2000 Annual Report October 31, 2000
Firstar Global Equity Fund
discover
<PAGE>
(LOGO) FIRSTAR FUNDS
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NOTICE TO INVESTORS
- Shares of Firstar Funds are distributed by Quasar Distributors, LLC, a Firstar
affiliate.
- Firstar Bank affiliates serve as investment adviser, custodian, transfer
agent, administrator, accounting services agent and distributor and receive
compensation for these services as disclosed in the current prospectus.
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Table of Contents
Page(s)
SHAREHOLDER LETTER..............................................1
FIRSTAR GLOBAL EQUITY FUND......................................2-3
(Firstar Stellar International Equity Fund
became Firstar Global Equity Fund)
STATEMENT OF ASSETS AND LIABILITIES.............................4
STATEMENT OF OPERATIONS.........................................5
STATEMENT OF CHANGES IN NET ASSETS..............................6
FINANCIAL HIGHLIGHTS...........................................7-8
SCHEDULE OF INVESTMENTS.........................................9
NOTES TO THE FINANCIAL STATEMENTS..............................10-13
CHANGE OF ACCOUNTANTS...........................................14
REPORT OF INDEPENDENT ACCOUNTANTS...............................15
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NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
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See notes to the financial statements.
<PAGE>
(LOGO) FIRSTAR FUNDS
DEAR SHAREHOLDER:
Last summer, the Boards of Directors for Firstar Funds and Mercantile Mutual
Funds, and the Board of Trustees for Firstar Stellar Funds approved a plan to
combine the three fund families together to form a single family - Firstar
Funds. Shareholders of the fund families approved the plan in November and the
reorganization was completed on December 11, 2000.
As a result of the plan, FirstarStellar International Equity Fund was
reorganized into a new Firstar Funds portfolio, Firstar Global Equity Fund,
which was specifically created to continue the operations of Firstar Stellar
International Equity Fund.
While the name may have changed, rest assured Firstar Global Equity Fund
continues to be expertly managed with the same approach you've come to rely on.
The new Firstar Funds family offers 32 portfolios with varying investment
objectives and styles. For more information about any Firstar Fund, contact your
financial professional, visit us at www.firstarfunds.com, or call us at
1-800-677-FUND.
As always, we appreciate your investment in Firstar Funds.
Sincerely,
Firstar Funds
<PAGE>
(LOGO) FIRSTAR FUNDS
FIRSTAR GLOBAL EQUITY FUND
STRATEGY
Firstar Global Equity Fund seeks to achieve long-term capital appreciation. The
Fund pursues its objective by investing, under normal market conditions, at
least 65% of the value of its total assets in shares of other mutual funds whose
portfolios consist of equity securities of non-U.S., and global issuers.
MARKET CONDITIONS
This was a very difficult period for the international stock market as measured
by the MSCI/EAFE Index, which had a return of -2.90% for the twelve month period
ended October 31, 2000. The tremendous jump in oil prices had a very negative
impact on many of the overseas countries, which are highly dependent on foreign
oil. This worked to diminish growth expectations. Europe has seen relatively
stable consumer prices but stubbornly high producer prices and high unemployment
still remain. Japan is struggling to still recover from the deflation and
recession of the past and is also being buffeted by political turmoil as they
potentially move towards a "no-confidence" vote with their government.
While the Japanese stock market has been weak, there has been reasonable
progress made in most of Europe in their local currencies. The problem has been
with the continued weakness of the Euro. This has meant massive losses for
investors as they convert holdings back into dollars. Until we see some new
strength in the Euro, this will be a tough place to earn positive investment
returns.
INVESTMENT REVIEW
During the twelve month period ended October 31, 2000, Firstar Global Equity
Fund's return of 6.70% (Institutional shares) compares favorably with the
MSCI/EAFE Index return of -2.90%. As a fund of funds, Firstar Global Equity Fund
employs other mutual funds in the portfolio. We believe this leads to tremendous
diversification from both a style and philosophy standpoint. Our holdings are
diversified among styles and market capitalizations. We believe this helps to
reduce risk and has led to good relative performance. This year, we have boosted
our exposure to the value investment style which helped protect us as tech
stocks declined.
LOOKING AHEAD - THE FORECAST
We believe that most foreign economies will begin to slow their economic growth.
The oil price hikes coupled with high unemployment will make it difficult for
these economies to accelerate. Conversely, inflation continues to be very much
under control. We believe the key to returns will be the strength of currencies.
As some political problems are resolved, a rebound in the Euro would be a big
boost for the performance of international and global funds.
(PICTURE)
DONALD L. KELLER
PORTFOLIO MANAGER PROFILE
-------------------------------------------------------------------------------
DONALD KELLER manages Firstar Global Equity Fund. Mr. Keller has been with
FIRMCO and its affiliates since 1982 and has 18 years of investment management
experience. He has managed the predecessor Firstar Stellar International Equity
Fund since its inception in December, 1997.
<PAGE>
(LOGO) FIRSTAR FUNDS
GLOBAL EQUITY MSCI/EAFE INDEX*
-------------------- --------------------
12/03/97 $10,000 $10,000
11/98 10,395 11,474
11/99 13,351 13,705
10/00 13,178 12,862
This chart assumes an initial investment of $10,000 made on 12/3/97 (inception).
Performance reflects fee waivers in effect. In the absence of fee waivers,
total return would be reduced. Returns shown include the reinvestment of all
dividends and other distributions. Past performance is not predictive of future
performance. Investment return and principal value will fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
AVERAGE ANNUAL RATE OF RETURN (%)
For Periods Ended October 31, 2000
--------------------------------------------------------------------------------
1 Year Since Inception
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GLOBAL EQUITY FUND - INSTITUTIONAL 6.7 9.9 (12/3/97)
MSCI/EAFE INDEX* (2.9) 9.0 (12/3/97)
================================================================================
* The Morgan Stanley Capital International Europe, Australia and Far East
Index ("MSCI/EAFE") is an unmanaged index composed of 20 European and Pacific
Basin countries. The MSCI/EAFE Index is the most recognized international index
and is weighted by market capitalization.
Foreign investing involves special risks not associated with domestic securities
including currency risk, increased volatility of foreign securities, and
differences in auditing and other financial standards.
Index figures do not reflect any fees or expenses. An investment cannot be made
directly in an index.
The Fund began operations on December 3, 1997 as the Firstar Stellar
International Equity Fund of Firstar Stellar Funds. On December 11, 2000, the
Firstar Stellar International Equity Fund was reorganized into the Firstar
Global Equity Fund.
TOP 5 EQUITY HOLDINGS 10/31/00
JANUS WORLDWIDE FUND 15.7%
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FEDERATED INTERNATIONAL EQUITY FUND, CLASS A 9.6%
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FOUNDERS WORLDWIDE GROWTH FUND 7.3%
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MORGAN STANLEY GLOBAL EQUITY ALLOCATION FUND 6.9%
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SCUDDER GLOBAL FUND 6.7%
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Portfolio holdings are subject to change and are not a representation of the
Fund's entire portfolio holdings.
TOTAL FUND NET ASSETS 10/31/00
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$72,124,985
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<PAGE>
(LOGO) FIRSTAR FUNDS
STATEMENT OF ASSETS AND LIABILITIES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
OCTOBER 31, 2000
GLOBAL EQUITY
FUND
----
ASSETS:
Investments, at value (cost $67,406) $71,599
Income receivable 62
Capital shares sold 115
Receivable for securities sold 611
Other assets 6
---
Total Assets 72,393
------
LIABILITIES:
Capital shares redeemed 58
Payable to custodian 109
Payable to affiliates 85
Accrued expenses and other liabilities 16
---
Total Liabilities 268
---
NET ASSETS $72,125
=======
NET ASSETS CONSIST OF:
Capital stock $61,926
Undistributed net investment income 466
Undistributed accumulated net realized gains
on investments 5,540
Unrealized net appreciation on investments 4,193
-----
Total Net Assets $72,125
=======
SERIES INSTITUTIONAL:
Net assets $72,125
Shares authorized (no par value) unlimited
Shares issued and outstanding 5,707
Net asset value, redemption price per share
and offering price per share<F1> $ 12.64
=======
<F1> Amounts may not recalculate due to rounding.
See notes to the financial statements.
<PAGE>
(LOGO) FIRSTAR FUNDS
STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS)
PERIOD ENDED OCTOBER 31, 2000
GLOBAL EQUITY
FUND<F1>
-------
INVESTMENT INCOME:
Divdend income $ 305
Interest income 572
---
877
---
EXPENSES:
Investment advisory fees 507
Service organization fees 169
Administration fees 74
Fund accounting fees 39
Custody fees 17
Professional fees 17
Federal and state registration fees 15
Transfer agent fees and expenses 15
Directors' fees and expenses 6
Reports to shareholders 4
Other 1
----
Total expenses before waiver 864
Less: Waiver of service organization fees (68)
---
Net expenses 796
---
NET INVESTMENT INCOME 81
---
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on investments 6,248
Net change in unrealized appreciation
on investments (8,437)
------
Net loss on investments (2,189)
------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(2,108)
=======
<F1> Results shown are for the eleven month period ended October 31, 2000.
See notes to the financial statements.
<PAGE>
(LOGO) FIRSTAR FUNDS
STATEMENT OF CHANGES IN NET ASSETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
GLOBAL EQUITY
FUND
----
Eleven months Year
ended ended
Oct. 31, 2000 Nov. 30, 1999
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 81 $ 150
Net realized gain on investments 6,248 607
Net change in unrealized appreciation (depreciation) on investments (8,437) 13,062
------ ------
Net increase (decrease) in net assets resulting from operations (2,108) 13,819
------ ------
CAPITAL SHARE TRANSACTIONS:
Shares sold 22,593 12,639
Shares issued to owners in reinvestment of dividends 470 964
Shares redeemed (7,671) (15,062)
------ -------
Net increase (decrease) in net assets resulting from capital share transactions 15,392 (1,459)
------ ------
DISTRIBUTIONS TO SERIES INSTITUTIONAL SHAREHOLDERS:
From net investment income -- (485)
From net realized gains (655) (838)
---- ----
(655) (1,323)
---- ------
TOTAL INCREASE IN NET ASSETS 12,629 11,037
NET ASSETS:
Beginning of year 59,496 48,459
------ ------
End of year (including undistributed net investment income of $81 and $0, respectively) $72,125 $59,496
======= =======
</TABLE>
See notes to the financial statements.
<PAGE>
(LOGO) FIRSTAR FUNDS
FINANCIAL HIGHLIGHTS
INSTITUTIONAL EQUITY FUND
<TABLE>
<CAPTION>
PER SHARE DATA
Income from Investment Operations Less Distributions
--------------------------------------- ---------------------------------------
Net Net Realized and Dividends Distributions
Asset Value, Net Unrealized Gains Total from from Net from
Beginning Investment or (Losses) on Investment Investment Capital Total
of Period Income Securities Operations Income Gains Distributions
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GLOBAL EQUITY
------------------------------------------------------------------------------------------------------------------------------------
Dec. 3, 1997<F1> through
Nov. 30, 1998 $10.00 $0.05 $0.34 $0.39 $(0.04) $ - $(0.04)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended November 30, 1999 10.35 0.09 2.78 2.87 (0.10) (0.18) (0.28)
------------------------------------------------------------------------------------------------------------------------------------
Period Ended October 31, 2000<F5> 12.94 0.01 (0.17) (0.16) - (0.14) (0.14)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Supplemental Data and Ratios
--------------------------------------------
Ratio of Net
Net Assets, Ratio of Net Investment
Net Asset End of Expenses Income Portfolio
Value, End Total Period to Average to Average Turnover
of Period Return (000s) Net Assets Net Assets Rate
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GLOBAL EQUITY
Dec. 3, 1997<F1> through Nov. 30, 1998 $10.35 3.95%<F2> $48,459 1.31%<F3><F4> 0.37%<F3> 3.00%<F2>
------------------------------------------------------------------------------------------------------------------------------------
Year Ended November 30, 1999 12.94 28.44% 59,496 1.13%<F4> 0.27% 34.00%
------------------------------------------------------------------------------------------------------------------------------------
Period Ended October 31, 2000<F5> 12.64 (1.30)%<F2> 72,125 1.18%<F3><F4> 0.12%<F3> 10.43%<F2>
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<F1> Commencement of operations.
<F2> Not annualized.
<F3> Annualized.
<F4> Without fees waived, ratios of net expenses to average net assets for
the period ended October 31, 2000, the fiscal year ended November 30, 1999
and the period ended November 30, 1998 would have been 1.28%, 1.29% and
1.51%, respectively.
<F5> Effective in 2000, the Fund's fiscal year end was changed to October 31
from November 30.
See notes to the financial statements.
<PAGE>
(LOGO) FIRSTAR FUNDS
GLOBAL EQUITY FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2000
Number Market Value
of Shares (in thousands)
--------- --------------
CLOSED-END INVESTMENT COMPANIES 14.2%
15,000 Asia Pacific Fund Inc. $ 122
10,000 Asia Tigers Fund Inc. 71
30,000 China Fund, Inc. (The) 268
100,000 France Growth Fund, Inc. (The) 1,119
20,000 Germany Fund, Inc. (The) 239
15,000 iShares MSCIFrance Index Fund 365
15,000 iShares MSCIGermany Index Fund 293
100,000 iShares MSCIHong Kong Index Fund 1,144
10,000 iShares MSCIItaly Index Fund 218
85,000 iShares MSCISingapore Index Fund 584
77,237 Italy Fund Inc. (The) 1,313
35,000 Japan Equity Fund, Inc. (The)* 247
175,000 Japan O.T.C.Equity Fund, Inc.* 1,345
50,000 Korea Fund, Inc. (The)* 550
20,000 Latin American Discovery Fund, Inc. (The) 200
50,000 Mexico Fund, Inc. (The) 790
53,628 Swiss Helvetia Fund, Inc. (The) 764
75,000 Templeton Emerging Markets Fund, Inc. 581
--------
Total Closed-End Investment Companies
(Cost $10,126) 10,213
--------
MUTUAL FUNDS 78.2%
263,109 BTInstitutional International Equity Fund 3,705
294,287 Federated InternationalEquity Fund, Class A 6,939
44,391 Federated International Small Company Fund* 1,189
143,208 Fidelity Diversified International Fund 3,291
245,193 Founders Worldwide Growth Fund 5,259
160,549 Janus Worldwide Fund 11,359
31,760 Meeder International Equity Fund 481
278,101 Morgan Stanley GlobalEquity Allocation Fund 4,986
41,934 Pilgrim Global Corporate Leaders Fund 451
185,172 Scudder Global Fund 4,852
260,588 USAA World Growth Fund 4,790
229,474 Vanguard International Growth Fund 4,626
170,294 Vanguard International Value Fund 4,446
--------
Total Mutual Funds (Cost $52,268) 56,374
--------
Number
of Shares Market Value
(in thousands) (in thousands)
-------------- --------------
SHORT-TERM INVESTMENT 6.9%
INVESTMENT COMPANY 6.9%
5,012 Short-Term Investments Co.
Government Agency Portfolio $ 5,012
--------
Total Short-Term Investment (Cost $5,012) 5,012
--------
Total Investments (Cost $67,406) 99.3% 71,599
--------
Other Assets, less Liabilities 0.7% 526
--------
TOTAL NET ASSETS 100.0% $72,125
========
* Non-income producing
See notes to the financial statements.
<PAGE>
(LOGO) FIRSTAR FUNDS
GLOBAL EQUITY FUND
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION
Firstar Stellar Funds (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-ended management
investment company. During 2000, the Boards of Directors for Firstar Funds, Inc.
and Mercantile Mutual Funds, Inc. and the Board of Trustees for the Trust
approved a plan to combine the three fund families together to form a single
family - Firstar Funds. See footnotes 8 and 9 for further information. The
investment objective of the Global Equity Fund (formerly known as
International Equity Fund) is long-term capital appreciation.
The Global Equity Fund (the "Fund") offers one class of shares (Series
Institutional - formerly known as Y shares).
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of the financial statements. These
policies are in conformity with generally accepted accounting principles.
a) Investment Valuations - Equity securities and closed-end investment companies
traded on a securities exchange and securities traded in the over-the-counter
market are valued at the last reported sales price on the day of valuation;
other securities for which no sale was reported on that date, are valued at the
last quoted bid price as furnished by an independent pricing service. Short-term
securities with remaining maturities of sixty days or less at the time of
purchase are valued at amortized cost, which approximates market value. Variable
rate demand notes are valued at cost which approximates market value. Investment
in open-end investment companies are valued at net asset value.
b) Repurchase Agreements - It is the policy of the Fund to require a custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards approved or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
c) Investment Income, Expenses and Distributions - Interest income and expenses
are accrued daily. Dividend income and distributions to shareholders are
recorded on the ex-dividend date.
d) Federal Taxes - It is the Fund's policy to comply with the provisions of the
Internal Revenue Code, as amended, (the "Code") applicable to regulated
investment companies and to distribute to shareholders each year substantially
all of its net investment income and net realized gains. Accordingly, no
provisions for federal taxes are necessary.
The character of distributions made during the year from net investment
income or net realized gains may differ from the characterization for federal
income tax purposes due to differences in the recognition of income, expense and
gain items for financial statement and tax purposes. Where appropriate,
reclassifications between net asset accounts are made for such differences that
are permanent in nature.
e) When-Issued and Delayed Delivery Transactions - The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
f) Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, revenues and
expenses reported in the financial statements. Actual results could differ from
those estimates.
g) Other - Investment and shareholder transactions are accounted for on the
trade date. Realized gains and losses from investment transactions are
determined by comparing the net sale proceeds to an identified cost basis.
<PAGE>
(LOGO) FIRSTAR FUNDS
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares, in thousands, were as follows:
GLOBAL EQUITY FUND
SHARES
------
ELEVEN MONTHS ENDED OCTOBER 31, 2000:
Series Institutional shares:
Shares sold 1,632
Shares issued to owners in
reinvestment of dividends 34
Shares redeemed (556)
-----
Net increase 1,110
=====
YEAR ENDED NOVEMBER 30, 1999:
Series Institutional shares:
Shares sold 1,132
Shares issued to owners in
reinvestment of dividends 93
Shares redeemed (1,311)
------
Net decrease (86)
======
4. INVESTMENT ADVISORY FEES AND OTHER
TRANSACTIONS WITH AFFILIATES
a) General - Certain officers of Firstar Investment Research &Management
Company, LLC (FIRMCO) and Firstar Mutual Fund Services, LLC("Firstar") serve as
officers of the Trust. FIRMCO and Firstar are related by virtue of each being a
subsidiary of Firstar Corporation.
b) Investment Advisory Fees - FIRMCO serves as the Trust's investment adviser
(the "Adviser"). Prior to April 1, 2000, the Fund was managed by Firstar Bank,
N.A. As part of an internal restructuring of the investment advisory function
within Firstar Corporation, the investment management resources of Firstar Bank,
N.A. have been consolidated with those of FIRMCO. The Adviser receives for its
services an annual investment advisory fee of 0.75% applied to the daily net
assets of the Fund.
c) Administrative Fees - Firstar provides the Fund with certain administrative
personnel and services. Firstar receives a fee at an annual rate of 0.11% of the
average daily net assets of the Fund for the period.
d) Distribution Services - Edgewood Services, Inc. served as the
distributor of the Firstar Stellar Funds through July 31, 2000. Effective August
1, 2000, Quasar Distributors, LLC became the distributor. The Institutional
shares are not subject to a distribution services fee.
e) Shareholder Services Fees - Under the terms of the Shareholder Services
Agreement with Firstar Bank, N.A., the Fund may accrue and pay Firstar Bank,
N.A. up to 0.25% of average daily net assets of the Fund for the period. For the
period December 1, 1999 to January 31, 2000, Firstar Bank, N.A. waived 0.15% of
this Shareholder Servicing Fee. Effective February 1, 2000, this waiver was
reduced to 0.09%. The fee paid to Firstar Bank, N.A. is used to finance certain
services for shareholders and to maintain shareholder accounts. Firstar Bank,
N.A. can modify or terminate this limitation at any time at its sole discretion.
f) Transfer and Dividend Disbursing Agent Fees - Firstar serves as transfer and
dividend disbursing agent for the Fund. The fee paid to Firstar is based on the
size, type and number of accounts and transactions made by shareholders.
g) Portfolio Accounting Fees - Firstar is the Fund's accounting services agent.
Firstar is responsible for maintaining the Fund's accounting records for which
it receives a fee. The fee is based on the level of the Fund's average daily net
assets for the period, subject to an annual minimum of $39,000, plus
out-of-pocket expenses.
h) Custodian Fees - Firstar Bank, N.A. is the Fund's custodian for which it
receives a fee. The fee is based on the level of the Fund's average daily net
assets for the period, plus out-of-pocket expenses.
5. INVESTMENT TRANSACTIONS
Purchases and sales, in thousands, of investments, excluding short-term
securities, for the eleven months ended October 31, 2000, were as follows:
GLOBAL EQUITY FUND
------------------
Purchases:
U.S. Government --
Other $20,244
Sales:
U.S. Government --
Other $ 6,996
At October 31, 2000, gross unrealized appreciation and depreciation of
investments for federal tax purposes, in thousands, were as follows:
GLOBAL EQUITY FUND
------------------
Appreciation $8,014
(Depreciation) (3,821)
------
Net unrealized appreciation on investments $4,193
======
At October 31, 2000, the cost of investments, in thousands, for federal
income tax purposes was $67,406.
<PAGE>
(LOGO) FIRSTAR FUNDS
6. DISTRIBUTION TO SHAREHOLDERS (UNAUDITED)
Net investment income and net realized gains, if any, are distributed to
shareholders. The Fund declared a distribution of net realized gains on November
21, 2000, for all shareholders of record on November 20, 2000. The Fund
distributed $676 as short-term capital gain distributions and $655,022 as
long-term capital gain distributions for purposes of the dividends paid
deduction.
The Fund also declared a distribution of net realized gains on December 27,
2000, for all shareholders of record on December 26, 2000. The Fund distributed
$5,702,224 as long-term capital gain distributions for purposes of
the dividends paid deduction.
7. SUBSEQUENT EVENT - CAPITAL GAIN DISTRIBUTIONS (UNAUDITED)
The Fund made a distribution of short-term and long-term capital gains of
$0.00012 and $0.12 per share, respectively. The distribution was paid on
November 21, 2000 to shareholders of record on November 20, 2000.
The Fund made a distribution of long-term capital gains of $0.86 per share.
The distribution was paid on December 27, 2000 to shareholders of record on
December 26, 2000.
8. SUBSEQUENT EVENT - AGREEMENT AND PLAN OF REORGANIZATION (UNAUDITED)
On June 7, 2000, as ratified on July 20, 2000, the Board of Trustees of the
Fund approved an Agreement and Plan of Reorganization (the "Agreement")
providing for the transfer of substantially all of the assets and liabilities of
each of the Trust's portfolios to corresponding portfolios of Firstar Funds,
Inc. ("Firstar Funds") in exchange for shares of such Firstar Funds in a
tax-free reorganization. At a special meeting of shareholders of the Trust held
on November 24, 2000, the shareholders of each of the Trust's portfolios voted
to approve the Agreement. The results of the shareholder meeting are as follows
(no shares represented broker non-votes other than 2,226 shares of the U.S.
Government Income Fund):
FUND FOR AGAINST ABSTAIN
---- --- ------- -------
Treasury 3,061,140,107 4,974,967 3,276,121
Tax-Free Money Market 182,173,399 32,746 460,959
Ohio Tax-Free Money Market 60,153,523 0 0
Strategic Income 13,130,869 10,764 66,620
U.S. Government Income 16,086,380 0 0
Insured Tax-Free Bond 15,572,734 0 313
Growth Equity 9,651,548 138,077 58,823
Relative Value 16,515,694 14,132 30,210
Science &Technology 5,975,816 7,692 4,987
Stellar 3,553,064 16,116 52,856
Capital Appreciation 5,227,067 1,490 840
International Equity 5,573,031 0 0
The reorganization with respect to the above portfolios of the Trust was
completed on December 11, 2000.
9. SUBSEQUENT EVENT - PORTFOLIO MERGERS
At meetings held on June 16, 2000 and July 13, 2000, the Board of Directors
of Firstar Funds, Inc. ("Firstar Funds") approved (i) an Agreement and Plan of
Reorganization providing for the acquisition of Mercantile Mutual Funds, Inc.
("Mercantile Funds") by Firstar Funds, (ii) an Agreement and Plan of
Reorganization providing for the acquisition of Firstar Stellar Funds ("Stellar
Funds") by Firstar Funds, and (iii) an Agreement and Plan of Reorganization
providing for the acquisition of Firstar Select Funds ("Select Funds") by
Firstar Funds. The Board of Directors and shareholders of Mercantile Funds
(other than the Mercantile Conning Money Market Portfolio) and Select Funds and
the Board of Trustees and shareholders of Stellar Funds each ratified their
applicable agreements.
On November 27, 2000, certain portfolios of the Firstar Funds, including
newly formed shell portfolios (which were organized solely to acquire the assets
and continue the business of certain portfolios of Mercantile Funds, Stellar
Funds and Select Funds) merged with certain portfolios of Mercantile Funds and
Stellar Funds. On December 11, 2000, certain other portfolios of Mercantile
Funds (other than the Mercantile Conning Money Market Portfolio), Stellar Funds
and Select Funds merged into shell portfolios of Firstar Funds. Below is a table
(in thousands) that illustrates the specifics of the mergers related to the fund
in these financial statements.
<PAGE>
(LOGO) FIRSTAR FUNDS
<TABLE>
<CAPTION>
UNREALIZED
VALUE OF SHARES GAIN
NET ASSETS ISSUED TO OF MERGING
TRANSFERRED SHAREHOLDERS EFFECTIVE FUND
MERGING FUND BY MERGING OF FUND DATE OF AT TIME TAX STATUS NEW FIRSTAR
FUND NAME MERGED INTO FUND MERGED INTO MERGER OF MERGER OF TRANSFER FUNDS NAME
--------- ----------- ---- ----------- ------ --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Firstar Stellar
International Firstar Global Firstar Global
Equity Fund<F1> Equity Fund<F2> $69,924 12/11/2000 $1,931 Non-taxable Equity Fund
Series Institutional 5,669
<F1> Accounting survivor; performance history carries over.
<F2> Shell portfolio.
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(LOGO) FIRSTAR FUNDS
CHANGE OF ACCOUNTANTS
On October 19, 2000, Arthur Andersen LLP resigned as the Global Equity Fund's
("Fund") independent auditors. Arthur Andersen LLP's reports on the Fund's
financial statements for the fiscal years ended November 30, 1999 and November
30, 1998 contained no adverse opinion or disclaimer of opinion nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.
During the Fund's fiscal years ended November 30, 1999 and November 30, 1998
and the period commencing December 1, 1999 and ending October 19, 2000, (i)
there were no disagreements with Arthur Andersen LLP on any matter of accounting
principles or practices, financial statement disclosure or audit scope or
procedure, which disagreements, if not resolved to the satisfaction of Arthur
Andersen LLP, would have caused it to make reference to the subject matter of
the disagreements in connection with its reports on the Fund's financial
statements for such years, and (ii) there were no "reportable events" of the
kind described in Item 304(a)(1)(v) of Regulation S-K under the Securities
Exchange Act of 1934, as amended.
On October 19, 2000, the Fund, by action of its Board of Trustees, engaged
PricewaterhouseCoopers LL ("PwC") as the independent auditors to audit the
Fund's financial statements for the 11-month fiscal period ending October 31,
2000. During the Fund's fiscal years ended November 30, 1999 and November 30,
1998 and the period commencing December 1, 1999 and ending October 19,
2000, neither the Fund nor anyone on its behalf has consulted PwC on items which
(i) concerned the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Fund's financial statements or (ii) concerned the
subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 of
Regulation S-K) or reportable events (as described in paragraph (a)(1)(v) of
said Item 304).
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(LOGO) FIRSTAR FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FIRSTAR STELLAR FUNDS:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Global Equity Fund, (formerly
known as International Equity Fund; one of the portfolios comprising Firstar
Stellar Funds, hereafter referred to as the "Fund"), at October 31, 2000, the
results of its operations, the changes in its net assets and the financial
highlights for the period then ended, all in conformity with accounting
principles generally accepted in the UnitedStates of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with auditing
standards generally accepted in the UnitedStates of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included confirmation
of securities at October 31, 2000 by correspondence with the custodian and
brokers, provides a reasonable basis for our opinion. The financial statements
of the Fund as of November 30, 1999 and for all periods presented ended at or
prior thereto were audited by other independent accountants whose report dated
January 7, 2000 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
December 29, 2000
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(LOGO) FIRSTAR FUNDS
This report is authorized for distribution only when preceded or accompanied by
a current prospectus.
FOR A PROSPECTUS OR INVESTOR SERVICE INFORMATION
1-800-677-FUND
FIRSTAR FUNDS CENTER
615 EAST MICHIGAN STREET
P.O. BOX 3011
MILWAUKEE, WI 53201-3011
WWW.FIRSTARFUNDS.COM
(LOGO) FIRSTAR FUNDS
FORM # ANNGL-00
