FIRSTAR FUNDS INC, 497, 2000-11-27

FIRSTAR FUNDS INC
497, 2000-11-27

Previous: NEXTEL COMMUNICATIONS INC, 424B3, 2000-11-27

Next: DLJ MORTGAGE ACCEPTANCE CORP, 424B5, 2000-11-27

<PAGE>

Prospectus
November 27, 2000

Small Cap Core Equity Fund
International Growth Fund
U.S. Treasury Money Market 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
<PAGE>

FIRSTAR FUNDS(R)
November 27, 2000

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SMALL CAP CORE EQUITY FUND (formerly Emerging Growth Fund)................................... 1
INTERNATIONAL GROWTH FUND (formerly Core International Equity Fund).......................... 5
U.S. TREASURY MONEY MARKET FUND.............................................................. 9
TYPES OF INVESTMENT RISK..................................................................... 12
INVESTING WITH FIRSTAR FUNDS................................................................. 18
Share Classes Available...................................................................... 18
Sales Charges and Waivers.................................................................... 19
Purchasing Shares............................................................................ 24
Redeeming Shares............................................................................. 27
Exchanging Shares............................................................................ 29
Additional Shareholder Services.............................................................. 30
ADDITIONAL INFORMATION....................................................................... 32
Dividends, Capital Gains Distributions and Taxes............................................. 32
Management of the Funds...................................................................... 33
Net Asset Value and Days of Operation........................................................ 35
APPENDIX..................................................................................... 37
Financial Highlights......................................................................... 37
FOR MORE INFORMATION......................................................................... 49
</TABLE>

---------------
Learn about
each Fund's
Objective,
Principal
Investment
Strategies,
Principal
Risks,
Performance
and Expenses.
---------------

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.
<PAGE>

SMALL CAP CORE EQUITY FUND
(formerly Emerging Growth Fund)

Investment Objective
The investment objective of the Small Cap Core Equity Fund is to seek capital
appreciation. The 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 securities the Adviser believes have above-average prospects
for capital appreciation. During normal market conditions, the Fund invests at
least 65% of total assets in equity securities. These equity securities 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 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.

Small-Sized Companies
---------------------

The Fund generally invests in small- to medium-sized companies with market
capitalizations between $100 million and $2 billion. The Fund may also 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 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, management risk and small-cap stock 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. In addition, different types of equity securities
tend to shift in and out of favor depending on market and economic conditions.
Management risk is the risk that the evaluation by the investment adviser of the
---------------
rewards and risks presented by all securities purchased by the Fund and how they
advance the Fund's investment objectives may prove to be inaccurate. Small-cap
---------
stock risk refers to the fact that small capitalization stocks involve greater
----------
risks that 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

1
<PAGE>

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 have limited product lines, markets or financial resources, or may be
dependant 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 sector/technology risk.
----------------------
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 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.

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

The Fund offers four types of shares, as described under "Investing with Firstar
Funds" - Retail A, Retail B, Y and Institutional. These share types bear
differing levels of expenses, as described under "Investing with Firstar Funds."

The following bar chart and table provide an indication of the risks of
investing in the 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, Retail B, Y and Institutional Shares compare to those of a
broad-based securities market index.

On November 27, 2000 the Mercantile Small Cap Equity Portfolio reorganized into
the Firstar Small Cap Core Equity Fund. At that time, the Firstar Small Cap
Core Equity Fund adopted an investment objective and certain non-fundamental
investment policies and restrictions that are substantially the same as those of
the Mercantile Small Cap Equity Portfolio. The performance set forth below is
based on the performance of corresponding classes of the Mercantile Small Cap
Equity Portfolio (the "Predecessor Portfolio"). The Predecessor Portfolio was
managed by a different investment adviser for the periods shown below until
March 1, 2000. See "Management of Funds" for more information.

The bar chart and performance table assume reinvestment of dividends and
distributions. Performance reflects fee waivers in effect. If fee waivers were
not in place, a Fund's performance would be reduced. Remember, past performance
is not indicative of future results. Sales charges are not reflected in the bar
chart. If these amounts were reflected, returns would be less than those shown.

2
<PAGE>

Year-by-year total return as of 12/31 each year (%) (Retail A Shares)

90 91 92 93 94 95 96 97 98 99
23.58 2.26 17.14 10.50 20.51 -8.07 16.70

The Fund's performance for the nine-month period ending September 30, 2000 was
24.77%.

Small Cap
Core Equity
Fund

Best Quarter: Q4 `92 18.56%

Worst Quarter: Q3 `98 24.80%

<TABLE>
<CAPTION>
Average Annual Total Return as of 12/31/99
(Retail A, Retail B, Y and Institutional Shares)/1/
--------------------------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years Since inception
------ ------- -------- ---------------
(inception date)
---------------
<S> <C> <C> <C> <C>
Small Cap Core Equity Fund
Retail A Shares 10.30% 9.61% -- 11.66%
(May 6, 1992)
Retail B Shares 11.05% -- -- 9.20%
(March 6, 1995)
Y Shares 16.75% 10.84% -- 9.34%
(January 3, 1994)
Institutional Shares 17.10% 11.16% 12.72%
(May 6, 1992)

Russell 2000 Index/2/ 21.26% 16.69% -- 14.80%
(April 30, 1992)
S&P SmallCap 600/2/ 12.40% 17.04% -- 15.07%
(April 30, 1992)
Wilshire Next 1750 Index/2/ 25.32% 18.74% -- 16.20%
(April 30, 1992)
</TABLE>

/1/ The Small Cap Core Equity Fund's Retail A, Retail B, Y and Institutional
Shares are the corresponding classes for the Mercantile Small Cap Equity
Portfolio's Investor A, Investor B, Institutional and Trust Shares,
respectively.

/2/ The Russell 2000 Index is an unmanaged index comprised of the 2,000 smallest
of the 3,000 largest U.S. companies based on market capitalization. The S&P
SmallCap 600 Index is a capitalization weighted index that measures the
performance of selected U.S. stocks with small market capitalizations. The
Wilshire Next 1750 Index is an unmanaged index, which shows the next largest
1,750 companies after the Top 750 of the Wilshire 5000 Stock Index. The Index
figures do not reflect any fees or expenses. Investors cannot invest directly in
an Index. As of November 27, 2000 the Fund has changed its performance benchmark
from the S&P SmallCap

3
<PAGE>

600 and Wilshire Next 1750 Indices to the Russell 2000 Index which was the
performance benchmark of the Predecessor Portfolio.

Fees and Expenses of the Fund
-----------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Small Cap Core Equity Fund.

<TABLE>
<CAPTION>
SHAREHOLDER FEES Retail A Retail B Y Institutional
(fees paid directly from your investment) -------- -------- --- -------------
----------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price) 5.50% None None None
Maximum Deferred Sales Charge (Load) (as a percentage of
offering price) None 5.00%/1/ None None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None None
Redemption Fees None/2/ None/2/ None/2/ None/2/
Exchange Fees None None None None

ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets) Retail A Retail B Y Institutional
-------------------------------------------- -------- --------- --- -------------

Management Fees 0.75% 0.75% 0.75% 0.75%
Distribution and Service (12b-1) Fees 0.00%3 0.75% 0.00% 0.00%
Other Expenses/4/ 0.48% 0.48% 0.48% 0.23%
------ ------ ------ ------
Total Annual Fund Operating Expenses 1.23% 1.98% 1.23% 0.98%
Fee Waivers and Expense Reimbursements/5/ (0.02%) (0.02%) (0.02%) (0.02%)
Net Annual Fund Operating Expenses/5/ 1.21% 1.96% 1.21% 0.96%
====== ====== ====== ======
</TABLE>

-------------------------------------------------------------------------------
/1/ A contingent deferred sales charge is imposed on Retail B Shares redeemed
within six years of purchase at a rate of 5% in the first year, 4% in the second
year, 3% in the third and fourth year, 2% in the fifth year, declining to 1% in
the sixth year. Thereafter, Retail B Shares convert to Retail A Shares, which do
not bear a contingent deferred sales charge.
/2/ A fee of $12.00 is charged for each wire redemption (Retail A and Retail B
Shares) and $15.00 for each non-systematic withdrawal from a Retirement Account
for which Firstar Bank, N.A. is custodian.
/3/ The total of all 12b-1 fees and shareholder servicing fees may not exceed,
in the aggregate, the annual rate of 0.25% of the Fund's average daily net
assets for the Retail A Shares. The Fund does not intend to pay 12b-1 fees with
respect to the Retail A Shares for the current fiscal year.
/4/ "Other Expenses" includes (1) administration fees, transfer agency fees and
all other ordinary operating expenses of the Fund not listed above and (2) for
the Retail A, Retail B and Y Shares, the payment of a shareholder servicing fee
to institutions (described below under the heading "Investing with Firstar
Funds-Shareholder Organizations") equal to 0.25% of the average daily net assets
of the Fund's Retail A Shares, Retail B Shares and Y Shares.
/5/ The Adviser has contractually agreed to waive fees and reimburse other
expenses for Retail A, Retail B, Y and Institutional Shares until October 31,
2001, so that Net Annual Fund Operating Expenses will be no more than 1.21%,
1.96%, 1.21% and 0.96% for each class, respectively, for the current fiscal
year. The Fund's Total Annual Fund Operating Expenses and Net Annual Fund
Operating Expenses are estimated based on expenses expected to be incurred in
the current fiscal year.

Example
The following example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The example also assumes
that your investment has a 5% return each year and that the Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Small Cap Core Equity Fund -Retail A Shares $667 $967 $1,289 $2,199
Small Cap Core Equity Fund -Retail B Shares
Assuming complete redemption at end of period 699 919 1,266 2,058
Assuming no redemption 199 619 1,066 2,058
Small Cap Core Equity Fund - Y Shares 123 388 674 1,487
Small Cap Core Equity Fund - Institutional Shares 98 310 540 1,200
</TABLE>

Retail B Shares convert to Retail A Shares six years after purchase; therefore,
Retail A Shares expenses are used for Retail B Shares in the hypothetical
example after year six.

4
<PAGE>

INTERNATIONAL GROWTH FUND
(formerly Core International Equity Fund)

Investment Objective
The investment objective of the International Growth Fund is to provide capital
growth consistent with reasonable investment risk. The investment objective may
be changed by the Board of Directors without approval of shareholders, although
no change is currently anticipated.

Sub-Adviser

Firstar Investment Research & Management Company, LLC ("FIRMCO") has appointed
Clay Finlay Inc. ("Clay Finlay" or the "Sub-Adviser") as sub-adviser to assist
in the day-to-day management of the Fund.

Principal Investment Strategies
The Fund invests primarily in foreign common stocks, most of which will be
denominated in foreign currencies. Under normal market conditions, the Fund
invests 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.

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 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 and management 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. Management risk is the risk that the evaluation by the investment
---------------
adviser of the rewards and risks presented by all securities purchased by the
Fund and how they advance the Fund's investment objectives may prove to be
inaccurate. The Fund's investments in foreign securities are subject to foreign
-------
risk. Foreign stocks involve special risks not typically associated with U.S.
----
stocks. The stocks held by the

5
<PAGE>

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. Foreign risks will normally be
greatest when the Fund invests in issues located in emerging countries. The
governments and economies of emerging countries feature greater instability than
those of more developed countries. Such investments tend to fluctuate in price
more widely and to be less liquid than other foreign investments. The Fund is
also subject to currency risk which is the potential for price fluctuations in
-------------
the dollar value of the foreign securities which the Fund holds because of
changing currency exchange rates.

Bar Chart and Performance Table
The Fund offers four types of shares, as described under "Investing with Firstar
Funds" - Retail A, Retail B, Y and Institutional. These share types bear
differing levels of expenses, as described under "Investing with Firstar Funds."

On November 27, 2000 the Mercantile International Equity Portfolio reorganized
into the Firstar International Growth Fund (formerly Firstar Core International
Equity Fund). At that time, the Firstar International Growth Fund adopted an
investment objective and certain non-fundamental investment policies and
restrictions that are substantially the same as those of the Mercantile
International Equity Portfolio. The performance set forth below is based on the
performance of corresponding classes of the Mercantile International Equity
Portfolio (the "Predecessor Portfolio"). The Predecessor Portfolio was managed
by a different investment adviser for the periods shown below until March 1,
2000. See "Management of Funds" for more information.

6
<PAGE>

Year-by-year total return as of 12/31 each year (%) (Retail A Shares)

90 -
91 -
92 -
93 -
94 -
95 - 9.41
96 - 9.98
97 - 4.68
98 - 17.42
99 - 50.47

The Fund's performance for the nine-month period ending September 30, 2000 was -
10.29%.

International Growth Fund

Best Quarter: Q4 `99 27.41%

Worst Quarter: Q3 `98 -17.12%

Average Annual Total Return as of 12/31/99
(Retail A, Retail B, Y and Institutional Shares)/1/
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Since inception
---------------
1 Year 5 Years 10 Years (inception date)
------ ------- -------- ----------------
<S> <C> <C> <C> <C>
International Growth Fund
Retail A Shares 42.22% 16.03% -- 13.78%
(May 2, 1994)
Retail B Shares 44.31% -- -- 18.05%
(March 6, 1995)
Y Shares 50.47% 17.32% -- 15.21%
(April 24, 1994)
Institutional Shares 50.93% 17.68% -- 15.29%
(April 4, 1994)
EAFE Index/2/ 26.96% 12.83% -- 11.85%
(March 31, 1994)
</TABLE>

/1/The International Growth Fund's Retail A, Retail B, Y and Institutional
Shares are the corresponding classes for the Mercantile International Equity
Portfolio's Investor A, Investor B, Institutional and Trust Shares,
respectively.

/2/The Morgan Stanley Capital International Europe, Australia and Far East
Index, or EAFE Index, is an unmanaged index consisting of companies in
Australia, New Zealand, Europe and the Far East. The Index figures do not
reflect any fees or expenses. Investors cannot invest directly in an Index.

7
<PAGE>

Fees and Expenses of the Fund
-----------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the International Growth Fund.

<TABLE>
<CAPTION>
SHAREHOLDER FEES Retail A Retail B Y Institutional
(fees paid directly from your investment) -------- -------- ----- -------------
-----------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 5.50% None None None
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price) None 5.00%/1/ None None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None None
Redemption Fees None/2/ None/2/ None/2/ None/2/
Exchange Fees None None None None

ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets) Retail A Retail B Y Institutional
-------------------------------------------- --------- ------- ---- -------------

Management Fees 1.00% 1.00% 1.00% 1.00%
Distribution and Service (12b-1) Fees 0.00%/3/ 0.75% 0.00% 0.00%
Other Expenses/4/ 0.57% 0.57% 0.57% 0.32%
Total Annual Fund Operating Expenses 1.57% 2.32% 1.57% 1.32%
Fee Waivers and Expense Reimbursements/5/ (0.06%) (0.06%) (0.06%) (0.06%)
Net Annual Fund Operating Expenses/5/ 1.51% 2.26% 1.51% 1.26%
</TABLE>

--------------------------------------------------------------------------------
/1/ contingent deferred sales charge is imposed on Retail B Shares redeemed
within six years of purchase at a rate of 5% in the first year, 4% in the second
year, 3% in the third and fourth year, 2% in the fifth year, declining to 1% in
the sixth year. Thereafter, Retail B Shares convert to Retail A Shares, which
do not bear a contingent deferred sales charge.
/2/ A fee of $12.00 is charged for each wire redemption (Retail A and Retail B
Shares) and $15.00 for each non-systematic withdrawal from a Retirement Account
for which Firstar Bank, N.A. is custodian.
/3/ The total of all 12b-1 fees and shareholder servicing fees may not exceed,
in the aggregate, the annual rate of 0.25% of the Fund's average daily net
assets for the Retail A Shares. The Fund does not intend to pay 12b-1 fees with
respect to the Retail A Shares for the current fiscal year.
/4/ "Other Expenses" includes (1) administration fees, transfer agency fees and
all other ordinary operating expenses of the Fund not listed above and (2) for
the Retail A, Retail B and Y Shares, the payment of a shareholder servicing fee
to institutions (described below under the heading "Investing with Firstar Funds
- Shareholder Organizations") equal to 0.25% of the average daily net assets of
the Fund's Retail A Shares, Retail B Shares and Y Shares.
/5/ The Adviser has contractually agreed to waive fees and reimburse other
expenses for Retail A, Retail B, Y and Institutional Shares until October 31,
2001, so that Net Annual Fund Operating Expenses will be no more than 1.51%,
2.26%, 1.51% and 1.26%, respectively, for the current fiscal year. The Fund's
Total Annual Fund Operating Expenses and Net Annual Fund Operating Expenses are
estimated based on expenses expected to be incurred in the current fiscal year.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
International Growth Fund - Retail A Shares $695 $1,063 $1,454 $2,546
International Growth Fund - Retail B Shares
Assuming complete redemption at end of period 729 1,019 1,435 2,413
Assuming no redemption 229 719 1,235 2,413
International Growth Fund - Y Shares 154 490 849 1,862
International Growth Fund - Institutional Shares 128 412 718 1,585
</TABLE>

8
<PAGE>

Retail B Shares convert to Retail A Shares six years after purchase; therefore,
Retail A Shares expenses are used for Retail B Shares in the hypothetical
example after year six.

U.S. TREASURY MONEY MARKET FUND

Investment Objective

The investment objective of the U.S. Treasury Money Market Fund is to seek
stability of principal and current income consistent with stability of
principal. The investment objective 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 exclusively in short-term U.S.
Treasury obligations that have a maturity of 397 days or less from the date of
purchase. The Fund may purchase repurchase agreements collateralized by U.S.
Treasury obligations. The Fund intends to invest in the agreements that provide
for repurchase within 397 days from the date of acquisition. The average
maturity of these securities is 120 days or less. The average maturity, however,
of all the securities in the Fund's portfolio will be 90 days or less on a
dollar-weighted basis. Securities subject to repurchase agreements are marked to
market on a daily basis. U.S. Treasury obligations are issued by the U.S.
government and are fully guaranteed as to principal and interest by the United
States government. The Fund may also retain assets in cash and may purchase U.S.
Treasury obligations on a when-issued or delayed delivery basis.

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 the
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.

The Fund is also subject to repurchase agreement risk. Repurchase agreements are
-------------------------
arrangements in which banks, broker/dealers and other financial institutions
sell securities to the Fund and agree to repurchase them at a certain time and
price within one year. Repurchase agreement risk is the risk that the seller may
-------------------------
not repurchase the securities from the Fund, which may result in the Fund
selling the security for less than the agreed upon price. Another risk of
repurchase agreements is that the seller may default or file for bankruptcy.
That could mean the Fund might have to wait through lengthy court actions before
selling the securities.

The Fund is subject to when-issued and delayed delivery transaction risks.
--------------------------------------------------
When-issued and delayed delivery transactions involve securities with payment
and delivery scheduled for a future time. One of the risks of investing in when-
issued or delayed delivery transactions is if the seller chooses not to complete
the transaction, the Fund could miss an advantageous price or yield. The Fund
may enter into transactions to sell its purchase commitments to third parties at
current market rates and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits or
losses on the sale of these kinds of commitments.

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. Although the

9
<PAGE>

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

The Fund offers two types of shares, as described under "Investing with Firstar
Funds" - Retail A and Institutional. These share types bear differing levels of
expenses, as described under "Investing with Firstar Funds."

The following bar chart and table provide an indication of the risks of
investing in the Fund by showing: (a) changes in the performance of the Fund's
Retail A Shares from year to year; and (b) the average annual returns of the
Fund's Retail A and Institutional Shares.

On November 27, 2000 the Mercantile Treasury Money Market Portfolio and the
Firstar Stellar Treasury Fund reorganized into the Firstar U.S. Treasury Money
Market Fund. At that time, the Firstar U.S. Treasury Money Market Fund adopted
an investment objective and certain non-fundamental investment policies and
restrictions that are substantially the same as those of the Firstar Stellar
Treasury Fund. The performance set forth below is based on the performance of
corresponding classes of the Firstar Stellar Treasury Fund.

The bar chart and performance table 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, a
Fund's performance would be reduced.

Year-by-year total return as of 12/31 each year (%) (Retail A Shares)

90 7.64
91 5.49
92 3.26
93 2.54
94 3.51
95 5.26
96 4.77
97 4.86
98 4.61
99 4.06

The Fund's performance for the nine-month period ending September 30, 2000 was
3.81%.

U.S. Treasury Money
Market Fund

Best Quarter: Q3 `90 1.89%

Worst Quarter: Q4 `93 0.62%

<TABLE>
<CAPTION>
Average Annual Total Return as of 12/31/99 (Retail A and Institutional Shares)/1/
-------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years Since inception
---------- ----------- ------------ -----------------
(inception date)
-----------------
<S> <C> <C> <C> <C>
U.S. Treasury Money Market Fund
Retail A Shares 4.06% 4.71% 4.59% 4.85%
(April 15, 1989)
Institutional Shares 4.22% --- --- 4.62%
(March 25, 1997)
</TABLE>

10
<PAGE>

/1/ The U.S. Treasury Money Market Fund's Retail A and Institutional Shares are
the corresponding classes for the Firstar Stellar Treasury Fund's C and Y
Shares, respectively.

Fees and Expenses of the Fund
-----------------------------

This table describes the fees and expenses that you may pay if you buy and hold
shares of the U.S. Treasury Money Market Fund.

ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets) Retail A Institutional
--------------------------------------------- -------- -------------

Management Fees 0.44% 0.44%
Distribution and Service (12b-1) Fees 0.25% 0.00%
Other Expenses/1/ 0.39% 0.39%
Total Annual Fund Operating Expenses 1.08% 0.83%
-------- ------
Fee Waivers and Expense Reimbursements/2/ (0.14%) (0.04%)
-------- ------
Net Annual Fund Operating Expenses/2/ 0.94% 0.79%
======== ======

________________________________________________________________________________
/1/ "Other Expenses" includes (1) administration fees, transfer agency fees and
all other ordinary operating expenses of the Fund not listed above and (2) the
payment of a shareholder servicing fee to institutions (described below under
the heading "Investing with Firstar Funds - Shareholder Organizations") equal to
0.25% of the average daily net assets of the Fund's Retail A and Institutional
Shares.
/2/ The Adviser has contractually agreed to waive fees and reimburse other
expenses for Retail A and Institutional Shares until October 31, 2001, so that
Net Annual Fund Operating Expenses will be no more than 0.94% and 0.79%,
respectively, for the current fiscal year. The Fund's Total Annual Fund
Operating Expenses and Net Annual Fund Operating Expenses are estimated based on
expenses expected to be incurred in the current fiscal year.

Example

The following example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. The example assumes
that you invest $10,000 in the Fund for the time periods indicated and then
redeem all of your shares at the end of those periods. The example also assumes
that your investment has a 5% return each year and that the Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Treasury Money Market Fund - Retail A Shares $96 $330 $582 $1,305
U.S. Treasury Money Market Fund - Institutional Shares 81 261 457 1,022
</TABLE>

11
<PAGE>

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 - U.S. Treasury Money Market Fund and Other Funds to the Extent That
They Invest 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.

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 Funds may invest in certain derivative investments. 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
structured securities and other derivative instruments which may be leveraged. A
Fund may use derivatives to: increase yield; hedge against a decline in
principal value; invest with greater efficiency and lower cost than is possible
through direct investment; adjust the Fund's duration; or provide daily
liquidity.

Hedging is the use of one investment to offset the effects of another
investment. To the extent that a derivative is used as a hedge against an
opposite position that the Fund also holds, a loss generated by the derivative
should be substantially offset by gains on the hedged investment, and vice
versa. While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains. Hedging also involves correlation risk - the risk that changes
in the value of a hedging instrument may not match those of the asset being
hedged.

To the extent that a derivative is not used as a hedge, the Fund is directly
exposed to the risks of that derivative. Gains or losses from speculative
positions in a derivative may be substantially greater than the derivative's
original cost.

12
<PAGE>

Interest Rate Risk - U.S. Treasury Money Market Fund and Other Funds to the
Extent That They Invest 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. Changes in
interest rates may also extend or shorten the duration of certain types of
instruments, such as asset-backed securities, thereby affecting their value and
the return on your investment.

Liquidity Risk - All Funds

Certain securities may be difficult or impossible to sell at the time and 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. Illiquid securities also
include repurchase agreements and time deposits with notice/termination dates of
greater than seven days and certain unlisted over-the-counter options and other
securities traded in the U.S. but are subject to trading restrictions because
they are not registered under the Securities Act of 1933. There may be no active
secondary market for these securities. The Small Cap Core Equity Fund and
International Growth Fund may invest up to 15% of their net assets at the time
of purchase in securities that are illiquid and the U.S. Treasury 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.

Management Risk - All Funds

A strategy which the Adviser uses may fail to produce the intended results. The
particular securities and types of securities a Fund holds may underperform
other securities and types of securities. There can be no assurance a Fund will
achieve its investment objective. The Adviser (or 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.

Market Risk - All Funds

The value of the securities in which a Fund invests may go up or down in
response to the prospects of individual companies and/or general economic
conditions. Price changes may be temporary or last for extended periods. 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.

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 risks involved - are described in detail in the
Additional Statement, which is referred to on the back cover of this Prospectus.

Portfolio Turnover Risk - All Funds

The Adviser and Sub-Adviser will not consider the portfolio turnover rate a
limiting factor in making investment decisions for a Fund. A high rate of
portfolio turnover (100% or more) involves correspondingly greater expenses
which must be borne by a Fund and its shareholders.

13
<PAGE>

It may also result in higher short-term capital gains taxable to shareholders.
See "Financial Highlights" for the Funds' historical portfolio turnover rates.
The U.S. Treasury Money Market Fund 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 U.S.
Treasury Money Market Fund's investment income.

Valuation Risk - All Funds

This is a risk that a Fund has valued certain securities at a higher or lower
price than the Fund can sell them.

Additional Risks Which Apply to Investments in Certain of the Funds

Extension Risk - U.S. Treasury Money Market Fund and Other Funds to the Extent
That They Invest in Fixed-Income Securities

This is the risk that an issuer will exercise its right to pay principal on an
obligation held by a Fund (such as a municipal security, 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 and the Small Cap Core Equity Fund to
the Extent That 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.

14
<PAGE>

Each of the Funds, other than the U.S. Treasury Money Market Fund, may invest in
foreign currency denominated securities. A Fund that 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.

European Currency Unification - International Growth Fund and the Small Cap Core
Equity Fund to the Extent That It Invests in Foreign Securities

Many European countries have adopted a single 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,
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.

Small Cap Stock Risk - Small Cap Core Equity Fund

Smaller capitalization stocks involve greater risks than those associated with
larger, more established companies. Small company stocks may be subject to more
abrupt or erratic price movements, for reasons including that the stocks are
traded in lower volume and that the issuers are more sensitive to changing
conditions and have less certain growth prospects. Also, there are fewer market
makers for these stocks and wider spreads between quoted bid and asked prices in
the over-the-counter market for these stocks. Small cap stocks tend to be less
liquid, particularly during periods of market disruption. There normally is less
publicly available information concerning these securities. Small companies in
which the Funds may invest may have limited product lines, markets or financial
resources, or may be dependent on a small management group. In particular,
investments in unseasoned companies present risks considerably greater than
investments in more established companies.

Temporary Investment Risk - All Funds

Each Fund may, for temporary defensive purposes, invest a percentage of its
total assets, without limitation, in cash or various short-term instruments.
This may occur for example, when a Fund is attempting to respond to adverse
market, economic, political or other conditions. When a Fund's assets are
invested in these instruments, the Fund may not achieve its investment
objective.

Additional Risks Which Apply to Particular Types of Securities

Options - Small Cap Core Equity Fund and 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

15
<PAGE>

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 may purchase put and call options in an amount not to exceed 10% of
their respective net assets.

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 Small
Cap Core Equity Fund and International Growth Fund will not exceed 25% of the
value of its net assets during the current year. The International Growth Fund
may write call options on securities and on various stock indices which will be
traded on a recognized securities or futures exchange. 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 Small Cap Core Equity Fund and International Growth Fund may invest in
warrants. Warrants are options to purchase equity securities at a specific price
valid for a specific period of time. The purchase of warrants involves the risk
that the Fund could lose the purchase value of the warrant if the right to
subscribe to additional shares is not exercised prior to the warrant's
expiration. Also, the purchase of warrants involves the risk that the effective
price paid for the warrant added to the subscription price of the related
security may exceed the value of the subscribed security.

Risks associated with the use of options on securities include: (i) imperfect
correlation between the change in market value of the securities the Fund holds
and the prices of options relating to the securities purchased or sold by the
Fund; and (ii) the possible lack of a liquid secondary market for an option.
The Additional Statement includes additional information relating to option
trading practices and related risks.

Futures Contracts and Related Options - Small Cap Core Equity Fund and
International Growth Fund

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. 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

16
<PAGE>

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 ("CTFC"). 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 Small Cap Equity Fund and International Growth 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. 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.

Borrowings, Reverse Repurchase Agreements - All Funds

Each Fund may borrow money to the extent allowed (as described in the Additional
Statement) and each Fund may enter into 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.

17
<PAGE>

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

Firstar Funds, Inc. (the "Firstar Funds" or the "Company") offer four classes of
Shares in the Small Cap Core Equity and International Growth Funds, Retail A,
Retail B, Y and Institutional; and two classes of shares in the U.S. Treasury
Money Market Fund, Retail A and Institutional.

Retail A Shares
. Initial sales charge of 5.50% (but no initial sales charge for the Money
Market Fund)
. No deferred sales charge
. Reduced sales charge for larger investments. See "Sales Charges and
Waivers" for more information
. Available to any investor who does not qualify to purchase Institutional or
Y Shares

Retail B Shares
. No initial sales charge
. Deferred sales charge - Maximum of 5% for redemptions during the first
year, 4% in the second year, 3% in the third and fourth year, 2% in the
fifth year, 1% in the sixth year and 0% thereafter
. Converts to Retail A shares after six years
. Available to any investor who does not qualify to purchase Institutional or
Y shares

Y Shares
. No sales charge
. Available for:
. All Shareholders who have been exchanged into Y Shares in or
about November 2000 in connection with the Firstar-Stellar
Reorganization, Firstar-Mercantile Reorganization and/or Firstar-
Select Reorganization and who have continuously maintained an
account with the Company; and
. 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.

Institutional Shares
. No sales charge
. Available for:
. Trust, agency or custodial accounts opened through Firstar Bank,
N.A.;
. Employer-sponsored qualified retirement plans other than those
serviced by certain external organizations who have service
agreements with Firstar or its affiliates, and other than plans
administered by Firstar with assets of less than $1 million at
the time Firstar begins plan administration (but including plans
administered by Firstar which owned Institutional shares prior to
June 18, 1999). Plans administered by Firstar with assets of less
than $1 million at the time Firstar begins plan administration
will become eligible for Institutional shares when such plans
grow to $1 million or greater as further described in the SAI;
. All clients of FIRMCO; and

18
<PAGE>

. 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.

A securities dealer, broker, financial institution or other industry
professional ("Shareholder Organization") may charge transaction or other fees
for providing administrative or other services in connection with investments in
Fund shares.

Sales Charges and Waivers

Initial Sales Charges - for Retail A Shares of Funds other than the U.S.
Treasury Money Market Fund:
The public offering price for Retail A Shares is the net asset value of the
Retail A Shares purchased plus any applicable front-end sales charge. A sales
charge will not be assessed on Retail A Shares purchased through reinvestment of
dividends or capital gains distributions. The sales charge is as follows:

Shareholder Organization
Sales Charge as a Sales Charge as Reallowance as a
Amount of Transaction at Percentage of Offering Percentage of Net Asset Percentage of Offering
Offering Price Price Value Price
-------------- ----- ----- -----
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
$50,000 to $99,000 4.50% 4.71% 4.00%
$100,000 to $249,999 3.50% 3.63% 3.00%
$250,000 to $499,999 2.50% 2.56% 2.00%
$500,000 to $999,999 2.00% 2.04% 1.50%
$1,000,000 and above 0.50% 0.50% 0.40%
</TABLE>

You only pay a sales charge when you buy shares. The Distributor may reallow
the entire sales charge to certain shareholder organizations and the amount
reallowed may change periodically. To the extent that 90% or more of the
sales charge is reallowed, shareholder organizations may be deemed to be
underwriters under the Investment Company Act of 1940 (the "1940 Act").

Reducing Your Sales Charges and Waivers - Retail A Shares
To qualify for a reduction of, or exception to, the sales charge you must
notify your Shareholder Organization or the Distributor at the time of
purchase or exchange. The reduction in sales charge is subject to
confirmation of your holdings through a check of records. The Company may
modify or terminate quantity discounts at any time.

Waivers - Retail A Shares
You may purchase Retail A Shares without a sales charge if:

. you are an employee, director, retiree or registered representative of
Firstar Corporation or its affiliates or of Firstar Funds

. you are a spouse, parent, in-law, sibling or child of an individual who
falls within the preceding category

. you make any purchase for your medical savings account for which Firstar
Corporation or an affiliate serves in a custodial capacity

19
<PAGE>

. you purchase through certain external organizations that have entered into
a service agreement with Firstar Funds or its affiliates

. you are part of an employer-sponsored qualified retirement plan
administered by Firstar Funds with assets of less than $1 million at the
time Firstar begins plan administration, provided such administration
commenced on or after June 18, 1999

. you purchase through certain broker-dealers who have agreed to provide
certain services with respect to shares of the Funds, including Charles
Schwab Mutual Fund Marketplace. Check with your broker-dealer to see if you
qualify for this waiver.

. you received shares of a Fund as part of the Firstar-Stellar
Reorganization, Firstar-Mercantile Reorganization and/or Firstar-Select
Reorganization and, prior to the reorganization, you qualified to purchase
shares without a sales load at net asset value and you have continuously
owned shares of the Fund since that reorganization.

Reducing Your Sales Charges - Retail A Shares
. Right of Accumulation - Equity, Balanced and Bond Fund shares of Firstar Funds
can be combined with new purchases for purposes of calculating reduced sales
charges.

. Letter of Intent - Fund shares purchased in a 13-month period qualify for the
same reduced sales charge as if purchased all at once. You may obtain a reduced
sales charge by means of a written Letter of Intent which expresses your non-
binding commitment to invest in the aggregate $100,000 or more in Equity,
Balanced or Bond Fund Retail A shares of Firstar Funds. Any investments you make
during the period receive the discounted sales charge based on the full amount
of your investment commitment. The Additional Statement includes details about
the Letter of Intent.

For purposes of applying the Rights of Accumulation and Letter of Intent
privileges, the sales charge schedule applies to the combined purchases made by
any individual and/or spouse purchasing securities for his, her or their own
account, or the aggregate investments of a trustee or other fiduciary or IRA for
the benefit of the persons previously listed.

Contingent Deferred Sales Charge - Retail B Shares
The public offering price for Retail B Shares is the net asset value of the
Retail B Shares purchased. Although investors pay no front-end sales charge on
purchases of Retail B Shares, such Shares are subject to a contingent deferred
sales charge at the rates set forth below if they are redeemed within six years
of purchase.

The amount of any contingent deferred sales charge an investor must pay depends
on the number of years that elapse between the purchase date and the date such
Retail B Shares are redeemed. Solely for purposes of this determination, all
payments during a month will be aggregated and deemed to have been made on the
first day of the month.

20
<PAGE>

Number of Years Contingent Deferred Sales Charge
Elapsed Since Purchase (as % of dollar amount subject to the charge)
---------------------- --------------------------------------------

Less than one 5.00%
At least one but less than two 4.00%
At least two but less than three 3.00%
At least three but less than four 3.00%
At least four but less than five 2.00%
At least five but less than six 1.00%
At least six None

The contingent deferred sales charge on Retail B Shares is based on the lesser
of the net asset value of the Shares on the redemption date or the original cost
of the Shares being redeemed. As a result, no sales charge is imposed on any
increase in the net asset value of an investor's Retail B Shares. In addition, a
contingent deferred sales charge will not be assessed on Retail B Shares
purchased through reinvestment of dividends or capital gains distributions.

When a shareholder redeems his or her Retail B Shares, the redemption request is
processed to minimize the amount of the contingent deferred sales charge that
will be charged. Retail B Shares are redeemed first from those shares that are
not subject to a contingent deferred sales charge (that is, Retail B Shares that
were acquired through reinvestment of dividends or distributions or that qualify
for other deferred sales charge exemptions, if any) and after that from the
Retail B Shares that have been held the longest.

Shareholder organizations will receive commissions in connection with sales of
Retail B Shares. A commission equal to 5% of the amount invested is paid to
authorized dealers.

The contingent deferred sales charge a shareholder may pay upon redemption is
remitted to the Distributor or other party, which may use such amounts to defray
the expenses associated with the distribution-related services involved in
selling Retail B Shares.

Waivers - Retail B Shares
Certain types of redemptions may also qualify for a waiver from the contingent
deferred sales charge. If you think you may be eligible for a contingent
deferred sales charge waiver listed below, be sure to notify your shareholder
organization or the Distributor at the time Retail B Shares are redeemed. The
contingent deferred sales charge with respect to Retail B Shares is not assessed
on:

. exchanges described under "Exchange of Shares"

. redemptions in connection with shares sold for certain retirement
distributions or because of disability or death.

. redemptions effected pursuant to a Fund's right to liquidate a shareholder's
account if the aggregate net asset value of Retail B Shares held in the
account is less than the minimum account size set forth under "Redemption of
Shares -Other Transaction Information - Accounts Below the Minimum Balance;"

. redemptions in connection with the combination of a Fund with any other
investment company registered under the 1940 Act by merger, acquisition of
assets, or by any other transaction;

21
<PAGE>

. redemptions resulting from certain tax-free returns from IRAs of excess
contribution; or

. you received shares of a Fund as part of the Firstar-Stellar
Reorganization, Firstar-Mercantile Reorganization and/or Firstar-Select
Reorganization and, prior to the reorganization, you qualified to redeem
your shares without a sales load at net asset value and you have
continuously owned shares of the Fund since that reorganization.

In addition to the foregoing waivers, no contingent deferred sales charge will
be imposed on redemptions made pursuant to the Company's systematic withdrawal
plan. The Funds reserve the right to limit such redemptions without a
contingent deferred sales charge, on an annual basis, to 12% of the value of
your Retail B Shares on the redemption date. See the Additional Statement for
more information.

Conversion - Retail B Shares

Retail B Shares will automatically convert into Retail A Shares of the same Fund
six years after the beginning of the calendar month in which the purchase date
occurred. If you acquire Retail B Shares of a Fund by exchange from Retail B
Shares of another Fund, your Retail B Shares will convert into Retail A Shares
of that Fund based on the date of the initial purchase.

If you acquire Retail B Shares through reinvestment of distributions, your
Retail B Shares will convert into Retail A Shares at the earlier of two dates -
either six years after the beginning of the calendar month in which the purchase
date occurred (based on the date of the initial purchase of the shares on which
the distribution was paid) or the date of conversion of the most recently
purchased Retail B Shares that were not acquired through reinvestment of
dividends or distributions. For example, if a shareholder makes a one-time
purchase of Retail B Shares of a Fund and subsequently acquires additional
Retail B Shares of that Fund only through reinvestment of dividends and/or
distributions, all of such shareholder's Retail B Shares of that Fund, including
those acquired through reinvestment, will convert to Retail A Shares of such
Fund on the same date. Upon conversion, the converted shares will be relieved of
the distribution and shareholder servicing fees borne by Retail B Shares,
although they will be subject to the shareholder servicing fees borne by Retail
A Shares.

Reinstatement Privilege

If you sell shares of a Firstar Fund, or of any Firstar family of funds, you
may reinvest some or all of the proceeds in the Retail A Shares of any Firstar
Fund within 60 days without a sales charge, as long as you notify the transfer
agent or your shareholder organization at the time you reinvest. You may be
subject to taxes as a result of a redemption. Consult your tax adviser
concerning the results of a redemption or reinvestment.

How to Decide Whether to Buy Retail A or Retail B Shares

The decision as to which type of Shares to purchase depends on the amount you
invest, the intended length of the investment and your personal situation.

Retail A Shares - If you are making an investment of an amount that qualifies
for a reduced sales charge, you may consider purchasing Retail A Shares.

Retail B Shares - If you plan to hold your investment for a significant period
of time and would prefer not to pay an initial sales charge, you might consider
purchasing Retail B Shares. By not paying a front-end sales charge, your entire
purchase in Retail B Shares is invested from the time you make your initial
investment. However, the distribution and service fee paid by Retail B Shares
will cause your Retail B Shares (until conversion to Retail A Shares) to have a
higher

22
<PAGE>

expense ratio and thus, lower performance and lower dividend payments (to the
extent dividends are paid) than Retail A Shares.

Shareholder Organizations - Retail A Shares, Retail B Shares and Y Shares

The Funds have adopted a distribution and service plan for the Retail A shares.
The Funds also have adopted a service plan for the Retail A shares, under which
the Funds may pay service fees for shareholder services to Retail A
shareholders. Under either of these plans, shareholder organizations may be
entitled to receive fees from 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 distribution and/or shareholder support services, as the case may
be. Fees under both these plans will not exceed, in the aggregate, the annual
rate of 0.25% of a Fund's average daily net assets for the Retail A shares.

Shareholder support services may include:

. assisting investors in processing purchase, exchange and redemption
requests
. processing dividend and distribution payments from the Fund
. providing information periodically to customers showing their positions in
Fund shares
. providing sub-accounting
. forwarding sales literature and advertising

The Funds have adopted a distribution and service plan for the Retail B shares.
Under the distribution and service plan for the Retail B shares, the Distributor
is entitled to receive fees at an annual rate of up to 0.75% of the average
daily net asset value of the Retail B shares for distribution services with
respect to the Retail B shares. Also under the distribution and service plan for
Retail B shares, shareholder organizations may be entitled to receive fees from
a Fund at an annual rate of up to 0.25% of the average daily net asset value of
the shares covered by their agreement for shareholder liaison services.
Shareholder liaison services may include responding to customers' inquiries and
providing information on their investments, and other personal and account
maintenance services within National Association of Securities Dealers, Inc.
("NASD") Rules.

Distribution fees are regulated by Rule 12b-1 under the 1940 Act and are subject
to the NASD Conduct Rules. Because these fees are paid out of a Fund's assets on
an ongoing basis, over time, these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.

The Funds also have adopted service plans for the Retail B Shares and Y Shares,
respectively, under which a Fund may pay service fees for shareholder services
(as listed above) to Retail B or Y shareholders. Under the service plans for the
Retail B and Y Shares, shareholder organizations may be entitled to receive fees
from the Funds at an annual rate of up to 0.25% of the average daily net asset
value of the shares covered by their respective agreements.

Payments to shareholder organizations, including affiliates of the Adviser,
under the plans, and to the Distributor under the distribution and service plan
for the Retail B shares are not tied directly to their own out-of-pocket
expenses and therefore may be used as they elect (for example, to defray their
overhead expenses), and may exceed their direct and indirect costs.

Under these plans, 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.

23
<PAGE>

Investors should read this Prospectus in light of such fee schedules and under
the terms of their shareholder organizations' agreements with Firstar. In
addition, investors should contact their shareholder organizations with respect
to the availability of shareholder services and the particular shareholder
organization's procedures for purchasing and redeeming shares. It is the
responsibility of shareholder organizations' to transmit purchase and redemption
orders and record those orders in customers' accounts on a timely basis in
accordance with their agreements with customers.

Conflict-of-interest restrictions may apply to the receipt of compensation paid
by Firstar to a shareholder organization in connection with the investment of
fiduciary funds in Fund shares. Institutions, including banks regulated by the
Comptroller of the Currency and investment advisers and other money managers
subject to the jurisdiction of the SEC, the Department of Labor or state
securities commissions, are urged to consult legal counsel before entering into
agreements with Firstar.

Purchasing Shares

Shares of the Funds are offered and sold on a continuous basis by the
distributor for the Funds, Quasar Distributors, LLC (the "Distributor"), an
affiliate of the Adviser. The Distributor is a registered broker-dealer with
offices at 615 East Michigan Street, Milwaukee, Wisconsin 53202.

Minimum Investments

Retail A and Retail B Shares

The minimum initial investment for Retail A and Retail B Shares in a Fund is
$1,000. The minimum subsequent investment is $50. The minimum initial investment
will be waived if you participate in the Periodic Investment Plan.

Institutional and Y Shares

There is no minimum initial or subsequent investment for Institutional or Y
Shares of the Funds.

Buying Shares

Purchase requests for the U.S. Treasury Money Market Fund received in proper
form before 1:00 p.m. Central time on a business day for the Fund generally are
processed at 1:00 p.m. Central time on the same day. In order to be processed at
1:00 p.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 U.S. Treasury
Money Market Fund which are received at or after 1:00 p.m. Central time, and
purchase requests accompanied by a check or wire payment for any 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
(the "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.

24
<PAGE>

<TABLE>
<CAPTION>
Opening an Account Adding to an Account
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Through a . Contact your Shareholder Organization . Contact your Shareholder Organization
Shareholder
Organization
-----------------------------------------------------------------------------------------------------------------------
By Mail . Complete an application and mail it along . Make your check payable to Firstar Funds.
with a check payable to Please include your sixteen-digit account
Firstar Funds number on your check and mail it to the
P.O. Box 3011 address at the left.
Milwaukee, WI 53201-3011.
For overnight delivery mail to:
615 E. Michigan St.
Milwaukee, WI 53202.
--------------------------------------------------------------------------------------------------------------------------
Automatically . Call 1-800-677-FUND to obtain a purchase . Complete a Periodic Investment Plan
(Retail A and B application, which includes information Application to automatically purchase more
Shares) for a 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.
--------------------------------------------------------------------------------------------------------------------------
By Wire . Call 1-800-677-FUND prior to sending the . Call 1-800-677-FUND prior to sending the
wire in order to obtain a confirmation wire in order to obtain a confirmation
number and to ensure prompt and accurate number and to obtain a confirmation number
handling of funds. Ask your bank to and to prompt and accurate handling of
transmit immediately available funds by funds. Ask your bank to transmit immediately
wire in the amount of your purchase to: available funds by wire as described at the
Firstar Bank, N.A. left. Please include your sixteen-digit
ABA # 0420-00013 account number. The Fund and its transfer
Firstar Trust Department agent are not responsible for the
Account # 112-952-137 consequences of delays resulting from the
for further credit to [name of Fund] banking or Federal Reserve Wire system, or
[name /title on the account ]. from incomplete wiring instructions.
The Fund and its transfer agent are not
responsible for the consequences of delays
resulting from the banking or Federal
Reserve Wire system, or from incomplete
wiring instructions.
--------------------------------------------------------------------------------------------------------------------------
Internet . Not available . Use Firstar Funds Direct to exchange from
www.firstarfunds.com another Firstar Fund account with the same
registration including name, address and
taxpayer ID number.
. Purchase additional shares using an
electronic funds transfer from your banking
institution for payment.
. Call 1-800-677-FUND to authorize this
service.
--------------------------------------------------------------------------------------------------------------------------
By Telephone . Call 1-800-677-FUND to exchange from . Call 1-800-677-FUND to exchange from another
Exchange another Firstar Fund account with the same Firstar Fund account with the same
registration including name, address and registration including name, address and
taxpayer ID number. taxpayer ID number.
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

--------------------------------------------------------------------------------
Please Note: All checks must be drawn on a bank located within the United States
and must be payable in U.S. dollars to Firstar Funds. A $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.
--------------------------------------------------------------------------------

25
<PAGE>

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.

For Owners of Y and Institutional

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.

26
<PAGE>

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.

Redeeming Shares

Selling Shares

Redemption requests for the U.S. Treasury Money Market Fund received by the
transfer agent by phone before 1:00 p.m. Central time on a business day for the
Funds are generally processed at 1:00 p.m. Central time on the same day.
Redemption requests received for the U.S. Treasury Money Market Fund received at
or after 1:00 p.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.

<TABLE>
<S> <C>
--------------------------------------------------------------------------------------------------
Through a . Contact your Shareholder Organization
Shareholder
Organization
----------------------------------------------------------------------------------------------------
By Phone . Call 1-800-677-FUND with your account name, sixteen digit account number
and amount of redemption (minimum $500). Redemption proceeds will only be
sent to a shareholder's address or bank account of a commercial bank
located within the United States as shown on the transfer agent's records.
(Available only if telephone redemptions have been authorized on the
account application and if there has been no change of address by telephone
within the preceding 15 days).
---------------------------------------------------------------------------------------------------------
By Mail . Mail your instructions to the Firstar Funds, P.O. Box 3011, Milwaukee, WI
53201-3011 (via overnight delivery to 615 E. Michigan Street, Milwaukee, WI
53202). Include the number of shares or the amount to be redeemed, your
sixteen-digit account number and Social Security number or other taxpayer
identification number. Your instructions must be signed by all persons
required to sign for transactions exactly as their names appear on the
account. If the redemption amount exceeds $50,000, or if the 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 . Use Firstar Funds Direct to redeem up to $25,000. Call 1-800-677-FUND to
www.firstarfunds.com authorize this service.
---------------------------------------------------------------------------------------------------------
Automatically . Call 1-800-677-FUND for a Systematic Withdrawal Plan application ($5,000
(Retail A and B account minimum and $50 minimum per transaction).
Shares)
---------------------------------------------------------------------------------------------------------
</TABLE>

Guarantees must be signed by an eligible guarantor institution and "Signature
Guaranteed" must appear with the signature.

27
<PAGE>

--------------------------------------------------------------------------------
The Funds may require additional supporting documents for redemptions made by
corporations, executors, administrators, trustees and guardians. A redemption
request will not be deemed to be properly received until the transfer agent
receives all required documents in proper form as specified above. Purchases of
additional shares concurrently with withdrawals could be disadvantageous because
of the sales charge involved in the additional purchases.
--------------------------------------------------------------------------------

Additional Transaction Information

Telephone Requests

In order to arrange for telephone redemptions after you have opened your account
or to change the bank or account designated to receive redemption proceeds, send
a written request to Firstar Mutual Fund Services, LLC or contact your
registered representative. Each shareholder of the 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 the U.S. Treasury
Money Market Fund, 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.

Check Redemption

You may request on the purchase application or by written request that a Fund
provides Redemption Checks ("Checks"). Checks may be made payable in the amount
of $250 or more. Any checks drawn on a joint account will only require one
signature. There is no charge for the use of the Checks, however, the transfer
agent will impose a $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, 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.

28
<PAGE>

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.

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.

Exchanging Shares

Generally, any share class of a Firstar Fund is exchangeable for the same share
class of another Firstar Fund, provided you are eligible to purchase that share
class or Fund. Listed below are permitted exchanges between different share
classes of the Funds:

. Retail B Shares of a non-money market fund may be exchanged for Retail
A Shares of a money market fund (except Retail B Shares are not
exchangeable for any shares of the Institutional Money Market Fund).
. Y Shares of a non-money market fund are exchangeable for Institutional
Shares of a money market fund.

Unless you qualify for a sales charge exemption, an initial sales charge will be
imposed on the exchange if the shares of the Fund being acquired have an initial
sales charge and the shares being redeemed were purchased without a sales
charge. Retail B Shares acquired in an exchange and Money Market Fund Shares
acquired in an exchange for Retail B Shares will be subject to a contingent
deferred sales charge upon redemption in accordance with this Prospectus. For
purposes of computing the contingent deferred sales charge, the length of time
of ownership will be measured from the date of the original purchase of Retail B
Shares.

Telephone exchange privileges automatically apply to each shareholder of record
unless the transfer agent receives written instructions canceling the privilege.

Firstar reserves the right to terminate the exchange privilege of any party who
requests more than four exchanges within a calendar year. Firstar may do so with
prior notice based on a consideration of both the number of exchanges and the
time period over which those exchange requests have been made, together with the
level of expense to the Fund or other adverse effects which may result from the
additional exchange requests.

For federal income tax purposes, an exchange of shares is a taxable event and,
accordingly, an investor may realize a capital gain or loss. Before making an
exchange request, an investor should consult a tax or other financial adviser to
determine the tax consequences of a particular exchange. No exchange fee is
currently imposed by Firstar on exchanges. However, Firstar

29
<PAGE>

reserves the right to impose a charge in the future. In addition, shareholder
organizations may charge a fee for providing administrative or other services in
connection with exchanges. The Fund reserves the right to reject any exchange
request with prior notice to a shareholder and the exchange privilege may be
modified or terminated at any time. At least sixty days' notice will be given to
shareholders of any material modification or termination except where notice is
not required under SEC regulations. Also keep in mind:

. Exchanges are available only in states where exchanges may be legally made.

. The minimum amount which may be exchanged is $1,000.

. If any portion of the shares to be exchanged represents an investment made
by check, the Fund will delay the acquisition of new shares in an exchange
until the transfer agent is reasonably satisfied that the check has been
collected, which may take up to twelve days from the purchase date.

. It may be difficult to make telephone exchanges in times of drastic
economic or market changes. If this happens, you may initiate transactions
in your share accounts by mail or as otherwise described in this
Prospectus.

Additional Shareholder Services

Shareholder Reports

Shareholders will be provided with a report showing portfolio investments and
other information at least semiannually; and after the close of the Fund's
fiscal year with an annual report containing audited financial statements. To
eliminate unnecessary duplication, only one copy of shareholder reports will be
sent to shareholders with the same mailing address. Shareholders may request
duplicate copies free of charge.

Account statements will be mailed after each purchase, reinvestment of dividends
and redemption. Statements of accounts shall be conclusive if not objected to in
writing within 10 days after transmitted by mail. Generally, 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.

30
<PAGE>

Automated Teleresponse Service

Shareholders using a touch-tone telephone can access information on the Funds
twenty-four hours a day, seven days a week. When calling Firstar Mutual Fund
Services, LLC at 1-800-677-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 Funds offer 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.

31
<PAGE>

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 the U.S. Treasury Money Market Fund
are declared on each business day on the shares that are outstanding immediately
after 1:00 p.m. Central time on the declaration date. Dividends from net
investment income of the 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 a 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 the Small Cap Core Equity Fund and the International Growth 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 subject to income tax on the entire amount of the
distribution received, even though, as an economic matter, the distribution
simply constitutes a return of capital. This is known as "buying into a
dividend."

You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Fund, based on the
difference between your tax basis in the Shares and the amount you receive for
them. (To aid in computing your tax basis, you generally should retain your
account statements for the periods during which you held Shares.) Generally,
this gain or loss will be long-term or short-term depending on whether your
holding period for the shares exceeds 12 months, except that 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

32
<PAGE>

corporate shareholders, for the corporate dividends-received deduction, subject
to certain holding period requirements and debt financing limitations.

The International Growth Fund. It is expected that the International Growth Fund
will be subject to foreign withholding taxes with respect to dividends or
interest received from sources in foreign countries. The 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 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 (the "Adviser") 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 Fund). Subject to the
general supervision of the Board of Directors and in accordance with the
respective investment objectives and policies of the International Growth Fund,
the Adviser is responsible for each Fund's investment program, general
investment criteria and policies.

The Adviser has retained Clay Finlay as Sub-Adviser for the International Growth
Fund. Clay Finlay is a New York corporation founded in 1982, with its principal
office at 200 Park Avenue, 56/th/ Floor, New York, NY 10166, and, as of June 30,
2000, had $5.7 billion in assets under management. Subject to the oversight and
supervision of the Fund's Board of Directors and

33
<PAGE>

Adviser, Clay Finlay formulates and implements a continuous investment program
for the International Growth Fund.

Clay Finlay is a registered investment adviser and a wholly owned subsidiary of
Old Mutual plc, a South African financial services company.

The Adviser (or Sub-Adviser for the International Growth Fund) is authorized to
allocate purchase and sale orders for portfolio securities to shareholder
organizations, including, in the case of agency transactions, shareholder
organizations which are affiliated with the Adviser, to take into account the
sale of Fund shares if the Adviser (or Sub-Adviser for the International Growth
Fund) believes that the quality of the transaction and the amount of the
commission are comparable to what they would be with other qualified brokerage
firms.

FIRMCO is entitled to receive from the Funds contractual fees calculated daily
and payable monthly, at the annual rate (as a percentage of such Fund's average
daily net assets) as follows:

<TABLE>
<CAPTION>
Amount Before
-------------
Fund Waivers Amount After Waivers
---- ------- --------------------
<S> <C> <C>
Small Cap Core Equity Fund 0.75% 0.74%
International Growth Fund 1.00% 0.94%
U.S. Treasury Money Market Fund 0.44% N/A
</TABLE>

Prior to March 1, 2000, the Mercantile Small Cap Equity Portfolio and the
Mercantile International Equity Portfolio were managed by Mississippi Valley
Advisors Inc. ("MVA"), a subsidiary of Firstar Corporation.

Clay Finlay 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.

For the fiscal year ended November 30, 1999, the predecessor Mercantile Funds
paid their former investment adviser, MVA, the following fees:

Fund Fee paid
---- --------

Mercantile Small Cap Equity Portfolio 0.75%

Mercantile International Equity Portfolio 1.00%

Fund Managers

David Lettenberger and John Potter co-manage the Small Cap Core Equity Fund -
each since September 2000. Mr. Lettenberger has been with FIRMCO and its
affiliates since 1999 and has seven years of investment management experience.
Mr. Potter joined FIRMCO in September 2000 and has six years of investment
management experience.

Clay Finlay's International Equity team is responsible for the management of the
International Growth Fund. Frances Dakers, Greg Jones, Virginie Maisonneuve, and
Susan Kenneally serve as regional team leaders on the International Equity team.
Each of these individuals is a Principal and Director of the firm, and each has
an average of more than seventeen years of investment

34
<PAGE>

experience. This team has managed the Predecessor Mercantile International
Equity Portfolio since it began operations in 1994.

Administrative Services

Firstar Mutual Fund Services, LLC serves as the Administrator and receives fees
for those services.

Custodian, Transfer and Dividend Disbursing Agent, and Accounting Services Agent

Firstar Mutual Fund Services, LLC, an affiliate of the Adviser, provides
transfer agency, dividend disbursing agency and accounting services for the
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 Retail A, Retail B, Y and Institutional Shares (each, a
"class") is based on net asset value per share, plus, in the case of Retail A
Shares of the Small Cap Core Equity Fund and International Growth Fund, a front-
end sales charge, if applicable. This amount is calculated separately for each
class of shares by dividing the value of all securities and other assets
attributable to the class, less the liabilities attributable to that class, by
the number of outstanding shares of that class. The price at which a purchase or
redemption is effected is based on the next calculation of net asset value after
the order is accepted.

U.S. Treasury Money Market Fund

The net asset value of the U.S. Treasury Money Market Fund for purposes of
pricing purchase and redemption orders is determined as of 1:00 p.m. Central
time and as of the close of regular trading hours on the New York Stock Exchange
(the "Exchange"), normally 3:00 p.m. Central time, on each day on which both the
Exchange is open for trading and the Federal Reserve Bank's Fedline System is
open. Net asset value per share is calculated by dividing the value of all
securities and other assets owned by each Fund, less the liabilities charged to
the Fund, by the number of the Fund's outstanding shares.

The Company intends to use its best efforts to maintain the net asset value of
the U.S. Treasury 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.

Small Cap Core Equity Fund and International Growth Fund

Net asset value for purposes of pricing purchase and redemption orders is
determined as of the close of regular trading hours on the Exchange, normally,
3:00 p.m. Central time, on each day the Exchange is open for trading. Shares of
the Funds are not priced on days when the Exchange is closed. 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

35
<PAGE>

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.

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.

36
<PAGE>

APPENDIX

Financial Highlights

The financial highlights tables set forth on the following pages are based on
the financial history of the predecessor Mercantile Small Cap Equity Portfolio
(Small Cap Core Equity Fund), predecessor Mercantile International Equity
Portfolio (International Growth Fund) and predecessor Firstar Stellar Treasury
Fund (U.S. Treasury Money Market Fund). The financial highlights tables are
intended to help you understand each 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
tables represent the rate that an investor would have earned (or lost) on an
investment in each Fund (assuming reinvestment of all dividends and
distributions).

For the Small Cap Core Equity Fund and International Growth Fund, the
information for the year ended November 30, 1999 and prior has been audited by
KPMG LLP, independent auditors for the predecessor Mercantile Portfolios, whose
report, along with each Fund's financial statements, are included in the
predecessor Mercantile Portfolios' Annual Report, and incorporated by reference
into the Additional Statement, all of which are available upon request. The
financial statements for the six-month period ending May 31, 2000 are unaudited
and are contained in the predecessor Mercantile Portfolios' Semi-Annual Report,
which is also incorporated by reference into the Additional Statement.

For the U.S. Treasury Money Market Fund, this information had been audited by
Arthur Andersen LLP, independent auditors for the predecessor Firstar Stellar
Funds, whose reports, along with each Fund's financial statements, are included
in the predecessor Firstar Stellar Funds' Annual Report and incorporated by
reference into the Additional Statement, all of which are available upon
request. The financial statements for the six-month period ending May 31, 2000
are unaudited and are contained in the predecessor Firstar Stellar Funds' Semi-
Annual Report, which is also incorporated by reference into the Additional
Statement.

Contact Firstar Mutual Fund Services, LLC for a free copy of the Annual and
Semi-Annual Reports or Additional Statement.

37
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Small Cap Core Equity Fund
(Retail A Shares) Year Ended November 30,

For the Six
Months ended
May 31, 2000
(unaudited) 1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.84 $ 11.86 $ 15.03 $ 13.40 $ 13.44 $ 11.99
----------------------------------------------------------------------------------------------------------------------------
Income from investment operations

Net investment loss (0.05) (0.07)/(a)/ (0.06) (0.05) (0.01) --

Net realized and unrealized gains
from investments 3.02 2.10 1.89 2.50 1.03 2.36
------- ------- ------- ------- ------- -------
Total from Investment Activities 2.97 2.03 (1.95) 2.45 1.02 2.36
------- ------- ------- ------- ------- -------
Less Distributions

In excess of net investment income -- -- -- -- (0.01) --

Net realized gains (0.27) (0.05) (1.19) (0.82) (1.05) (0.91)

In excess of net realized gains -- -- (0.03) -- -- --
------- ------- ------- ------- ------- -------
Total Distributions (0.27) (0.05) (1.22) (0.82) (1.06) (0.91)
------- ------- ------- ------- ------- -------
----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 16.54 $ 13.84 $ 11.86 $ 15.03 $ 13.40 $ 13.44
----------------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 21.79%/(b)/ 17.21% (14.19)% 19.45% 8.36% 21.47%

Ratios/Supplementary Data:

Net Assets at end of period (000) $ 9,288 $ 8,885 $11,601 $14,213 $13,889 $15,056

Ratio of expenses to average net assets 1.28%/(c)/ 1.26% 1.25% 1.25% 1.26% 1.26%

Ratio of net investment loss to average net
assets (0.06)%/(c)/ (0.57)% (0.45)% (0.29)% (0.13)% (0.12)%

Ratio of expenses to average net assets* 1.39%/(c)/ 1.36% 1.35% 1.35% 1.36% 1.36%

Portfolio turnover** 40.05% 72.08% 69.72% 80.23% 65.85% 83.13%
</TABLE>

38
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Small Cap Core Equity Fund
(Retail B Shares) Year Ended November 30,

For the Six March 1,
Months ended 1995 to
May 31, 2000 November
(unaudited) 1999 1998 1997 1996 30, 1995/(a)/
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.38 $ 11.53 $ 14.74 $ 13.24 $ 13.37 $ 11.83
-----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations

Net investment loss (0.13) (0.16)/(e)/ (0.14) (0.13) (0.07) (0.03)

Net realized and unrealized gains
(losses) from investments 2.94 2.06 (1.85) 2.45 0.99 1.57
------- ------- ------- ------- ------- -------
Total from Investment Activities 2.81 1.90 (1.99) 2.32 0.92 1.54
------- ------- ------- ------- ------- -------
Less Distributions

Net realized gains (0.27) (0.05) (1.18) (0.82) (1.05) --
In excess of net realized gains -- -- (0.04) -- -- --
------- ------- ------- ------- ------- -------
Total Distributions (0.27) (0.05) (1.22) (0.82) (1.05) --
------- ------- ------- ------- ------- -------
-----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 15.92 $ 13.38 $ 11.53 $ 14.74 $ 13.24 $ 13.37
-----------------------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 21.34%/(d)/ 16.57% (14.79)% 18.62% 7.63% 20.83%/(b)/

Ratios/Supplementary Data:

Net Assets at end of period (000) $ 1,174 $ 1,094 $ 1,286 $ 1,503 $ 1,272 $ 603
Ratio of expenses to average net assets 1.98%/(c)/ 1.96% 1.95% 1.95% 1.96% 1.96%/(c)/
Ratio of net investment loss to average net
assets (0.76)%/(c)/ (1.27)% (1.15)% (0.99)% (0.83)% (0.78)%/(c)/
Ratio of expenses to average net assets* 2.09%/(c)/ 2.06% 2.05% 2.05% 2.06% 2.06%/(c)/
Portfolio turnover** 40.05% 72.08% 69.72% 80.23% 65.85% 83.13%
</TABLE>

* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Represents the total return for Investor A Shares from December 1, 1994 to
February 28, 1995 plus the total return for Investor B Shares from March 1,
1995 to November 30, 1995.
(c) Annualized.
(d) Not annualized.
(e) Per share net investment income has been calculated using the daily average
share method.

39
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Small Cap Core Equity Fund
(Y Shares) Year Ended November 30,

For the
Six Months
ended May
31, 2000
(unaudited) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $13.80 $11.82 $ 14.98 $ 13.36 $ 13.40 $11.96
--------------------------------------------------------------------------------------------------------------------------
Income from investment operations

Net investment loss (0.09)/(c)/ (0.07)/(c)/ (0.07) (0.04) (0.01) (0.01)
Net realized and unrealized gains
(losses) from investments 3.05 2.10 (1.87) 2.48 1.03 2.36
---- ---- ------ ---- ---- ----
Total from Investment Activities 2.96 2.03 (1.94) 2.44 1.02 2.35
---- ---- ------ ---- ---- ----
Less Distributions

In excess of net investment income -- -- -- -- (0.01) --
Net realized gains (0.27) (0.05) (1.19) (0.82) (1.05) (0.91)
In excess of net realized gains -- -- (0.03) -- -- --
-- -- -- -- --
------ ------ ------ ------ ------ ------
Total Distributions (0.27) (0.05) (1.22) (0.82) (1.06) (0.91)
------ ------ ------ ------ ------ ------
----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $16.49 $13.80 $ 11.82 $ 14.98 $ 13.36 $13.40

----------------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 21.78%/(a)/ 17.27% (14.17)% 19.41% 8.39% 21.43%

Ratios/Supplementary Data:

Net Assets at end of period (000) $4,237 $2,448 $25,037 $34,395 $30,081 $17,620
Ratio of expenses to average net assets 1.28%/(b)/ 1.26% 1.25% 1.25% 1.26% 1.26%
Ratio of net investment loss to average net
assets (0.06)%/(b)/ (0.59)% (0.45)% (0.29)% (0.13)% (0.11)%
Ratio of expenses to average net assets* 1.39%/(b)/ 1.36% 1.35% 1.35% 1.36% 1.36%
Portfolio turnover** 40.05% 72.08% 69.72% 80.23% 65.85% 83.13%
</TABLE>

40
<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Small Cap Core Equity Fund
(Institutional Shares) Year Ended November 30,

For the
Six Months
ended May
31, 2000
(unaudited) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 14.07 $ 12.02 $ 15.17 $ 13.49 $ 13.49 $ 12.01
-----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations

Net investment income (loss) 0.02 (0.03)/(c)/ (0.02) 0.01 0.02 0.03
Net realized and unrealized gains
(losses) from investments 3.01 2.13 (1.91) 2.50 1.05 2.36
---- ---- ------ ---- ---- ----
Total from Investment Activities 3.03 2.10 (1.93) 2.51 1.07 2.39
---- ---- ------ ---- ---- ----
Less Distributions

Net investment income -- -- -- (0.01) (0.02) --
Net realized gains (0.26) (0.05) (1.19) (0.82) (1.05) (0.91)
In excess of net realized gains -- -- (0.03) -- -- --
-- -- ----- -- -- --
Total Distributions (0.26) (0.05) (1.22) (0.83) (1.07) (0.91)
----- ------ ------ ------ ----- ------
------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 16.84 $ 14.07 $ 12.02 $ 15.17 $ 13.49 $ 13.49

------------------------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 21.94%/(a)/ 17.57% (13.90)% 19.77% 8.72% 21.70%

Ratios/Supplementary Data:

Net Assets at end of period (000) $131,418 $111,643 $129,591 $211,643 $171,295 $139,681
Ratio of expenses to average net assets 0.98%/(b)/ 0.96% 0.95% 0.95% 0.96% 0.96%
Ratio of net investment income (loss) to
average net assets 0.24%/(b)/ (0.26)% (0.16)% 0.01% 0.17% 0.18%
Ratio of expenses to average net assets* 1.39%/(b)/ 1.36% 1.35% 1.35% 1.06% 1.06%
Portfolio turnover** 40.05% 72.08% 69.72% 80.23% 65.85% 83.13%
</TABLE>

41
<PAGE>

________________________________________________________________________________

<TABLE>
<CAPTION>
International Growth Fund
(Retail A Shares) Year ended November 30,

For the Six
Months ended
May 31, 2000
(unaudited) 1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $17.03 $13.27 $11.99 $12.05 $10.76 $ 9.90
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income from investment operations

Net investment income (loss) (0.06) -- 0.01 (0.02) 0.02 0.02
Net realized and unrealized gains from
investments and foreign currency 1.04 4.55 1.77 0.32 1.27 0.86
------ ------ ------ ------ ------ ------
Total from Investment Activities 0.98 4.55 1.78 0.30 1.29 0.88
------ ------ ------ ------ ------ ------
Less Distributions

Net investment income (0.11) (0.03) -- -- -- --
In excess of net investment income -- (0.01) (0.07) (0.05) -- --
Net realized gains 1.52 (0.75) (0.43) (0.31) -- (0.01)
Tax return of capital -- -- -- -- -- (0.01)
------ ------ ------ ------ ------ ------
Total Distributions (1.63) (0.79) (0.50) (0.36) -- (0.02)
------ ------ ------ ------ ------ ------
----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $16.38 $17.03 $13.27 $11.99 $12.05 $10.76
----------------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 5.83% /(a)/ 36.62% 15.33% 2.58% 11.99% 8.89%

Ratios/Supplementary Data:

Net Assets at end of period (000) $3,961 $3,939 $3,154 $2,854 $2,573 $1,568
Ratio of expenses to average net assets 1.48% /(b)/ 1.56% 1.58% 1.59% 1.44% 1.45%
Ratio of net investment income (loss) to
average net assets (0.18)% /(b)/ (0.01)% 0.02% (0.20)% 0.19% 0.07%
Ratio of expenses to average net assets* 1.64% /(b)/ 1.75% 1.75% 1.75% 1.75% 1.76%
Portfolio turnover** 44.99% 93.73% 88.95% 75.18% 77.63% 62.78%
</TABLE>

42
<PAGE>

________________________________________________________________________________

International Growth Fund
(Retail B Shares) Year ended November 30,

For the Six March 1, 1995
Months ended to
May 31, 2000 November 30,
(unaudited) 1999 1998 1997 1996 1995(a)
--------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $16.54 $12.97 $11.77 $11.90 $ 10.71 $ 9.26
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income from investment operations

Net investment loss (0.11) (0.10) (0.09) (0.09) (0.04) (0.03)
Net realized and unrealized gains from
investments and foreign currency 1.00 4.43 1.74 0.30 1.23 1.48
------ ------ ------ ------- ------ ------
Total from Investment Activities 0.89 4.33 1.65 0.21 1.19 1.45
------ ------ ------ ------- ------ ------
Less Distributions

Net investment income (0.08) (0.01) -- -- -- --
In excess of net investment income -- -- (0.02) (0.03) -- --
Net realized gains (1.52) (0.75) (0.43) (0.31) -- --
------ ------ ------ ------- ------ ------
Total Distributions (1.60) (0.76) (0.45) (0.34) -- --
------ ------ ------ ------- ------ ------
--------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $15.83 $16.54 $12.97 $ 11.77 $ 11.90 $10.71
--------------------------------------------------------------------------------------------------------------------------------
Total Return (excludes redemption charge) 5.44%/(d)/ 35.65% 14.48% 1.82% 11.11% 8.38%/(b)/

Ratios/Supplementary Data:

Net assets at end of period (000) $ 741 $ 781 $ 624 $ 562 $ 437 $ 102
Ratio of expenses to average net assets 2.18%/(c)/ 2.26% 2.28% 2.29% 2.14% 2.02%/(c)/
Ratio of net investment loss to average net
assets (0.88)%/(c)/ (0.71)% (0.70)% (0.91)% (0.50)% (0.96)%/(c)/
Ratio of expenses to average net assets* 2.34%/(c)/ 2.45% 2.45% 2.45% 2.46% 2.44%/(c)/
Portfolio turnover** 44.99% 93.73% 88.95% 75.18% 77.63% 62.78%
</TABLE>

* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been
as indicated.
** Portfolio is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
/(a)/ Period from commencement of operations.
/(b)/ Represents total return for Investor A Shares from December 1, 1994 to
February 28, 1995 plus total return for Investor B Shares from March
1, 1995 to November 30, 1995.
/(c)/ Annualized.
/(d)/ Not annualized.

43
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
International Growth Fund
(Y Shares) Year ended November 30,
For the Six
Months ended
May 31, 2000
(unaudited) 1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 17.00 $ 13.25 $11.97 $12.03 $10.75 $ 9.90
----------------------------------------------------------------------------------------------------------------------------
Income from investment operations

Net investment income (loss) (0.14) (0.01) -- (0.03) 0.01 0.01
Net realized and unrealized gains from
investments and foreign currency 1.11 4.55 1.78 0.33 1.27 0.86
------- -------- ------ ------- ------ ------
Total from Investment Activities 0.97 4.54 1.78 0.30 1.28 0.87
------- -------- ------ ------- ------ ------
Less Distributions

Net investment income (0.10) (0.03) (0.01) -- -- --
In excess of net investment income -- (0.01) (0.06) (0.05) -- --
Net realized gains (1.52) (0.75) (0.43) (0.31) -- (0.01)

Tax return of capital -- -- -- -- -- (0.01)
-- -- -- -- -- ------
Total Distributions (1.62) (0.79) (0.50) (0.36) -- (0.02)
------- -------- ------ ------- ------ ------
----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 16.35 $ 17.00 $13.25 $11.97 $12.03 $10.75
----------------------------------------------------------------------------------------------------------------------------
Total Return 5.84% /(a)/ 36.61% 15.37% 2.59 % 11.91% 8.78%
Ratios/Supplementary Data:

Net Assets at end of period (000) $16,167 $ 11,307 $8,058 $6,798 $6,059 $2,159
of expenses to average net assets 1.48% /(b)/ 1.56% 1.58% 1.59% 1.44% 1.44%
Ratio of net investment income (loss) to
average net assets (0.18)%/(b)/ 0.00% 0.01% (0.21)% 0.16% 0.13%
Ratio of expenses to average net assets* 1.64% /(b)/ 1.75% 1.75% 1.75% 1.76% 1.75%
Portfolio turnover** 44.99% 93.73% 88.95% 75.18% 77.63% 62.78%
</TABLE>

44
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
International Growth Fund
(Institutional Shares) Year ended November 30,
For the
Six Months
ended May
31, 2000
(unaudited) 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 17.22 $ 13.40 $ 12.09 $ 12.12 $ 10.79 $ 9.92
Income from Investment operations

Net investment income 0.01 0.06 0.04 0.01 0.06 0.03

Net realized and unrealized gains from
investments and foreign currency 1.01 4.58 1.80 0.33 1.27 0.86
-------- ------- ------- ------- ------- ------
Total from Investment Activities 1.02 4.64 1.84 0.34 1.33 0.89
-------- ------- ------- ------- ------- ------
Less Distributions

Net investment income (0.12) (0.05) (0.03) (0.04) -- --

In excess of net investment income -- (0.02) (0.07) (0.02) -- --

Net realized gains (1.52) (0.75) (0.43) (0.31) -- (0.01)

Tax return of capital -- -- -- -- -- (0.01)
-------- ------- ------- ------- ------- ------

Total Distributions (1.64) (0.82) (0.53) (0.37) -- (0.02)
-------- ------- ------- ------- ------- ------
--------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 16.60 $ 17.22 $ 13.40 $ 12.09 $ 12.12 $10.79
--------------------------------------------------------------------------------------------------------------------
Total Return 6.02%/(a)/ 36.98% 15.73% 2.91% 12.33% 8.97%

Ratios/Supplementary Data:

Net Assets at end of period (000) $110,702 $92,778 $60,647 $55,038 $52,181 $36,096

Ratio of expenses to average net assets 1.18%/(b) 1.26% 1.28% 1.29% 1.14% 1.16%

Ratio of net investment income to average
net assets 0.12%/(b)/ 0.28% 0.34% 0.09% 0.51% 0.39%

Ratio of expenses to average net assets* 1.64%/(b) 1.75% 1.75% 1.75% 1.45% 1.46%

Portfolio turnover** 44.99% 93.73% 88.95% 75.18% 77.63% 62.78%
</TABLE>

45
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Money Market Fund
(Retail A Shares) Year ended November 30,
For the Six
Months ended
May 31, 2000 1999 1998 1997 1996 1995
(unaudited)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------------------------------------------------------------------------------------------------------------------
Income from investment operations

Net Investment Income 0.02 0.04 0.05 0.05 0.05 0.05

Less Distributions

Net investment income (0.02) (0.04) (0.05) (0.05) (0.05) (0.05)
---------- ---------- -------- -------- -------- --------
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge)/(a)/ 2.36% 4.02% 4.69% 4.85% 4.80% 5.23%

Ratios/Supplementary Data:

Net Assets at end of period (000) $1,483,384 $1,049,641 $542,430 $469,400 $829,259 $654,963

Ratio of expenses to average net assets* 0.97%/(b)/ 0.92% 0.88% 0.73% 0.70% 0.71%

Ratio of net investment income to
average net assets 4.68%/(b)/ 3.98% 4.58% 4.73% 4.69% 5.14%

Expense waiver/reimbursement 0.11%/(b)/ 0.16% 0.20% 0.20% 0.20% 0.20%
</TABLE>

* During the period, certain fees were voluntarily reduced. These voluntary
reductions are reflected.
/(a)/ Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
/(b)/ Annualized.

46
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Money Market Fund
(Institutional Shares) Year ended November 30,
For the Six March 25, 1997
Months ended to November 30,
May 31, 2000 1999 1998 1997/(a)/
(unaudited)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------------------------------------------------------------------------------------------------------------------
Income from investment operations

Net Investment Income 0.02 0.04 0.05 0.03

Less Distributions

Net investment income (0.02) (0.04) (0.05) (0.03)
---------- ---------- ---------- --------
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 2.44% 4.18% 4.84% 3.37%

Ratios/Supplementary Data:

Net Assets at end of period (000) $1,867,979 $1,766,246 $1,123,144 $659,296

Ratio of expenses to average net assets* 0.82%/(b)/ 0.77% 0.73% 0.72%/(b)/

Ratio of net investment income to
average net assets 4.83%/(b)/ 4.13% 4.73% 4.87%/(b)/

Expense waiver/reimbursement 0.11%/(b)/ 0.16% 0.20% 0.20/(b)/%
</TABLE>

* During the period, certain fees were voluntarily reduced. These voluntary
reductions are reflected.
(a) Period from commencement of operations.
(b) Annualized.

47
<PAGE>

No person has been authorized to give any information or to make any
representations not contained in this Prospectus, or in the Funds' Additional
Statement incorporated herein by reference, in connection with the offering made
by this Prospectus and, if given or made, such information or representations
must not be relied upon as having been authorized by the Funds or their
distributor. This Prospectus does not constitute an offering by the Funds or by
their distributor in any jurisdiction in which such offering may not lawfully be
made.

48
<PAGE>

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
their last fiscal year.

Statement of Additional Information

Additional information about the Funds and their policies is also available in
the Funds' Statement of Additional Information ("Additional Statement"). The
Additional Statement is incorporated by reference into this Prospectus (and is
legally considered part of this Prospectus).

The Funds' annual and semiannual reports and the Additional Statement are
available free upon request by calling Firstar Funds at 1-800-677-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

49
<PAGE>

FIRSTAR FUNDS, INC.
Statement of Additional Information

Small Cap Core Equity Fund
International Growth Fund
U.S. Treasury Money Market Fund

November 27, 2000

TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
FIRSTAR FUNDS, INC................................................ 2
DESCRIPTION OF THE FUNDS AND THEIR INVESTMENTS AND RISKS.......... 2
NET ASSET VALUE................................................... 23
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.................... 24
DESCRIPTION OF SHARES............................................. 31
ADDITIONAL INFORMATION CONCERNING TAXES........................... 32
MANAGEMENT OF THE COMPANY......................................... 33
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES AGENT........... 45
EXPENSES.......................................................... 46
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS.................. 47
COUNSEL........................................................... 47
CODE OF ETHICS.................................................... 47
PERFORMANCE CALCULATIONS.......................................... 48
MISCELLANEOUS..................................................... 52
APPENDIX A........................................................ A-1
APPENDIX B........................................................ B-1
</TABLE>

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 November 27, 2000, for Retail A, Retail
B, Y and Institutional Shares of the Small Cap Core Equity Fund, International
Growth Fund and U.S. Treasury Money Market Fund (collectively referred to as the
"Funds") and is incorporated by reference in its entirety into the Prospectus.
Copies of the Prospectus for the Funds may be obtained by writing the Firstar
Funds Center at 615 East Michigan Street, P.O. Box 3011, Milwaukee, WI 53201-
3011 or by calling 1-800-677-FUND. The Financial Statements and the Independent
Accountants' reports thereon in this SAI are incorporated by reference from the
Annual Reports of the Mercantile Small Cap Equity Fund, Mercantile International
Equity Fund and Firstar Stellar Treasury Money Market Fund (together, the
"Predecessor Funds"). The financial statements for the six-month period ending
May 31, 2000 are unaudited and are contained in the Predecessor Funds' Semi-
Annual Reports, which are also incorporated by reference into this SAI. These
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 and Semi-Annual
Reports are incorporated herein by reference.

1
<PAGE>

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.

On November 27, 2000, the Mercantile Small Cap Equity Portfolio, which was
similarly managed to the Firstar Small Cap Core Equity Fund, reorganized into
the Firstar Small Cap Core Equity Fund; the Mercantile International Equity
Portfolio, which was similarly managed to the Firstar International Growth Fund,
reorganized into the Firstar International Growth Fund; and the Mercantile
Treasury Money Market Portfolio and the Firstar Stellar Treasury Fund, which
were similarly managed to the Firstar U.S. Treasury Money Market Fund,
reorganized into the Firstar U.S. Treasury Money Market Fund. For the periods
prior to November 27, 2000, the performance history, historical data and certain
of the expense information set forth in this SAI is that of the Mercantile Small
Cap Equity Portfolio ("Predecessor Mercantile Small Cap Equity Portfolio"),
Mercantile International Equity Portfolio ("Predecessor Mercantile International
Equity Portfolio") and Firstar Stellar Treasury Fund ("Predecessor Firstar
Stellar Treasury Fund") (together, the "Predecessor Funds").

This SAI pertains to Retail A Shares, Retail B Shares, Y Shares and
Institutional Shares, as applicable, of three diversified portfolios, the Small
Cap Core Equity Fund and International Growth Fund and Retail A Shares and
Institutional Shares of the U.S. Treasury Money Market Fund (collectively the
"Funds"). The Company also offers other investment portfolios that are described
in separate statements 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 an 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, Firstar
Investment Management & Research Company, LLC ("FIRMCO" or the "Adviser") is
responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for each Fund except the
International Growth Fund. Subject to the general supervision of the Board of
Directors, the Adviser is responsible for the portfolio management of the
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
Clay Finlay Inc. (the "Sub-Adviser"). Within the framework of the investment
objectives, policies and restrictions of the International Growth Fund, and
subject to the supervision of the Adviser, the Sub-Adviser is responsible for,
makes decisions with respect to, and places orders for all purchased sales of
portfolio securities for the International Growth Fund.

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

2
<PAGE>

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 the Small Cap Core Equity and
International Growth Funds may engage in short-term trading to achieve their
investment objectives.

The U.S. Treasury Money Market Fund does not intend to seek profits from
short-term trading. Because the Fund will invest only in short-term debt
instruments, its 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 Fund's net
investment income. For regulatory purposes, the Fund's annual portfolio turnover
rates are expected to be zero.

Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. Unlike transactions on
U.S. stock exchanges that involve the payment of negotiated brokerage
commissions, transactions in foreign securities generally involve the payment of
fixed brokerage commissions that are generally higher than those in the United
States.

Transactions in the over-the-counter market are generally principal
transactions with dealers and the costs of such transactions involve dealer
spreads rather than brokerage commissions. With respect to over-the-counter
transactions, the Adviser will normally deal directly with dealers who make a
market in the securities involved except in those circumstances where better
prices and execution are available elsewhere or as described below.

Fixed income securities purchased and sold by the 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, in its
sole discretion, believes such practice to be in the Funds' interests.

For the fiscal years ended November 30, 1999, 1998 and 1997, the
Predecessor Funds paid brokerage commissions as follows:

Fund 1999 1998 1997
---- ---- ---- ----

Small Cap Core Equity Fund $319,318 $550,114 $428,191
International Growth Fund $387,288 $293,093 $248,564
U.S. Treasury Money Market Fund $ 0 $ 0 $ 0

None of the brokerage commissions were paid to affiliates of the Company,
the Adviser, Sub-Advisers or the Administrator.

3
<PAGE>

The Advisory Agreement between the Company, and the Adviser and the Sub-
Advisory Agreement among the Company, the Adviser and Clay Finlay Inc. with
respect to the International Growth Fund, provides that, in executing portfolio
transactions and selecting brokers or dealers, the Adviser and Sub-Adviser will
seek to obtain the best overall terms available. In assessing the best overall
terms available for any transaction, the Adviser and 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
Agreement authorizes 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 and 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 and Sub-Adviser and
does not reduce the advisory fees payable to it by the Funds. The Directors
will periodically review the commissions paid by the Funds to consider whether
the commissions paid over representative periods of time appear to be reasonable
in relation to the benefits inuring to the Funds. It is possible that certain
of the supplementary research or other services received will primarily benefit
one or more other investment companies or other accounts for which investment
discretion is exercised. Conversely, a Fund may be the primary beneficiary of
the research or services received as a result of portfolio transactions effected
for such other account or investment company.

Portfolio securities will not be purchased from or sold to (and savings
deposits will not be made in and repurchase and reverse repurchase agreements
will not be entered into with) the Adviser, or Quasar Distributors, LLC (the
"Distributor") or an affiliated person of either of them (as such term is
defined in the Investment Company Act of 1940, as amended, (the "1940 Act"))
acting as principal. In addition, the Funds will not purchase securities during
the existence of any underwriting or selling group relating thereto of which the
Distributor or their Adviser or Sub-Adviser, or an affiliated person of either
of them, is a member, except to the extent permitted by the Securities and
Exchange Commission ("SEC").

Investment decisions for the Funds are made independently from those for
other investment companies and accounts advised or managed by their Adviser or
Sub-Adviser. Such other investment companies and accounts may also invest in
the same securities as the Funds. When a purchase or sale of the same security
is made at substantially the same time on behalf of a Fund and another
investment company or account, the transaction will be averaged as to price and
available investments allocated as to amount, in a manner which the Adviser or
Sub-Adviser believes to be equitable to the Fund and such other investment
company or account. In some instances, this investment procedure may adversely
affect the price paid or received by a Fund or the size of the position obtained
or sold by the Fund. To the extent permitted by law, the Adviser or Sub-Adviser
may aggregate the securities to be sold or purchased for a Fund with those to be
sold or purchased for other investment companies or accounts in executing
transactions.

4
<PAGE>

The Funds did not acquire any securities of their "regular brokers or
dealers" or their parents during the most recent fiscal year.

INVESTMENT STRATEGIES AND RISKS

Temporary Defensive Positions. The Small Cap Core Equity Fund reserves the
-----------------------------
right to hold, as a temporary defensive measure, up to 100% of its total assets
in cash and short-term obligations (having remaining maturities of 13 months or
less) at such times and in such proportions as, in the opinion of the Adviser,
prevailing market or economic conditions warrant.

During temporary defensive periods, when deemed necessary by the Adviser or
Sub-Adviser, the International Growth Fund may invest up to 100% of its assets
in U.S. government obligations, debt obligations of companies incorporated and
having their principal business activities in the United States, or cash and
short-term obligations (having remaining maturities of 13 months or less). The
Fund does not intend to invest in such securities for the purpose of meeting its
investment objective.

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. For the Small Cap Core Equity and International Growth
Funds, the Adviser and Sub-Adviser will consider such an event in determining
whether the Fund involved should continue to hold the security. For a more
detailed description of ratings, see Appendix A.

Securities Lending. The Small Cap Core Equity and International Growth
------------------
Funds may lend their portfolio securities to unaffiliated domestic
broker/dealers and other institutional investors pursuant to agreements
requiring that the loans be secured by collateral equal in value to at least the
market value of the securities loaned in order to increase return on portfolio
securities. Collateral for such loans may include cash, securities of the U.S.
government, its agencies or instrumentalities, or an irrevocable letter of
credit issued by a bank which meets the investment standards stated below under
"Money Market Instruments," or any combination thereof. There may be risks of
delay in receiving additional collateral or in recovering the securities loaned
or even a loss of rights in the collateral should the borrower of the securities
fail financially. However, loans will be made only to borrowers deemed by the
Adviser to be of good standing and when, in the Adviser's judgment, the income
to be earned from the loan justifies the attendant risks. When 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

5
<PAGE>

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. In accordance with current SEC
policies, each Fund is currently limiting its securities lending to 33 1/3% of
the value of its total assets (including the value of the collateral for the
loans) at the time of the loan.

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 may include, 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 International Growth Fund may invest a portion of its assets
in the obligations of foreign banks and foreign branches of domestic banks.
Such obligations may include: Eurodollar Certificates of Deposit, which are U.S.
dollar-denominated certificates of deposit issued by offices of foreign and
domestic banks located outside the United States; Eurodollar Time Deposits
("ETDs"), which are U.S. dollar-denominated deposits in a foreign branch of a
U.S. bank or a foreign bank; Canadian Time Deposits, which are essentially the
same as ETDs except they are issued by Canadian offices of major Canadian banks;
Schedule Bs, which are obligations issued by Canadian branches of foreign or
domestic banks; Yankee Certificates of Deposit, which are U.S. dollar-
denominated certificates of deposit issued by a U.S. branch of a foreign bank
and held in the United States; and Yankee Bankers' Acceptances, which are U.S.
dollar-denominated bankers' acceptances issued by a U.S. branch of a foreign
bank and held in the United States.

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 or Sub-Adviser determines the instrument to present minimal credit
risks, such investments may nevertheless entail risks that are different from
those of investments in domestic obligations of U.S. banks due to differences in
political, regulatory and economic systems and conditions. All investments in
bank obligations are limited to the obligations of financial institutions having
more than $1 billion in total assets at the time of purchase, and investments by
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 which is not a money market fund in commercial paper
will consist of issues rated at the time A-1 or A-2 by Standard & Poor's, or P-1
or P-2 by 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 or Sub-Adviser at the time of
purchase to be of comparable quality to rated instruments that may be acquired
by such Fund as previously described.

6
<PAGE>

The Small Cap Core Equity and International Growth 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 or Sub-Adviser deems the investment to involve minimal
credit risk.

The Small Cap Core Equity and International Growth Funds may invest in
variable and floating rate demand instruments, including participations in
municipal securities purchased from and owned by financial institutions,
primarily banks. Participation interests provide a 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.

Repurchase Agreements. The Funds may agree to purchase securities from
---------------------
financial institutions subject to the seller's agreement to repurchase them at
an agreed upon time and price ("repurchase agreements"). During the term of the
agreement, the Adviser will continue to monitor the creditworthiness of the
seller and will require the seller to maintain the value of the securities
subject to the agreement at not less than 102% of the repurchase price. Default
or bankruptcy of the seller would, however, expose the Fund to possible loss
because of adverse market action or delay in connection with the disposition of
the underlying securities. The securities held subject to a repurchase
agreement may have stated maturities exceeding one year, provided the repurchase
agreement itself matures in less than one year.

The repurchase price under the repurchase agreements described in the
Prospectus generally equals the price paid by 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 in the Federal
Reserve/Treasury book-entry system or other authorized securities depository.
Repurchase agreements are considered to be loans under the 1940 Act.

Investment Companies. The 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. In addition, investment companies in which a Fund may
invest may impose a sales or distribution charge in connection with the purchase
or redemption of their shares as well as other types of commissions or charges.
These expenses would be in addition to the advisory and other expenses that the
Funds bear directly in connection with their own operations. The income on

7
<PAGE>

securities of other investment companies may be taxable to investors at the
state or local level. See "Additional Information Concerning Taxes" below.

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 Small Cap Core
Equity and International Growth 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 ("GNMA"), Federal National Mortgage
Association ("FNMA"), General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation ("FHLMC"), Federal
Intermediate Credit Banks, Maritime Administration, and Resolution Trust Corp.

Obligations of certain agencies and instrumentalities of the U.S.
Government, such as GNMA, are supported by the full faith and credit of the U.S.
Treasury; others, such as those of 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 FNMA, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; still others, such as
those of the FHLMC, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.

Restricted and Illiquid Securities. The Small Cap Core Equity and
----------------------------------
International Growth Funds may invest up to 15% of net assets in securities that
are illiquid at the time of purchase. The U.S. Treasury Money Market Fund may
invest up to 10 % of its 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 repurchase agreements that do not provide for settlement
within seven days, time deposits maturing in more than seven days and 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.

The Small Cap Core Equity and International Growth Funds may also invest in
Section 4(2) commercial paper, subject to the applicable limit, unless the
Adviser determines that a liquid market exists. The Funds may invest in
commercial paper issued in reliance on the exemption from registration afforded
by Section 4(2) of the Securities Act of 1933. Section 4(2) commercial paper is
restricted as to disposition under federal securities law and is generally sold
to institutional investors, such as the Funds, who agree that they are
purchasing the paper for investment purposes and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) commercial paper is normally resold to other institutional
investors like the Funds through or with the assistance of the issuer or
investment dealers who make a market in Section 4(2) commercial paper, thus
providing liquidity.

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

8
<PAGE>

issuers are typically subject to a greater degree of change in their earnings
and prospects. Such securities may be more difficult to sell than larger or more
established securities.

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.

Borrowings and Reverse Repurchase Agreements. Each Fund may borrow money
--------------------------------------------
from banks or through reverse repurchase agreements to the extent allowed (as
described under "Additional Investment Limitations" below) to meet shareholder
redemptions. 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. 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
ensure that such value is maintained. Reverse repurchase agreements involve the
risks that the interest income earned by the Fund (from the investment of the
proceeds) will be less than the interest expense of the transaction, that the
market value of the securities sold by the Fund may decline below the price of
the securities it is obligated to repurchase and that the securities may not be
returned to the Fund.

When-Issued Purchases, Delayed Delivery and Forward Commitments. Each Fund
---------------------------------------------------------------
may purchase or sell particular securities with payment and delivery taking
place at a later date. The price or yield obtained in a transaction may be less
favorable than the price or yield available in the market when the securities
delivery or settlement takes place. The Small Cap Core Equity and International
Growth Funds' forward commitments and when-issued purchases are not expected to
exceed 25% of the value of their respective total assets (at the time of
purchase) absent unusual market conditions. The U.S. Treasury Money Market
Fund's forward commitments and when-issued purchases are not expected to exceed
20% of the value of its total assets (at the time of purchase) 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

9
<PAGE>

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, a
Fund's liquidity and ability to manage its portfolio might be affected in the
event its commitments ever exceeded 25% of the value of the total assets of each
of the Small Cap Core Equity Fund and International Growth Fund and 20% of the
total assets of the U.S. Treasury Money Market Fund. In the case of a forward
commitment to sell portfolio securities, the Fund's custodian will hold the
portfolio securities themselves in a segregated account while the commitment is
outstanding. When-issued and forward commitment transactions involve the risk
that the price or yield obtained in a transaction (and therefore the value of a
security) may be less favorable than the price or yield (and therefore the value
of a security) available in the market when the securities delivery takes place.

A Fund will make commitments to purchase securities on a when-issued basis
or to purchase or sell securities on a forward commitment basis only with the
intention of completing the transaction and actually purchasing or selling the
securities. If deemed advisable as a matter of investment strategy, however, 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 the 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.

Foreign Securities. The Small Cap Core Equity Fund may invest up to 25% of
------------------
its total assets in securities of foreign issuers, and the International Growth
Fund may invest up to 100% of its total assets in securities of foreign issuers.

Investments in foreign securities, whether made directly in foreign
securities or dollar-denominated debt obligations of foreign issuers or through
American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs"),
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,

10
<PAGE>

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. Commissions on foreign stock exchanges are often fixed and 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 "Additional Information on 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. 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. 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.

American Depository Receipts ("ADRs") and European Depository Receipts
----------------------------------------------------------------------
("EDRs"). The Small Cap Core Equity and International Growth Funds may invest
--------
in ADRs and EDRs. ADRs are receipts issued by an American bank or trust company
evidencing ownership of underlying securities issued by a foreign issuer. EDRs
are receipts issued by a European financial institution evidencing ownership of
underlying foreign securities. ADRs and EDRs may be listed on a national
securities exchange or may trade in the over-the-counter market. ADR and EDR
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, ADRs and EDRs 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.

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.

11
<PAGE>

The Small Cap Core Equity and International Growth Funds may also invest in
EDRs. EDRs are receipts issued by a European financial institution evidencing
ownership of underlying foreign securities. The underlying security may be
subject to foreign government taxes, which would reduce the yield on such
securities.

Forward Currency Contracts. The 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 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 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 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 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

12
<PAGE>

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 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.

The International Growth Fund may also purchase unlisted currency options.
A number of major investment firms trade unlisted options which are more
flexible than exchange listed options with respect to strike price and maturity
date. These unlisted options generally are available on a wider range of
currencies. Unlisted foreign currency options are generally less liquid than
listed options and involve credit risk associated with the individual issuer.
They will be deemed to be illiquid for purposes of the limitation on investments
in illiquid securities.

Foreign Currency Transactions. Although the International Growth Fund
-----------------------------
values its 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.
While these contracts are not presently regulated by the Commodities Futures
Trading Commission ("CFTC"), the CFTC may in the future assert authority to
regulate forward contracts. In such event, the underlying Fund's ability to
utilize forward contracts in the manner set forth above may be restricted.
Forward contracts may limit potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for the
underlying fund than if it had not engaged in such contracts.

The International Growth Fund may purchase foreign currency put options on
U.S. exchanges or U.S. over-the-counter markets. (See "Options Trading," below,
for a discussion of options trading). A put option gives the Fund, upon payment
of a premium, the right to sell a currency at the exercise price until the
expiration of the option and serves to insure against adverse currency price
movements in the underlying portfolio assets denominated in that currency.
Exchange listed options markets in the United States include seven major
currencies, and trading may be thin and illiquid. The seven major currencies
are Australian dollars, British Pounds, Canadian dollars, German marks, French
francs, Japanese yen and Swiss francs.

13
<PAGE>

A call option written by the International Growth Fund gives the purchaser,
upon payment of a premium, the right to purchase from the International Growth
Fund a currency at the exercise price until the expiration of the option.

Stripped U.S. Government Obligations. The Small Cap Core Equity and
------------------------------------
International Growth Funds may hold stripped U.S. Treasury securities, including
(1) coupons that have been stripped from U.S. Treasury bonds, which are held
through the Federal Reserve Bank's book-entry system called "Separate Trading of
Registered Interest and Principal of Securities" ("STRIPS"), (2) through a
program entitled "Coupon Under Book-Entry Safekeeping" ("CUBES") or (3) other
stripped securities issued directly by agencies or instrumentalities of the U.S.
Government. STRIPS and CUBES represent either future interest or principal
payments and are direct obligations of the U.S. Government that clear through
the Federal Reserve System. The Funds may also purchase U.S. Treasury and
agency securities that are stripped by brokerage firms and custodian banks and
resold in custodial receipt programs with a number of different names, including
"Treasury Income Growth Receipts" ("TIGRS") and "Certificates of Accrual on
Treasury Securities" ("CATS"). Such securities may not be as liquid as STRIPS
and CUBES and are not viewed by the staff of the SEC as U.S. Government
securities for purposes of the 1940 Act.

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 principal-only
securities acquire, in effect, discount obligations that are economically
identical to the zero coupon securities that the Treasury Department sells
itself. In the case of bearer securities (i.e., unregistered securities which
are owned ostensibly by the bearer or holder), the underlying U.S. Treasury
bonds and notes themselves are held 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 securities law purposes.

The U.S. Government does not issue stripped Treasury securities directly.
The STRIPS program, which is ongoing, is designed to facilitate the secondary
market in the stripping of selected U.S. Treasury notes and bonds into separate
interest and principal components. Under the program, the U.S. Treasury
continues to sell its notes and bonds through its customary auction process. A
purchaser of those specified notes and bonds who has access to a book-entry
account at a Federal Reserve bank, however, may separate the Treasury notes and
bonds into interest and principal components. The selected Treasury securities
thereafter may be maintained in the book-entry system operated by the Federal
Reserve in a manner that permits the separate trading and ownership of the
interest and principal payments.

For custodial receipts, the underlying debt obligations are held separate
from the general assets of the custodian and nominal holder of such securities,
and are not subject to any right, charge, security interest, lien or claim of
any kind in favor of or against the custodian or any person claiming through the
custodian. The custodian is also responsible for applying all payments received
on those underlying debt obligations to the related receipts or certificates
without making any deductions other than applicable tax withholding. The
custodian is required to maintain insurance for the protection of holders of
receipts or certificates in customary amounts against losses resulting from the
custody arrangement due to dishonest or fraudulent action by the custodian's
employees. The holders of receipts or certificates, as the real parties in

14
<PAGE>

interest, are entitled to the rights and privileges of the underlying debt
obligations, including the right, in the event of default in payment of
principal or interest, to proceed individually against the issuer without acting
in concert with other holders of those receipts or certificates or the
custodian.

Stripped securities 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 principal and interest is returned to investors. The Adviser
will consider the liquidity needs of the Fund when any investments in zero
coupon obligations or other principal-only obligations are made.

Variable and Floating Rate Instruments. Subject to their respective
--------------------------------------
investment limitations, each of the Small Cap Core Equity and International
Growth Funds may purchase variable and floating rate obligations. 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. The International Growth Fund will invest in
such instruments only when the Adviser believes that any risk of loss due to
issuer default is minimal.

With respect to the variable and floating rate instruments that may be
acquired by the Funds, the Adviser will consider the earning power, cash flows
and other liquidity ratios of the issuers and guarantors of such instruments
and, if the instrument is subject to a demand feature, will monitor their
financial status to meet payment on demand. In determining average weighted
portfolio maturity, an instrument will usually be deemed to have a maturity
equal to the longer of the period remaining to the next interest rate adjustment
or the time the Fund can recover payment of principal as specified in the
instrument. Variable U.S. government obligations held by the Fund, however,
will be deemed to have maturities equal to the period remaining until the next
interest rate adjustment.

Other Portfolio Information
---------------------------

Options Trading. The Small Cap Core Equity and International Growth Funds
---------------
may engage in options transactions. These Funds may purchase put options,
purchase call options and write covered call options. The International Growth
Fund may also write secured put options. 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. Option
transactions by the Funds will not exceed 10% of each Fund's net assets. The
International Growth Fund will not invest more than 5% of its total assets in
initial margin deposits and premiums (including without limitation, puts, calls,
straddles and spreads) and any combination thereof. 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

15
<PAGE>

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 Funds will enter into such
transactions only as a hedge against fluctuations in the value of securities
which the Funds hold or intend to purchase.

The Funds will engage in unlisted over-the-counter options only with broker
-dealers deemed creditworthy by the 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 of the Small Cap Core Equity and International Growth Funds 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, the Small Cap Core Equity and International Growth Funds may
write covered call options listed on a national securities exchange. Such
options may relate to particular securities owned by a Fund or which it has the
right to acquire. 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 is also covered if a Fund holds a
call on the same security 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

16
<PAGE>

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
Small Cap Core Equity and International Growth Funds will not exceed 25% of the
value of each Fund's net assets during the current year.

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 executing a
closing purchase transaction, which is effected by purchasing on an exchange an
option of the same series (i.e., same underlying security or index, exercise
price and expiration date) as the option previously written. Such a purchase
does not result in the ownership of an option. A closing purchase transaction
will ordinarily be effected to realize a profit on an outstanding option, to
prevent an underlying security from being called, to permit the sale of the
underlying security or to permit the writing of a new option containing
different terms. The cost of such a liquidation purchase plus transaction costs
may be greater than the premium received upon the original option, in which
event 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.

17
<PAGE>

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 Small Cap Core Equity or International
Growth 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. For example, a Fund may
enter into transactions involving a stock or bond 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 stocks or bonds 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.

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 Funds is also subject to the 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.

18
<PAGE>

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 or 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 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. 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 Small Cap Core Equity and International Growth Funds 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.

19
<PAGE>

Zero Coupon Bonds. The Small Cap Core Equity and International Growth
-----------------
Funds may invest in zero coupon bonds. Zero coupon bonds 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
bonds only if the likely relative greater price volatility of such zero coupon
obligations is not inconsistent with the Fund's investment objective. Although
zero coupon securities pay no interest to holders prior to maturity, interest on
these securities is reported as income to the Fund and distributed to its
shareholders. These distributions must be made from 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 Small Cap Core Equity and International Growth
----------------------
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, the
Fund is looking for the opportunity, through the conversion feature, to
participate in the capital appreciation of the common stock into which the
securities are convertible, while earning higher current income than is
available from the common stock.

Securities rated below investment grade are predominantly speculative and
are commonly referred to as junk bonds. To the extent the Fund purchases
convertibles rated below investment grade or convertibles that are not rated, a
greater risk exists as to the timely repayment of the principal of, and the
timely payment of interest or dividends on, such securities. Subsequent to its
purchase by the Fund, a rated security may cease to be rated or its rating may
be reduced below a minimum rating for purchase by the Fund. The Adviser or Sub-
Adviser will consider such an event in determining whether the Fund should
continue to hold the security.

Preferred Stocks. The Small Cap Core Equity and International Growth Funds
----------------
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.

Rights and Warrants. The Small Cap Core Equity and International Growth
-------------------
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

20
<PAGE>

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, the Small Cap
Core Equity and International Growth Funds will not invest 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.

Standard and Poor's Depository Receipts, Standard and Poor's MidCap 400
-----------------------------------------------------------------------
Depository Receipts and the Dow Industrial DIAMONDS. The Small Cap Core Equity
---------------------------------------------------
and International Growth Funds may invest in Standard & Poor's Depository
Receipts ("SPDRs"), Standard & Poor's MidCap 400 Depository receipts ("MidCap
SPDRs") and the Dow Industrials DIAMONDS ("DIAMONDS"). SPDRs represent ownership
in the SPDR trust, a long-term unit investment trust which holds a portfolio of
common stocks that is intended to track the performance and dividend yield of
the S&P 500. MidCap SPDRs represent ownership in the MidCap SPDR trust, a long-
term unit investment trust which holds a portfolio of common stocks that is
intended to track the performance and dividend yield of the Standard & Poor's
MidCap 400 Index. DIAMONDS represent ownership in the DIAMONDS trust, a long-
term unit investment trust which holds a portfolio of common stocks that is
intended to track the performance and yield of the Dow Jones Industrial Average.
Because investments in SPDRs, MidCap SPDRs and DIAMONDS represent investments in
unit investment trusts, such investments are subject to the 1940 Act's
limitations on investments in other investment companies.

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 objectives
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 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.

21
<PAGE>

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
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 a 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 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 objectives, purchase publicly traded securities of
companies engaging in whole or in part in such activities and may invest in
futures contracts and related options.

8. Purchase securities on margin, make short sales of securities or maintain a
short position, except that: (i) this investment limitation shall not apply to a
Fund's transactions in futures contracts and related options; and (ii) a Fund
may obtain short-term credits as may be necessary for the clearance of purchases
and sales of portfolio securities.

9. Purchase securities of any one issuer (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after and as a result of such investments, more than 5% 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
Company or the Fund, except that up to 25% of the Fund's total assets may be
invested without regard to such 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 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 however, that with respect to each Fund (i) there is no limitation with
respect to instruments issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, and repurchase agreements secured by obligations of the
U.S. Government or its agencies or instrumentatilties; (ii) 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 their parents;
and (iii) 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 may enter into reverse repurchase agreements for temporary
purposes in amounts up to 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the Fund's total assets at the time of
such borrowing. No Fund will purchase securities while its borrowings (including
reverse repurchase agreements) in excess of 5% of its total assets are
outstanding. Securities held in escrow or separate accounts in connection with a
Fund's investment practices described in the Prospectus or

22
<PAGE>

this Statement of Additional Information are not deemed to be pledged for
purposes of this limitation.

If a percentage limitation is satisfied at the time of investment, a latter
increase or decrease in such percentage resulting from a change in the value of
the Fund's portfolio securities will not constitute a violation of such
limitation.

If, due to market fluctuations or other reasons, the amount of borrowings
and reverse repurchase agreements exceed the limit stated above, the Funds will
promptly reduce such amount. Except as otherwise provided in Investment
Limitation No. 10, above, for the purpose of such restriction, in determining
industry classification with respect to the International Growth Fund, the
Company intends to use the Morgan Stanley Capital International classification
titles.

NET ASSET VALUE

The net asset value per share of each Fund is calculated separately for the
Retail A Shares, Retail B Shares, Y Shares and Institutional Shares by adding
the value of all portfolio securities and other assets belonging to the
particular Fund that are allocated to a particular series, subtracting the
liabilities charged to that series, and dividing the result by the number of
outstanding shares of that series. Assets belonging to a Fund consist of the
consideration received upon the issuance of shares of the particular Fund
together with all net investment income, realized gains/losses and proceeds
derived from the investment thereof, including any proceeds from the sale of
such investments, any funds or payments derived from any reinvestment of such
proceeds, and a portion of any general assets of the Company not belonging to a
particular investment portfolio. The liabilities that are charged to a Fund are
borne by each share of the Fund, except for certain payments under the Funds'
Distribution and Service Plans and Shareholder Servicing Plans applicable only
to Retail A Shares, Retail B Shares and Y Shares. Subject to the provisions of
the Articles of Incorporation, determinations by the Board of Directors as to
the direct and allocable liabilities, and the allocable portion of any general
assets, with respect to a particular Fund are conclusive.

The Small Cap Core Equity and International Growth Funds.
--------------------------------------------------------

Net asset value for purposes of pricing purchase and redemption orders is
determined as of the close of regular trading hours on the New York Stock
Exchange (the "Exchange"), normally, 3:00 p.m. Central Time, on each day the
Exchange is open for trading. Currently, the Exchange observes the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day (observed), Independence Day (observed), Labor Day,
Thanksgiving and Christmas.

Shares which are traded on a recognized domestic stock exchange are valued
at the last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
The value of 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 at the current bid prices for the 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

23
<PAGE>

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 is not
calculated. The calculation of the net asset value of a 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.

The U.S. Treasury Money Market Fund.
-----------------------------------

Net asset value for purposes of pricing purchase and redemption orders is
normally determined as of 1:00 p.m. Central Time, on each day the Exchange is
open for trading. Currently, the Exchange observes the following holidays: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day (observed), Independence Day (observed), Labor Day, Thanksgiving and
Christmas.

The U.S. Treasury Money Market Fund uses the amortized cost method of
valuation to value the 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 the Fund would receive if it sold the
instrument. The market value of portfolio securities held by the Fund can be
expected to vary inversely with changes in prevailing interest rates.

The 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, the 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 the 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
the 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.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Computation of Offering Price of the Small Cap Core Equity and
--------------------------------------------------------------
International Growth Funds. An illustration of the computation of the initial
--------------------------
offering price per share of the Retail A Shares of the Small Cap Core Equity and
International Growth Funds is set forth below. This

24
<PAGE>

computation is based on the value of the net assets and number of outstanding
securities of the Predecessor Mercantile Small Cap Equity Portfolio and the
Predecessor International Equity Portfolio, respectively, at May 31, 2000, as
follows:

<TABLE>
<CAPTION>
Small Cap Core Equity Fund International Growth Fund
-------------------------- -------------------------
<S> <C> <C>
Net Assets (000s) $ 146,117 $ 131,572
Number of Shares Outstanding 8,695,164 7,945,193
Net Asset Value Per Share $ 16.80 $ 16.56
Sales Charge, 5.50% of offering price (5.82% of
net asset value per share) $ 0.98 $ 0.96
Public Offering Price $ 17.78 $ 17.52
</TABLE>

Shareholder organizations or Institutions may be paid by the Funds for
advertising, distribution or shareholder services. Depending on the terms of the
particular account, shareholder organizations or Institutions also may charge
their customers fees for automatic investment, redemption and other services
provided. Such fees may include, for example, account maintenance fees,
compensating balance requirements or fees based upon account transactions,
assets or income. Shareholder organizations or Institutions are responsible for
providing information concerning these services and any charges to any customer
who must authorize the purchase of Fund shares prior to such purchase.

Shares of the U.S. Treasury Money Market Fund are sold without a sales
charge imposed by the Company, although shareholder organizations 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 U.S. Treasury Money Market fund Shares prior to such purchase.

Investors redeeming U.S. Treasury Money Market Fund 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 the U.S. Treasury Money Market Fund accrue daily, checks
may not be used to close an account, as a small balance is likely to result.

Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment for shares during any period when (a) trading on
the Exchange is restricted by applicable rules and regulations of the SEC; (b)
the Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC. (The Funds may also suspend or postpone the recording
of the transfer of their shares upon the occurrence of any of the foregoing
conditions.)

The Company's Articles of Incorporation permit a Fund to redeem an account
involuntarily, upon sixty days' notice, if redemptions cause the account's net
asset value to remain at less than $1,000.

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

25
<PAGE>

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
"Redeeming 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.

Reducing Your Sales Charge on Retail A Shares.
---------------------------------------------

A. Rights of Accumulation

As stated in the Prospectus, a reduced sales charge applies to any purchase
of Retail A Shares of any Firstar Fund that is sold with a sales charge (an
"Eligible Fund") where an investor's then current aggregate investment is
$100,000 or more. "Aggregate investment" means the total of (a) the dollar
amount of the then current purchase of shares of an Eligible Fund, and (b) the
value (based on current net asset value) of previously purchased and
beneficially owned shares of any Eligible Fund on which a sales charge has been
paid. If, for example, an investor beneficially owns shares of one or more
Eligible Fund, with an aggregate current value of $99,000 on which a sales
charge has been paid and subsequently purchases shares of an Eligible Fund which
is an Equity Fund having a current value of $1,000, the sales charge applicable
to the subsequent purchase would be reduced to 3.50% of the offering price.
Similarly, each subsequent investment in Eligible Fund shares may be added to an
investor's aggregate investment at the time of purchase to determine the
applicable sales charge.

B. Letter of Intent

As discussed in the Prospectus, Retail A Shares of the Company purchased
over a 13-month period through a Letter of Intent qualify for the same reduced
sales charge as if all purchased at once. During the term of the Letter of
Intent, the transfer agent will hold in escrow shares equal to 5% of the amount
indicated in the Letter of Intent for payment of a higher sales charge if an
investor does not purchase the full amount indicated in the Letter of Intent.
The escrow will be released when an investor fulfills the terms of the Letter of
Intent by purchasing the specified amount. Any redemptions made during the 13-
month period will be subtracted from the amount of purchases in determining
whether the Letter of Intent has been completed. If total purchases qualify for
a further sales charge reduction, the sales charge will be adjusted to reflect
an investor's total purchases. If total purchases are less than the amount
specified in the Letter of Intent, an investor will be requested to remit an
amount equal to the difference between the sales charge actually paid and the
sales charge applicable to the total purchases. If such remittance is not
received within 20 days, the transfer agent, as attorney-in-fact pursuant to the
terms of the Letter of Intent and at the Distributor's direction, will redeem an
appropriate number of shares held in escrow to realize the difference. Signing a
Letter of Intent does not bind an investor to purchase the full amount indicated
as the sales charge in effect at the time of signing, but an investor must
complete the intended purchase in accordance with the terms of the Letter of
Intent to obtain the reduced sales charge. To apply, an investor must indicate
his or her intention to do so under a Letter of Intent at the time of purchase
of Shares.

Exchange Privilege. By use of the exchange privilege, shareholders
------------------
authorize the transfer agent to act on telephonic or written exchange
instructions from any person representing himself

26
<PAGE>

to be the shareholder or in some cases, the shareholder's registered
representative or account representative of record, and believed by the transfer
agent to be genuine. The transfer agent's records of such instructions are
binding. The exchange privilege may be modified or terminated at any time upon
notice to shareholders.

Exchange transactions described in paragraphs A, B, C, D, E, F and G below
will be made on the basis of the relative net asset values per share of the
Funds included in the transaction.

A. Retail A Shares of any Fund purchased with a sales charge, as well as
additional shares acquired through reinvestment of dividends or distributions on
such shares, may be exchanged without a sales charge for other Retail A Shares
of any other Fund offered by the Company.

B. Retail A Shares of any Fund offered by the Company or money market fund
shares ("MMF Shares") acquired by a previous exchange transaction involving
Retail A Shares on which a sales charge has directly or indirectly been paid
(e.g., shares purchased with a sales charge or issued in connection with an
-----
exchange involving shares that had been purchased with a sales charge) as well
as additional Shares acquired through reinvestment of dividends or distributions
on such Shares, may be exchanged without a sales charge for Retail A Shares of
any other Fund offered by the Company with a sales charge. To accomplish an
exchange under the provisions of this paragraph, investors must notify the
transfer agent of their prior ownership of Retail A Shares and their account
number.

C. Retail B Shares acquired pursuant to an exchange transaction will
continue to be subject to a contingent deferred sales charge. However, Retail B
Shares that have been acquired through an exchange of Retail B Shares may be
exchanged for other Retail B Shares without the payment of a contingent deferred
sales charge at the time of exchange. In determining the holding period for
calculating the contingent deferred sales charge payable on redemption of Retail
B Shares, the holding period of the shares originally held will be added to the
holding period of the shares acquired through exchange.

D. Retail B Shares may be exchanged for MMF Shares (but not for
Institutional Money Market Fund Shares) without paying a contingent deferred
sales charge. In determining the holding period for calculating the contingent
deferred sales charge payable on redemption of Retail B Shares, the holding
period of the shares originally held will be added to the holding period of the
shares acquired through exchange. If the shareholder subsequently exchanges the
shares back into Retail B Shares of a Fund, the holding period accumulation on
the shares will continue to accumulate. In the event that a shareholder wishes
to redeem MMF Shares acquired by exchange for Retail B Shares of a Fund, the
contingent deferred sales charge applicable to the accumulated Retail B Shares
and money market fund shares will be charged.

E. Retail A Shares of any Fund may be exchanged without a sales load for
Retail A Shares in any other Firstar Fund that are offered without a sales load.

F. Institutional Shares of any Fund may be exchanged for Institutional
Shares of any other Firstar Fund.

G. Y Shares of any Fund may be exchanged for Y Shares of any other Firstar
Fund. Y Shares of any Fund may be exchanged for shares of the Institutional
Money Market Fund or Institutional Shares of a Money Market Fund.

27
<PAGE>

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 Firstar 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.

Exemptions from CDSC. Certain types of redemptions may also qualify for an
--------------------
exemption from the contingent deferred sales charge. To receive exemptions (i),
(ii) or (iii) below, a shareholder must explain the status of his or her
redemption. If you think you may be eligible for a contingent deferred sales
charge waiver listed below, be sure to notify your shareholder organization or
the Distributor at the time Retail B Shares are redeemed. The following is a
more detailed description of certain of the instances described in the
Prospectus in which the contingent deferred sales charge with respect to the B
Shares is not assessed:

(i) redemptions in connection with required (or, in some cases, discretionary)
distributions to participants or beneficiaries of an employee pension, profit
sharing or other trust or qualified retirement or Keogh plan, individual
retirement account or custodial account maintained pursuant to Section 403(b)(7)
of the Internal Revenue Code of 1986, as amended (the "Code"), due to death,
disability or the attainment of a specified age;

(ii) redemptions in connection with the death or disability of a shareholder;
or

(iii) redemptions resulting from certain tax-free returns from IRAs of excess
contributions pursuant to section 408(d)(4) or (5) of the Code.

Retirement Plans: Retail A and Retail B Shares of the 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

28
<PAGE>

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 any Roth IRA of the account owner 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 1-800-677-
FUND. The complete Plan documents and applications will be provided to existing
or prospective shareholders upon request, without obligation. The Company

29
<PAGE>

recommends that investors consult their attorneys or tax advisors to determine
if the retirement programs described herein are appropriate for their needs.

Additional Information Regarding Shareholder Services for Retail Shares
-----------------------------------------------------------------------

The Retail A and Retail B Shares of the 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 Retail A and Retail B Shares. The
Periodic Investment Plan must be implemented with a financial institution that
is a member of the Automated Clearing House. No service fee is currently
charged by a Fund for participation in the Periodic Investment Plan. A $20 fee
will be imposed by the transfer agent if sufficient funds are not available in
the shareholder's account or the shareholder's account has been closed at the
time of the automatic transaction.

The Periodic Investment Plan permits an investor to use "Dollar Cost
Averaging" in making investments. Instead of trying to time market performance,
a fixed dollar amount is invested in Retail A or Retail B Shares at
predetermined intervals. This may help investors to reduce their average cost
per share because the agreed upon fixed investment amount allows more Retail A
or Retail B Shares to be purchased during periods of lower Retail A or Retail B
Share prices and fewer Retail A or Retail B Shares to be purchased during
periods of higher Retail A or Retail B Share prices. In order to be effective,
Dollar Cost Averaging should usually be followed on a sustained, consistent
basis. Investors should be aware, however, that Retail A or Retail B Shares
bought using Dollar Cost Averaging are purchased without regard to their price
on the day of investment or to market trends. Dollar Cost Averaging does not
assure a profit and does not protect against losses in a declining market. In
addition, while investors may find Dollar Cost Averaging to be beneficial, it
will not prevent a loss if an investor ultimately redeems his Retail A or Retail
B Shares at a price which is lower than their purchase price. An investor may
want to consider his financial ability to continue purchases through periods of
low price levels.

The Retail A and Retail B Shares of the Funds permit shareholders to effect
ConvertiFund(R) transactions, an automated method by which a shareholder of
either of these Classes may invest proceeds from one account to another account
of the Retail A or Retail B Shares of the Firstar family of funds, as the case
may be. Such proceeds include dividend distribution, capital gain distributions
and systematic withdrawals. ConvertiFund(R) transactions may be used to invest
funds from a regular account to another regular account, from a qualified plan
account to another qualified plan account, or from a qualified plan account to a
regular account.

The Retail A and Retail B Shares of the Funds offer 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

30
<PAGE>

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 billion 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 Small Cap Core Equity and International Growth Funds
is divided into four series designated as Institutional Shares, Retail A Shares,
Retail B Shares and Y Shares (each, a "Series") and the U.S. Treasury Money
Market Fund is divided into two series, Institutional Shares and Retail A
Shares. Each series consists of the number of authorized 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
--------------- ------------------- ---------------------

5-Institutional U.S. Treasury Money Market 5 billion
5-A 5 billion
18-Institutional Small Cap Core Equity 100 Million
18-Y 100 Million
18-A 100 Million
18-B 100 Million
20-Institutional International Growth 100 Million
20-Y 100 Million
20-A 100 Million
20-B 100 Million

The Board of Directors has also authorized the issuance of thirty-three
additional classes of common stock representing interests in thirty-three other
separate investment portfolios which are described in separate statements of
additional information. The remaining authorized shares are classified into one
hundred sixty-four 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

31
<PAGE>

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 share of a class of a Fund represents an equal proportionate interest
with other shares of other classes in that Fund, respectively. 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

32
<PAGE>

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.
Moreover, if a Fund were to fail to make sufficient distributions in a year, the
Fund would be subject to corporate income taxes and/or excise taxes in respect
of the shortfall or, if the shortfall is large enough, the Fund could be
disqualified as a regulated investment company.

A 4% non-deductible excise tax is imposed on regulated investment companies
that fail to distribute with respect to each calendar year at least 98% of their
ordinary taxable income for the calendar year and capital gain net income
(excess of capital gains over capital losses) for the one year period ending
October 31 of such calendar year and 100% of any such amounts that were not
distributed in the prior year. Each Fund intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.

Dividends declared in October, November or December of any year that are
payable to shareholders of record on a specified date in such months will be
deemed to have been received by shareholders and paid by a Fund on December 31
of such year if such dividends are actually paid during January of the following
year.

Each Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of taxable dividends or gross sale proceeds paid to
any shareholder who (i) has failed to provide a correct tax identification
number, (ii) is subject to back-up withholding by the Internal Revenue Service
for failure to properly include on his or her return payments of taxable
interest or dividends, or (iii) has failed to certify to the Fund that he or she
is not subject to back-up withholding when required to do so or that he or she
is an "exempt recipient."

The tax principle applicable to transactions in financial instruments and
futures contracts and options that may be engaged in by the International Growth
Fund, and investments in passive foreign investment companies ("PFICs"), are
complex and, in some cases, uncertain. Such transactions and investments may
cause a Portfolio to recognize taxable income prior to the receipt of cash,
thereby requiring the Portfolio 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 a the
International Growth Fund invests, the Portfolio may be liable for corporate-
level tax on any ultimate gain or distributions on the shares if the Portfolio
fails to make an election to recognize income annually during the period of its
ownership of the PFIC 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.

33
<PAGE>

Directors and Officers
----------------------

The Directors and Officers of the Company, their addresses, principal
occupations during the past five years and other affiliations are as follows:

<TABLE>
<CAPTION>
Position(s) held Principal Occupations During Past 5 Years
Name, Address & Age with the Company and Other Affiliations
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Glen R. Bomberger Director Executive Vice-President, Chief Financial
One Park Plaza Officer and Director, A.O. Smith Corporation
11270 West Park Place (a diversified manufacturing company) since
Milwaukee, WI 53224-3690 January 1987; Director of companies affiliated
Age: 62 with A.O. Smith Corporation; Director, Smith
Investment Company; Director of companies
affiliated with Smith Investment Company.

Bronson J. Haase* Director President and CEO of Wisconsin Gas Company,
626 E. Wisconsin Avenue WICOR Energy, FieldTech and Vice President of
Milwaukee, WI 53202 WICOR, Inc. from 1998 to October 2000;
Age: 56 President and CEO of Ameritech - Wisconsin
(formerly Wisconsin Bell) 1993-1998; President
of Wisconsin Bell Communications 1993-1998;
Board of Directors, The Marcus Corporation;
Trustee of Roundy Foods; Chairman of the
Wisconsin Utilities Association.

Dawn M. Hornback Director Trustee of Firstar Stellar Funds; Founder,
c/o Firstar Corporation President and Chief Executive Officer of
425 Walnut Street Observatory Group, Inc. (brand identity firm)
Cincinnati, Ohio 45202 since August 1990.
Age: 36

Joseph J. Hunt Director Director of Mercantile Mutual Funds, Inc.
Iron Workers International since 1994; Treasurer of the International
Union Association of Bridge, Structural and
1750 New York Avenue, N.W. Ornamental Iron Workers (IABSOIW)
Suite 700 (international labor union) since 1998;
Washington, D.C. 2000 General Vice-President of IABSOIW, 1994-1998.
Age: 57

Bruce Laning* Director, President President and CEO, FIRMCO since 2000;
777 E. Wisconsin Avenue, and Treasurer Director, FIRMCO since 2000; Senior
Suite 800 Vice-President, FIRMCO 1999-2000;
Milwaukee, WI 53202 Vice-President, FIRMCO 1994-1999.
Age: 40
</TABLE>

34
<PAGE>

<TABLE>
<CAPTION>
Position(s) held Principal Occupations During Past 5 Years
Name, Address & Age with the Company and Other Affiliations
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jerry G. Remmel Director Retired; Vice President, Treasurer and Chief
16650 A Lake Circle Financial Officer of Wisconsin Energy
Brookfield, WI 53005 Corporation 1994-1996; Treasurer of Wisconsin
Age: 68 Electric Power Company 1973-1996; Director of
Wisconsin Electric Power Company 1989-1996;
Senior Vice President, Wisconsin Electric
Power Company 1988 - 1994; Chief Financial
Officer, Wisconsin Electric Power Company
1983-1996; Vice President and Treasurer,
Wisconsin Electric Power Company, 1983 - 1989.

Richard K. Riederer Director President and Chief Executive Officer of
400 Three Springs Drive Weirton Steel since 1995; Director of Weirton
Weirton, WV 26062-4989 Steel since 1993; Executive Vice-President and
Age: 56 Chief Financial Officer of Weirton Steel,
January 1994 - 1995; Vice-President of Finance
and Chief Financial Officer, Weirton Steel,
January 1989-1994; Member, Board of Directors
of American Iron and Steel Institute since
1995; Member, Board of Directors, National
Association of Manufacturers since 1995;
Member, Board of Directors, WESBANCO since
September 1997; Trustee of Carnegie Mellon
University since 1997.

James M. Wade Chairman of the Retired; Vice President and Chief Financial
2802 Wind Bluff Circle Board Officer and Director, Johnson Controls, Inc.
Wilmington, NC 28409 (a controls manufacturing company), January
Age: 56 1987-May 1991.

Jerry V. Woodham Director Chairman of the Board, President and Director
St. Louis University of Mercantile Mutual Funds, Inc. since 1982;
3500 Lindell Treasurer, St. Louis University since August
Fitzgerald Hall 1996; Treasurer, Washington University, 1981
St. Louis, MO 63103 to 1995.
Age: 57

Marian Zentmyer* Director Chief Equity Investment Officer and Director,
777 E. Wisconsin Avenue, FIRMCO, since 1998; Senior Vice President and
Suite 800 Senior Portfolio Manager, FIRMCO, 1995-1998.
Milwaukee, WI 53202
Age: 43
</TABLE>

35
<PAGE>

<TABLE>
<CAPTION>
Position(s) held Principal Occupations During Past 5 Years
Name, Address & Age with the Company and Other Affiliations
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
William H. Zimmer, III Director Trustee and member of Audit Committee of
c/o Firstar Corporation Firstar Stellar Funds; Senior Vice President
425 Walnut Street and Chief Financial Officer, ecampus.com since
Cincinnati, Ohio 45202 September 1999 (e-commerce); Executive
Age: 46 Vice-President and Chief Financial Officer,
Advanced Communications Group, Inc. since
December 1998; Corporate Vice President,
Cincinnati Bell, Inc., 1997 to 1998;
Treasurer, Cincinnati Bell, Inc. since 1991;
Secretary, Cincinnati Bell, Inc. 1988 to 1997;
Assistant Treasurer, Cincinnati Bell, Inc.,
1988 to 1991.

Laura J. Rauman Vice President Senior Vice President, FIRMCO since 1995; Vice
777 E. Wisconsin Avenue, President of Mercantile Mutual Funds, Inc.
Suite 800 since 2000; Senior Auditor, Price Waterhouse,
Milwaukee, WI 53202 LLP, prior thereto.
Age: 31

Joseph C. Neuberger Assistant Treasurer Senior Vice President, Firstar Mutual Fund
615 E. Michigan Street Services, LLC since 1994; Manager, Arthur
Milwaukee, WI 53202 Andersen LLP, prior thereto.
Age: 38

W. Bruce McConnel Secretary Partner of the law firm of Drinker Biddle &
One Logan Square Reath LLP.
18th & Cherry Streets
Philadelphia, PA 19103
Age: 57
</TABLE>

* Mr. Haase, Mr. Laning and Ms. Zentmyer are considered by the Company to be
"interested persons" of the Company as defined in the 1940 Act.

36
<PAGE>

The following chart provides certain information about the Director fees
for the year ended October 31, 1999 of the Company's Directors.

TOTAL
PENSION OR COMPENSATION
RETIREMENT ESTIMATED FROM
AGGREGATE BENEFITS ANNUAL COMPANY
COMPENSATION ACCRUED AS BENEFITS AND FUND
NAME OF FROM THE PART OF FUND UPON COMPLEX* PAID
PERSON/POSITION COMPANY EXPENSES RETIREMENT TO DIRECTORS
---------------- ------- -------- ---------- ------------

James M. Wade $18,500 $0 $0 $18,500
Chairman of the
Board

Glen R. Bomberger $15,000+ $0 $0 $15,000
Director

Jerry G. Remmel $15,000 $0 $0 $15,000
Director

Richard K. Riederer $15,000 $0 $0 $15,000
Director

Charles R. Roy $15,000 $0 $0 $15,000
Director

Bronson J. Haase $15,000 $0 $0 $15,000
Director

Dawn M.
Hornback++ - - - -
Director

Joseph J. Hunt++ - - - -
Director

Jerry V. Woodham++ - - - -
Director

William H.
Zimmer++ - - - -
Director

Bruce Laning++ - - - -
Director

Marian Zentmyer++ - - - -
Director

*The "Fund Complex" includes only the Company. The Company is comprised of 36
separate portfolios.
+Includes $15,000 which Mr. Bomberger elected to defer under the Company's
deferred compensation plan.
++Ms. Hornback and Ms. Zentmyer and Messrs. Hunt, Woodham and Zimmer were
elected as directors on November 8, 2000. Mr. Laning was appointed as director
in February 2000.

37
<PAGE>

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. During the prior fiscal year, the Directors and
Officers received aggregate fees and reimbursed expenses of $88,492. Mr. Laning,
Ms. Zentmyer, Ms. Rauman and Mr. Neuberger receive no fees from the Company for
their services as President, Treasurer and Director; Director; Vice President
and Assistant Treasurer, respectively, although FIRMCO, of which Mr. Laning, Ms
Zentmyer and Ms. Rauman are President, Chief Equity Investment Officer and
Director, and Senior Vice President, 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, a Wisconsin limited liability company and subsidiary of Firstar
Corporation, a bank holding company, serves as investment adviser to the Funds.

On November 27, 2000: the Predecessor Mercantile Small Cap Equity
Portfolio, which was similarly managed to the Firstar Small Cap Core Equity
Fund, reorganized into the Firstar Small Cap Core Equity Fund; the Predecessor
Mercantile International Equity Portfolio, which was similarly managed to the
Firstar International Growth Fund, reorganized into the Firstar International
Growth Fund; and the Predecessor Mercantile Treasury Money Market Portfolio and
the Predecessor Firstar Stellar Treasury Fund, which were similarly managed to
the Firstar U.S. Treasury Money Market Fund, reorganized into the Firstar U.S.
Treasury Money Market Fund. For the periods prior to November 27, 2000, the
financial information set forth below is that of the Predecessor Funds.

Prior to March 1, 2000, investment advisory services for the Predecessor
Funds of the Small Cap Core Equity and International Growth Funds were provided
by Mississippi Valley Advisors Inc. ("MVA"), a subsidiary of Firstar
Corporation. Prior to March 1, 2000, MVA was an indirect wholly-owned subsidiary
of Mercantile Bancorporation, Inc. On September 17, 1999, Mercantile
Bancorporation, Inc. merged into Firstar Corporation. Prior to April 1, 2000,
investment advisory services for the Predecessor Funds of the U.S. Treasury
Money Market Fund were provided by the Capital Management Division of Firstar
Bank, N.A., also a subsidiary of the Firstar Corporation.

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 fiscal years ended November 30, 1999, 1998 and 1997, MVA was paid
advisory fees, after waivers, as follows:

38
<PAGE>

Net Advisory Fees Paid (Waivers)
--------------------------------

Predecessor Mercantile Fund 1999 1998 1997
--------------------------- ---- ---- ----

Small Cap Core Equity Fund $942,833(0) $1,776,373(0) $1,783,322
International Growth Fund 785,618(1,033) 731,113(0) 590,822(50,950)

For the fiscal years ended November 30, 1999, 1998 and 1997, the Capital
Management Division of Firstar Bank, N.A., was paid advisory fees, as follows:

Net Advisory Fees Paid (Waivers)
--------------------------------

Predecessor Stellar Fund 1999 1998 1997
------------------------ ---- ---- ----

U.S. Treasury Money Market Fund $9,863,583 $6,734,607 $4,990,143

FIRMCO is entitled to be paid contractual fees computed daily and paid
monthly, at the annual rate (as a percentage of such Fund's average daily net
assets) as follows:

Amount Amount
-------------- -------------
Fund Before Waivers After Waivers
---- -------------- -------------

Small Cap Core Equity Fund 0.75% 0.74%
International Growth Fund 1.00% 0.94%
U.S. Treasury Money Market Fund 0.44% N/A

FIRMCO has contractually agreed to waive advisory fees and reimburse
expenses for Retail A, Retail B, Y and Institutional Shares of the Small Cap
Core Equity and International Growth Funds, and has agreed to waiver certain
other fees and reimburse expenses for Retail A and Institutional Shares of the
U.S. Treasury Money Market Fund until October 31, 2001.

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.

With regard to the International Growth Fund, under the Investment Advisory
Agreements, the Adviser is authorized to delegate the responsibilities to
another adviser. The Adviser has appointed Clay Finlay Inc. as Sub-Adviser to
the International Growth Fund. The Sub-Adviser determines the securities to be
purchased, retained or sold by the International Growth Fund. See "Sub-Adviser"
below.

Under the 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 agreements, 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,

39
<PAGE>

bad faith or gross negligence on the part of the Adviser in the performance of
its duties or from the reckless disregard of its duties and obligations under
the agreement.

Sub-Adviser. The International Growth Fund receives sub-advisory services
-----------
from Clay Finlay Inc. ("Clay Finlay"). Under the terms of the Sub-Advisory
Agreement between the Adviser and Clay Finlay, Clay Finlay furnishes investment
advisory and portfolio management services to the International Growth Fund with
respect to its investments. Clay Finlay is responsible for decisions to buy and
sell the International Growth fund's investments and all other transactions
related to investment therein. Clay Finlay 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, Clay Finlay
will bear all expenses incurred by it in connection with its services under such
agreement.

For the services provided and expenses assumed pursuant to its sub-advisory
agreement with FIRMCO, Clay Finlay receives from FIRMCO a fee, computed daily
and payable monthly, at the annual rate of 0.75% of the first $50 million of the
International Growth Fund's average daily net assets, plus 0.50% of the next $50
million of average daily net assets, plus 0.25% of average daily net assets in
excess of $100 million. For the fiscal year ended November 30, 1999, Clay Finlay
received sub-advisory fees at the effective annual rate of 0.67% of the
International Growth Fund's average daily net assets. Clay Finlay bears all
expenses incurred by it in connection with its services under the sub-advisory
agreement.

Pursuant to the Sub-Advisory Agreement, in the absence of willful
misfeasance, bad faith or gross negligence on the part of the Sub-Adviser or
reckless disregard of its obligations and duties thereunder, or loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation for
services, the Sub-Adviser will not be subject to any liability to the Adviser,
the International Growth Fund or the Company, or to any shareholder of the
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.

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
Fund's Shares. Institutions, including banks regulated by the Comptroller of the
Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult legal counsel before entering into Servicing
Agreements.

Shares of the 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 Mutual Fund Services, LLC serves as administrator (the
"Administrator") to the Company. Under the Fund Administration Servicing
Agreement, the Administrator has agreed to maintain office facilities, furnish
clerical services, stationery and office supplies; monitor the company's
arrangements with respect to services provided by Shareholder Organizations and

40
<PAGE>

Institutions; and generally assist in the Company's operations. The following
administrative services are also provided by Firstar Mutual Fund Services, LLC:
compile data for and prepare, with respect to the Company, 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 the
Funds' shareholders and Registration Statements for the Funds; monitor the
Funds' expense accruals and cause all appropriate expenses to be paid on proper
authorization from the Funds; monitor the Funds' status as a regulated
investment company under Subchapter M of the Code; maintain the Funds' fidelity
bond as required by the 1940 Act; and monitor compliance with the policies and
limitations of the Funds as set forth in the Prospectus and SAI.

The Administrator is entitled to receive a fee for its administrative
services, computed daily and payable monthly, at the annual rate of 0.125% of
the Company's first $2 billion of average aggregate daily net assets, plus 0.10%
of the Company's average aggregate daily net assets in excess of $2 billion. The
Administrator may voluntarily waive all or a portion of its administrative fee
from time to time. This waiver may be terminated at any time at the
Administrator's discretion.

Under the Fund Administration Servicing Agreement, the Administrator is not
liable for any error of judgment or mistake of law or for any loss suffered by
the Funds in connection with the performance of the Agreement, except a loss
resulting from willful misconduct, bad faith or negligence on the part of the
Administrator in the performance of its duties.

Firstar Trust Company became Co-Administrator to the Company on September
1, 1994, and assigned its rights and obligations to Firstar Mutual Fund
Services, LLC on October 1, 1998. From January 1, 1995 until August 1, 2000,
B.C. Ziegler and Company served as co-administrator to the Company (together the
"Co-Administrators").

Prior to January 1, 2000, BISYS Fund Services Ohio, Inc. ("BISYS Ohio")
served as administrator to the Predecessor Funds of the Small Cap Core Equity
and International Growth funds. Effective January 1, 2000, BISYS Ohio and
Firstar Mutual Fund Services, LLC served as co-administrators of the Predecessor
Funds.

For the fiscal years ended November 30, 1999, 1998 and 1997, administrative
fees, after waivers, were paid to BISYS Ohio as follows:

Net Administration Fees Paid (Waivers)
--------------------------------------

<TABLE>
<CAPTION>
Predecessor Mercantile Fund 1999 1998 1997
--------------------------- ---- ---- ----
<S> <C> <C> <C>
Small Cap Core Equity Fund $125,715(125,710) $236,856(236,844) $237,783(237,775)
International Growth Fund 78,667(78,664) 73,113(73,109) 75,322(54,941)
</TABLE>

Prior to October 1, 1998, Federated Administrative Services ("Federated")
served as administrators to the Predecessor Fund of the U.S. Treasury Money
Market Fund. Edgewood Services, Inc. served as a sub-administrator to the
Predecessor Fund. For its services, Edgewood is paid a fee by Firstar Mutual
Fund Services, LLC and is not paid by the Fund. Effective

41
<PAGE>

October 1, 1998, Firstar Mutual Fund Services, LLC served as administrator to
that Predecessor Fund.

For the fiscal years ended November 30, 1999, 1998 and 1997, administration
fees, after waivers, were paid to Firstar Mutual Fund Services, LLC and
Federated as follows:

Net Administration Fees Paid
----------------------------

Firstar Federated
Firstar 10/1/98- 12/1/97- Federated
Predecessor Stellar Fund 1999 11/30/98 9/30/98 1997
------------------------ ---- -------- ------- ----
U.S. Treasury Money Market Fund $2,169,989 $ 290,973 $1,270,147 $922,287

The Distributor, located at 615 East Michigan Street, Milwaukee, Wisconsin
53202, provides distribution services for the Company as described in the Funds'
Prospectus pursuant to a Distribution Agreement with the Funds under which the
Distributor, as agent, sells shares of the Funds 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 Fund's shares) and of printing and distributing all sales literature.

BISYS Fund Services Limited Partnership ("BISYS") served as the distributor
of the Predecessor Mercantile Funds for the fiscal years ended November 30,
1999, 1998 and 1997. With respect to each Predecessor Mercantile Funds' class of
shares corresponding to Institutional and Y Shares, no compensation was payable
by the Funds to BISYS for distribution services. For the fiscal years ended
November 30, 1999, 1998 and 1997, BISYS received front-end sales charges in
connection with Retail A Shares (known as Investor A Shares with respect to the
Predecessor Mercantile Funds) purchases as follows: Predecessor Small Cap Equity
Portfolio--$9,646, $26,651 and $33,777, respectively; and Predecessor
International Equity Portfolio--$5,610, $9,765 and $18,258, respectively. Of
these amounts, BISYS retained $1,347, $3,284 and $184, respectively, and FIRMCO
and affiliates retained $2,518, $8,880 and $9,915, respectively, with respect to
the Predecessor Mercantile Small Cap Equity Portfolio; and BISYS retained $682,
$1,014 and $0, respectively, and FIRMCO and affiliates retained $1,662, $2,722
and $7,433, respectively, with respect to the Predecessor Mercantile
International Equity Portfolio.

For the fiscal years ended November 30, 1999, 1998 and 1997, BISYS received
contingent deferred sales charges in connection with Retail B Shares (known as
Investor B Shares with respect to the Predecessor Mercantile Funds) redemptions
of the Predecessor Mercantile Funds as follows: Predecessor Mercantile Small Cap
Equity Portfolio--$1,123, $9,898 and $12,870; and Predecessor Mercantile
International Equity Portfolio--$1,791, $2,848 and $8,191.

Prior to November 24, 2000, Edgewood Services, Inc. ("Edgewood") served as
distributor to the Predecessor Stellar Treasury Fund. From October 1, 1998 to
March 31, 1999, B.C. Ziegler & Company ("Ziegler") served as the distributor.
Prior to October 1, 1998, Federated Securities Corp. ("Federated") served as
distributor. No commissions were payable by the Predecessor Stellar Treasury
Fund.

42
<PAGE>

Shareholder Organizations
-------------------------

Retail A Shares

As stated in the Funds' Prospectus, the Funds intend to enter into
agreements from time to time with Shareholder Organizations providing for
support and/or distribution services to customers of the Shareholder
Organizations who are the beneficial owners of Retail A Shares of the Fund.
Under the agreements, the Funds may pay Shareholder Organizations up to 0.25%
(on an annualized basis) of the average daily net asset value of Retail A Shares
beneficially owned by their customers. Support services provided by Shareholder
Organizations under their Service Agreements or Distribution and Service
Agreements may include: (i) processing dividend and distribution payments from 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. In addition, Shareholder
Organizations, under the Distribution and Service Plan applicable to Retail A
Shares, may provide assistance (such as the forwarding of sales literature and
advertising to their customers) in connection with the distribution of Retail A
Shares. All fees paid under these agreements are borne exclusively by the Funds'
Retail A Shares.

The Funds' arrangements with Shareholder Organizations under the agreements
are governed by two Plans (a Service Plan and a Distribution and Service Plan)
for the Retail A Shares, which have been adopted by the Board of Directors.

Retail B Shares

The Company has also adopted a Distribution and Service Plan pursuant to
Rule 12b-1 and a Service Plan with respect to the Retail B Shares of the Funds.
Under the Distribution and Service Plan, payments by the Company (i) for
distribution expenses may not exceed 0.75% (annualized) of the average daily net
assets attributable to a Fund's outstanding Retail B Shares; and (ii) for
shareholder liaison services may not exceed 0.25% (annualized), respectively, of
the average daily net assets attributable to each Fund's outstanding Retail B
Shares. Under the separate Service Plan for the Retail B Shares, payments by the
Company for shareholder administrative support services may not exceed 0.25%
(annualized) of the average daily net assets attributable to each Fund's
outstanding Retail B Shares.

Because the Distribution and Service Plans contemplate the provision of
services related to the distribution of Retail A and Retail B Shares (in
addition to support services), those Plans have been adopted in accordance with
Rule 12b-1 under the 1940 Act. In accordance with the Plans, the Board of
Directors reviews, at least quarterly, a written report of the amounts expended
in connection with the Funds' arrangements under the Plans and the purposes for
which the expenditures were made. In addition, the arrangements must be approved
annually by a majority of the Directors, including a majority of the Directors
who are not "interested persons" of the Funds (as defined in the 1940 Act) and
have no direct or indirect financial interest in such arrangements (the
"Disinterested Directors").

43
<PAGE>

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 Y Shares of the Fund. 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 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. All fees paid under these
agreements are borne exclusively by the Funds' Y Shares.

The Funds believe that there is a reasonable likelihood that their
arrangements with Shareholder Organizations will benefit each Fund and the
holders of Retail A, Retail B and Y Shares as a way of allowing Shareholder
Organizations to participate with the Funds in the provision of support and
distribution services to customers of the Shareholder Organization who own
Retail A, Retail B or Y Shares. Any material amendment to the arrangements with
Shareholder Organizations under other agreements must be approved by a majority
of the Board of Directors (including a majority of the Disinterested Directors),
and any amendment to increase materially the costs under the Distribution and
Service Plan with respect to a Fund must be approved by the holders of a
majority of the outstanding Retail A or Retail B Shares of the Fund involved. So
long as the Plans are in effect, the selection and nomination of the members of
the Board of Directors who are not "interested persons" (as defined in the 1940
Act) of the Funds will be committed to the discretion of such Disinterested
Directors.

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.

The Predecessor Mercantile Funds had adopted separate Distribution and
Service Plans with respect to Retail A and B Shares (known as Investor A and B
Shares, respectively, with respect to the Predecessor Mercantile Funds) pursuant
to the 1940 Act and Rule 12b-1 thereunder. The Predecessor Mercantile Funds
also had adopted separate Administrative Service Plans with respect to
Institutional and Y Shares (known as Trust and Institutional Shares,
respectively, with respect to the Predecessor Mercantile Funds).

For the fiscal year ended November 30, 1999, pursuant to the Distribution
and Services Plan for Retail A Shares, the Predecessor Mercantile Funds were
charged the following amounts:

44
<PAGE>

Amount Paid to
Predecessor Mercantile Fund Total Charged Affiliates of MVA
--------------------------- ------------- -----------------

Predecessor Mercantile Small Cap $29,020 $14,535
Equity Portfolio
Predecessor Mercantile International $ 9,815 $ 2,656
Equity Portfolio

For the fiscal year ended November 30, 1999, pursuant to the Distribution
and Services Plan for Retail B Shares, the Predecessor Mercantile Funds were
charged the following amounts:

Amounts Paid
Predecessor Mercantile Fund Total Charged to MVA
--------------------------- ------------- ------------

Predecessor Mercantile Small Cap Equity $11,769 $8,455
Portfolio
Predecessor Mercantile International $ 6,570 $4,838
Equity Portfolio

For the fiscal year ended November 30, 1999, pursuant to the Administrative
Services Plan for the Y Shares, the Predecessor Mercantile Funds paid the
following amounts:

Amounts Paid to
Predecessor Mercantile Fund Total Charged Affiliates of MVA
--------------------------- ------------- -----------------

Predecessor Mercantile Small Cap $25,532 $25,450
Equity Portfolio
Predecessor Mercantile International $27,419 $27,139
Equity Portfolio

For the fiscal year ended November 30, 1999, pursuant to the Administrative
Services Plan for Institutional Shares, no fees were charged to the Predecessor
Mercantile Funds.

Firstar Stellar Funds adopted a Distribution and Service Plan, on behalf of
the Predecessor Stellar Treasury Fund, with respect to Retail A Shares (known as
Class C Shares with respect to the Predecessor Stellar Treasury Fund) pursuant
to the 1940 Act and Rule 12b-1 thereunder.

For the fiscal year ended November 30, 1999, pursuant to the Distribution
and Services Plan for Retail A Shares, the Predecessor Stellar Treasury Fund was
charged the following amounts: $668,817 was paid to Edgewood Services, Inc. for
the period April 1, 1999 to November 30, 1999; and $251,336 was paid to B.C.
Ziegler and Company for the period December 1, 1998 to March 31, 1999.

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

45
<PAGE>

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.

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 related to the Small Cap Core Equity and International
Growth Funds, 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. For its transfer agency and dividend disbursing
services related to the U.S. Treasury Money Market Fund, Firstar Mutual Fund
Services, LLC is entitled to receive a fee at the rate of $20.00 per shareholder
account with an annual minimum of $12,000, 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: Small Cap
Core Equity 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; 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; and U.S. Treasury Money Market Fund -- $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.

Effective March 20, 2000, Firstar Mutual Fund Services, LLC, with principal
offices at 615 E. Michigan Street, Milwaukee, WI 53202, served as the
Predecessor Mercantile Funds' transfer agent and dividend disbursing agent.
Prior to March 20, 2000, BISYS Fund Services Ohio, Inc., ("BISYS") located at
3435 Stelzer Road, Columbus, Ohio 43219, served as the Fund's transfer agent and
dividend disbursing agent.

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,

46
<PAGE>

Shareholder Organization fees (Retail A, Retail B and Y Shares only), charges of
the custodian and transfer agent, dividend disbursing agent and accounting
services agent, certain insurance premiums, auditing and legal expenses, costs
of preparing and printing prospectuses for regulatory purposes and for
distribution to shareholders, costs of shareholder reports and meetings,
membership fees in the Investment Company Institute, and any extraordinary
expenses. The 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

PricewaterhouseCoopers, 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 Predecessor
Mercantile Funds for the fiscal year ended November 30, 1999 was audited by KPMG
LLP and has been filed with the SEC and the unaudited Semi-Annual Report for the
Predecessor Mercantile Funds has been filed with the SEC. The financial
Statements and notes thereto in the Annual Report and Report of Independent
Accountants in such Annual Report are incorporated herein by reference in
reliance upon such report given upon the authority of KPMG LLP as experts in
accounting and auditing. The financial statements, notes thereto, and Report of
Independent Accountants in such Annual Report, as well as the unaudited
financial statements included in the Semi-Annual Report, are incorporated by
reference into this Statement of Additional Information.

The Company's Annual Report to Shareholders with respect to the Predecessor
Stellar Funds for the fiscal year ended November 30, 1999 has been audited by
Arthur Andersen LLP and has been filed with the SEC and the Semi-Annual Report
for the Predecessor Stellar Funds has been filed with the SEC. The audited
financial statements and financial highlights incorporated by reference in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing. The financial
statements, notes thereto, and report of Independent Accountants in such Annual
Report, as well as the unaudited financial statements included in the Semi-
Annual Report, are incorporated by reference into this Statement of Additional
Information.

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.

CODE OF ETHICS

The Company, Adviser and Distributor have adopted codes of ethics that
permit personnel subject to the codes to invest in securities, including
securities that may be purchased or held by the Fund.

47
<PAGE>

PERFORMANCE CALCULATIONS

From time to time, the total return of the Retail A Shares, Retail B
Shares, Institutional Shares and Y Shares of each Fund and the yields of Retail
A and Institutional Shares of the U.S. Treasury Money Market Fund may be quoted
in advertisements, shareholder reports or other communications to shareholders.
Performance information is generally available by calling the Firstar Funds
Center at 1-800-677-FUND.

Yield Calculations
------------------

From time to time the U.S. Treasury Money Market Fund may quote its
"yield" and "effective 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 current yield for the U.S. Treasury Money Market Fund may be
obtained by calling Firstar Mutual Fund Services, LLC at 1-800-677-FUND. For
the seven-day period ended August 31, 2000, the annualized yield of the U.S.
Treasury Money Market Fund was 5.47%. For the seven-day period ended August 31,
2000, the effective yield of the U.S. Treasury Money Market Fund was 5.62%.

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

48
<PAGE>

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, Y and
Institutional Series, by determining the aggregate rates of return during
specified periods that likewise equate the initial amount invested in a
particular series to the ending redeemable value of such investment in the
series. The formula for calculating aggregate total return is as follows:

Aggregate Total Return = [(ERV/P) - l]

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 the Small Cap Core Equity and
International Growth 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 the Small Cap Core Equity
and International Growth Funds' shares may be compared to the Lehman Brothers
Government/Corporate Total Index; S&P 500 Index; the S&P MidCap 400 Index; the
S&P Small Cap 600 Index; Morgan Stanley REIT Index; NAREIT Index Lipper Growth &
Income Average; the NASDAQ Composite Index, an index of unmanaged groups of

49
<PAGE>

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 1000 Value
Index; 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; the EAFE Index; and the
Consumer Price Index. The yield of the U.S. Treasury Money Market Fund may be
compared to Donoghue's Government Money Fund Average. Total return data as
reported in national financial publications, such as Money Magazine, Forbes,
Barron's, Morningstar Mutual Funds, Mutual Funds Magazine, Kiplinger's Personal
Finance Magazine, The Wall Street Journal and The New York Times, or in
publications of a local or regional nature, may also be used in comparing the
performance of the 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
total return and will reduce the total return received by the accounts.

In addition, a non- Money Market Fund's average annual total return and
aggregate total return quotations reflect the deduction of the maximum front-end
sales charge in connection with the purchase of Retail A Shares and the
deduction of any applicable contingent deferred sales charge with respect to
Retail B Shares.

The following are the average annual total returns for shares of the Small
Cap Core Equity Fund, International Growth Fund and U.S. Treasury Money Market
Fund from the date of each Fund's inception through May 31, 2000. These returns
are based on the returns of the Predecessor Mercantile Small Cap Equity
Portfolio, Predecessor Mercantile International Equity Portfolio and Predecessor
Stellar Treasury Fund, respectively. The Small Cap Core Equity and International
Growth Funds' Retail A, Retail B, Y and Institutional Shares are the
corresponding classes for the Predecessor Mercantile Fund's Investor A, Investor
B, Institutional and Trust Shares, respectively. The U.S. Treasury Money Market
Fund's Retail A and Institutional Shares are the corresponding classes for the
Predecessor Stellar Fund's Class C and Class Y Shares, respectively.

50
<PAGE>

<TABLE>
<CAPTION>
Average Annual
Total Return
-------------------

For the For the 5 For the 10 Since
Period Years Ended Years Ended Commencement
Fund Ended 5/31/00 5/31/00 5/31/00 of Operations
---- ------------- ------- ------- -------------
<S> <C> <C> <C> <C>
Small Cap Core Equity Fund
Institutional Shares/1/ 33.20% 11.15% 13.78%
Y Shares/2/ 32.85% 10.82% 10.82%
Retail A Shares/3/ 25.52% 9.56% 12.74%
Retail B Shares/4/ 26.99% 9.78% 11.13%
International Growth Fund
Institutional Shares/5/ 40.15% 15.75% 12.79%
Y Shares/6/ 39.68% 15.39% 12.68%
Retail A Shares/7/ 32.02% 14.12% 11.37%
Retail B Shares/4/ 33.63% 14.34% 14.83%
U.S. Treasury Money Market Fund
Institutional Shares/8/ 4.62% 4.67%
Retail A Shares/9/ 4.46% 4.67% 4.47% 4.85%
</TABLE>

_______________________
/1/ Commenced operations on May 6, 1992.
/2/ Commenced operations on January 3, 1994.
/3/ Initial public offering commenced May 6, 1992.
/4/ Date of initial public investment on March 6, 1995.
/5/ Commenced operations on April 4, 1994.
/6/ Date of initial public investment on April 24, 1994.
/7/ Commenced operations on May 2, 1994.
/8/ Commenced operations on March 25, 1997.
/9/ Commenced operations on April 15, 1989

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 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 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.

51
<PAGE>

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 change in a fundamental investment policy,
the lesser of: (1) 67% of the shares of the particular Fund or portfolio
represented at a meeting at which the holders of more than 50% of the
outstanding shares of such Fund or portfolio are present in person or by proxy;
or (2) more than 50% of the outstanding shares of such Fund or portfolio.

As of August 31, 2000, the Adviser and its affiliates held of record
substantially all of the outstanding shares of each of the Company's investment
portfolios as agent, custodian, trustee or investment adviser on behalf of their
customers. At such date, Firstar Bank, N.A., 425 Walnut Street, Cincinnati, Ohio
45202, and its affiliated banks held as beneficial owner five percent or more of
the outstanding shares of the following investment portfolios of the Company
because they possessed sole voting or investment power with respect to such
shares:

Fund Percentage Owned
---- ----------------

Money Market 14%

Institutional Money Market 83%

Tax-Exempt Money Market 68%

U.S. Treasury Money Market 46%

U.S. Government Money Market 82%

Short-Term Bond Market 68%

Intermediate Bond Market 90%

Bond IMMDEXTM 75%

Tax-Exempt Intermediate Bond 84%

Balanced Income 83%

Balanced Growth 71%

Growth and Income 68%

Equity Index 76%

Growth 84%

Special Growth 77%

MidCap Index 98%

Emerging Growth 94%

MicroCap 83%

Core International Equity 100%

International Equity 88%

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 portfolios
of the Company.

52
<PAGE>

APPENDIX A

Commercial Paper Ratings
------------------------

A Standard & Poor's commercial paper rating is a current opinion of the
creditworthiness of an obligor with respect to financial obligations having an
original maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:

"A-1" - Obligations are rated in the highest category indicating that the
obligor's capacity to meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated with a plus sign (+).
This indicates that the obligor's capacity to meet its financial commitment on
these obligations is extremely strong.

"A-2" - Obligations are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.

"A-3" - Obligations exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.

"B" - Obligations are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.

"C" - Obligations are currently vulnerable to nonpayment and are dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation.

"D" - Obligations are in payment default. The "D" rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The "D" rating will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.

Local Currency and Foreign Currency Risks
Country risk considerations are a standard part of Standard & Poor's analysis
for credit ratings on any issuer or issue. Currency of repayment is a key
factor in this analysis. An obligor's capacity to repay foreign obligations may
be lower than its capacity to repay obligations in its local currency due to the
sovereign government's own relatively lower capacity to repay external versus
domestic debt. These sovereign risk considerations are incorporated in the debt
ratings assigned to specific issues. Foreign currency issuer ratings are also
distinguished from local currency issuer ratings to identify those instances
where sovereign risks make them different for the same issuer.

Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually senior debt obligations not having an original maturity in
excess of one year, unless

A-1
<PAGE>

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.

Fitch short-term ratings apply to debt obligations that have time horizons
of less than 12 months for most obligations, or up to three years for U.S.
public finance securities. The following summarizes the rating categories used
by Fitch for short-term obligations:

"F1" - Securities possess the highest credit quality. This designation
indicates the best capacity for timely payment of financial commitments and may
have an added "+" to denote any exceptionally strong credit feature.

"F2" - Securities possess good credit quality. This designation indicates a
satisfactory capacity for timely payment of financial commitments, but the
margin of safety is not as great as in the case of the higher ratings.

"F3" - Securities possess fair credit quality. This designation indicates
that the capacity for timely payment of financial commitments is adequate;
however, near-term adverse changes could result in a reduction to non-investment
grade.

"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.

"C" - Securities possess high default risk. This designation indicates a
capacity for meeting financial commitments which is highly uncertain and solely
reliant upon a sustained, favorable business and economic environment.

"D" - Securities are in actual or imminent payment default.

A-2
<PAGE>

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

A-3
<PAGE>

or economic conditions which could lead to the obligor's inadequate capacity to
meet its financial commitment on the obligation.

"B" - An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.

"CCC" - An obligation rated "CCC" is currently vulnerable to nonpayment,
and is dependent upon favorable business, financial and economic conditions for
the obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.

"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.

"C" - The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action taken, but payments on this obligation
are being continued.

"D" - An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.

- PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.

- "r" - The `r' highlights obligations that Standard & Poor's believes
have significant noncredit risks. Examples of such obligations are securities
with principal or interest return indexed to equities, commodities, or
currencies; certain swaps and options; and interest-only and principal-only
mortgage securities. The absence of an `r' symbol should not be taken as an
indication that an obligation will exhibit no volatility or variability in total
return.

- N.R. Indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular obligation as a matter of policy.

The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:

"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

A-4
<PAGE>

fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk appear somewhat larger than
the "Aaa" securities.

"A" - Bonds possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

"Baa" - Bonds are considered as medium-grade obligations, (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

"Ba" - Bonds are judged to have speculative elements; their future cannot
be considered as well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.

"B" - Bonds are generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.

"Caa " - Bonds are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or interest.

"Ca" - Bonds represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.

"C" - Bonds are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.

Con. (...) - Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.

Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from "Aa" through "Caa". The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of its generic rating category.

The following summarizes the ratings used by Fitch for corporate and municipal
bonds:

"AAA" - Bonds considered to be investment grade and of the highest credit
quality. These ratings denote the lowest expectation of credit risk and are
assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.

A-5
<PAGE>

"AA" - Bonds considered to be investment grade and of very high credit
quality. These ratings denote a very low expectation of credit risk and
indicate very strong capacity for timely payment of financial commitments. This
capacity is not significantly vulnerable to foreseeable events.

"A" - Bonds considered to be investment grade and of high credit quality.
These ratings denote a low expectation of credit risk and indicate strong
capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.

"BBB" - Bonds considered to be investment grade and of good credit quality.
These ratings denote that there is currently a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered adequate,
but adverse changes in circumstances and in economic conditions are more likely
to impair this capacity. 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" and "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely reliant
upon sustained, favorable business or economic developments. "CC" ratings
indicate that default of some kind appears probable, and "C" ratings signal
imminent default.

"DDD," "DD" and "D" - Bonds are in default. The ratings of obligations in
this category are based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general guidelines. "DDD" obligations have
the highest potential for recovery, around 90%-100% of outstanding amounts and
accrued interest. "DD" indicates potential recoveries in the range of 50%-90%,
and "D" the lowest recovery potential, i.e., below 50%.

Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.

- To provide more detailed indications of credit quality, the Fitch ratings
from and including "AA" to "CCC" may be modified by the addition of a plus (+)
or minus (-) sign to denote relative standing within these major rating
categories.
- `NR' indicates the Fitch does not rate the issuer or issue in question.

A-6
<PAGE>

- `Withdrawn': A rating is withdrawn when Fitch deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.

- RatingAlert: Ratings are placed on RatingAlert to notify investors that
there is a reasonable probability of a rating change and the likely direction of
such change. These are designated as "Positive", indicating a potential
upgrade, "Negative", for a potential downgrade, or "Evolving", if ratings may be
raised, lowered or maintained. RatingAlert is typically resolved over a
relatively short period.

Thomson Financial BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:

"AAA" - This designation indicates that the ability to repay principal and
interest on a timely basis is extremely high.

"AA" - This designation indicates a very strong ability to repay principal
and interest on a timely basis, with limited incremental risk compared to issues
rated in the highest category.

"A" - This designation indicates that the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.

"BBB" - This designation represents the lowest investment-grade category
and indicates an acceptable capacity to repay principal and interest. Issues
rated "BBB" are more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings.

"BB," - A rating of BB suggests that the likelihood of default is
considerably less than for lower-rated issues, although there are significant
uncertainties that could affect the ability to adequately service debt
obligations.

"B" - Issues rated B show a higher degree of uncertainty and therefore
greater likelihood of default than higher-rated issues. Adverse developments
could negatively affect the payment of interest and principal on a timely basis.

"CCC" - Issues rated CCC clearly have a high likelihood of default, with
little capacity to address further adverse changes in financial circumstances.

"CC" - This rating is applied to issues that are subordinate to other
obligations rated CCC and are afforded less protection in the event of
bankruptcy or reorganization.

"D" - This designation indicates that the long-term debt is in default.

PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include a
plus or minus sign designation which indicates where within the respective
category the issue is placed.

A-7
<PAGE>

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 uses the short-term ratings described under Commercial Paper Ratings
for municipal notes.

A-8
<PAGE>

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

B-1
<PAGE>

Fund realizes a gain, and if the purchase price exceeds the offsetting sale
price, the Fund realizes a loss.

Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges - principally, the Chicago Board of Trade, the
Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would
deal only in standardized contracts on recognized exchanges. Each exchange
guarantees performance under contract provisions through a clearing
corporation, a nonprofit organization managed by the exchange membership.

A public market now exists in futures contracts covering various financial
instruments including long-term U.S. Treasury Bonds and Notes; Government
National Mortgage Association (GNMA) modified pass-through mortgage-backed
securities; three-month U.S. Treasury Bills; and ninety-day commercial paper.
A Fund may trade in any futures contract for which there exists a public
market, including, without limitation, the foregoing instruments.

Examples of Futures Contract Sale. A Fund would engage in an interest
---------------------------------
rate futures contract sale to maintain the income advantage from continued
holding of a long-term bond while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-term
securities prices. Assume that the market value of a certain security in a
Fund's portfolio tends to move in concert with the futures market prices of
long-term U.S. Treasury bonds ("Treasury bonds"). The Adviser wishes to fix
the current market value of this portfolio security until some point in the
future. Assume the portfolio security has a market value of 100, and the
Adviser believes that, because of an anticipated rise in interest rates, the
value will decline to 95. The Fund might enter into futures contract sales of
Treasury bonds for an equivalent of 98. If the market value of the portfolio
security does indeed decline from 100 to 95, the equivalent futures market
price for the Treasury bonds might also decline from 98 to 93.

In that case, the five-point loss in the market value of the portfolio
security would be offset by the five-point gain realized by closing out the
futures contract sale. Of course, the futures market price of Treasury bonds
might well decline to more than 93 or to less than 93 because of the imperfect
correlation between cash and futures prices mentioned below.

The Adviser could be wrong in its forecast of interest rates and the
equivalent futures market price could rise above 98. In this case, the market
value of the portfolio securities, including the portfolio security being
protected, would increase. The benefit of this increase would be reduced by
the loss realized on closing out the futures contract sale.

If interest rate levels did not change, the Fund in the above example
might incur a loss of 2 points (which might be reduced by an offsetting
transaction prior to the settlement date). In each transaction, transaction
expenses would also be incurred.

Examples of Futures Contract Purchase. A Fund might engage in an
-------------------------------------
interest rate futures contract purchase when it is not fully invested in long-
term bonds but wishes to defer for a time the purchase of long-term bonds in
light of the availability of advantageous interim investments, e.g., shorter-
term securities whose yields are greater than those available on long-term
bonds. A Fund's basic motivation would be to maintain for a time the income
advantage from investment in the short-term securities; the Fund would be
endeavoring at the same time 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.

B-2
<PAGE>

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.

B-3
<PAGE>

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

B-4
<PAGE>

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

B-5
<PAGE>

III. Futures Contracts on Foreign Currencies
---------------------------------------

A futures contract on foreign currency creates a binding obligation on
one party to deliver, and a corresponding obligation on another party to accept
delivery of, a stated quantity of foreign currency for an amount fixed in U.S.
dollars. Foreign currency futures may be used by the International Equity Fund
to hedge against exposure to 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

B-6
<PAGE>

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.

B-7
<PAGE>

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

B-8
<PAGE>

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
accounting principles generally accepted in the United States of America.

The tax principles applicable to futures contracts and options are complex
and, in some cases, uncertain. Such investments may cause a Fund to recognize
taxable income prior to the receipt of cash, thereby requiring the Fund to
liquidate other positions, or to borrow money, so as to make sufficient
distributions to shareholders to avoid corporate-level tax. Moreover, some or
all of the taxable income recognized may be ordinary income or short-term
capital gain, so that the distributions may be taxable to shareholders as
ordinary income.

B-9