in CATs and
TIGRs and other similar trusts are not U.S. government securities.
The Treasury Department has also facilitated transfers of ownership of zero
coupon securities by accounting separately for the beneficial ownership of
particular interest coupon and principal payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities." Under
the STRIPS program, a Fund will be able to have its beneficial ownership of zero
coupon securities recorded directly in the book-entry record-keeping system in
lieu of having to hold certificates or other evidences of ownership of the
underlying U.S. Treasury securities.
The U.S. Government Money Market Fund may also invest in certificates
issued by government-backed trusts (such as TIGRs and CATs). Such certificates
represent an undivided fractional interest in the respective government-backed
trust's assets. The SEC staff believes that participation in CATs and TIGRs and
other similar trusts are not U.S. government securities. These participations
are issued at a discount to their "face value," and may exhibit greater price
volatility than ordinary debt securities because of the manner in which their
principal and interest are returned to investors. The U.S. Government Money
Market Fund may also invest in government-backed trusts that hold obligations of
foreign governments that are guaranteed or backed by the full faith and credit
of the United States. The assets of each government-backed trust consist of (i)
a promissory note issued by a foreign government (the "Note"), (ii) a guaranty
by the U.S. Government, acting through the Defense Security Assistance Agency of
the Department of Defense, of the due and punctual payment of 90% of all
principal and interest due on such Note and (iii) a beneficial interest in a
government securities trust holding U.S. Treasury bills, notes and other direct
obligations of the U.S. Treasury sufficient to provide the Trust with funds in
an amount equal to at least 10% of all principal and interest payments due on
the Note. No more than 35% of the value of a Fund's total assets will be
invested in stripped securities not purchased through the Federal Reserve's
STRIPS program and government-backed trusts.
Other Investment Considerations - MicroCap Fund
-----------------------------------------------
Small Cap Volatility. Companies in which the Fund primarily invests will
include those that have limited product lines, markets, or financial resources,
or are dependent on a small management group. In addition, because these stocks
are not well-known to the investing public, do not have significant
institutional ownership, and are followed by relatively few security analysts,
there will normally be less publicly available information concerning these
securities compared to what is available for the securities of larger companies.
Adverse publicity and investor perceptions, whether based on fundamental
analysis, can decrease the value and liquidity of securities held by the Fund.
Historically, small capitalization stocks have been more volatile in price than
larger capitalization stocks. Among the reasons for the greater price
volatility of these small company stocks are the less certain growth prospects
of smaller firms, the lower degree of liquidity in the markets for such stocks,
the greater sensitivity of small companies to changing economic conditions and
the fewer market makers and the wider spreads between quoted bid and asked
prices which exist in the over-the-counter market for such stocks. Besides
exhibiting greater volatility, small company stocks may, to a degree, fluctuate
independently of larger company stocks. Small company stocks may decline in
price as large company stocks rise, or rise in price as large company stocks
decline. Investors should therefore expect that the Fund will be more volatile
than, and may fluctuate independently of, broad stock market indices such as the
S&P 500 Index.
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).
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 such 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 its
investment 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 investment adviser.
Other Investment Considerations - Equity Index Fund and MidCap Index Fund
-------------------------------------------------------------------------
Equity Index Fund and MidCap Index Fund Management Techniques. When
purchasing securities for these Fund portfolios, the Adviser will consider
initially the relative market capitalization weightings of the stocks included
in the S&P 500 Index for the Equity Index Fund, and of the stocks included in
the S&P MidCap 400 Index for the MidCap Index Fund. The weighted capitalization
of an issuer is determined by dividing the issuer's market capitalization by the
total market capitalizations of all issuers included in the S&P 500 Index or S&P
MidCap 400 Index, respectively.
The Adviser will then compare the industry sector diversification of the
stocks in these Funds, acquired solely on the basis of their weighted
capitalizations, with the industry sector diversification of all issuers
included in the S&P 500 Index for the Equity Index Fund, and of all issuers
included in the S&P MidCap 400 Index for the MidCap Index Fund. This comparison
is made because the Adviser believes, unless the Funds hold all stocks included
in the S&P 500 Index and S&P MidCap 400 Index, respectively, which they
currently do not, that the selection of stocks for purchase by the Funds solely
on the basis of their weighted market capitalizations would tend to place
heavier concentration (as compared to the S&P 500 Index and S&P MidCap 400
Index, respectively) in certain industry sectors that are dominated by the
larger corporations, such as communications, automobile, oil and energy. As a
result, events disproportionately affecting such industries could affect the
performance of the S&P 500 Index or the S&P MidCap 400 Index, respectively.
Conversely, if smaller companies were not purchased by the Funds, industries
included in the S&P 500 Index and S&P MidCap 400 Index, respectively, that are
dominated by smaller market-capitalized companies would be underrepresented (as
compared to the S&P 500 Index and S&P MidCap 400 Index, respectively).
If an issuer drops in ranking, or is eliminated entirely from the S&P 500
Index or S&P MidCap 400 Index, the Adviser may be required to sell some or all
of the common stock of such issuer then held by the respective Fund. Sales of
portfolio securities may be made at times when, if the Adviser were not required
to effect purchases and sales of portfolio securities in accordance with the S&P
500 Index or S&P MidCap 400 Index, such securities might not be sold. Such
sales may result in lower prices for such securities than may have been realized
or in losses that may not have been incurred if the Adviser were not required to
effect the purchases and sales. "Adverse events" will not necessarily be the
basis for the disposition of portfolio securities, unless an event causes the
issuer to be eliminated entirely from the S&P 500 Index or S&P MidCap 400 Index.
"Adverse events" include the failure of an issuer to declare or pay dividends,
the institution against an issuer of materially adverse legal proceedings, the
existence or threat of defaults materially and adversely affecting an issuer's
future declaration and payment of dividends, or the existence of other
materially adverse credit factors. However, although the Adviser does not
intend to screen securities for investment by these Funds by traditional methods
of financial and market analysis, the Adviser will monitor the Funds' investment
with a bias towards removing stocks of companies which may impair for any reason
the Funds' ability to achieve its investment objective.
For these reasons, the Adviser will identify the sectors which are (or,
except for sector balancing, would be) most underrepresented in these Fund
portfolios and will purchase balancing securities in these sectors until the
portfolio's sector weightings closely match that of the S&P 500 Index and S&P
MidCap 400 Index, respectively. This process continues until the portfolios are
fully invested (except for cash holdings).
These Funds may occasionally receive securities that are outside of the S&P
500 Index or S&P MidCap 400 Index, respectively, due to corporate
reorganizations or spin-offs. These Funds will dispose of those securities in
due course consistent with the Funds' investment objectives.
If a large number of shareholders were to redeem shares, however, the
Adviser may be forced to reduce the number of issuers represented in the
portfolios. This could have an adverse effect on the accuracy with which the
Equity Index Fund and MidCap Index Fund match the performance of the S&P 500
Index and S&P MidCap 400 Index, respectively.
Other Investment Considerations - Bond IMMDEX/TM Fund
The IMMDEX/TM Model. The IMMDEX/TM model has been developed and is
maintained by Capital Management Sciences "Capital Management") under
the"IMMDEX/TM" trademark. Capital Management is neither a sponsor of the Bond
IMMDEXa Fund nor affiliated in any way with the Bond IMMDEX/TM Fund or the
Adviser. Neither is Capital Management in any way affiliated with Lehman
Brothers which claims no interest in the model or its ability to effectively or
accurately replicate the Lehman Brothers Government/Corporate Bond Index.
Further, Capital Management is not responsible for the management or results of
the Bond IMMDEX/TM Fund's portfolio. Rather, the Adviser will use the IMMDEX/TM
model and the other investment techniques described in the Prospectus in
choosing portfolio securities and executing transactions in an effort to produce
an annual rate of total return for the Bond IMMDEX/TM Fund that is comparable,
before Fund expenses, to that of the Lehman Brothers Government/Corporate Bond
Index.
Other Portfolio Information
---------------------------
Options Trading. As stated in the Prospectus, the Bond Funds, Balanced
Funds and Equity Funds (other than the International Growth Fund) may purchase
put and (with the exception of the Tax-Exempt Intermediate Bond Fund) call
options. Option purchases by a Fund (except the International Value Fund) will
not exceed 5% of its net assets and the International Value Fund may purchase
put and call options without limit. Such options may relate to particular
securities or to various indices and may or may not be listed on a national
securities exchange and issued by the Options Clearing Corporation. (In the
case of the Equity Index Fund and MidCap Index Fund, such options will relate
only to stock indices.) This is a highly specialized activity which entails
greater than ordinary investment risks, including the complete loss of the
amount paid as premiums to the writer of the option. Regardless of how much the
market price of the underlying security or index increases or decreases, the
option buyer's risk is limited to the amount of the original investment for the
purchase of the option. However, options may be more volatile than the
underlying securities or indices, and therefore, on a percentage basis, an
investment in options may be subject to greater fluctuation than an investment
in the underlying securities. In contrast to an option on a particular
security, an option on an index provides the holder with the right to make or
receive a cash settlement upon exercise of the option. The amount of this
settlement will be equal to the difference between the closing price of the
index at the time of exercise and the exercise price of the option expressed in
dollars, times a specified multiple.
The Tax-Exempt Intermediate Bond Fund will only purchase put options on
Municipal obligations, and will do so only to enhance liquidity, shorten the
maturity of the related municipal security or permit the Fund to invest its
assets at more favorable rates. The Taxable Bond Funds and International Value
Fund will engage in unlisted over-the-counter options only with broker-dealers
deemed creditworthy by the Adviser (or the Sub-Adviser). Closing transactions
in certain options are usually effected directly with the same broker-dealer
that effected the original option transaction. A Fund bears the risk that the
broker-dealer will fail to meet its obligations. There is no assurance that a
liquid secondary trading market exists for closing out an unlisted option
position. Furthermore, unlisted options are not subject to the protections
afforded purchasers of listed options by the Options Clearing Corporation, which
performs the obligations of its members who fail to perform in connection with
the purchase or sale of options.
A call option gives the purchaser of the option the right to buy, and a
writer the obligation to sell, the underlying security or index at the stated
exercise price at any time prior to the expiration of the option, regardless of
the market price of the security. The premium paid to the writer is in
consideration for undertaking the obligations under the option contract. A put
option gives the purchaser the right to sell the underlying security or index at
the stated exercise price at any time prior to the expiration date of the
option, regardless of the market price of the security or index. Put and call
options purchased by a Fund will be valued at the last sale price or, in the
absence of such a price, at the mean between bid and asked prices.
Each Fund may purchase put options on portfolio securities at or about the
same time that it purchases the underlying security or at a later time. By
buying a put, a Fund limits its risk of loss from a decline in the market value
of the security until the put expires. Any appreciation in the value of and
yield otherwise available from the underlying security, however, will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. Call options may be purchased by a Fund in order to
acquire the underlying security at a later date at a price that avoids any
additional cost that would result from an increase in the market value of the
security. A call option may also be purchased to increase a Fund's return to
investors at a time when the call is expected to increase in value due to
anticipated appreciation of the underlying security. Prior to its expiration, a
purchased put or call option may be sold in a "closing sale transaction" (a sale
by a Fund, prior to the exercise of the option that it has purchased, of an
option of the same series), and profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the option
plus the related transaction costs. In addition, each Fund (with the exception
of the Tax-Exempt Intermediate Bond Fund) may sell covered call options listed
on a national securities exchange. Such options may relate to particular
securities or to various indices. (In the case of the Equity Index Fund and
MidCap Index Fund, such options will relate only to stock indices.) A call
option on a security is covered if a Fund owns the security underlying the call
or has an absolute and immediate right to acquire that security without
additional cash consideration (or, if additional cash consideration is required,
cash or cash equivalents in such amount as required are held in a segregated
account by its custodian) upon conversion or exchange of other securities held
by it. A call option on an index is covered if a Fund maintains with its
custodian cash or cash equivalents equal to the contract value. A call option
is also covered if a Fund holds a call on the same security or index as the call
written where the exercise price of the call held is (i) equal to or less than
the exercise price of the call written, or (ii) greater than the exercise price
of the call written provided the difference is maintained by a Fund in cash or
cash equivalents in a segregated account with its custodian. The aggregate value
of the Fund's assets subject to covered options written by the Taxable Bond
Funds, Balanced Income, Balanced Growth, Growth and Income, Equity Index, MidCap
Index and MicroCap Funds will not exceed 5%, 5%, 25%, 5%, 5%, 5% and 5%,
respectively, of the value of its net assets during the current year. The
International Value Fund may write call options on securities and on various
stock indices which will be traded on a recognized securities or futures
exchange or over the counter and during the current year the aggregate value of
the Fund's assets subject to options written by the Fund will not exceed 5% of
the value of its net assets.
A Fund's obligation under a covered call option written by it may be
terminated prior to the expiration date of the option by the Fund's executing a
closing purchase transaction, which is effected by purchasing on an exchange an
option of the same series (i.e., same underlying security or index, exercise
price and expiration date) as the option previously written. Such a purchase
does not result in the ownership of an option. A closing purchase transaction
will ordinarily be effected to realize a profit on an outstanding option, to
prevent an underlying security from being called, to permit the sale of the
underlying security or to permit the writing of a new option containing
different terms. The cost of such a liquidation purchase plus transactions
costs may be greater than the premium received upon the original option, in
which event a Fund will have incurred a loss in the transaction. An option
position may be closed out only on an exchange which provides a secondary market
for an option of the same series. There is no assurance that a liquid secondary
market on an exchange will exist for any particular option. A covered call
option writer, unable to effect a closing purchase transaction, will not be able
to sell an underlying security until the option expires or the underlying
security is delivered upon exercise with the result that the writer in such
circumstances will be subject to the risk of market decline during such period.
A Fund will write an option on a particular security only if the Adviser
believes that a liquid secondary market will exist on an exchange for options of
the same series which will permit the Fund to make a closing purchase
transaction in order to close out its position.
By writing a covered call option on a security, a Fund foregoes the
opportunity to profit from an increase in the market price of the underlying
security above the exercise price except insofar as the premium represents such
a profit, and it is not able to sell the underlying security until the option
expires or is exercised or the Fund effects a closing purchase transaction by
purchasing an option of the same series. Except to the extent that a written
call option on an index is covered by an option on the same index purchased by
the Fund, movements in the index may result in a loss to the Fund; however, such
losses may be mitigated by changes in the value of securities held by the Fund
during the period the option was outstanding. The use of covered call options
will not be a primary investment technique of the Funds. When a Fund writes a
covered call option, an amount equal to the net premium (the premium less the
commission) received by the Fund is included in the liability section of the
Fund's statement of assets and liabilities. The amount of the liability will be
subsequently marked-to-market to reflect the current value of the option
written. The current value of the traded option is the last sale price or, in
the absence of a sale, the average of the closing bid and asked prices. If an
option expires on the stipulated expiration date or if the Fund enters into a
closing purchase transaction, it will realize a gain (or loss if the cost of a
closing purchase transaction exceeds the net premium received when the option is
sold) and the liability related to such option will be eliminated. Any gain on
a covered call option on a security may be offset by a decline in the market
price of the underlying security during the option period. If a covered call
option on a security is exercised, the Fund may deliver the underlying security
held by it or purchase the underlying security in the open market. In either
event, the proceeds of the sale will be increased by the net premium originally
received, and the Fund will realize a gain or loss. Premiums from expired
options written by a Fund and net gains from closing purchase transactions are
treated as short-term capital gains for federal income tax purposes, and losses
on closing purchase transactions are short-term capital losses.
The International Value Fund may also write (i.e., sell) covered put
options on securities and various securities indices. The writer of a put
incurs an obligation to buy the security underlying the option from the put's
purchaser at the exercise price at any time on or before the termination date,
at the purchaser's election (certain options the Fund writes will be exercisable
by the purchaser only on a specific date). Generally, a put is "covered" if the
Fund maintains cash, U.S. government securities or other liquid high grade debt
obligations equal to the exercise price of the option or if the Fund holds a put
on the same underlying security with a similar or higher exercise price. By
writing a covered put option on a security, the Fund receives a premium for
writing the option however, the Fund assumes the risk that the value of the
security will decline before the exercise date in which event, the Fund may
incur a loss in excess of the premium received when the put is exercised.
As noted previously, there are several risks associated with transactions
in options on securities and indices. These risks include (i) an imperfect
correlation between the change in market value of the securities the Fund holds
and the prices of options relating to the securities purchased or sold by the
Fund; and (ii) the possible lack of a liquid secondary market for an option. A
decision as to whether, when and how to use options involves the exercise of
skill and judgment, and a transaction may be unsuccessful to some degree because
of market behavior or unexpected events.
Futures Contracts and Related Options. The Adviser may determine that it
would be in the best interest of the Taxable Bond Funds, Balanced Funds and
Equity Funds to purchase or sell futures contracts, or options thereon, as a
hedge against changes resulting from market conditions in the value of the
securities held by a Fund, or of securities which it intends to purchase to
maintain liquidity, to have fuller exposure to price movements in the respective
stock or bond index or to reduce transaction costs. The International Value
Fund may engage in foreign futures and options (see "Other Investment
Considerations-- International Value Fund-- Foreign Futures and Options on
Futures"). In addition, the Equity Index Fund and MidCap Index Fund will
purchase and sell futures and related options (based only on the S&P 500 Index
and S&P MidCap 400 Index, respectively) to maintain cash reserves while
simulating full investment in the stocks underlying the S&P 500 Index to keep
substantially all of its assets exposed to the market (as represented by the S&P
500 Index) and to reduce transaction costs. For example, a Fund may enter into
transactions involving a bond or stock index futures contract, which is a
bilateral agreement pursuant to which the parties agree to take or make delivery
of an amount of cash equal to a specified dollar amount times the difference
between the index value (which assigns relative values to the securities
included in the index) at the close of the last trading day of the contract and
the price at which the futures contract is originally struck. No physical
delivery of the underlying bonds or stocks in the index is made. The Adviser may
also determine that it would be in the interest of a Fund to purchase or sell
interest rate futures contracts, or options thereon, which provide for the
future delivery of specified fixed-income securities. In addition, the Equity
Index Fund and MidCap Index Fund may purchase and sell futures and related
options (based only on the S&P 500 Index and S&P MidCap 400 Index, respectively)
to maintain cash reserves while simulating full investment in the stocks
underlying the S&P 500 Index and S&P MidCap 400 Index, respectively, to keep
substantially all of its assets exposed to the market (as represented by the S&P
500 Index and S&P MidCap 400 Index, respectively), and to reduce transaction
costs. The International Value Fund will only enter into futures contracts and
futures options which are standardized and traded on a U.S. or foreign exchange,
board of trade or similar entity, or in the case of futures options, for which
an established over-the-counter market exists. The Sub-Adviser of the
International Value Fund anticipates engaging in transactions from time to time
in foreign stock index futures such as the ALL-ORDS (Australia), CAC-40
(France), TOPIX (Japan) and the FTSE-100 (United Kingdom).
Risks associated with the use of futures contracts and options on futures
include (a) imperfect correlation between the change in market values of the
securities held by a Fund and the prices of related futures contracts and
options on futures purchased or sold by the Fund, and (b) the possible lack of a
liquid secondary market for futures contracts (or related options) and the
resulting inability of a Fund to close open futures positions, which could have
an adverse impact on the Fund's ability to hedge.
Positions in futures contracts may be closed out only on an exchange which
provides a secondary market for such futures. However, there can be no
assurance that a liquid secondary market will exist for any particular futures
contract at any specific time. Thus, it may not be possible to close a futures
position. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments to maintain its required margin. In
such situations, if the Fund has insufficient cash, it may have to sell
portfolio holdings to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, the Fund may be required to make
delivery of the instruments underlying futures contracts it holds. The
inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively hedge.
Successful use of futures by the Fund is also subject to the Investment
Adviser's (or Sub-Adviser's) ability to correctly predict movements in the
direction of the market. For example, if a Fund has hedged against the
possibility of a decline in the market adversely affecting securities held by it
and securities prices increase instead, the Fund will lose part or all of the
benefit to the increased value of its securities which it has hedged because it
will have approximately equal offsetting losses in its futures positions. In
addition, in some situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices which
reflect the rising market. The Fund may have to sell securities at a time when
it may be disadvantageous to do so.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and extremely high
degree of leverage involved in futures pricing. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss (as well as gain) to the investor. For example, if at the time of
purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale
of a futures contract may result in losses in excess of the amount invested in
the contract.
Utilization of futures transactions by a Fund involves the risk of loss by
the Fund of margin deposits in the event of bankruptcy of a broker with whom the
Fund has an open position in a futures contract of related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades
may be made on that day at a price beyond that limit. The daily limit governs
only price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
The trading of futures contracts is also subject to the risk of trading
halts, suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal trading activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.
Each Fund's commodities transactions must constitute bona fide hedging or
other permissible transactions pursuant to regulations promulgated by the
Commodities and Futures Trading Commissions ("CFTC"). In addition, a Fund may
not engage in such transactions if the sum of the amount of initial margin
deposits and premiums paid for unexpired commodity options, other than for bona
fide hedging transactions, would exceed 5% of the liquidation value of its
assets, after taking into account unrealized profits and unrealized losses on
such contracts it has entered into; provided, however, that in the case of an
option that is in-the-money at the time of purchase, the in-the-money amount may
be excluded in calculating the percentage limitation. In connection with a
futures transaction, unless the transaction is covered in accordance with SEC
positions, the Fund will maintain a segregated account with its custodian or
sub-custodian consisting of cash or liquid high grade debt securities to the
entire amount at risk (less margin deposits) on a continuous basis. The Company
intends to comply with the regulations of the CFTC exempting the Fund from
registrations as a "commodity pool operator."
The Taxable Bond Funds and Growth and Income Fund intend to limit their
transactions in futures contracts and related options so that not more than 5%
of each Fund's respective net assets are at risk. The Equity Index Fund, MidCap
Index Fund and International Value Fund intend to limit their transactions in
futures contracts so that not more than 10%, 10% and 25% of each Fund's
respective net assets are at risk. For a more detailed description of futures
contracts and futures options, including a discussion of the limitations imposed
by federal tax law, see Appendix B.
Foreign Securities and American Depository Receipts ("ADRs"). The Taxable
Bond Funds, Balanced Funds, Growth and Income, Large-Cap Core Equity, MidCap
Core Equity, Small-Cap Core Equity, MicroCap, International Value and
International Growth Funds may invest in sponsored ADRs. The International
Value Fund and International Growth Fund may also invest in unsponsored ADRs.
ADRs are receipts issued by an American bank or trust company evidencing
ownership of underlying securities issued by a foreign issuer. ADRs may be
listed on a national securities exchange or may trade in the over-the-counter
market. ADR prices are denominated in U.S. dollars; the underlying security may
be denominated in a foreign currency. The underlying security may be subject to
foreign government taxes which would reduce the yield on such securities.
Investments in foreign securities and ADRs also involve certain inherent risks,
such as political or economic instability of the country of issue, the
difficulty of predicting international trade patterns and the possibility of
imposition of exchange controls. Such securities may also be subject to greater
fluctuations in price than securities of domestic corporations. In addition,
there may be less publicly available information about a foreign company than
about a domestic company. Foreign companies generally are not subject to
uniform accounting, auditing and financial reporting standards comparable to
those applicable to domestic companies. With respect to certain foreign
countries, there is a possibility of expropriation or confiscatory taxation, or
diplomatic developments which could affect investment in those countries.
While "sponsored" and "unsponsored" ADR programs are similar, there are
differences regarding ADR holders' rights and obligations and the practices of
market participants. A depository may establish an unsponsored facility without
participation by (or acquiescence of) the underlying issuer; typically, however,
the depository requests a letter of non-objection from the underlying issuer
prior to establishing the facility. Holders of unsponsored ADRs generally bear
all the costs of the ADR facility. The depository usually charges fees upon the
deposit and withdrawal of the underlying securities, the conversion of dividends
into U.S. dollars, the disposition of non-cash distribution, and the performance
of other services. The depository of an unsponsored facility frequently is
under no obligation to 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.
The International Growth Fund may also invest in EDRs and GDRs. EDRs are
receipts issued by a European financial institution evidencing ownership of
underlying foreign securities. GDRs are receipts structured similarly to EDRs
and are issued and traded in several international financial markets. The
underlying security may be subject to foreign government taxes, which would
reduce the yield on such securities.
Zero Coupon Bonds. Zero coupon obligations have greater price volatility
than coupon obligations and will not result in the payment of interest until
maturity, provided that a Fund will purchase such zero coupon obligations only
if the likely relative greater price volatility of such zero coupon obligations
is not inconsistent with the Fund's investment objective. Although zero coupon
securities pay no interest to holders prior to maturity, interest on these
securities is reported as income to a Fund and distributed to its shareholders.
These distributions must be made from a Fund's cash assets or, if necessary,
from the proceeds of sales of portfolio securities. Additional income producing
securities may not be able to be purchased with cash used to make such
distributions and its current income ultimately may be reduced as a result.
Convertible Securities. The Balanced Funds, Growth and Income, Large-Cap
Core Equity, MidCap Core Equity, Small-Cap Core Equity, MicroCap and
International Value Funds may hold convertible securities. Convertible
securities entitle the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the securities mature or are redeemed,
converted or exchanged. Prior to conversion, convertible securities have
characteristics similar to ordinary debt securities in that they normally
provide a stable stream of income with generally higher yields than those of
common stock of the same or similar issuers. Convertible securities rank senior
to common stock in a corporation's capital structure and therefore generally
entail less risk than the corporation's common stock, although the extent to
which such risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed income security. In
investing in convertibles, a Fund is looking for the opportunity, through the
conversion feature, to participate in the capital appreciation of the common
stock into which the securities are convertible, while earning higher current
income than is available from the common stock.
During normal market conditions, no more than 5% of a Fund's net assets
will be purchased or held in convertible or other securities that (1) are not
rated at the time of purchase investment grade by S&P, Moody's or other
nationally recognized rating agencies; (2) are unrated and have not been
determined by the Adviser (or Adviser and Sub-Adviser with regard to the
International Value Fund) to be of comparable quality to a security rated
investment grade; or (3) in the case of the International Value Fund, have not
received the foreign equivalent of investment grade by a rating agency
recognized in the local market and determined to be of comparable quality by the
Adviser and Sub-Adviser. Securities rated below investment grade are
predominantly speculative and are commonly referred to as junk bonds. To the
extent a Fund purchases convertibles rated below investment grade or
convertibles that are not rated, a greater risk exists as to the timely
repayment of the principal of, and the timely payment of interest or dividends
on, such securities. Subsequent to its purchase by a Fund, a rated security may
cease to be rated or its rating may be reduced below a minimum rating for
purchase by the Fund. The Adviser (and Sub-Adviser for the International Value
Fund) will consider such an event in determining whether a Fund should continue
to hold the security. The Adviser (and Sub-Adviser for the International Value
Fund) will sell promptly any securities that are non-investment grade as a
result of these events and that exceed 5% of a Fund's net assets.
As described in the Prospectus, the Funds may invest a portion of their
assets in convertible securities that are rated below investment grade.
Warrants. The Balanced Growth, Balanced Income, Growth and Income, Large-
Cap Core Equity, MidCap Core Equity, Small-Cap Core Equity, MicroCap and
International Value Funds may purchase warrants and similar rights, which are
privileges issued by corporations enabling the owners to subscribe to and
purchase a specified number of shares of the corporation at the specified price
during a specified period of time. Warrants basically are options to purchase
equity securities at a specific price valid for a specific period of time. They
do not represent ownership of the securities, but only the right to buy them.
They have no voting rights, pay no dividends and have no rights with respect to
the assets of the company issuing them. Warrants differ from call options in
that warrants are issued by the issuer of the security which may be purchased on
their exercise, whereas call options may be written or issued by anyone. The
prices of warrants do not necessarily move parallel to the prices of the
underlying securities.
The purchase of warrants involves the risk that a Fund could lose the
purchase value of a warrant if the right to subscribe to additional shares is
not exercised prior to the warrant's expiration. Also, the purchase of warrants
involves the risk that the effective price paid for the warrant added to the
subscription price of the related security may exceed the value of the
subscribed security's market price such as when there is no movement in the
level of the underlying security. During normal market conditions, no more than
5% of each Fund's net assets will be invested in warrants. This 5% limit
includes warrants that are not listed on any stock exchange, and such warrants
are limited to 2% of the International Value Fund's net assets. Warrants
acquired by the International Value Fund in units or attached to securities are
not subject to these limits.
Short Sales. The MicroCap Fund may engage in short sales. If the MicroCap
Fund engages in short sales, it need not segregate Fund assets if it "covers"
the position. A position is "covered" if, at the time the Fund sells the
security or thereafter, the Fund also owns that security or holds a call option
on that security with a strike price no higher than the price at which the
security was sold. For federal tax purposes, a short sale is considered
consummated upon delivery of securities to close the short sale. The gains or
losses realized by the Fund from short sale transactions normally will be
characterized as capital gains or losses although short sales that are part of
certain hedging transactions or straddles may receive different tax treatment.
Special rules generally operate to prevent the use of short sales to convert
short-term capital gain into long-term capital gain and long-term capital loss
into short-term capital loss. As a result, these transactions may increase the
amount of short-term capital gain realized by the Fund which is taxed as
ordinary income when distributed to its 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.
Guaranteed Investment Contracts. The Taxable Bond Funds may make limited
investments in guaranteed investment contracts ("GICs") issued by highly rated
U.S. insurance companies. Pursuant to such contracts, a Fund makes cash
contributions to a separate account of the insurance company which has been
segregated from the general assets of the issuer. The insurance company then
pays to the Fund at the end of the contract an amount equal to the cash
contributions adjusted for the total return of an index. A GIC is a separate
account obligation of the issuing insurance company. A Fund will only purchase
GICs from issuers which, at the time of purchase, are rated A or higher by
Moody's or S&P, have assets of $1 billion or more and meet quality and credit
standards established by the Adviser. Generally, GICs are not assignable or
transferable without the permission of the issuing insurance companies, and an
active secondary market in GICs does not currently exist. Therefore, GICs are
considered by the Fund to be subject to the 10% limitation on illiquid
investments. Generally, a GIC allows a purchaser to buy an annuity with the
money accumulated under the contract; however, a Fund will not purchase any such
annuities.
Small Companies and Unseasoned Issuers. Small companies in which the Funds
may invest may have limited product lines, markets, or financial resources, or
may be dependent upon a small management group, and their securities may be
subject to more abrupt or erratic market movements than larger, more established
companies, both because their securities are typically traded in lower volume
and because the issuers are typically subject to a greater degree of change in
their earnings and prospects.
Companies in which the MicroCap and Small-Cap Core Equity Funds primarily
invest will include those that have limited product lines, markets, or financial
resources, or are dependent upon a small management group. In addition, because
these stocks are not well known to the investing public, do not have significant
institutional ownership, and are followed by relatively few securities analysts,
there will normally be less publicly available information concerning these
securities compared to what is available for the securities of larger companies.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, can decrease the value and liquidity of securities held by the Funds.
Historically small capitalization stocks have been more volatile in price than
larger capitalization stocks. Among the reasons for the greater price
volatility of these small company stocks are the less certain growth prospects
of smaller firms, the lower degree of liquidity in the markets for such stocks,
the greater sensitivity of small companies to changing economic conditions and
the fewer market makers and the wider spreads between quoted bid and asked
prices which exist in the over-the-counter market for such stocks. Besides
exhibiting greater volatility, small company stocks may, to a degree, fluctuate
independently of larger company stocks. Small company stocks may decline in
price as large company stocks rise, or rise in price as large company stocks
decline. Investors should therefore expect that the Funds will be more volatile
than, and may fluctuate independently of, broad stock market indices such as the
S&P 500 Index.
Securities of unseasoned companies, that is, companies with less than three
years of continuous operation, which present risks considerably greater than do
common stocks of more established companies, may be acquired from time to time
by the MidCap Core Equity Fund, Small-Cap Core Equity Fund, MicroCap Fund and
International Growth Fund when the Adviser or Sub-Adviser, respectively,
believes such investments offer possibilities of attractive capital
appreciation.
Each Fund may sell a portfolio investment soon after its acquisition if the
Adviser believes that such a disposition is consistent with attaining the
investment objective of the Fund. Portfolio investments may be sold for a
variety of reasons, such as a more favorable investment opportunity or other
circumstances bearing on the desirability of continuing to hold such
investments. A high rate of portfolio turnover (over 100%) may involve
correspondingly greater brokerage commission expenses and other transaction
costs, which must be borne directly by the Fund and ultimately by its
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
----------------------
Each Fund is subject to the investment limitations enumerated in this
subsection which may be changed with respect to a particular Fund only by a vote
of the holders of a majority of such Fund's outstanding shares (as defined under
"Miscellaneous" below).
No Fund may:
1. Make loans, except that a Fund may purchase and hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities in an amount
not exceeding 30% of its total assets.
2. Purchase securities of companies for the purpose of exercising
control.
3. Purchase or sell real estate or with respect to the International
Value Fund or International Growth Fund, real estate limited partnerships,
except that each Fund may purchase securities of issuers which deal in real
estate and may purchase securities which are secured by interests in real
estate.
4. Acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or acquisition
of assets or where otherwise permitted by the 1940 Act.
5. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as a Fund might be deemed to be an
underwriter upon the disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of securities directly from the issuer thereof in accordance with
the Fund's investment objective, policies and limitations may be deemed to be
underwriting.
6. Write or sell put options, call options, straddles, spreads, or any
combination thereof, except for transactions in options on securities, indices
of securities, futures contracts and options on futures contracts.
7. Purchase securities on margin, make short sales of securities or
maintain a short position (in an amount exceeding one-third of the Fund's net
assets, with respect to the MicroCap Fund), except that (a) this investment
limitation shall not apply to a Fund's transactions in futures contracts and
related options and, with respect to MicroCap Fund, short sales against the box,
and (b) a Fund may obtain short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities.
8. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs, except that each Fund may, to the
extent appropriate to its investment objective, purchase publicly traded
securities of companies engaging in whole or in part in such activities and may
enter into futures contracts and related options.
9. Purchase securities of any one issuer (other than securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, or more than 10% of
the issuer's outstanding voting securities would be owned by the Fund or the
Company, except that up to 25% of the value of the Fund's total assets may be
invested without regard to these limitations. For purposes of this limitation,
a security is considered to be issued by the entity (or entities) whose assets
and revenues back the security. A guarantee of a security shall not be deemed
to be a security issued by the guarantor when the value of all securities issued
and guaranteed by the guarantor, and owned by the Fund, does not exceed 10% of
the value of the Fund's total assets.
10. Purchase any securities which would cause 25% or more of the value
of the Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry; provided that, (a) with regard to the Non-Money Market
Funds except the Tax-Exempt Intermediate Bond Fund, there is no limitation with
respect to instruments issued or guaranteed by the United States, its agencies
or instrumentalities and repurchase agreements secured by such instruments; (b)
with regard to the Money Market Funds, there is no limitation with respect to
(i) instruments issued or guaranteed by the United States, any state, territory,
possession of the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions; (ii)
instruments issued by domestic branches of U.S. banks and (iii) repurchase
agreements secured by instruments described in clauses (i) and (ii); (c) with
regard to the Tax-Exempt Intermediate Bond Fund, there is no limitation with
respect to instruments issued or guaranteed by the United States, any state,
territory or possession of the United States, the District of Columbia or any of
their authorities, agencies, instrumentalities or political subdivisions and
repurchase agreements secured by such instruments with regard to all Funds; (d)
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 (e) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry.
11. Borrow money or issue senior securities, except that each Fund may
borrow from banks and enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of the total assets (one-third of the
value of the total assets, with respect to the MicroCap Fund) at the time of
such borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of the Fund's total assets (one-
third of the value of the total assets, with respect to the MicroCap Fund) at
the time of such borrowing. A Fund will not purchase securities while its
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding. The MicroCap Fund may not enter into reverse
repurchase agreements exceeding in the aggregate one-third of its total assets.
Securities held in escrow or separate accounts in connection with the Fund's
investment practices described in this SAI or in the Prospectus are not deemed
to be pledged for purposes of this limitation.
12. With respect to the Tax-Exempt Intermediate Bond Fund and Tax-Exempt
Money Market Fund, invest less than 80% of its net assets in securities the
interest on which is exempt from federal income tax except during defensive
periods or during unusual market conditions. For purposes of this fundamental
policy, municipal obligations that are subject to federal alternative minimum
tax are considered taxable.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
the Fund's portfolio securities will not constitute a violation of such
limitation. The Funds 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 amount of borrowings and reverse repurchase
agreements exceed the limit stated above, the Funds (except the MicroCap Fund)
will promptly reduce such amount. With respect to the MicroCap Fund, if due to
market fluctuations or other reasons, the total assets of the Fund fall below
300% of its borrowings, the Fund will reduce its borrowings in compliance with
the 1940 Act. Except as otherwise provided in Investment Restriction No. 10
above, for the purpose of such restriction, in determining industry
classification with respect to the International Value Fund and International
Growth Fund, the Company intends to use the Morgan Stanley Capital International
classification titles.
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. 3 under "Additional Investment
Limitations" as it relates to the Tax-Exempt Intermediate Bond Fund, real estate
shall include real estate mortgages. Although the foregoing investment
limitations would permit the U.S. Treasury Money Market Fund, U.S. Government
Money Market Fund, Tax-Exempt Money Market Fund and the Tax-Exempt Intermediate
Bond Fund to invest in options, futures contracts, options on futures contracts
and engage in securities lending, the Funds, during the current fiscal year, do
not intend to trade in such instruments (except that the Tax-Exempt Intermediate
Bond Fund may purchase put options on Municipal obligations as described in the
Prospectus) or lend portfolio securities. Prior to engaging in any such
transactions, each of the U.S. Treasury Money Market Fund, U.S. Government Money
Market Fund, Tax-Exempt Money Market Fund and the Tax-Exempt Intermediate Bond
Fund will provide its shareholders with notice and add any additional
descriptions concerning the instruments to the Prospectus and this SAI as may be
required. 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 each Fund is calculated separately for
the Institutional Shares, Y Shares, Retail A Shares and Retail B Shares by
adding the value of all portfolio securities and other assets belonging to the
particular Fund that are allocated to a particular series, subtracting the
liabilities charged to that series, and dividing the result by the number of
outstanding shares of that series. Assets belonging to a Fund consist of the
consideration received upon the issuance of shares of the particular Fund
together with all net investment income, realized gains/losses and proceeds
derived from the investment thereof, including any proceeds from the sale of
such investments, any funds or payments derived from any reinvestment of such
proceeds, and a portion of any general assets of the Company not belonging to a
particular investment portfolio. The liabilities that are charged to a Fund are
borne by each share of the Fund, except for certain payments under the Funds'
Distribution and Service Plans applicable only to the Retail A Shares and Retail
B Shares, and certain payments under the Funds' Shareholder Servicing Plans
applicable only to Y Shares, Retail A Shares, Retail B Shares (and Institutional
Shares of the Money Market Funds). Subject to the provisions of the Articles of
Incorporation, determinations by the Board of Directors as to the direct and
allocable liabilities, and the allocable portion of any general assets, with
respect to a particular Fund are conclusive.
The Company uses the amortized cost method of valuation to value each Money
Market Fund's portfolio securities, pursuant to which an instrument is valued at
its cost initially and thereafter a constant amortization to maturity of any
discount or premium is assumed, regardless of the impact of fluctuating interest
rates on the market value of the instrument. This method may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price a Fund would receive if it sold the instrument. The market value of
portfolio securities held by a Fund can be expected to vary inversely with
changes in prevailing interest rates.
Each Money Market Fund attempts to maintain a dollar-weighted average
portfolio maturity appropriate to its objective of maintaining a stable net
asset value per share. In this regard, except for securities subject to
repurchase agreements, each Fund will neither purchase a security deemed to have
a remaining maturity of more than thirteen months within the meaning of the 1940
Act nor maintain a dollar-weighted average maturity which exceeds 90 days. The
Board of Directors has also established procedures that are intended to
stabilize the net asset value per share of each Fund for purposes of sales and
redemptions at $1.00. These procedures include the determination, at such
intervals as the Directors deem appropriate, of the extent, if any, to which the
net asset value per share of each Fund calculated by using available market
quotations deviates from $1.00 per share. In the event such deviation exceeds
one-half of one percent, the Board will promptly consider what action, if any,
should be initiated. If the Board believes that the extent of any deviation
from a $1.00 amortized cost price per share may result in material dilution or
other unfair results to new or existing investors, it has agreed to take such
steps as it considers appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity; shortening the average
portfolio maturity; withholding or reducing dividends; redeeming shares in kind;
reducing the number of outstanding shares without monetary consideration; or
utilizing a net asset value per share determined by using available market
quotations.
Shares which are traded on a recognized domestic stock exchange are valued
at the last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
The value of a Fund's portfolio securities that are traded on stock exchanges
outside the United States are based upon the price on the exchange as of the
close of business of the exchange immediately preceding the time of valuation,
except when an occurrence subsequent to the time a value was so established is
likely to have changed such value. Exchange-traded securities for which there
were no transactions are valued on the average of the current bid and asked
prices for the International Value Fund and International Growth Fund and at the
current bid prices for the other Funds. Securities traded on only over-the-
counter markets are valued on the basis of closing over-the-counter bid prices.
Securities trading in over-the-counter markets in European and Pacific Basin
countries is normally completed well before 3:00 P.M. Central time. In
addition, European and Pacific Basin securities trading may not take place on
all business days. Furthermore, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days which are not business
days in New York and on which the net asset value of a Fund, including the
International Value Fund and International Growth Fund, is not calculated. The
calculation of the net asset value of a Fund, including the International Value
Fund and International Growth Fund, may not take place contemporaneously with
the determination of the prices of portfolio securities used in such
calculation. Events affecting the values of portfolio securities that occur
between the time their prices are determined and 3:00 P.M. Central time, and at
other times, may not be reflected in the calculation of net asset value of a
Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Computation of Offering Price of all Funds (except the Money Market
Funds). An illustration of the computation of the initial offering price per
share of the Retail A Shares based on the value of each such Fund's net assets
and number of outstanding securities at April 30, 2000, as follows:
Short-Term Intermediate Tax-Exempt Bond
Bond Bond Intermediate IMMDEX/TM
Fund Fund Bond Fund Fund
---- ---- --------- ----
Net Assets (000s)
Number of Shares
Outstanding (000s)
Net Asset Value
Per Share
Sales Charge, 4.00%
of offering price
(4.16% of net asset
value per share)
Public Offering Price
Growth
Balanced Balanced and Equity
Income Growth Income Index
Fund Fund Fund Fund
---- ---- ---- ----
Net Assets (000s)
Number of Shares
Outstanding (000s)
Net Asset Value
Per Share
Sales Charge, 5.50%
of offering price
(5.82% of net asset
value per share)
Public Offering Price
MidCap Small-Cap
MidCap Core Core
Index Growth Equity Equity MicroCap
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
Net Assets (000s) -
Number of Shares -
Outstanding (000s)
Net Asset Value -
Per Share
Sales Charge, 5.50% -
of offering price
(5.82% of net asset
value per share)
Public Offering Price -
International International
Value Growth
Fund Fund
---- ----
Net Assets (000s) -
Number of Shares -
Outstanding (000s)
Net Asset Value -
Per Share
Sales Charge, 5.50% -
of offering price
(5.82% of net asset
value per share)
Public Offering Price -
Shares of each Fund described in this SAI are sold without a sales charge
imposed by the Company, although Shareholder Organizations or Institutions may
be paid by the Company for advertising, distribution, or shareholder services.
Depending on the terms of the particular account, Shareholder Organizations may
charge their customers fees for automatic investment, redemption and other
services provided. Such fees may include, for example, account maintenance fees,
compensating balance requirements or fees based upon account transactions,
assets or income. Shareholder Organizations are responsible for providing
information concerning these services and any charges to any customer who must
authorize the purchase of Fund shares prior to such purchase.
Investors redeeming shares by check generally will be subject to the same
rules and regulations that the transfer agent applies to checking accounts,
although the election of this privilege creates only a shareholder-transfer
agent relationship with the transfer agent. Because dividends on each Fund
accrue daily, checks may not be used to close an account, as a small balance is
likely to result.
The Company's Articles of Incorporation permit a Fund to redeem an account
involuntarily, upon sixty days' notice, if redemptions cause the account's net
asset value to remain at less than $1000.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment for shares during any period when (a) trading on
the Exchange is restricted by applicable rules and regulations of the SEC; (b)
the Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC. (The Funds may also suspend or postpone the recording
of the transfer of their shares upon the occurrence of any of the foregoing
conditions.)
The Company has filed an election pursuant to Rule 18f-1 under the 1940
Act which provides that each portfolio of the Company is obligated to redeem
shares solely in cash up to $250,000 or 1% of such portfolio's net asset value,
whichever is less, for any one shareholder within a 90-day period. Any
redemption beyond this amount may be made in proceeds other than cash.
In addition to the situations described in the Funds' Prospectus under
"Redemption of Shares," the Funds may redeem shares involuntarily when
appropriate under the 1940 Act, such as to reimburse the Funds 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.
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 and B below
will be made on the basis of the relative net asset values per share of the
Funds included in the transaction.
A. Institutional Shares of any Fund may be exchanged for Institutional
Shares of any other Fund.
B. Y Shares of any Fund may be exchanged for Y Shares of any other Fund.
Y Shares of any Fund may be exchanged for Retail A Shares of a Money Market
Fund.
Except as stated above, a sales load will be imposed when shares of any
Fund that were purchased or otherwise acquired without a sales load are
exchanged for Retail A Shares of another Fund which are sold with a sales load.
Retail A Shares of any 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 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 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.
For federal income tax purposes, share exchanges are treated as sales on
which the shareholder may realize a gain or loss, depending upon whether the
value of the shares to be given up in exchange is more or less than the basis in
such shares at the time of the exchange. Investors exercising the exchange
privilege should request and review the prospectus for the shares to be acquired
in the exchange prior to making an exchange.
Retirement Plans: Y, Shares of the Funds
-----------------------------------------
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 Funds 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 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 Funds. 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 Y Shares
-------------------------------------------------------------------
The Y Shares of the Funds offer a Periodic Investment Plan whereby a
shareholder may automatically make purchases of shares of a 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 Y Shares. The Periodic Investment Plan must be
implemented with a financial institution that is a member of the Automated
Clearing House. No service fee is currently charged by a Fund for participation
in the Periodic Investment Plan. A $20 fee will be imposed by the transfer agent
if sufficient funds are not available in the 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 Y 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 Y Shares
to be purchased during periods of lower Y Share prices and fewer Y Shares to be
purchased during periods of higher Y 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 Y 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 Y 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 Y Shares of the Funds 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 Y Shares of the Firstar
family of funds, as the case may be. Such proceeds include dividend
distribution, capital gain distributions and systematic withdrawals.
ConvertiFund/R transactions may be used to invest funds from a regular account
to another regular account, from a qualified plan account to another qualified
plan account, or from a qualified plan account to a regular account.
The Y Shares of the Funds offer shareholders a Systematic Withdrawal Plan,
which allows a shareholder who owns shares of a 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 a Fund may, in the discretion of the Fund, be made
in the form of securities that are permissible investments for the Fund as
described in its Prospectus. For further information about this form of
payment, contact Investor Services at 1-800-677-FUND. In connection with an
in-kind securities payment, a Fund will require, among other things, that the
securities be valued on the day of purchase in accordance with the pricing
methods used by the Fund; that the Fund receive satisfactory assurances that it
will have good and marketable title to the securities received by it; that the
securities be in proper form for transfer to the Fund; that adequate information
be provided to the Fund concerning the basis and other tax matters relating to
the securities; and that the amount of the purchase be at least $1,000,000.
DESCRIPTION OF SHARES
The Company's Articles of Incorporation authorize the Board of Directors
to issue up to 150,000,000,000 full and fractional shares of common stock,
$.0001 par value per share, which is divided into thirty classes (each, a
"class" or "fund"). Each class of the Money Market Funds is divided into two
series designated as Institutional Shares and Retail A Shares, and each non-
Money Market Fund is divided into four series designated as Institutional
Shares, Y Shares, Retail A Shares and Retail B Shares (each, a "Series") and
consists of the number of shares set forth next to its Fund name in the table
below:
Class-Series of Fund in which Stock Number of Authorized
Common Stock Represents Interest Shares in Each Series
--------------- -------------------- --------------------
1-Institutional Money Market 5 billion
1-A 5 billion
2-Institutional Tax-Exempt Money Market 5 billion
2-A 5 billion
3-Institutional U.S. Government Money Market 5 billion
3-A 5 billion
4-Institutional Institutional Money Market 5 billion
4-A 5 billion
5-Institutional U.S. Treasury Money Market 5 billion
5-A 5 billion
6-Institutional MidCap Core Equity 500 Million
6-Y 500 Million
6-A 500 Million
6-B 500 Million
7-Institutional Bond IMMDEX/TM 500 Million
7-Y 500 Million
7-A 500 Million
7-B 500 Million
8-Institutional Equity Index 500 Million
8-Y 500 Million
8-A 500 Million
8-B 500 Million
9-Institutional Growth and Income 500 Million
9-Y 500 Million
9-A 500 Million
9-B 500 Million
10-Institutional Short-Term Bond Market 500 Million
10-Y 500 Million
10-A 500 Million
10-B 500 Million
11-Institutional Balanced Growth 500 Million
11-Y 500 Million
11-A 500 Million
11-B 500 Million
12-Institutional Large-Cap Core Equity 500 Million
12-Y 500 Million
12-A 500 Million
12-B 500 Million
13-Institutional Intermediate Bond Market 500 Million
13-Y 500 Million
13-A 500 Million
13-B 500 Million
14-Institutional Tax-Exempt Intermediate Bond 500 Million
14-Y 500 Million
14-A 500 Million
14-B 500 Million
15-Institutional International Value 500 Million
15-Y 500 Million
15-A 500 Million
15-B 500 Million
16-Institutional MicroCap 50 Million
16-Y 50 Million
16-A 50 Million
16-B 50 Million
17-Institutional Balanced Income 100 Million
17-Y 100 Million
17-A 100 Million
17-B 100 Million
18-Institutional Small-Cap Core Equity 100 Million
18-Y 100 Million
18-A 100 Million
18-B 100 Million
19-Institutional MidCap Index 100 Million
19-Y 100 Million
19-A 100 Million
19-B 100 Million
20-Institutional International Growth 100 Million
20-Y 100 Million
20-A 100 Million
20-B 100 Million
23-Y Aggregate Bond 100 Million
23-Institutional 100 Million
23-A 100 Million
23-B 100 Million
22-Y U.S. Government Income 100 Million
22-Institutional 100 Million
22-A 100 Million
22-B 100 Million
24-Y National Municipal Bond 100 Million
24-Institutional 100 Million
24-A 100 Million
24-B 100 Million
The remaining authorized shares are classified into six additional classes
representing interests in other potential future investment portfolios of the
Company. The Directors may similarly classify or reclassify any particular
class of shares into one or more additional series.
In the event of a liquidation or dissolution of the Company or an
individual Fund, shareholders of a particular Fund would be entitled to receive
the assets available for distribution belonging to such Fund, and a
proportionate distribution, based upon the relative assets of the Company's
respective investment portfolios, of any general assets not belonging to any
particular portfolio which are available for distribution. Subject to the
allocation of certain costs, expenses, charges and reserves attributed to the
operation of a particular series as described in the Funds' Prospectus,
shareholders of a Fund are entitled to participate equally in the net
distributable assets of the particular Fund involved on liquidation, based on
the number of shares of the Fund that are held by each shareholder.
Shareholders of each class of the Funds are entitled to one vote for each
full share held and proportionate fractional votes for fractional shares held.
Shareholders of the Funds, as well as those of any other investment portfolio
offered by the Company, will vote together in the aggregate and not separately
on a portfolio-by -portfolio basis, except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a particular class or a particular series
within a class. Rule 18f-2 under the 1940 Act provides that any matter required
to be submitted to the holders of the outstanding voting securities of an
investment company such as the Company shall not be deemed to have been
effectively acted upon unless approved by the 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 a Fund (such as a Distribution and Service Plan
applicable to Retail A or B Shares) but not the other series of the same Fund,
only the affected series will be entitled to vote. Each Retail Share of a Fund
represents an equal proportionate interest with other Retail Shares in that
Fund. Shares are entitled to such dividends and distributions earned on its
assets as are declared at the discretion of the Board of Directors. Shares of
the Funds do not have preemptive rights.
When issued for payment as described in the Funds' Prospectus and this
SAI, shares of the Funds will be fully paid and non-assessable by the Company,
except as provided in Section 180.0622(2)(b) of the Wisconsin Business
Corporation Law, as amended, which in general provides for personal liability on
the part of a corporation's 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
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute out its income to
shareholders each year, so that the Fund itself generally will be relieved of
federal income and excise taxes. If a Fund were to fail to so qualify: (1) the
Fund would be taxed at regular corporate rates without any deduction for
distributions to shareholders; and (2) shareholders would be taxed as if they
received ordinary dividends, although corporate shareholders could be eligible
for the dividends received deduction.
The Tax Exempt Intermediate Bond Fund and Tax-Exempt Money Market Fund
intend to invest all or substantially all, of each Fund's assets in debt
obligations, the interest on which is exempt for federal income tax purposes.
For each Fund to pay tax-exempt dividends for any taxable year, at least 50% of
the aggregate value of the Fund's assets at the close of each quarter of the
Fund's taxable year must consist of exempt-interest obligations.
The Tax-Exempt Intermediate Bond Fund is designed to provide investors with
current tax-exempt interest income. The Fund is not intended to constitute a
balanced investment program and is not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Fund may not be suitable for tax-exempt institutions,
or for retirement plans qualified under Section 401 of the Internal Revenue Code
of 1986 (the "Code"), H.R. 10 plans and individual retirement accounts because
such plans and accounts are generally tax-exempt and, therefore, not only would
not gain any additional benefit from the Fund's dividends being tax-exempt, but
such dividends ultimately would be taxable to the beneficiaries when distributed
to them. In addition, the Fund may not be an appropriate investment for
entities which are "substantial users" of facilities financed by private
activity bonds or "related persons" thereof. "Substantial user" is defined
under U.S. Treasury Regulations to include a non-exempt person who regularly
uses a part of such facilities in his trade or business and whose gross revenues
derived with respect to the facilities financed by the issuance of bonds are
more than 5% of the total revenues derived by all users of such facilities, who
occupies more than 5% of the usable area of such facilities, or for whom such
facilities, or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S Corporation and its
shareholders.
The tax principles applicable to transactions in financial instruments and
futures contracts and options that may be engaged in by the International Growth
Fund and the International Value Fund, and investments in passive foreign
investment companies ("PFICs"), are complex and, in some cases, uncertain. Such
transactions and investments may cause the International Growth Fund and the
International Value 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.
In addition, in the case of any shares of a PFIC in which the
International Growth Fund or the International Value Fund invests, the Fund may
be liable for corporate-level tax on any ultimate gain or distributions on the
shares if the Fund fails to make an election to recognize income annually during
the period of its ownership of the shares.
MANAGEMENT OF THE COMPANY
The business and affairs of the Funds are managed under the direction of
the Board of Directors of the Company. The Board is responsible for acting on
behalf of the 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
----------------------------------------------------------------------------
James M. Wade Chairman of Vice President and Chief Financial
2802 Wind Bluff Officer, Johnson Controls, Inc. (a
Circle controls manufacturing company),
Wilmington, NC 28409
Age: 56
Glen R. Bomberger Director Executive Vice President, Chief
One Park Plaza Financial Officer and Director, A.O.
11270 West Park Place Smith Corporation (a diversified
Milwaukee, WI 53224- manufacturing company) since January
3690 1987; Director of companies
Age: 62 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
16650A Lake Circle Financial Officer of Wisconsin
Brookfield, WI 53005 Energy Corporation 1994-1996;
Age: 68 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: 55 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 Financial Officer and Secretary,
Court Rexnord Corporation (an equipment
Elm Grove, WI 53122 manufacturing company), 1988 - 1992;
Age: 69 Vice President - Finance and
Administration, Rexnord Inc., 1982 -
1988; Officer and Director of
several Rexnord subsidiaries until
1992.
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: 55 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.
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
W. Bruce McConnel, III Secretary Partner of the law firm of Drinker
One Logan Square Biddle & Reath LLP.
18th & Cherry Streets
Philadelphia, PA
19103
Age: 56
Laura J. Rauman Vice President Vice President of Operations,
777 E. Wisconsin FIRMCO since 1995; Senior Auditor,
Avenue, Price Waterhouse, LLP, prior
Suite 800 thereto.
Milwaukee, WI 53202
Age: 31
Joseph C. Neuberger 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.
<F1> Mr. Haase and Mr. Laning are considered by the Company to be "interested
persons" of the Company as defined in the 1940 Act.
The following chart provides certain information about the Director fees
for the year ended October 31, 1999 of the Company's Directors.
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM
BENEFITS ESTIMATED COMPANY
AGGREGATE ACCRUED AS ANNUAL AND FUND
COMPENSATION PART OF BENEFITS COMPLEX<F1>
NAME OF FROM THE FUND UPON PAID TO
PERSON/POSITION COMPANY EXPENSES RETIREMENT DIRECTORS
--------------- ----------- --------- ---------- ------------
James M. Wade $18,500 $0 $0 $
Chairman of the
Board
Glen R. Bomberger $15,000<F2> $0 $0 $
Director
Jerry G. Remmel $15,000 $0 $0 $
Director
Richard K. Riederer $15,000 $0 $0 $
Director
Charles R. Roy $15,000 $0 $0 $
Director
Bronson J. Haase $15,000 $0 $0 $
Director
<F1> The "Fund Complex" includes only the Company. The Company is comprised of
20 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 the date of this SAI, the Directors and Officers of the Company,
as a group, owned less than 1% of the outstanding shares of each Fund.
Directors, employees, retirees and their families of Firstar Corporation
or its affiliates are exempt and do not have to pay front-end sales charges
(provided the status of the investment is explained at the time of investment)
on purchases of Retail A Shares. These exemptions to the imposition of a front-
end sales charge are due to the nature of the investors and/or the reduced sales
efforts that will be needed in obtaining such investments.
Advisory Services
------------------
FIRMCO became the investment adviser to the U.S. Treasury Money Market
Fund, U.S. Government Money Market Fund, Tax-Exempt Money Market Fund, Short-
Term Bond Market Fund, MidCap Core Equity Fund, Bond IMMDEX/TM Fund and Equity
Index Fund as of February 3, 1992 and became the investment adviser to the
Growth and Income Fund effective June 17, 1993. Prior thereto, investment
advisory services were provided by Firstar Trust Company, an affiliate of
FIRMCO. FIRMCO is also the investment adviser to the Large-Cap Core Equity
Fund, Intermediate Bond Fund, Balanced Income Fund, Balanced Growth Fund, Tax-
Exempt Intermediate Bond Fund, Small-Cap Core Equity Fund, MicroCap Fund, MidCap
Index Fund, International Value Fund and International Growth Fund. In its
Investment Advisory Agreement, the Adviser has agreed to pay all expenses
incurred by it in connection with its advisory activities, other than the cost
of securities and other investments, including brokerage commissions and other
transaction charges, if any, purchased or sold for the Funds.
In addition to the compensation stated in the Prospectus, the Adviser is
entitled to 4/10ths of the gross income earned by each Fund on each loan of its
securities, excluding capital gains or losses, if any. Pursuant to current
policy of the SEC, the Adviser does not intend to receive compensation for such
securities lending activity. The Adviser may voluntarily waive advisory fees
otherwise payable by the Funds.
For the services provided and expenses assumed by the Adviser under its
Investment Advisory Agreement in effect for the fiscal years ended October 31,
1999, 1998 and1997, the Adviser was paid and waived advisory fees as follows:
<TABLE>
<CAPTION>
Net Advisory Fees Paid (Advisory Fees Waived)
---------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
U.S. Treasury Money Market Fund $519,416 (15,375) $313,106 (74,162) $264,236 (69,017)
U.S. Government Money Market Fund 1,248,897 (6,821) 904,397 (81,346) 933,618 (50,816)
Tax-Exempt Money Market Fund 678,369 (14,071) 454,275 (88,110) 384,622 (72,448)
Short-Term Bond Fund 675,262 (542,291) 550,921 (528,964) $669,603 (605,038)
MidCap Core Equity Fund 4,187,456 (31,109) 5,243,173 (24) 5,168,254 (0)
Bond IMMDEX/TM Fund 1,577,620 (800) 1,551,355 (0) 1,294,766 (0)
Equity Index Fund 1,248,658 (394,242) 1,076,720 (179,779) 815,050 (0)
Intermediate Bond Fund 1,165,094 (421,858) 1,080,528 (410,430) 778,669 (345,403)
Large-Cap Core Equity Fund 2,378,404 (3,010) 1,663,048 (72) 1,470,245 (2,052)
Balanced Growth Fund 1,796,430 (156,173) 1,345,543 (403,169) 1,056,380 (334,926)
Growth and Income Fund 5,581,009 (5,771) 4,513,188 (0) 3,086,069 (45)
Tax-Exempt Intermediate Bond Fund 319,104 (164,330) 217,113 (207,408) 109,101 (176,855)
International Value Fund 558,117 (142,472) 641,868 (219,464) 422,050 (370,710)
Small-Cap Core Equity Fund 938,829 (25,818) 365,419 (135,525) 46,258 (28,226)<F1>
Balanced Income Fund 230,911 (147,908) 60,206 (177,189)<F2>
MicroCap Fund 1,941,648 (928) 1,685,137 (2,576) 1,318,931 (33)
</TABLE>
<F1> From inception (August 15, 1997) to October 31,1997.
<F2> From inception (December 1,1997) to October 1,1998.
Under its Investment Advisory Agreement, the Adviser is not liable for any
error of judgment or mistake of law or for any loss suffered by the Funds in
connection with the performance of such Agreement, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its duties or from
its reckless disregard of its duties and obligations under the Agreement.
With regard to the International Value Fund and International Growth Fund,
under the Investment Advisory Agreements, the Adviser is authorized to delegate
its responsibilities to another adviser. The Adviser has appointed Hansberger
Global Investors, Inc. as Sub-Adviser to the International Value Fund and The
Glenmede Trust Company as Sub-Adviser to the International Growth Fund. The
Sub-Adviser determines the securities to be purchased, retained or sold by the
respective Fund. See "Sub-Advisers" below.
Sub-Advisers. The International Value Fund receives sub-advisory services
from Hansberger Global Investors, Inc. ("HGI"). Under the terms of the Sub-
Advisory Agreement between the Adviser and HGI, HGI furnishes investment
advisory and portfolio management services to the International Value Fund with
respect to its investments. HGI is responsible for decisions to buy and sell
the International Value Fund's investments and all other transactions related to
investment therein. HGI negotiates brokerage commissions and places orders of
purchases and sales of the International Value Fund's portfolio securities.
During the term of the Sub-Advisory Agreement, HGI will bear all expenses
incurred by it in connection with its services under such agreement.
The International Growth Fund receives sub-advisory services from The
Glenmede Trust Company ("Glenmede"). Under the terms of the Sub-Advisory
Agreement between the Adviser and Glenmede, Glenmede furnishes investment
advisory and portfolio management services to the International Growth Fund with
respect to its investments. Glenmede is responsible for decisions to buy and
sell the International Growth Fund's investments and all other transactions
related to investment therein. Glenmede negotiates brokerage commissions and
places orders of purchases and sales of the International Growth Fund's
portfolio securities. During the term of the Sub-Advisory Agreement, Glenmede
will bear all expenses incurred by it in connection with its services under such
agreement.
At a meeting of the Firstar Board of Directors ("Firstar Board") on
_______, 2000, the Adviser recommended, and the Firstar Board unanimously
approved, the reorganization of the mutual fund portfolios of Mercantile Mutual
Funds, Inc. into the corresponding portfolio of the Company. As part of the
reorganization, the International Equity Portfolio of Mercantile Mutual Funds,
Inc. will be reorganized into the International Growth Fund.
In conjunction with the reorganization, the Adviser also recommended the
hiring of Clay Finlay - the current sub-adviser to the Mercantile International
Equity Portfolio - to provide sub-advisory services to the Firstar International
Growth Fund. The hiring of Clay Finlay is contingent upon the approval of a new
sub-advisory agreement by the Fund's shareholders at a meeting scheduled to be
held on _______, 2000. If approved, the Adviser anticipates that Clay Finlay
will begin serving as the new sub-adviser on or around ________, 2000.
Pursuant to the Sub-Advisory Agreements, in the absence of willful
misfeasance, bad faith or gross negligence on the part of the Sub-Adviser or
reckless disregard of its obligations and duties thereunder, or loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation for
services, the Sub-Adviser will not be subject to any liability to the Adviser,
the International Value Fund, International Growth Fund or the Company, or to
any shareholder of the International Value Fund, International Growth Fund or
the Company, for any act or omission in the course of, or connected with,
rendering services under the Sub-Advisory Agreements. See "Banking Laws and
Regulations" below for information regarding certain banking laws and
regulations and their applicability to the Sub-Adviser and services under the
Sub-Advisory agreements.
Prior to September 2, 1997, State Street Bank and Trust Company served as
sub-adviser to the International Value Fund. For the services provided under the
sub-advisory agreements in effect for the fiscal years ended October 31, 1999,
1998 and 1997, HGI and State Street Bank and Trust Company were paid and waived
sub-advisory fees as follows:
Net Sub-Advisory Fees Paid (Sub-Advisory Fees Waived)
1999 1998 1997
---- ---- ----
International Value Fund $318,983 (0) $381,819 (0) $227,372 (0)
The International Growth Fund had not commenced operations on October 31,
1999.
REGULATORY MATTERS. Conflict of interest restrictions may apply to the
receipt of compensation paid pursuant to a Servicing Agreement by a Fund to a
financial intermediary in connection with the investment of fiduciary funds in a
Funds' 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 Funds are not bank deposits, are neither endorsed by,
insured by, or guaranteed by, obligations of, nor otherwise supported by the
FDIC, the Federal Reserve Board, Firstar Bank, N.A. or FIRMCO, their affiliates
or any other bank, or any other governmental agency. An investment in the Funds
involves risks including possible loss of principal.
Administration and Distribution Services
-----------------------------------------
Firstar Trust Company became a Co-Administrator to the Funds on September
1, 1994, and assigned its rights and obligations to Firstar Mutual Fund
Services, LLC on October 1, 1998, and B. C. Ziegler and Company ("Ziegler")
became a Co-Administrator to the Funds on January 1, 1995. Under the Co-
Administration Agreement, the following administrative services are provided
jointly by the Co-Administrators: assist in maintaining office facilities,
furnish clerical services, stationery and office supplies; monitor the company's
arrangements with respect to services provided by Shareholder Organizations and
Institutions; and generally assist in the Funds' operations. The following
administrative services are provided by Ziegler: review and comment upon the
registration statement and amendments thereto prepared by Firstar Mutual Fund
Services, LLC or counsel to the Company, as requested by Firstar Mutual Fund
Services, LLC; review and comment upon sales literature and advertising relating
to the Company, as requested by Firstar Mutual Fund Services, LLC; assist in the
administration of the marketing budget; periodically review Blue Sky
registration and sales reports for the Funds; attend meetings of the Board of
Directors, as requested by the Board of Directors of the Company; and such other
services as may be requested in writing and expressly agreed to by Ziegler. The
following administrative services are provided by Firstar Mutual Fund Services,
LLC: compile data for and prepare, with respect to the Funds, timely Notices to
the SEC required pursuant to Rule 24f-2 under the 1940 Act and Semi-Annual
Reports to the SEC and current 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 Funds;
monitor each Fund's expense accruals and cause all appropriate expenses to be
paid on proper authorization from each Fund; monitor each Fund's status as a
regulated investment company under Subchapter M of the Code; maintain each
Fund's fidelity bond as required by the 1940 Act; and monitor compliance with
the policies and limitations of each Fund as set forth in the Prospectus, SAI,
By-laws and Articles of Incorporation.
The Co-Administrators are entitled to receive a fee for their
administrative services, computed daily and payable monthly, at the annual rate
of 0.125% of the Company's first $2 billion of average aggregate daily net
assets, plus 0.10% of the Company's average aggregate daily net assets in excess
of $2 billion. The Co-Administrators may voluntarily waive all or a portion of
their administrative fee from time to time. These waivers may be terminated at
any time at the Co-Administrators' discretion.
Each of the Co-Administrators has agreed to pay all expenses incurred by
it in connection with its administrative activities. Under the Co-
Administration Agreement, the Co-Administrators are not liable for any error of
judgment or mistake of law or for any loss suffered by the Funds in connection
with the performance of the Co-Administration Agreement, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the Co-
Administrators in the performance of their respective duties or from their
reckless disregard of their duties and obligations under the Agreement.
The Distributor provides distribution services for each Fund as described
in the Funds' Prospectus pursuant to a Distribution Agreement with the Funds
under which the Distributor, as agent, sells shares of each Fund on a continuous
basis. The Distributor has agreed to use its best efforts to solicit orders for
the sale of shares, although it is not obliged to sell any particular amount of
shares. The Distributor causes expenses to be paid for the cost of printing and
distributing prospectuses to persons who are not shareholders of the Funds
(excluding preparation and printing expenses necessary for the continued
registration of the Funds' shares) and of printing and distributing all sales
literature. For the fiscal years ended October 31, 1999, 1998 and 1997, Ziegler
received no fees for its distribution services.
For its administrative services for the fiscal years ended October 31,
1999, 1998 and 1997, the Co-Administrators were paid and waived the following
administrative fees:
<TABLE>
<CAPTION>
Net Administration Fees Paid (Administration Fees Waived)
---------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
U.S. Treasury Money Market Fund $102,983 (12,042) $29,747 (54,772) $25,971 (48,185)
U. S. Government Money Market Fund 239,801 (30,215) 75,209 (139,922) 77,457 (141,599)
Tax-Exempt Money Market Fund 133,293 (15,624) 41,065 (77,310) 35,787 (65,920)
Short-Term Bond Fund 196,764 (24,546) 69,432 (126,882) 86,550 (149,862)
MidCap Core Equity Fund 528,380 (78,076) 269,375 (492,978) 245,929 (521,369)
Bond IMMDEX/TM Fund 495,763 (70,052) 200,288 (364,601) 167,223 (318,234)
Equity Index Fund 633,693 (72,866) 195,703 (353,692) 134,156 (229,162)
Intermediate Bond Fund 304,583 (39,645) 115,423 (210,207) 79,413 (171,118)
Large-Cap Core Equity Fund 312,797 (31,157) 85,845 (156,347) 71,750 (146,715)
Balanced Income Fund 49,835 (5,686) 12,498 (22,106)<F2>
Balanced Growth Fund 250,967 (31,982) 90,542 (164,087) 73,298 (133,271)
Growth and Income Fund 724,594 (87,590) 233,865 (423,689) 171,898 (286,778)
Tax-Exempt Intermediate Bond Fund 93,040 (12,419) 32,957 (59,803) 22,619 (41,122)
International Value Fund 48,844 (6,041) 24,861 (44,829) 20,840 (38,741)
MicroCap Fund 127,042 (12,611) 43,380 (79,285) 29,709 (68,284)
Small-Cap Core Equity Fund 129,042 (9,235) 26,045 (46,986) 3,488 (7,567)<F1>
</TABLE>
The Mid Cap Index Fund and International Growth Fund had not commenced
operations on October 31, 1999.
<F1> From inception (August 15, 1997) to October 31, 1997.
<F2> From inception (December 1,1997) to October 31, 1998.
Shareholder Organizations
-------------------------
Institutional and Y Shares
As stated in the Funds' Prospectus the Funds intend 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 Institutional Shares of the Money Market Funds and Y Shares
of the Non-Money Market Funds. Under the agreements, the Funds may pay
Shareholder Organizations up to 0.25% (on an annualized basis) of the average
daily net asset value of Institutional Shares or 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 Institutional Shares or Y Shares, as applicable, which has been
adopted by the Board of 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. serves as custodian of all the Funds' assets. Under
the Custody Agreement, Firstar Bank, N.A. has agreed to (i) maintain a separate
account in the name of each Fund, (ii) make receipts and disbursements of money
on behalf of each Fund, (iii) collect and receive all income and other payments
and distributions on account of each Fund's portfolio investments, (iv) respond
to correspondence from shareholders, security brokers and others relating to its
duties and (v) make periodic reports to the Company concerning each Fund's
operations. Firstar Bank, N.A. may, at its own expense, open and maintain a
custody account or accounts on behalf of each Fund with other banks or trust
companies, provided that Firstar Bank, 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. The
Chase Manhattan Bank performs certain foreign custodial services related to the
International Value Fund and International Growth Fund.
Firstar Mutual Fund Services, LLC, 615 East Michigan Street, Milwaukee,
Wisconsin 53202, serves as transfer agent and dividend disbursing agent for each
Fund under a 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 Funds, (ii) make dividend and other distributions to
shareholders of the Funds, (iii) respond to correspondence by Fund shareholders
and others relating to its duties, (iv) maintain shareholder accounts, and (v)
make periodic reports to the Funds. For its transfer agency and dividend
disbursing services, Firstar Mutual Fund Services, LLC is entitled to receive a
fee at the rate of $15.00 per shareholder account with an annual minimum of
$24,000 per Fund, plus a 0.01% asset - based fee, and certain other transaction
charges and reimbursement for expenses.
In addition, all of the Funds have entered into a Fund Accounting
Servicing Agreement with Firstar Mutual Fund Services, LLC pursuant to which
Firstar Mutual Fund Services, LLC has agreed to maintain the financial accounts
and records of the Funds in compliance with the 1940 Act and to provide other
accounting services to the Funds. For its accounting services, Firstar Mutual
Fund Services, LLC is entitled to receive fees, payable monthly, at the
following annual rates of the market value of each Fund's assets: U.S. Treasury
Money Market, and U.S. Government Money Market Funds--$39,000 on the first $100
million, 0.01% on the next $200 million, and 0.005% on the balance, plus out-of-
pocket expenses, including pricing expenses; and Tax-Exempt Money Market Fund--
$39,000 on the first $100 million, 0.02% on the next $200 million, and 0.01% on
the balance, plus out-of-pocket expenses, including pricing expenses; Balanced
Income Fund and Balanced Growth Fund -- $49,500 on the first $100 million,
0.0225% on the next $200 million, and 0.015% on the balance, plus out of pocket
expenses, including pricing expenses; Growth and Income Fund, Equity Index
Fund, Large-Cap Core Equity Fund, MidCap Index Fund, MidCap Core Equity Fund,
Small-Cap Core Equity Fund, MicroCap Fund -- $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; and Short-Term Bond Market Fund,
Intermediate Bond Market Fund, Tax-Exempt Intermediate Bond Fund, Bond IMMDEX/TM
Fund, International Value Fund and International Growth Fund -- $58,500 on the
first $100 million, 0.03% on the next $200 million, 0.015% on the balance, plus
out-of-pocket expenses, including pricing expenses.
EXPENSES
Operating expenses of the Funds include taxes, interest, fees and expenses
of Directors and officers, SEC fees, state securities and qualification fees,
advisory fees, administrative fees, Shareholder Organization fees, charges of
the custodian and transfer agent, dividend disbursing agent and accounting
services agent, certain insurance premiums, auditing and legal expenses, costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to shareholders, costs of shareholder reports and meetings,
membership fees in the Investment Company Institute, and any extraordinary
expenses. The Funds also pay any brokerage fees, commissions and other
transactions charges (if any) incurred in connection with the purchase or sale
of portfolio securities.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Pricewaterhouse Coopers LLP, independent accountants, 100 East Wisconsin
Avenue, Suite 1500, Milwaukee, Wisconsin 53202, serve as auditors for the
Company. The Company's Annual Report to Shareholders with respect to the Funds
for the fiscal year ended October 31, 1999 has been filed with the SEC. The
financial statements, notes thereto, and Report of Independent Accountants
in such Annual Report (the "Financial Statements") are incorporated by
reference into this Statement of Additional Information. The Financial
Statements in such Annual Report have been incorporated herein by reference
in reliance upon such report given upon the authority of such firm as experts
in accounting and auditing. The Financial Statement in the Semi-Annual Report
for the period ended April 30, 2000 has also been incorporated herein by
reference.
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 Funds' Prospectus.
YIELD AND OTHER PERFORMANCE INFORMATION
Money Market Funds
------------------
From time to time each Fund may quote its "yield" and "effective yield,"
and the Tax-Exempt Money Market Fund may also quote its "tax-equivalent yield,"
in advertisements or in communications to shareholders. Each yield figure is
based on historical earnings and is not intended to indicate future performance.
The "yield" of a Fund refers to the income generated by an investment in the
Fund over a seven-day period identified in the advertisement. This income is
then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment. The
"yield" and "effective yield" of each Fund are calculated according to formulas
prescribed by the SEC. The standardized seven-day yield for each Fund is
computed separately by determining the net change, exclusive of capital changes
and income other than investment income, in the value of a hypothetical pre-
existing account in the particular Fund involved having a balance of one share
at the beginning of the period, dividing the net change in account value by the
value of the account at the beginning of the base period to obtain the base
period return, and multiplying the base period return by (365/7). The net
change in the value of an account in a Fund includes the value of additional
shares purchased with dividends from the original share, and dividends declared
on both the original share and any such additional shares and all fees, other
than nonrecurring account sales charges, that are charged to all shareholder
accounts in proportion to the length of the base period and the Fund's average
account size. The capital changes to be excluded from the calculation of the
net change in account value are realized gains and losses from the sale of
securities and unrealized appreciation and depreciation. The effective
annualized yield for each Fund is computed by compounding a particular Fund's
unannualized base period return (calculated as above) by adding 1 to the base
period return, raising the sum to a power equal to 365 divided by 7, and
subtracting one from the result. The fees which may be imposed by financial
intermediaries directly on their customers for cash management services are not
reflected in the Company's calculations of yields for the Funds.
The "tax-equivalent yield" of the Tax-Exempt Money Market Fund shows the
level of taxable yield needed to produce an after-tax equivalent to the Fund's
tax-free yield. This is done by increasing the Fund's yield (calculated as
above) by the amount necessary to reflect the payment of federal income tax at a
stated tax rate. The Fund's standardized "tax-equivalent yield" is computed by:
(a) dividing the portion of the Fund's yield (as calculated above) that is
exempt from federal income tax by one minus a stated federal income tax rate;
and (b) adding the figure resulting from (a) above to that portion, if any, of
the Fund's yield that is not exempt from federal income tax. The "tax-
equivalent yield" will always be higher than the "yield" of the Tax-Exempt Money
Market Fund.
Each Fund may compute "average annual total return." Average annual total
return reflects the average annual percentage change in value of an investment
in shares of a series over the measuring period. Each Fund may compute
aggregate total return, which reflects the total percentage change in value over
the measuring period.
Additionally, the total returns and yields of the Funds may be compared in
publications to those of other mutual funds with similar investment objectives
and to other relevant indices, 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 yields of the U.S. Treasury Money Market
Fund and the U.S. Government Money Market Fund may be compared to the Donoghue's
Government Money Fund Average, and the yields of the Tax-Exempt Money Market
Fund may be compared to the Donoghue's Tax-Free Money Fund Average, which are
averages compiled by IBC/Donoghue's Money Fund Report, a widely recognized
independent publication that monitors the performance of money market funds. In
addition, the yields of the U.S. Treasury Money Market and the U.S. Government
Money Market Funds may be compared to the average yields reported by the Bank
Rate Monitor for money market deposit accounts offered by the 50 leading banks
and thrift institutions in the top five standard metropolitan statistical areas.
Yield data and total return as reported in national financial publications
including Money Magazine, Forbes, Barron's, Morningstar Mutual Funds, The Wall
Street Journal, Mutual Funds Magazine, Kiplingers Personal Finance and The New
York Times, or in publications of a local or regional nature, may also be used
in comparing the yields of the Funds.
Since performance fluctuates, performance data cannot necessarily be used
to compare an investment in a Fund's shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Investors should remember that
performance and yield are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any fees charged by Shareholder Organizations directly to
their customer accounts in connection with investments in shares of the Funds
will not be included in the Funds' calculations of yield and total return.
The current yield for each of the Money Market Funds may be obtained by
calling Firstar Mutual Fund Services, LLC at 1-800-677-FUND. Institutional
Shares are new. Retail A Shares of the Money Market Fund would have a
substantially similar yield because the shares are invested in the same
portfolio of securities and yield will only differ to the extent the
Institutional Shares do not have the same expenses. For the seven-day period
ended April 30, 2000, the annualized yields of the Retail A Shares U.S. Treasury
Money Market Fund, U.S. Government Money Market Fund and Tax-Exempt Money Market
Fund were _____%, ____% and ___%, respectively. Without fees waived by the
Adviser and Co-Administrators during such period, the annualized yields of such
Funds would have been 4.11%, 4.60% and 2.66%, respectively. For the seven-day
period ended April 30, 2000, the effective yields of the U.S. Treasury Money
Market Fund, U.S. Government Money Market Fund and Tax-Exempt Money Market Fund
were ____%, ____% and ____%, respectively. Without fees waived by the Adviser
and Co-Administrators during such period, the effective yields of such Funds
would have been ____%, ____% and ____%, respectively. For the seven-day period
ended April 30, 2000, the tax-equivalent yield of the Tax-Exempt Money Market
Fund was ____% (assuming a federal income tax rate of 31%).
Yield Calculations: Bond Funds
------------------------------
Yield is computed based on the net income of a series of shares of a Bond
Fund during a 30-day (or one-month) period, which will be identified in
connection with the particular yield quotation, more specifically, the yield of
a series of shares is calculated by dividing the net investment income per share
for that series (as described below) earned during a 30-day (or one-month)
period by the net asset value per share for that series (including the maximum
front end sales charge of 4.00% for the Retail A Shares of the Bond Funds) on
the last day of the period and annualizing the result on a semiannual basis by
adding one to the quotient, raising the sum to the power of six, subtracting one
from the result and then doubling the difference. Net investment income per
share earned during the period attributable to that series is based on the
average daily number of shares of the series outstanding during the period
entitled to receive dividends and includes dividends and interest earned during
the period attributable to that series minus expenses accrued for the period,
attributable to that series net of reimbursements.
This calculation can be expressed as follows:
a-b 6
Yield = 2 [(----- + 1) - 1]
c x d
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = Maximum offering price per share on the last day
of the period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the portfolio. A Fund calculates
interest earned on any debt obligations held in its portfolio by computing the
yield to maturity of each obligation held by it based on the market value of the
obligation (including actual accrued interest) at the close of business on the
last business day of each month, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest) and dividing
the result by 360 and multiplying the quotient by the market value of the obli-
gation (including actual accrued interest) in order to determine the interest
income on the obligation for each day of the subsequent month that the
obligation is in the portfolio. For purposes of this calculation, it is assumed
that each month contains 30 days. The maturity of an obligation with a call
provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations.
Interest earned on tax-exempt obligations of the Tax-Exempt Intermediate
Bond Fund that are issued without original issue discount and have a current
market discount is calculated by using the coupon rate of interest instead of
the yield to maturity. In the case of tax-exempt obligations that are issued
with original issue discount but which have discounts based on current market
value that exceed the then-remaining portion of the original issue discount
(market discount), the yield to maturity is the imputed rate based on the
original issue discount calculation. On the other hand, in the case of tax-
exempt obligations that are issued with original issue discount but which have
the discounts based on current market value that are less than the then-
remaining portion of the original issue discount (market premium), the yield to
maturity is based on the market value.
With respect to mortgage or other receivables-backed obligations which are
expected to be subject to monthly payments of principal and interest ("pay
downs"), (a) gain or loss attributable to actual monthly pay downs are accounted
for as an increase or decrease to interest income during the period; and (b) a
Fund may elect either (i) to amortize the discount and premium on the remaining
security, based on the cost of the security, to the weighted average maturity
date, if such information is available, or to the remaining term of the
security, if any, if the weighted average maturity date is not available, or
(ii) not to amortize discount or premium on the remaining security.
Undeclared earned income may be subtracted from the net asset value per
share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the 30-day base period, has not been
declared as a dividend, but is reasonably expected to be and is declared as a
dividend shortly thereafter.
In addition, the Tax-Exempt Intermediate Bond Fund may advertise a "tax-
equivalent yield" which shows the level of taxable yield needed to produce an
after-tax equivalent to the tax-free yield of the Fund. This is done by
increasing the yield of the series of shares (calculated as stated above) by the
amount necessary to reflect the payment of federal income taxes at a stated
rate. This is computed by: (a) dividing the portion of the Fund's yield for a
particular series (as calculated above) that is exempt from federal income tax
by one minus a stated federal income tax rate; and (b) adding the figure
resulting from (a) above to that portion, if any, of the Fund's yield that is
not exempt from federal income tax. The "tax-equivalent" yield will always be
higher than the "yield" of the Fund.
Y Shares of the Funds are new and have no performance history. The yield
performance below is for other classes of shares that would have similar yields
because each class of shares will be invested in the same portfolio of
securities. Yields will differ only to the extent that classes do not have the
same expenses. You should be aware that Retail A Shares, Retail B Shares and Y
Shares have a .25% shareholder servicing fee, while the Institutional shares for
non-Money Market Funds have no shareholder servicing fee.
The Fund currently calculates 30-day yields for its Bond Portfolios but not
for its Equity Portfolios. For the 30-day period ended April 30, 2000, the
yields on the Bond Portfolios were as follows:
PORTFOLIO 30-DAY YIELD
---------- -------------
Short-Term Bond Market Fund
Institutional Shares %
Retail A - No Load %
Retail A - Load Adjusted %
Retail B %
Intermediate Bond Market Fund
Institutional Shares %
Retail A - No Load %
Retail A - Load Adjusted %
Retail B %
Bond IMMDEX/TM Fund
Institutional Shares %
Retail A - No Load %
Retail A - Load Adjusted %
Retail B %
Tax-Exempt Intermediate Bond Fund
Institutional Shares %
Retail A - No Load %
Retail A - Load Adjusted %
Retail B %
Without fees waived by the Advisor, the 30-day yields for the period ended
October 31, 1999, would have been:
PORTFOLIO 30-DAY YIELD
---------- -------------
Short-Term Bond Market Fund
Institutional Shares %
Retail A - No Load %
Retail A - Load Adjusted %
Retail B %
Intermediate Bond Market Fund
Institutional Shares %
Retail A - No Load %
Retail A - Load Adjusted %
Retail B %
Bond IMMDEX/TM Fund
Institutional Shares %
Retail A - No Load %
Retail A - Load Adjusted %
Retail B %
Tax-Exempt Intermediate Bond Fund
Institutional Shares %
Retail A - No Load %
Retail A - Load Adjusted %
Retail B %
For the 30-day period ended April 30, 2000, the tax-equivalent yield
(assuming a tax rate of 39.6%) for the Tax-Exempt Intermediate Bond Fund was:
30-DAY TAX-
PORTFOLIO EQUIVALENT YIELD
---------- -----------------
Tax-Exempt Intermediate Bond Fund
Institutional Shares %
Retail A - No Load %
Retail A - Load Adjusted %
Retail B %
Without fees waived by the Adviser, the 30-day, tax-equivalent yield
(assuming a tax rate of 39.6%) for the Tax-Exempt Intermediate Bond Fund at
April 30, 2000 would have been:
30-DAY TAX-
PORTFOLIO EQUIVALENT YIELD
---------- -----------------
Tax-Exempt Intermediate Bond Fund
Institutional Shares %
Retail A - No Load %
Retail A - Load Adjusted %
Retail B %
Total Return Calculations.
-------------------------
Each Fund computes "average annual total return" separately for its Retail
A, Retail B, Institutional and Y 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 Funds may compute aggregate total return, which reflects the total
percentage change in value over the measuring period. The Funds compute their
aggregate total returns separately for the Retail A, Retail B, 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 Funds' average
annual total return and aggregate total return reflect the deduction of the
5.50% maximum front-end sales charge for equity funds and 4.00% maximum front
end sales charge for fixed income funds in connection with the purchase of
Retail A Shares and the maximum sales load charged in connection with
redemptions of Retail B Shares (5.00%). The Funds may also advertise total
return data without reflecting sales charges in accordance with the rules of the
Securities and Exchange Commission. Quotations that do not reflect the sales
charge will, of course, be higher than quotations that do reflect the sales
charge.
The total return and yield of a Fund's Shares may be compared in
publications to those of other mutual funds with similar investment objectives
and to stock, bond 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 and
yield, as appropriate, of a Fund's shares may be compared to data prepared by
Lipper Analytical Services, Inc. The total return of a bond or balanced Fund's
shares may be compared to the Lehman Brothers 1-3 Year Government/Corporate Bond
Index; the Merrill Lynch 1-2.99 U.S. Treasury Bond Index; the Lehman Brothers
Intermediate Government/Corporate Bond Index; the Lehman Brothers 5-Year General
Obligation Bond Index; the Lehman Brothers Government/Corporate Bond Index; and
the Consumer Price Index. In addition, the total return of an equity Fund's
shares may be compared to the S&P 500 Index; the S&P MidCap 400 Index, the S&P
SmallCap 600 Index, the NASDAQ Composite Index, an index of unmanaged groups of
common stocks of domestic companies that are quoted on the National Association
of Securities Quotation System; the Dow Jones Industrial Average, a recognized
unmanaged index of common stocks of 30 industrial companies listed on the New
York Stock Exchange; the Wilshire Top 750 Index, an index of all domestic equity
issues which are traded over the national exchanges; the Russell 2000 Index; the
Value Line Composite Index, an unmanaged index of nearly 1,700 stocks reviewed
in Ratings & Reports; the Russell MidCap; the Wilshire Next 1750 Index; the
Wilshire MidCap 750 Index; and the Consumer Price Index. In addition, the
total return of a series of shares of the International Value Fund will be
compared to the GDP EAFE Index and may be compared to the Salomon-Russell
Indices, Russell Universe Indices, Lipper International Indices, and the
domestic indices listed above. Total return and yield data as reported in
national financial publications, such as Money Magazine, Forbes, Barron's,
Morningstar Mutual Funds, Mutual Funds Magazine, Kiplinger's Personal Finance
Magazine, The Wall Street Journal and The New York Times, or in publications of
a local or regional nature, may also be used in comparing the performance of the
Funds.
Performance quotations represent past performance, and should not be
considered as representative of future results. 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 a Fund's series of
shares will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost. Since performance will fluctuate,
performance data for a Fund cannot necessarily be used to compare an investment
in a Fund's series of shares with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Investors should remember that performance is
generally a function of the kind and quality of the investments held in a
portfolio, portfolio maturity, operating expenses and market conditions. Any
fees charged by Institutions directly to their customer accounts in connection
with investments in a Fund will not be included in the Fund's calculations of
yield and total return and will reduce the yield and total return received by
the accounts.
Y Shares of the Funds are new and have no performance history. The
performance history below is for Retail A Shares that would have similar returns
because each class of shares will be invested in the same portfolio of
securities. Performance will differ only to the extent that classes do not have
the same expenses. You should be aware that Retail A Shares have a .25%
shareholder servicing fee and a front-end sales charge of 4.50% for equity funds
and 3.75% for fixed income funds, while the Institutional shares for the Non-
Money Market Funds have no shareholder servicing fee or front-end sales charge.
The Non-Money Market Funds' average annual total return and aggregate total
return quotations do not reflect the deduction of the maximum front-end sales
charge in connection with the purchase of Retail A Shares.
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN AS OF APRIL 30, 2000
RETAIL A SHARES
Since
inception
5 10 (inception
1 Year Years Years date)
------ ------ ------ -----------
SHORT-TERM BOND
INTERMEDIATE BOND
TAX-EXEMPT INTERMEDIATE BOND
BOND IMMDEX/TM
BALANCED INCOME
BALANCED GROWTH
GROWTH AND INCOME
EQUITY INDEX
LARGE-CAP CORE EQUITY
MIDCAP CORE EQUITY
SMALL-CAP CORE EQUITY
MICROCAP
INTERNATIONAL VALUE
The performance of the Balanced Income Fund for the period prior to
December 1, 1997 is represented by the performance of a collective investment
fund which operated prior to the effectiveness of the registration statement of
the Balanced Income Fund. At the time of Balanced Income Fund's inception, the
collective investment fund was operated using materially equivalent investment
objectives, policies, guidelines and restrictions as its corresponding Firstar
fund. In connection with the Balance Income Fund's commencement of operations,
on December 1, 1997, the collective investment fund transferred its assets to
its Firstar Fund equivalent.
The collective investment fund was not registered under the 1940 Act and
was and is not subject to certain restrictions that are imposed by the 1940 Act
and the Internal Revenue Code. If the collective investment fund had been
registered under the 1940 Act, performance may have been adversely affected.
Performance of the collective investment fund has been restated to reflect the
Firstar Balanced Income Fund's actual expenses during the Fund's first fiscal
year. Performance quotations of the collective investment fund present past
performance of the FIRMCO managed collective fund, which is separate and
distinct from Firstar Balanced Income Fund, do not represent past performance of
this Fund and should not be considered as representative of future results of
this Fund.
Prior to January 10, 1995, the Funds offered to retail and institutional
investors one series of shares with neither a sales charge nor a 0.25% service
organization fee. Retail A Share performance neither reflects the deduction of
the current maximum sales charge of 4.50% for equity funds and 3.75% for fixed
income funds, nor does it reflect service organization fees. If sales charges
or service organization fees had been reflected, performance would be reduced.
The Funds may also from time to time include discussions or illustrations
of the effects of compounding in advertisements. "Compounding" refers to the
fact that, if dividends or other distributions on a Fund investment are
reinvested by being paid in additional Fund shares, any future income or capital
appreciation of a Fund would increase the value, not only of the original Fund
investment, but also of the additional Fund shares received through
reinvestment. As a result, the value of the Fund investment would increase more
quickly than if dividends or other distribution had been paid in cash. The
Funds may also include discussions or illustrations of the potential investment
goals of a prospective investor, investment management techniques, policies or
investment suitability of a Fund, economic conditions, the effects of inflation
and historical performance of various asset classes, including but not limited
to, stocks, bonds and Treasury bills. From time to time advertisements or
communications to shareholders may summarize the substance of information
contained in shareholder reports (including the investment composition of a
Fund), as well as the views of the Adviser or Sub-Advisers as to market,
economic, trade and interest trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to a Fund. The Funds may also include in advertisements, charts,
graphs or drawings which illustrate the potential risks and rewards of
investment in various investment vehicles, including but not limited to stocks,
bonds, treasury bills and shares of a Fund. In addition, advertisement or
shareholder communications may include a discussion of certain attributes or
benefits to be derived by an investment in a Fund. Such advertisements or
communications may include symbols, headlines or other materials which highlight
or summarize the information discussed in more detail therein.
MISCELLANEOUS
As used in this SAI and in the Funds' Prospectus, a majority of the
outstanding shares of a Fund or portfolio means, with respect to the approval of
an investment advisory agreement or a charge in a fundamental investment policy,
the lesser of (1) 67% of the shares of the particular Fund or portfolio
represented at a meeting at which the holders of more than 50% of the
outstanding shares of such Fund or portfolio are present in person or by proxy,
or (2) more than 50% of the outstanding shares of such Fund or portfolio.
As of May 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
-----
Money Market
Institutional Money Market
Tax-Exempt Money Market
U.S. Treasury Money Market
U.S. Government Money Market
Growth and Income
Short-Term Bond
Intermediate Bond
Bond IMMDEX/TM
Tax-Exempt Intermediate Bond
Balanced Income
Balanced Growth
Growth and Income
Equity Index
Large-Cap Core Equity
MidCap Core Equity
MidCap Index
Small-Cap Core Equity
MicroCap
International Growth
International Value
At such date, no other person was known by the Company to hold of record or
beneficially 5% or more of the outstanding shares of any investment portfolio
of the Company.
The Equity Index Fund and MidCap Index Fund are not sponsored, endorsed,
sold or promoted by Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. ("S&P"). S&P makes no representation or warranty, express or implied, to
the shareholders of the Equity Index Fund, MidCap Index Fund or any member of
the public regarding the advisability of investing in securities generally or in
the Equity Index Fund or MidCap Index Fund particularly or the ability of the
S&P 500 Index or S&P MidCap 400 Index to track general stock market performance.
S&P's only relationship to the Company is the licensing of certain trademarks
and trade names of S&P, the S&P 500 Index and the S&P MidCap 400 Index which is
determined, composed and calculated by S&P without regard to the Company, the
Equity Index Fund or the MidCap Index Fund. S&P has no obligation to take the
needs of the Company or shareholders of the Equity Index Fund or MidCap Index
Fund into consideration in determining, composing or calculating the S&P 500
Index and S&P MidCap 400 Index. S&P is not responsible for and has not
participated in the determination of the prices and amount of the Equity Index
Fund or the MidCap Index Fund or the timing of the issuance or sale of the
Equity Index Fund or MidCap Index Fund or in the determination or calculation of
the equation by which the Equity Index Fund and MidCap Index Fund is to be
converted into cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Equity Index Fund or MidCap Index
Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX, S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS
OF THE PRODUCT, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX,
S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX, S&P
MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
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 or the taking of a similar action
if payments on an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually senior debt obligations not having an original maturity in
excess of one year, unless explicitly noted. The following summarizes the
rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will often be evidenced by many of the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an acceptable ability
for repayment of senior short-term debt obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely payment. Short-
term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors.
Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small.
"D-3" - Debt possesses satisfactory liquidity and other protection factors
qualify issues as to investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics. Liquidity
is not sufficient to insure against disruption in debt service. Operating
factors and market access may be subject to a high degree of variation.
"D-5" - Issuer failed to meet scheduled principal and/or interest payments.
Fitch IBCA short-term ratings apply to debt obligations that have time
horizons of less than 12 months for most obligations, or up to three years for
U.S. public finance securities. The following summarizes the rating categories
used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This designation
indicates the 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
that default is a real possibility and that the capacity for meeting financial
commitments is solely reliant upon a sustained, favorable business and economic
environment.
"D" - Securities are in actual or imminent payment default.
Thomson Financial BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson 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.
"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.
"c" - The 'c' subscript is used to provide additional information to
investors that the bank may terminate its obligation to purchase tendered bonds
if the long-term credit rating of the issuer is below an investment-grade level
and/or the issuer's bonds are deemed taxable.
"p" - The letter 'p' indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful, timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of or the risk of
default upon failure of such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
* Continuance of the ratings is contingent upon Standard & Poor's receipt
of an executed copy of the escrow agreement or closing documentation confirming
investments and cash flows.
"r" - The 'r' highlights derivative, hybrid, and certain other obligations
that Standard & Poor's believes may experience high volatility or high
variability in expected returns as a result of 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. Not rated. Debt obligations of issuers outside the United States and
its territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the creditworthiness of the obligor but do not take
into account currency exchange and related uncertainties.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all standards. Together
with the "Aaa" group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in "Aaa" securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the long-
term risk appear somewhat larger than the "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these ratings
provide questionable protection of interest and principal ("Ba" indicates
speculative elements; "B" indicates a general lack of characteristics of
desirable investment; "Caa" indicates poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa". The modifier 1 indicates that
the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff & Phelps
for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable in periods of greater economic stress.
"BBB" - Debt possesses below-average protection factors but such protection
factors are still considered sufficient for prudent investment. Considerable
variability in risk is present during economic cycles. This is the lowest
investment grade category.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these ratings
is considered to be below investment grade. Although below investment grade,
debt rated "BB" is deemed likely to meet obligations when due. Debt rated "B"
possesses the risk that obligations will not be met when due. Debt rated "CCC"
is well below investment grade and has considerable uncertainty as to timely
payment of principal, interest or preferred dividends. Debt rated "DD" is a
defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for corporate and
municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest credit
quality. These ratings denote the lowest expectation of credit risk and are
assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit quality.
These ratings denote a low expectation of credit risk and indicate strong
capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit quality.
These ratings denote that there is currently a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered adequate,
but adverse changes in circumstances and in economic conditions are more likely
to impair this capacity. 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 commitments are currently being met; however, capacity for continued
payment is contingent upon a sustained, favorable business and economic
environment.
"CCC", "CC", "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 IBCA
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 IBCA does not rate the issuer or issue in
question.
'Withdrawn': A rating is withdrawn when Fitch IBCA 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," "B," "CCC," and "CC," - These designations are assigned by Thomson
Financial BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely repayment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include a
plus or minus sign designation which indicates where within the respective
category the issue is placed.
MUNICIPAL NOTE RATINGS
-----------------------
A Standard and Poor's 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.
"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 IBCA and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
APPENDIX B
-----------
ADDITIONAL INFORMATION CONCERNING FUTURES AND RELATED
OPTIONS
As stated in the Prospectus, certain of the Funds may enter into futures
contracts and options for hedging or other purposes. Such transactions are
described in this Appendix.
I. Interest Rate Futures Contracts
--------------------------------
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, a Fund may use interest rate futures
as a defense, or hedge, against anticipated interest rate changes and not for
speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
A Fund presently could accomplish a similar result to that which they hope
to achieve through the use of futures contracts by selling bonds with long
maturities and investing in bonds with short maturities when interest rates are
expected to increase, or conversely, selling short-term bonds and investing in
long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market the protection
is more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by a Fund, through using futures contracts.
Description of Interest Rate Futures Contracts. An interest rate futures
contract sale would create an obligation by a Fund as seller, to deliver the
specific type of financial instrument called for in the contract at a specific
future time for a specified price. A futures contract purchase would create an
obligation by a Fund, as purchaser, to take delivery of the specific type of
financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by a Fund's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Fund is paid the
difference and thus realizes a gain. If the offsetting purchase price exceeds
the sale price, the Fund pays the difference and realizes a loss. Similarly,
the closing out of a futures contract purchase is effected by a Fund's entering
into a futures contract sale. If the offsetting sale price exceeds the
purchase price, the Fund realizes a gain, and if the purchase price exceeds the
offsetting sale price, the Fund realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges - principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial
instruments including long-term U.S. Treasury Bonds and Notes; Government
National Mortgage Association (GNMA) modified pass-through mortgage-backed
securities; three-month U.S. Treasury Bills; and ninety-day commercial paper. A
Fund may trade in any futures contract for which there exists a public market,
including, without limitation, the foregoing instruments.
Examples of Futures Contract Sale. A Fund would engage in an interest
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term
securities prices. Assume that the market value of a certain security in a
Fund's portfolio tends to move in concert with the futures market prices of
long-term U.S. Treasury bonds ("Treasury bonds"). The Adviser wishes to fix
the current market value of this portfolio security until some point in the
future. Assume the portfolio security has a market value of 100, and the
Adviser believes that, because of an anticipated rise in interest rates, the
value will decline to 95. The Fund might enter into futures contract sales of
Treasury bonds for an equivalent of 98. If the market value of the portfolio
security does indeed decline from 100 to 95, the equivalent futures market
price for the Treasury bonds might also decline from 98 to 93.
In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.
The Adviser could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by
the loss realized on closing out the futures contract sale.
If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.
Examples of Futures Contract Purchase. A Fund might engage in an
interest rate futures contract purchase when it is not fully invested in long-
term bonds but wishes to defer for a time the purchase of long-term bonds in
light of the availability of advantageous interim investments, e.g., shorter-
term securities whose yields are greater than those available on long-term
bonds. A Fund's basic motivation would be to maintain for a time the income
advantage from investment in the short-term securities; the Fund would be
endeavoring at the same time to eliminate the effect of all or part of an
expected increase in market price of the long-term bonds that the fund may
purchase.
For example, assume that the market price of a long-term bond that the
Fund may purchase, currently yielding 10%, tends to move in concert with
futures market prices of Treasury bonds. The Adviser wishes to fix the current
market price (and thus 10% yield) of the long-term bond until the time (four
months away in this example) when it may purchase the bond. Assume the long-
term bond has a market price of 100, and the Adviser believes that, because of
an anticipated fall in interest rates, the price will have risen to 105 (and
the yield will have dropped to about 9 1/2%) in four months. The Fund might
enter into futures contracts purchases of Treasury bonds for an equivalent
price of 98. At the same time, the Fund could, for example, assign a pool of
investments in short-term securities that are either maturing in four months or
earmarked for sale in four months, for purchase of the long-term bond at an
assumed market price of 100. Assume these short-term securities are yielding
15%. If the market price of the long-term bond does indeed rise from 100 to
105, the equivalent futures market price for Treasury bonds might also rise
from 98 to 103. In that case, the 5-point increase in the price that the Fund
pays for the long-term bond would be offset by the 5-point gain realized by
closing out the futures contract purchase.
The Adviser could be wrong in its forecast of interest rates; long-term
interest rates might rise to above 10%; and the equivalent futures market price
could fall below 98. If short-term rates at the same time fall to 10% or
below, it is possible that the Fund would continue with its purchase program
for long-term bonds. The market price of available long-term bonds would have
decreased. The benefit of this price decrease, and thus yield increase, will
be reduced by the loss realized on closing out the futures contract purchase.
If, however, short-term rates remained above available long-term rates, it
is possible that the Fund would discontinue its purchase program for long-term
bonds. The yield on short-term securities in the portfolio, including those
originally in the pool assigned to the particular long-term bond, would remain
higher than yields on long-term bonds. The benefit of this continued
incremental income will be reduced by the loss realized on closing out the
futures contract purchase.
In each transaction, expenses would also be incurred.
II. Index Futures Contracts.
------------------------
A stock or bond index assigns relative values to the stocks or bonds
included in the index and the index fluctuates with changes in the market
values of the stocks or bonds included. Some stock index futures contracts are
based on broad market indexes, such as the Standard & Poor's 500 or the New
York Stock Exchange Composite Index. In contrast, certain exchanges offer
futures contracts on narrower market indexes, such as the Standard & Poor's 100
or indexes based on an industry or market segment, such as oil and gas stocks.
Futures contracts are traded on organized exchanges regulated by the Commodity
Futures Trading Commission. Transactions on such exchanges are cleared through
a clearing corporation, which guarantees the performance of the parties to each
contract.
A Fund may sell index futures contracts as set forth in the Prospectus. A
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, a Fund may purchase index futures
contracts. In a substantial majority of these transactions, a Fund will
purchase such securities upon termination of the long futures position, but a
long futures position may be terminated without a corresponding purchase of
securities.
In addition, a Fund may utilize index futures contracts in anticipation of
changes in the composition of its portfolio holdings. For example, in the
event that a Fund expects to narrow the range of industry groups represented in
its holdings it may, prior to making purchases of the actual securities,
establish a long futures position based on a more restricted index, such as an
index comprised of securities of a particular industry group. A Fund may also
sell futures contracts in connection with this strategy, in order to protect
against the possibility that the value of the securities to be sold as part of
the restructuring of the portfolio will decline prior to the time of sale.
The following are examples of transactions in stock index futures (net of
commissions and premiums, if any).
ANTICIPATORY PURCHASE HEDGE: Buy the Future Hedge
Objective: Protect Against Increasing Price
Portfolio Futures
---------- -------
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures=$62,500/Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/Contract
Increase in Purchase Price = $2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio - Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
Loss in Portfolio Value = $40,000 Gain on Futures = $40,000
If, however, the market moved in the opposite direction, that is, market value
decreased and the Fund had entered into an anticipatory purchase hedge, or
market value increased and the Fund had hedged its stock portfolio, the results
of the Fund's transactions in stock index futures would be as set forth below.
Portfolio Futures
--------- -------
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures=$62,500/Contract
Portfolio Futures
---------- -------
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/Contract
Decrease in Purchase Price = $2,500 Loss on Futures = $2,500
HEDGING A STOCK PORTFOLIO: Sell the Future
Hedge Objective: Protect Against Declining
Value of the Portfolio
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index = 1.0
Portfolio Futures
--------- --------
-Day Hedge is Placed-
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted-
Equity Portfolio - Own Buy 16 Index Futures at 130
Stock with Value = $1,040,000 Value of Futures = $1,040,000
Gain in Portfolio Value = $40,000 Loss on Futures = $40,000
III. Futures Contracts on Foreign Currencies
---------------------------------------
A futures contract on foreign currency creates a binding obligation on one
party to deliver, and a corresponding obligation on another party to accept
delivery of, a stated quantity of foreign currency for an amount fixed in U.S.
dollars. Foreign currency futures may be used by the International Value Fund
to hedge against exposure to fluctuations in exchange rates between the U.S.
dollar and other currencies arising from multinational transactions.
IV. Margin Payments.
----------------
Unlike when a Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract.
Initially, in accordance with the terms of the exchange on which such futures
contract is traded, the Fund may be required to deposit with the broker or in a
segregated account with the Fund's custodian an amount of cash or cash
equivalents, the value of which may vary but is generally equal to 10% or less
of the value of the contract. This amount is known as initial margin. The
nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not involve
the borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying security or index fluctuates making
the long and short positions in the futures contract more or less valuable, a
process known as marking to the market. For example, when a Fund has purchased
a futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Fund will be entitled to receive from the broker a variation margin payment
equal to that increase in value. Conversely, where a Fund has purchased a
futures contract and the price of the future contract has declined in response
to a decrease in the underlying instruments, the position would be less valuable
and the Fund would be required to make a variation margin payment to the broker.
At any time prior to expiration of the futures contract, the Adviser and, where
applicable, the Sub-Adviser may elect to close the position by taking an
opposite position, subject to the availability of a secondary market, which will
operate to terminate the Fund's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Fund, and the Fund realizes a loss or gain.
V. Risks of Transactions in Futures Contracts.
-------------------------------------------
There are several risks in connection with the use of futures by a Fund as
a hedging device. One risk arises because of the imperfect correlation between
movements in the price of the future and movements in the price of the
securities 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, a Fund may buy or
sell futures contracts in a greater dollar amount than the dollar amount of
securities being hedged if the volatility over a particular time period of the
prices of such securities has been greater than the volatility over such time
period of the future, or if otherwise deemed to be appropriate by the Adviser.
Conversely, a Fund may buy or sell fewer futures contracts if the volatility
over a particular time period of the prices of the securities being hedged is
less than the volatility over such time period of the futures contract being
used, or if otherwise deemed to be appropriate by the Adviser. It is also
possible that, where a Fund has sold futures to hedge its portfolio against a
decline in the market, the market may advance and the value of securities held
by the Fund may decline. If this occurred, the Fund would lose money on the
future and also experience a decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead; if the Fund then concludes not to invest
in securities or options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the
futures contract that is not offset by a reduction in the price of securities
purchased.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Fund's custodian
and/or in a margin account with a broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the securities
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions 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 and, where
applicable, Sub-Adviser may still not result in a successful hedging
transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade that provides a secondary market for such futures. Although a Fund
intends to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a
liquid secondary market on any exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, a Fund would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have
been used to hedge portfolio securities, such securities will not be sold until
the futures contract can be terminated. In such circumstances, an increase in
the price of the securities, if any, may partially or completely offset losses
on the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. The
trading of futures contracts is also subject to the risk of trading halts,
suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation
margin payments.
Successful use of futures by a Fund is also subject to the Adviser's or,
where applicable, the Sub-Adviser's ability to predict correctly movements in
the direction of the market. For example, if a Fund has hedged against the
possibility of a decline in the market adversely affecting securities held in
its portfolio and securities prices increase instead, the Fund will lose part
or all of the benefit to the increased value of its securities which it has
hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily variation margin requirements. Such sales of
securities may be, but will not necessarily be, at increased prices that
reflect the rising market. A Fund may have to sell securities at a time when
it may be disadvantageous to do so.
VI. Options on Futures Contracts.
-----------------------------
A Fund may purchase options on the futures contracts described above and,
if permitted by its investment objective and policies, may also write options
on futures contracts. A futures option gives the holder, in return for the
premium paid, the right to buy (call) from or sell (put) to the writer of the
option a futures contract at a specified price at any time during the period of
the option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer,
of an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing, an option of the same
series, at which time the person entering into the closing transaction will
realize a gain or loss. A Fund will be required to deposit initial margin and
variation margin with respect to put and call options on futures contracts
written by it pursuant to brokers' requirements similar to those described
above. Net option premiums received will be included as initial margin
deposits. As an example, in anticipation of a decline in interest rates, a Fund
may purchase call options on futures contracts as a substitute for the purchase
of futures contracts to hedge against a possible increase in the price of
securities that the Fund intends to purchase. Similarly, if the value of the
securities held by a Fund is expected to decline as a result of an increase in
interest rates, the Fund might purchase put options or write call options on
futures contracts rather than sell futures contracts.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the
purchase or sale of an option also entails the risk that changes in the value
of the underlying futures contract will not be fully reflected in the value of
the option purchased. Depending on the pricing of the option compared to
either the futures contract upon which it is based, or upon the price of the
securities being hedged, an option may or may not be less risky than ownership
of the futures contract or such securities. In general, the market prices of
options can be expected to be more volatile than the market prices on the
underlying futures contract. Compared to the purchase or sale of futures
contracts, however, the purchase of call or put options on futures contracts
may frequently involve less potential risk to a Fund because the maximum amount
at risk is the premium paid for the options (plus transaction costs). Although
permitted by their fundamental investment policies, the Funds do not currently
intend to write futures options, and will not do so in the future absent any
necessary regulatory approvals.
VII. Accounting and Tax Treatment.
-----------------------------
Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.
The tax principles applicable to futures contracts and options are complex
and, in some cases, uncertain. Such investments may cause a Fund to recognize
taxable income prior to the receipt of cash, thereby requiring the Fund to
liquidate other positions, or to borrow money, so as to make sufficient
distributions to shareholders to avoid corporate-level tax. Moreover, some or
all of the taxable income recognized may be ordinary income or short-term
capital gain, so that the distributions may be taxable to shareholders as
ordinary income.
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) Form of Amendment No. 16 to Articles of Incorporation filed
May 12, 2000 with respect to the Small Cap Aggressive Growth
Fund is incorporated by reference to Exhibit (a)(17) to
Post-Effective Amendment No. 39.
(18) Form of Amendment No. 17 to Articles of Incorporation filed
June 12, 2000 with respect to the Aggregate Bond Fund,
National Municipal Bond Fund and U.S. Government Income Fund
is incorporated by reference to Exhibit (a)(18) to Post-
Effective Amendment No. 40.
(19) Form of Amendment No. 18 to Articles of Incorporation filed
June 12, 2000 with respect to Y Shares is incorporated
by reference to Exhibit (a)(19) to Post-Effective Amendment
No. 40.
(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
IMMDEX/TM 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
Income Fund is incorporated by reference to Exhibit (d)(16)
to Post-Effective Amendment No. 40.
(e) (1) Distribution Agreement between Registrant and B.C. Ziegler &
Company dated as of January 1, 1995, with respect to Money
Market Fund, U.S. Government Money Market Fund, Tax-Exempt
Money Market Fund, Growth and Income Fund, Short-Term Bond
Market Fund, Special Growth Fund, Bond IMMDEX/TM Fund,
Equity Index Fund, Institutional Money Market Fund, U.S.
Treasury Money Market Fund, Balanced Fund, Intermediate Bond
Market Fund, Growth Fund (formerly the MidCore Growth Fund),
Tax-Exempt Intermediate Bond Fund and International Equity
Fund is incorporated by reference to Exhibit (6)(a) to Post-
Effective Amendment No. 28.
(2) Addendum No. 1 to the Distribution Agreement between
Registrant and B.C. Ziegler and Company dated as of January
1, 1995 with respect to the MicroCap Fund is incorporated by
reference to Exhibit (6)(b) to Post-Effective Amendment No.
28.
(3) Addendum No. 3 to the Distribution Agreement between
Registrant and B.C. Ziegler and Company dated as of December
1, 1997 with respect to the Balanced Income Fund is
incorporated by reference to Exhibit (6)(c) to Post-
Effective Amendment No. 34.
(4) Addendum No. 2 to the Distribution Agreement between
Registrant and B.C. Ziegler and Company dated as of August
15, 1997 with respect to the Emerging Growth Fund is
incorporated by reference to Exhibit (6)(d) to Post-
Effective Amendment No. 32.
(5) Addendum No. 4 to the Distribution 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 (e)(5) to Post-Effective Amendment No. 38.
(6) Addendum No. 5 to the Distribution Agreement between the
Registrant and B. C. Ziegler and Company dated November 1,
1999 with respect to the Core International Equity Fund is
incorporated by reference to Exhibit (e)(6) to Post-
Effective Amendment No. 38.
.
(7) Addendum No. 6 to the Distribution Agreement between the
Registrant and B.C. Ziegler and Company dated November 1,
1999 with respect to the MidCap Index Fund is incorporated
by reference to Exhibit (e)(7) to Post-Effective Amendment
No. 38.
(8) Form of Addendum No. 7 to the Distribution Agreement between
the Registrant and B.C. Ziegler and Company with respect to
the Small Cap Aggressive Growth Fund is incorporated by
reference to Exhibit (e)(8) to Post-Effective Amendment No.
39.
(9) Form of Addendum No. 9 to the Distribution 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 Income 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 (e)(9) to Post-
Effective Amendment No. 40.
(10) Form of Addendum No. 10 to the Distribution Agreement
between Registrant and B.C. Ziegler & Company with respect
to Y Shares is incorporated by reference to Exhibit (e)(10)
to Post-Effective Amendment No. 40.
(11) Form of Distribution Agreement between Registrar, 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, 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 IMMDEX/TM
Fund, Growth and Income Fund, MidCore Growth Fund, MicroCap
Fund, Tax-Exempt Money Market Fund, U.S. Treasury Money
Market Fund, Short-Term Bond Market Fund, Tax-Exempt
Intermediate Bond Fund, Balanced Fund, Equity Index Fund,
Special Growth Fund and International Equity Fund is
incorporated by reference to Exhibit (8)(c) to Post-
Effective Amendment No. 34.
(4) Amendment dated May 1, 1990 to the Custodian Agreement
between Registrant and First Wisconsin Trust Company is
incorporated by reference to Exhibit (8)(d) to Post-
Effective Amendment No. 28.
(5) Letter dated April 19, 1991 with respect to the Custodian
Agreement with respect to the Institutional Money Market
Fund and U.S. Federal Money Market Fund is incorporated by
reference to Exhibit (8)(e) to Post-Effective Amendment No.
28.
(6) Letter dated March 27, 1992 with respect to the Custodian
Agreement with respect to the Balanced Fund is incorporated
by reference to Exhibit (8)(f) to Post-Effective Amendment
No. 28.
(7) Letter dated December 27, 1992 with respect to the Custodian
Agreement with respect to the Intermediate Bond Market Fund
and Growth Fund (formerly the MidCore Growth Fund) is
incorporated by reference to Exhibit (8)(g) to Post-
Effective Amendment No. 28.
(8) Letter dated February 5, 1993 with respect to the Custodian
Agreement with respect to the Tax-Exempt Intermediate Bond
Fund is incorporated by reference to Exhibit (8)(h) to Post-
Effective Amendment No. 28.
(9) Letter Agreement with respect to the Custodian Agreement
dated as of September 2, 1997 with respect to the
International Equity Fund is incorporated by reference to
Exhibit No. (8)(i) to Post-Effective Amendment No. 32.
(10) Letter Agreement dated August 1, 1995 with respect to the
Custodian Agreement with respect to the MicroCap Fund is
incorporated by reference to Exhibit No. (8)(j) to Post-
Effective Amendment No. 28.
(11) Letter Agreement with respect to the Custodian Agreement
with respect to the Balanced Income Fund dated December 1,
1997 is incorporated by reference to Exhibit (8)(k) to Post-
Effective Amendment No. 34.
(12) Letter Agreement with respect to the Custodian Agreement
with respect to the Emerging Growth Fund dated as of March
1, 1997 is incorporated by reference to Exhibit (8)(l) to
Post-Effective Amendment No. 34.
(13) Foreign Custodian Monitoring Agreement between Registrant
and Firstar Investment Research and Management Company dated
June 13, 1997 with respect to the International Equity Fund
is incorporated by reference to Exhibit 8(m) to Post-
Effective Amendment No. 32.
(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 Income 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) Co-Administration Agreement Among the Registrant, B.C.
Ziegler & Company and Firstar Trust Company dated as of
January 1, 1995 is incorporated by reference to
Exhibit (9)(a) to Post-Effective Amendment No. 28.
(2) Addendum No. 1 to the Co-Administration Agreement among the
Registrant, B.C. Ziegler and Company and Firstar Trust
Company dated as of January 1, 1995 with respect to the
MicroCap Fund is incorporated by reference to Exhibit (9)(b)
to Post-Effective Amendment No. 28.
(3) Addendum No. 3 to the Co-Administration Agreement among the
Registrant, B.C. Ziegler and Company and Firstar Trust
Company dated as of January 1, 1995 with respect to the
Balanced Income Fund is incorporated by reference to Exhibit
(9)(c) to Post-Effective Amendment No. 34.
(4) Fund Accounting Servicing Agreement dated March 23, 1988
between Registrant and First Wisconsin Trust Company is
incorporated by reference to Exhibit (9)(d) to Post-
Effective Amendment No. 28.
(5) Letter dated July 29, 1988 with respect to the Fund
Accounting Servicing Agreement is incorporated by reference
to Exhibit (9)(e) to Post-Effective Amendment No. 28.
(6) Letter dated December 28, 1989 with respect to the Fund
Accounting Servicing Agreement with respect to the Equity
Index Fund is incorporated by reference to Exhibit (9)(f) to
Post-Effective Amendment No. 28.
(7) Letter dated April 19, 1991 with respect to the Fund
Accounting Servicing Agreement with respect to the
Institutional Money Market Fund and U.S. Federal Money
Market Fund is incorporated by reference to Exhibit (9)(g)
to Post-Effective Amendment No. 28.
(8) Letter dated March 27, 1992 with respect to the Fund
Accounting Servicing Agreement with respect to the Balanced
Fund is incorporated by reference to Exhibit (9)(h) to Post-
Effective Amendment No. 28.
(9) Letter dated December 27, 1992 with respect to the Fund
Accounting Servicing Agreement with respect to the
Intermediate Bond Market Fund and Growth Fund (formerly the
MidCore Growth Fund) is incorporated by reference to Exhibit
(9)(i) to Post-Effective Amendment No. 28.
(10) Letter dated February 5, 1993 with respect to the Fund
Accounting Servicing Agreement with respect to the Tax-
Exempt Intermediate Bond Fund is incorporated by reference
to Exhibit (9)(j) to Post-Effective Amendment No. 29.
(11) Revised Fund Valuation and Accounting Fee Schedule dated
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)(11) to Post-
Effective Amendment No. 38.
(12) Intentionally left blank.
(13) Intentionally left blank.
(14) Letter Agreement dated August 1, 1995 with respect to the
Fund Accounting Servicing Agreement with respect to the
MicroCap Fund is incorporated by reference to Exhibit (9)(n)
to Post-Effective Amendment No. 28.
(15) Letter Agreement with respect to the Fund Accounting
Servicing Agreement with respect to the Balanced Income Fund
dated December 1, 1990 is incorporated by reference to
Exhibit (9)(o) to Post-Effective Amendment No. 34.
(16) Shareholder Servicing Agent Agreement dated March 23, 1988
between Registrant and First Wisconsin Trust Company is
incorporated by reference to Exhibit (9)(p) to Post-
Effective Amendment No. 28.
(17) Letter dated July 29, 1988 with respect to Shareholder
Servicing Agent Agreement is incorporated by reference to
Exhibit (9)(q) to Post-Effective Amendment No. 28.
(18) Letter dated December 28, 1989 with respect to the
Shareholder Servicing Agent Agreement with respect to the
Equity Index Fund is incorporated by reference to Exhibit
(9)(r) to Post-Effective Amendment No. 28.
(19) Letter dated April 23, 1991 with respect to the Shareholder
Servicing Agent Agreement with respect to the Institutional
Money Market Fund and U.S. Federal Money Market Fund is
incorporated by reference to Exhibit (9)(s) to Post-
Effective Amendment No. 28.
(20) Letter dated March 27, 1992 with respect to the Shareholder
Servicing Agent Agreement with respect to the Balanced Fund
is incorporated by reference to Exhibit (9)(t) to Post-
Effective Amendment No. 28.
(21) Letter dated December 27, 1992 with respect to the
Shareholder Servicing Agent Agreement with respect to the
Intermediate Bond Market Fund and Growth Fund (formerly the
MidCore Growth Fund) is incorporated by reference to Exhibit
(9)(u) to Post-Effective Amendment No. 28.
(22) Letter dated February 5, 1993 with respect to the
Shareholder Servicing Agent Agreement with respect to the
Tax-Exempt Intermediate Bond Fund is incorporated by
reference to Exhibit (9)(v) to Post-Effective Amendment No.
29.
(23) Letter dated April 26, 1994 with respect to the Shareholder
Servicing Agent Agreement with respect to the International
Equity Fund is incorporated by reference to Exhibit (9)(w)
to Post-Effective Amendment No. 28.
(24) Amendment dated May 1, 1990 to the Shareholder Servicing
Agent Agreement between Registrant and First Wisconsin Trust
Company is incorporated by reference to Exhibit (9)(x) to
Post-Effective Amendment No. 28.
(25) Letter Agreement dated August 1, 1995 with respect to the
Shareholder Servicing Agent Agreement with respect to the
MicroCap Fund is incorporated by reference to Exhibit (9)(y)
to Post-Effective Amendment No. 28.
(26) Letter with respect to Shareholder Servicing Agent Agreement
with respect to the Balanced Income Fund dated December 1,
1997 is incorporated by reference to Exhibit (9)(z) to Post-
Effective Amendment No. 34.
(27) Plan of Reorganization is incorporated by reference to
Exhibit (9)(aa) to Post-Effective Amendment No. 28.
(28) Purchase and Assumption Agreement dated February 22, 1988 is
incorporated by reference to Exhibit (9)(ab) to Post-
Effective Amendment No. 28.
(29) Addendum No. 2 to the Co-Administration Agreement among the
Registrant, B.C. Ziegler and Company and Firstar Trust
Company with respect to the Emerging Growth Fund is
incorporated by reference to Exhibit (9)(ac) to Post-
Effective Amendment No. 32.
(30) Letter Agreement with respect to the Fund Accounting
Servicing Agreement with respect to the Emerging Growth Fund
is incorporated by reference to Exhibit (9)(ad) to Post-
Effective Amendment No. 32.
(31) Letter Agreement with respect to Shareholder Servicing Agent
Agreement with respect to the Emerging Growth Fund dated
August 15, 1997 is incorporated by reference to Exhibit
(9)(ae) to Post-Effective Amendment No. 34.
(32) Intentionally left blank.
(33) License Agreement between Registrant and Firstar Corporation
for use of Firstar name is incorporated by reference to
Exhibit (9)(ag) to Post-Effective Amendment No. 34.
(34) Revised Shareholder Servicing Agent Agreement Fee Schedule
dated 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.
(35) Internet Access Agreement with Firstar Trust Company, dated
April 1998 is incorporated by reference to Exhibit (h)(35)
to Post-Effective Amendment No. 35.
(36) 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.
.
(37) 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.
.
(38) Service Agreement with National Investors Services
Corporation, dated June 1998 is incorporated by reference to
Exhibit (h)(38) to Post-Effective Amendment No. 35.
(39) 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.
(40) 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.
(41) 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.
(42) Assignment dated October 1, 1998 of Co-Administration
Agreement between Registrant, B.C. Ziegler and Company and
Firstar Trust Company, dated January 1, 1995, to Firstar
Mutual Fund Services, LLC. is incorporated by reference to
Exhibit (h) (42) to Post-Effective Amendment No. 36.
(43) 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.
(44) 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.
(45) 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.
(46) 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.
(47) 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.
(48) Addendum No. 4 dated November 1, 1999 to the Co-
Administration Agreement among the Registrant, Firstar
Investment Research and Management Company, LLC and B. C.
Ziegler and Company with respect to the Core International
Equity Fund is incorporated by reference to Exhibit (h)(48)
to Post-Effective Amendment No. 38.
(49) Addendum No. 5 dated November 1, 1999 to the Co-
Administration Agreement among the Registrant, Firstar
Investment Research and Management Company, LLC, and B.C.
Ziegler & Company with respect to the MidCap Index Fund is
incorporated by reference to Exhibit (h)(49) to Post-
Effective Amendment No. 38.
(50) 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.
(51) 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.
(52) 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.
(53) 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.
(54) 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.
(55) 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.
(56) Form of Addendum No. 6 to the Co-Administration Agreement
among the Registrant, B.C. Ziegler and Company and Firstar
Mutual Fund Services, LLC with respect to the Small Cap
Aggressive Growth Fund is incorporated by reference to
Exhibit (h)(56) to Post-Effective Amendment No. 39.
(57) 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.
(58) 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.
(59) Form of Amendment to Shareholder Servicing Agent Agreement
date 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.
(60) 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 Income 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.
(61) 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 Income 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.
(62) Form of Addendum No. 8 to the Co-Administration Agreement
among Registrant, Firstar Mutual Fund Services, LLC 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 Income 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)(62) to Post-Effective Amendment No. 40.
(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 Income 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 Income 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.
(1) Code of Ethics of the Adviser with respect to the Small Cap
Aggressive Growth Fund 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 with respect to the
Small Cap Aggressive Growth 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 with respect to the
Small Cap Aggressive Growth Fund is incorporated by
reference to Exhibit (p)(3) to Post-Effective Amendment
No. 39.
(4) Code of Ethics of the Registrant with respect to the Small
Cap Aggressive Growth Fund 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)(35).
Indemnification of the Registrant, its transfer agent/co-
administrator, its administrators 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)(36) and
Section 9(a) of the Order Processing Agreement with Northern Trust Retirement
Consulting, L.L.C. incorporated herein by reference to Exhibit (h)(39).
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)(37).
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)(38).
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)(46).
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)(47).
Indemnification of Registrant's principal underwriter, custodians
and transfer agents against certain losses is provided for, respectively, in
Section 1.9 of the Distribution Agreement, incorporated by reference as Exhibit
(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)(16) 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 IMMDEX/TM 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 Income 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.
================================================================================
Position with Other Business
Name and Principal Hansberger Global Connections and Type of
Business Address Investors, Inc. Address<F1> Business
------------------ ----------------- --------------- --------
--------------------------------------------------------------------------------
Thomas L. Hansberger Chairman, CEO, Director, Mutual
President, Schroder Korea Fund PLC Fund
Director and 33 Gutter Lane
London,
EC2B-A124 8AS
--------------------------------------------------------------------------------
Director, Mutual
The Bangkok Fund Fund
Bangkok, Thailand
--------------------------------------------------------------------------------
Advisory Board Member, Mutual
The India Fund Fund
India
--------------------------------------------------------------------------------
Kimberly Ann Scott Senior Vice None
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
================================================================================
<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) B.C. Ziegler & Company ("B.C. Ziegler"), the Registrant's
current principal underwriter, serves as principal
underwriter of the shares of the Principal Preservation
Funds, American Tax-Exempt Bond Trust, Series 1 (and
subsequent series); Ziegler U.S. Government Securities
Trust, Series 1 (and subsequent series); American Income
Trust, Series 1 (and subsequent series); Ziegler Money
Market Trust; and The Insured American Tax-Exempt Bond
Trust, Series 1 (and subsequent series).
(b) To the best of Registrant's knowledge, the directors and
executive officers of B.C. Ziegler & Company are as follows:
================================================================================
Name and Principal Position and Offices with Offices with
Business Address B. C. Ziegler Registrant
---------------- ------------------------- -------------
--------------------------------------------------------------------------------
Peter D. Ziegler Chairman, President, None
Chief Executive Officer
and Director
--------------------------------------------------------------------------------
S. Charles O'Meara Senior Vice President and None
General Counsel,
Corporate Secretary and
Director
--------------------------------------------------------------------------------
D. A. Wallestad Senior Vice President - None
Acquisition
Chief Financial Officer
and Director
--------------------------------------------------------------------------------
Donald A. Carlson, Jr. Senior Vice President None
--------------------------------------------------------------------------------
J.C. Wagner Senior Vice None
President -
Retail Sales and Director
--------------------------------------------------------------------------------
Michael P. Doyle Senior Vice President - None
Retail Operations
--------------------------------------------------------------------------------
Ronald N. Spears Senior Vice President None
--------------------------------------------------------------------------------
Jeffrey C. Vredenbregt Vice President, None
Treasurer, Controller and
Director
--------------------------------------------------------------------------------
Charles G. Stevens Vice President - None
Marketing Director
--------------------------------------------------------------------------------
Jack H. Downer Vice President - None
MIS Director
--------------------------------------------------------------------------------
Robert J. Tuszynski Senior Vice President None
--------------------------------------------------------------------------------
Gerry Aman Vice President - None
Insurance
--------------------------------------------------------------------------------
Sheila K. Hittman Vice President - None
Personnel
--------------------------------------------------------------------------------
Robert J. Johnson Vice President - None
Compliance
--------------------------------------------------------------------------------
James M. Bushman Vice President - None
Recruiting and Training
Coordinator
--------------------------------------------------------------------------------
Lay C. Rosenheimer Vice President - Bond None
Sales Control
--------------------------------------------------------------------------------
Darrell P. Frank Vice President - Director None
of Strategic Change
--------------------------------------------------------------------------------
M.L. McBain Vice President - None
Equity Securities
--------------------------------------------------------------------------------
James L. Brendemuehl Vice President - Managed None
Products
--------------------------------------------------------------------------------
Ronald C. Strzok Senior Vice President - None
Administration
--------------------------------------------------------------------------------
Roxanne Dalnodar Vice President - None
Operations
--------------------------------------------------------------------------------
Kathleen A. Lochen Assistant Secretary None
================================================================================
The address of each of the foregoing is 215 North Main Street, West
Bend, Wisconsin 53095, (414) 334-5521.
(c) None.
Item 28. Location of Accounts and Records
--------------------------------
(1) Firstar Mutual Fund Services LLC, 615 E. Michigan Street,
Milwaukee, WI 53202 (records relating to its function as
custodian, transfer agent, fund accounting servicing agent,
shareholder servicing agent and co-administrator).
(2) Firstar Investment Research and Management Company, 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) B.C. Ziegler & Company, 215 North Main Street, West Bend,
Wisconsin 53095-3348 (records relating to its functions as
distributor and co-administrator).
(5) Drinker Biddle & Reath LLP, 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. 41 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 6th day of July, 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. 41 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 July 6, 2000
----------------------- Director
(James M. Wade)
/s/Bruce R. Laning Director, July 6, 2000
----------------------- President, Treasurer
Bruce R. Laning
<F1> Richard Riederer Director July 6, 2000
-----------------------
(Richard Riederer)
<F1> Jerry Remmel Director July 6, 2000
-----------------------
(Jerry Remmel)
<F1> Glen R. Bomberger Director July 6, 2000
-----------------------
(Glen R. Bomberger)
<F1> Charles R. Roy Director July 6, 2000
-----------------------
(Charles R. Roy)
<F1> Bronson J. Haase Director July 6, 2000
-----------------------
(Bronson J. Haase)
<F1> By: /s/ Bruce R. Laning July 6, 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, III
Secretary
Dated: July 6, 2000
EXHIBIT INDEX
EXHIBIT NO. ITEM
----------- ----
(e)(11) Form of Distribution Agreement between Registrar, 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 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 and 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.
(j)(1) Consent of Drinker Biddle & Reath LLP.
