Filed with the Securities and Exchange Commission on March 31, 1999
1933 Act Registration File No. 33-26915
1940 Act File No. 811-5762
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ------------ [ ]
Post-Effective Amendment No. ---44----- [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. ---45---- [X]
FIRSTAR STELLAR FUNDS
----------------------
(Exact Name of Registrant as Specified in Charter)
615 East Michigan Street, Milwaukee, Wisconsin 53202
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (800) 677-3863
Elaine E. Richards, Esquire
Firstar Mutual Funds Services, LLC
615 East Michigan Street, 2nd Floor
Milwaukee, Wisconsin 53202
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
--X-- immediately upon filing pursuant to paragraph (b)
----- on ---------------------- pursuant to paragraph (b)
----- 60 days after filing pursuant to paragraph (a)(1)
----- on March 31, 1999 pursuant to paragraph (a)(1)
----- 75 days after filing pursuant to paragraph (a)(2)
----- on ---------------------- pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
----- This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
FIRSTAR STELLAR MONEY
FUNDS MARKET FUNDS
COMBINED
PROSPECTUS
March 31, 1999
FIRSTAR STELLAR TREASURY FUND
Providing current income with stable principal
FIRSTAR STELLAR TAX-FREE MONEY MARKET FUND
Providing current income exempt from federal
income tax
FIRSTAR STELLAR OHIO TAX-FREE MONEY MARKET FUND
Providing current income exempt from federal and
Ohio state income tax
The Securities and Exchange
Commission has not approved
or disapproved these securities
or determined if this prospectus
is truthful or complete. Any
representation to the contrary
is a criminal offense.
TABLE OF CONTENTS
THE FUNDS
Overview of the Funds 3
TREASURY FUND 4
TAX-FREE MONEY MARKET FUND 6
OHIO TAX-FREE MONEY MARKET FUND 8
Management of the Funds 10
Distribution of Shares 10
YOUR ACCOUNT INFORMATION
Description of Classes 11
Exchanging Shares 11
Purchasing Shares 12
Selling Shares 14
Dividends, Capital Gain Distributions and Taxes 15
ADDITIONAL INFORMATION
Financial Highlights 17
Year 2000 Issue 19
FOR MORE INFORMATION
The back cover tells you how to obtain more information about the funds.
OVERVIEW
GOAL OF THE MONEY MARKET FUNDS
The goal of the Firstar Stellar money market funds is to provide current income
while preserving capital. The advantage of the TAX-FREE MONEY MARKET FUND is
that the interest income is exempt from federal income tax. The benefit of the
OHIO TAX-FREE MONEY MARKET FUND is that the interest income is exempt from both
federal and Ohio state income tax.
STRATEGY OF THE FUNDS
The TREASURY FUND invests exclusively in short-term U.S. Treasury obligations.
The TAX-FREE MONEY MARKET FUND and the OHIO TAX-FREE MONEY MARKET FUND primarily
invest in short-term municipal securities. Each of the funds strives to
maintain a share price of $1.00.
PRINCIPAL RISKS COMMON TO THESE FUNDS
o Interest Risks: The rate of income will vary from day to day
depending on short-term interest rates. It is possible that a major
change in interest rates could cause the value of your investment
to decline.
o Credit Risks: The funds can also be affected by changes in a default
on a security or a repurchase agreement held by one of the funds
could cause the value of your investment to decline.
o An investment in the funds is not a deposit of Firstar Bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
o Although the funds seek to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the
funds.
WHO MAY WANT TO INVEST
These funds may be appropriate for people who:
o want to save money rather than "invest"
o require stability of principal
o prefer to receive income with relatively fewer risks
TREASURY FUND
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INVESTMENT GOAL
The TREASURY FUND seeks to achieve stability of principal and current income
consistent with stability of principal.
INVESTMENT POLICIES, PORTFOLIO SECURITIES AND RISKS
The fund intends to achieve its investment goal by investing exclusively in
short-term U.S. Treasury obligations that have a maturity of 397 days or less
from the date of purchase. In the case of repurchase agreements involving 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, however, of all the securities in the fund's portfolio will be 90 days
or less on a dollar-weighted 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. The fund
may purchase repurchase agreements collateralized by U.S. Treasury obligations.
The average maturity of these securities is 120 days or less. Securities
subject to repurchase agreements are marked to market on a daily basis.
INVESTMENT RISKS
REPURCHASE AGREEMENTS:
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 AGREEMENTS RISKS:
One of the risks of investing in repurchase agreements is 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.
WHEN ISSUED/DELAYED DELIVERY
Securities with payment and delivery scheduled for a future time.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS RISKS: 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.
Another risk is that because settlement dates may be a month or more after
entering into the transactions, the market values of the securities may have
dropped from the agreed upon purchase price. However, the fund may cancel a
commitment to purchase securities prior to settlement if the fund's investment
adviser believes it is appropriate.
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.
The Statement of Additional Information contains more information about the fund
and the types of securities in which it may invest.
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PAST PERFORMANCE
The bar chart and table below illustrate the variability of the TREASURY FUND'S
returns. The bar chart indicates the risks of investing in the fund by showing
the changes in the fund's performance from year to year (on a calendar year
basis). The table shows the fund's average annual returns for one-year,
five-year and since the fund's inception ending December 1998. The fund's past
performance is not necessarily an indication of how the fund will perform in
the future.
TRESURY FUND - C SHARES
CALENDAR YEAR RETURNS AD OF 12/31
1990 7.64%
1991 5.49
1992 3.26
1993 2.54
1994 3.51
1995 5.26
1996 4.77
1997 4.86
1998 4.61
BEST QUARTER: Q3 1989 2.08%
WORST QUARTER: Q4 1993 0.62%
Average annual total return
through 12/31/98 1 Year 5 Year Since inception
Treasury Fund C Shares1<F1> 4.61% 4.60% 4.93%
Y Shares2<F2> 4.77% N/A 4.85%
For up-to-date yield information, please call 1-800-677-FUND.
1<F1>C Shares commenced operations April 15, 1989.
2<F2>Y Shares commenced operations March 27, 1997.
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FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS Y CLASS C
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MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES
(as a percentage of offering price) None None
MAXIMUM DEFERRED SALES CHARGE (LOAD)
(as a percentage of offering price) None None
MAXIMUM SALES CHARGE (LOAD) IMPOSED
ON REINVESTED DIVIDENDS None None
REDEMPTION FEE None None
EXCHANGE FEE None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS) CLASS Y CLASS C
- -------------------------------------------------------------------------------
MANAGEMENT FEES 0.50% 0.50%
DISTRIBUTION AND SERVICE (12B-1) FEES1<F3> None 0.25%
OTHER EXPENSES2<F4> 0.43% 0.43%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.93% 1.18%
1<F3>Y shares are not subject to a Rule 12b-1 Plan. C shares of the TREASURY
FUND can pay up to 0.25% of average daily net assets for 12b-1 fees. However,
the investment adviser has chosen to waive a portion of this fee so that the
actual amount imposed is 0.15% of average daily net assets. The adviser can
reduce the waiver at any time.
2<F4>"Other Expenses" includes (1) administration fees, transfer agency fees
and all other ordinary operating expenses of the fund not listed above, plus (2)
an annual shareholder servicing fee of 0.25% of average daily net assets. For
the foreseeable future, the fund plans to limit the shareholder servicing fee to
an annual rate of 0.10% of average daily net assets.
EXAMPLE The example below is intended to help you compare the cost of investing
in the fund with the cost of investing in other mutual funds.
This example assumes that:
1.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,
2.Your investment has a 5% return each year, and
3.The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS Y $95 $296 $515 $1,143
CLASS C $120 $375 $649 $1,432
Class descriptions are on page.
TAX-FREE MONEY MARKET FUND
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INVESTMENT GOAL
WHAT IS FEDERAL REGULAR INCOME TAX?
Federal regular income tax refers to normal income tax that most U.S. taxpayers
compute and pay each year. It does not include the federal alternative minimum
tax.
The TAX-FREE MONEY MARKET FUND seeks to provide current income exempt from
federal regular income tax consistent with stability of principal.
INVESTMENT POLICIES, PORTFOLIO SECURITIES AND RISKS
The fund intends to achieve its investment goal by investing its assets so that
at least 80% of its annual interest income is exempt from federal regular income
tax and not subject to the alternative minimum tax. The fund's portfolio
consists of municipal securities maturing in 397 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.
The municipal securities in which the fund invests are primarily debt
obligations issued by or on behalf of states, territories and possessions of the
United States, and any political subdivision or financing authority of any of
these, the income from which is exempt from federal regular income tax.
When selling securities, the adviser considers three factors: (1) Have the
objectives of the fund been met? (2) Has the attractiveness of the securities
deteriorated? (3) Has the adviser's outlook changed? If the adviser can answer
each question positively, then the adviser will sell the securities.
EXAMPLES OF MUNICIPAL SECURITIES
--------------------------------
o tax and revenue anticipation notes issued to finance working capital
needs in anticipation of receiving taxes or other revenues
o bond anticipation notes that are intended to be refinanced through a
later issuance of longer term bonds
o municipal commercial paper and other short-term notes
o variable rate demand notes
o municipal bonds and leases
o construction loan notes insured by the Federal Housing Association and
financed by the Federal or Government National Mortgage Associations
o participation interests in any of the above
PARTICIPATION INTERESTS The fund may purchase interests in municipal
securities from financial institutions such as commercial and investment banks,
savings associations and insurance companies. Financial institutions provide
guarantees, letters of credit or insurance to the fund on the underlying
municipal securities.
MUNICIPAL LEASES The fund may also invest in municipal leases, which are
obligations issued by state and local governments to finance the acquisition of
equipment and facilities. Municipal leases may take the form of a lease, an
installment purchase contract, a conditional sales contract or a participation
interest. Municipal leases may be considered illiquid.
VARIABLE RATE DEMAND NOTES The fund may invest in variable rate demand notes,
which are obligations with variable or floating interest rates. The notes
provide the fund with the right to tender the security for repurchase at its
stated principal amount plus accrued interest. These securities usually bear
interest at a rate that allow the securities to trade at par. Most variable
rate demand notes allow the fund to demand the repurchase of the security on not
more than 7 days notice. Other notes only permit the fund to tender the
security at the time of each interest rate adjustment or at other fixed
intervals. The fund treats variable rate demand notes as maturing on the later
of the date of the next interest adjustment or the date on which the fund may
next tender the security for repurchase.
TEMPORARY INVESTMENTS From time to time, the fund may invest in tax-exempt or
taxable short-term temporary investments when the fund's investment adviser
determines that market conditions call for a temporary defensive posture.
During such times, it is possible for the fund not to reach its investment
objective. Although the fund is permitted to make taxable, temporary
investments, the adviser currently has no intention to generate income subject
to federal regular income tax.
INVESTMENT RISKS
The following risks are specific to this fund in addition to the risks mentioned
in the Overview section.
MUNICIPAL SECURITIES RISK One of the risks of investing in municipal
securities is that the yield produced by such securities depends on a variety of
factors including the general conditions of the short-term municipal note market
and the municipal bond market. Other factors include the size of the particular
offering, the maturity of the obligations and the rating of the issue. The
ability of the fund to achieve its investment objective also depends on the
ability of the issuers of the municipal securities to meet their obligations for
the payment of interest and principal when due.
CREDIT RISK Another risk is that the fund may invest more than 25% of its
total assets in securities credit-enhanced by banks. Credit enhanced securities
are investments backed by a guaranty, letter of credit or insurance. Any
bankruptcy, receivership, default or change in the credit quality of the party
providing the credit enhancement will adversely affect the quality and
marketability of the underlying security causing the fund to lose money.
TAX RISK The fund may be more adversely impacted by changes in tax rates and
policies than other funds. Because interest income on municipal obligations is
normally not subject to regular federal income taxation, the attractiveness of
municipal obligations in relation to other investment alternatives is affected
by changes in federal income tax rates applicable to, or the continuing federal
income tax-exempt status of, such interest income. Therefore, any proposed or
actual changes in such rates or exempt status can significantly affect the
demand for and supply, liquidity and marketability of municipal obligations,
which could in turn affect the fund's ability to acquire and dispose of
municipal obligations at desirable yield and price levels.
The Statement of Additional Information contains more information about the fund
and the types of securities in which it may invest.
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PAST PERFORMANCE
The bar chart and table below illustrate the variability of the TAX-FREE MONEY
MARKET FUND'S returns. The bar chart indicates the risks of investing in the
fund by showing the changes in the fund's performance from year to year (on a
calendar year basis). The table shows the fund's average annual returns for
one-year, five-year, and since the fund's inception ending December 1998. The
fund's past performance is not necessarily an indication of how the fund will
perform in the future.
TAX-FREE MONEY MARKET FUND - C SHARES
CALENDAR YEAR RETURNS AS OF 12/31
1992 2.44%
1993 1.88
1994 2.29
1995 3.33
1996 2.86
1997 3.04
1998 2.79
BEST QUARTER: Q3 1991 1.01%
Worst Quarter: Q1 1994 0.43%
- -------------------------------------------------------------------------------
Average annual total return
through 12/31/98 1 Year 5 Year Since Inception
- -------------------------------------------------------------------------------
Tax-Free Money Market Fund1<F5> 2.79% 2.86% 2.79%
- -------------------------------------------------------------------------------
For up-to-date yield information, please call 1-800-677-FUND.
1<F5>C Shares commenced operations March 15, 1991.
- -------------------------------------------------------------------------------
FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS C
- -------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES
(as a percentage of offering price) None
MAXIMUM DEFERRED SALES CHARGE (LOAD)
(as a percentage of offering price) None
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON REINVESTED DIVIDENDS None
REDEMPTION FEE None
EXCHANGE FEE None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS) CLASS C
- -------------------------------------------------------------------------------
MANAGEMENT FEES 1<F6> 0.55%
DISTRIBUTION AND SERVICE (12B-1) FEES2<F7> 0.25%
OTHER EXPENSES3<F8> 0.50%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.30%
1<F6>The fund's investment adviser voluntarily waives a portion of this fee
each year. The adviser can terminate this voluntary waiver at any time. With
the waiver for the year ended November 30, 1998, the management fee was 0.45%.
2<F7>Currently, C shares of the fund are not paying or accruing Rule 12b-1
fees. The C shares can pay up to 0.25% of average daily net assets as a Rule
12b-1 fee to the fund's distributor if a Y class of shares is created.
3<F8>"Other Expenses" includes (1) administration fees, transfer agency fees
and all other ordinary operating expenses of the fund not listed above, plus (2)
an annual shareholder servicing fee of 0.25% of average daily net assets. For
the foreseeable future, the fund plans to limit the shareholder servicing fee to
an annual rate of 0.10% of average daily net assets.
EXAMPLE The example below is intended to help you compare the cost of investing
in the fund with the cost of investing in other mutual funds.
This example assumes that:
4. 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,
5. Your investment has a 5% return each year, and
6. The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
CLASS C $132 $412 $713 $1,568
Class descriptions are on page.
OHIO TAX-FREE MONEY MARKET FUND
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INVESTMENT GOAL
The OHIO TAX-FREE MONEY MARKET FUND seeks to provide current income exempt from
federal income tax and the personal income taxes imposed by the state of Ohio
and Ohio municipalities consistent with stability of principal.
INVESTMENT POLICIES, PORTFOLIO SECURITIES AND RISKS
EXAMPLES OF OHIO MUNICIPAL SECURITIES
-------------------------------------
o tax and revenue anticipation notes issued to finance
working capital needs in anticipation of receiving
taxes or other revenues
o bond anticipation notes that are intended to be
refinanced through a later issuance of longer term
bonds
o municipal commercial paper and other short-term notes
o variable rate demand notes
o municipal bonds and leases
o participation interests in any of the above
The fund intends to achieve its investment goal by investing its assets so that
at least 80% of its annual interest income is exempt from federal income tax and
not subject to the alternative minimum tax and the personal income taxes
imposed by the state of Ohio and Ohio municipalities. In addition, the fund
will invest its assets so that under normal circumstances, at least 65% of the
value of its total assets will be invested in Ohio municipal securities exempt
from federal regular income tax and Ohio State income tax. The fund's portfolio
consists of municipal securities maturing in 397 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.
The municipal securities in which the fund invests are primarily debt
obligations issued by or on behalf of Ohio and its political subdivisions and
financing authorities and obligations of other states, territories and
possessions of the United States and any political subdivision or financing
authority of any of these. The income from such obligations must be exempt from
federal income tax (including alternative minimum tax) and the personal income
taxes imposed by the State of Ohio and other municipalities.
When selling securities, the adviser considers three factors: (1) Have the
objectives of the fund been met? (2) Has the attractiveness of the securities
deteriorated? (3) Has the adviser's outlook changed? If the adviser can answer
each question positively, then the adviser will sell the securities.
PARTICIPATION INTERESTS The fund may purchase interests in municipal
securities from financial institutions such as commercial and investment banks,
savings associations and insurance companies. Financial institutions provide
guarantees, letters of credit or insurance to the fund on the underlying
municipal securities.
MUNICIPAL LEASES The fund may also invest in municipal leases, which are
obligations issued by state and local governments to finance the acquisition of
equipment and facilities. Municipal leases may take the form of a lease, an
installment purchase contract, a conditional sales contract or a participation
interest. Municipal leases may be considered illiquid.
VARIABLE RATE DEMAND NOTES The fund may invest in variable rate demand notes,
which are obligations with variable or floating interest rates. The notes
provide the fund with the right to tender the security for repurchase at its
stated principal amount plus accrued interest. These securities usually bear
interest at a rate that allow the securities to trade at par. Most variable
rate demand notes allow the fund to demand the repurchase of the security on not
more than 7 days' notice. Other notes only permit the fund to tender the
security at the time of each interest rate adjustment or at other fixed
intervals. The fund treats variable rate demand notes as maturing on the later
of the date of the next interest adjustment or the date on which the fund may
next tender the security for repurchase.
TEMPORARY INVESTMENTS From time to time, the fund may invest in tax-exempt or
taxable short-term temporary investments when the fund's investment adviser
determines that market conditions call for a temporary defensive posture.
During such times, it is possible for the fund not to reach its investment
objective. Although the fund is permitted to make taxable temporary
investments, the adviser currently has no intention to generate income subject
to federal income tax.
INVESTMENT RISKS
The following risks are specific to this fund in addition to the risks mentioned
in the Overview section.
MUNICIPAL SECURITIES RISKS One of the risks of investing in municipal
securities is that the yield produced by such securities depends on a variety of
factors. Factors affecting the yield include the general conditions of the
short-term municipal note market and the municipal bond market. Other factors
are the size of the particular offering, the maturity of the obligations and the
rating of the issue. The ability of the fund to achieve its investment
objective also depends on the ability of the issuers of the municipal securities
to meet their obligations for the payment of interest and principal when due.
CREDIT RISK Another risk is that the fund may invest more than 25% of its
total assets in securities credit-enhanced by banks. Credit-enhanced securities
are investments backed by a guaranty, letter of credit or insurance. Any
bankruptcy, receivership, default or change in the credit quality of the party
providing the credit enhancement will adversely affect the quality and
marketability of the underlying security causing the fund to lose money.
TAX RISK The fund may be more adversely impacted by changes in tax rates and
policies than other funds. Because interest income on municipal obligations is
normally not subject to regular federal income taxation, the attractiveness of
municipal obligations in relation to other investment alternatives is affected
by changes in federal income tax rates applicable to, or the continuing federal
income tax-exempt status of, such interest income. Therefore, any proposed or
actual changes in such rates or exempt status can significantly affect the
demand for and supply, liquidity and marketability of municipal obligations,
which could in turn affect the fund's ability to acquire and dispose of
municipal obligations at desirable yield and price levels.
NON-DIVERSIFICATION RISK Investing in the fund has added risks because the
fund is a non-diversified fund under the Investment Company Act of 1940, as
amended. Compared with other mutual funds, this fund may invest a greater
percentage of its assets in a more limited number of issues concentrated in one
state, which as a result, can increase the fund's volatility. The value of the
fund's securities can be impacted by economic or political developments
affecting certain securities.
OHIO STATE SPECIFIC RISKS Ohio's economy is largely composed of
manufacturing which is concentrated in the automobile sector and other durable
goods. The exposure to these industries, particularly the auto sector, leaves
Ohio vulnerable to an economic slowdown associated with business cycles.
Furthermore, population growth, as in many states around the Great Lakes, has
been stagnant.
The fund's concentration in securities issued by Ohio and its political
subdivisions provides a greater level of risk than a fund whose assets are
diversified across numerous states and municipal issuers. The ability of Ohio
or its municipalities to meet their obligations will depend on
(1) the availability of tax and other revenues;
(2) economic, political and demographic conditions within the state; and
(3) the underlying fiscal condition of the state, its counties and its
municipalities.
The statement of Additional Information contains more information about the fund
and the types of securities in which it may invest.
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PAST PERFORMANCE
The bar chart and table below illustrate the variability of the OHIO TAX-FREE
MONEY MARKET FUND'S returns. Although the fund has been in operation for only
one full calendar year, the bar chart is intended to give some indication of
the risks of an investment in the fund. The table shows the fund's average
annual returns for one-year and since the fund's inception ending December
1998. The fund's past performance is not necessarily an indication of how the
fund will perform in the future.
OHIO-TAX FREE MONEY MARKET FUND - C SHARES
CALENDAR YEAR RETURN AS OF 12/31
1998 2.85%
BEST QUARTER: Q2 1998 0.78%
Worst Quarter: Q1 1998 0.63%
Average annual total return
through 12/31/98 1 Year Since Inception
- -------------------------------------------------------------------------
Ohio Tax-Free Money Market Fund1<F9> 2.85% 2.85%
For up-to-date yield information, please call 1-800-677-FUND.
1<F9> C Shares commenced operations December 2, 1997.
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FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS C
- ------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) ON PURCHASES
(as a percentage of offering price) None
MAXIMUM DEFERRED SALES CHARGE (LOAD)
(as a percentage of offering price) None
MAXIMUM SALES CHARGE (LOAD) ON REINVESTED DIVIDENDS None
REDEMPTION FEE None
EXCHANGE FEE None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS) CLASS C
- -------------------------------------------------------------------------------
MANAGEMENT FEES1<F10> 0.55%
DISTRIBUTION AND SERVICE (12B-1) FEES2<F11> 0.25%
OTHER EXPENSES3<F12> 0.74%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.54%
1<F10>The fund's investment adviser voluntarily waives a portion of this fee
each year. The adviser can terminate this voluntary waiver at any time. With
the waiver for the year ended November 30, 1998, the management fee was 0.15%.
2<F11>Currently, C shares of the fund are not paying or accruing Rule 12b-1
fees. The class can pay up to 0.25% of average daily net assets as a Rule 12b-1
fee to the distributor if a Y class of shares is created.
3<F12>"Other Expenses" includes (1) administration fees, transfer agency fees
and all other ordinary operating expenses of the fund not listed above, plus (2)
an annual shareholder servicing fee of 0.25% of average daily net assets. For
the foreseeable future, the fund plans to limit the shareholder servicing fee to
an annual rate of 0.10% of average daily net assets.
EXAMPLE The example below is intended to help you compare the cost of investing
in the fund with the cost of investing in other mutual funds.
This example assumes that:
1. 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,
2. Your investment has a 5% return each year, and
3. The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
CLASS C $157 $486 $839 $1,834
Class descriptions are on page.
MANAGEMENT OF THE FUNDS
- -------------------------------------------------------------------------------
INVESTMENT ADVISER
The investment adviser for the funds is Firstar Bank, N.A. The adviser is
located at 425 Walnut Street, Cincinnati, Ohio 45202. The investment decisions
made by Firstar Bank are subject to direction of the funds' board of trustees.
(The Statement of Additional Information contains more information regarding the
board of trustees.) The adviser conducts investment research and supervision
for the funds and is responsible for the purchase and sale of securities for the
funds' portfolios. The adviser charges an annual fee for its services and
voluntarily waives a portion of those fees as shown:
The amounts shown represent a percentage of each fund's average daily net assets
Before After
waivers waivers
- ---------------------------------------------------------------------
Treasury Fund 0.50% 0.50%
Tax-Free Money Market Fund 0.55% 0.45%
Ohio Tax-Free Money Market Fund 0.55% 0.15%
- ---------------------------------------------------------------------
The adviser was wholly owned by StarBanc Corporation until November 20, 1998
when StarBanc Corporation merged with Firstar Corporation. The new entity
retained the "Firstar" name and Firstar Corporation is now the parent company of
the adviser. Firstar Bank, N.A. was known as Star Bank, N.A. prior to the
merger.
The merger has produced no significant changes to the management of the Adviser.
Together, the two banks have become the 21st largest bank in the United States
and have blended an expertise of trust administration and investments together
with extensive knowledge in the mutual fund industry. Firstar Bank manages
trust funds and collective investment funds having a market value in excess of
$12 billion.
FUND ADMINISTRATION, FUND ACCOUNTING, DIVIDEND DISBURSEMENT, AND CUSTODY
SERVICES
Firstar Mutual Fund Services, LLC, an affiliate of the funds' investment
adviser, provides administrative, accounting and dividend disbursement services
to the Firstar Stellar Funds and is located in Milwaukee, Wisconsin. Firstar
Bank, N.A., the funds' investment adviser, also serves as custodian for the
funds.
DISTRIBUTION OF SHARES
- -------------------------------------------------------------------------------
DISTRIBUTOR
Edgewood Services, Inc. is the distributor for shares of the funds. Edgewood
is based in Pittsburgh, Pennsylvania and is the distributor for a number of
investment companies around the country.
RULE 12B-1 PLAN
The funds have adopted a Rule 12b-1 Plan under the Investment Company Act of
1940. Under the 12b-1 Plan, class C shares may pay up to an annual rate of
0.25% of the average daily net asset value of shares to Edgewood . Edgewood uses
this fee to finance activities that promote the sale of the funds' shares. Such
activities include, but are not necessarily limited to, advertising, printing
and mailing prospectuses to persons other than current shareholders, printing
and mailing sales literature, and compensating underwriters, dealers and sales
personnel.
Currently, the TAX-FREE MONEY MARKET FUND and the OHIO TAX-FREE MONEY MARKET
FUND are not paying or accruing Rule 12b-1 fees. These funds will only start
paying the Rule 12b-1 fee when a second "Y" class of shares is created for the
funds. Whenever Edgewood deems it appropriate, Edgewood may, from time to time,
voluntarily reduce its compensation under the Rule 12b-1 Plan to the extent
expenses of the shares exceed a certain limit. Rule 12b-1 fees are paid out of
fund assets on an on-going basis. Over time, these fees will increase the cost
of your investment and may cost you more than paying other types of sales
charges.
Edgewood may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers or broker/dealers as agents to
provide sales or administrative services for their clients or customers who
beneficially own shares of the funds. Financial institutions will receive fees
from the distributor based upon shares owned by their clients or customers.
Edgewood will determine the schedules of such fees and the basis upon which such
fees will be paid.
DESCRIPTION OF CLASSES
- -------------------------------------------------------------------------------
CLASS C SHARES
Class C shares are regular retail shares and may be purchased by individuals or
IRAs. With class C shares, you pay no sales charge when you invest. In the
case of the TREASURY FUND, an annual Rule 12b-1 fee (as discussed above) is
assessed against the shares of the fund. All of the money market funds sell
class C shares.
CLASS Y SHARES
The Y class of shares is available only to Firstar Bank's trust or institutional
customers. With class Y shares, not only do you not pay any sales charges, you
also do not pay a Rule 12b-1 fee. Similar to the C shares, however, the Y
shares pay investment management fees and other fees. Currently, only the
TREASURY FUND sells class Y shares.
THE PRICE OF SHARES
- -------------------------------------------------------------------------------
WHAT SHARES COST
NAV =
Assets - Liabilities
----------------------
# outstanding shares
Shares of the funds are sold at their net asset value (NAV) next determined
after an order is received. The funds attempt to stabilize the net asset value
of their shares at $1.00 by valuing the portfolio securities using the amortized
cost method. The net asset value is calculated by subtracting the total
liabilities of each fund from the fund's total assets. The difference is
divided by the number of fund shares outstanding. The funds cannot guarantee
that their net asset value will always remain at $1.00 per share. There is no
sales charge imposed by any of the funds.
The net asset value for each fund is determined on the New York Stock Exchange,
Monday through Friday, except on:
o New Year's Day o Good Friday o Labor Day
o Martin Luther King, Jr.' s Day o Memorial Day o Thanksgiving Day
o Presidents' Day o Independence Day o Christmas Day
The net asset value for the TAX-FREE MONEY MARKET FUND and OHIO TAX-FREE MONEY
MARKET FUND is determined as of 10:00 a.m. (Eastern time). The net asset value
for the TREASURY FUND is determined as of 2:00 p.m. (Eastern time).
PURCHASING SHARES
- -------------------------------------------------------------------------------
OPENING AN ACCOUNT
To open an account, first determine if you are buying class C shares or class Y
shares (See page for class descriptions.) The minimum initial investment
amounts for each fund are as follows:
- -------------------------------------------------------------------------------
Class C Shares
- -------------------------------------------------------------------------------
o $1,000 for individuals
o $500 for Education IRA customers
o $25 for Firstar Bank Connections Group Banking customers and Firstar Bank
employees and members of their immediate family, participants in the Firstar
Bank Student Finance 101 Program who establish a systematic investment
program and persons contributing to SIMPLE IRAs
- -------------------------------------------------------------------------------
Class Y Shares
- -------------------------------------------------------------------------------
o $1,000 for trust or institutional customers of Firstar Bank ($1,000 may be
determined by combining the amount in all mutual fund accounts you maintain
with Firstar Bank)
- -------------------------------------------------------------------------------
ADDITIONAL INVESTMENTS MAY BE MADE IN ANY AMOUNT.
TIMING OF REQUESTS
The price per share will be the net asset value next computed after the time
your request is received in good order and accepted by the funds or by the
funds' authorized agent. All requests (telephone orders and federal funds wire)
received in good order by the funds before the following times, will be
executed on the same day. Requests received after the following times will be
executed the next business day.
DAILY DEADLINES FOR PURCHASE ORDERS
-----------------------------------
TREASURY FUND 2:00 p.m. (Eastern time)
Tax-Free Money Market Fund 10:00 A.M. (EASTERN TIME)
OHIO TAX-FREE MONEY MARKET FUND 10:00 a.m. (Eastern time)
When making a purchase request, make sure your request is in good order. "Good
order" means your letter of instruction includes:
o the name of the fund
o the number of shares or the dollar amount of shares to be redeemed
o signatures of all registered shareholders exactly as the shares are
registered (guaranteed for IRAs)
o the account registration number
RECEIPT OF ORDERS
Shares may only be purchased on days the New York Stock Exchange and the Federal
Reserve wire system are open for business. Your order will be considered
received after your check is converted into federal funds and received by
Firstar Bank. If you are paying with federal funds (wire), your order will be
considered received when the federal funds are received by Firstar Bank.
METHODS OF BUYING
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
BY TELEPHONE Call Firstar Stellar Funds Call Firstar Stellar Funds
(FIRSTAR BANK at 1-800-677-FUND to place at 1-800-677-FUND to place
CUSTOMERS ONLY) the order. (NOTE: For the order. (NOTE: For
security reasons, requests security reasons, requests
by telephone may be by telephone may be
recorded.) recorded.)
BY MAIL Make your check payable to Fill out the investment
"Firstar Stellar Funds." stub from an account
Forward the check and your statement, or indicate the
application to the address fund name and account
below. number on your check.
Make your check payable to
"Firstar Stellar Funds."
Forward the check and stub to
the address below.
BY FEDERAL Forward your application to Call Firstar Stellar Funds
FUNDS WIRE Firstar Stellar Funds at the at 1-800-677-FUND to notify
address below. Call of incoming wire. Use the
1-800-677-FUND to obtain an following instructions:
account number. Wire funds
using the instructions Firstar Bank, N.A.
to the right. Milwaukee, WI 53202
ABA #: 075000022
Credit: Firstar Mutual Fund
Services, LLC
Account #: 112-952-137
Further Credit:
(name of fund, share
class)
(name/title on the
account)
(account #)
THROUGH SHAREHOLDER To purchase shares for To purchase shares for
SERVICE ORGANIZATIONS another investor, call another investor, call
Firstar Stellar Funds Firstar Stellar Funds at
at 1-800-677-FUND. 1-800-677-FUND.
VIA A SWEEP ACCOUNT Refer to your sweep account Refer to your sweep or
or other account agreement. other account agreement
Call 1-800-677-FUND to for information on the
obtain further information. frequency of automatic
purchase, redemptions and
statement and confirmation
schedules.
BY EXCHANGE Call 1-800-677-FUND to Call 1-800-677-FUND to
obtain exchange information. obtain exchange
See page. information. See page.
ADDRESS FOR FIRSTAR STELLAR FUNDS
You should use the following addresses when sending documents by mail or by
overnight delivery:
BY MAIL BY OVERNIGHT DELIVERY
- ------- ---------------------
Firstar Stellar Funds Firstar Stellar Funds
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund Services, LLC
P.O. Box 701 615 E. Michigan Street, Third Floor
Milwaukee, Wisconsin 53201-0701 Milwaukee, Wisconsin 53202
NOTE: The funds do not consider the U.S. Postal Service or other independent
delivery services to be their agents. Therefore, deposits in the mail or with
such services, or receipt at Firstar Mutual Fund Services, LLC's post office box
of purchase applications or redemption requests do not constitute receipt by
Firstar Mutual Fund Services, LLC or the funds.
SELLING SHARES
- -------------------------------------------------------------------------------
METHODS OF SELLING
- -------------------------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
- -------------------------------------------------------------------------------
BY TELEPHONE Call Firstar Stellar Funds at 1-800-677-FUND to sell any
amount of shares over $250.
(NOTE: For security reasons, requests by telephone may
be recorded.)
- -------------------------------------------------------------------------------
BY MAIL Send a letter of instruction to Firstar Stellar Funds
requesting the dollar amount or the number of shares that
you wish to redeem. The letter should contain the fund's
name, the account number and the number of shares or the
dollar amount of shares to be redeemed. Be sure to have
all shareholders sign the letter. If your account is an
IRA, the signature must be guaranteed.
- -------------------------------------------------------------------------------
BY FEDERAL FUNDS WIRE Call Firstar Stellar Funds at 1-800-677-FUND to request
the amount of money you want. Be sure to have all
necessary information from your bank. Your bank may
charge a fee to receive wired funds.
- -------------------------------------------------------------------------------
VIA A SWEEP ACCOUNT If you invested through a sweep account, your account may
be subject to automatic redemptions when your deposit
account falls below the required minimum. Refer to your
sweep or other account agreement for more information.
- -------------------------------------------------------------------------------
BY EXCHANGE Call Firstar Stellar Funds at 1-800-677-FUND. See page
for further information.
- -------------------------------------------------------------------------------
TIMING OF REQUESTS
All requests received in good order by Firstar Bank before the following times
will be executed on the same day. Requests received after the following times
will be executed the next business day.
DAILY DEADLINES FOR REDEMPTION ORDERS
-------------------------------------
TREASURY FUND 2:00 p.m. (Eastern time)
TAX-FREE MONEY MARKET FUND 10:00 a.m. (Eastern time)
OHIO TAX-FREE MONEY MARKET FUND 10:00 a.m. (Eastern time)
WHEN REDEMPTION PROCEEDS ARE MAILED
When making a redemption request, make sure your request is in good order. "Good
order" means your letter of instruction includes:
o the name of the fund
o the number of shares or the dollar amount of shares to be redeemed
o signatures of all registered shareholders exactly as the shares are
registered (guaranteed for IRAs)
o the account registration number
If your redemption request is in good order, Firstar Stellar Funds will normally
send your redemption proceeds to you on the next business day and no later than
7 calendar days after receipt of your proper redemption request. Checks are
sent to the address on record.
If you purchase shares using a check and soon after request a redemption,
Firstar Stellar Funds will honor the redemption request, but will not mail the
proceeds until your purchase check has cleared (usually within 12 business
days).
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, Firstar Stellar
Funds may mail you a notice if your account falls below $1,000 requesting that
you bring the account back up to $1,000 or close it out. If you do not respond
to the request within 30 days, Firstar Stellar Funds may close the account on
your behalf and send you the proceeds. If you purchase shares through a sweep
account, you are not subject to any investment minimum. If you have an account
through a shareholder service organization, consult your account agreement for
information on accounts with low balances.
SIGNATURE GUARANTEES
You will need your signature guaranteed if:
o you are redeeming shares from an IRA account
o you request a redemption to be made payable to a person not on record
with the funds, or
o you request that a redemption be mailed to an address other than that on
record with the funds
You may obtain signature guarantees from most trust companies, commercial banks
or other eligible guarantor institutions.
EXCHANGING SHARES
- -------------------------------------------------------------------------------
Exercising the exchange privilege is really two transactions: a sale of one fund
and the purchase of another.
You can exchange shares between the Firstar Stellar Funds within the same class.
You also may exchange class C shares (no-load money market funds) for class A or
B shares of any Firstar Stellar Fund. However, you may not exchange shares from
class B to class C and then to class A. Firstar Stellar Funds allows you to
exchange share with Firstar Funds, a separate family of funds offered by Firstar
Corporation.
Exercising the exchange privilege is really two transactions: a sale of one fund
and the purchase of another. The same policies that apply to purchases and
sales apply to exchanges, including minimum investment amounts. Keep in mind
that some funds may have higher sales charges then other funds and you may have
to pay the difference in fees. Exchanges also have the same tax consequence as
ordinary sales and purchases causing you to realize short or long-term capital
gains or losses. Generally, exchanges may only be made between identically
registered accounts unless you send written instructions with a signature
guarantee.
The SAI contains more information on exchanges. You may also call
1-800-677-FUND to learn more about exchanges, Firstar Funds or other Firstar
Stellar Funds.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
- -------------------------------------------------------------------------------
DIVIDENDS
The funds declare dividends on a daily basis and pay them to you on a monthly
basis. Unless you provide a written request to receive payments in cash, your
dividends will automatically be reinvested in additional shares of the fund.
Dividends paid in cash will be mailed to you via the U.S. Postal Service. Keep
in mind that undeliverable checks or checks not deposited within six months will
be reinvested in additional shares of the fund at the then current net asset
value. If you purchase shares before 3:00 p.m. (Eastern time), you will earn
dividends that day. If you are investing through a shareholder service
organization, consult your account agreement for dividend payment information.
Dividends paid in cash or in additional shares are treated the same for tax
purposes.
CAPITAL GAINS
If any of the funds realize capital gains, you could earn more dividends.
Capital losses could result in a decrease in dividends for you. If the fund
realizes net long-term capital gains (not very common), the fund would
distribute them every 12 months.
TAX INFORMATION
The funds will pay no federal income tax because they expect to meet certain
Internal Revenue Code requirements. The funds will be treated as single,
separate entities for federal income tax purposes so that income (including
capital gains, if any) and losses realized by one fund will not be combined for
tax purposes with those realized by the other funds. Each of the funds expects
their distributions to consist primarily of ordinary income, but for the two
tax-free funds, the distributions will be tax-free for the most part. The funds
will provide you with detailed tax information for reporting purposes.
You should consult your own tax adviser regarding tax consequences under your
state and local laws.
An exchange is not a tax-free transaction. An exchange of shares pursuant to
the funds' exchange privilege is treated the same as an ordinary sale and
purchase for federal income tax purposes and you will realize a capital gain or
loss.
ADDITIONAL TAX INFORMATION
TREASURY FUND
If you are a shareholder of the TREASURY FUND, unless you are exempt from having
to pay federal income taxes, you are required to pay federal income taxes on any
dividends and other distributions (including capital gains distributions) you
receive.
TAX-FREE MONEY MARKET FUND
Interest Income on Municipal Bonds If you are a shareholder of the TAX-FREE
MONEY MARKET FUND, you are not required to pay regular federal income tax on any
dividends you receive from the fund that represent net interest on tax--exempt
municipal bonds. However, you may have to pay federal alternative minimum taxes
on dividends representing net interest earned on some municipal bonds.
The alternative minimum tax (AMT) applies when it exceeds the regular federal
income tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax. The Tax Reform
Act of 1986 treats interest on certain private activity bonds as a tax
preference item for both individuals and corporations. Unlike traditional
governmental purpose municipal bonds, which finance roads, schools, libraries,
prisons and other public facilities, private activity bonds provide benefits to
private parties.
The fund is permitted to purchase all types of municipal bonds, including
private activity bonds. As a result, if the fund purchased any private activity
bonds, a portion of the fund's dividends may be treated as a tax preference
item. The fund's investment adviser, however, currently has no intention to
purchase these types of bonds.
If you are an individual shareholder, your AMT could amount to 28% of your
alternative minimum taxable income. If you are a corporate shareholder, all
dividends of the fund which represent interest on municipal bonds may be subject
to 20% corporate AMT because the dividends are included in your corporate
"adjusted current earnings."
Corporate alternative minimum taxable income includes 75% of the excess pre-tax
adjusted current earnings over its alternative minimum taxable income as a tax
preference item. Adjusted current earnings are based on the corporation's
earnings and profits. Earnings and profits generally include the full amount of
any fund dividend. However, alternative minimum taxable income does not include
the portion of the fund's dividends attributable to municipal bonds that are not
private activity bonds. As a result, the difference will be included in the
calculation of the corporation's AMT.
Interest Income on Temporary Investments If the fund invests in certain
temporary investments, you may have to pay regular federal income tax on the
dividends you receive. This is because dividends representing net interest
income earned on some temporary investments and any realized net short-term
gains are taxed as ordinary income. Examples of these temporary investments
include:
o obligations issued by or on behalf of municipal or corporate issuers
having the same quality and maturity characteristics as municipal
securities purchased by the fund;
o instruments issued by banks or other depository institutions which have
capital, surplus and undivided profits in excess of $100,000,000 at the
time of investment;
o repurchase agreements; and
o prime commercial paper rated A-1 by S&P's Ratings Group, Prime-1 by
Moody's or Fitch or other short-term credit instruments.
OHIO TAX-FREE MONEY MARKET FUND
If you are a shareholder of the OHIO TAX-FREE MONEY MARKET FUND, you may still
have to pay taxes on income earned in states other than Ohio. You should
consult your tax adviser regarding your investment under state and local laws.
Interest Income on Municipal Bonds As a shareholder of the fund, you are not
required to pay federal regular income tax on any dividends you receive from the
fund that represent net interest on tax-exempt municipal bonds. However, you
may have to pay federal alternative minimum taxes on dividends representing net
interest earned on some municipal bonds. You should read the above discussion
on alternative minimum taxable income.
For both corporate and individual shareholders, under Ohio laws, distributions
made by the fund will not be subject to Ohio income taxes to the extent that the
distributions qualify as exempt interest dividends under the Internal Revenue
Code. Also, the distributions must represent:
1.interest on obligations of Ohio or its subdivisions which is exempt from
regular federal income tax; or
2.interest or dividends from obligations issued by the U.S. and its territories
or possessions or by any authority, commission or instrumentality of the U.S.
which is exempt from state income tax under federal laws.
However, if the fund invests in types of obligations that do not fall in the
above categories, you will have to pay Ohio income taxes on the distributions
you receive.
For corporate shareholders, distributions made by the fund will not be subject
to Ohio corporate franchise tax to the extent that the distributions qualify as
exempt interest dividends under the Internal Revenue Code and represent:
1.interest on obligations of Ohio or its subdivisions which is exempt from
regular federal income tax; or
2.net interest income from obligations issued by the U.S. and its territories
or possessions or by any authority, commission or instrumentality of the U.S.
which is exempt from state income tax under federal laws.
Exempt-interest dividends that represent interest from obligations issued by
Ohio or its political subdivisions will be exempt from any Ohio municipal income
tax (even if the municipality is permitted under Ohio laws to levy a tax on
intangible income).
Interest Income on Temporary Investments If the fund invests in certain
temporary investments, you may have to pay regular federal income tax on the
dividends you receive. This is because dividends representing net interest
income earned on some temporary investments and any realized net short-term
gains are taxed as ordinary income. Examples of these temporary investments
include:
o obligations issued by or on behalf of municipal or corporate issuers;
o obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
o instruments issued by a U.S. bank or other depository institutions which
have capital, surplus and undivided profits in excess of $100,000,000 at
the time of investment; and
o repurchase agreements.
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The financial highlights tables set forth below are intended to help you
understand the funds' financial performance for the past 5 years or for the
funds' period of operations, as the case may be. Most of the information
reflects financial results with respect to a single fund share. The total
returns in the tables represent the rates that an investor would have earned (or
lost) on an investment in a fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Arthur Andersen LLP, whose
report, along with the funds' financial statements, are included in the funds'
annual report, which is available upon request.
<TABLE>
TREASURY FUND1<F13>
(Class C and Y Shares) Year ended November 30,
1998 1997 1996 1995 1994
-----------------------------------------------------------------------------------
Class C Class Y Class C Class Y2<F14> Class C Class C Class C
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.05 0.05 0.05 0.03 0.05 0.05 0.03
Net gains or losses on securities, (both
realized and unrealized) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Less distributions
Dividends (from net investment income) (0.05) (0.05) (0.05) (0.03) (0.05) (0.05) (0.03)
Distributions (from capital gains) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------------------------------------------------------------------------------
Total return3<F15> 4.69% 4.89% 4.85% 3.37% 4.80% 5.23% 3.30%
Ratios/Supplemental data
Net assets, end of period
(000's omitted) $542,430 $1,123,144 $469,400 $659,296 $829,259 $654,963 $358,766
Ratio of expenses to average net assets 0.88% 0.73% 0.73% 0.72%4<F16> 0.70% 0.71% 0.70%
Ratio of net income to average net assets 4.58% 4.73% 4.73% 4.87%4<F16> 4.69% 5.14% 3.24%
1<F13>The Treasury Fund has been operating since April 15, 1989.
2<F14>Reflects operations for the period from March 25, 1997 (commencement of share class) to November 30, 1997.
3<F15>Based on net asset value.
4<F16>Annualized.
</TABLE>
<TABLE>
TAX-FREE MONEY MARKET FUND1<F17>
(Class C Shares) Year ended November 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.03 0.03 0.03 0.03 0.02
Net gains or losses on securities (both
realized and unrealized) 0.00 0.00 0.00 0.00 0.00
Less distributions
Dividends (from net investment income) (0.03) (0.03) (0.03) (0.03) (0.02)
Distributions (from capital gains) 0.00 0.00 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------------------------------------------------
Total return2<F18> 2.83% 3.02% 2.91% 3.32% 2.15%
Ratios/Supplemental data
Net assets, end of period
(000's omitted) $134,556 $126,348 $153,256 $167,356 $135,427
Ratio of expenses to average net assets 0.75% 0.69% 0.70% 0.66% 0.65%
Ratio of net income to average net assets 2.79% 2.96% 2.87% 3.26% 2.12%
Expense waiver/reimbursement3<F19> 0.30% 0.30% 0.31% 0.35% 0.35%
1<F17>The Tax-Free Money Market Fund has been operating since March 15, 1991.
2<F18>Based on net asset value.
3<F19>This voluntary expense decrease is reflected in both the expense and net investment income ratios.
</TABLE>
<TABLE>
OHIO TAX-FREE MONEY MARKET FUND1<F20>
(Class C Shares) Year ended November 30,
1998
<S> <C>
- ----------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $1.00
- ----------------------------------------------------------------------------
Income from investment operations
Net investment income 0.03
Net gains or losses on securities (both
realized and unrealized) 0.00
Less distributions
Dividends (from net investment income) (0.03)
Distributions (from capital gains) 0.00
- ----------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00
- ----------------------------------------------------------------------------
Total return2<F21> 2.61%
Ratios/Supplemental data
Net assets, end of period
(000's omitted) $57,614
Ratio of expenses to average net assets 0.69%3<F22>
Ratio of net income to average net assets 2.81%3<F22>
Expense waiver/reimbursement4<F23> 0.45%3<F22>
1<F20>The Ohio Tax-Free Money Market Fund has been operating since December 2, 1997.
2<F21>Based on net asset value.
3<F22>Annualized
4<F23>This voluntary expense decrease is reflected in both the expense and net investment income ratios.
</TABLE>
YEAR 2000 ISSUE
- -------------------------------------------------------------------------------
Like all financial service providers, the funds' investment adviser, the
distributor and other third party service providers utilize systems that may be
affected by year 2000 transition issues and other date related issues. The
services provided to you and the funds by these service providers depend on the
smooth functioning of their computer systems and those of other parties they
deal with. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900 because of the way dates are encoded and
calculated. Such an event could have a negative impact on handling securities
trades, payments of interest and dividends, pricing and account services.
Although there can be no assurance at this time that there will be no adverse
impact on the funds, the funds' service providers have advised the funds that
they have been actively working on necessary changes to their computer systems
to prepare for the year 2000. The funds' service providers expect that their
systems, and those of other parties they deal with, will be adapted in time for
that event. However, there can be no assurance that the computer systems of the
companies in which the funds invest will be timely converted or that the value
of such investments will not be adversely affected by the year 2000 issue.
FIRSTAR STELLAR
FUNDS
FOR MORE INFORMATION
YOU MAY OBTAIN THE FOLLOWING AND OTHER INFORMATION ON THE FIRSTAR STELLAR
FUNDS FREE OF CHARGE:
O ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS
The annual and semi-annual reports provide the funds' most recent
financial reports and portfolio listings. The annual report contains a
discussion of the market conditions and investment strategies that
affected the funds' performances during the last fiscal year.
O STATEMENT OF ADDITIONAL INFORMATION (SAI) DATED MARCH 31, 1999
The SAI is incorporated into this prospectus by reference (i.e., legally
made a part of this prospectus). The SAI provides more details about the
funds' policies and management.
TO RECEIVE ANY OF THESE DOCUMENTS OR prospectuses ON THE FIRSTAR STELLAR
FUNDS:
BY TELEPHONE
1-800-677-FUND
BY MAIL:
Firstar Stellar Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
ON THE INTERNET:
Text only versions of fund documents can be viewed online or downloaded
from: HTTP://WWW.sec.gov and HTTP://WWW.firstarstellarfunds.com
You may review and obtain copies of fund information (including the SAI)
at the SEC Public Reference Room in Washington, D.C. Please call 1-800-
SEC-0330 for information relating to the operation of the Public
Reference Room. Copies of the information may be obtained for a fee by
writing the Public Reference Section, Securities and Exchange Commission,
Washington, D.C. 20549-6009.
Investment Company Act File #811-05762
FIRSTAR STELLAR BOND
FUNDS FUNDS
COMBINED
PROSPECTUS
March 31, 1999
FIRSTAR STELLAR STRATEGIC INCOME FUND
Generating high current income
FIRSTAR STELLAR U.S. GOVERNMENT INCOME FUND
Providing current income with capital appreciation
FIRSTAR STELLAR INSURED TAX-FREE BOND FUND
Providing current income exempt from federal income tax
The Securities and Exchange
Commission has not approved
or disapproved these securities
or determined if this prospectus
is truthful or complete. Any
representation to the contrary
is a criminal offense.
TABLE OF CONTENTS
THE FUNDS
Overview of the Funds 3
STRATEGIC INCOME FUND 4
U.S. GOVERNMENT INCOME FUND 7
INSURED TAX-FREE BOND FUND 10
Management of the Funds 13
Distribution of Shares 14
YOUR ACCOUNT INFORMATION
Description of Classes 14
Price of Shares 15
Purchasing Shares 17
Exchanging Shares 18
Selling Shares 19
Dividends, Capital Gain Distributions and Taxes 20
ADDITIONAL INFORMATION
Financial Highlights 21
Year 2000 Issue 24
FOR MORE INFORMATION
The back cover tells you how to obtain more information about the funds.
OVERVIEW
- -------------------------------------------------------------------------------
GOAL AND STRATEGIES OF THE BOND FUNDS
The general goal of the Firstar Stellar bond funds is to provide you with
current income by investing in fixed-income securities. The STRATEGIC INCOME
FUND attempts to generate high current income by investing in short to long-
term, investment grade U.S. government, corporate fixed-income securities,
structured fixed-income securities, international bonds, real estate investment
trusts, domestic equity securities and money market securities. The U.S.
GOVERNMENT INCOME FUND provides current income and capital appreciation by
investing primarily in short to long-term, investment grade securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities. The
INSURED TAX-FREE BOND FUND invests in intermediate to long-term, investment
grade insured municipal securities so that most of its annual interest income is
exempt from federal income tax.
PRINCIPAL RISKS COMMON TO THESE FUNDS
The main risks of investing in the funds are:
O MARKET RISKS: The funds' investments are subject to bond market risk
which means that the value of the funds' investments may go up or
down. The market value of fixed-income securities is significantly
affected by changes in interest rates. Generally, when interest rates
decline, the market value rises and when interest rates increase, the
market value of fixed-income securities declines. If the value of the
funds' investments go down, you may lose money.
O MATURITY RISKS: The longer a bond's maturity, the greater the risk
and the higher its yield. Conversely, the shorter a bond's maturity,
the lower the risk and the lower its yield.
O BOND SELECTION RISKS: The funds' investments are subject to the risks
inherent in individual bond selections. The bonds selected by the
investment adviser may decline in value or not increase in value when
the bond market in general is rising.
O HIGH-YIELD BOND RISKS: Funds that invest in medium- and lower-
quality bonds (generally referred to as junk bonds) involve greater
risks, including the increased possibility that the bond's issuer may
not be able to make its payments of interest and principal. If that
happens, the fund's share price would decrease and its income
distributions would be reduced.
O CREDIT RISKS: Individual issues of fixed-income securities may also
be subject to the credit risk of the issuer. That means that the
underlying company may experience unanticipated financial problems
causing it to be unable to meet its payment obligations.
An investment in the funds is not a deposit of Firstar Bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
WHO MAY WANT TO INVEST
These funds may be appropriate for people who:
o wish to invest for the long-term
o want to earn income on investments considered more stable than stocks
o are looking for a fixed-income component to complete their portfolio
o have long-term goals such as planning for retirement
These funds may not be appropriate for people who:
o have short-term financial goals
STRATEGIC INCOME FUND
- -------------------------------------------------------------------------------
INVESTMENT GOAL
The STRATEGIC INCOME FUND'S investment objective is to generate high current
income.
INVESTMENT POLICIES AND PORTFOLIO SECURITIES
THE FUND'S CORE INVESTMENT GROUP:
1.U.S. government & corporate fixed-income securities
2.International securities
3.Real estate investment trusts
4.Domestic equity securities
5.Money market securities
6.Structured fixed-income securities
The fund attempts to achieve its investment goal by investing its assets in a
core group of securities as shown in the box to the right. The investment
adviser's strategy is to spread the investment portfolio over several securities
categories to reduce the impact of any drastic market movements affecting one
category. With that in mind, the fund invests approximately 40% of its assets
in short to long-term, investment grade U.S. government and corporate fixed-
income securities (category 1). The fund invests between 0% to 20% of its
assets in each of the other categories (categories 2 through 6). Overall, the
fund will have at least 65% of its assets invested in securities that produce
income.
To aid in selecting securities, the adviser will use the following techniques:
o fundamental and quantitative analysis to select equity securities, which
includes examining price/earnings ratios, historical and projected earnings
growth rates, historical sales growth rates, historical return on equity,
market capitalization, and average daily trading volume;
o use of ratings assigned by nationally recognized statistical rating
organizations (when needed);
o credit research;
o review of issuers' historical performance;
o examination of issuers' dividend growth record;
o consideration of market trends; and
o hedging through the use of options and futures.
When selling securities, the adviser considers three factors: (1) Have the
objectives of the fund been met? (2) Has the attractiveness of the securities
deteriorated? (3) Has the adviser's outlook changed? If the adviser can answer
each question positively, then the adviser will sell the securities.
DOMESTIC FIXED-INCOME SECURITIES As noted above, the fund will invest in
domestic corporate debt obligations, obligations of the United States, and
notes, bonds, and discount notes of U.S. government agencies or
instrumentalities. The adviser selects bonds based on their potential interest
rates and yield in relation to other bonds of similar quality and maturity. The
fund will only invest in bonds which are rated Baa or higher by Moody's or rated
BBB or higher by S&P or Fitch. If the securities are unrated, the adviser must
consider them to be of similar quality to the rated securities before the fund
may invest in them.
U.S. GOVERNMENT SECURITIES The fund may invest in securities issued and/or
guaranteed as to the payment of principal and interest by the U.S. government or
its agencies or instrumentalities. U.S. government securities include direct
obligations of the U.S. Treasury (such as U.S. treasury bills, notes and bonds)
and obligations issued or guaranteed by U.S government agencies or
instrumentalities.
INTERNATIONAL SECURITIES The fund may invest in international securities
(including other investment companies that invest primarily in international
securities). The international securities include equity securities of non-U.S.
companies and corporate and government fixed-income securities denominated in
currencies other than U.S. dollars. These securities may be traded domestically
or abroad through various stock exchanges, American Depositary Receipts or
International Depositary Receipts (ADRs or IDRs). The international fixed-
income and corporate securities include ADRs, IDRs, and government securities of
other nations and must be rated Baa or better by Moody's or BBB or better by
S&P. If the securities are unrated, the Adviser must determine that they are of
similar quality to the rated securities before the fund may invest in them.
A REIT (real estate investment trust) is a managed portfolio of real estate
investments.
REAL ESTATE INVESTMENT TRUSTS The fund may invest in equity or mortgage REITs
that produce income. REITs will be diversified by geographic location and by
sector (such as shopping malls, apartment building complexes and health care
facilities). An equity REIT holds equity positions in real estate and provides
its shareholders with income from the leasing of its properties and capital
gains from any sales of properties. A mortgage REIT specializes in lending
money to developers of properties and passes interest income to its
shareholders.
DOMESTIC EQUITY SECURITIES The fund's domestic equity securities consist of
high dividend paying common and preferred stocks of U.S. companies listed on the
New York or American Stock Exchanges or traded in the over-the-counter market.
The companies must have a history of stable earnings and/or growing dividends.
The fund may also invest in warrants and securities convertible into common
stocks of these U.S. companies.
MONEY MARKET INSTRUMENTS The fund may invest in U.S. and foreign short-term
money market instruments, including commercial paper rated A-1 or A-2 by S&P,
Prime-1 or Prime-2 by Moody's or F-1 or F-2 by Fitch, bank instruments,
obligations of the U.S. government, its agencies or instrumentalities,
repurchase agreements, and other unrated short-term instruments that the Adviser
believes to be of comparable quality to the other obligations in which the fund
may invest.
STRUCTURED FIXED-INCOME SECURITIES The fund may invest in mortgage-backed
securities, adjustable rate mortgage securities, collateralized mortgage
obligations and asset-backed securities.
INVESTMENT RISKS
The following risks are specific to this fund in addition to the risks mentioned
in the Overview section.
STOCK MARKET RISK One of the risks of investing in equity securities is stock
market risk. The portion of the fund's portfolio invested in equity securities
may experience sudden, unpredictable declines in value, as well as periods of
poor performance. Because stock values go up and down, the value of your fund's
shares may go up and down. Therefore, when you sell your investment, you may
receive more or less money than you originally invested.
LIQUIDITY RISK Liquidity risk is the risk that certain securities may be
difficult or impossible to sell at the time and price that the investment
adviser would like to sell. The adviser 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.
FOREIGN SECURITIES RISK The fund can invest in foreign securities,
which can carry higher returns, but involve more risks than those
associated with domestic investments. Additional risks include currency
fluctuations, political and economic instability, differences in financial
reporting standards and less stringent regulation of securities markets.
HIGH TURNOVER RISKS The fund purchases and sells securities to capture
dividends on particular securities. The fund will purchase a security close to
its ex-dividend date, thereby entitling the fund to receive the anticipated
dividend. The fund will then sell the security after the ex-dividend date.
This practice could result in the fund experiencing an annual turnover rate of
up to 250%. High portfolio turnover rates lead to increased costs, could
cause you to pay higher taxes and could negatively affect the performance of
the fund.
REAL ESTATE INVESTMENT TRUSTS RISKS Some of the risks of equity and mortgage
REITs are that they depend on management skills and are not diversified. As a
result, REITs are subject to the risk of financing either single projects or
any number of projects. REITs depend on heavy cash flow and may be subject to
defaults by borrowers and self-liquidation. Additionally, equity REITs may be
affected by any changes in the value of the underlying property owned by the
trusts. Mortgage REITs may be affected by the quality of any credit extended.
The adviser tries to minimize these risks by selecting REITs diversified by
sector (i.e. shopping malls, apartment building complexes, health care
facilities) and geographic location.
MORTGAGE AND ASSET-BACKED SECURITIES RISKS The main risk of mortgage and
asset-backed securities is that the borrower will prepay some or all of the
principal owed to the issuer. If that happens, the fund may have to replace the
security by investing the proceeds in a less attractive security. This could
reduce the fund's share price and its income distributions.
OPTIONS RISKS The fund may use options for hedging purposes only. The hedging
strategy may not be successful if the portfolio manager is unable to accurately
predict movements in the prices of individual securities held by a fund or if
the strategy does not correlate well with the fund's investments. The use of
options may produce a loss for the fund, even when used only for hedging
purposes.
The Statement of Additional Information contains more information about the fund
and the types of securities in which it may invest.
- -------------------------------------------------------------------------------
PAST PERFORMANCE
The bar chart and table below illustrate the variability of the STRATEGIC INCOME
FUND'S returns. The bar chart indicates the risks of investing in the fund by
showing the changes in the fund's performance from year to year (on a calendar
year basis). The table shows how the fund's average annual returns for one-year
and since inception ending December 1998 compare with those of a broad measure
of market performance. The fund's past performance is not necessarily an
indication of how the fund will perform in the future.
STRATEGIC INCOME FUND - B SHARES
CALENDAR YEAR RETURNS AS OF 12/31
1995 13.24%
1996 5.29
1997 9.49
1998 -3.19
Sales charges are not reflected in the bar chart. If these amounts were
reflected, returns would be less than those shown.
BEST QUARTER: Q2 1997 4.59%
Worst Quarter: Q4 1998 (1.57)%
Average annual total return
through 12/31/98 1 Year Since Inception
- -------------------------------------------------------------------------------
Strategic Income Fund B Shares1<F24> (7.71)% 6.09%
Lehman Brothers Government
Corporate Total Index2<F25> 9.47% 10.23%
- -------------------------------------------------------------------------------
The average total returns above reflects the sales charges.
For updated yield information please call 1-800-677-FUND.
1<F24>B Shares commenced operations on December 12, 1994.
2<F25>Lehman Brothers Government/Corporate Total Index is an unmanaged index
composed of bonds which have maturities of at least one year and are rated
investment grade or higher by Moody's, S&P or Fitch, in that order.
- -------------------------------------------------------------------------------
FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS B
- -------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES
(as a percentage of offering price) None
MAXIMUM DEFERRED SALES CHARGE (LOAD)1<F26>
(as a percentage of offering price) 5.00%
MAXIMUM SALES CHARGE (LOAD) ON REINVESTED DIVIDENDS None
REDEMPTION FEES None
EXCHANGE FEE None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS) CLASS B
- -------------------------------------------------------------------------------
MANAGEMENT FEES 0.95%
DISTRIBUTION AND SERVICE (12B-1) FEES2<F27> None
OTHER EXPENSES3<F28> 0.51%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.46%
1<F26>The contingent deferred sales change is 5.00% in the first year,
declining to 1.00% in the fifth year and 0.00% thereafter. See "Price of
Shares."
2<F27> Currently, B shares of the fund are not paying or accruing Rule 12b-1
fees. The class can pay up to 0.25% of average daily net assets as a Rule
12b-1 fee to the distributor if a Y class of shares is created.
3<F28> "Other Expenses" includes (1) administration fees, transfer agency fees
and all other ordinary operating expenses of the fund not listed above, plus
(2) an annual shareholder servicing fee of 0.25% of average daily net assets.
For the foreseeable future, the fund plans to limit the shareholder servicing
fee to an annual rate of 0.10% of average daily net assets.
EXAMPLE The example below is intended to help you compare the cost of
investing in the fund with the cost of investing in other mutual funds.
This example assumes that:
1.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,
2.Your investment has a 5% return each year, and
3.The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
CLASS B $649 $762 $897 $1,746
If you did not redeem your shares, you would pay the following expenses:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
CLASS B $149 $462 $797 $1,746
Class descriptions are on page.
- -------------------------------------------------------------------------------
U.S. GOVERNMENT INCOME FUND
INVESTMENT GOAL
The U.S. GOVERNMENT INCOME FUND'S goal is to provide current income. The fund's
second objective is to achieve capital appreciation.
INVESTMENT POLICIES AND PORTFOLIO SECURITIES
To achieve its objectives, the fund invests at least 65% of the value of its
total assets in securities issued or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities which produce
income. The fund attempts to achieve its secondary objective by increasing or
decreasing the portfolio's average maturity depending upon the forecasted
interest rates. By varying portfolio maturity lengths in relation to the
interest rate forecasts, the adviser seeks to improve the fund's total return.
The adviser may sell 2-year and buy 10-year maturity notes. If interest rates
fall, prices for the 10-year note will rise more than the 2-year note. Thus,
capital gains are enhanced as well as the fund's total return.
THE FUND ALLOCATES ITS INVESTMENTS AS FOLLOWS:
AT LEAST 65% UP TO 35%
U.S. GOVERNMENT SECURITIES IN OTHER SECURITIES SUCH AS:
o corporate debt obligations
o money market instruments
o foreign debt securities
o structured fixed-income securities
U.S. GOVERNMENT OBLIGATIONS The government securities in which the fund
invests include direct obligations of the U.S. Treasury (such as U.S. Treasury
bills, notes and bonds) and obligations issued or guaranteed by U.S. government
agencies or instrumentalities. These securities are backed by:
o the full faith and credit of the U.S. Treasury
the issuer's right to borrow from the U.S. Treasury
o the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
o the credit of the agency or instrumentality issuing the obligation.
The fund also considers collateralized mortgage obligations issued by U.S.
government agencies or instrumentalities to be U.S. government securities.
Up to 35% of the value of the fund's assets may be invested in:
o time and savings deposits o asset-backed securities
o mortgage-backed securities o commercial paper
o investment grade corporate o debt securities of foreign issues
debt obligations
DOMESTIC DEBT SECURITIES A small percentage of the fund's assets may be
invested in short to long-term, investment grade domestic issues of corporate
debt obligations. The corporate debt obligations may have floating or fixed
interest rates. At the time the fund purchases the obligation, the securities
will be rated in one of the four highest categories by a nationally recognized
statistical rating organization (i.e., S&P or Fitch).
U.S. MONEY MARKET INSTRUMENTS The fund may invest in U.S. money market
instruments (including commercial paper). The instruments must mature within
270 days and must be rated Prime-1 or Prime-2 by Moody's, A-1 or A-2 by S&P or
F-1 or F-2 by Fitch. Other types of money market instrument in which the fund
may invest are time and savings deposits (including certificates of deposit) in
commercial or savings banks. The banks must be insured by the Bank Insurance
Fund or the Savings Association Insurance Fund, both of which are administered
by the FDIC. Foreign branches of FDIC insured banks and banker's acceptances
might issue the deposits.
FOREIGN DEBT SECURITIES The fund may invest in debt securities of foreign
governments, agencies or supranational institutions. The fund will invest in
investment quality debt securities issued by foreign corporations. The
securities will be rated in one of the four highest rating categories by a
nationally recognized statistical rating organization. If the securities are
unrated, the adviser must deem them to be of similar quality to the rated
securities before the fund may invest in them.
When selling securities, the adviser considers three factors: (1) Have the
objectives of the fund been met? (2) Has the attractiveness of the securities
deteriorated? (3) Has the adviser's outlook changed? If the adviser can answer
each question positively, then the adviser will sell the securities.
STRUCTURED FIXED-INCOME SECURITIES A small portion of the fund's assets may be
invested in mortgage-backed securities including adjustable rate mortgage
securities, collateralized mortgage obligations and asset-backed securities.
INVESTMENT RISKS
The following risks are specific to this fund in addition to the risks mentioned
in the Overview section.
FOREIGN SECURITIES RISK The fund can invest in foreign securities, which can
carry higher returns, but involve more risks than those associated with
domestic investments. Additional risks include currency fluctuations,
political and economic instability, differences in financial reporting
standards and less stringent regulation of securities markets.
MORTGAGE AND ASSET-BACKED SECURITIES RISKS The main risk of mortgage and
asset-backed securities is that the borrower will prepay some or all of the
principal owed to the issuer. If that happens, the fund may have to replace the
security by investing the proceeds in a less attractive security. This could
reduce the fund's share price and its income distributions.
LIQUIDITY RISK Liquidity risk is the risk that certain securities may be
difficult or impossible to sell at the time and price that the investment
adviser would like to sell. The adviser 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.
FUTURES AND OPTIONS ON FUTURES RISKS The fund may use futures and options on
futures for hedging purposes only. The hedging strategy may not be successful
if the portfolio manager is unable to accurately predict movements in the prices
of individual securities held by a fund or if the strategy does not correlate
well with the fund's investments. The use of futures and options on futures may
produce a loss for the fund, even when used only for hedging purposes.
The Statement of Additional Information contains more information about the fund
and the types of securities in which it may invest.
- -------------------------------------------------------------------------------
PAST PERFORMANCE
The bar chart and table below illustrate the variability of the U.S. GOVERNMENT
INCOME FUND'S returns. The bar chart indicates the risks of investing in the
fund by showing the changes in the fund's performance from year to year (on a
calendar year basis). The table shows how the fund's average annual returns for
one-year, five-year and since the fund's inception ending December 1998 compare
with those of a broad measure of market performance. The fund's past
performance is not necessarily an indication of how the fund will perform in the
future.
U.S. GOVERNEMENT INVOME FUND- A SHARES
CALENDAR YEAR RETURNS AS OF 12/31
1994 -3.27%
1995 15.74
1996 1.73
1997 9.00
1998 7.97
Sales charges are not reflected in the bar chart. If these
amounts were reflected, returns would be less than those
shown.
BEST QUARTER: Q2 1995 4.87%
WORST QUARTER: Q4 1996 (2.84)%
Average annual total return
through 12/31/98 1 Year 5 Year Since inception
- -------------------------------------------------------------------------------
U.S. Government Income Fund
A Shares1<F29> 4.19% 5.28% 5.77%
B Shares2<F30> N/A N/A 1.87%
Lehman Brothers Government/
Corporate Total Index3<F31> 9.47% 7.30% 7.94%
Lipper U.S. Government
Fund Avg.4<F32> 8.07% 6.15% 6.34%
The average annual total returns above reflects the sales charges. For updated
yield information please call 1-800-677-FUND.
1<F29>A Shares commenced operations on January 5, 1993.
2<F30>B Shares commenced operations on April 27, 1998.
3<F31>Lehman Brothers Government/Corporate Total Index is an unmanaged index
composed of bonds which have maturities of at least one year and are rated
investment grade or higher by Moody's, S&P or Fitch, in that order.
4<F32>The Lipper U.S. Government Fund Average shows the performance of a
category of mutual funds with similar goals.
- -------------------------------------------------------------------------------
FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Fees
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A CLASS B
- -------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES
(as a percentage of offering price) 3.50% None
MAXIMUM DEFERRED SALES CHARGE (LOAD)1<F33>
(as a percentage of offering price) None 5.00%
MAXIMUM SALES CHARGE (LOAD) IMPOSED
ON REINVESTED DIVIDENDS None None
REDEMPTION FEE None None
EXCHANGE FEE None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS) CLASS A CLASS B
- -------------------------------------------------------------------------------
MANAGEMENT FEES 0.60% 0.60%
DISTRIBUTION AND SERVICE (12B-1) FEES2<F34> None None
OTHER EXPENSES3<F35> 0.51% 0.51%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.11% 1.11%
1<F33>The contingent deferred sales change is 5.00% in the first year, declining
to 1.00% in the fifth year and 0.00% thereafter. See "Price of Shares."
2<F34>Currently, A and B shares of the fund are not paying or accruing Rule 12b-
1 fees. The classes can pay up to 0.25% of average daily net assets as a Rule
12b-1 fee to the distributor if a Y class of shares is created.
3<F35>"Other Expenses" includes (1) administration fees, transfer agency fees
and all other ordinary operating expenses of the fund not listed above, plus (2)
an annual shareholder servicing fee of 0.25% of average daily net assets. For
the foreseeable future, the fund plans to limit the shareholder servicing fee to
an annual rate of 0.10% of average daily net assets.
EXAMPLE The example below is intended to help you compare the cost of investing
in the fund with the cost of investing in other mutual funds.
This example assumes that:
1.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,
2.Your investment has a 5% return each year, and
3.The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
CLASS A $459 $691 $940 $1,654
CLASS B $613 $653 $712 $1,352
If you did not redeem your shares, you would pay the following expenses:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
CLASS A $559 $691 $940 $1,654
CLASS B $113 $353 $612 $1,352
Class descriptions are on page .
INSURED TAX-FREE BOND FUND
- -------------------------------------------------------------------------------
INVESTMENT GOAL
The INSURED TAX-FREE BOND FUND seeks to provide current income exempt from
federal income tax by primarily purchasing insured municipal bonds.
INVESTMENT POLICIES AND PORTFOLIO SECURITIES
Under normal circumstances, the fund invests its assets so that at least 80% of
its annual interest income is exempt from federal income tax and not subject to
the alternative minimum tax. Usually, at least 65% of the value of the fund's
assets are invested in intermediate to long-term, investment grade municipal
securities that are insured as to timely payment. All tax-exempt interest
income earned by the fund will remain tax-free when it is distributed to you.
Municipal securities are debt obligations issued by or on behalf of the states,
territories and other possessions of the United States that have income exempt
from federal income tax. If you are subject to alternative minimum tax (AMT),
you may be required to pay AMT if the fund invests in securities subject to AMT.
However, no more than 20% of the fund's income will be subject to AMT.
EXAMPLES OF MUNICIPAL SECURITIES
--------------------------------
o tax and revenue anticipation notes issued to finance working capital needs in
anticipation of receiving taxes or other revenues
o bond anticipation notes that are intended to be refinanced through a later
issuance of longer term bonds
o municipal commercial paper and other short-term notes
o variable rate demand notes
o municipal bonds and leases
o construction loan notes insured by the Federal Housing Administration and
financed by the Federal or Government National Mortgage Associations
o participation interests in any of the above
Municipal securities are generally issued to finance public works, such as:
o airports o bridges o hospitals
o highways o housing o schools
o mass transportation o water and sewer o streets
projects works
Municipal securities are also issued to:
o repay outstanding obligations
o raise funds for general operating expenses
o make loans to other public institutions and facilities
The fund's investment adviser looks for certain qualities when investing in
municipal securities. These include:
1.rated investment grade, or in other words, rated within the four highest
rating categories by a nationally recognized statistical rating organization
(NRSRO) such as Aaa, Aa, A or Baa by Moody's Investors Service, Inc. or AAA,
AA, A, or BBB by Standard and Poor's, Fitch IBCA, Inc. or Duff & Phelps
Credit Rating Co.;
2.Insured by a municipal bond insurance company which is in the top rating
category by an NRSRO;
3.guaranteed at the time of purchase by the U.S. government as to the payment
of principal and interest;
4.fully collateralized by an escrow of U.S. government securities; or
5.determined to be of comparable quality to the above rating categories by the
fund's adviser if the security is unrated.
The municipal securities purchased by the fund are covered by insurance which
guarantees the timely payment of principal at maturity and interest on the
securities. These insured municipal securities are either: (1) covered by an
insurance policy applicable to a particular security, or (2) insured under
master insurance policies issued by municipal bond insurers, which may be
purchased by the fund.
The fund will require or obtain municipal bond insurance when it purchases
municipal securities that are not up to the fund's quality standards. The fund
may also require or obtain municipal bond insurance for specific municipal
securities held or purchased if the insurance would benefit the fund by
improving the portfolio quality, for example.
When selling securities, the adviser considers three factors: (1) Have the
objectives of the fund been met? (2) Has the attractiveness of the securities
deteriorated? (3) Has the adviser's outlook changed? If the adviser can answer
each question positively, then the adviser will sell the securities.
PARTICIPATION INTERESTS The fund may purchase interests in municipal
securities from financial institutions such as commercial and investment banks,
savings associations and insurance companies. The fund invests in these sorts
of participation interests in order to obtain credit enhancement or demand
features that would not be available by directly owning the underlying municipal
securities. Credit enhanced securities are investments backed by a guaranty,
letter of credit, or insurance. They ensure that participation interests are of
high quality.
VARIABLE RATE MUNICIPAL SECURITIES The fund may invest in variable rate
municipal securities (i.e., securities that have variable or floating interest
rates). These securities provide the fund with the right to tender the
securities for repurchase at the stated principal amount plus accrued interest.
These securities usually bear interest at a rate that allow the securities to
trade at par. Most variable rate municipal securities allow the fund to demand
the repurchase of the security on not more than 7 days' notice. Other variable
rate municipal securities do not have this demand feature or the demand feature
is longer than 7 days. Those securities may be considered illiquid. The
adviser will use the above quality standards to buy variable rate municipal
securities.
MUNICIPAL LEASES The fund may also invest in municipal leases (i.e.,
obligations issued by state and local governments to finance the acquisition of
equipment and facilities). Municipal leases may take the form of a lease, an
installment purchase contract, a conditional sales contract, or a participation
interest. Municipal leases may be considered illiquid.
INDUSTRIAL DEVELOPMENT BONDS The fund also invests in industrial development
bonds, another type of municipal security, issued by or on behalf of public
authorities. IDBs are used to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations.
The fund may invest more than 25% of its assets in various IDBs as long as they
are not from the same facility or similar types of facilities or projects.
TEMPORARY INVESTMENTS The fund may invest up to 100% of its assets in tax-
exempt or taxable short-term temporary investments to respond to adverse market,
economic, political or other conditions. These temporary investments include
tax-exempt variable and floating rate demand notes, temporary municipal
securities, U.S. obligations, etc. Although the fund is permitted to make
taxable, temporary investments, the adviser currently does not intend to
generate income subject to federal regular income tax. There are no applicable
rating requirements to temporary investments with the exception of temporary
municipal securities. Those securities are subject to the same rating
requirements as all other municipal securities in which the fund invests.
However, for other temporary investments, the adviser will have to determine
whether the securities are of comparable quality to the rated securities before
investing. To the extent the fund invests in such temporary investments, the
fund may not achieve its investment objective.
INVESTMENT RISKS
The following risks are specific to this fund in addition to the risks mentioned
in the Overview section.
MUNICIPAL SECURITIES RISKS The yield of municipal securities depends on a
variety of factors. The investment adviser must consider the general
conditions of the money market and the taxable and municipal securities
markets. The adviser must also weigh the size of the particular offering, the
maturity of the obligations and the rating of the issue. The ability of the
fund to achieve its investment objective also depends on the ability of the
issuers of the municipal securities and demand features, or the credit
enhancers of either to continue to meet their obligations for the payment of
interest and principal when due. Further, any adverse economic conditions or
developments affecting the states or municipalities could negatively impact
the fund's portfolio.
TAX RISK The fund may be more adversely impacted by changes in tax rates and
policies than other funds. Because interest income on municipal obligations is
normally not subject to regular federal income taxation, the attractiveness of
municipal obligations in relation to other investment alternatives is affected
by changes in federal income tax rates applicable to, or the continuing federal
income tax-exempt status of, such interest income. Therefore, any proposed or
actual changes in such rates or exempt status can significantly affect the
demand for and supply, liquidity and marketability of municipal obligations,
which could in turn affect the fund's ability to acquire and dispose of
municipal obligations at desirable yield and price levels.
CONCENTRATION RISKS The fund may invest more than 25% of its assets in
industrial development bonds. The fund does not invest that amount in the same
facility or project. However, if the adviser chooses to concentrate those
investment in the same industry or state, the shares of the fund are likely to
fluctuate in value more than those of a fund investing in a broader range of
securities.
FUTURES AND OPTIONS ON FUTURES RISKS The fund may use futures and options on
futures for hedging purposes only. The hedging strategy may not be successful
if the portfolio manager is unable to accurately predict movements in the prices
of individual securities held by a fund or if the strategy does not correlate
well with the fund's investments. The use of futures and options on futures may
produce a loss for the fund, even when used only for hedging purposes.
The Statement of Additional Information contains more information about the fund
and the types of securities in which it may invest.
- -------------------------------------------------------------------------------
PAST PERFORMANCE
The bar chart and table below illustrate the variability of the INSURED TAX-FREE
BOND FUND'S returns. The bar chart indicates the risks of investing in the fund
by showing the changes in the fund's performance from year to year (on a
calendar year basis). The table shows how the fund's average annual returns for
one year and since the fund's inception ending December 1998 compare with those
of a broad measure of market performance. The fund's past performance is not
necessarily an indication of how the fund will perform in the future.
INSURED TAX-FREE BOND FUND - A SHARES
CALENDAR YEAR RETURNS AS OF 12/31
1997 8.29%
1998 5.81
Sales charges are not reflected in the bar chart. If these amounts were
reflected, returns would be less than those shown.
BEST QUARTER: Q3 1998 3.35%
WORST QUARTER: Q1 1997 (0.43)%
Average annual total return
through 12/31/98 1 Year Since Inception
- -------------------------------------------------------------------------------
Insured Tax-Free Bond Fund A Shares1<F36> 1.02% 4.76%
Lehman Brothers Ten Year Insured Bond Index2<F37> 6.60% 7.91%
Lipper Insured Municipal Debt Fund Average3<F38> 5.31% 7.18%
The average annual total returns above reflects the sales charges.
1<F36>For updated yield information please call 1-800-677-FUND.
A Shares commenced operations on December 30, 1996.
2<F37>The Lehman Brothers Ten Year Insured Bond Index is an unmanaged index of
that reflects the total performance of the insured bond sector. Securities in
the Index must have maturaties between 8 and 12 years.
3<F38>The Lipper Insured Municipal Debt Fund Average shows the performance of a
category of mutual funds with similar goals.
- -------------------------------------------------------------------------------
FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A
- -------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES
(as a percentage of offering price) 4.50%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
(as a percentage of offering price) None
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON REINVESTED DIVIDENDS None
REDEMPTION FEE None
EXCHANGE FEE None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS) CLASS A
MANAGEMENT FEES1<F39> 0.75%
DISTRIBUTION AND SERVICE (12B-1) FEES2<F40> None
OTHER EXPENSES3<F41> 0.49%
TOTAL FUND ANNUAL OPERATING EXPENSES 1.24%
1<F39>The amount shown indicates the maximum fee the investment adviser can
charge. The investment adviser voluntarily waives a portion of the investment
management fee each year. The adviser can terminate this voluntary waiver at any
time. With the waiver for the year ended November 30, 1998, the management fee
was 0.50%.
2<F40>Currently, A shares of the fund are not paying or accruing Rule 12b-1
fees. The fund can pay up to 0.25% of average daily net assets as a Rule 12b-1
fee to the distributor if a Y class of shares is created.
3<F41>"Other Expenses" includes (1) administration fees, transfer agency fees
and all other ordinary operating expenses of the fund not listed above, plus (2)
an annual shareholder servicing fee of 0.25% of average daily net assets. For
the foreseeable future, the fund plans to limit the shareholder servicing fee to
an annual rate of 0.10% of average daily net assets.
EXAMPLE The example below is intended to help you compare the cost of investing
in the fund with the cost of investing in other mutual funds.
This example assumes that:
1.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,
2.Your investment has a 5% return each year, and
3.The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
CLASS A $574 $826 $1,100 $1,882
Class descriptions are on page.
MANAGEMENT OF THE FUNDS
- -------------------------------------------------------------------------------
INVESTMENT ADVISER
The investment adviser for the funds is Firstar Bank, N.A. The adviser is
located at 425 Walnut Street, Cincinnati, Ohio 45202. The investment decisions
made by Firstar Bank are subject to direction of the funds' board of trustees.
(The Statement of Additional Information contains more information regarding the
board of trustees.) The adviser conducts investment research and supervision
for the funds and is responsible for the purchase and sale of securities for the
funds' portfolios. The adviser charges an annual fee for its services and
voluntarily waives a portion of those fees as shown:
The amounts shown represent a percentage of each fund's average daily net
assets.
Before After
waivers waivers
Strategic Income Fund 0.95% 0.95%
U.S. Government Income Fund 0.60% 0.60%
Insured Tax-Free Bond Fund*<F1> 0.75% 0.55%
*<F1>During the fiscal year ended November 30, 1998, the adviser waived 25
basis points of the management fees for the INSURED TAX-FREE BOND FUND. For
the foreseeable future, the adviser will waive 20 basis points. The adviser
can terminate this waiver at any time.
The adviser was wholly owned by StarBanc Corporation until November 20, 1998
when StarBanc Corporation merged with Firstar Corporation. The new entity
retained the "Firstar" name and Firstar Corporation is now the parent company of
the adviser. Firstar Bank, N.A. was known as Star Bank, N.A. prior to the
merger.
The merger has produced no significant changes to the management of the Adviser.
Together, the two banks have become the 21st largest bank in the United States
and have blended an expertise of trust administration and investments together
with extensive knowledge in the mutual fund industry.
Firstar Bank manages trust funds and collective investment funds having a market
value in excess of $ 12 billion. As part of its regular banking operations,
Firstar Bank may make loans to public companies. As a result, it may be
possible for the funds to hold or acquire securities of companies that are also
lending clients of Firstar Bank. The lending relationship will not be a factor
in the selection of securities.
PORTFOLIO MANAGERS
References to Firstar Bank may refer to what was formerly known as "Star Bank."
KIRK F. MENTZER, a Vice-President and Director of Fixed Income Research for the
Capital Management Division of Firstar Bank since 1992, has been employed by
Firstar Bank in various capacities since 1989. Mr. Mentzer has managed the U.S.
GOVERNMENT INCOME FUND since its inception in January 1993. He has also managed
the domestic and structured fixed income components of STRATEGIC INCOME FUND
since its inception in December 1994 and the cash equivalent components of the
Firstar Stellar Funds (formerly the Star Funds) since June 1998. Mr. Mentzer
earned a Bachelor of Business Administration degree in Finance from the
University of Cincinnati and a Masters degree in Finance from Xavier University.
DONALD L. KELLER, Senior Vice President and Chief Investment Officer of Firstar
Bank since 1998, has been employed by Firstar Bank in various capacities since
1982. Mr. Keller has managed the domestic equity component of the STRATEGIC
INCOME FUND since March 1999. Mr. Keller earned a Bachelor of Business
Administration Degree in Finance and Accounting from the University of
Cincinnati. He also earned his Masters in Finance from Xavier University.
WARREN D. PIERSON, CFA, is a vice president and senior portfolio manager at
Firstar Bank. Mr. Pierson has managed the INSURED TAX-FREE BOND FUND SINCE
MARCH 1999. He joined Firstar in 1985 and has over 14 years of fixed income
management experience at Firstar. Mr. Pierson earned his Bachelor of Arts
degree at Lawrence University and became a Chartered Financial Analyst in 1990.
FUND ADMINISTRATION, FUND ACCOUNTING, DIVIDEND DISBURSEMENT, AND CUSTODY
SERVICES
Firstar Mutual Fund Services, LLC, an affiliate of the adviser, provides
administrative, accounting and dividend disbursement services to the Firstar
Stellar Funds and is located in Milwaukee, Wisconsin. Firstar Bank, N.A., the
funds' investment adviser, also serves as custodian for the funds.
DISTRIBUTION OF SHARES
- -------------------------------------------------------------------------------
DISTRIBUTOR
Edgewood Service, Inc. is the distributor for shares of the funds. Edgewood is
based in Pittsburgh, Pennsylvania and is the distributor for a number of
investment companies around the country.
12B-1 PLAN
The funds have adopted a Rule 12b-1 Plan under the Investment Company Act of
1940. Under the Rule 12b-1 Plan, class A and B shares may pay up to an annual
rate of 0.25% of the average daily net asset value of shares to Edgewood.
Edgewood uses this fee to finance activities that promote the sale of the funds'
shares. Such activities include, but are not necessarily limited to,
advertising, printing and mailing prospectuses to persons other than current
shareholders, printing and mailing sales literature, and compensating
underwriters, dealers and sales personnel.
Currently, none of the bond funds are paying or accruing Rule 12b-1 fees. These
funds will only start paying the Rule 12b-1 fee when a "Y" class of shares is
created in the fund. Whenever Edgewood deems it appropriate, Edgewood may, from
time to time, voluntarily reduce its compensation under the Rule 12b-1 Plan to
the extent expenses of the shares exceed a certain limit. Rule 12b-1 fees are
paid out of fund assets on an on-going basis. Over time, these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
Edgewood may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers and broker/dealers as agents to
provide sales or administrative services for their clients or customers who
beneficially own shares of the funds. Financial institutions will receive fees
from the distributor based upon shares owned by their clients or customers.
Edgewood will determine the schedule of such fees and the basis upon which such
fees will be paid.
DESCRIPTION OF CLASSES
- -------------------------------------------------------------------------------
CLASS A SHARES
Class A shares are regular retail shares and may be purchased by individuals or
IRAs. With class A shares, you pay a sales charge when you invest. Although
none currently do, certain class A shares may also impose a Rule 12b-1 fee (as
discussed above) which is assessed against the shares of the fund. Currently,
the INSURED TAX-FREE BOND FUND and U.S. GOVERNMENT INCOME FUND sell class A
shares. For more information on the sales charges, see "Price of Shares."
CLASS B SHARES
Class B shares are regular retail shares and may be purchased by individuals or
IRAs. With class B shares, a sales charge may be imposed if you redeem your
shares within a certain time period. If you redeem your class B shares within
five full years of the date you purchased, a contingent deferred sales charge
(CDSC) may be charged by the funds' distributor. Although none currently do
certain class B shares may also impose a Rule 12b-1 fee (as discussed above)
which is assessed against the shares of the fund. Currently, the U.S.
GOVERNMENT INCOME FUND and STRATEGIC INCOME FUND offer class B shares. For more
information on the CDSC, see "Price of Shares."
THE PRICE OF SHARES
- -------------------------------------------------------------------------------
HOW NAV IS DETERMINED
NAV =
Assets - Liabilities
--------------------
# outstanding shares
The net asset value (NAV) is calculated by taking the value of the fund's
assets, including interest on dividends accrued, but not yet collected, less all
liabilities and dividing the result by the number of shares outstanding. The
net asset value for each fund is determined as of the close of trading (normally
4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on:
o days on which there are insignificant changes in the value of a fund's
portfolio securities to materially affect the net asset value
o days during which no shares are purchased or redeemed
o the following holidays
o New Year's Day o Good Friday o Labor Day
o Martin Luther King Jr.' s Day o Memorial Day o Thanksgiving Day
o Presidents' Day o Independence Day o Christmas Day
DETERMINING MARKET VALUE OF SECURITIES
Market or fair values of the funds' portfolio securities are determined as
follows:
1.For equity securities: according to the last sale price on a national
securities exchange, if applicable.
2.In the absence of recorded sales for listed equity securities: according to
the mean between the last closing bid and asked prices.
3.For unlisted equity securities: latest bid prices.
4.For bonds and other fixed-income securities: as determined by an independent
pricing service.
5.For short-term obligations: according to the mean between bid and asked
prices as furnished by an independent pricing service.
6.For short-term obligations with remaining maturities of 60 days or less at
the time of purchase: at amortized cost.
7.For all other securities: at fair value as determined in good faith by the
funds' board of trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times that vary from the
closing of the New York Stock Exchange. In computing the net asset value, the
funds value foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the New York Stock
Exchange. Certain foreign currency exchange rates may also be determined at the
latest rate prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
New York Stock Exchange. If such events materially affect the value of
portfolio securities, these securities may be valued at their fair value as
determined in good faith by the underlying fund's board of directors, although
the actual calculation may be done by others.
WHAT SHARES COST - CLASS A SHARES
If you purchase class A shares of the INSURED TAX-FREE BOND FUND, you will pay
the net asset value next determined after your order is received plus a sales
charge (shown in percentages below) depending on the amount of your investment:
AMOUNT OF SALES CHARGE AS SALES CHARGE AS
TRANSACTION A PERCENTAGE A PERCENTAGE
OF PUBLIC OF NET
OFFERING PRICE AMOUNT INVESTED
- -------------------------------------------------------------------------------
LESS THAN $100,000 4.50% 4.71%
- -------------------------------------------------------------------------------
$100,000 - $249,999.99 3.75% 3.90%
- -------------------------------------------------------------------------------
$250,000 - $499,999.99 2.50% 2.56%
- -------------------------------------------------------------------------------
$500,000 - $749,999.99 2.00% 2.04%
- -------------------------------------------------------------------------------
$750,000 - $999,999.99 1.00% 1.01%
- -------------------------------------------------------------------------------
$1 MILLION + 0.25% 0.25%
- -------------------------------------------------------------------------------
If you purchase class A shares of the U.S. GOVERNMENT INCOME FUND, you will pay
the net asset value next determined after your order is received plus a sales
charge as follows:
AMOUNT OF SALES CHARGE AS SALES CHARGE AS
TRANSACTION A PERCENTAGE A PERCENTAGE
OF PUBLIC OF NET
OFFERING PRICE AMOUNT INVESTED
- -------------------------------------------------------------------------------
Less than $100,000 3.50% 3.62%
- -------------------------------------------------------------------------------
$100,000 - $249,999.99 3.00% 3.09%
- -------------------------------------------------------------------------------
$250,000 - $499,999.99 2.00% 2.04%
- -------------------------------------------------------------------------------
$500,000 - $999,999 1.50% 1.52%
- -------------------------------------------------------------------------------
$1 MILLION + 0.00% 0.00%
- -------------------------------------------------------------------------------
NOTE: Sales charges are not imposed on shares purchased with reinvested
dividends.
WAIVERS - CLASS A SHARES
The following persons will not have to pay a sales charge on class A shares:
o Employees and retired employees of Firstar Bank (or the former Star Bank), or
their affiliates and members of their families (including parents,
grandparents, siblings, spouses, children, and in-laws) of such employees or
retired employees;
o FirstarTrust customers of Firstar Corporation and its subsidiaries; and
o non-trust customers of financial advisers
REDUCING YOUR SALES CHARGE - CLASS A SHARES
You can reduce the sales charge on purchases of class A shares by:
o purchasing larger quantities of shares or putting a number of purchases
together to obtain the quantity discount indicated above
o signing a letter of intent that you intend to purchase more than $100,000
worth of shares over the next 13 months
o using the reinvestment privilege which allows you to redeem shares and then
immediately reinvest them without a sales charge
o combining concurrent purchases of class A shares from different funds
WHAT SHARES COST - CLASS B SHARES
If you purchase class B shares of the U.S. GOVERNMENT INCOME FUND or the
STRATEGIC INCOME FUND, you will pay the NAV next determined after your order is
received. There is no sales charge on this class at the time you purchase your
shares. However, there is a contingent deferred sales charge on Class B
shares at the time you redeem. Any applicable CDSC will be imposed on the
lesser of the net asset value of the redeemed shares at the time of purchase or
the net asset value of the redeemed shares at the time of redemption in the
amount indicated by the table below:
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
- -----------------------------------------------
YEAR 1 5.00%
YEAR 2 4.00%
YEAR 3 3.00%
YEAR 4 2.00%
YEAR 5 1.00%
YEAR 6 0.00%
In computing the amount of CDSC you could be charged, redemptions are deemed to
have occurred in the following order:
1.shares of the fund you purchased by reinvesting your dividends and long-term
capital gains
2.shares of a fund you held for more than five full years from the date of
purchase
3.shares of a fund you held for fewer than five full years on a first-in,
first-out basis
WAIVERS - CLASS B SHARES
A redemption made under the Automatic Withdrawal Plan (see "Selling Shares")
will not be assessed CDSC as long as it does not amount to more than 10% of your
initial balance. CDSC is also not charged on:
o shares purchased by reinvesting your dividends or distributions of short or
long-term capital gains
o shares held for more than five full years after purchase
o redemptions made following death or disability (as defined by the IRS)
o redemptions made as minimum required distributions under an IRA or other
retirement plan to a shareholder who is 70-1/2 years old or older
o redemptions made in shareholder accounts that do not have the required
minimum balance
PURCHASING SHARES
- -------------------------------------------------------------------------------
OPENING AN ACCOUNT
To open an account, first determine if you are buying class A or B shares (see
page for class descriptions.) The minimum initial investment amounts for each
fund are as follows:
------------------------------------------------
Class A and B Shares
------------------------------------------------
o $1,000 for individuals
o $500 for Education IRA customers
o $25 for Firstar Bank Connections Group Banking
customers and Firstar Bank Employees, members
of their immediate family and participants in
the Firstar Bank Student Finance 101 Program
who establish a systematic investment program
and persons contributing to SIMPLE IRAs.
------------------------------------------------
ADDITIONAL INVESTMENTS MAY BE MADE IN ANY AMOUNT.
RECEIPT OF ORDERS
When making a purchase request, make sure your request is in good order. "Good
order" means your letter of instruction includes:
o the name of the fund
o the number of shares or the dollar amount of shares to be redeemed
o signatures of all registered shareholders exactly as the shares are
registered (guaranteed for IRAs)
o the account registration number
Shares may only be purchased on days the New York Stock Exchange and the Federal
Reserve wire system are open for business. Your order will be considered
received after your check is converted into federal funds and received by
Firstar Bank (usually the next business day). If you are paying with federal
funds (wire), your order will be considered received when Firstar Bank receives
the federal funds.
TIMING OF REQUESTS
The price per share will be the net asset value next computed after the time
your request is received in good order and accepted by the funds or by an agent
of the funds. All requests received in good order by the fund before 4:00 p.m.
(Eastern time) will be executed on that same day. Requests received after 4:00
p.m. will be processed on the next business day.
METHODS OF BUYING
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
BY TELEPHONE Call Firstar Stellar Call Firstar Stellar Funds
(Firstar Bank Funds at at 1-800-677-FUND to
customers only) 1-800-677-FUND place the order. (Note:
to place the order. For security reasons,
(Note: For security requests by telephone
reasons, requests by may be recorded.)
telephone may be
recorded.)
BY MAIL Make your check Fill out the investment
payable to "Firstar stub from an account
Stellar Funds." statement, or indicate the
Forward the check fund name and account number
and your application on your check. Make your
to the address below. check payable to "Firstar
Stellar Funds." Forward the
check and stub to the address
below.
BY FEDERAL Forward your Call Firstar Stellar Funds
FUNDS WIRE application to Firstar at 1-800-677-FUND to notify
Stellar Funds at the of incoming wire. Use the
address below. Call following instructions:
1-800-677-FUND to
obtain an account Firstar Bank, N.A.
number. Wire funds Milwaukee, WI 53202
using the instructions ABA #: 075000022
to the right. Credit: Firstar Mutual
Fund Services, LLC
Account #: 112-952-137
Further Credit:
(name of fund,share class)
(name/title on the account)
(account #)
AUTOMATIC Open a fund account with If you didn't set up an
INVESTMENT one of the other automatic investment plan
PLAN methods. If by mail, be with your original
sure to include your application, call Firstar
checking account number Stellar Funds at
on the appropriate 1-800-677-FUND. Additional
section of your investments (minimum of $25
application. per period) will be taken
automatically monthly or
quarterly from your checking
account.
THROUGH To purchase shares for To purchase shares for another
SHAREHOLDER another investor, call investor, call Firstar Stellar
SERVICE Firstar Stellar Funds Funds at 1-800-677-FUND.
ORGANIZATIONS at 1-800-677-FUND.
BY EXCHANGE Call 1-800-677-FUND Call 1-800-677-FUND to
to obtain exchange obtain exchange information.
information. See See page.
page.
ADDRESS FOR FIRSTAR STELLAR FUNDS
You should use the following addresses when sending documents by mail or by
overnight delivery:
BY MAIL BY OVERNIGHT DELIVERY
- ------- ---------------------
Firstar Stellar Funds Firstar Stellar Funds
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund Services, LLC
P.O. Box 701 615 E. Michigan Street, Third Floor
Milwaukee, Wisconsin 53201-0701 Milwaukee, Wisconsin 53202
NOTE: The funds do not consider the U.S. Postal Service or other independent
delivery services to be their agents. Therefore, deposits in the mail or with
such services, or receipt at Firstar Mutual Fund Services, LLC's post office box
of purchase applications or redemption requests do not constitute receipt by
Firstar Mutual Fund Services, LLC or the funds.
SELLING SHARES
- -------------------------------------------------------------------------------
METHODS OF SELLING
- -------------------------------------------------------------------------------
BY TELEPHONE Call Firstar Stellar Funds at 1-800-677-FUND to
sell any amount of shares.
(NOTE: For security reasons, requests by
telephone may be recorded.)
- -------------------------------------------------------------------------------
BY MAIL Send a letter instructing the Firstar Stellar
Funds to redeem the dollar amount or the number of
shares you wish. The letter should contain the
fund's name, the account number, and the number of
shares or the dollar amount of shares to be
redeemed. Be sure to have all shareholders sign
the letter. If your account is an IRA, the
signature must be guaranteed.
- -------------------------------------------------------------------------------
BY FEDERAL FUNDS WIRE Call Firstar Stellar Funds at 1-800-677-FUND to
request the amount of money you want. Be sure to
have all necessary information from your bank.
Your bank may charge a fee to receive wired funds.
- -------------------------------------------------------------------------------
AUTOMATIC WITHDRAWAL PLAN Call Firstar Stellar Funds at 1-800-677-FUND to
arrange for regular monthly or quarterly fixed
withdrawal payments. The minimum payment you may
receive is $25 per period. Note that this plan
may deplete your investment and affect your income
or yield. Also, it isn't wise to make purchases
of class A or B shares while participating in this
plan because of the sales charges.
- -------------------------------------------------------------------------------
SHAREHOLDER SERVICE Consult your account agreement for information on
ORGANIZATION redeeming shares.
- -------------------------------------------------------------------------------
BY EXCHANGE Call 1-800-677-FUND to obtain exchange
information. See page.
- -------------------------------------------------------------------------------
WHEN REDEMPTION PROCEEDS ARE SENT TO YOU
When making a redemption request, make sure your request is in good order. "Good
order" means your letter of instruction includes:
o the name of the fund
o the number of shares or the dollar amount of shares to be redeemed
o signatures of all registered shareholders exactly as the shares are
registered (guaranteed for IRAs)
o the account registration number
Your shares may only be redeemed on days on which the funds compute their net
asset value. Your redemption requests cannot be processed on days the New York
Stock Exchange is closed or on federal holidays which restrict wire transfers.
All requests received in good order by Firstar Stellar Funds before 4:00 p.m.
(Eastern time), will normally be wired to the bank you indicate or mailed on the
following day to the address of record. In no event will proceeds be wired or a
check mailed more than 7 calendar days after Firstar receives a proper
redemption request.
If you purchase shares using a check and soon after request a redemption,
Firstar Stellar Funds will honor the redemption request, but will not mail the
proceeds until your purchase check has cleared (usually within 12 business
days).
VALUE OF SHARES SOLD
Your shares will be redeemed at the net asset value next determined after
Firstar Stellar Funds receives your redemption request in good order. In the
case of class B shares, the applicable contingent deferred sales charge will be
subtracted from your redemption amount or your account balance, per your
instructions.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, Firstar Stellar
Funds may mail you a notice if your account falls below $1,000 requesting that
you bring the account back up to $1,000 or close it out. If you do not respond
to the request within 30 days, Firstar Stellar Funds may close the account on
your behalf and send you the proceeds. If you have an account through a
shareholder service organization, consult your account agreement for information
on accounts with low balances.
SIGNATURE GUARANTEES
You will need your signature guaranteed if:
o you are redeeming shares from an IRA account
o you request a redemption to be made payable to a person not on record with
the funds, or
o you request that a redemption be mailed to an address other than that on
record with the funds
You may obtain signature guarantees from most trust companies, commercial banks
or other eligible guarantor institutions.
EXCHANGING SHARES
- -------------------------------------------------------------------------------
You can exchange shares between the Firstar Stellar Funds within the same class.
You also may exchange class C shares (no-load money market funds) for class A or
B shares of any Firstar Stellar Fund. However, you may not exchange shares from
class B to class C and then to class A. Firstar Stellar Funds also allows you
to exchange shares with certain Firstar Funds, a separate family of funds
offered by Firstar Corporation.
Exercising the exchange privilege is really two transactions: a sale of one fund
and the purchase of another.
Exercising the exchange privilege is really two transactions: a sale of one fund
and the purchase of another. The same policies that apply to purchases and
sales apply to exchanges, including minimum investment amounts. Keep in mind
that some funds may have higher sales charges then other funds and you may have
to pay the difference in fees. Exchanges also have the same tax consequences as
ordinary sales and purchases and you could realize short or long-term capital
gains or losses. Generally, exchanges may only be made between identically
registered accounts unless you send written instructions with a signature
guarantee.
The SAI contains more information on exchanges. You may also call
1-800-677-FUND to learn more about exchanges, Firstar Funds or other Firstar
Stellar Funds.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
- -------------------------------------------------------------------------------
DIVIDENDS AND CAPITAL GAINS
The INSURED TAX-FREE BOND FUND and STRATEGIC INCOME FUND declare and pay
dividends on a monthly basis. The U.S. GOVERNMENT INCOME FUND declares
dividends on a daily basis, but pays dividends on a monthly basis.
Unless you provide a written request to receive payments in cash, your dividends
will automatically be reinvested in additional shares of the fund. Dividends
paid in cash will be mailed to you via the U.S. Postal Service. Keep in mind,
undeliverable checks or checks not deposited within six months will be
reinvested in additional shares of the fund at the then current net asset value.
Dividends paid in cash or in additional shares are treated the same for tax
purposes.
If any of the funds realize capital gains, they will be distributed once every
12 months.
TAX INFORMATION
The funds will pay no federal income tax because they expect to meet certain
Internal Revenue Code requirements. The funds will be treated as single,
separate entities for federal income tax purposes so that income (including
capital gains, if any) and losses realized by one fund will not be combined for
tax purposes with those realized by the other funds. The funds will provide you
with detailed tax information for reporting purposes. You should consult your
own tax adviser regarding tax consequences under your state and local laws.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gain distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares. All dividends paid by the funds and distributions of
net realized short-term capital gains are taxable on ordinary income.
Distributions paid by a fund from net realized long-term capital gains are
taxable as long-term capital gain. The capital gain holding period and the
applicable tax rate is determined by the length of time a fund has held the
security and not the length of time that you have held shares in the fund. The
funds expect that, because of their investment objectives, distributions will
consist primarily of ordinary income. Each fund will provide you with detailed
tax information for reporting purposes.
An exchange is not a tax-free transaction. An exchange of shares pursuant to
the funds' exchange privilege is treated the same as an ordinary sale and
purchase for federal income tax purposes and you will realize a capital gain or
loss.
You should consult your own tax advisers regarding the status of your accounts
under state and local tax laws.
ADDITIONAL TAX INFORMATION -- INSURED TAX-FREE BOND FUND
If you are a shareholder of the INSURED TAX-FREE BOND FUND, you are not required
to pay federal regular income tax on any dividends you receive from the fund
that represent net interest on tax-exempt municipal bonds. However,
shareholders of the fund may be required to pay federal alternative minimum
taxes on dividends representing net interest earned on some municipal bonds.
The alternative minimum tax (AMT) applies when it exceeds the regular tax for
the taxable year. AMT is equal to the regular taxable income of the taxpayer
increased by certain "tax preference" items not included in regular taxable
income and reduced by only a portion of the deductions allowed in the
calculation of the regular tax. The Tax Reform Act of 1986 treats interest on
certain private activity bonds as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds that
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties.
The fund is permitted to purchase all types of municipal bonds, including
private activity bonds. As a result, if the fund purchases any private activity
bonds, a portion of the fund's dividends may be treated as a tax preference
item.
Dividends of the fund representing net income earned on some temporary
investments and any net realized short-term gains are taxed as ordinary income.
Dividends are treated the same for tax purposes whether they are received in
cash or as additional shares. Distributions paid by a fund from net realized
long-term capital gains are taxable as long-term capital gain. The capital gain
holding period and the applicable tax rate is determined by the length of time a
fund has held the security and not the length of time that you have held shares
in the fund.
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The financial highlights tables set forth below are intended to help you
understand the funds' financial performance for the past 5 years or for the
funds' period of operations, as the case may be. Most of the information
reflects financial results with respect to a single fund share. The total
returns in the tables represent the rates that an investor would have earned (or
lost) on an investment in a fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Arthur Andersen LLP, whose
report, along with the funds' financial statements, are included in the funds'
annual report, which is available upon request.
<TABLE>
STRATEGIC INCOME FUND 1<F42>
(Class B Shares) Year ended November 30,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.67 $10.50 $10.53 $10.00
- ----------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.72 0.73 0.73 0.69
Net gain or losses on securities
(both realized and unrealized (0.94) 0.18 (0.04) 0.55
Total from investment operations (0.22) 0.91 0.69 1.24
Less distributions
Dividends (from net investment income) (0.73) (0.74) (0.72) (0.67)
Distributions (from capital gains) (0.10) -- -- (0.04)
Returns of Capital -- -- -- (0.00)2<F43>
Total distributions (0.83) (0.74) (0.72) (0.71)
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.62 $10.67 $10.50 $10.53
- ----------------------------------------------------------------------------------------------------------
Total return3<F44> (2.16%) 9.02% 6.99% 12.71%
Ratios/Supplemental data
Net assets, end of period
(000's omitted) $202,354 $179,413 $110,775 $47,513
Gross ratio of expenses to
average net assets5<F46> 1.46% 1.46% 1.56% 1.77%4<F45>
Net ratio of expenses to average net assets6<F47> 1.26% 1.26% 1.36% 1.47%4<F45>
Gross ratio of net income
to average net assets5<F46> 6.99% 6.93% 7.06% 7.11%4<F45>
Net ratio of net income to average net assets6<F47> 7.19% 7.13% 7.26% 7.41%4<F45>
Portfolio turnover rate 146% 142% 201% 258%
1<F42>The date of initial public investment for class B shares was December 12, 1994.
2<F43>Distributions are determined in accordance with federal income tax regulations which may differ from generally accepted
accounting principles. These distributions did not represent a return of capital for federal income tax purpose
3<F44>Based on net asset value, which does not reflect the contingent deferred sales charge, if applicable.
4<F45>Annualized.
5<F46>Before waivers and reimbursements.
6<F47>After waivers and reimbursements.
</TABLE>
<TABLE>
U.S. GOVERNMENT INCOME FUND1<F48>
(Class A Shares) Year ended November 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $9.87 $9.83 $9.98 $9.24 $10.25
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.56 0.57 0.57 0.60 0.55
Net gains or losses on securities
(both realized and unrealized) 0.30 0.04 (0.15) 0.74 (0.90)
Total from investment operations 0.86 0.61 0.42 1.34 (0.35)
Less distributions
Dividends (from net investment income) (0.55) (0.57) (0.57) (0.60) (0.55)
Distributions (from capital gains) -- -- -- -- (0.11)
Total distributions (0.55) (0.57) (0.57) (0.60) (0.66)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.18 $9.87 $9.83 $9.98 $9.24
- ----------------------------------------------------------------------------------------------------------------------------
Total return2<F49> 9.00% 6.46% 4.46% 14.90% (3.53)%
Ratios/Supplemental data
Net assets, end of period
(000's omitted) $148,773 $137,445 $138,874 $109,666 $87,924
Gross ratio of expenses to average net assets4<F51> 1.11% 1.09% 1.12% 1.12% 1.20%
Net ratio of expenses to average net assets5<F52> 0.91% 0.89% 0.92% 0.92% 0.97%
Gross ratio of net income
to average net assets4<F51> 5.31% 5.68% 5.68% 6.03% 5.64%
Net ratio of net income to average net assets5<F52> 5.51% 5.88% 5.88% 6.23% 5.87%
Portfolio turnover rate 88% 140% 158% 236% 148%
1<F48>The date of initial public investment for class A shares was January 5, 1993. For the period from November 30, 1992 (start of
business) to January 4, 1993, all income was distributed to Federated Services Corp., the administrator at the time.
2<F49>Based on net asset value, which does not reflect the sales charge, if applicable.
3<F50>Annualized.
4<F51>Before waivers and reimbursements.
5<F52>After waivers and reimbursements.
</TABLE>
<TABLE>
U.S. GOVERNMENT INCOME FUND1<F53>
(Class B Shares) Year ended November 30,
1998
<S> <C>
- -----------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $9.89
- -----------------------------------------------------------------------
Income from investment operations
Net investment income 0.36
Net gains or losses on securities
(both realized and unrealized) 0.29
Total from investment operations 0.65
Less distributions
Dividends (from net investment income) (0.36)
Total distributions (0.36)
- -----------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.18
- -----------------------------------------------------------------------
Total return2<F54> 6.71%
Ratios/Supplemental data
Net assets, end of period
(000's omitted) $305
Gross ratio of expenses to average net assets4<F56> 1.11%
Net ratio of expenses to average net assets5<F57> 0.91%3<F55>
Gross ratio of net income to average net assets4<F56>5.31%
Net ratio of net income to average net assets5<F57> 5.51%3<F55>
Portfolio turnover rate 88%
1<F53>The date of initial public investment for class B shares was March 31, 1998.
2<F54>Based on net asset value, which does not reflect the contingent deferred sales charge, if applicable.
3<F55>Annualized.
4<F56>Before waivers and reimbursements.
5<F57>After waivers and reimbursements.
</TABLE>
<TABLE>
INSURED TAX-FREE BOND FUND1<F58>
(Class A Shares) Year ended November 30,
1998 1997
<S> <C> <C>
- ------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.25 $10.00
- ------------------------------------------------------------------------------
Income from investment operations
Net investment income 4.46 0.44
Net gains or losses on securities
(both realized and unrealized) 0.26 0.24
Total from investment operations 0.72 0.68
Less distributions
Dividends (from net investment income) (0.46) (0.43)
Distributions (from capital gains) (0.02) --
- ------------------------------------------------------------------------------
Total distributions (0.48) (0.43)
- ------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.49 $10.25
- ------------------------------------------------------------------------------
Total return2<F59> 7.20% 6.91%
Ratios/Supplemental data
Net assets, end of period
(000's omitted) $152,231 $128,591
Gross ratio of expenses to average net assets4<F61> 1.24% 1.24%3<F60>
Net ratio of expenses to average net assets5<F1> 0.79% 0.79%3<F60>
Gross ratio of net income to average net assets4<F61> 3.98% 4.21%3<F60>
Net ratio of net income to average net assets5<F1> 4.43% 4.66%3<F60>
Portfolio turnover rate 14% 15%
1<F58>The date of initial public investment for class A shares was December 30, 1996.
2<F59>Based on net asset value, which does not reflect the sales charge, if applicable.
3<F60>Annualized.
4<F61>Before waivers and reimbursements.
5<F1>After waivers and reimbursements.
</TABLE>
YEAR 2000 ISSUE
- -------------------------------------------------------------------------------
Like all financial service providers, the funds' investment adviser, the
distributor and other third party service providers utilize systems that may be
affected by year 2000 transition issues and other date related issues. The
services provided to you and the funds by these service providers depend on the
smooth functioning of their computer systems and those of other parties they
deal with. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900 because of the way dates are encoded and
calculated. Such an event could have a negative impact on handling securities
trades, payments of interest and dividends, pricing and account services.
Although there can be no assurance at this time that there will be no adverse
impact on the funds, the funds' service providers have advised the funds that
they have been actively working on necessary changes to their computer systems
to prepare for the year 2000. The funds' service providers expect that their
systems, and those of other parties they deal with, will be adapted in time for
that event. However, there can be no assurance that the computer systems of the
companies in which the funds invest will be timely converted or that the value
of such investments will not be adversely affected by the year 2000 issue.
FIRSTAR STELLAR
FUNDS
FOR MORE INFORMATION
YOU MAY OBTAIN THE FOLLOWING AND OTHER INFORMATION ON THE FIRSTAR STELLAR
FUNDS FREE OF CHARGE:
O ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS
The annual and semi-annual reports provide the funds' most recent financial
reports and portfolio listings. The annual report contains a discussion of
the market conditions and investment strategies that affected the funds'
performances during the last fiscal year.
O STATEMENT OF ADDITIONAL INFORMATION (SAI) DATED MARCH 31, 1999
The SAI is incorporated into this prospectus by reference (i.e., Legally
made a part of this prospectus). The SAI provides more details about the
funds' policies and management.
TO RECEIVE ANY OF THESE DOCUMENTS OR PROSPECTUSES ON THE FIRSTAR STELLAR
FUNDS:
BY TELEPHONE
1-800-677-FUND
BY MAIL:
Firstar Stellar Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
ON THE INTERNET:
Text only versions of fund documents can be viewed online or downloaded
from: HTTP://WWW.sec.gov and HTTP://WWW.firstarstellarfunds.com
You may review and obtain copies of fund information (including the SAI) at
the SEC Public Reference Room in Washington, D.C. Please call 1-800-SEC-
0330 for information relating to the operation of the Public Reference Room.
Copies of the information may be obtained for a fee by writing the Public
Reference Section, Securities and Exchange Commission, Washington, D.C.
20549-6009.
Investment Company Act File # 811-05762
FIRSTAR STELLAR STOCK
FUNDS FUNDS
COMBINED
PROSPECTUS
March 31, 1999
FIRSTAR STELLAR GROWTH EQUITY FUND
Maximizing capital appreciation
FIRSTAR STELLAR RELATIVE VALUE FUND
Providing the highest total return from income and
capital appreciation
FIRSTAR STELLAR FUND
Maximizing total returns from dividend income and
capital appreciation
FIRSTAR STELLAR CAPITAL APPRECIATION FUND
Maximizing capital appreciation
FIRSTAR STELLAR INTERNATIONAL EQUITY FUND
Providing long-term capital appreciation
The Securities and Exchange
Commission has not approved
or disapproved these securities
or determined if this prospectus
is truthful or complete. Any
representation to the contrary
is a criminal offense.
TABLE OF CONTENTS
THE FUNDS
Overview of the Funds 3
GROWTH EQUITY FUND 4
RELATIVE VALUE FUND 6
STELLAR FUND 8
CAPITAL APPRECIATION FUND 11
INTERNATIONAL EQUITY FUND 13
Management of the Funds 16
Distribution of Shares 17
YOUR ACCOUNT INFORMATION
Description of Classes 18
The Price of Shares 18
Purchasing Shares 20
Exchanging Shares 21
Selling Shares 22
Dividends, Capital Gains Distributions and Taxes 23
ADDITIONAL INFORMATION
Financial Highlights 24
Year 2000 Issue 32
FOR MORE INFORMATION
The back cover tells you how to obtain more information about the funds.
OVERVIEW
- -----------------------------------------------------------------------------
GOAL AND STRATEGIES OF THE STOCK FUNDS
The general goal of the Firstar Stellar stock funds is to maximize your capital
appreciation by investing in equity securities. The GROWTH EQUITY FUND focuses
its investments in growth-oriented equity securities of U.S. companies. The
RELATIVE VALUE FUND focuses on capital appreciation from equities of U.S.
companies that have value characteristics. The STELLAR FUND provides investors
with the opportunity to gain income and appreciation from both equity and fixed
income investments. The CAPITAL APPRECIATION FUND invests in equity securities
of small to medium-sized U.S. companies. The INTERNATIONAL EQUITY FUND seeks
investment opportunities by investing in mutual funds that invest in non-U.S.
companies.
PRINCIPAL RISKS COMMON TO THESE FUNDS
The main risks of investing in the funds are:
O STOCK MARKET RISK: Stock mutual funds are subject to stock market risks
and significant fluctuations in value. If the stock market declines in
value, the funds are likely to decline in value. Therefore, you may lose
money if the value of the funds decline.
O STOCK SELECTION RISK: The stocks selected by the investment adviser may
decline in value or not increase in value when the stock market in general
is rising.
O BOND RISKS: To the extent the funds invest in bonds, they will be exposed
to the risks of bond investing. A bond's market value is affected
significantly by changes in interest rates. Generally, when interest rates
rise, the bond's market value declines and when interest rates decline, its
market value rises. Also, the longer a bond's maturity, the greater the
risk and the higher its yield. Conversely, the shorter a bond's maturity,
the lower the risk and the lower its yield. A bond's value can also be
affected by changes in the bond's credit quality rating or its issuer's
financial condition. Because bond values fluctuate, the fund's share price
fluctuates. So, when you sell your investment, you may receive more or
less money than you originally invested.
O LIQUIDITY RISK: Liquidity risk is the risk that certain securities may be
difficult or impossible to sell at the time and price that the investment
adviser would like to sell. The adviser 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.
O PORTFOLIO TURNOVER RISKS The adviser may engage in active trading of its
portfolio securities to achieve its investment goals. This practice could
result in the funds experiencing a high turnover rate (100% or more). High
portfolio turnover rates lead to increased costs, could cause you to pay
higher taxes and could negatively affect the fund's performance.
An investment in the funds is not a deposit of Firstar Bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
WHO MAY WANT TO INVEST
These funds may be appropriate for people who:
o wish to invest for the long term
o want to diversify their portfolios
o want to allocate some portion of their long-term investments to
aggressive equity investing
o are willing to accept a high degree of volatility and risk in exchange
o for the opportunity to realize greater financial gains in the future
These funds may not be appropriate for people who:
o are investing for short terms
o are risk adverse
GROWTH EQUITY FUND
- --------------------------------------------------------------------------------
INVESTMENT GOAL
The GROWTH EQUITY FUND'S investment objective is to maximize capital
appreciation.
INVESTMENT POLICIES AND PORTFOLIO SECURITIES
The fund attempts to achieve its investment goal by investing at least 65% of
the value of its total assets in growth-oriented domestic equity securities.
"Growth-oriented" securities are securities of U.S. companies that have market
capitalizations of $1.5 billion or more and, based on traditional research
techniques, the fund's investment adviser believes have earnings growth
potential superior to the S&P 500.
The adviser selects securities and attempts to maintain an acceptable level of
risk largely through the use of automated quantitative measurement techniques.
The adviser considers the following factors when using this research technique:
o price/earnings ratios,
o historical and projected earnings growth rates,
o historical sales growth rates,
o historical return on equity,
o market capitalization,
average daily trading volume and
o credit rankings based on nationally recognized statistical rating
organizations (NRSROs).
WHAT ARE "GROWTH-ORIENTED" SECURITIES?
Securities of U.S. companies with market capitalizations of $1.5 billion or
greater that show superior growth in earnings and revenues.
The investment adviser uses the quantitative model together with economic
forecasts and assessment of the risk and volatility of the company's industry.
When selling securities, the adviser considers three factors: (1) Have the
objectives of the fund been met? (2) Has the attractiveness of the securities
deteriorated? (3) Has the adviser's outlook changed? If the adviser can answer
each question positively, then the adviser will sell the securities.
The fund's domestic equity securities usually consist of U.S. common and
preferred stocks and warrants of companies with market capitalizations of $1.5
billion or greater. The stocks are listed on the New York or American Stock
Exchanges or traded in the over-the-counter market.
The fund may also invest in:
o domestic debt securities rated Baa or higher by Moody's or rated BBB or
higher by S&P or Fitch (i.e., notes, zero coupon bonds and convertible
securities of U.S. companies)
o U.S. government securities (i.e., direct obligations of the U.S.
Treasury)
o real estate investment trusts
o investment grade structured fixed income securities (i.e., mortgage-
backed securities, adjustable rate mortgage securities, collateralized
mortgage obligations and asset-backed securities)
o international securities (including other investment companies, American
Depositary Receipts and International Depositary Receipts)
o money market instruments
TEMPORARY INVESTMENTS To respond to adverse market, economic, political or
other conditions, the fund may invest up to 100% of its assets in U.S. and
foreign short-term money market instruments. The fund may invest up to 35% of
its assets in these securities to maintain liquidity. Some of the short-term
money market instruments include:
o commercial paper
o certificates of deposit, demand and time deposits and bankers'
acceptances
o U.S. government securities
o repurchase agreements
To the extent the fund engages in this temporary, defensive strategy, the fund
may not achieve its investment objective.
INVESTMENT RISKS
The following risks are specific to this fund in addition to the risks mentioned
in the Overview section.
SMALL AND MEDIUM SIZE COMPANIES RISK The fund may invest in the stocks of
small- to medium-sized companies. Small and medium size companies often have
narrower markets and more limited managerial and financial resources than
larger, more established companies. As a result, their performance can be more
volatile and they face greater risk of business failure, which could increase
the volatility of the fund's portfolios.
REAL ESTATE INVESTMENT TRUSTS RISKS Some of the risks of equity and mortgage
real estate investment trusts (REITs) are that they depend on management skills
and are not diversified. As a result, REITs are subject to the risk of
financing either single projects or any number of projects. REITs depend on
heavy cash flow and may be subject to defaults by borrowers and self-
liquidation. Additionally, equity REITs may be affected by any changes in the
value of the underlying property owned by the trusts. Mortgage REITs may be
affected by the quality of any credit extended. The adviser tries to minimize
these risks by selecting REITs diversified by sector (i.e. shopping malls,
apartment building complexes, health care facilities) and geographic location.
MORTGAGE AND ASSET-BACKED SECURITIES RISKS The main risk of mortgage and
asset-backed securities is that the borrower will prepay some or all of the
principal owed to the issuer. If that happens, the fund may have to replace the
security by investing the proceeds in a less attractive security. This could
reduce the fund's share price and its income distributions.
FOREIGN SECURITIES RISK The fund can invest in foreign securities, which can
carry higher returns, but involve more risks than those associated with domestic
investments. Additional risks include currency fluctuations, political and
economic instability, differences in financial reporting standards and less
stringent regulation of securities markets.
FUTURES AND OPTIONS ON FUTURES RISKS The fund may use futures and options on
futures for hedging purposes only. The hedging strategy may not be successful
if the portfolio manager is unable to accurately predict movements in the prices
of individual securities held by a fund or if the strategy does not correlate
well with the fund's investments. The use of futures and options on futures may
produce a loss for the fund, even when used only for hedging purposes.
The Statement of Additional Information contains more information about the fund
and the types of securities in which it may invest.
- --------------------------------------------------------------------------------
PAST PERFORMANCE
The bar chart and table below illustrate the variability of the GROWTH EQUITY
FUND'S returns. The bar chart indicates the risks of investing in the fund by
showing the changes in the fund's performance from year to year (on a calendar
year basis). The table shows how the fund's average annual returns for one-year
and since inception ending December 1998 compare with broad measures of market
performance. The fund's past performance is not necessarily an indication of
how the fund will perform in the future.
GROWTH EQUITY FUND - B SHARES
CALENDAR YEAR RETURNS AS OF 12/31
1995 27.37%
1996 23.35
1997 25.28
1998 28.05
Sales charges are not reflected in the bar chart. If these amounts were
reflected, returns would be less than those shown.
BEST QUARTER: Q4 1998 23.49%
WORST QUARTER: Q3 1998 (10.87)%
Average annual total return
through 12/31/98 1 Year Since inception
- --------------------------------------------------------------------------------
Growth Equity Fund B Shares1<F62> 23.05% 26.54%
Y Shares2<F63> 28.22% 24.54%
S&P 500 Index3<F64> 28.58% 30.51%
Lipper Growth & Income Average4<F65> 15.59% N/A
The average annual total returns above reflects the sales charges.
1<F62>B Shares commenced operations on December 12, 1994.
2<F63>Y Shares commenced operations on August 18, 1997.
3<F64>The S&P 500 Index is an unmanaged index of 500 domestic stocks created by
Standard & Poor's Corporation. The Index is heavily weighted toward stocks
with large market capitalizations and represents approximately two-thirds of
the total market value of all domestic common stocks.
4<F65>The Lipper Growth & Income Average shows the performance of a category of
mutual funds with similar goals.
- --------------------------------------------------------------------------------
FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS B CLASS Y
- --------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES
(as a percentage of offering price) None None
MAXIMUM DEFERRED SALES CHARGE (LOAD)1<F66>
(as a percentage of offering price) 5.00% None
MAXIMUM SALES CHARGE (LOAD)
IMPOSED ON REINVESTED DIVIDENDS None None
REDEMPTION FEE None None
EXCHANGE FEE None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS) CLASS B CLASS Y
- --------------------------------------------------------------------------------
MANAGEMENT FEES 0.75% 0.75%
DISTRIBUTION AND SERVICE (12B-1) FEES2<F67> 0.25% None
OTHER EXPENSES3<F68> 0.54% 0.54%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.54% 1.29%
1<F66>The contingent deferred sales change is 5.00% in the first year, declining
to 1.00% in the fifth year and 0.00% thereafter. See "Price of Shares."
2<F67> The Y shares are not subject to a Rule 12b-1 plan.
3<F68>"Other Expenses" includes (1) administration fees, transfer agency fees
and all other ordinary operating expenses of the fund not listed above, plus (2)
an annual shareholder servicing fee of 0.25% of average daily net assets. For
the foreseeable future, the fund plans to limit the shareholder servicing fee to
an annual rate of 0.10% of average daily net assets.
EXAMPLE The example below is intended to help you compare the cost of investing
in the fund with the cost of investing in other mutual funds.
This example assumes that:
1.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,
2.Your investment has a 5% return each year, and
3.The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
CLASS B $657 $786 $939 $1,834
CLASS Y $131 $409 $708 $1,556
If you did not redeem your shares, you would pay the following expenses:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
CLASS B $157 $486 $839 $1,834
CLASS Y $131 $409 $708 $1,556
Class descriptions are on page 18.
RELATIVE VALUE FUND
- --------------------------------------------------------------------------------
INVESTMENT GOAL
The RELATIVE VALUE FUND'S goal is to obtain the highest total return from a
combination of income and capital appreciation.
INVESTMENT POLICIES AND PORTFOLIO SECURITIES
To achieve its objective, the fund invests primarily in common stocks. The
stocks in which the fund may invest include stocks that the fund's investment
adviser believes represent the best values within each industry sector. In the
adviser's opinion, stocks with the best values present characteristics
consistent with low volatility, above average yields, and are under valued
relative to the stocks comprising the Standard & Poor's 500 composite Stock
Price Index. Under normal circumstances, the fund will invest at least 70% of
its assets in common stocks, which may include stocks of foreign issuers. The
fund may invest a significant portion of its assets in investment grade fixed-
income securities such as domestic issues of corporate debt obligations with
short and intermediate terms.
The investment adviser uses traditional research techniques when choosing which
stock to invest in. The adviser selects securities and attempts to maintain an
acceptable level of risk largely through the use of automated quantitative
measurement techniques. The adviser considers the following "value"
characteristics when using this research technique:
o price/earnings ratios,
o dividend yield,
o book value,
o assets to liabilities ratio,
o management ownership,
o average daily trading volume and
o credit rankings based on nationally recognized statistical rating
organizations (NRSROs).
The investment adviser uses the quantitative model together with economic
forecasts and assessment of the risk and volatility of the company's industry.
The adviser assesses the earnings and dividend growth prospects of the various
companies' stock and then considers the risk and volatility of the company's
industry. The adviser typically invests in common stocks of companies that are
in the top 25% of their industries with regard to revenues. The adviser also
considers other factors such as product position or market share.
When selling securities, the adviser considers three factors: (1) Have the
objectives of the fund been met? (2) Has the attractiveness of the securities
deteriorated? (3) Has the adviser's outlook changed? If the adviser can answer
each question positively, then the adviser will sell the securities.
TEMPORARY INVESTMENTS To respond to adverse market, economic, political or
other conditions, the fund may invest up to 100% of its assets in short-term
temporary investments. Some of the short-term money market instruments include:
o commercial paper
o certificates of deposit, demand and time deposits and bankers'
acceptances
o U.S. government securities
o repurchase agreements
To the extent that the fund engages in this temporary, defensive strategy, the
fund may not achieve its investment objective.
INVESTMENT RISKS
The following risks are specific to this fund in addition to the risks mentioned
in the Overview section.
FOREIGN SECURITIES RISK The fund can invest in foreign securities, which can
carry higher returns, but involve more risks than those associated with domestic
investments. Additional risks include currency fluctuations, political and
economic instability, differences in financial reporting standards and less
stringent regulation of securities markets.
The Statement of Additional Information contains more information about the fund
and the types of securities in which it may invest.
- --------------------------------------------------------------------------------
PAST PERFORMANCE
The bar chart and table below illustrate the variability of the RELATIVE VALUE
FUND'S returns. The bar chart indicates the risks of investing in the fund by
showing the changes in the fund's performance from year to year (on a calendar
year basis). The table shows how the fund's average annual returns for one
year, five-years and since the fund's inception ending December 1998 compare
with broad measures of market performance. The fund's past performance is not
necessarily an indication of how the fund will perform in the future.
RELATIVE VALUE FUND - A SHARES
CALENDAR YEAR RETURNS AS OF 12/31
1992 11.19%
1993 13.73
1994 -2.63
1995 35.69
1996 26.45
1997 32.20
1998 18.25
Sales charges are not reflected on the bar chart. If these amounts were
reflected, returns would be less than those shown.
BEST QUARTER: Q4 1998 21.33%
WORST QUARTER: Q3 1998(12.29)%
Average annual total return
through 12/31/98 1 Year 5 Year Since Inception
- --------------------------------------------------------------------------------
Relative Value Fund A Shares1<F69> 12.91% 20.06% 16.66%
B Shares2<F70> N/A N/A 0.89%
Y Shares3<F71> 18.50% N/A 18.88%
S&P 500 Index4<F72> 28.58% 24.06% 19.22%
Lipper Growth & Income Average5<F35> 15.59% 18.53% 16.75%
The average annual total returns above reflects the sales charges.
1<F69>A Shares commenced operations on June 5, 1991.
2<F70>B Shares commenced operations on March 31, 1998.
3<F71>Y Shares commenced operations on August 18, 1997.
4<F72>The S&P 500 Index is an unmanaged index of 500 domestic stocks created by
Standard & Poor's Corporation. The Index is heavily weighted toward stocks with
large market capitalizations and represents approximately two-thirds of the
total market value of all domestic common stocks.
5<F35> The Lipper Growth & Income Average shows the performance of a category of
mutual funds with similar goals.
- --------------------------------------------------------------------------------
FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A CLASS B CLASS Y
- --------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES
(as a percentage of offering price) 4.50% None None
MAXIMUM DEFERRED SALES CHARGE (LOAD)1<F73>
(as a percentage of offering price) None 5.00% None
MAXIMUM SALES CHARGE (LOAD) IMPOSED
ON REINVESTED DIVIDENDS None None None
REDEMPTION FEE None None None
EXCHANGE FEE None None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS) CLASS A CLASS B CLASS Y
- --------------------------------------------------------------------------------
MANAGEMENT FEES 0.75% 0.75% 0.75%
DISTRIBUTION AND SERVICE (12B-1) FEES2<F74> 0.25% 0.25% None
OTHER EXPENSES3<F75> 0.49% 0.49% 0.49%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.49% 1.49% 1.24%
1<F73>The contingent deferred sales change is 5.00% in the first year, declining
to 1.00% in the fifth year and 0.00% thereafter. See "Price of Shares."
2<F74>Y shares are not subject to a Rule 12b-1 Plan.
3<F75>"Other Expenses" includes (1) administration fees, transfer agency fees
and all other ordinary operating expenses of the fund not listed above, plus (2)
an annual shareholder servicing fee of 0.25% of average daily net assets. For
the foreseeable future, the fund plans to limit the shareholder servicing fee to
an annual rate of 0.10% of average daily net assets.
EXAMPLE The example below is intended to help you compare the cost of investing
in the fund with the cost of investing in other mutual funds.
This example assumes that:
1.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,
2.Your investment has a 5% return each year, and
3.The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
CLASS A $595 $900 $1,227 $2,149
CLASS B $652 $771 $913 $1,779
CLASS Y $126 $393 $681 $1,500
If you did not redeem your shares, you would pay the following expenses:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
CLASS A $595 $900 $1,227 $2,149
CLASS B $152 $471 $681 $1,779
CLASS Y $126 $393 $681 $1,500
Class descriptions are on page .
STELLAR FUND
- --------------------------------------------------------------------------------
INVESTMENT GOAL
The STELLAR FUND seeks to maximize total return derived from a combination of
dividend income and capital appreciation.
INVESTMENT POLICIES AND PORTFOLIO SECURITIES
The fund invests approximately 20% of net assets in each of the first four
categories listed below. The remaining 20% is invested in precious metal
securities or short-term securities or both. The fund's investment adviser
believes that by spreading the investment portfolio over several categories, the
fund can reduce the impact of drastic market movements that might affect any one
securities type. The fund will invest no more than 25% and no less than 15% in
any one category.
THE FUND INVESTS IN THESE CATEGORIES OF SECURITIES:
o domestic equity sexurities
o domestic finxed-income secuities (including structured
fixed-income securities)
o international securities (equity and fixed income)
o real estate securities (REITs)
o precious metal securities, and
0 short-term securities
Within each category, the investment adviser attempts to reduce risk even
further by conducting careful investment analysis of each issuer. Part of the
adviser's analysis includes studying various value measures such as
price/earnings ratios, using ratings assigned by nationally recognized
statistical rating organizations, researching the company's credit, reviewing
the issuer's historical performance, examining the issuer's dividend growth
record and considering market trends.
When selling securities, the adviser considers three factors: (1) Have the
objectives of the fund been met? (2) Has the attractiveness of the securities
deteriorated? (3) Has the adviser's outlook changed? If the adviser can answer
each question positively, then the adviser will sell the securities.
DOMESTIC EQUITY SECURITIES The equity portion of the fund includes U.S. common
and preferred stocks. The adviser chooses stocks that it believes to be
undervalued compared to stocks contained in the Standard & Poor's 500 Composite
Stock Price Index. The adviser considers the following factors when using this
research technique:
o price/earnings ratios,
o historical and projected earnings growth rates,
o historical sales growth rates,
o historical return on equity,
market capitalization,
o average daily trading volume and
o credit rankings based on nationally recognized statistical rating
organizations (NRSROs).
The investment adviser uses the quantitative model together with economic
forecasts and assessment of the risk and volatility of the company's industry.
DOMESTIC FIXED-INCOME SECURITIES The fixed-income portion of the fund includes
short to long-term, investment grade domestic corporate debt obligations,
obligations of the United States government, and notes, bonds, and discount
notes of U.S. government agencies or instrumentalities. The adviser selects
bonds based on the outlook for interest rates and their yields compared to other
bonds of similar quality and maturity. The fund will only invest in bonds rated
Baa or higher by Moody's Investors Service, Inc. or rated BBB or higher by S&P
or Fitch IBCA, Inc. If the bonds are unrated, the adviser will evaluate the
bonds before investing in them to determine if they are of similar quality to
the ratings indicated. The fixed-income portion of the fund also includes
mortgage-backed securities, adjustable rate mortgage securities, collateralized
mortgage obligations and asset-backed securities.
INTERNATIONAL SECURITIES The international portion of the fund includes equity
securities of non-U.S. companies and corporate and government fixed-income
securities denominated in non-U.S. currencies. The international equity
securities include international stocks traded domestically or abroad through
various stock exchanges, American Depository Receipts (ADRs) or International
Depository Receipts (IDRs). The fixed-income securities include ADRs, IDRs, and
government securities of other nations. The fund will only invest in securities
rated Baa or better by Moody's or BBB or better by S&P. If the securities are
unrated, the adviser will only invest in them if it deems the securities to be
of comparable quality. The fund may also invest in shares of open-end and
closed-end management investment companies which invest primarily in
international equity securities.
REAL ESTATE SECURITIES The real estate portion of the fund includes equity
securities and convertible debt securities of real estate related companies and
real estate investment trusts (REITs). The real estate securities are traded
publicly, primarily on an exchange. Real estate securities are not considered
domestic equity securities for purposes of the fund's asset allocation
limitation.
PRECIOUS METAL SECURITIES The precious metal securities of the fund include
domestic and international equity securities of companies that explore for,
extract, process, or deal in precious metals such as gold, silver palladium, and
platinum. The fund may also invest up to 5% of its net assets in domestic and
international asset-backed securities including debt securities, preferred
stock, or convertible securities for which the principal amount, redemption
terms, or conversion terms are related to the market price of some precious
metals such as gold bullion. The fund may purchase only asset-backed securities
rated Baa or better by Moody's or BBB or better by S&P. If the securities are
unrated, the adviser will only invest in them if it deems the securities to be
of comparable quality.
SHORT-TERM SECURITIES The short-term money market securities in which the fund
may invest include:
o mortgage-backed securities, adjustable rate mortgage securities,
collateralized mortgage obligations and asset-backed securities
o commercial paper rated A-1 by S&P, Prime-1 by Moody's or F-1 by Fitch
o instruments of domestic and foreign banks and savings associations
(i.e., certificates of deposit, demand and time deposits and bankers'
acceptances)
o short-term instruments which are not rated but are determined by the
Adviser to be of comparable quality to the securities in which the
fund may invest
o domestic corporate debt obligations rated Baa or higher by Moody's or
BBB or higher by S&P or Fitch
o obligations of the U.S. government or its agencies or
instrumentalities
o repurchase agreements
o money market mutual funds
U.S. OBLIGATIONS The fund may invest in government securities such as
obligations of the U.S. Treasury and obligations issued or guaranteed by U.S.
government agencies or instrumentalities.
INVESTMENT RISKS
The following risks are specific to this fund in addition to the risks mentioned
in the Overview section.
FOREIGN SECURITIES RISK The fund can invest in foreign securities, which can
carry higher returns, but involve more risks than those associated with domestic
investments. Additional risks include currency fluctuations, political and
economic instability, differences in financial reporting standards and less
stringent regulation of securities markets.
MORTGAGE AND ASSET-BACKED SECURITIES RISKS The main risk of mortgage and
asset-backed securities is that the borrower will prepay some or all of the
principal owed to the issuer. If that happens, the fund may have to replace the
security by investing the proceeds in a less attractive security. This could
reduce the fund's share price and its income distributions.
SMALL AND MEDIUM SIZE COMPANIES RISK The fund may invest in the stocks of
small- to medium-sized companies. Small and medium size companies often have
narrower markets and more limited managerial and financial resources than
larger, more established companies. As a result, their performance can be more
volatile and they face greater risk of business failure, which could increase
the volatility of the fund's portfolios.
REAL ESTATE INVESTMENT TRUSTS RISKS Some of the risks associated with real
estate investment trusts (REITs) are that equity and mortgage REITs depend on
management skills and are not diversified. As a result, REITs are subject to
the risk of financing either single projects or any number of projects. REITs
depend on heavy cash flow and may be subject to defaults by borrowers and self-
liquidation. Additionally, equity REITs may be affected by any changes in the
value of the underlying property owned by the trusts. Mortgage REITs may be
affected by the quality of any credit extended. The adviser tries to minimize
these risks by selecting REITs diversified by sector (i.e. shopping malls,
apartment building complexes, health care facilities) and geographic location.
PRECIOUS METAL SECURITIES Prices of precious metal securities and precious
metals tend to be subject to high volatility. The earnings and financial
condition of precious metal companies may be adversely affected by volatile
precious metal prices.
OPTIONS RISKS The fund may use options for hedging purposes only. The hedging
strategy may not be successful if the portfolio manager is unable to accurately
predict movements in the prices of individual securities held by a fund or if
the strategy does not correlate well with the fund's investments. The use of
options may produce a loss for the fund, even when used only for hedging
purposes.
The Statement of Additional Information contains more information about the fund
and the types of securities in which it may invest.
- --------------------------------------------------------------------------------
PAST PERFORMANCE
The bar chart and table below illustrate the variability of the STELLAR FUND'S
returns. The bar chart indicates the risks of investing in the fund by showing
the changes in the fund's performance from year to year (on a calendar year
basis). The table shows how the fund's average annual returns for one-year,
five-years and since the fund's inception ending December 1998 compare with
broad measures of market performance. The fund's past performance is not
necessarily an indication of how the fund will perform in the future.
THE STELLAR UFND - A SHARES
CALENDAR YEAR RETURNS AS OF 12/31
1992 4.54%
1993 13.08
1994 -2.11
1995 16.30
1996 15.43
1997 12.26
1998 6.08
Sales charges are not reflected on the bar chart. If these amounts were
reflected, returns would be less than those shown.
BEST QUARTER: Q4 1998 8.02%
WORST QUARTER: Q3 1998 (7.24)%
Average annual total return
Through 12/31/98 1 Year 5 Year Since inception
- --------------------------------------------------------------------------------
Stellar Fund A Shares1<F76> 1.28% 8.36% 9.03%
Y Shares2<F77> 6.40% N/A 10.69%
Lehman Brothers Government/
Corporate Total Index3<F78> 9.47% 7.30% 8.98%
5 Class Index4<F79> 8.73% 11.00% 11.29%
The average annual total returns above reflects the sales charges.
1<F76>A Shares commenced operations on October 18, 1991.
2<F77>Y Shares commenced operations on April 11, 1994.
3<F78>Lehman Brothers Government/Corporate Total Index is an unmanaged index
composed of bonds which have maturities of at least one year and are rated
investment grade or higher by Moody's, S&P or Fitch, in that order.
4<F79>The 5 Class Index consists of 20% each of the S&P 500 Index, Lehman
Brothers Government/Corporate Total Index, 90-day U.S. Treasury Bill, Morgan
Stanley Europe, Australasia and Far East (EAFE) Index and the National
Association of Real Estate Investment Trusts (NAREIT) Index. The index is a
blended index used to reflect the relative components of the STELLAR FUND.
- --------------------------------------------------------------------------------
FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A CLASS Y
- --------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES
(as a percentage of offering price) 4.50% None
MAXIMUM DEFERRED SALES CHARGE (LOAD)
(as a percentage of offering price) None None
MAXIMUM SALES CHARGE (LOAD)
IMPOSED ON REINVESTED DIVIDENDS None None
REDEMPTION FEE None None
EXCHANGE FEE None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS) CLASS A CLASS Y
- --------------------------------------------------------------------------------
MANAGEMENT FEES 0.95% 0.95%
DISTRIBUTION AND SERVICE (12B-1) FEES1<F80> 0.25% None
OTHER EXPENSES2<F81> 0.65% 0.65%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.85% 1.60%
1<F80>Y shares are not subject to a Rule 12b-1 Plan.
2<F81>"Other Expenses" includes (1) administration fees, transfer agency fees
and all other ordinary operating expenses of the fund not listed above, plus (2)
an annual shareholder servicing fee of 0.25% of average daily net assets. For
the foreseeable future, the fund plans to limit the shareholder servicing fee to
an annual rate of 0.10% of average daily net assets..
EXAMPLE The example below is intended to help you compare the cost of
investing in the fund with the cost of investing in other mutual funds.
This example assumes that:
1.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,
2.Your investment has a 5% return each year, and
3.The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
CLASS A $629 $1,006 $1,406 $2,522
CLASS Y $163 $505 $871 $1,900
Class descriptions are on page .
CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
INVESTMENT GOAL
The CAPITAL APPRECIATION FUND'S investment objective is to maximize capital
appreciation.
INVESTMENT POLICIES AND PORTFOLIO SECURITIES
The fund attempts to achieve its investment goal by investing at least 50% of
the value of its total assets in equity securities of U.S. companies. The fund
typically invests in common and preferred stocks and warrants of U.S. companies
with between $200 million and $10 billion in equity and whose shares are listed
on the New York or American Stock Exchanges or traded over-the-counter.
The fund's investment adviser selects securities and attempts to maintain an
acceptable level of risk largely through the use of automated quantitative
measurement techniques. The adviser considers the following factors when using
this research technique:
o price/earnings ratios,
o historical and projected earnings growth rates,
o historical sales growth rates,
o historical return on equity,
o market capitalization,
o average daily trading volume and
o credit rankings based on nationally recognized statistical rating
organizations (NRSROs).
The investment adviser uses the quantitative model together with economic
forecast and assessment of the risk and volatility of each company's industry.
When selling securities, the adviser considers three factors: (1) Have the
objectives of the fund been met? (2) Has the attractiveness of the securities
deteriorated? (3) Has the adviser's outlook changed? If the adviser can answer
each question positively, then the adviser will sell the securities.
The fund may also invest in:
o domestic debt securities (i.e., notes, zero coupon bonds and
convertible securities of U.S. companies)
o U.S. government securities (i.e., direct obligations of the U.S.
Treasury)
international securities (including other investment companies,
American Depositary Receipts and International Depositary Receipts)
o money market instruments
TEMPORARY INVESTMENTS To respond to adverse market, economic, political or
other conditions, the fund may invest up to 100% of its assets in U.S. and
foreign short-term money market instruments. The fund may invest up to 35% of
its assets in these securities to maintain liquidity. Some of the short-term
money market instruments include:
o commercial paper
certificates of deposit, demand and time deposits and bankers'
acceptances
o U.S. government securities
o repurchase agreements
o other short-term instruments
To the extent the fund engages in this temporary, defensive strategy, the fund
may not achieve its investment objective.
INVESTMENT RISKS
The following risks are specific to this fund in addition to the risks mentioned
in the Overview section.
SMALL AND MEDIUM SIZE COMPANIES RISK The fund may invest in the stocks of
small- to medium-sized companies. Small and medium size companies often have
narrower markets and more limited managerial and financial resources than
larger, more established companies. As a result, their performance can be more
volatile and they face greater risk of business failure, which could increase
the volatility of the fund's portfolios.
FOREIGN SECURITIES RISK The fund can invest in foreign securities, which can
carry higher returns, but involve more risks than those associated with domestic
investments. Additional risks include currency fluctuations, political and
economic instability, differences in financial reporting standards and less
stringent regulation of securities markets.
FUTURES AND OPTIONS ON FUTURES RISKS The fund may use futures and options on
futures for hedging purposes only. The hedging strategy may not be successful
if the portfolio manager is unable to accurately predict movements in the prices
of individual securities held by a fund or if the strategy does not correlate
well with the fund's investments. The use of futures and options on futures may
produce a loss for the fund, even when used only for hedging purposes.
The Statement of Additional Information contains more information about the fund
and the types of securities in which it may invest.
- --------------------------------------------------------------------------------
PAST PERFORMANCE
The bar chart and table below illustrate the variability of the CAPITAL
APPRECIATION FUND'S returns. The bar chart indicates the risks of investing in
the fund by showing the changes in the fund's performance from year to year (on
a calendar year basis). The table shows how the fund's average annual returns
for one-year and since inception ending December 1998 compare with broad
measures of market performance. The fund's past performance is not necessarily
an indication of how the fund will perform in the future.
CAPTIAL APPREDIATION FUND - A SHARES
CALENDAR YEAR RETURNS AS OF 12/31
1995 15.17%
1996 9.46
1997 19.69
1998 10.01
Sales charges are not reflected on the bar chart. If these amounts were
reflected, returns WOULD be less than those shown.
BEST QUARTER: Q4 1998 18.83%
WORST QUARTER: Q3 1998 (14.71)%
Average annual total return
through 12/31/98 1 Year Since inception
- --------------------------------------------------------------------------------
Capital Appreciation Fund1<F82> 5.02% 11.02%
S&P Midcap 400 Index2<F83> 19.11% 21.96%
Lipper Midcap Average3<F84> 12.32% N/A
1<F82>A Shares commenced operations on June 13, 1994
2<F83>The S&P Midcap 400 Index is an unmanaged index of 400 domestic stocks
created by Standard & Poor's Corporation which measures the performance of the
mid-range section of the U.S. Stock Market.
3<F84>The Lipper Midcap Average shows the performance of a category of mutual
funds with similar goals.
- --------------------------------------------------------------------------------
FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A
- --------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES
(as a percentage of offering price) 4.50%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
(as a percentage of offering price) None
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON REINVESTED DIVIDENDS None
REDEMPTION FEE None
EXCHANGE FEE None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS) CLASS A
- --------------------------------------------------------------------------------
MANAGEMENT FEES 0.95%
DISTRIBUTION AND SERVICE (12B-1) FEES1<F85> None
OTHER EXPENSES2<F86> 0.57%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.52%
1<F85>Currently, class A shares of the fund is not paying or accruing Rule 12b-1
fees. The class can pay up to 0.25% of average daily net assets as a Rule 12b-1
fee to the distributor if a Y class of shares is created.
2<F86>"Other Expenses" includes (1) administration fees, transfer agency fees
and all other ordinary operating expenses of the fund not listed above, plus (2)
an annual shareholder servicing fee of 0.25% of average daily net assets. For
the foreseeable future, the fund plans to limit the shareholder servicing fee to
an annual rate of 0.10% of average daily net assets.
EXAMPLE The example below is intended to help you compare the cost of investing
in the fund with the cost of investing in other mutual funds.
This example assumes that:
1.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,
2.Your investment has a 5% return each year, and
3.The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
CLASS A $598 $909 $1,242 $2,181
Class descriptions are on page .
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
INVESTMENT GOAL
The INTERNATIONAL EQUITY FUND'S investment objective is to achieve long-term
capital appreciation.
INVESTMENT POLICIES, PORTFOLIO SECURITIES AND RISKS
To achieve its investment goal, the fund invests, 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. issuers.
As an operational policy, the fund will likely invest substantially all of its
assets in international equity funds, but may invest a small portion in
individual foreign securities.
The fund invests in other international equity funds (i.e., funds that invest
primarily in equity securities of companies located in 3 or more countries
outside the U.S.)
The fund may purchase shares of both load and no-load funds including those with
a contingent deferred sales charge. However, the fund anticipates that it will
generally purchase no-load fund shares that qualify for a reduced sales charge
or sales charge waiver. The Investment Company Act of 1940 restricts the fund's
ability to purchase securities of another mutual fund, if as a result, the fund
(together with any affiliates) would own more than 3% of the total outstanding
securities of that mutual fund.
The investment adviser identifies and selects a varied portfolio of
international equity funds which represents the greatest long-term capital
growth potential based on the adviser's analysis of many factors. For instance,
the adviser may look for international equity funds that invest primarily in
emerging markets or funds that focus their investments on geographic regions.
INVESTING IN NON-U.S. SECURITIES PROVIDES YOU WITH 3 POTENTIAL OPPORTUNITIES:
1.The opportunity to invest in foreign issuers believed to have superior growth
potential;
2.The opportunity to invest in foreign countries with economic policies or
business cycles different from the U.S.; and
3.The opportunity to reduce portfolio volatility to the extent that the
securities markets inside and outside the U.S. do not move in harmony.
Before investing in an international equity fund, the adviser
FIRST: assesses the relative attractiveness of individual countries,
geographic regions and/or emerging markets by examining the opinions
of various foreign market analysts such as Lehman Brothers, Morgan
Stanley Dean Witter.
SECOND: considers the expected returns and risks of the fund relative to the
industries in which the fund invests. The adviser considers whether
the fund and the companies in which it invests have solid management,
new product lines. The adviser also performs a quantitative analysis
by considering a company's price/earnings ratios and projected
earnings.
THIRD: involves an initial peer group screening process that assesses fund
investment style, objectives, policies and management. The peer group
also considers independent rating services such as Baseline, Lehman
Brothers, and Morgan Stanley Dean Witter.
If, in the adviser's view, the mutual fund meets these criteria, then the
adviser will further evaluate the mutual fund's investment policies, historic
total return, size, volatility and operating expenses over various time periods.
The adviser also considers the differences between the funds and another mutual
fund's investment restrictions when making any investment decisions.
When selling securities, the adviser considers three factors: (1) Have the
objectives of the fund been met? (2) Has the attractiveness of the securities
deteriorated? (3) Has the adviser's outlook changed? If the adviser can answer
each question positively, then the adviser will sell the securities.
UNDERLYING FUNDS The underlying international equity funds in which the fund
invests may have similar policies as the fund, although this is not required.
Underlying funds may invest up to 100% of their total assets in equity
securities of foreign issuers, including international stocks.
Although the fund is a diversified investment portfolio, it may invest in
non-diversified mutual funds or in funds that invest a substantial portion of
its assets in a single country. This may result in greater fluctuation in the
total market value of the underlying fund's portfolio because of the higher
percentage of investments among fewer issuers or in a single country. The fund
intends to reduce these risks by holding shares of multiple funds.
The underlying funds may also be authorized to invest up to 100% of their
respective assets in securities of foreign issuers and engage in foreign
currency transactions with respect to these investments. The underlying funds
may invest primarily in either the securities of emerging market countries or in
the securities of a single country. The funds may invest 35% or more of their
respective assets in high yield securities (junk bonds) or warrants. They may
sell securities short, engage in leveraged borrowing and enter into interest
rate swaps, currency swaps and other types of swap agreements such as caps,
collars and floors.
The fund will normally invest in open-end management investment companies, but
may also invest in closed-end management investment companies and/or unit
investment trusts. Unlike open-end funds that offer and sell their shares at
net asset value plus any applicable sales charge, the shares of closed-end funds
may trade at a market value that represents a premium, discount or spread to net
asset value.
TEMPORARY INVESTMENTS To respond to adverse market, economic, political or
other conditions, the fund may invest up to 100% of its total assets in money
market mutual funds or in short-term debt securities. The fund may invest up to
35% of the total assets in these securities to maintain liquidity. Short-term
debt securities include:
o commercial paper
o certificates of deposit, demand and time deposits and bankers'
acceptances
o U.S. government securities
repurchase agreements
o other short-term instruments
To the extent the fund engages in this temporary, defensive strategy, the fund
may not achieve its investment objective.
INVESTMENT RISKS
The following risks are specific to this fund in addition to the risks mentioned
in the Overview section.
UNDERLYING FUNDS RISKS The fund's performance directly relates to the
performance of the funds in which it invests. This investment strategy also
subjects the fund to additional expenses and certain tax consequences that
would not exist if you invested in those funds directly. By investing in the
fund, you bear not only the fund's total operating expenses, but the operating
expenses of the underlying funds as well.
FOREIGN SECURITIES RISKS Investing in foreign securities can carry higher
returns than those associated with domestic investments. However, foreign
securities may be substantially riskier than domestic investments. The economies
of foreign countries may differ from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency, and balance of payments position.
Furthermore, the economies of developing countries generally are heavily
dependent on international trade and, accordingly, have been, and may continue
to be, adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values and other protective measures imposed or
negotiated by the countries with which they trade. These economies also have
been, and may continue to be, adversely affected by economic conditions in the
countries with which they trade.
Funds may be required to obtain prior governmental approval for foreign
investments in some countries under certain circumstances. Governments may
require approval to invest in certain issuers or industries deemed sensitive to
national interests, and the extent of foreign investment in certain debt
securities and domestic companies may be subject to limitation. Individual
companies may also limit foreign ownership to prevent, among other things,
violation of foreign investment limitations.
Some foreign investments may risk being subject to repatriation controls that
could render such securities illiquid. Other countries might undergo
nationalization, expropriation, political changes, governmental regulation,
social instability or diplomatic developments (including war) that could
adversely affect the economies of such countries or the value of the investments
in those countries. For this reason, funds that invest primarily in the
securities of a single country will be greatly impacted by any political,
economic or regulatory developments affecting the value of the securities.
Additional risks include currency fluctuations, political and economic
instability, differences in financial reporting standards and less stringent
regulation of securities markets.
SMALL AND MEDIUM SIZE COMPANIES RISKS The fund may invest in the stocks of
small- to medium-sized companies. Small and medium size companies often have
narrower markets and more limited managerial and financial resources than
larger, more established companies. As a result, their performance can be more
volatile and they face greater risk of business failure, which could increase
the volatility of the fund's portfolios.
HIGH-YIELD BOND RISKS The fund (via underlying funds) may invest in high-yield
bonds (generally referred to as junk bonds). These bonds involve greater
risks, including the increased possibility that the bond's issuer may not be
able to make its payments of interest and principal. If that happens, the
fund's share price would decrease and its income distributions would be reduced.
FUTURES AND OPTIONS ON FUTURES RISKS The fund (via underlying funds) may use
futures and options on futures for hedging purposes only. The hedging strategy
may not be successful if the portfolio manager is unable to accurately predict
movements in the prices of individual securities held by a fund or if the
strategy does not correlate well with the fund's investments. The use of
futures and options on futures, which are commonly referred to as derivatives,
may produce a loss for the fund, even when used only for hedging purposes.
The Statement of Additional Information contains more information about the fund
and the types of securities in which it may invest.
- --------------------------------------------------------------------------------
PAST PERFORMANCE
he bar chart and table below illustrate the variability of the INTERNATIONAL
EQUITY FUND'S returns. Although the fund has been in operation for only one
full calendar year, the bar chart is intended to give some indication of the
risks of an investment in the fund. The table shows how the fund's average
annual returns for one-year and since inception ending December 1998 compare
with those of a broad measure of market performance. The fund's past
performance is not necessarily an indication of how the fund will perform in the
future.
INTERNATIONAL EQUITY FUND - A SHARES
CALENDAR YEAR RETURN AS OF 12/31
1998 8.51%
Sales charges are not reflected on the bar chart. If these amounts were
reflected, returns would be less than those shown.
BEST QUARTER: Q4 1998 16.59%
WORST QUARTER: Q3 1998 (15.65)%
Average annual total return
through 12/31/98 1 Year Since Inception
- --------------------------------------------------------------------------------
International Equity Fund A Shares1<F87> N/A 5.72%
EAFE Index2<F88> 18.24% 17.65%
1<F87>A Shares commenced operations on December 3, 1997.
2<F88>The Morgan Stanley Europe, Australasia and Far East (EAFE) Index is widely
used to measure the performance of European, Australian, New Zealand and Far
Eastern Stock Markets. The Index is composed of securities drawn from 21
countries in the above regions.
- --------------------------------------------------------------------------------
FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A
- --------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES
(as a percentage of offering price) 1.50%
MAXIMUM DEFERRED SALES CHARGE (LOAD)
(as a percentage of offering price) None
MAXIMUM SALES CHARGE (LOAD)
IMPOSED ON REINVESTED DIVIDENDS None
REDEMPTION FEE None
EXCHANGE FEE None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS) Class A
- --------------------------------------------------------------------------------
MANAGEMENT FEES 0.75%
DISTRIBUTION AND SERVICE (12B-1) FEES1<F89> None
OTHER EXPENSES2<F90> 0.76%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.51%
1<F89>Currently, class A shares of the fund is not paying or accruing Rule 12b-1
fees. The class can pay up to 0.25% of average daily net assets as a Rule 12b-1
fee to the distributor if a Y class of shares is created.
2<F90>"Other Expenses" includes (1) administration fees, transfer agency fees
and all other ordinary operating expenses of the fund not listed above, plus (2)
an annual shareholder servicing fee of 0.25% of average daily net assets. For
the foreseeable future, the fund plans to limit the shareholder servicing fee to
an annual rate of 0.10% of average daily net assets.
EXAMPLE The example below is intended to help you compare the cost of investing
in the fund with the cost of investing in other mutual funds.
This example assumes that:
1.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,
2.Your investment has a 5% return each year, and
3.The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
CLASS A $301 $620 $961 $1,924
Class descriptions are on page.
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
The investment adviser for the funds is Firstar Bank, N.A. The adviser is
located at 425 Walnut Street, Cincinnati, Ohio 45202. The investment decisions
made by Firstar Bank are subject to direction of the funds' board of trustees.
(The Statement of Additional Information contains more information regarding the
board of trustees.) The adviser conducts investment research and supervision
for the funds and is responsible for the purchase and sale of securities for the
funds' portfolios. The adviser receives an annual fee from each fund for its
services as follows:
Growth Equity Fund 0.75%
Relative Value Fund 0.75%
Stellar Fund 0.95%
Capital Appreciation Fund 0.95%
International Equity Fund 0.75%
The amounts shown represent a percentage of each fund's average daily net assets
The adviser was wholly owned by StarBanc Corporation until November 20, 1998
when StarBanc Corporation merged with Firstar Corporation. The new entity
retained the "Firstar" name and Firstar Corporation is now the parent company of
the adviser. Firstar Bank, N.A. was known as Star Bank, N.A. prior to the
merger.
The merger has produced no significant changes to the management of the Adviser.
Together, the two banks have become the 21st largest bank in the United States
and have blended an expertise of trust administration and investments together
with extensive knowledge in the mutual fund industry.
Firstar Bank manages trust funds and collective investment funds having a market
value in excess of $12 billion. As part of its regular banking operations,
Firstar Bank may make loans to public companies. As a result, it may be
possible for the funds to hold or acquire securities of companies that are also
lending clients of Firstar Bank. The lending relationship will not be a factor
in the selection of securities.
PORTFOLIO MANAGERS
References to Firstar Bank may refer to what was formerly known as "Star Bank."
JOSEPH P. BELEW, a Vice President, Trust Officer and Portfolio Manager of the
FirstarTrust Division at Firstar Bank, N.A., Butler County, has been
employed by Firstar Bank in various capacities since 1979. Mr. Belew has been
the portfolio manager of the RELATIVE VALUE FUND since its inception in June
1991. He earned a Bachelor of Business Administration degree in Business
Management from Belmont College.
DONALD L. KELLER, Senior Vice President and Chief Investment Officer of Firstar
Bank since 1998, has been employed by Firstar Bank in various capacities since
1982. Mr. Keller has managed the GROWTH EQUITY FUND since its inception in
October 1994. He managed the domestic equity securities component of the
STELLAR FUND from its inception in October 1991 through December 1995. He also
supported the domestic and international equity and fixed income components of
CAPITAL APPRECIATION FUND from its inception in June 1994 through December 1995.
Mr. Keller became the lead manager of the CAPITAL APPRECIATION FUND in March
1999. Mr. Keller earned a Bachelor of Business Administration Degree in Finance
and Accounting from the University of Cincinnati. He also earned his Masters in
Finance from Xavier University.
MARK DUBOIS, CFA, is a Vice President and Trust Officer in FirstarTrust's
Personal Trust area. As a Senior Portfolio Manager, Mr. DuBois has been
responsible for implementing and managing Firstar Bank's investment policy in
personal trusts, agencies, and IRAs since 1994. He is also the Health Care
analyst for FirstarTrust. Mr. DuBois has managed the domestic stock portion of
the STELLAR FUND since November 1997. Mr. DuBois joined Firstar Bank in 1986,
after graduating from Indiana University with a degree in Economics. In 1990,
he received his Chartered Financial Analyst designation.
T. ANDREW JANES, J.D., CFA, is a Senior Portfolio Manager and Trust Officer. He
has worked in the financial arena since 1986 with experience in portfolio
management, investment research and personal and ERISA trust administration.
Mr. Janes has managed the international stock portion of the STELLAR FUND since
November 1997. In March 1999, Mr. Janes became the portfolio manager of the
INTERNATIONAL EQUITY FUND and became the lead manager of the STELLAR FUND.
Mr. Janes joined Firstar Bank in 1991. He completed his undergraduate studies
at the Ohio State University where he earned a Bachelor of Science in Economics.
He then went on to complete his Juris Doctor at the Capital University School of
Law. Mr. Janes also holds the Chartered Financial Analyst designation.
KIRK F. MENTZER, Vice President and Director of Fixed Income Research for the
Capital Management Division of Firstar Bank since 1992, has been employed by
Firstar Bank in various capacities since 1989. Mr. Mentzer has managed the
domestic fixed income component of the STELLAR FUND since its inception in
October 1991 and has managed the cash equivalent components of the various
Firstar Stellar Funds (formerly Star Funds) since June 1998. Mr. Mentzer earned
a Bachelor of Business Administration degree in Finance from the University of
Cincinnati and a Masters degree in Finance from Xavier University.
FUND ADMINISTRATION, FUND ACCOUNTING, DIVIDEND DISBURSEMENT, AND CUSTODY
SERVICES
Firstar Mutual Fund Services, LLC, an affiliate of the funds' investment
adviser, provides administrative, accounting and dividend disbursement services
to the Firstar Stellar Funds and is located in Milwaukee, Wisconsin. Firstar
Bank, N.A., the fund's investment adviser, also serves as custodian for the
funds.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
DISTRIBUTOR
Edgewood Service, Inc. is the distributor for shares of the funds. Edgewood is
based in Pittsburgh, Pennsylvania and is the distributor for a number of
investment companies around the country.
12B-1 PLAN
The funds have adopted a Rule 12b-1 Plan under the Investment Company Act of
1940. Under the Rule 12b-1 Plan, class A and B shares may pay up to an annual
rate of 0.25% of the average daily net asset value of shares to Edgewood.
Edgewood uses this fee to finance activities that promote the sale of the funds'
shares. Such activities include, but are not necessarily limited to,
advertising, printing and mailing prospectuses to persons other than current
shareholders, printing and mailing sales literature, and compensating
underwriters, dealers and sales personnel.
Currently, the CAPITAL APPRECIATION FUND and the INTERNATIONAL EQUITY FUND are
not paying or accruing Rule 12b-1 fees. These funds will only start paying the
Rule 12b-1 fee when a "Y" class of shares is created in those funds. Whenever
Edgewood deems it appropriate, Edgewood may, from time to time, voluntarily
reduce its compensation under the Rule 12b-1 Plan to the extent expenses of the
shares exceed a certain limit. Rule 12b-1 fees are paid out of fund assets on
an on-going basis. Over time, these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
Edgewood may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers and broker/dealers as agents to
provide sales or administrative services for their clients or customers who
beneficially own shares of the funds. Financial institutions will receive fees
from the distributor based upon shares owned by their clients or customers.
Edgewood will determine the schedule of such fees and the basis upon which such
fees will be paid.
DESCRIPTION OF CLASSES
- --------------------------------------------------------------------------------
CLASS A SHARES
Class A shares are regular retail shares and may be purchased by individuals or
IRAs. With class A shares, you may pay a sales charge when you invest. Certain
class A shares also impose a Rule 12b-1 fee (as discussed above) which is
assessed against the shares of the fund. Currently, the STELLAR FUND, CAPITAL
APPRECIATION FUND, RELATIVE VALUE FUND and INTERNATIONAL EQUITY FUND sell class
A shares. For more information on the sales charges, see "The Price of Shares."
CLASS B SHARES
Class B shares are regular retail shares and may be purchased by individuals or
IRAs. With class B shares, a sales charge may be imposed if you redeem your
shares within a certain time period. If you redeem your class B shares within
five full years of the date you purchased, a contingent deferred sales charge
(CDSC) may be charged by the funds' distributor. Certain class B shares also
impose a Rule 12b-1 fee. Currently, only the RELATIVE VALUE FUND and the GROWTH
EQUITY FUND offer class B shares. For more information on the CDSC, see "The
Price of Shares."
CLASS Y SHARES
The Y class of shares is available only to Firstar Bank's trust or institutional
investors. With class Y shares, you do not pay any sales charges, nor is a 12b-
1 fee imposed. Similar to the other classes, the class Y shares do pay
investment management fees and other fees. Currently, the STELLAR FUND, the
RELATIVE VALUE FUND and the GROWTH EQUITY FUND sell class Y shares.
THE PRICE OF SHARES
- --------------------------------------------------------------------------------
HOW NAV IS DETERMINED
NAV =
Assets - Liabilities
---------------------
# outstanding shares
The net asset value (NAV) is calculated by taking the value of the fund's
assets, including interest on dividends accrued, but not yet collected, less all
liabilities and dividing the result by the number of shares outstanding. The
net asset value for each fund is determined as of the close of trading (normally
4:00 p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on:
o days on which there are insignificant changes in the value of a fund's
portfolio securities to materially affect the net asset value
o days during which no shares are purchased or redeemed
o the following holidays
o New Year's Day o Good Friday o Labor Day
o Martin Luther King, Jr.'s Day o Memorial Day o Thanksgiving Day
o Presidents' Day o Independence Day o Christmas Day
DETERMINING MARKET VALUE OF SECURITIES
Market or fair values of the funds' portfolio securities are determined as
follows:
1.For equity securities: according to the last sale price on a national
securities exchange, if applicable.
2.In the absence of recorded sales for listed equity securities: according to
the mean between the last closing bid and asked prices.
3.For unlisted equity securities: latest bid prices.
4.For bonds and other fixed-income securities: as determined by an independent
pricing service.
5.For short-term obligations: according to the mean between bid and asked
prices as furnished by an independent pricing service.
6.For short-term obligations with remaining maturities of 60 days or less at
the time of purchase: at amortized cost.
7.For all other securities: at fair value as determined in good faith by the
Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data.
Regarding the INTERNATIONAL EQUITY FUND, the underlying funds in which the fund
invests may value securities in their portfolios for which market quotations are
readily available at their current market value (generally the last reported
sales price) and all other securities and assets at fair value pursuant to
methods established in good faith by the board of directors/trustees of the
underlying fund.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times that vary from the
closing of the New York Stock Exchange. In computing the net asset value, the
funds value foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the New York Stock
Exchange. Certain foreign currency exchange rates may also be determined at the
latest rate prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
New York Stock Exchange. If such events materially affect the value of
portfolio securities, these securities may be valued at their fair value as
determined in good faith by the underlying fund's board of directors, although
the actual calculation may be done by others.
WHAT SHARES COST - CLASS Y SHARES
If you purchase class Y shares of the STELLAR FUND, RELATIVE VALUE FUND and
GROWTH EQUITY FUND, you will pay their NAV next determined after your order is
received. There is no sales charge on this class at the time you purchase your
shares.
WHAT SHARES COST - CLASS A SHARES
If you purchase class A shares of the CAPITAL APPRECIATION FUND, STELLAR FUND or
the RELATIVE VALUE FUND, you will pay their net asset value next determined
after your order is received plus a sales charge (shown in percentages below)
depending on the amount of your investment:
AMOUNT OF SALES CHARGE AS A SALES CHARGE AS A
TRANSACTION PERCENTAGE PERCENTAGE
OF OFFERING OF NET AMOUNT
PRICE PUBLIC INVESTED
- --------------------------------------------------------------------------------
LESS THAN $100,000 4.50% 4.71%
$100,000 - $249,999.99 3.75% 3.90%
$250,000 - $499,999.99 2.50% 2.56%
$500,000 - $749,999.99 2.00% 2.04%
$750,000 - $999,999.99 1.00% 1.01%
$1 MILLION + 0.25% 0.25%
If you purchase class A shares of the INTERNATIONAL EQUITY FUND, you will pay
the net asset value next determined after your order is received plus a sales
charge as follows:
AMOUNT OF SALES CHARGE AS A SALES CHARGE AS A
TRANSACTION PERCENTAGE PERCENTAGE
OF OFFERING OF NET AMOUNT
PRICE PUBLIC INVESTED
- --------------------------------------------------------------------------------
LESS THAN $100,000 1.50% 1.52%
$100,000 - $249,999.99 1.00% 1.01%
$250,000 - $499,999.99 0.75% 0.76%
$500,000 + 0.50% 0.50%
NOTE: These sales charges are not imposed on shares purchased with reinvested
dividends.
WAIVERS - CLASS A SHARES
The following persons will not have to pay a sales charge on class A shares:
o Employees and retired employees of Firstar Bank (or Star Bank), or their
affiliates and members of their families (including parents,
grandparents, siblings, spouses, children, and in-laws) of such employees
or retired employees;
o FirstarTrust customers of Firstar Corporation and its subsidiaries; and
o non-trust customers of financial advisers
REDUCING YOUR SALES CHARGE - CLASS A SHARES
You can reduce the sales charge on purchases of class A shares by:
o purchasing larger quantities of shares or putting a number of purchases
together to obtain the quantity discounts indicated above
o signing a letter of intent that you intend to purchase more than $100,000
worth of shares over the next 13 months
o using the reinvestment privilege which allows you to redeem shares and
then immediately reinvest them without a sales charge
o combining concurrent purchases of class A shares from different funds
WHAT SHARES COST - CLASS B SHARES
If you purchase class B shares of the RELATIVE VALUE FUND or the GROWTH EQUITY
FUND, you will pay the net asset value next determined after your order is
received. There is no sales charge on this class at the time you purchase your
shares. However, there is a contingent deferred sales charge on Class B shares
at the time you redeem. Any applicable CDSC will be imposed on the lesser of
the net asset value of the redeemed shares at the time of purchase or the net
asset value of the redeemed shares at the time of redemption in the amount
indicated by the table below:
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
--------------------------------------------------
YEAR 1 5.00%
YEAR 2 4.00%
YEAR 3 3.00%
YEAR 4 2.00%
YEAR 5 1.00%
YEAR 6 0.00%
In computing the amount of CDSC you could be charged, redemptions are deemed to
have occurred in the following order:
1.shares of the fund you purchased by reinvesting your dividends and long-term
capital gains
2.shares of a fund you held for more than five full years from the date of
purchase
3.shares of a fund you held for fewer than five full years on a first-in,
first-out basis
A redemption made under the Automatic Withdrawal Plan (see "Selling Shares")
will not be assessed CDSC as long as it does not amount to more than 10% of your
initial balance. CDSC is also not charged on:
o shares purchased by reinvesting your dividends or distributions of
short or long-term capital gains
o shares held for more than five full years after purchase
o redemptions made following death or disability (as defined by the IRS)
o redemptions made as minimum required distributions under an IRA or
other retirement plan to a shareholder who is 70 1/2 years old or older
o redemptions made in shareholder accounts that do not have the required
minimum balance
PURCHASING SHARES
- -------------------------------------------------------------------------------
OPENING AN ACCOUNT
To open an account, first determine if you are buying class A or B shares (see
page for class descriptions.) The minimum initial investment amounts for each
fund are as follows:
------------------------------------------------
Class A and B Shares
------------------------------------------------
o $1,000 for individuals
o $500 for Education IRA customers
o $25 for Firstar Bank Connections Group Banking
customers and Firstar Bank Employees, members
of their immediate family and participants in
the Firstar Bank Student Finance 101 Program
who establish a systematic investment program
and persons contributing to SIMPLE IRAs.
------------------------------------------------
ADDITIONAL INVESTMENTS MAY BE MADE IN ANY AMOUNT.
RECEIPT OF ORDERS
When making a purchase request, make sure your request is in good order. "Good
order" means your letter of instruction includes:
o the name of the fund
o the number of shares or the dollar amount of shares to be redeemed
o signatures of all registered shareholders exactly as the shares are
registered (guaranteed for IRAs)
o the account registration number
Shares may only be purchased on days the New York Stock Exchange and the Federal
Reserve wire system are open for business. Your order will be considered
received after your check is converted into federal funds and received by
Firstar Bank (usually the next business day). If you are paying with federal
funds (wire), your order will be considered received when Firstar Bank receives
the federal funds.
TIMING OF REQUESTS
The price per share will be the net asset value next computed after the time
your request is received in good order and accepted by the funds or by an agent
of the funds. All requests received in good order by the fund before 4:00 p.m.
(Eastern time) will be executed on that same day. Requests received after 4:00
p.m. will be processed on the next business day.
METHODS OF BUYING
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
BY TELEPHONE Call Firstar Stellar Call Firstar Stellar Funds
(Firstar Bank Funds at at 1-800-677-FUND to
customers only) 1-800-677-FUND place the order. (Note:
to place the order. For security reasons,
(Note: For security requests by telephone
reasons, requests by may be recorded.)
telephone may be
recorded.)
BY MAIL Make your check Fill out the investment
payable to "Firstar stub from an account
Stellar Funds." statement, or indicate the
Forward the check fund name and account number
and your application on your check. Make your
to the address below. check payable to "Firstar
Stellar Funds." Forward the
check and stub to the address
below.
BY FEDERAL Forward your Call Firstar Stellar Funds
FUNDS WIRE application to Firstar at 1-800-677-FUND to notify
Stellar Funds at the of incoming wire. Use the
address below. Call following instructions:
1-800-677-FUND to
obtain an account Firstar Bank, N.A.
number. Wire funds Milwaukee, WI 53202
using the instructions ABA #: 075000022
to the right. Credit: Firstar Mutual
Fund Services, LLC
Account #: 112-952-137
Further Credit:
(name of fund,share class)
(name/title on the account)
(account #)
AUTOMATIC Open a fund account with If you didn't set up an
INVESTMENT one of the other automatic investment plan
PLAN methods. If by mail, be with your original
sure to include your application, call Firstar
checking account number Stellar Funds at
on the appropriate 1-800-677-FUND. Additional
section of your investments (minimum of $25
application. per period) will be taken
automatically monthly or
quarterly from your checking
account.
THROUGH To purchase shares for To purchase shares for another
SHAREHOLDER another investor, call investor, call Firstar Stellar
SERVICE Firstar Stellar Funds Funds at 1-800-677-FUND.
ORGANIZATIONS at 1-800-677-FUND.
BY EXCHANGE Call 1-800-677-FUND Call 1-800-677-FUND to
to obtain exchange obtain exchange information.
information. See See page.
page.
ADDRESS FOR FIRSTAR STELLAR FUNDS
You should use the following addresses when sending documents by mail or by
overnight delivery:
BY MAIL BY OVERNIGHT DELIVERY
- ------- ---------------------
Firstar Stellar Funds Firstar Stellar Funds
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund Services, LLC
P.O. Box 701 615 E. Michigan Street, Third Floor
Milwaukee, Wisconsin 53201-0701 Milwaukee, Wisconsin 53202
NOTE: The funds do not consider the U.S. Postal Service or other independent
delivery services to be their agents. Therefore, deposits in the mail or with
such services, or receipt at Firstar Mutual Fund Services, LLC's post office box
of purchase applications or redemption requests do not constitute receipt by
Firstar Mutual Fund Services, LLC or the funds.
SELLING SHARES
- -------------------------------------------------------------------------------
METHODS OF SELLING
- -------------------------------------------------------------------------------
BY TELEPHONE Call Firstar Stellar Funds at 1-800-677-FUND to
sell any amount of shares.
(NOTE: For security reasons, requests by
telephone may be recorded.)
- -------------------------------------------------------------------------------
BY MAIL Send a letter instructing the Firstar Stellar
Funds to redeem the dollar amount or the number of
shares you wish. The letter should contain the
fund's name, the account number, and the number of
shares or the dollar amount of shares to be
redeemed. Be sure to have all shareholders sign
the letter. If your account is an IRA, the
signature must be guaranteed.
- -------------------------------------------------------------------------------
BY FEDERAL FUNDS WIRE Call Firstar Stellar Funds at 1-800-677-FUND to
request the amount of money you want. Be sure to
have all necessary information from your bank.
Your bank may charge a fee to receive wired funds.
- -------------------------------------------------------------------------------
AUTOMATIC WITHDRAWAL PLAN Call Firstar Stellar Funds at 1-800-677-FUND to
arrange for regular monthly or quarterly fixed
withdrawal payments. The minimum payment you may
receive is $25 per period. Note that this plan
may deplete your investment and affect your income
or yield. Also, it isn't wise to make purchases
of class A or B shares while participating in this
plan because of the sales charges.
- -------------------------------------------------------------------------------
SHAREHOLDER SERVICE Consult your account agreement for information on
ORGANIZATION redeeming shares.
- -------------------------------------------------------------------------------
BY EXCHANGE Call 1-800-677-FUND to obtain exchange
information. See page.
- -------------------------------------------------------------------------------
WHEN REDEMPTION PROCEEDS ARE SENT TO YOU
When making a redemption request, make sure your request is in good order. "Good
order" means your letter of instruction includes:
o the name of the fund
o the number of shares or the dollar amount of shares to be redeemed
o signatures of all registered shareholders exactly as the shares are
registered (guaranteed for IRAs)
o the account registration number
Your shares may only be redeemed on days on which the funds compute their net
asset value. Your redemption requests cannot be processed on days the New York
Stock Exchange is closed or on federal holidays which restrict wire transfers.
All requests received in good order by Firstar Stellar Funds before 4:00 p.m.
(Eastern time), will normally be wired to the bank you indicate or mailed on the
following day to the address of record. In no event will proceeds be wired or a
check mailed more than 7 calendar days after Firstar receives a proper
redemption request.
If you purchase shares using a check and soon after request a redemption,
Firstar Stellar Funds will honor the redemption request, but will not mail the
proceeds until your purchase check has cleared (usually within 12 business
days).
VALUE OF SHARES SOLD
Your shares will be redeemed at the net asset value next determined after
Firstar Stellar Funds receives your redemption request in proper order. In the
case of class B shares, the applicable contingent deferred sales charge will be
subtracted from your redemption amount or your account balance, per your
instructions.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, Firstar Stellar
Funds may mail you a notice if your account falls below $1,000 requesting that
you bring the account back up to $1,000 or close it out. If you do not respond
to the request within 30 days, Firstar Stellar Funds may close the account on
your behalf and send you the proceeds. If you have an account through a
shareholder service organization, consult your account agreement for information
on accounts with low balances.
SIGNATURE GUARANTEES
You will need your signature guaranteed if:
o you are redeeming shares from an IRA account
o you request a redemption to be made payable to a person not on record with
the funds, or
o you request that a redemption be mailed to an address other than that on
record with the funds
You may obtain signature guarantees from most trust companies, commercial banks
or other eligible guarantor institutions.
EXCHANGING SHARES
- -------------------------------------------------------------------------------
You can exchange shares between the Firstar Stellar Funds within the same class.
You also may exchange class C shares (no-load money market funds) for class A or
B shares of any Firstar Stellar Fund. However, you may not exchange shares from
class B to class C and then to class A. Firstar Stellar Funds also allows you
to exchange shares with certain Firstar Funds, a separate family of funds
offered by Firstar Corporation.
Exercising the exchange privilege is really two transactions: a sale of one fund
and the purchase of another.
Exercising the exchange privilege is really two transactions: a sale of one fund
and the purchase of another. The same policies that apply to purchases and
sales apply to exchanges, including minimum investment amounts. Keep in mind
that some funds may have higher sales charges then other funds and you may have
to pay the difference in fees. Exchanges also have the same tax consequences as
ordinary sales and purchases and you could realize short or long-term capital
gains or losses. Generally, exchanges may only be made between identically
registered accounts unless you send written instructions with a signature
guarantee.
The SAI contains more information on exchanges. You may also call
1-800-677-FUND to learn more about exchanges, Firstar Funds or other Firstar
Stellar Funds.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND CAPITAL GAINS
The GROWTH EQUITY FUND, RELATIVE VALUE FUND and STELLAR FUND each declare and
pay dividends on a quarterly basis. The CAPITAL APPRECIATION FUND and the
INTERNATIONAL EQUITY FUND declare and pay dividends on an annual basis.
Unless you provide a written request to receive payments in cash, your dividends
will automatically be reinvested in additional shares of the fund. Dividends
paid in cash will be mailed to you via the U.S. Postal Service. Keep in mind,
undeliverable checks or checks not deposited within six months will be
reinvested in additional shares of the fund at the then current net asset value.
Dividends paid in cash or in additional shares are treated the same for tax
purposes.
If any of the funds realize capital gains, they will be distributed once every
12 months.
TAX INFORMATION
The funds will pay no federal income tax because they expect to meet certain
Internal Revenue Code requirements. The funds will be treated as single,
separate entities for federal income tax purposes so that income (including
capital gains, if any) and losses realized by one fund will not be combined for
tax purposes with those realized by the other funds. The funds will provide you
with detailed tax information for reporting purposes. You should consult your
own tax adviser regarding tax consequences under your state and local laws.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares. All dividends paid by the funds and distributions of
net realized short-term capital gains are taxable as ordinary income.
Distributions paid by a fund from net realized long-term capital gains are
taxable as long-term capital gain. The capital gain holding period and the
applicable tax rate is determined by the length of time a fund has held the
security and not the length of time that you have held shares in the fund. The
funds expect that, because of their investment objectives, distributions will
consist primarily of long- and short-term capital gains. Each fund will provide
you with detailed tax information for reporting purposes.
An exchange is not a tax-free transaction. An exchange of shares pursuant to
the funds' exchange privilege is treated the same as an ordinary sale and
purchase for federal income tax purposes and you will realize a capital gain or
loss.
You should consult your own tax advisers regarding the status of your accounts
under state and local tax laws.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights tables set forth below are intended to help you
understand the funds' financial performance for the past 5 years or for the
funds' period of operations, as the case may be. Most of the information
reflects financial results with respect to a single fund share. The total
returns in the tables represent the rates that an investor would have earned
(or lost) on an investment in a fund (assuming reinvestment of all dividends
and distributions). This information has been audited by Arthur Andersen
LLP, whose report, along with the funds' financial statements, are included
in the funds' annual report, which is available upon request.
<TABLE>
GROWTH EQUITY FUND1<F91>
(Class B Shares) Year ended November 30,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $17.17 $15.17 $12.70 $10.00
- --------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.02 0.19 0.17 0.24
Net gains or losses on securities
(both realized and unrealized) 3.32 2.97 3.12 2.67
Total from investment operations 3.34 3.16 3.29 2.91
Less distributions
Dividends (from net investment income) (0.03) (0.14) (0.16) (0.21)
Distributions (from capital gains) (0.96) (1.02) (0.66) --
Total distributions (0.99) (1.16) (0.82) (0.21)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $19.52 $17.17 $15.17 $12.70
- --------------------------------------------------------------------------------
Total return2<F92> 20.76% 22.65% 27.34% 29.44%
Ratios/Supplemental data
Net assets, end of period
(000's omitted) $66,478 $45,025 $85,311 $48,699
Gross ratio of expenses to
average net assets4<F94> 1.54% 1.29% 1.39% 1.40%
Net ratio of expenses
to average net assets5<F95> 1.34% 1.09% 1.19% 1.17%3<F93>
Gross ratio of net income to
average net assets4<F94> (0.08)% 0.66% 1.11% 1.77%
Net ratio of net income
to average net assets5<F95> 0.12% 0.86% 1.31% 2.00%3<F93>
Portfolio turnover rate 48% 60% 96% 171%
1<F91>The date of initial public investment for class B shares was December 12, 1994.
2<F92>Based on net asset value, which does not reflect the contingent deferred sales charge, if applicable.
3<F93>nnualized.
4<F94>Before waivers and reimbursements.
5<F95>After waivers and reimbursements.
</TABLE>
<TABLE>
GROWTH EQUITY FUND1<F96>
(Class Y Shares) Year ended November 30,
1998 1997
<S> <C> <C>
- -------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $17.18 $16.46
- -------------------------------------------------------------
Income from investment operations
Net investment income 0.06 0.03
Net gains or losses on securities
(both realized and unrealized) 3.30 0.73
Total from investment operations 3.36 0.76
Less distributions
Dividends (from net investment income) (0.07) (0.04)
Distributions (from capital gains) (0.96)
- -------------------------------------------------------------
Total distributions (1.03) (0.04)
- -------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $19.51 $17.18
- -------------------------------------------------------------
Total return2<F97> 20.91% 4.59%
Ratios/Supplemental data
Net assets, end of period
(000's omitted) $121,475 $109,087
Gross ratio of expenses to
average net assets4<F99> 1.29% 1.26%3<F98>
Net ratio of expenses to
average net assets5<F1> 1.09% 1.06%3<F98>
Gross ratio of net income
to average net assets4<F99> 0.17% 0.47%3<F98>
Net ratio of net income
to average net assets5<F1> 0.37% 0.67%3<F98>
Portfolio turnover rate 48% 60%
1<F96>The date of initial public investment for class Y shares was August 18, 1997.
2<F97>Based on net asset value.
3<F98>Annualized.
4<F99>Before waivers and reimbursements.
5<F1> After waivers and reimbursements.
</TABLE>
<TABLE>
RELATIVE VALUE FUND1<F2>
(Class A Shares) Year ended November 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $23.48 $19.03 $15.02 $11.36 $11.80
- --------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.11 0.67 0.27 0.29 0.23
Net gains or losses on securities
(both realized and unrealized gain) 3.66 4.45 4.01 3.65 (0.40)
Total from investment operations 3.77 5.12 4.28 3.94 (0.17)
Less distributions
Dividends (from net investment income) (0.17) (0.28) (0.26) (0.28) (0.27)
Distributions (from capital gains) (0.82) (0.39) (0.01) -- (0.04)
Total distributions (0.99) (0.67) (0.27) (0.28) (0.23)
- --------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $26.26 $23.48 $19.03 $15.02 $11.36
- --------------------------------------------------------------------------------------------
Total return2<F3> 16.67% 27.69% 28.86% 35.10% (1.54)%
Ratios/Supplemental data
Net assets, end of period
(000's omitted) $50,925 $37,748 $215,843 $131,979 $74,094
Gross ratio of expenses to
average net assets3<F4> 1.49% 1.21% 1.24% 1.26% 1.35%
Net ratio of expenses to
average net assets4<F5> 1.29% 1.01% 1.04% 1.06% 1.15%
Gross ratio of net income
to average net assets3<F4> 0.50% 1.20% 1.51% 1.97% 1.82%
Net ratio of net income to
average net assets4<F5> 0.70% 1.40% 1.71% 2.17% 2.02%
Portfolio turnover rate 26% 18% 16% 24% 30%
1<F2> The date of initial public investment for class A shares was June 5, 1991. For the period from January 31, 1989 (start of
business) to June 4, 1991, all income was distributed to Federated Services Company, the administrator at the time.
2<F3> Based on net asset value, which does not reflect the sales charge, if applicable.
3<F4> Before waivers and reimbursements.
4<F5> After waivers and reimbursements.
</TABLE>
<TABLE>
RELATIVE VALUE FUND1<F6>
(Class Y Shares) Year ended November 30,
1998 1997
<S> <C> <C>
- --------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $23.49 $22.67
- --------------------------------------------------------------
Income from investment operations
Net investment income 0.18 0.08
Net gains or losses on securities
(both realized and unrealized) 3.65 0.81
Total from investment operations 3.83 0.89
Less distributions
Dividends (from net investment income) (0.23) (0.07)
Distributions (from capital gain) (0.82) --
Total distributions (1.05) (0.07)
- --------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $26.27 $23.49
- --------------------------------------------------------------
Total return2<F7> 16.95% 3.93%
Ratios/Supplemental data
Net assets, end of period
(000's omitted) $386,405 $312,056
Gross ratio of expenses to
average net assets4<F9> 1.24% 1.20%3<F8>
Net ratio of expenses to
average net assets5<F10> 1.04% 1.00%3<F8>
Gross ratio of net income
to average net assets4<F9> 0.75% 1.15%3<F8>
Net ratio of net income to
average net assets5<F10> 0.95% 1.35%3<F8>
Portfolio turnover rate 26% 18%
1<F6> The date of initial public investment for class Y shares was August 18, 1997.
2<F7> Based on net asset value.
3<F8> Annualized.
4<F9> Before waivers and reimbursements.
5<F10>After waivers and reimbursements.
</TABLE>
<TABLE>
RELATIVE VALUE FUND1<F11>
(Class B Shares) Year ended November 30,
1998
<S> <C>
- --------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $26.01
- --------------------------------------------------------------
Income from investment operations
Net investment income 0.14
Net gains or losses on securities
(both realized and unrealized) 0.24
Total from investment operations 0.38
Less distributions
Dividends (from net investment income) (0.11)
Distributions (from capital gains) --
Total distributions (0.11)
- --------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $26.28
- --------------------------------------------------------------
Total return2<F12> 1.50%
Ratios/Supplemental data
Net assets, end of period
(000's omitted) $7.847
Gross ratio of expenses
to average net assets4<F14> 1.24%3<F13>
Net ratio of expenses to
average net assets5<F15> 1.04%3<F13>
Gross ratio of net income
to average net assets4<F14> 0.75%3<F13>
Net ratio of net income
to average net assets5<F15> 0.95%3<F13>
Portfolio turnover rate 26%
1<F11>The date of initial public investment for class B shares was March 31, 1998.
2<F12>Based on net asset value, which does not reflect contingent deferred sales charge, if applicable.
3<F13>Annualized.
4<F14>Before waivers and reimbursements.
5<F15>After waivers and reimbursements.
</TABLE>
<TABLE>
STELLAR FUND1<F16>
(Class A Shares) Year ended November 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $14.27 $13.59 $12.17 $10.90 $11.34
- -------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.38 0.36 0.34 0.34 0.29
Net gains or losses on securities
(both realized and unrealized) 0.35 1.18 1.62 1.33 (0.41)
Total from investment operations 0.73 1.54 1.96 1.67 (0.12)
Less distributions
Dividends (from net investment income) (0.35) (0.36) (0.34) (0.35) (0.24)
Distributions (from capital gains) (1.30) (0.50) (0.20) (0.05) (0.08
Total distributions (1.65) (0.86) (0.54) (0.40) (0.32)
- -------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $13.35 $14.27 $13.59 $12.17 $10.90
- -------------------------------------------------------------------------------------------
Total return2<F17> 5.74% 11.94% 16.64% 15.67% (1.22%)
Ratios/Supplemental data
Net assets, end of period
(000's omitted) $46,613 $50,398 $50,094 $48,902 $50,648
Gross ratio of expenses to
average net assets3<F18> 1.85% 1.76% 1.86% 1.85% 1.87%
Net ratio of expenses to
average net assets4<F19> 1.65% 1.56% 1.66% 1.65% 1.55%
Gross ratio of net income
to average net assets3<F18> 2.51% 2.43% 2.56% 2.78% 2.00%
Net ratio of net income
to average net assets4<F19> 2.71% 2.63% 2.76% 2.98% 2.32%
Portfolio turnover rate 77% 64% 65% 104% 79%
1<F16> The date of initial public investment for class A shares was October 18, 1991.
2<F17> Based on net asset value, which does not reflect the sales charge, if applicable.
3<F18> Before waivers and reimbursements.
4<F19> After waivers and reimbursements.
</TABLE>
<TABLE>
STELLAR FUND1<F20>
(Class Y Shares) Year ended November 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $14.27 $13.59 $12.17 $10.90 $11.34
- ------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.42 0.40 0.37 0.38 0.21
Net gains or losses on securities
(both realized and unrealized) 0.36 1.18 1.62 1.32 (0.48)
Total from investment operations 0.78 1.58 1.99 1.70 (0.27)
Less distributions
Dividends (from net investment income) (0.39) (0.40) (0.37) (0.38) (0.17)
Distributions (from capital gains) (1.30) (0.50) (0.20) (0.05) --
Total distributions (1.69) (0.90) (0.57) (0.43) (0.17)
- ------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $13.36 $14.27 $13.59 $12.17 $10.90
- ------------------------------------------------------------------------------------------
Total return2<F21> 6.11% 12.22% 16.94% 15.97% (1.81%)
Ratios/Supplemental data
Net assets, end of period
(000's omitted) $58,572 $63,742 $67,047 $64,754 $60,822
Gross ratio of expenses to
average net assets4<F23> 1.60% 1.51% 1.59% 1.60% 1.63%3<F22>
Net ratio of expenses to
average net assets5<F24> 1.40% 1.31% 1.39% 1.40% 1.43%3<F22>
Gross ratio of net income
to average net assets4<F23> 2.76% 2.69% 2.65% 3.03% 3.37%3<F22>
Net ratio of net income
to average net assets5<F24> 2.96% 2.89% 2.85% 3.23% 3.57%3<F22>
Portfolio turnover rate 77% 64% 65% 104% 79%
1<F20> The date ofi ntial public investment for class Y was Aprill11, 1994. For the period from April 5, 1994
(start of business) to April 10, 1994, all income was distributed to the Federated Services Corporation,
the administrator at the time.
2<F21>Based on net asset value.
3<F22>Annualized.
4<F23>Before waivers and reimbursements.
5<F24>After waivers and reimbursements.
</TABLE>
<TABLE>
CAPITAL APPRECIATION FUND1<F25>
(Class A Shares) Year ended November 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $14.34 $12.55 $11.82 $10.15 $10.00
- --------------------------------------------------------------------------------------------
Income from investment operations
Net investment income (0.05) 0.02 (0.03) 0.03 --
Net gains or losses on securities
(both realized and unrealized) 0.56 1.77 1.05 1.72 0.15
Total from investment operations 0.51 1.79 1.02 1.75 0.15
Less distributions
Dividends (from net investment income) (0.02) -- -- (0.04) --
Distributions (from capital gains) (3.08) -- (0.29) (0.04) --
Total distributions (3.10) -- (0.29) (0.08) --
- --------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.75 $14.34 $12.55 $11.82 $10.15
- --------------------------------------------------------------------------------------------
Total return2<F26> 4.75% 14.26% 8.95% 17.35% 1.50%
Ratios/Supplemental data
Net assets, end of period
(000's omitted) $79,981 $83,118 $79,163 $56,430 $30,013
Gross ratio of expenses to
average net assets4<F28> 1.52% 1.49% 1.52% 1.68% 1.88%3<F27>
Net ratio of expenses
to average net assets5<F29> 1.32% 1.29% 1.32% 1.47% 1.58%3<F27>
Gross ratio of net income
to average net assets4<F28> (0.64)% (0.04)% (0.44)% 0.07% (0.22)%3<F27>
Net ratio of net income to
average net assets5<F29> (0.44) 0.16% (0.24)% 0.28% 0.08%3<F27>
Portfolio turnover rate 94% 262% 174% 144% 36%
1<F25>The date of initial public investment for class A shares was June 13, 1994.
2<F26>Based on net asset value, which does not reflect the sales charge, if applicable.
3<F27>Annualized.
4<F28>Before waiver and reimbursements.
5<F29>After waivers and reimbursements.
</TABLE>
<TABLE>
INTERNATIONAL EQUITY FUND1<F30>
(Class A Shares) Year ended November 30,
1998
<S> <C>
- ----------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- ----------------------------------------------------
Income from investment operations
Net investment income 0.05
Net gains or losses on securities
(both realized and unrealized) 0.34
Total from investment operations 0.39
Less distributions
Dividends (from net investment income) (0.04)
Total distributions (0.04)
- ----------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.35
- ----------------------------------------------------
Total return2<F31> 3.95%
Ratios/Supplemental data
Net assets, end of period
(000's omitted) $48,459
Gross ratio of expenses to
average net assets4<F33> 1.51%3<F32>
Net ratio of expenses to
average net assets5<F34> 1.31%3<F32>
Net ratio of net income
to average net assets4<F33> 0.17%3<F32>
Gross ratio of net income
to average net assets5<F34> 0.37%3<F32>
Portfolio turnover rate 3%
1<F30>The date of initial public investment for class A shares was December 3,
1997.
2<F31>Based on net asset value, which does not reflect the sales charge, if
applicable.
3<F32>Annualized.
4<F33>Before waivers and reimbursements.
5<F34>After waivers and reimbursements.
</TABLE>
YEAR 2000 ISSUE
- ------------------------------------------------------------------------------
Like all financial service providers, the funds' investment adviser, the
distributor and other third party service providers utilize systems that may be
affected by year 2000 transition issues and other date related issues. The
services provided to you and the funds by these service providers depend on the
smooth functioning of their computer systems and those of other parties they
deal with. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900 because of the way dates are encoded and
calculated. Such an event could have a negative impact on handling securities
trades, payments of interest and dividends, pricing and account services.
Although there can be no assurance at this time that there will be no adverse
impact on the funds, the funds' service providers have advised the funds that
they have been actively working on necessary changes to their computer systems
to prepare for the year 2000. The funds' service providers expect that their
systems, and those of other parties they deal with, will be adapted in time for
that event. However, there can be no assurance that the computer systems of the
companies in which the funds invest will be timely converted or that the value
of such investments will not be adversely affected by the year 2000 issue.
FIRSTAR STELLAR
FUNDS
FOR MORE INFORMATION
YOU MAY OBTAIN THE FOLLOWING AND OTHER INFORMATION ON THE
FIRSTAR STELLAR FUNDS FREE OF CHARGE:
O ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS
The annual and semi-annual reports provide the funds'
most recent financial reports and portfolio listings.
The annual report contains a discussion of the market
conditions and investment strategies that affected the
funds' performances during the last fiscal year.
O STATEMENT OF ADDITIONAL INFORMATION (SAI) DATED MARCH
31, 1999
The SAI is incorporated into this prospectus by reference
(i.e., legally made a part of this prospectus). The SAI
provides more details about the funds' policies and
management.
TO RECEIVE ANY OF THESE DOCUMENTS OR PROSPECTUSES ON THE
FIRSTAR STELLAR FUNDS:
BY TELEPHONE
1-800-677-FUND
BY MAIL:
Firstar Stellar Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
ON THE INTERNET:
Text only versions of fund documents can be viewed online
or downloaded from: HTTP://WWW.sec.gov and
HTTP://WWW.FIRSTARSTELLARFUNDS.COM
You may review and obtain copies of fund information
(including the SAI) at the SEC Public Reference Room in
Washington, D.C. Please call 1-800-SEC-0330 for
information relating to the operation of the Public
Reference Room. Copies of the information may be
obtained for a fee by writing the Public Reference
Section, Securities and Exchange Commission, Washington,
D.C. 20549-6009.
Investment Company Act File # 811-05762
FIRSTAR STELLAR TREASURY
FUNDS FUND
PROSPECTUS
March 31, 1999
FIRSTAR STELLAR TREASURY FUND
Providing current income with stable principal
The Securities and Exchange
Commission has not approved
or disapproved these securities
or determined if this prospectus
is truthful or complete. Any
representation to the contrary
is a criminal offense.
TABLE OF CONTENTS
THE FUND
Overview of the Fund 3
TREASURY FUND 4
Management of the Fund 10
Distribution of Shares 10
YOUR ACCOUNT INFORMATION
Description of Classes 11
Exchanging Shares 11
Purchasing Shares 12
Selling Shares 14
Dividends, Capital Gain Distributions and Taxes 15
ADDITIONAL INFORMATION
Financial Highlights 17
Year 2000 Issue 19
FOR MORE INFORMATION
The back cover tells you how to obtain more information about the fund.
OVERVIEW
- --------------------------------------------------------------------------------
GOAL OF THE TREASURY FUND
The goal of the Firstar Stellar Treasury Fund is to provide current income while
preserving capital.
STRATEGY OF THE FUND
The TREASURY FUND invests exclusively in short-term U.S. Treasury obligations.
PRINCIPAL RISKS OF THIS FUND
O INTEREST RISKS: The rate of income will vary from day to day depending on
short-term interest rates. It is possible that a major change in interest
rates funds could cause the value of your investment to decline.
O CREDIT RISKS: The funds can also be affected by changes in the credit
quality rating or changes in the issuer's financial condition. A default on
a security or a repurchase agreement held by one of the funds could cause the
value of your investment to decline.
o An investment in the funds is not a deposit of Firstar Bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
o Although the funds seek to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the funds.
WHO MAY WANT TO INVEST
The fund may be appropriate for people who:
o want to save money rather than "invest"
o require stability of principal
o prefer to receive income with relatively fewer risks
TREASURY FUND
- -------------------------------------------------------------------------------
INVESTMENT GOAL
The TREASURY FUND seeks to achieve stability of principal and current income
consistent with stability of principal.
INVESTMENT POLICIES, PORTFOLIO SECURITIES AND RISKS
The fund intends to achieve its investment goal by investing exclusively in
short-term U.S. Treasury obligations that have a maturity of 397 days or less
from the date of purchase. In the case of repurchase agreements involving 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, however, of all the securities in the fund's portfolio will be 90 days
or less on a dollar-weighted 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. The fund
may purchase repurchase agreements collateralized by U.S. Treasury obligations.
The average maturity of these securities is 120 days or less. Securities
subject to repurchase agreements are marked to market on a daily basis. The
fund may purchase U.S. Treasury obligations on a when-issued or delayed delivery
basis.
INVESTMENT RISKS
The following risks are specific to this fund in addition to the risks mentioned
in the Overview section.
REPURCHASE AGREEMENTS
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 RISKS: One of the risks of investing in repurchase
agreements is 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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS RISKS: 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.
Another risk is that because settlement dates may be a month or more after
entering into the transactions, the market values of the securities may have
dropped from the agreed upon purchase price. However, the fund may cancel a
commitment to purchase securities prior to settlement if the fund's investment
adviser believes it is appropriate.
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.
WHEN ISSUED/DELAYED DELIVERY
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.
The Statement of Additional Information contains more information about the fund
and the types of securities in which it may invest.
- -------------------------------------------------------------------------------
PAST PERFORMANCE
The bar chart and table below illustrate the variability of the TREASURY FUND
returns. The bar chart indicates the risks of investing in the fund by showing
the changes in the fund performance from year to year (on a calendar year
basis). The table shows the fund average annual returns for one-year, five-year
and since the fund inception ending December 1998. The fund past performance is
not necessarily an indication of how the fund will perform in the future.
TREASURY FUND - C SHARES
CALENDAR YEAR RETURNS AS OF 12/31
1990 7.64%
1991 5.49
1992 3.26
1993 2.54
1994 3.51
1995 5.26
1996 4.77
1997 4.86
1998 4.61
BEST QUARTER: Q3 1989 2.08%
WORST QUARTER: Q4 1993 0.62%
Average annual total return
through 12/31/98 1 Year 5 Year Since inception
Treasury Fund C Shares1<F37>4.61% 4.60% 4.93%
Y Shares2<F38>4.77% N/A 4.85%
For up-to-date yield information, please call 1-800-677-FUND.
1<F37>C Shares commenced operations April 15, 1989.
2<F38>Y Shares commenced operations March 27, 1997.
- -------------------------------------------------------------------------------
FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS Y CLASS C
- -------------------------------------------------------------------------------
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES
(as a percentage of offering price) None None
MAXIMUM DEFERRED SALES CHARGE (LOAD)
(as a percentage of offering price) None None
MAXIMUM SALES CHARGE (LOAD)
IMPOSED ON REINVESTED DIVIDENDS None None
REDEMPTION FEE None None
EXCHANGE FEE None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS) CLASS Y CLASS C
- -------------------------------------------------------------------------------
MANAGEMENT FEES 0.50% 0.50%
DISTRIBUTION AND SERVICE (12B-1) FEES1<F39> None 0.25%
OTHER EXPENSES2<F40> 0.43% 0.43%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.93% 1.18%
1<F39>Y shares are not subject to a Rule 12b-1 Plan. C shares of the TREASURY
FUND can pay up to 0.25% of average daily net assets for 12b-1 fees. However,
the investment adviser has chosen to waive a portion of this fee so that the
actual amount imposed is 0.15% of average daily net assets. The adviser can
reduce the waiver at any time.
2<F40>Other Expenses" includes (1) administration fees, transfer agency fees and
all other ordinary operating expenses of the fund not listed above, plus (2) an
annual shareholder servicing fee of 0.25% of average daily net assets. For the
foreseeable future, the fund plans to limit the shareholder servicing fee to an
annual rate of 0.10% of average daily net assets.
EXAMPLE The example below is intended to help you compare the cost of investing
in the fund with the cost of investing in other mutual fund.
This example assumes that:
1.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,
2.Your investment has a 5% return each year, and
3.The fund operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------
CLASS Y $95 $296 $515 $1,143
CLASS C $120 $375 $649 $1,432
Class descriptions are on page .
MANAGEMENT OF THE FUND
- -------------------------------------------------------------------------------
INVESTMENT ADVISER
The investment adviser for the fund is Firstar Bank, N.A. The adviser is
located at 425 Walnut Street, Cincinnati, Ohio 45202. The investment decisions
made by Firstar Bank are subject to direction of the fund's board of trustees.
(The Statement of Additional Information contains more information regarding the
board of trustees.) The adviser conducts investment research and supervision
for the fund and is responsible for the purchase and sale of securities for the
fund's portfolio. The adviser charges an annual fee for its services of 0.50%
of average daily net assets.
The adviser was wholly owned by StarBanc Corporation until November 20, 1998
when StarBanc Corporation merged with Firstar Corporation. The new entity
retained the "Firstar" name and Firstar Corporation is now the parent company of
the adviser. Firstar Bank, N.A. was known as Star Bank, N.A. prior to the
merger.
The merger has produced no significant changes to the management of the Adviser.
Together, the two banks have become the 21st largest bank in the United States
and have blended an expertise of trust administration and investments together
with extensive knowledge in the mutual fund industry. Firstar Bank manages
trust funds and collective investment funds having a market value in excess of
$12 billion.
FUND ADMINISTRATION, FUND ACCOUNTING, DIVIDEND DISBURSEMENT, AND CUSTODY
SERVICES
Firstar Mutual Fund Services, LLC, an affiliate of the fund's investment
adviser, provides administrative, accounting and dividend disbursement services
to the Firstar Stellar Funds and is located in Milwaukee, Wisconsin. Firstar
Bank, N.A., the fund's investment adviser, also serves as custodian for the
fund.
DISTRIBUTION OF SHARES
- -------------------------------------------------------------------------------
DISTRIBUTOR
Edgewood Services, Inc. is the distributor for shares of the fund. It is based
in Pittsburgh, Pennsylvania and is the distributor for a number of investment
companies around the country.
RULE 12B-1 PLAN
The fund has adopted a Rule 12b-1 Plan under the Investment Company Act of 1940.
Under the 12b-1 Plan, class C shares may pay up to an annual rate of 0.25% of
the average daily net asset value of shares to Edgewood. Edgewood uses this fee
to finance activities that promote the sale of the fund's shares. Such
activities include, but are not necessarily limited to, advertising, printing
and mailing prospectuses to persons other than current shareholders, printing
and mailing sales literature, and compensating underwriters, dealers and sales
personnel.
Whenever Edgewood deems it appropriate, Edgewood may, from time to time,
voluntarily reduce its compensation under the Rule 12b-1 Plan to the extent
expenses of the shares exceed a certain limit. Rule 12b-1 fees are paid out of
fund assets on an on-going basis. Over time, these fees will increase the cost
of your investment and may cost you more than paying other types of sales
charges.
Edgewood may select financial institutions such as banks, fiduciaries,
custodians for public fund, investment advisers or broker/dealers as agents to
provide sales or administrative services for their clients or customers who
beneficially own shares of the fund. Financial institutions will receive fees
from the distributor based upon shares owned by their clients or customers.
Edgewood will determine the schedules of such fees and the basis upon which such
fees will be paid.
DESCRIPTION OF CLASSES
- -------------------------------------------------------------------------------
CLASS C SHARES
Class C shares are regular retail shares and may be purchased by individuals or
IRAs. With class C shares, you pay no sales charge when you invest. In the
case of the TREASURY FUND, an annual Rule 12b-1 fee (as discussed above) is
assessed against the shares of the fund.
CLASS Y SHARES
The Y class of shares is available only to Firstar Bank's trust or institutional
customers. With class Y shares, not only do you not pay any sales charges, you
also do not pay a Rule 12b-1 fee. Similar to the C shares, however, the Y
shares pay investment management fees and other fees. The TREASURY FUND sells
class Y shares.
THE PRICE OF SHARES
- -------------------------------------------------------------------------------
WHAT SHARES COST
NAV =
Assets - Liabilities
--------------------
# outstanding shares
Shares of the fund are sold at their net asset value (NAV) next determined after
an order is received. The fund attempts to stabilize the net asset value of
their shares at $1.00 by valuing the portfolio securities using the amortized
cost method. The net asset value is calculated by subtracting the total
liabilities of the fund from the fund's total assets. The difference is divided
by the number of fund shares outstanding. The fund cannot guarantee that their
net asset value will always remain at $1.00 per share. There is no sale charges
imposed by the fund.
The net asset value for the fund is determined on the New York Stock Exchange,
Monday through Friday, except on:
o New Year's Day o Good Friday o Labor Day
o Martin Luther King, Jr.'s Day o Memorial Day o Thanksgiving Day
o Presidents' Day o Independence Day o Christmas Day
The net asset value for the TREASURY FUND is determined as of 2:00 p.m. (Eastern
time).
PURCHASING SHARES
- -------------------------------------------------------------------------------
OPENING AN ACCOUNT
To open an account, first determine if you are buying class C shares or class Y
shares (See page for class descriptions.) The minimum initial investment
amounts for each fund are as follows:
- -------------------------------------------------------------------------------
Class C Shares
- -------------------------------------------------------------------------------
o $1,000 for individuals
o $500 for Education IRA customers
o $25 for Firstar Bank Connections Group Banking customers and Firstar Bank
employees and members of their immediate family, participants in the Firstar
Bank Student Finance 101 Program who establish a systematic investment program
and persons contributing to SIMPLE IRAs
- -------------------------------------------------------------------------------
Class Y Shares
- -------------------------------------------------------------------------------
O $1,000 for trust or institutional customers of Firstar Bank ($1,000 may be
determined by combining the amount in all mutual fund accounts you maintain with
Firstar Bank)
- -------------------------------------------------------------------------------
ADDITIONAL INVESTMENTS MAY BE MADE IN ANY AMOUNT.
TIMING OF REQUESTS
The price per share will be the net asset value next computed after the time
your request is received in good order and accepted by the fund or by the fund's
authorized agent. All requests (telephone orders and federal fund wire)
received in good order by the fund before the following times, will be executed
on the same day. Requests received after 2:00 p.m. (Eastern time) will be
executed the next business day.
RECEIPT OF ORDERS
When making a purchase request, make sure your request is in good order. "Good
order" means your letter of instruction includes:
o the name of the fund
o the number of shares of the dalloar amount of shares to be redeemed
o signatures of all registered shareholders excatly as the shares are
registered (guaranteed for IRAs)
o the account registration number
Shares may only be purchased on days the New York Stock Exchange and the Federal
Reserve wire system are open for business. Your order will be considered
received after your check is converted into federal fund and received by Firstar
Bank. If you are paying with federal funds (wire), your order will be
considered received when the federal fund are received by Firstar Bank.
<TABLE>
METHODS OF BUYING TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
BY TELEPHONE Call Firstar Stellar Funds at Call Firstar Stellar Funds at 1-800-677-FUND to place
(Firstar Bank customers only) 1-800-677-FUND to place the order. the order. (NOTE: For security reasons, requests by
(NOTE: For security reasons, requests telephone may be recorded.)
by telephone may be recorded.)
- ------------------------------------------------------------------------------------------------------------------------------------
BY MAIL Make your check payable to "Firstar Fill out the investment stub from an account statement,
Stellar Fund." Forward the check and or indicate the fund name and account number on your
your application to the address below. check. Make your check payable to "Firstar Stellar
Fund." Forward the check and stub to the address below.
- ------------------------------------------------------------------------------------------------------------------------------------
BY FEDERAL FUND WIRE Forward your application to Firstar Call Firstar Stellar Funds at 1-800-677-FUND to notify of
Stellar Fund at the address below. incoming wire. Use the following instructions:
Call 1-800-677-FUND to obtain an
account number. Wire fund using the Firstar Bank, N.A.
instructions to the right. Milwaukee, WI 53202
ABA #: 075000022
Credit: Firstar Mutual Fund Services, LLC
Account #: 112-952-137
Further Credit: (name of fund, share class)
(name/title on the account)
(account #)
- ------------------------------------------------------------------------------------------------------------------------------------
THROUGH SHAREHOLDER To purchase shares for another To purchase shares for another investor, call Firstar
SERVICE ORGANIZATIONS investor, call Firstar Stellar Funds Stellar Fund at 1-800-677-FUND.
at 1-800-677-FUND.
- ------------------------------------------------------------------------------------------------------------------------------------
VIA A SWEEP ACCOUNT Refer to your sweep account or other Refer to your sweep or other account agreement for
account agreement. Call 1-800-677-FUND information on the frequency of automatic purchase,
to obtain further information. redemptions and statement and confirmation schedules.
- ------------------------------------------------------------------------------------------------------------------------------------
BY EXCHANGE Call 1-800-677-FUND to obtain exchange Call 1-800-677-FUND to obtain exchange information. See
information. See page . page .
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ADDRESS FOR FIRSTAR STELLAR FUNDS
You should use the following addresses when sending documents by mail or by
overnight delivery:
BY MAIL BY OVERNIGHT DELIVERY
- ------- ---------------------
Firstar Stellar Funds Firstar Stellar Funds
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund Services, LLC
P.O. Box 701 615 E. Michigan Street, Third Floor
Milwaukee, Wisconsin 53201-0701 Milwaukee, Wisconsin 53202
NOTE: The fund does not consider the U.S. Postal Service or other independent
delivery services to be its agents. Therefore, deposits in the mail or with
such services, or receipt at Firstar Mutual Fund Services, LLC's post office box
of purchase applications or redemption requests do not constitute receipt by
Firstar Mutual Fund Services, LLC or the fund.
SELLING SHARES
- ----------------------------------------------------------------------------
METHODS OF SELLING
- ----------------------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
BY TELEPHONE Call Firstar Stellar Funds at 1-800-677-FUND to
sell any amount of shares over $250.
(NOTE: For security reasons, requests by
telephone may be recorded.)
- ----------------------------------------------------------------------------
BY MAIL Send a letter of instruction to Firstar Stellar
Fund requesting the dollar amount or the number of
shares that you wish to redeem. The letter should
contain the fund name, the account number and the
number of shares or the dollar amount of shares to
be redeemed. Be sure to have all shareholders
sign the letter. If your account is an IRA, the
signature must be guaranteed.
- ----------------------------------------------------------------------------
BY FEDERAL FUND WIRE Call Firstar Stellar Funds at 1-800-677-FUND to
request the amount of money you want. Be sure to
have all necessary information from your bank.
Your bank may charge a fee to receive wired funds.
- ----------------------------------------------------------------------------
VIA A SWEEP ACCOUNT If you invested through a sweep account, your
account may be subject to automatic redemptions
when your deposit account falls below the required
minimum. Refer to your sweep or other account
agreement for more information.
- ----------------------------------------------------------------------------
BY EXCHANGE Call Firstar Stellar Funds at 1-800-677-FUND. See
page for further information.
- ----------------------------------------------------------------------------
TIMING OF REQUESTS
All requests received in good order by Firstar Bank before the following times
will be executed on the same day. Requests received after 2:00 p.m. (Eastern
time) will be executed the next business day.
WHEN REDEMPTION PROCEEDS ARE MAILED
When making a redemtption request, make sure your request is in good order.
"Good order" means your letter of instruction includes:
o the name of the fund
o the number of shares of the dollar amount of shares to be redeemed
o signatures of all registered shareholders exactly as the shares are
registered (guaranteed for IRAs)
o the account registration number
If your redemption request is in good order, Firstar Stellar Funds will normally
send your redemption proceeds to you on the next business day and no later than
7 calendar days after receipt of your proper redemption request. Checks are
sent to the address on record.
If you purchase shares using a check and soon after request a redemption,
Firstar Stellar Funds will honor the redemption request, but will not mail the
proceeds until your purchase check has cleared (usually within 12 business
days).
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, Firstar Stellar
Fund may mail you a notice if your account falls below $1,000 requesting that
you bring the account back up to $1,000 or close it out. If you do not respond
to the request within 30 days, Firstar Stellar Funds may close the account on
your behalf and send you the proceeds. If you purchase shares through a sweep
account, you are not subject to any investment minimum. If you have an account
through a shareholder service organization, consult your account agreement for
information on accounts with low balances.
SIGNATURE GUARANTEES
You will need your signature guaranteed if:
O you are redeeming shares from an IRA account
O you request a redemption to be made payable to a person not on record
with the fund, or
O you request that a redemption be mailed to an address other than that on
record with the fund
You may obtain signature guarantees from most trust companies, commercial banks
or other eligible guarantor institutions.
EXCHANGING SHARES
- ----------------------------------------------------------------------------
You can exchange shares between the Firstar Stellar Funds within the same class.
You also may exchange class C shares (no-load money market fund) for class A or
B shares of any Firstar Stellar Funds. However, you may not exchange shares
from class B to class C and then to class A. Firstar Stellar Funds allows you
to exchange share with Firstar Funds, a separate family of funds offered by
Firstar Corporation.
Exercising the exchange privilege is really two transactions: a sale of one fund
and the purchase of another.
Exercising the exchange privilege is really two transactions: a sale of one fund
and the purchase of another. The same policies that apply to purchases and
sales apply to exchanges, including minimum investment amounts. Keep in mind
that some funds may have higher sales charges then other funds and you may have
to pay the difference in fees. Exchanges also have the same tax consequence as
ordinary sales and purchases causing you to realize short or long-term capital
gains or losses. Generally, exchanges may only be made between identically
registered accounts unless you send written instructions with a signature
guarantee.
The SAI contains more information on exchanges. You may also call 1-800-677-
FUND to learn more about exchanges, Firstar Funds or other Firstar Stellar
Funds.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
- ----------------------------------------------------------------------------
DIVIDENDS
The fund declares dividends on a daily basis and pay them to you on a monthly
basis. Unless you provide a written request to receive payments in cash, your
dividends will automatically be reinvested in additional shares of the fund.
Dividends paid in cash will be mailed to you via the U.S. Postal Service. Keep
in mind that undeliverable checks or checks not deposited within six months will
be reinvested in additional shares of the fund at the then current net asset
value. If you purchase shares before 3:00 p.m. (Eastern time), you will earn
dividends that day. If you are investing through a shareholder service
organization, consult your account agreement for dividend payment information.
Dividends paid in cash or in additional shares are treated the same for tax
purposes.
CAPITAL GAINS
If any of the fund realize capital gains, you could earn more dividends.
Capital losses could result in a decrease in dividends for you. If the fund
realizes net long-term capital gains (not very common), the fund would
distribute them every 12 months.
TAX INFORMATION
The fund will pay no federal income tax because they expect to meet certain
Internal Revenue Code requirements. The fund will be treated as single,
separate entities for federal income tax purposes so that income (including
capital gains, if any) and losses realized by the fund will not be combined for
tax purposes with those realized by the other fund. Each of the fund expects
their distributions to consist primarily of ordinary income, but for the two
tax-free funds, the distributions will be tax-free for the most part. The fund
will provide you with detailed tax information for reporting purposes.
You should consult your own tax adviser regarding tax consequences under your
state and local laws.
An exchange is not a tax-free transaction. An exchange of shares pursuant to
the fund's exchange privilege is treated the same as an ordinary sale and
purchase for federal income tax purposes and you will realize a capital gain or
loss.
If you are a shareholder of the TREASURY FUND, unless you are exempt from having
to pay federal income taxes, you are required to pay federal income taxes on any
dividends and other distributions (including capital gains distributions) you
receive.
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------
The financial highlights tables set forth below are intended to help you
understand the fund's financial performance for the past 5 years or for the
fund's period of operations, as the case may be. Most of the information
reflects financial results with respect to a single fund share. The total
returns in the tables represent the rates that an investor would have earned
(or lost) on an investment in a fund (assuming reinvestment of all dividends
and distributions). This information has been audited by Arthur Andersen LLP,
whose report, along with the fund's financial statements, are included in the
fund's annual report, which is available upon request.
<TABLE>
TREASURY FUND1<F41>
(Class C and Y Shares) Year ended November 30,
1998 1997 1996 1995 1994
-----------------------------------------------------------------------------------
Class C Class Y Class CClass Y2<F42> Class C Class C Class C
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.05 0.05 0.05 0.03 0.05 0.05 0.03
Net gains or losses on securities
(both realized and unrealized) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Less distributions
Dividends (from net investment income) (0.05) (0.05) (0.05) (0.03) (0.05) (0.05) (0.03)
Distributions (from capital gains) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total return3<F43> 4.69% 4.89% 4.85% 3.37% 4.80% 5.23% 3.30%
Ratios/Supplemental data
Net assets, end of period
(000's omitted) $542,430 $1,123,144 $469,400 $659,296 $829,259 $654,963 $358,766
Ratio of expenses to average net assets 0.88% 0.73% 0.73% 0.72%4<F44> 0.70% 0.71% 0.70%
Ratio of net income to average net assets 4.58% 4.73% 4.73% 4.87%4<F44> 4.69% 5.14% 3.24%
1<F41>The Treasury Fund has been operating since April 15, 1989.
2<F42>Reflects operations for the period from March 25, 1997 (commencement of share class) to November 30, 1997.
3<F43>Based on net asset value.
4<F44>Annualized.
</TABLE>
YEAR 2000 ISSUE
- ----------------------------------------------------------------------------
Like all financial service providers, the fund's investment adviser, the
distributor and other third party service providers utilize systems that may be
affected by year 2000 transition issues and other date related issues. The
services provided to you and the fund by these service providers depend on the
smooth functioning of their computer systems and those of other parties they
deal with. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900 because of the way dates are encoded and
calculated. Such an event could have a negative impact on handling securities
trades, payments of interest and dividends, pricing and account services.
Although there can be no assurance at this time that there will be no adverse
impact on the fund, the fund's service providers have advised the fund that they
have been actively working on necessary changes to their computer systems to
prepare for the year 2000. The fund's service providers expect that their
systems, and those of other parties they deal with, will be adapted in time for
that event. However, there can be no assurance that the computer systems of the
companies in which the fund invest will be timely converted or that the value of
such investments will not be adversely affected by the year 2000 issue.
FIRSTAR STELLAR
FUNDS
FOR MORE INFORMATION
YOU MAY OBTAIN THE FOLLOWING AND OTHER INFORMATION ON THE
FIRSTAR STELLAR FUNDS FREE OF CHARGE:
O ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS
The annual and semi-annual reports provide the fund's most
recent financial reports and portfolio listings. The annual
report contains a discussion of the market conditions and
investment strategies that affected the fund's performances
during the last fiscal year.
O STATEMENT OF ADDITIONAL INFORMATION (SAI) DATED MARCH 31, 1999
The SAI is incorporated into this prospectus by reference
(i.e., legally made a part of this prospectus). The SAI
provides more details about the fund's policies and management.
TO RECEIVE ANY OF THESE DOCUMENTS OR PROSPECTUSES ON THE
FIRSTAR STELLAR FUNDS:
BY TELEPHONE
1-800-677-FUND
BY MAIL:
Firstar Stellar Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
ON THE INTERNET:
Text only versions of fund documents can be viewed online or
downloaded from: HTTP://WWW.SEC.GOV and
HTTP:WWW.FIRSTARSTELLARFUNDS.COM
You may review and obtain copies of fund information
(including the SAI) at the SEC Public Reference Room in
Washington, D.C. Please call 1-800-SEC-0330 for information
relating to the operation of the Public Reference Room.
Copies of the information may be obtained for a fee by writing
the Public Reference Section, Securities and Exchange
Commission, Washington, D.C. 20549-6009.
Investment Company Act File # 811-05762
FIRSTAR STELLAR FUNDS
STATEMENT OF ADDITIONAL INFORMATION
March 31, 1999
MONEY MARKET FUNDS
Firstar Stellar Treasury Fund
Firstar Stellar Tax-Free Money Market Fund
Firstar Stellar Ohio Tax-Free Money Market Fund
BOND FUNDS
Firstar Stellar Strategic Income Fund
Firstar Stellar U.S. Government Income Fund
Firstar Stellar Insured Tax-Free Bond Fund
STOCK FUNDS
Firstar Stellar Growth Equity Fund
Firstar Stellar Relative Value Fund
Firstar Stellar Fund
Firstar Stellar Capital Appreciation Fund
Firstar Stellar International Equity Fund
This Statement of Additional Information is not a prospectus
and should be read together with the prospectuses of the Money
Market Funds, Stock Funds and Bond Funds of the Firstar Stellar
Funds dated March 31, 1999. To receive a copy of the
prospectuses, write to Firstar Stellar Funds or call
1-800-677-FUND.
The Funds' audited financial statements for the fiscal year
ended November 30, 1998 are incorporated by reference to the
Funds' 1998 Annual Reports.
FIRSTAR STELLAR FUNDS
C/O FIRSTAR MUTUAL FUND SERVICES, LLC
P.O. BOX 701
MILWAUKEE, WISCONSIN 53201-0701
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT FIRSTAR STELLAR FUNDS..............................3
CAPITAL STOCK................................................................3
DESCRIPTION OF THE FUNDS.....................................................4
THE FUNDS' INVESTMENTS AND RISKS.............................................5
MORE INFORMATION ABOUT THE OHIO TAX-FREE
MONEY MARKET FUND AND INVESTMENT RISKS.....................................28
MORE INFORMATION ABOUT THE INTERNATIONAL EQUITY FUND AND INVESTMENT RISKS....29
THE FUNDS' INVESTMENT LIMITATIONS............................................38
TEMPORARY INVESTMENTS........................................................44
PORTFOLIO TURNOVER RATES.....................................................46
MANAGEMENT OF THE FUND.......................................................47
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..........................49
INVESTMENT ADVISORY SERVICES.................................................51
BROKERAGE TRANSACTIONS.......................................................51
ADMINISTRATIVE SERVICES......................................................51
FUND ACCOUNTING AND DIVIDEND PAYING AGENT SERVICES...........................51
CUSTODIAN....................................................................51
DISTRIBUTION PLAN............................................................51
DETERMINING NET ASSET VALUE..................................................51
PURCHASE, EXCHANGE AND PRICING OF SHARES.....................................51
TAX STATUS...................................................................51
UNDERWRITERS.................................................................51
CALCULATION OF PERFORMANCE DATA..............................................51
PERFORMANCE COMPARISONS......................................................51
INDEPENDENT PUBLIC ACCOUNTANTS...............................................51
FINANCIAL STATEMENTS.........................................................51
APPENDIX.....................................................................51
FIRSTAR STELLAR FUNDS
GENERAL INFORMATION ABOUT FIRSTAR STELLAR FUNDS
- --------------------------------------------------------------------------------
Firstar Stellar Funds (the "Trust") is a Massachusetts business trust
established under a Declaration of Trust dated January 23, 1989. The Trust
consists of a series of mutual funds, which are all open-ended management
investment company. The Trust was organized under the name "Value Plus Funds,"
but was changed on March 29, 1989 to "Losantiville Funds." On May 1, 1993, the
name of the Trust was changed again to "Star Funds." On November 20, 1998, Star
Banc Corporation, the parent company of Star Bank, N.A., merged with Firstar
Corporation. Star Bank, N.A. is the investment adviser of the Trust. After the
merger, Star Bank changed its name to Firstar Bank, N.A. On February 11, 1999,
the Board of Trustees of the Trust (the "Trustees") approved changing the
Trust's name to "Firstar Stellar Funds" effective March 1, 1999.
CAPITAL STOCK
- --------------------------------------------------------------------------------
TITLE AND DESCRIPTION OF SHARE CLASSES
The Declaration of Trust permits the Trust to offer separate series of shares of
beneficial interest representing interests in separate portfolios of securities.
The Trust currently consists of 11 individual fund portfolios. Under the
Declaration of Trust and a Multiple Class Plan developed pursuant to Rule 18f-3
under the 1940 Act, each fund is permitted to offer several classes of shares as
follows: Class A, Class B, Class C and Class Y. Class A shares are subject to a
front-end sales load as described in the prospectus and a Rule 12b-1 fee.
Class B shares are subject to a contingent deferred sales load as described in
the prospectus and a Rule 12b-1 fee. Class C shares are not subject to a sales
load, but are subject to a Rule 12b-1 fee. Class Y shares are not subject to a
sales load or a Rule 12b-1 fee. The table below lists the funds together with
their share classes. Please note that throughout this Statement of Additional
Information ("SAI"), the individual fund series will be referred to by their
short name (i.e., without the "Firstar Stellar" preface).
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
Money Market Funds Bond Funds Stock Funds
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Treasury Fund - C, Y Insured Tax-Free Bond Fund - A Growth Equity Fund - B, Y
Tax-Free Money Market Fund - C U.S. Government Income Fund - A, B Relative Value Fund - A, B, Y
Ohio Tax-Free Money Market Fund - C Strategic Income Fund - B The Stellar Fund - A, Y
Capital Appreciation Fund - A
International Equity Fund - A
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Classes A, B and C shares are sold primarily to individuals who purchase shares
through Firstar Bank, N.A. Class Y shares are offered to trusts, fiduciaries
and other institutions through Firstar Bank, N.A. The expenses incurred
pursuant to the Rule 12b-1 Plan will be borne solely by Classes A, B and C
shares of the applicable funds and constitute the only expenses allocated to one
class and not the other.
RIGHTS OF EACH SHARE CLASS
Each share of the common stock of a fund is entitled one vote in electing
Trustees and other matters that may be submitted to shareholders for a vote.
All shares of all classes of each fund in the Trust have equal voting rights.
However, matters affecting only one particular fund or class, can be voted on
only by shareholders in that fund or class. Only shareholders of Class A, B or
C shares will be entitled to vote on matters submitted to a shareholder vote
with respect to the Rule 12b-1 Plan applicable to such class. All shareholders
are entitled to receive dividends when and as declared by the Trustees from time
to time and as further discussed in the Prospectuses.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable under
the law of Massachusetts for acts or obligations of the Trust. To protect
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of shareholders for such acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation, or instrument the Trust or its Trustees enter into
or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required, by the Declaration of Trust, to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as
a shareholder will occur only if the Trust cannot meet its obligations to
indemnify shareholders and pay judgments against them from its assets.
DESCRIPTION OF THE FUNDS
- --------------------------------------------------------------------------------
The investment objectives listed below are fundamental objectives and therefore
cannot be changed without the approval of shareholders.
MONEY MARKET FUNDS
- ------------------
The TREASURY FUND, TAX-FREE MONEY MARKET FUND and OHIO TAX-FREE MONEY MARKET
FUND may follow non-fundamental operational policies that are more restrictive
than fundamental investment limitations, as set forth in this SAI in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940 ("1940 Act"). In
particular, the funds will comply with the various requirements of Rule 2a-7,
which regulates money market mutual funds. The funds will also determine the
effective maturity of their investments, as well as their ability to consider a
security as having received the requisite short-term ratings by a nationally
recognized rating organization ("NRSRO") according to Rule 2a-7. The funds
may change these operational policies to reflect changes in the laws and
regulations without the approval of shareholders.
The overall objective of the money market funds is to provide current income
while preserving capital. The TREASURY FUND is a diversified fund and seeks
current income consistent with maintaining stable principal. The TAX-FREE MONEY
MARKET FUND is a diversified fund and seeks current income exempt from federal
regular income tax consistent with maintaining stable principal. The OHIO TAX-
FREE MONEY MARKET FUND is a non-diversified fund and seeks current income exempt
from federal regular income tax and Ohio state personal income taxes consistent
with maintaining stable principal. Specific information regarding the state of
Ohio with respect to the OHIO TAX-FREE MONEY MARKET FUND and its non-diversified
status is located on page 27.
BOND FUNDS
- ----------
The general goal of the bond funds is to provide current income by investing in
choice fixed-income securities. The STRATEGIC INCOME FUND is a diversified fund
and its investment objective is to generate high current income. The U.S.
GOVERNMENT INCOME FUND is a diversified fund that seeks to provide current
income. The INSURED TAX-FREE BOND FUND is a diversified fund that seeks to
provide current income exempt from federal income tax by primarily purchasing
insured municipal bonds. The fund's secondary objective is to achieve capital
appreciation.
STOCK FUNDS
- -----------
The overall objective of the stock funds is to maximize capital appreciation by
investing in choice equity securities. The GROWTH EQUITY FUND and CAPITAL
APPRECIATION FUND are both diversified funds that seek to maximize capital
appreciation. The RELATIVE VALUE FUND is a diversified fund and its goal is to
obtain the highest total return from income and capital appreciation. The
STELLAR FUND is a diversified fund that seeks to maximize total returns that are
derived from a combination of dividend income and capital appreciation. The
INTERNATIONAL EQUITY FUND is a diversified fund and its investment objective is
to achieve long-term capital appreciation. Specific information regarding
international investments in the INTERNATIONAL EQUITY FUND is provided on page
28.
THE FUNDS' INVESTMENTS AND RISKS
- --------------------------------------------------------------------------------
The respective prospectuses describe the principal strategies and risks of each
of the Funds. This section provides additional information regarding
investments and transactions the Funds are permitted to make.
REPURCHASE AGREEMENTS
Each fund (or underlying fund) may invest in repurchase agreements which are
arrangements with banks, broker/dealers, and other recognized financial
institutions to sell securities to the fund and agree to repurchase them at a
mutually agreed upon time and price within one year from date of acquisition.
The Funds or their custodian will take possession of the securities subject
to repurchase agreements, and these securities will be marked to market
daily. To the extent that the original seller does not repurchase the
securities from a fund, a fund could receive less than the repurchase price
on any sale of such securities. In the event that such a defaulting seller
filed for bankruptcy or became insolvent, disposition of such securities by a
fund might be delayed pending court action. The Funds believe that under the
regular procedures normally in effect for custody of the Funds' portfolio
securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Funds and allow retention or
disposition of such securities. The Funds will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by the Funds' adviser to be creditworthy
pursuant to guidelines established by the Board of Trustees.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each fund (or underlying fund) may purchase short-term obligations on a when-
issued or delayed delivery basis. These transactions are arrangements in
which a fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause a
fund to miss a price or yield considered advantageous. Settlement dates may
be a month or more after entering into these transactions and the market
values of the securities purchased may vary from the purchase prices.
A fund may dispose of a commitment prior to settlement if the investment
adviser deems it appropriate to do so. In addition, a fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. A fund may realize short-term profits or
losses upon the sale of such commitments.
These transactions are made to secure what is considered to be an
advantageous price or yield for the Funds. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of a
fund sufficient to make payment for the securities to be purchased are
segregated on a fund's records at the trade date. These assets are marked to
market daily and are maintained until the transaction is settled. The Funds
do not intend to engage in when-issued and delayed delivery transactions to
an extent that would cause the segregation of more than 20% of the total
value of their respective assets.
RESTRICTED AND ILLIQUID SECURITIES
All of the Funds may invest in a limited amount of restricted securities.
Restricted securities are securities that are thinly traded or whose resale
is restricted by federal securities laws. Restricted securities are any
securities in which the Funds may invest pursuant to their investment
objective and policies but which are subject to restrictions on resale under
federal securities laws. The Funds' Board of Trustees has established
criteria that allows the adviser to consider certain restricted securities as
liquid.
The STRATEGIC INCOME FUND, U.S. GOVERNMENT INCOME FUND, GROWTH EQUITY FUND,
RELATIVE VALUE FUND, STELLAR FUND, CAPITAL APPRECIATION FUND and
INTERNATIONAL EQUITY FUND (via underlying 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.
The Trustees may consider the following criteria in determining the liquidity
of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
OTHER INVESTMENT COMPANIES
As an efficient means of carrying out their investment policies, each fund
may invest in the securities of other investment companies. In addition, the
CAPITAL APPRECIATION FUND may purchase shares of closed-end investment
companies that invest in securities that approximate the composition of a
stock index. A disadvantage to investing in other investment companies is
that they also carry certain expenses such as management fees. As a result,
any investment by a fund in shares of other investment companies may
duplicate shareholder expenses.
U.S. GOVERNMENT OBLIGATIONS
The STRATEGIC INCOME FUND, U.S. GOVERNMENT INCOME FUND, INSURED TAX-FREE BOND
FUND, GROWTH EQUITY FUND, RELATIVE VALUE FUND, STELLAR FUND and CAPITAL
APPRECIATION FUND may invest in U.S. government obligations. The types of
U.S. government obligations in which these funds may invest generally include
direct obligations of the U.S. Treasury (such as U.S. Treasury bills, notes,
and bonds) and obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities. These securities are backed by the:
o full faith and credit of the U.S. Treasury;
o issuer's right to borrow from the U.S. Treasury;
o discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
o credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities that may not always receive
financial support from the U.S. government are:
o Federal Home Loan Banks;
o Federal National Mortgage Association;
o Student Loan Marketing Association; and
o Federal Home Loan Mortgage Corporation.
PRECIOUS METALS
The STELLAR FUND may invest in precious metals as described in the
prospectus. Precious metal securities of foreign issuers will not be
aggregated with other international securities for purposes of calculating
the fund's investments in international securities under the fund's
investment allocation policy.
SHORT SELLING
The STRATEGIC INCOME FUND and INTERNATIONAL EQUITY FUND (via underlying
funds) may make short sales. Short sales are transactions where funds sell
securities they don't own in anticipation of a decline in the market value of
the securities. A fund must borrow the security to deliver it to the buyer.
The fund is then obligated to replace the security borrowed at the market
price at the time of replacement. Until the security is replaced, the fund
is required to pay the lender any dividends or interest which accrue on the
security during the loan period. To borrow the security, the fund also may
be required to pay a premium, which would increase the cost of the security
sold. To the extent necessary to meet margin requirements, the broker will
retain proceeds of the short sale until the short position is closed out.
Until the fund replaces a borrowed security in connection with a short sale,
the fund will be required to maintain daily a segregated account, containing
cash or U.S. government securities, at such a level that:
o the amount deposited in the account plus the amount deposited with the
broker as collateral will at all times equal at least 100% of the current
value of the security sold short and
o the amount deposited in the segregated account plus the amount deposited
with the broker as collateral will not be less than the market value of
the security at the time it was sold short.
The funds may purchase call options to provide a hedge against an increase in
the price of a security sold short by the funds. When a fund purchases call
options, it has to pay a premium to the person writing the option and a
commission to the broker selling the options. If the options are exercised
by the fund, the premium and the commission paid may be more than the amount
of the brokerage commission charged if the securities were to be purchased
directly.
As for the Strategic Income Fund, the adviser anticipates that the frequency
of short sales will vary substantially under different market conditions, and
it does not intend that any specified portion of its assets, as a matter of
practice, will be in short sales. However, as an operating policy which may
be changed without shareholder approval, no securities will be sold short if,
after effect is given to any such short sale, the total market value of all
securities sold short would exceed 25% of the value of the fund's net assets.
The fund may not sell short the securities of any single issuer listed on a
national securities exchange to the extent of more than 2% of the value of
the fund's net assets. The fund may not sell short the securities of any
class of an issuer to the extent, at the time of the transaction, of more
than 2% of the outstanding securities of that class.
In addition to the short sales discussed above, the funds may also make short
sales "against the box," a transaction in which a fund enters into a short
sale of a security that the fund owns. A broker holds the proceeds of the
short sale until the settlement date, at which time the fund delivers the
security to close the short position. The fund receives the net proceeds
from the short sale. The Strategic Income Fund at no time will have more
than 15% of the value of its net assets in deposits on short sales against
the box.
A fund will incur losses as a result of a short sale if the price of the
security increases between the date of the short sale and the date on which
the fund replaces the borrowed security. Conversely, the fund will realize a
gain if the security declines in price between those dates. This result is
the opposite of what one would expect from a cash purchase of a long position
in a security. The amount of any gain will be decreased, and the amount of
any loss increased, by the amount of any premium or amounts in lieu of
interest the fund may be required to pay in connection with a short sale.
WARRANTS
The STRATEGIC INCOME FUND, GROWTH EQUITY FUND, CAPITAL APPRECIATION FUND and
INTERNATIONAL EQUITY FUND (via underlying funds) may invest in warrants.
Warrants are basically options to purchase common stock at a specific price
(usually at a premium above the market value of the optioned common stock at
issuance) valid for a specific period of time. Warrants may have a life
ranging from less than a year to twenty years or may be perpetual. However,
most warrants have expiration dates after which they are worthless. In
addition, if the market price of the common stock does not exceed the
warrant's exercise price during the life of the warrant, the warrant will
expire as worthless. Warrants have no voting rights, pay no dividends, and
have no rights with respect to the assets of the corporation issuing them.
The percentage increase or decrease in the market price of the warrant may
tend to be greater than the percentage increase or decrease in the market
price of the optioned common stock. Warrants acquired in units or attached
to securities may be deemed to be without value for purposes of this policy.
CONVERTIBLE SECURITIES
The STRATEGIC INCOME FUND, GROWTH EQUITY FUND, RELATIVE VALUE FUND, STELLAR
FUND and CAPITAL APPRECIATION FUND may invest in convertible securities.
Convertible securities are fixed-income securities that may be exchanged or
converted into a predetermined number of shares of the issuer's underlying
common stock. These shares are converted at the option of the holder during
a specified time period. Convertible securities may take the form of
convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities.
Convertible bonds and convertible preferred stocks are fixed income
securities that generally retain the investment characteristics of fixed
income securities until they have been converted but also react to movements
in the underlying equity securities. The holder is entitled to receive the
fixed income of a bond or the dividend preference of a preferred stock until
the holder elects to exercise the conversion privilege. Usable bonds are
corporate bonds of appropriate rating or comparable quality (as described in
the prospectuses) that can be used, in whole or in part, customarily at full
face value, in lieu of cash to purchase the issuer's common stock. When
owned as part of a unit along with warrants, which are options to buy the
common stock, they function as convertible bonds, except that the warrants
generally will expire before the bond's maturity. In the case of
liquidation, convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the common
stockholders. However, convertible securities are generally subordinated to
similar non-convertible securities of the same company. The interest income
and dividends from convertible bonds and preferred stocks provide a stable
stream of income with generally higher yields than common stocks, but lower
than non-convertible securities of similar quality.
A fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which,
in the adviser's opinion, the investment characteristics of the underlying
common shares will assist the fund in achieving their investment objectives.
Otherwise, the fund will hold or trade the convertible securities. In
selecting convertible securities for the funds, the adviser evaluates the
investment characteristics of the convertible security as a fixed income
instrument and the investment potential of the underlying equity security for
capital appreciation. In evaluating these matters with respect to a
particular convertible security, the adviser considers numerous factors,
including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of the
issuer's profits, and the issuer's management capability and practices.
ZERO-COUPON SECURITIES
The U.S. GOVERNMENT INCOME FUND, INSURED TAX-FREE BOND FUND, GROWTH EQUITY
FUND, STELLAR FUND and CAPITAL APPRECIATION FUND may invest in zero-coupon
securities. These funds may invest in zero coupon bonds in order to receive
the rate of return through the appreciation of the bond. This application is
extremely attractive in a falling rate environment as the price of the bond
rises rapidly in value as opposed to regular coupon bonds. A zero coupon
bond makes no periodic interest payments and the entire obligation becomes
due only upon maturity.
Zero-coupon convertible securities are debt securities, which are issued at a
discount to their face amount and do not entitle the holder to any periodic
payments of interest prior to maturity. Rather, interest earned on zero-
coupon convertible securities increases at a stated yield until the security
reaches its face amount at maturity. Zero-coupon convertible securities are
convertible into a specific number of shares of the issuer's common stock.
In addition, zero- coupon convertible securities usually have put features
that provide the holder with the opportunity to sell the bonds back to the
issuer at a stated price before maturity.
Generally, the price of zero-coupon securities is more sensitive to
fluctuations in interest than are conventional bonds and convertible
securities. In addition, federal tax law requires the holder of a zero-
coupon security to recognize income from the security prior to the receipt of
cash payments. To maintain their qualification as regulated investment
companies and to avoid liability of federal income taxes, the funds will be
required to distribute income accrued from zero-coupon securities which they
own, and may have to sell portfolio securities (perhaps at disadvantageous
times) in order to generate cash to satisfy these distribution requirements.
Zero-coupon securities usually trade at a deep discount from their face or
par value and are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities which make
current distributions of interest. As a result, the net asset value of
shares of the fund may fluctuate over a greater range than shares of other
mutual funds investing in securities making current distributions of interest
and having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly by the
U.S. Treasury or other short-term debt obligations, and longer-term bonds or
notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment brokerage firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and have
resold them in custodial receipt programs with a number of different names,
including Treasury Income Growth Receipts ("TIGRS") and Certificates of
Accrual on Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes
themselves are held in book-entry form at the Federal Reserve Bank or, in the
case of bearer securities (i.e., unregistered securities which are owned
ostensibly by the bearer of holder thereof), in trust on behalf of the owners
thereof.
In addition, the Treasury has facilitated transfers of ownership of zero-
coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities
through the Federal Reserve book-entry record-keeping system. The Federal
Reserve program as established by the Treasury Department is known as
"STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities." Under the STRIPS program, a fund will be able to have its
beneficial ownership of U.S. Treasury zero-coupon securities recorded
directly in the book-entry record-keeping system in lieu of having to hold
certificates or other evidence of ownership of the underlying U.S. Treasury
securities.
When the holder has stripped debt obligations of their unmatured interest
coupons, the stripped coupons are sold separately. The principal or corpus
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 cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
REAL ESTATE INVESTMENT TRUSTS
The STRATEGIC INCOME FUND, GROWTH EQUITY FUND and STELLAR FUND may invest in
equity or mortgage real estate investment trusts (REITs) that together
produce income. A real estate investment trust is a managed portfolio of
real estate investments. Regarding the funds' asset allocation policy, real
estate of domestic issuers will not be considered domestic equity securities.
REITs will be diversified by geographic location and by sector (such as
shopping malls, apartment building complexes and health care facilities). An
equity REIT holds equity positions in real estate and provides its
shareholders with income from the leasing of its properties and capital gains
from any sales of properties. A mortgage REIT specializes in lending money
to developers of properties and passes any interest income earned to its
shareholders.
Risks associated with real estate investments include the fact that equity
and mortgage real estate investment trusts are dependent upon management
skill and are not diversified, and are, therefore, subject to the risk of
financing single projects or unlimited number of projects. They are also
subject to heavy cash flow dependency, defaults by borrowers, and self-
liquidation. Additionally, equity real estate investment trusts may be
affected by any changes in the value of the underlying property owned by the
trusts, and mortgage real estate investment trusts may be affected by the
quality of any credit extended. The investment adviser seeks to mitigate
these risks by selecting real estate investment trusts diversified by sector
(shopping malls, apartment building complexes and health care facilities) and
geographic location.
OVER-THE-COUNTER OPTIONS
The STRATEGIC INCOME FUND, INSURED TAX-FREE BOND FUND, GROWTH EQUITY FUND,
STELLAR FUND, CAPITAL APPRECIATION FUND and INTERNATIONAL EQUITY FUND (via
underlying funds) may generally purchase over-the-counter options on
portfolio securities in negotiated transactions with the writers of the
options when options on the portfolio securities held by these funds are not
traded on an exchange. The funds purchase options only with investment
dealers and other financial institutions (such as commercial banks or savings
associations) deemed creditworthy by the investment adviser.
Over-the-counter options are two-party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options
are third party contracts with standardized strike prices and expiration
dates and are purchased from a clearing corporation. Exchange-traded options
have a continuous liquid market while over-the-counter options may not.
REVERSE REPURCHASE AGREEMENTS
The TREASURY FUND, STRATEGIC INCOME FUND, INSURED TAX-FREE BOND FUND, GROWTH
EQUITY FUND, RELATIVE VALUE FUND, STELLAR FUND, CAPITAL APPRECIATION FUND and
INTERNATIONAL EQUITY FUND (via underlying funds) may enter into reverse
repurchase agreements. This transaction is similar to borrowing cash. In a
reverse repurchase agreement, a fund transfers possession of a portfolio
instrument to another person, such as a financial institution, broker, or
dealer, in return for a percentage of the instrument's market value in cash
and agrees that on a stipulated date in the future the fund will repurchase
the portfolio instrument by remitting the original consideration, plus
interest at an agreed upon rate.
When effecting reverse repurchase agreements, liquid assets of a fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market
daily and are maintained until the transaction is settled. During the period
any reverse repurchase agreements are outstanding, the fund will restrict the
purchase of portfolio instruments to money market instruments maturing on or
before the expiration date of the reverse repurchase agreements, but only to
the extent necessary to assure completion of the reverse repurchase
agreements. The use of reverse repurchase agreements may enable the fund to
avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
INVESTMENTS IN CASH
From time to time, such as when suitable municipal bonds are not available,
the INSURED TAX-FREE BOND FUND may invest a portion of its assets in cash.
Any portion of the fund's assets maintained in cash will reduce the amount of
assets in municipal securities and thereby reduce the fund's yield.
LEVERAGE THROUGH BORROWING
The STRATEGIC INCOME FUND, INSURED TAX-FREE BOND FUND and INTERNATIONAL
EQUITY FUND (via underlying funds) may borrow money for investment purposes.
This borrowing, which is known as leveraging, generally will be unsecured,
except to the extent a fund enters into reverse repurchase agreements. The
1940 Act requires the funds to maintain continuous asset coverage (that is,
total assets including borrowings, less liabilities exclusive of borrowings)
of 300% of the amount borrowed. If the 300% asset coverage should decline as
a result of market fluctuations or other reasons, the funds may be required
to sell some of their portfolio holdings within three days to reduce the debt
and restore the 300% asset coverage. However, it may be disadvantageous from
an investment standpoint to sell securities at that time.
Among the forms of borrowing in which a fund may engage is the entry into
reverse repurchase agreements with banks, brokers or dealers. These
transactions involve the transfer by a fund of an underlying debt instrument
in return for cash proceeds based on a percentage of the value of the
security. The fund retains the right to receive interest and principal
payments on the security. At an agreed upon future date, a fund repurchases
the security at an agreed-upon price. In certain types of agreements, there
is no agreed upon repurchase date, and interest payments are calculated
daily, often based on the prevailing U.S. government securities or other
high-quality liquid debt securities at least equal to the aggregate amount of
its reverse repurchase obligations, plus accrued interest, in certain cases,
in accordance with releases promulgated by the SEC. The SEC views reverse
repurchase transactions as collateralized borrowings by a fund. These
agreements, which are treated as if reestablished each day, are expected to
provide a fund with a flexible borrowing tool.
Borrowing by a fund creates an opportunity for increased net income, but at
the same time, creates special risk considerations. For example, leveraging
may exaggerate the effect on net asset value of any increase or decrease in
the market value of a fund's portfolio. To the extent the income derived
from securities purchased with borrowed funds exceeds the interest a fund
will have to pay, the fund's net income will be greater than if borrowing
were not used.
Conversely, if the income from the assets retained with borrowed funds is not
sufficient to cover the cost of borrowing, the net income of a fund will be
less than if borrowing were not used, and, therefore, the amount available
for distribution to shareholders as dividends will be reduced. A fund also
may be required to maintain minimum average balances in connection with such
borrowing or to pay a commitment or other fee to maintain a line of credit;
either of these requirements would increase the cost of borrowing over the
stated interest rate.
LENDING OF PORTFOLIO SECURITIES
The STRATEGIC INCOME FUND, U.S. GOVERNMENT INCOME FUND, GROWTH EQUITY FUND,
CAPITAL APPRECIATION FUND and INTERNATIONAL EQUITY FUND (via underlying
funds) and may lend portfolio securities to one-third of the value of their
total assets, on a short- or long-term basis, to broker/dealers, banks or
other institutional borrowers of securities. The collateral received when a
fund lend portfolio securities must be valued daily and, should the market
value of the loaned securities increase, the borrower must furnish additional
collateral to the fund. During the time portfolio securities are on loan,
the borrower pays the fund any dividends or interest paid on such securities.
Loans are subject to termination at the option of the fund or the borrower.
A fund may pay reasonable administrative and custodial fees in connection
with a loan and may pay a negotiated portion of the interest earned on the
cash or equivalent collateral to the borrower or placing broker.
The fund would not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment. The fund will only enter into loan
arrangements with broker/dealers, banks or other institutions that the
investment adviser has determined are creditworthy under guidelines
established by the fund's Board of Trustees. The fund must also receive
collateral in the form of cash or U.S. government securities equal to at
least 100% of the securities loaned at all times.
BANK INSTRUMENTS
The RELATIVE VALUE FUND may invest in domestic bank obligations such as:
o certificates of deposit,
o demand and time deposits,
o bankers' acceptances,
o notes,
o bonds, and
o discount notes of the following U.S. government agencies or
instrumentalities:
(i) Federal Home Loan Banks,
(ii) FNMA,
(iii) GNMA,
(iv) National Bank for Cooperatives,
(v) Banks for Cooperatives,
(vi) Tennessee Valley Authority,
(vii) Export-Import Bank of the United States,
(viii) Commodity Credit Corporation,
(ix) Federal Financing Bank,
(x) The Student Loan Marketing Association,
(xi) FHLMC, or
(xii) National Credit Union Administration.
In addition to domestic bank obligations, the fund may invest in:
o Eurodollar Certificates of Deposit issued by foreign branches of U.S.
or foreign banks;
o Eurodollar Time Deposits, which are U.S. dollar-denominated deposits in
foreign branches of U.S. or foreign banks;
o Canadian Time Deposits, which are U.S. dollar-denominated deposits
issued by branches of major Canadian banks located in the United
States; and
o Yankee Certificates of Deposit, which are U.S. dollar-denominated
certificates of deposit issued by U.S. branches of foreign banks and
held in the United States.
MONEY MARKET SECURITIES
The STRATEGIC INCOME FUND, GROWTH EQUITY FUND and CAPITAL APPRECIATION FUND
may invest in U.S. dollar and foreign dollar short-term money market
instruments. The U.S. GOVERNMENT INCOME FUND may invest in only U.S. short-
term money market instruments. The short-term money market instruments
include:
o commercial paper rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by
Moody's, or F-1 or F-2 by Fitch. In the case where commercial paper
has received different ratings from different rating services, such
commercial paper is acceptable so long as at least one rating is in the
two highest categories of the nationally recognized statistical rating
organizations ("NRSROs") described above;
o instruments of domestic and foreign banks and savings associations
(such as certificates of deposit, demand and time deposits and bankers'
acceptances) if they have capital, surplus, and undivided profits of
over $100,000,000, or if BIF or SAIF insures the principal amount of
the instrument. These instruments may include Eurodollar Certificates
of Deposit, Yankee Certificates of Deposit, and Eurodollar Time
Deposits;
o obligations of the U.S. government or its agencies or
instrumentalities;
o repurchase agreements; and
o other short-term instruments that are not rated but are determined by
the investment adviser to be of comparable quality to the other
obligations in which the funds may invest.
INVESTMENTS IN FOREIGN SECURITIES
The STRATEGIC INCOME FUND, U.S. GOVERNMENT INCOME FUND, GROWTH EQUITY FUND,
RELATIVE VALUE FUND, STELLAR FUND, CAPITAL APPRECIATION FUND and
INTERNATIONAL EQUITY FUND (via underlying funds) may invest in foreign
securities.
The types of international securities in which THE GROWTH EQUITY FUND,
STELLAR FUND and CAPITAL APPRECIATION FUND may invest include other
investment companies that invest primarily in international securities. The
international securities include equity securities of non-U.S. companies and
corporate and government fixed-income securities denominated in currencies
other than U.S. dollars. The international equity securities may be traded
domestically or abroad through various stock exchanges, American Depositary
Receipts or International Depositary Receipts (ADRs or IDRs). The
international fixed-income securities include ADRs, IDRs, and government
securities of other nations and must be rated Baa or better by Moody's or BBB
or better by S&P. If the securities are unrated, the adviser must determine
that they are of similar quality to the rated securities before a fund may
invest in them.
Although considered separate securities categories for purposes of the
STELLAR FUND'S investment policies, the fund's investment in money market
securities issued by foreign banks and in international securities could
result in up to 50% of the fund's net assets being invested in securities of
foreign issuers. In addition, the fund's investment in precious metals
securities of foreign issuers, when aggregated with the above, could result
in greater than 50% of the fund's net assets being invested in securities of
foreign issuers. The GROWTH EQUITY FUND and CAPITAL APPRECIATION FUND do not
intend to invest more than 10% of their respective assets in international
securities
INVESTMENT RISKS OF FOREIGN SECURITIES
Investments in foreign securities involve special risks that differ from
those associated with investments in domestic securities. The risks
associated with investments in foreign securities relate to political and
economic developments abroad, as well as those that result from the
differences between the regulation of domestic securities and issuers and
foreign securities and issuers. These risks may include, but are not
limited to, expropriation, confiscatory taxation, currency fluctuations,
withholding taxes on interest, limitations on the use or transfer of fund
assets, political or social instability and adverse diplomatic developments.
In addition, there are restrictions on foreign investments in other
jurisdictions and there tends to be difficulty in obtaining judgments from
abroad and effecting repatriation of capital invested abroad. Delays could
occur in settlement of foreign transactions, which could adversely affect
shareholder equity. Moreover, individual foreign economies may differ
favorably or unfavorably from the domestic economy in such respects as
growth of gross national product, the rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Investing in foreign securities can carry higher returns and risks than
those associated with domestic investments. Foreign securities may be
denominated in foreign currencies. Therefore, the value in U.S. dollars of
a fund's assets and income may be affected by changes in exchange rates and
regulations. Although the funds value their assets daily in U.S. dollars,
they will not convert their holdings of foreign currencies to U.S. dollars
daily. When a fund converts its holdings to another currency, it may incur
currency conversion costs. Foreign exchange dealers realize a profit on the
difference between the prices at which they buy and sell currencies.
Other differences between investing in foreign companies and the U.S.
include:
o information is less publicly available
o there is a lack of uniform financial accounting standards applicable to
foreign companies
o market quotations are less readily available
o there are differences in government regulation and supervision of foreign
securities exchanges, brokers, listed companies and banks
o there is generally a lower foreign securities market volume
o it is likely that foreign securities may be less liquid or more volatile
o there are generally higher foreign brokerage commissions
o there may be difficulties in enforcing contractual obligations or
obtaining court judgments abroad because of differences in the legal
systems
o the mail service between countries may be unreliable
o there are political or financial changes that adversely affect investments
in some countries.
INVESTMENT RISKS OF U.S. GOVERNMENT POLICIES REGARDING INVESTMENTS ABROAD
In the past, U.S. government policies have discouraged or restricted certain
investments abroad. Although the funds are unaware of any current
restrictions that would materially adversely affect their ability to meet
their investment objectives and policies, investors are advised that these
U.S. government policies could be reinstituted.
FOREIGN CURRENCY TRANSACTIONS
The STRATEGIC INCOME FUND may use foreign currency transactions to settle
securities transactions. Currency transactions may be conducted either on a
spot or cash basis at prevailing rates or through forward foreign currency
exchange contracts (see below). Because foreign securities may be
denominated in foreign currencies, changes in foreign currency exchange
rates could affect the fund's net asset value, the value of interest earned,
gains and losses realized on the sale of securities, and net investment
income and capital gain. If the value of a foreign currency rises against
the U.S. dollar, the value of an underlying fund's assets denominated in
that currency will increase. If the value of the foreign currency declines
against the U.S. dollar, the value of the underlying fund assets denominated
in that currency decrease. Foreign currency transactions may be used to
protect assets against adverse changes in foreign currency exchange rates or
exchange control regulations. However, these transactions may limit
potential gains that might result from an increase in the value of the
currency and could cause losses.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The STRATEGIC INCOME FUND may engage in forward foreign currency exchange
contracts, which are obligations to purchase or sell an amount of a
particular currency at a specific price and on a future date agreed upon by
the parties. The fund may be able to protect against the decline of a
particular foreign currency be entering into a forward contract to sell an
amount of the currency at an approximated value of all or a portion of the
assets in that currency. However, this type of short-term hedging strategy
is very uncertain due to the difficulties of predicting short-term currency
market movement and of precisely matching forward contract amounts with the
constantly changing value of the securities involved.
Also, although the fund may purchase and write put and call options on
foreign currencies to protect against decline, those transactions involve a
degree of risk. For instance, the fund could be required to purchase or
sell foreign currencies at disadvantageous exchange rates that would cause
the fund to incur losses.
Generally, no commission charges or deposits are involved. At the time the
fund enters into a forward contract, fund assets with a value equal to the
fund's obligation under the forward contract are segregated on the fund's
records and are maintained until the contract has been settled. The fund
will not enter into a forward contract with a term of more than one year.
The fund will generally enter into a forward contract to provide the proper
currency to settle a securities transaction at the time the transaction
occurs ("trade date"). The period between the trade date and settlement
date will vary between 24 hours and 30 days, depending upon local custom.
Although the adviser will consider the likelihood of changes in currency
values when making investment decisions, the adviser believes that it is
important to be able to enter into forward contracts when it believes the
interests of the fund will be served. The fund will not enter into forward
contracts for hedging purposes in a particular currency in an amount in
excess of the fund's assets denominated in that currency.
OPTIONS TRANSACTIONS
The STRATEGIC INCOME FUND, U.S. GOVERNMENT INCOME FUND, GROWTH EQUITY FUND,
STELLAR FUND and CAPITAL APPRECIATION FUND may engage in options
transactions. These funds may purchase and sell options both to increase
total returns and to hedge against the effect of changes in the value of
portfolio securities.
The funds may write (sell) covered call options and covered put options.
(The STRATEGIC INCOME FUND may only write covered call and put options to
the extent of 20% of the value of its net assets at the time such option
contracts are written.) By writing a call option, a fund become obligated
during the term of the option to deliver the securities underlying the
option upon payment of the exercise price. By writing a put option, a fund
becomes obligated during the term of the option to purchase the securities
underlying the option at the exercise price if the option is exercised.
All options written by the funds must be "covered" options. This means
that, so long as a fund is obligated as the writer of a call option, it will
own the underlying securities subject to the option (or in the case of call
options on U.S. Treasury bills, substantially similar securities) or have
the right to obtain such securities without payment of further consideration
(or have segregated cash in the amount of an additional consideration).
The funds will be considered "covered" with respect to a put option they
write if, so long as it is obligated as the writer of the put option, they
deposit and maintain with their custodian in a segregated account liquid
assets having a value equal to or greater than the exercise price of the
option. (In the case of the STELLAR FUND, the aggregate value of the
obligations underlying the puts will not exceed 50% of the fund's net
assets.)
The principal reason for writing call or put options is to manage price
volatility (or risk). In addition, the funds will attempt to obtain,
through a receipt of premiums, a greater current return than would be
realized on the underlying securities alone. The funds receive a premium
from writing a call or put option that they retain whether or not the option
is exercised. By writing a call option, a fund might lose the potential for
gain on the underlying security while the option is open, and by writing a
put option, the fund might become obligated to purchase the underlying
security for more than the current market price upon exercise. A fund will
write put options only on securities which the fund wishes to have in its
portfolio and where the fund has determined, as an investment consideration,
that it is willing to pay the exercise price of the option.
Investments in put and call options may not exceed 5% of a fund's assets,
represented by the premium paid, and will only relate to specific securities
(or groups of specific securities) in which the fund may invest. The fund
may purchase put and call options for the purpose of offsetting previously
written put and call options of the same series. If a fund is unable to
effect a closing purchase transaction with respect to covered options it has
written, the fund will not be able to sell the underlying securities or
dispose of assets held in a segregated account until the options expire or
are exercised. Put options may also be purchased to protect against price
movement in particular securities in the fund's portfolio. A put option
gives a fund, in return for a premium, the right to sell the underlying
security to the writer (seller) at a specified price during the term of the
option. A fund will purchase options only to the extent permitted by the
policies of state securities authorities in states where shares of the fund
are qualified for offer and sale.
FUTURES AND OPTIONS TRANSACTIONS
The STRATEGIC INCOME FUND, U.S. GOVERNMENT INCOME FUND, INSURED TAX-FREE
BOND FUND, GROWTH EQUITY FUND, CAPITAL APPRECIATION FUND and INTERNATIONAL
EQUITY FUND (via underlying funds) may invest in futures and options
transactions as a means of reducing fluctuations in the funds' net asset
value. These funds may attempt to hedge all or a portion of their
portfolios by buying and selling futures contracts and options on futures
contracts, and buying put and call options on securities indices. The funds
may also purchase put options on portfolio securities to hedge a portion of
their portfolio investments. The funds will maintain positions in
securities, option rights, and segregated cash subject to puts and calls
until the options are exercised, closed or have expired. An option position
on futures contracts may be closed out over-the-counter or on a nationally
recognized exchange which provides a secondary market for options of the
same series.
FUTURES CONTRACTS
The funds may purchase and sell futures contracts to hedge against the
effects of changes in the value of portfolio securities due to
anticipated changes in interest rates and market conditions without
necessarily buying or selling the securities. Although some futures
contracts call for making or taking delivery of the underlying
securities, in most cases these obligations are closed out before the
settlement date. The closing of a contractual obligation is accomplished
by purchasing or selling an identical offsetting futures contract. Other
futures contracts by their terms call for cash settlements.
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer, who agrees to take delivery
of the securities ("going long") at a certain time in the future. For
example, in the fixed income securities market, prices move inversely to
interest rates. A rise in rates means a drop in price. Conversely, a
drop in rates means a rise in price. To hedge their holdings or fixed
income securities against a rise in market interest rates, a fund could
enter into contracts to deliver securities at a predetermined price
(i.e., "go short"). Going short protects the funds against the
possibility that the prices of their fixed income securities may decline
during the funds' anticipated holding period. A fund would "go long"
(agree to purchase securities in the future at a predetermined price) to
hedge against a decline in market interest rates.
Stock index futures contracts are based on indices that reflect the
market value of common stock of the firms included in the indices. An
index futures contract is an agreement pursuant to which two parties
agree to take or make delivery of an amount of cash equal to the
differences between the value of the index at the close of the last
trading day of the contract and the price at which the index contract was
originally written.
"MARGIN" IN FUTURES TRANSACTIONS
The STRATEGIC INCOME FUND, U.S. GOVERNMENT INCOME FUND, INSURED TAX-FREE
BOND FUND, GROWTH EQUITY FUND, CAPITAL APPRECIATION FUND and
INTERNATIONAL EQUITY FUND (via underlying funds) and may engage in margin
in futures transactions. Unlike the purchase or sale of a security, the
funds do not pay or receive money upon the purchase or sale of a futures
contract. Rather, a fund is required to deposit an amount of "initial
margin" in cash, U.S. government securities or highly liquid debt
securities with its custodian (or the broker, if legally permitted). The
nature of initial margin in futures transactions is different from that
of margin in securities transactions. Initial margin in futures
transactions does not involve the borrowing of funds by the fund to
finance the transactions. 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.
A futures contract held by a fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the
fund pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or
loan by the fund but is instead settlement between the fund and the
broker of the amount one would owe the other if the futures contract
expired. In computing its daily net asset value, the fund will mark to
market its open futures position.
A fund is also required to deposit and maintain margins when it writes
call options on futures contracts. When a fund purchase futures
contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the futures contracts (less any related
margin deposits), will be deposited in a segregated account with the
fund's custodian (or the broker, if legally permitted). The cash is
segregated to provide collateral and to insure that the use of the
futures contracts is not leveraged.
Regarding INSURED TAX-FREE BOND FUND, to the extent required to comply
with CFTC Regulation 4.5 and thereby avoid status as a "commodity pool
operator," the fund will not enter into a futures contract for other than
bona fide hedging purposes. The fund will also not purchase an option on
a futures contract if immediately thereafter the initial margin deposits
for futures contracts held by the fund, plus premiums paid by it for open
options on futures contracts, would exceed 5% of the market value of the
fund's net assets after taking into account the unrealized profits and
losses on those contracts it has entered into. 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 computing such 5%.
Second, INSURED TAX-FREE BOND FUND will not enter into these contracts
for speculative purposes; rather, these transactions are entered into
only for bona fide hedging purposes, or other permissible purposes
pursuant to regulations promulgated by the Commodities Futures Trading
Commission ("CFTC"). Third, since the fund does not constitute a
commodity pool, it will not market itself as such, nor serve as a vehicle
for trading in commodity futures or commodity options markets. Finally,
because the fund will submit to the CFTC special calls for information,
the fund will not register as a commodities pool operator.
PUT OPTIONS ON FUTURES CONTRACTS
The STRATEGIC INCOME FUND, U.S. GOVERNMENT INCOME FUND, INSURED TAX-FREE
BOND FUND, GROWTH EQUITY FUND, CAPITAL APPRECIATION FUND and
INTERNATIONAL EQUITY FUND (via underlying funds) may purchase listed put
options on futures contracts to protect portfolio securities against
decreases in value resulting from market factors, such as an anticipated
increase in interest rates or decrease in stock prices. Unlike entering
directly into a futures contract, which requires the purchaser to buy a
financial instrument on a set date at a specified price, the purchase of
a put option on a futures contract entitles (but does not obligate) its
purchaser to decide on or before a future date whether to assume a short
position at the specified price.
Generally, if the hedged portfolio securities decrease in value during
the term of an option, the related futures contracts will also decrease
in value and the option will increase in value. In such an event, a the
fund will normally close out its options by selling an identical option.
If the hedge is successful, the proceeds received by the fund upon the
sale of the second option will be large enough to offset both the premium
paid by the fund for the original option plus the decrease in value of
the hedged securities.
Alternatively, a fund may exercise its put options to close out the
position. To do so, it would simultaneously enter into futures contracts
of the type underlying the options (for a price less than the strike
price of the option) and exercise the options. The fund would then
deliver the futures contract in return for payment of the strike price.
If the fund neither closes out nor exercises an option, the option will
expire on the date provided in the option contract, and only the premium
paid for the contract will be lost.
The INSURED TAX-FREE BOND FUND may write listed put options on futures
contracts to hedge its portfolio against a decrease in market interest
rates. The fund will use these transactions to attempt to protect its
ability to purchase portfolio securities in the future at price levels
existing at the time it enters into the transaction. When the fund
writes (sells) a put on a futures contract, it receives a cash premium in
exchange for granting to the purchaser of the put the right to receive
from the fund, at the strike price, a short position in the futures
contract. (The fund undertakes the obligation to assume a long futures
position.) This is done even though the strike price upon exercise of
the option is greater than the value of the futures position received by
such holder. As market interest rates decrease, the market price of the
underlying futures contract normally increases. As the market value of
the underlying futures contract increases, the buyer of the put option
has less reason to exercise the put because the buyer can sell the same
futures contract at a higher price in the market. If the value of the
underlying futures position is not such that exercise of the option would
be profitable to the option holder, the option will generally expire
without being exercised. The premium received by the fund can then be
used to offset the higher prices of portfolio securities to be purchased
in the future.
To avoid the exercise of an option sold by the INSURED TAX-FREE BOND
FUND, the general policy of the fund is to cancel its obligations under
an option by entering into a closing purchase transaction, if available.
However, if the fund determines that it is in its best interest to
deliver the underlying futures position, the fund will not cancel its
option obligations. A closing purchase transaction consists of the
purchase by the fund of an option having the same term as the option sold
by the fund, and has the effect of canceling the fund's position as a
seller. The premium paid by the fund in executing a closing purchase
transaction may be higher than the premium received when the option was
sold depending, in large part, upon the relative price of the underlying
futures position at the time of each transaction. If the hedge is
successful, the cost of buying the second option will be less than the
premium received by the fund for the initial option.
CALL OPTIONS ON FUTURES CONTRACTS
In addition to purchasing put options on futures, the STRATEGIC INCOME
FUND, U.S. GOVERNMENT INCOME FUND, INSURED TAX-FREE BOND FUND, GROWTH
EQUITY FUND, CAPITAL APPRECIATION FUND and INTERNATIONAL EQUITY FUND (via
underlying funds) may write listed call options on futures contracts to
hedge their portfolios. When a fund writes call options on futures
contracts, it is undertaking the obligation of assuming a short futures
position (selling a futures contract) at the fixed strike price at any
time during the life of the options if the options are exercised. As
market interest rates rise, causing the prices of futures to go down, the
fund's obligation under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the fund's call
option position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the call,
so the fund keeps the premium received for the option. This premium can
substantially offset the drop in value of the fund's fixed income or
indexed portfolio that is occurring as interest rates rise.
Prior to the expiration of a call written by a fund, or exercise of it by
the buyer, the fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will
be less than the premium received by the fund for the initial option.
The net premium income of the fund will then substantially offset the
decrease in value of the hedged securities.
A fund will not maintain open positions in futures contracts it has sold
or call options it has written if, in the aggregate, the value of the
open positions (marked to market) exceeds the current market value of
their securities portfolio, plus or minus the unrealized gain or loss on
those open positions, adjusted for the correlation of volatility between
the hedged securities and the futures contracts. If this limitation is
exceeded at any time, the fund will take prompt action to close out a
sufficient number of open contracts to bring its open futures and options
positions within this limitation.
An additional way in which the INSURED TAX-FREE BOND FUND may hedge
against decreases in market interest rates is to buy a listed call option
on a futures contract. The fund will use these transactions to attempt
to protect its ability to purchase portfolio securities in the future at
price levels existing at the time it enters into the transaction. When
the fund purchases a call on a futures contract, it receives the right
(but not the obligation) to enter into the underlying futures contract at
a strike price determined at the time the call was purchased. The fund
is able to do this regardless of the comparative market value of the
futures position at the time that the option is exercised. The holder of
a call option has the right to receive a long (or buyer's) position in
the underlying futures contract. As market interest rates fall or stock
prices increase, the value of the underlying futures contract will
normally increase, resulting in an increase in value of the fund's option
position. When the market price of the underlying futures contract
increases above the strike price plus premium paid, the fund could
exercise its option and buy the futures contract below market price.
Prior to the exercise or expiration of the call option, the fund could
sell an identical call option and close out its position. If the premium
received upon selling the offsetting call is greater than the premium
originally paid, the fund has completed a successful hedge.
CALL OPTIONS ON STOCK INDEX FUTURES CONTRACTS
In addition to writing call options on futures contracts, the STRATEGIC
INCOME FUND, GROWTH EQUITY FUND, CAPITAL APPRECIATION FUND and
INTERNATIONAL EQUITY FUND (via underlying funds) may write listed and
over-the-counter call options on stock index futures contracts (including
cash-settled stock index options) to hedge their portfolio against a
decrease in stock prices. When a fund writes a call option on a futures
contract, it is undertaking the obligation of assuming a short futures
position (selling a futures contract) at the fixed strike price at any
time during the life of the option if the option is exercised. As stock
prices fall, causing the prices of futures to go down, a fund's
obligation under a call option on a future (to sell a futures contract)
costs less to fulfill, causing the value of the fund's call option
position to increase.
STOCK INDEX OPTIONS
The STRATEGIC INCOME BOND FUND, GROWTH EQUITY FUND, CAPITAL APPRECIATION
FUND and INTERNATIONAL EQUITY FUND (via underlying funds) may write
(sell), and may purchase, put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A stock
index fluctuates with changes in the market value of the stocks listed in
the index.
When a fund writes options, an amount equal to the net premium received
by the fund is included in the liability section of the fund's Statement
of Assets and Liabilities as a deferred credit. The amount of the
deferred credit will be subsequently marked to market to reflect the
current market value of the options written. The current market value of
a traded option is the last sale price or, in the absence of a sale, the
mean between the closing bid and asked price. If an option expires on
its stipulated expiration date or if the fund enters into a closing
purchase transaction, the fund will realize a gain (or loss if the cost
of a closing purchase transaction exceeds the premium received when the
option was sold), and the deferred credit related to such option will be
eliminated.
The purchase of a put option would entitle a fund, in exchange for the
premium paid, to sell the underlying securities at a specified price
during the option period. The purchase of such puts is designed merely
to offset or hedge against a decline in the market value of an index. A
fund would ordinarily recognize a gain if the value of the index
decreased below the exercise price sufficiently to cover the premium and
would recognize a loss if the value of the index remained at or above the
exercise price.
The effectiveness of writing or purchasing stock index options will
depend upon the extent to which price movements in the fund's portfolio
correlate with price movements of the stock index selected. Because the
value of an index option depends upon movements in the level of the index
rather than the price of a particular stock, whether a fund will realize
a gain or loss from the purchase of the option on an index generally
depends upon movements in the level of stock prices in the stock market.
In the case of certain indices, gain or loss depends upon movement of
stock prices in an industry or market segment rather than movements in
the price of a particular stock. Accordingly, successful use by a fund
of options on stock indices will be subject to the ability of the adviser
to predict correctly movements in the directions of the stock market
generally or of a particular industry. This requires different skills
and techniques than predicting changes in the prices of individual
stocks.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The INSURED TAX-FREE BOND FUND, U.S. GOVERNMENT INCOME FUND and
INTERNATIONAL FUND (via underlying funds) may purchase put options on
portfolio securities to protect against price movements in their funds'
portfolio securities. A put option gives a fund, in return for a
premium, the right to sell the underlying security to the writer (seller)
at a specified price during the term of the option.
PURCHASING CALL OPTIONS ON PORTFOLIO SECURITIES
The INTERNATIONAL EQUITY FUND (via underlying funds) may purchase call
options on portfolio securities to protect against price movements in the
fund's portfolio securities. A call option gives the underlying fund, in
return for a premium, the right (but not the obligation) to buy the
underlying securities from the seller at a specified price during the
term of the option.
WRITING COVERED PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The U.S. GOVERNMENT INCOME FUND may write covered call options to
generate income. As writer of a call option, the fund has the obligation
upon exercise of the option during the option period to deliver the
underlying security upon payment of the exercise price. The fund may
only sell call options either on securities held in its portfolio or on
securities, which it has the right to obtain without payment of further
consideration (or has segregated cash in the amount of any additional
consideration).
The INTERNATIONAL EQUITY FUND (via underlying funds) may write covered
put and call options to generate income and thereby protect against price
movements in particular securities in the underlying funds' portfolios.
As the writer of a call option, an underlying fund has the obligation
upon exercise of the option during the option period to deliver the
underlying security upon payment of the exercise price. Where an
underlying fund writes a put option on a futures contract, it is
undertaking to buy a particular futures contract at a fixed price at any
time during a specified period if the option is exercised.
An underlying fund may only write call options either on securities held
in its portfolio or on securities, which it has the right to obtain
without payment of further consideration (or has segregated cash in the
amount of any additional consideration). In the case of put options, the
underlying fund will segregate cash, U.S. Treasury obligations or liquid
securities with a value equal to or greater than the exercise price of
the underlying securities.
RISKS
When a fund uses futures and options on futures as hedging devices, there
is a risk that the prices of the securities subject to the futures
contracts may not correlate perfectly with the prices of the securities in
the fund's portfolio. This may cause the futures contract and any related
options to react differently to market changes than the portfolio
securities. In addition, the adviser could be incorrect in its
expectations about the direction or extent of market factors such as
interest rate movements. In these events, a fund may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the adviser
will consider liquidity before entering into these transactions, there is
no assurance that a liquid secondary market on an exchange or otherwise
will exist for any particular futures contract or option at any particular
time. A fund's ability to establish and close out futures and options
positions depends on this secondary market. The inability to close these
positions could have an adverse effect on the fund's ability to hedge its
portfolio.
To minimize risks, a fund may not purchase or sell futures contracts or
related options if immediately thereafter the sum of the amount of margin
deposits on the fund's existing futures positions and premiums paid for
related options would exceed 5% of the market value of the fund's total
assets after taking into account the unrealized profits and losses on
those contracts it has entered into. 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 computing such 5%.
When a fund purchases futures contracts, an amount of cash and cash
equivalents, equal to the underlying commodity value of the futures
contracts (less any related margin deposits), will be deposited in a
segregated account with the fund's custodian (or the broker, if legally
permitted). The cash is segregated to provide collateral and to insure
that the use of the futures contracts is not leveraged. When a fund sells
futures contracts, they will either own or have the right to receive the
underlying future or security, or will make deposits to collateralize the
position as discussed above.
MORTGAGE-BACKED SECURITIES
The STRATEGIC INCOME FUND, GROWTH EQUITY FUND, STELLAR FUND and U.S.
GOVERNMENT INCOME FUND may invest in mortgage-backed securities.
Mortgage-backed securities are securities that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage
loans on real property. There are currently three basic types of
mortgage-backed securities:
1. Those issued or guaranteed by the U.S. government or one of its
agencies or instrumentalities, such as Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA")
and Federal Home Loan Mortgage Corporation ("FHLMC");
2. Those issued by private issuers that represent an interest in or are
collateralized by mortgage-backed securities issued or guaranteed by
the U.S. government or one of its agencies or instrumentalities; and
3. Those issued by private issuers that represent an interest in or are
collateralized by whole loans or mortgage-backed securities without a
government guarantee but usually having some form of private credit
enhancement.
Mortgage-backed securities generally pay back principal and interest over
the life of the security. At the time a fund reinvests the payments and
any unscheduled prepayments of principal received, the fund may receive a
rate of interest which is actually lower than the rate of interest paid on
these securities ("prepayments risks"). Mortgage-backed securities are
subject to higher prepayment risks than most other types of debt
instruments with prepayment risks because the underlying mortgage loans
may be prepaid without penalty or premium. Prepayment risk on mortgage-
backed securities tends to increase during periods of declining mortgage
interest rates because many borrowers refinance their mortgages to take
advantage of the more favorable rates. Prepayments on mortgage-backed
securities are also affected by other factors, such as the frequency with
which people sell their homes or elect to make unscheduled payments on
their mortgages.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS")
The GROWTH EQUITY FUND, STRATEGIC INCOME FUND, STELLAR FUND and U.S.
GOVERNMENT INCOME FUND may invest in ARMS. ARMS are actively traded,
mortgage-backed securities representing interests in adjustable rather
than fixed interest rate mortgages. These funds invest in ARMS issued by
GNMA, FNMA, and FHLMC. The underlying mortgages which collateralize ARMS
issued by GNMA are fully guaranteed by the Federal Housing Administration
or Veterans Administration, while those collateralizing ARMS issued by
FHLMC or FNMA are typically conventional residential mortgages conforming
to strict underwriting size and maturity constraints.
Unlike conventional bonds, ARMS pay back principal over the life of the
ARMS rather than at maturity. Thus, holders of the ARMS, would receive
monthly scheduled payments of principal and interest, and may receive
unscheduled principal payments representing payments on the underlying
mortgages. At the time that a holder of the ARMS reinvests the payments
and any unscheduled prepayments of principal that it receives, the holder
may receive a rate of interest which is actually lower than the rate of
interest paid on the existing ARMS. As a consequence, ARMS may be a less
effective means of "locking in" long-term interest rates than other types
of U.S. government securities.
Not unlike other U.S. government securities, the market value of ARMS will
generally vary inversely with changes in market interest rates. Thus, the
market value of ARMS generally declines when interest rates rise and
generally rises when interest rates decline.
While ARMS generally entail less risk of a decline during periods of
rapidly rising rates, ARMS may also have less potential for capital
appreciation than other similar investments (e.g., investments with
comparable maturities) because as interest rates decline, the likelihood
increases that mortgages will be prepaid. Furthermore, if ARMS are
purchased at a premium, mortgage foreclosures and unscheduled principal
payments may result in some loss of a holder's principal investment to the
extent of the premium paid. Conversely, if ARMS are purchased at a
discount, both a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total returns and would
accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")
The STRATEGIC INCOME FUND, GROWTH EQUITY FUND, STELLAR FUND and U.S.
GOVERNMENT INCOME FUND may invest in CMOs. CMOs are debt obligations
collateralized by mortgage loans or mortgage-backed securities.
Typically, CMOs are collateralized by GNMA, FNMA or FHLMC certificates,
but may be collateralized by whole loans or private mortgage-backed
securities.
The funds will invest only in CMOs rated AAA by a nationally recognized
rating organization and which may be:
a)collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government;
b)collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is
collateralized by U.S. government securities; or
c)privately issued securities in which the proceeds of the issuance are
invested in mortgage securities and payment of the principal and
interest are supported by the credit of an agency or instrumentality of
the U.S. government.
The following example illustrates how mortgage cash flows are prioritized
in the case of CMOs--most of the CMOs in which the funds invest use the
same basic structure:
a)Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of
securities. The first three (A, B, and C bonds) pay interest at their
stated rates beginning with the issue date. The final class (Z bond)
typically receives any excess income from the underlying investments
after payments are made to the other classes and receives no principal
or interest payments until the shorter maturity classes have been
retired. The Z bond class then receives all remaining principal and
interest payments.
b)The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities.
c)The classes of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity class (or A bond).
When those securities are completely retired, all principal payments are
then directed to the next-shortest-maturity security (or B bond). This
process continues until all of the classes have been paid off.
Because the cash flow is distributed sequentially instead of pro-rata, as
with pass-through securities, the cash flows and average lives of CMOs are
more predictable, and there is a period of time during which the investors
in the longer-maturity classes receive no principal paydowns.
ASSET-BACKED SECURITIES
The GROWTH EQUITY FUND, STRATEGIC INCOME FUND, STELLAR FUND and U.S.
GOVERNMENT INCOME FUND may invest in asset-backed securities. Asset-backed
securities have structural characteristics similar to mortgage-backed
securities but have underlying assets that generally are not mortgage loans
or interests in mortgage loans. These funds may invest in asset-backed
securities rated AAA by an NRSRO including, but not limited to, interests in
pools of receivables, such as motor vehicle installment purchase obligations
and credit card receivables, equipment leases, manufactured housing (mobile
home) leases or home equity loans. These securities may be in the form of
pass-through instruments or asset-backed bonds. The securities are issued
by non-governmental entities and carry no direct or indirect government
guarantee.
INVESTMENT RISKS OF MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
Mortgage-backed and asset-backed securities generally pay back principal and
interest over the life of the security. At the time a fund reinvests the
payments and any unscheduled prepayments of principal received, the fund may
receive a rate of interest which is actually lower than the rate of interest
paid on these securities ("prepayment risks"). Mortgage-backed and asset-
backed securities are subject to higher prepayment risks than most other
types of debt instruments with prepayment risks because the underlying
mortgage loans or the collateral supporting asset-backed securities may be
prepaid without penalty or premium. Prepayment risks on mortgage-backed
securities tend to increase during periods of declining mortgage interest
rates because many borrowers refinance their mortgages to take advantage of
the more favorable rates. Prepayments on mortgage-backed securities are
also affected by other factors, such as the frequency with which people sell
their homes or elect to make unscheduled payments on their mortgages.
Although asset-backed securities generally are less likely to experience
substantial prepayments than are mortgage-backed securities, certain of the
factors that affect the rate of prepayments on mortgage-backed securities
also affect the rate of prepayments on asset-backed securities.
While mortgage-backed securities generally entail less risk of a decline
during periods of rapidly rising interest rates, mortgage-backed securities
may also have less potential for capital appreciation than other similar
investments (e.g., investments with comparable maturities) because as
interest rates decline, the likelihood increases that mortgages will be
prepaid. Furthermore, if mortgage-backed securities are purchased at a
premium, mortgage foreclosures and unscheduled principal payments may result
in some loss of a holder's principal investment to the extent of the premium
paid. Conversely, if mortgage-backed securities are purchased at a
discount, both a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total returns and would
accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the
benefit of the same security interest in the related collateral. Credit
card receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of
which give such debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the balance due. Most issuers of asset-
backed securities backed by motor vehicle installment purchase obligations
permit the servicer of such receivables to retain possession of the
underlying obligations. If the servicer sells these obligations to another
party, there is a risk that the purchaser would acquire an interest superior
to that of the holders of the related asset-backed securities. Further, if
a vehicle is registered in one state and is then re-registered because the
owner and obligor moves to another state, such re-registration could defeat
the original security interest in the vehicle in certain cases. In
addition, because of the large number of vehicles involved in a typical
issuance and technical requirements under state laws, the trustee for the
holders of asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support
payments on these securities.
MUNICIPAL SECURITIES
The TAX -FREE MONEY MARKET FUND, OHIO TAX-FREE MONEY MARKET FUND and INSURED
TAX-FREE BOND FUND invest primarily in municipal securities. Municipal
securities are debt obligations issued by or on behalf of states,
territories, and possessions of the United States, including the District of
Columbia, and any political subdivisions or financing authority of any of
these, the income from which is, in the opinion of qualified legal counsel,
exempt from federal regular income tax ("Municipal Securities").
Municipal Securities are generally issued to finance public works such as
airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, street, and water and sewer works. They are also issued
to repay outstanding obligations, to raise funds for general operating
expenses, and to make loans to other public institutions and facilities.
Municipal Securities include industrial development bonds issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned corporations.
The availability of this financing encourages these corporations to locate
within the sponsoring communities and thereby increases local employment.
The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by
the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of revenue
bonds, however, are payable only from the revenue generated by the facility
financed by the bond or other specified sources of revenue. Revenue bonds
do not represent a pledge of credit or create any debt of or charge against
the general revenues of a municipality or public authority. Industrial
development bonds are typically classified as revenue bonds.
The TAX-FREE MONEY MARKET FUND and OHIO TAX-FREE MONEY MARKET FUND invest in
Municipal Securities with remaining maturities of 397 days or less at the
time of purchase by a fund.
The INSURED TAX-FREE BOND FUND may invest in, but is not limited to, the
following types of Municipal Securities:
o industrial development bonds;
o municipal notes and bonds;
o serial notes and bonds sold with a series of maturity dates;
o tax anticipation notes and bonds sold to finance working capital needs
of municipalities in anticipation of receiving taxes at a later date;
o bond anticipation notes sold in anticipation of the issuance of longer-
term bonds in the future;
o prerefunded municipal bonds refundable at a later date (payment of
principal and interest on prerefunded bonds are assured through the
first call date by the deposit in escrow of U.S. government securities);
and
o general obligation bonds secured by a municipality's pledge of taxation.
CHARACTERISTICS
When determining whether a Municipal Security presents minimal credit risks,
the investment adviser considers the creditworthiness of the issuer of a
Municipal Security, the issuer of a demand feature if a fund has the
unconditional right to demand payment from the issuer of the interest, or
the credit enhancer of payment by either of those issuers. A fund is not
required to sell a Municipal Security if the security's rating is reduced
below the required minimum subsequent to the fund's purchase of the
security. The Trustees and the investment adviser consider this event,
however, in the determination of whether a fund should continue to hold the
security in its portfolio. If ratings made by Moody's Investors
Service, Inc., Standard & Poor's Ratings Group, or Fitch Investors Service,
Inc., change because of changes in those organizations or in their rating
systems, the funds will try to use comparable ratings as standards in
accordance with the investment policies described in the funds'
prospectuses.
Regarding the INSURED TAX-FREE BOND FUND, securities rated Baa or BBB by an
NRSRO have speculative characteristics. Changes in economic conditions or
other circumstances are more likely to lead to weakened capacity to make
principal and interest payments than higher rated bonds. If any security
invested in by the fund loses its rating or has its rating reduced after the
fund has purchased it, the fund is not required to sell or otherwise dispose
of the security, but may consider doing so.
There are no restrictions on the maturity of municipal securities in which
the fund may invest. The fund will seek to invest in Municipal Securities
of such maturities as the investment adviser believes will produce current
income consistent with prudent investment. The investment adviser will also
consider current market conditions and the cost of the insurance obtainable
on such securities.
PARTICIPATION INTERESTS
The financial institutions from which the tax-free funds purchase
participation interests frequently provide or secure from other financial
institutions irrevocable letters of credit or guarantees and give the funds
the right to demand payment on specified notice (normally within 7 days for
the money market fundsand 30 days for the bond fund) from the issuer of the
letter of credit or guarantee. These financial institutions may charge
certain fees in connection with their repurchase commitments, including a
fee equal to the excess of the interest paid on the municipal securities
over the negotiated yield at which the participation interests were
purchased by a fund. By purchasing participation interests, the fund is
buying a security meeting its quality requirements and is also receiving the
tax-free benefits of the underlying securities.
In the acquisition of participation interests, the investment adviser will
consider the following quality factors:
o a high-quality underlying municipal security (of which the fund takes
possession);
o a high-quality issuer of the participation interest; or
o a guarantee or letter of credit from a high-quality financial
institution supporting the participation interest.
MUNICIPAL LEASES
The TAX-FREE MONEY MARKET FUND, OHIO TAX-FREE MONEY MARKET FUND and INSURED
TAX-FREE BOND FUND may purchase Municipal Securities in the form of
participation interests that represent an undivided proportional interest in
lease payments by a governmental or nonprofit entity. The lease payments
and other rights under the lease provide for and secure payments on the
certificates. Municipal charters or the nature of the appropriation for the
lease may limit lease obligations. In particular, lease obligations may be
subject to periodic appropriation. If the entity does not appropriate funds
for future lease payments, the entity cannot be compelled to make such
payments. Furthermore, a lease may provide that the participants cannot
accelerate lease obligations upon default. The participants would only be
able to enforce lease payments as they became due. In the event of a
default or failure of appropriation, unless the participation interests are
credit enhanced, it is unlikely that the participants would be able to
obtain an acceptable substitute source of payment.
Municipal leases may be considered illiquid so the adviser must carefully
examine the liquidity of the lease before investing. The adviser considers:
1.whether the lease can be terminated by the lessee;
2.the potential recovery, if any, from a sale of the leased property if the
lease was terminated;
3.the lessee's general credit strength;
4.the possibility that the lessee will discontinue appropriating funding for
the lease property because the property is no longer deemed essential to
its operations; and
5.any credit enhancement or legal recourse provided upon an event of
nonappropriation or other termination of the lease.
RATINGS
The securities in which the TAX-FREE MONEY MARKET FUND and OHIO TAX-FREE
MONEY MARKET FUND are permitted to invest are rated in the highest short-
term rating category by one or more NRSROs. A NRSRO's highest rating
category is determined without regard for sub-categories and gradations.
For example, securities rated A-1 or A-1+ by Standard & Poor's Ratings
Group ("S&P"), Prime-1 by Moody's Investors Service, Inc. ("Moody's"), or
F-1 (+ or -) by Fitch Investors Service, Inc. ("Fitch") are all considered
rated in the highest short-term rating category. The funds will follow
applicable regulations in determining whether a security rated by more than
one NRSRO can be treated as being in the highest short-term rating category.
Additionally, the funds may purchase unrated securities which are determined
to be of comparable quality of securities rated in the highest short-term
rating category by NRSRO's and which are otherwise eligible for purchase by
the funds.
The funds may also purchase bonds which have no short-term ratings but which
have long-term ratings by NRSROs in the two highest ratings categories. The
funds have the ability but no present intention of investing in Municipal
Securities that are rated MIG2 or VMIG2 by Moody's, F-2 by Fitch, or A-2 or
SP-2 by S&P and tax-exempt commercial paper that is rated P-2 by Moody's, A-
2 by S&P, or F-2 by Fitch, or securities which are not rated but are deemed
to be of comparable quality. Shareholders of the funds will be notified
should the funds decide to invest in these securities.
CREDIT ENHANCEMENT
Some of the investments of the TAX-FREE MONEY MARKET FUND and OHIO TAX-FREE
MONEY MARKET FUND may be credit enhanced by a guaranty, letter of credit or
insurance. Any bankruptcy, receivership, default or change in the credit
quality of the credit enhancer will adversely affect the quality and
marketability of the underlying security and could cause losses to a fund
and affect its share prices. The funds may have more than 25% of their
respective total assets invested in securities credit-enhanced by banks.
The funds typically evaluate the credit quality and ratings of credit-
enhanced securities based upon the financial condition and ratings of the
party providing the credit enhancement, rather than the issuer.
DEMAND FEATURES
The TAX-FREE MONEY MARKET FUND and OHIO TAX-FREE MONEY MARKET FUND may
purchase securities subject to puts and standby commitments which allow them
to purchase securities at their principal amount within a fixed period of
time following a demand by the funds. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party and may not be separated from the underlying security.
These arrangements provide the funds with liquidity, but do not protect the
funds against changes in the market value of the securities. If the issuer
of the demand feature enters bankruptcy, receivership or some other event
terminates the demand feature before its exercise, the liquidity of the
underlying security will be adversely affected. Demand features that are
exercisable after payment default on the underlying security may be treated
as a form of credit enhancement.
VARIABLE RATE MUNICIPAL SECURITIES
The INSURED TAX-FREE BOND FUND may purchase some municipal securities with
variable interest rates. Variable interest rates are ordinarily stated as a
percentage of the prime rate of a bank or some similar standard, such as the
91-day U.S. Treasury bill rate. Variable interest rates are adjusted on a
periodic basis (i.e., every 30 days). Many variable rate municipal
securities are subject to payment of principal on demand by the fund,
usually in not more than seven days. If a variable rate municipal security
does not have this demand feature, or the demand feature extends beyond
seven days and the adviser believes the security cannot be sold within seven
days, the adviser may consider the security to be illiquid. However, the
fund's investment limitations provide that it will not invest more than 15%
of its net assets in illiquid securities. All variable rate municipal
securities will meet the quality standards for the fund. The adviser has
been instructed by the Trustees to monitor the pricing quality and liquidity
of the variable rate municipal securities, including participation interests
held by the fund, on the basis of published financial information and
reports of NRSROs and other analytical services.
Variable interest rates generally reduce changes in the market value of
municipal securities from their original purchase prices. Accordingly, as
interest rates decrease or increase, the potential for capital appreciation
or depreciation is less for variable rate municipal securities than for
fixed income obligations. Many municipal securities with variable interest
rates purchased by the fund are subject to repayment of principal (usually
within seven days) on the fund's demand. The terms of these variable rate
demand instruments require payment of principal and accrued interest from
the issuer of the municipal obligations, the issuer of the participation
interests, or a guarantor of either issuer.
INDUSTRIAL DEVELOPMENT BONDS
The INSURED TAX-FREE BOND FUND may invest in industrial development bonds,
which is a type of municipal security. Industrial development bonds are
generally issued to provide financing aid to acquire sites or construct and
equip facilities for use by privately or publicly owned entities. Most
state and local governments have the power to permit the issuance of
industrial development bonds to provide financing for such entities in order
to encourage the corporations to locate within their communities.
Industrial development bonds, which are in most cases revenue bonds, do not
represent a pledge of credit or create any debt of a municipality or a
public authority, and no taxes may be levied for the payment of principal or
interest on these bonds. The principal and interest is payable solely out
of monies generated by the entities using or purchasing the sites or
facilities. These bonds will be considered municipal securities eligible
for purchase by the fund if the interest paid on them, in the opinion of
bond counsel or in the opinion of the officers of the Trust and/or the
adviser, is exempt from federal income tax. The fund may invest more than
25% of its total assets in industrial development bonds (including pollution
control revenue bonds) as long as they are not from the same facility or
similar types of facilities or projects.
RISKS
Yields on municipal securities depend on a variety of factors, including:
the general conditions of the money market and the taxable and municipal
securities markets; the size of the particular offering; the maturity of the
obligations; and the credit quality of the issue. The ability of the funds
to achieve their investment objectives also depends on the continuing
ability of the issuers of municipal securities to meet their obligations for
the payment of interest and principal when due.
Regarding the INSURED TAX-FREE BOND FUND, the value of the fund's shares
will fluctuate. The amount of this fluctuation is dependent upon the
quality and maturity of the municipal securities in the fund's portfolio, as
well as on market conditions. Municipal securities prices are interest rate
sensitive, which means that their value varies inversely with market
interest rates. Thus, if market interest rates have increased from the time
a security was purchased, the security, if sold, might be sold at a price
less than its cost. Similarly, if market interest rates have declined from
the time a security was purchased, the security, if sold, might be sold at a
price greater than its cost. (In either instance, if the security was held
to maturity, no loss or gain normally would be realized as a result of
interim market fluctuations.)
Further, any adverse economic conditions or developments affecting the
states or municipalities could impact the fund's portfolio. Investing in
municipal securities that meet the fund's quality standards may not be
possible if the states and municipalities do not maintain their current
credit ratings.
MUNICIPAL BOND INSURANCE
The INSURED TAX-FREE BOND FUND may purchase municipal securities covered by
insurance. The insurance guarantees the timely payment of principal at
maturity and interest on such securities. These insured municipal
securities are either:
1. covered by an insurance policy applicable to a particular security,
whether obtained by the issuer of the security or by a third party
("Issuer-Obtained Insurance"), or
2. insured under master insurance policies issued by municipal bond
insurers, which may be purchased by the fund (the "Policies").
The fund will require or obtain municipal bond insurance when purchasing
municipal securities that would not otherwise meet the fund's quality
standards. The fund may also require or obtain municipal bond insurance
when purchasing or holding specific municipal securities when, in the
opinion of the adviser, such insurance would benefit the fund, for example,
through improvement of portfolio quality or increased liquidity of certain
securities. The adviser anticipates that at least 65% of the fund's total
assets will be invested in insured municipal securities.
Issuer-Obtained Insurance Policies are non-cancelable and continue in force
as long as the municipal securities are outstanding and their respective
insurers remain in business. If a municipal security is covered by Issuer-
Obtained Insurance, then such security need not be insured by the Policies
purchased by the fund.
The fund may purchase two types of Policies issued by municipal bond
insurers.
1. One type of Policy covers certain municipal securities only during the
period in which they are in the fund's portfolio. In the event that a
municipal security covered by such a Policy is sold from the fund, the
insurer of the relevant Policy will be liable only for those payments of
interest and principal which are then due and owing at the time of sale.
2. The other type of Policy covers municipal securities not only while they
remain in the fund's portfolio, but also until their final maturity even
if they are sold out of the fund's portfolio. This allows the securities
to have coverage that benefits all subsequent holders of those municipal
securities. The fund will obtain insurance covering municipal securities
until final maturity even after they are sold out of the fund's portfolio
only if, in the judgment of the adviser, the fund would receive net
proceeds from the sale of those securities. Net proceeds are calculated
after deducting the cost of the permanent insurance and related fees.
Also, the proceeds received must be significantly more than the proceeds
the fund would have received if the municipal securities were sold
without insurance. Payments received from municipal bond insurers may
not be tax-exempt income to shareholders of the fund.
The fund pays the premiums for the Policies and, as a result, the yield on
the fund's portfolio is reduced. Premiums for the Policies are paid by the
fund monthly, and are adjusted for purchases and sales of municipal
securities during the month. Depending upon the characteristics of the
municipal security held by the fund, the annual premiums for the Policies
are estimated to range from 0.10% to 0.25% of the value of the municipal
securities covered under the Policies, with an average annual premium rate
of approximately 0.175%.
The fund may purchase Policies from Municipal Bond Investors Assurance Corp.
("MBIA"), AMBAC Indemnity Corporation ("AMBAC"), Financial Guaranty
Insurance Company ("Financial Guaranty"), Financial Security Assurance
("FSA") or any other municipal bond insurer which is rated in the highest
rating category by an NRSRO. Under each Policy, the insurer is obligated to
provide insurance payments pursuant to valid claims. The claims must be
equal to the payment of principal and interest on those municipal securities
the Policy insures. The Policies will have the same general characteristics
and features. A municipal security will be eligible for coverage if it
meets certain requirements set forth in a Policy. In the event interest or
principal on an insured municipal security is not paid when due, the insurer
covering the security will be obligated under its Policy to make such
payment not later than 30 days after it has been notified by the fund that
such non-payment has occurred. The insurance feature is intended to reduce
financial risk, but the cost of the insurance and compliance with the
investment restrictions imposed by the guidelines in the Policies will
reduce the yield to shareholders of the fund.
MBIA, AMBAC, Financial Guaranty and FSA will not have the right to withdraw
coverage on securities insured by their Policies so long as such securities
remain in the fund's portfolio. Also neither, MBIA, AMBAC, Financial
Guaranty or FSA may cancel their Policies for any reason except failure to
pay premiums when due. MBIA, AMBAC, Financial Guaranty and FSA will reserve
the right at any time upon 90 days' written notice to the fund to refuse to
insure any additional municipal securities purchased by the fund after the
effective date of such notice. The Trustees will reserve the right to
terminate any of the Policies if they determine that the benefits to the
fund of having its portfolio insured under such Policy are not justified by
the expense involved.
Additionally, the Board of Trustees reserves the right to enter into
contracts with insurance carriers other than MBIA, AMBAC, Financial Guaranty
or FSA if such carriers are rated in the highest rating category by an
NRSRO.
Under the Policies, municipal bond insurers unconditionally guarantee to the
fund the timely payment of principal and interest on the insured municipal
securities when and as such payments become due. However, the issuer does
not pay principal and interest. In the event of any acceleration of the due
date of the principal, the guaranteed payments will be made in such amounts
and at such times as payments of principal would have been due had there
been no acceleration. Reasons for possible acceleration are mandatory or
optional redemption (other than acceleration by reason of mandatory sinking
fund payments), default or otherwise. The municipal bond insurers will be
responsible for such payments less any amounts received by the fund from any
trustee for the municipal bond holders or from any other source. The
Policies do not guarantee payment on an accelerated basis, the payment of
any redemption premium, the value for the shares of the fund or payments of
any tender purchase price upon the tender of the municipal securities. The
Policies also do not insure against nonpayment of principal of or interest
on the securities resulting from the insolvency, negligence or any other act
or omission of the trustee or other paying agent for the securities.
However, with respect to small-issue industrial development municipal bonds
and pollution-control revenue municipal bonds covered by the Policies, the
municipal bond insurers guarantee the full and complete payments required to
be made by or on behalf of an issuer. The insurers do this if there are any
changes in the tax-exempt status of interest on such municipal securities,
including principal, interest or premium payments required to be made by or
on behalf of the issuer pursuant to the terms of the municipal securities.
A "when-issued" municipal security will be covered under the Policies upon
the settlement date of the original issue of such "when-issued" municipal
security. In determining whether to insure municipal securities held by the
fund, each municipal bond insurer will apply its own standard, which
corresponds generally to the standards it has established for determining
the insurability of new issues of municipal securities.
Regarding marketability of the fund, if the fund holds the first type of
Policy where the municipal bond insurers are liable only for the fund's
payments of principal and interest, then the fund has no marketability
benefit because the Policy terminates on the date of a sale. On the other
hand, since Issuer-Obtained Insurance will remain in effect as long as the
insured municipal securities are outstanding, such insurance may enhance the
marketability of municipal securities covered thereby, but the exact effect,
if any, on marketability cannot be estimated. The fund generally intends to
retain any securities that are in default or subject to significant risk of
default. The fund will also place a value on the insurance, which
ordinarily will be the difference between the market value of the defaulted
security and the market value of similar securities of minimum high grade
(i.e., rated in the highest rating category by an NRSRO) that are not in
default. To the extent the fund holds defaulted securities, it may be
limited in its ability to manage its investment and to purchase other
municipal securities. Except as described above with respect to securities
that are in default or subject to significant risk of default, the fund will
not place any value on the insurance in valuing the municipal securities
that it holds.
Further information regarding the insurance companies is as follows:
O MUNICIPAL BOND INVESTORS ASSURANCE CORP. Municipal Bond Investors
Assurance Corp. is a wholly owned subsidiary of MBIA, Inc., a
Connecticut insurance company, which is owned by Aetna Life and
Casualty, Credit Local DeFrance CAECL, S.A., The Fund American
Companies and the public. The investors of MBIA, Inc., are not
obligated to pay the obligations of MBIA. MBIA, domiciled in New
York, is regulated by the New York State Insurance Department and
licensed to do business in various states. The address of MBIA is 113
King Street, Armonk, New York 10504, and its telephone number is (914)
273-4345.
O AMBAC INDEMNITY CORPORATION AMBAC Indemnity Corporation is a
Wisconsin-domiciled stock insurance company, regulated by the
Insurance Department of Wisconsin, and licensed to do business in
various states. AMBAC is a wholly owned subsidiary of AMBAC, Inc., a
financial holding company that is owned by the public. Copies of
certain statutory required filings of AMBAC can be obtained from
AMBAC. The address of AMBAC's administrative offices is One State
Street Plaza, 17th Floor, New York, New York 10004, and its telephone
number is (212) 668-0340.
O FINANCIAL GUARANTY INSURANCE COMPANY Financial Guaranty Insurance
Company is a wholly owned subsidiary of FGIC Corporation, a Delaware
holding company. FGIC Corporation is wholly owned by General Electric
Capital Corporation. The investors in FGIC Corporation are not
obligated to pay the debts of or the claims against Financial
Guaranty. Financial Guaranty is subject to regulation by the State of
New York Insurance Department and is licensed to do business in
various states. The address of Financial Guaranty is 175 Water
Street, New York, New York 10038, and its telephone number is (212)
607-3000.
O FINANCIAL SECURITY ASSURANCE HOLDINGS Financial Security Assurance
("FSA"), a wholly-owned subsidiary of Financial Security Assurance
Holdings domiciled in New York, is a mono-line financial guaranty
insurer of municipal bonds and asset-backed securities. The investors
in FSA are not obligated to pay the debts of or the claims against
FSA. FSA is subject to regulation by the State of New York Insurance
Department and is licensed to do business in all fifty states and in
the District of Columbia. The address of FSA is 350 Park Avenue, New
York, NY 10022, and its telephone number is (212) 688-3101.
MORE INFORMATION ABOUT THE OHIO TAX-FREE MONEY MARKET FUND AND INVESTMENT RISKS
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As a non-diversified fund, the OHIO TAX-FREE MONEY MARKET FUND has no limit on
the percentage of assets that it may invest in any single issuer. An investment
in the fund, therefore, will entail greater risk than would exist in a
diversified investment company because the higher percentage of investments
among fewer issuers may result in greater fluctuation in the total market value
of the fund's portfolio. Any economic, political, or regulatory developments
affecting the value of securities in the fund's portfolio will have a greater
impact on the total value of the portfolio than would be the case if the
portfolio were diversified among more issuers. The fund may purchase an issue
of municipal securities in its entirety. The fund intends to comply with
Subchapter M of the Internal Revenue Code. This undertaking requires that at
the end of each quarter of the taxable year, the aggregate value of all
investments in any one issuer (except U.S. government obligations, cash and cash
items) that exceed 5% of the fund's total assets shall not exceed 50% of the
value of its total assets. In addition, not more than 25% of its total assets
will be invested in the securities of any one issuer, except government
securities or securities of regulated investment companies.
The fund invests in obligations of Ohio (the "State") issuers which result in
the fund's performance being subject to risks associated with the overall
conditions present within the State. The following information is a brief
summary of the prevailing economic conditions and general summary of the State's
financial condition. This information is based on official statements relating
to securities that are believed to be reliable but should not be considered as a
complete description of all relevant information.
The Ohio economy is largely composed of manufacturing which is concentrated in
the automobile sector and other durable goods. The exposure to these
industries, particularly the auto sector, leaves the State vulnerable to an
economic slowdown associated with business cycles. The State has diversified
its economy over the past decade with services and trade composing roughly 50%
of the economy. Unemployment in Ohio over the past two years has been below the
national average, but population growth, as in many states around the Great
Lakes, has been stagnant.
The State acted promptly in addressing the fall in revenue from the last
recession with an expansion of the sales tax and cuts in appropriations. As a
result of prudent financial management, the State restored the budget
stabilization fund in fiscal 1993. Strong performance resulted in reserve
levels that are well above the levels of 1990.
The overall condition of the State is further demonstrated by its debt ratings.
Ohio, rated Aaa by Moody's Investors Service, Inc. in the 1970's, was downgraded
to Aa in 1979. Moody's recently revised Ohio's rating upward to Aa1 in
September of 1996. Standard & Poor's first rated the State in 1984 at AA; that
rating was also upgraded to AA+ in October of 1996.
The fund's concentration in securities issued by the State and its political
subdivisions provides a greater level of risk than a fund whose assets are
diversified across numerous states and municipal issuers. The ability of the
State or its municipalities to meet their obligations will depend on the
availability of tax and other revenues; economic, political and demographic
conditions within the State; and the underlying fiscal condition of the State,
its counties and its municipalities.
MORE INFORMATION ABOUT THE INTERNATIONAL EQUITY FUND AND INVESTMENT RISKS
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Investing in mutual funds involves risk. This risk may be increased when
investing in the INTERNATIONAL EQUITY FUND because the fund invests in a number
of underlying mutual funds. Moreover, investing through the fund in an
underlying portfolio of mutual funds involves certain additional expenses and
certain tax results that would not be present in a direct investment in the
underlying funds.
The fund's investment strategy of investing in the shares of other international
equity funds is designed (but not guaranteed) to reduce the risk associated with
investing in a single underlying fund with a single manager. Holding a
diversified portfolio of international equity funds also may provide access to a
wider range of management talent, companies, industries, countries and markets
than would be available through any one underlying fund. International
securities and markets are subject to currency rate fluctuations and potentially
greater price volatility and liquidity considerations than U.S. securities.
Investors have historically sought to reduce these risks through multi-country
diversification. The fund is designed to give shareholders a single investment
that offers broad international diversification.
The 1940 Act provides that the fund may not purchase the securities of an
underlying fund, if as a result, the fund, together with any of its affiliates,
would own more than 3% of the total outstanding securities of that underlying
fund. For this purpose, shares of underlying funds held by private
discretionary investment advisory accounts managed by the adviser will be
aggregated with those held by the fund. Thus, the fund's ability to invest in
shares of certain underlying funds could be restricted and the adviser may have
to select alternative investments. Accordingly, when affiliated persons and
other accounts managed by the adviser hold shares of any of the underlying
funds, the fund's ability to invest fully in shares of those funds is
restricted. The adviser must then, in some instances, select alternative
investments that would not have been its first preference. By investing in the
fund, shareholders would bear not only the fund's total operating expenses, but
the operating expenses of the underlying funds as well.
The 1940 Act also provides that, when the fund invests in shares of an
underlying fund, the underlying fund will be obligated to redeem shares held by
the fund only in an amount up to 1% of the underlying fund's outstanding
securities during any period of less than 30 days. Therefore, if the fund owns
more than 1% of an underlying fund's outstanding securities, the portion of the
investment exceeding 1% may be considered illiquid and, when added together with
other such illiquid securities, cannot exceed 15% of the fund's net assets.
These limitations are not fundamental investment policies and may be changed by
the Board of Trustees without shareholder approval.
Under certain circumstances, an underlying fund may decide to make a redemption
payment by the fund wholly or partly by an in-kind distribution of securities
from its portfolio, in lieu of cash, in conformity with the rules of the SEC.
In such cases, the fund may hold portfolio securities distributed by an
underlying fund until the adviser determines that it is appropriate to dispose
of such securities.
Investment decisions by the investment advisers of the underlying funds are made
independently of each other and of the fund and the adviser. Therefore, the
investment adviser of one underlying fund may be purchasing shares of the same
issuer whose shares are being sold by the investment adviser of another such
fund. The result of this would be an indirect expense to the fund without
accomplishing any investment purpose.
The fund may purchase shares of both load and no-load underlying funds
(including those with a contingent deferred sales charge). However, in most
cases, the fund anticipates purchasing fund shares without a sales load or
qualifying for a reduction or waiver of any sales load because of the amount it
intends to invest in the underlying fund.
Although the fund will normally invest in open-end management investment
companies, it also may invest in closed-end management investment companies
and/or unit investment trusts. Unlike open-end funds that offer and sell their
shares at net asset value plus any applicable sales charge, the shares of
closed-end funds and unit investment trusts may trade at a market value that
represents a premium, discount or spread to net asset value.
Under the 1940 Act, a mutual fund must sell its shares at the price (including
sales load, if any) described in its prospectus, and current rules under the
1940 Act do not permit negotiation of sales charges. Therefore, the fund
currently is not able to negotiate the level of the sales charges at which it
will purchase shares of load funds. In some cases, the sales load may be as
great as 8.5% of the public offering price (or 9.29% of the net amount
invested). Nevertheless, when appropriate, the fund will purchase such shares
pursuant to
a) letters of intent, permitting it to obtain reduced or no sales charges
by aggregating its intended purchases over time (generally 13 months
from the initial purchase under the letter);
b) rights of accumulation, permitting it to obtain reduced or no sales
charges as it purchases additional shares of an underlying fund; and
c) the right to obtain reduced or no sales charges by aggregating its
purchases of several funds within a family of mutual funds.
As an operational policy, the fund invests substantially all of its assets in
international funds. To the extent that the fund's assets are invested in
underlying funds, its investment experience will correspond directly with that
of its proportionate investment in those funds. This strategy also involves
certain additional expenses and certain tax results that would not be present in
a direct investment in mutual funds. Federal law imposes certain limits on the
purchases of mutual fund shares by the fund. The fund may purchase shares of
no-load funds available without a transaction fee and shares of mutual funds
that charge sales loads and/or pay their own distribution expenses. Each
underlying fund provides a prospectus and other disclosure documents to the
fund. These documents are also available to fund shareholders directly from the
underlying fund.
The adviser will attempt to identify and select a varied portfolio of
international equity funds which represents the greatest long-term capital
growth potential based on the investment adviser's analysis of many factors. The
selection of international equity funds may include international equity funds
that invest primarily in emerging markets or focus their investments on
geographic regions (provided they invest in at least three countries other than
the United States). Underlying funds may also concentrate their investments in
single industry.
If an underlying fund maintains its assets abroad, its board of directors must
consider at least annually whether maintaining the underlying fund's assets with
custodians in foreign countries is consistent with the best interests of the
underlying fund and its shareholders. The underlying fund's board of directors
also must consider the degree of risk involved through the holding of portfolio
securities in domestic and foreign securities depositories. However, in the
absence of willful misfeasance, bad faith or gross negligence, any losses
resulting from the holding of an underlying fund's portfolio securities in
foreign countries and/or with foreign custodians or securities depositories will
be at the risk of shareholders, unless the losses are insured. No assurance can
be given that the underlying fund's board of directors' appraisal of the risks
will always be correct or that such exchange control restrictions or political
acts of foreign governments might not occur.
Securities that are acquired by an underlying fund outside the United States and
that are publicly traded in the United States on a foreign securities exchange
or in a foreign securities market are not considered by the underlying fund to
be illiquid assets provided that:
i)the underlying fund acquires and holds the securities with the intention
of reselling the securities in the foreign trading market,
ii)the underlying fund reasonably believes it can readily dispose of the
securities in the foreign trading market or for cash in the United
States, or
iii)foreign market and current market quotations are readily available.
Investments may be in securities of foreign issuers, whether located in
developed or undeveloped countries. Investments in foreign securities where
delivery takes place outside the United States will have to be made in
compliance with any applicable U.S. and foreign currency restrictions and tax
laws (including laws imposing withholding taxes on any dividend or interest
income) and laws limiting the amount and types of foreign investments. Changes
of government administrations or economic or monetary policies in the United
States or abroad, or changed circumstances regarding convertibility or exchange
rates, could result in investment losses for the underlying fund.
The following is a description of the securities in which the underlying funds
may invest. Although many of the underlying funds may have the same or similar
investment policies as the fund, they are not required to do so.
SECURITIES OF FOREIGN ISSUERS
An underlying fund may invest up to 100% of its total assets in the equity
securities of foreign issuers, including international stocks. Foreign
companies around the world (excluding the United States) issue
international stocks. Investing in non-U.S. securities carries substantial
risks in addition to those associated with domestic investments.
An underlying fund may also invest in equity or debt securities of foreign
issuers traded on the New York or American Stock Exchanges or in the over-
the-counter market in the form of sponsored or unsponsored American
Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs"), and
European Depositary Receipts ("EDRs") (collectively, "Depositary
Receipts").
The fund's investment approach of investing, through underlying funds, in
foreign securities is based on the premise that investing in non-U.S.
securities provides three potential benefits over investing solely in U.S.
securities:
1.the opportunity to invest in foreign issuers believed to have superior
growth potential;
2.the opportunity to invest in foreign countries with economic policies or
business cycles different from those of the U.S.; and
3.the opportunity to reduce portfolio volatility to the extent that
securities markets inside and outside the U.S. do not move in harmony.
The underlying funds in which the fund invests may also take advantage of
the unusual opportunities for higher returns available from investing in
developing or emerging market countries. Underlying funds may invest
without limit in emerging market countries. A developing or emerging
market country generally is considered to be in the initial stages of
industrialization. Furthermore, the adviser considers emerging market
countries to be all countries considered by the International Bank for
Reconstruction and Development (more commonly known as the World Bank) and
the International Finance Corporation, as well as countries that are
classified by the United Nations or otherwise regarded by their
authorities, as developing. Investments in developing countries are more
volatile and risky than investments in developed countries.
To the extent that the fund invests in underlying funds that invest
primarily in the securities of a single country, any political, economic or
regulatory developments affecting the value of the securities in the
underlying fund's portfolio will have a greater impact on the total value
of the portfolio than would be the case if the portfolio were diversified
among the securities of more countries.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency and balance
of payments position. Further, the economies of developing countries
generally are heavily dependent on international trade and, accordingly,
have been, and may continue to be, adversely affected by trade barriers,
exchange controls, managed adjustments in relative currency values and
other protectionist measures imposed or negotiated by the countries with
which they trade. These economies also have been, and may continue to be,
adversely affected by economic conditions in the countries with which they
trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, or in issuers or industries deemed
sensitive to national interests, and the extent of foreign investment in
certain debt securities and domestic companies may be subject to
limitation. The charters of individual companies may also impose foreign
ownership to prevent, among other concerns, violation of foreign investment
limitations.
Repatriation of investment income, capital and the proceeds of sales by
foreign investors may require governmental registration and/or approval in
some countries. Delays in, or a refusal to grant, any required
governmental registration or approval for such repatriation could adversely
affect an underlying fund. Any investment subject to such repatriation
controls will be considered illiquid if it appears reasonably likely that
this process will take more than seven days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such
countries or the value of the investments in those countries.
Brokerage commissions, custodial services and other costs relating to
foreign investment may be more expensive than in the United States.
Foreign markets may have different clearance and settlement procedures and
in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. The inability of an underlying
fund to make intended security purchases due to settlement problems could
cause an underlying fund to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems
could result either in losses due to subsequent declines in value of the
portfolio security or, if an underlying fund has entered into a contract to
sell the security, could result in possible liability to the purchaser.
Other differences between foreign and U.S. companies include:
o less publicly available information about foreign companies;
o the lack of uniform accounting, auditing and financial reporting
standards and practices or regulatory requirements comparable to
those applicable to U.S. companies;
o less readily available market quotations on foreign companies;
o differences in government regulation and supervision of foreign
stock exchanges, brokers, listed companies, and banks;
o differences in legal systems which may affect the ability to
enforce contractual obligations or obtain court judgments;
o the limited size of many foreign securities markets and limited
trading volume in issuers compared to the volume of trading in U.S.
securities, which could cause prices to be erratic for reasons
apart from factors that affect the quality of securities;
o the likelihood that foreign securities may be less liquid or more
volatile;
o unreliable mail service between countries;
o political or financial changes which adversely affect investments
in some countries;
o the possibility that certain markets may require payment for
securities before delivery; and
religious and ethnic instability.
In the past, U.S. government policies have discouraged or restricted
certain investments abroad by investors. Investors are advised that when
such policies are instituted, the fund will abide by them, and the fund
anticipates compliance by the underlying funds.
DEPOSITARY RECEIPTS
ADRs are receipts typically issued by an American bank or trust company
that evidences ownership of underlying securities issued by a foreign
issuer. ADRs may not necessarily be denominated in the same currency as
the securities into which they may be converted. Generally, ADRs, in
registered form, are designed for use in U.S. securities markets. Foreign
banks or trust companies typically issue EDRs and GDRs, although U.S. banks
or trust companies also may issue them, and evidence ownership of
underlying securities issued by either a foreign or a U.S. corporation.
Generally, Depositary Receipts in registered form are designed for use in
the U.S. securities market and Depositary Receipts in bearer form are
designed for use in securities markets outside the United States.
Depositary Receipts may not necessarily be denominated in the same currency
as the underlying securities into which they may be converted.
Depositary Receipts may be available for investment through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by
the issuer of the security underlying the receipt and a depositary, whereas
an unsponsored facility may be established by a depositary without
participation by the issuer of the receipt's underlying security. Holders
of an unsponsored Depositary Receipt generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently
is under no obligation to distribute shareholder communications received
from the issuer of the deposited security or to pass through to the holders
of the receipts voting rights with respect to the deposited securities.
Ownership of unsponsored Depositary Receipts may not entitle the underlying
funds to financial or other reports from the issuer of the underlying
security, to which they would be entitled as the owner of sponsored
Depositary Receipts.
EMERGING MARKETS
Generally included in emerging markets are all countries in the world
except Australia, Canada, Japan, New Zealand, the United States and most
western European countries. The risks of investing in developing or
emerging markets are similar to, but greater than, the risks of investing
in the securities of developed international markets since emerging or
developing markets tend to have economic structures that are less diverse
and mature, and political systems that are less stable, than developed
countries.
In certain emerging market countries, there is less government supervision
and regulation of business and industry practices, stock exchanges, brokers
and listed companies than in the United States. The economies of emerging
market countries may be predominantly based on a few industries and may be
highly vulnerable to change in local or global trade conditions. The
securities markets of many of these countries also may be smaller, less
liquid and subject to greater price volatility than those in the United
States. Some emerging market countries also may have fixed or managed
currencies which are not free-floating against the U.S. dollar. Further,
certain emerging market country currencies may not be internationally
traded. Certain of these currencies have experienced a steady devaluation
relative to the U.S. dollar. Any devaluation in the currencies in which
portfolio securities are denominated may have an adverse impact on the
underlying funds. Finally, many emerging market countries have experienced
substantial, and in some periods, extremely high, rates of inflation for
many years. Inflation and rapid fluctuations in inflation rates have had,
and may continue to have, negative effects on the economies for individual
emerging market countries. Moreover, the economies of individual emerging
market countries may differ favorably or unfavorably from the U.S. economy
in such respects as the rate of growth of domestic product, inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
FOREIGN CURRENCY TRANSACTIONS
Foreign currency transactions may be used by underlying funds to obtain the
necessary currencies to settle securities transactions. Currency
transactions may be conducted either on a spot or cash basis at prevailing
rates or through forward foreign currency exchange contracts.
Foreign currency transactions also may be used to protect assets against
adverse changes in foreign currency exchange rates or exchange control
regulations. Such changes could unfavorably affect the value of assets
that are denominated in foreign currencies, such as foreign securities or
funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used to protect against a decline in the
value of one or more currencies, such efforts may also limit any potential
gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses. Further, an
underlying fund may be affected either unfavorably or favorably by
fluctuations in the relative rates of exchange between the currencies of
different nations. Cross-hedging transactions involve the risk of
imperfect correlation between changes in the values of the currencies to
which such transactions relate and changes in the value of the currency or
other asset or liability that is the subject of the hedge.
In order to hedge against foreign currency exchange rate risks, an
underlying fund may enter into forward foreign currency exchange contracts
and foreign currency futures contracts, as well as purchase put or call
options on foreign currencies, as described below. The underlying fund may
also conduct its foreign currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange
market.
An underlying fund may enter into forward foreign currency exchange
contracts ("forward contracts") to attempt to minimize the risk to the
underlying fund from adverse changes in the relationship between the U.S.
dollar and foreign currencies. A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a future date,
which is individually negotiated and privately traded by currency traders
and their customers. An underlying fund may enter into a forward contract,
for example, when it enters into a contract for the purchase or sale of a
security denominated in a foreign currency in order to "lock in" the U.S.
dollar price of the security. In addition, for example, when the
underlying fund believes that a foreign currency may suffer a substantial
decline against the U.S. dollar, it may enter into a forward contract to
sell an amount of that foreign currency approximating the value of some or
all of the underlying fund's portfolio securities denominated in such
foreign currency, or when the underlying fund believes that the U.S. dollar
may suffer a substantial decline against a foreign currency, it may enter
into a forward contract to buy that foreign currency for a fixed dollar
amount.
This second investment practice is generally referred to as "cross-
hedging." Because in connection with the underlying fund's forward foreign
currency transactions an amount of the underlying fund's assets equal to
the amount of the purchase will be held aside or segregated to be used to
pay for the commitment, the underlying fund will always have cash, cash
equivalents or high quality debt securities available sufficient to cover
any commitments under these contracts or to limit any potential risk. The
segregated account will be marked to market on a daily basis. While these
contracts are not presently regulated by the Commodities Futures Trading
Commission, 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.
An underlying fund may purchase and write put and call options on foreign
currencies for the purpose of protecting against declines in the dollar
value of foreign portfolio securities and against increases in the dollar
cost of foreign securities to be acquired. As is the case with other kinds
of options, however, the writing of an option on foreign currency will
constitute only a partial hedge, up to the amount of the premium received,
and the underlying fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on foreign currency may constitute an effective
hedge against fluctuation in exchange rates, although, in the event of rate
movements adverse to the underlying fund's position, the underlying fund
may forfeit the entire amount of the premium plus related transaction
costs. Options on foreign currencies to be written or purchased by the
underlying fund will be traded on U.S. and foreign exchanges or over-the-
counter.
An underlying fund may enter into exchange-traded contracts for the
purchase or sale for future delivery of foreign currencies ("foreign
currency futures"). This investment technique will be used only to hedge
against anticipated future changes in exchange rates which otherwise might
adversely affect the value of the underlying fund's portfolio securities or
adversely affect the prices of securities that the underlying fund intends
to purchase at a later date. The successful use of foreign currency
futures will usually depend on the ability of the underlying fund's
investment adviser to forecast currency exchange rate movements correctly.
Should exchange rates move in an unexpected manner, the underlying fund may
not achieve the anticipated benefits of foreign currency futures or may
realize losses.
FORWARD COMMITMENTS
Forward commitments are contracts to purchase securities for a fixed price
at a date beyond customary settlement time. An underlying fund may enter
into these contracts if liquid securities in amounts sufficient to meet the
purchase price are segregated on the underlying fund's records at the trade
date and maintained until the transaction has been settled. Risk is
involved if the value of the security declines before settlement. Although
an underlying fund may enter into forward commitments with the intention of
acquiring the security, it may dispose of the commitment prior to
settlement and realize a short-term profit or loss.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES
A forward foreign currency exchange contract is an obligation to purchase
or sell an amount of a particular currency at a specific price and on a
future date agreed upon by the parties.
Generally, no commission charges or deposits are involved. At the time an
underlying fund enters into a forward contract, the underlying fund assets
with a value equal to the underlying fund's obligation under the forward
contract are segregated on the underlying fund's records and are maintained
until the contract has been settled. An underlying fund will not enter
into a forward contract with a term of more than one year. An underlying
fund will generally enter into a forward contract to provide the proper
currency to settle a securities transaction at the time the transaction
occurs ("trade date"). The period between the trade date and settlement
date will vary between 24 hours and 30 days, depending upon local custom.
An underlying fund may also protect against the decline of a particular
foreign currency by entering into a forward contract to sell an amount of
that currency approximating the value of all or a portion of the assets
denominated in that currency ("hedging"). The success of this type of
short-term hedging strategy is highly uncertain due to the difficulties of
predicting short-term currency market movements and of precisely matching
forward contract amounts and the constantly changing value of the
securities involved. The adviser believes, however, that it is important
that an underlying fund be able to enter into forward contracts when the
best interests of the underlying fund will be served.
An underlying fund may purchase and write put and call options on foreign
currencies for the purpose of protecting against declines in the U.S.
dollar value of foreign currency-denominated portfolio securities and
against increases in the U.S. dollar cost of such securities to be
acquired. As in the case of other kinds of options, however, the writing
of an option on a foreign currency constitutes only a partial hedge, up to
the amount of the premium received, and the underlying fund could be
required to purchase or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. The purchase of an option on a foreign
currency may constitute an effective hedge against fluctuations in exchange
rates although, in the event of rate movements adverse to the underlying
fund's position, the underlying fund may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign currencies to
be written or purchased by the underlying fund are traded on U.S. and
foreign exchanges or over-the-counter.
CURRENCY RISKS
Because an underlying fund may purchase securities denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates could affect such underlying fund's net asset value, the value of
interest earned, gains and losses realized on the sale of securities, and
net investment income and capital gain, if any, to be distributed to
shareholders by such underlying fund. If the value of a foreign currency
rises against the U.S. dollar, the value of an underlying fund's assets
denominated in that currency will increase; correspondingly, if the value
of a foreign currency declines against the U.S. dollar, the value of
underlying fund assets denominated in that currency will decrease.
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental interpretation,
speculation and other economic and political conditions. Although the
underlying funds value their assets daily in U.S. dollars, the underlying
funds will not convert their holdings of foreign currencies to U.S. dollars
daily. When an underlying fund converts its holdings to another currency,
it may incur conversion costs. Foreign exchange dealers may realize a
profit on the difference between the price at which they buy and sell
currencies.
SWAP AGREEMENTS
As one way of managing its exposure to different types of investments, the
underlying funds may enter into interest rate swaps, currency swaps and
other types of swap agreements such as caps, collars and floors. Depending
on how they are used, swap agreements may increase or decrease the overall
volatility of an underlying fund's investments, its share price and yield.
Swap agreements are sophisticated instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on
an underlying fund's performance. Swap agreements are subject to risks
related to the counterparty's ability to perform, and may decline in value
if the counterparty's creditworthiness deteriorates. An underlying fund
may also suffer losses if it is unable to terminate outstanding swap
agreements to reduce its exposure through offsetting transactions. When an
underlying fund enters into a swap agreement, assets of the underlying fund
equal to the value of the swap agreement will be segregated by the
underlying fund.
Among the hedging strategies into which an underlying fund may enter are
interest rate, currency and index swaps and the purchase or sale of related
caps, floors and collars. The underlying fund expects to enter into these
transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the underlying fund anticipates
purchasing at a later date. The underlying fund intends to use these
transactions as hedges and not as speculative investments and will not sell
interest rate caps or floors where it does not own securities or other
instruments providing the income stream the underlying fund may be
obligated to pay. Interest rate swaps involve the exchange by the
underlying fund with another party of their respective commitments to pay
or receive interest, e.g., An exchange of floating rate payments for fixed
rate payments with respect to a notional amount of principal. A currency
swap is an agreement to exchange cash flows on a notional amount of two or
more currencies based on the relative value differential among them and an
index swap is an agreement to swap cash flows on a notional amount based on
changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount
from the party selling such cap to the extent that a specified index
exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount
from the party selling such floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is a
combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
An underlying fund will usually enter into swaps on a net basis, i.e., the
two payment streams are netted out in a cash settlement on the payment date
or dates specified in the instrument, with the underlying fund receiving or
paying, as the case may be, only the net amount of the two payments.
Inasmuch as these swaps, caps, floors, and collars are entered into for
good faith hedging purposes, the underlying fund's investment adviser and
the underlying fund believe such obligations do not constitute senior
securities under the 1940 Act, and, accordingly, will not treat them as
being subject to its borrowing restrictions. There is no minimal
acceptable rating for a swap, cap, floor or collar to be purchased or held
in an underlying fund's portfolio. If there is a default by the
counterparty, the underlying fund may have contractual remedies pursuant to
the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and agents utilizing standardized
swap documentation. As a result, the swap market has become relatively
liquid. Caps, floors and collars are more recent innovations for which
standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
HIGH YIELD SECURITIES
The underlying funds may invest 35% or more of their respective assets in
debt securities which are not considered investment grade bonds (commonly
referred to as "junk bonds") by an NRSRO, such as Moody's Investor's
Service, Inc. or Standard & Poor's. There is no minimal acceptable rating
for a security to be purchased or held in the underlying funds, and the
underlying funds may, from time to time, purchase or hold securities in the
lowest rating category. Debt obligations that are not determined to be
investment grade are high-yield, high-risk bonds, typically subject to
greater market fluctuations and greater risk of loss of income and
principal due to an issuer's default. To a greater extent than investment
grade bonds, lower rated bonds tend to reflect short-term corporate,
economic, and market developments, as well as investor perceptions of the
issuer's credit quality. In addition, lower rated bonds may be more
difficult to dispose of or to value than higher rated, lower-yielding
bonds. (Underlying funds that invest 35% or more of their respective
assets in junk bonds are not considered international equity funds).
VARIABLE RATE DEMAND NOTES
The underlying funds may purchase variable rate demand notes. Variable
rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide an underlying fund with the right to
tender the security for repurchase at its stated principal amount plus
accrued interest. Such securities typically bear interest at a rate that
is intended to cause the securities to trade at par. The interest rate may
float or be adjusted at regular intervals (ranging from daily to annually),
and is normally based on a published interest rate or interest rate index.
Many variable rate demand notes allow an underlying fund to demand the
repurchase of the security on not more than seven days' prior notice.
Other notes only permit an underlying fund to tender the security at the
time of each interest rate adjustment or at other fixed intervals. The
underlying funds treat variable rate demand notes as maturing on the later
of the date of the next interest rate adjustment or the date on which the
underlying fund may next tender the security for repurchase.
CREDIT FACILITIES
An underlying fund may purchase demand notes, which are borrowing
arrangements between a corporation and an institutional lender (such as an
underlying fund) payable upon demand by either party. The notice period
for demand typically ranges from one to seven days, and the party may
demand full or partial payment.
Revolving credit facilities are borrowing arrangements in which the lender
agrees to make loans up to a maximum amount upon demand by the borrower
during a specified term. As the borrower repays the loan, an amount equal
to the repayment may be borrowed again during the term of the facility. An
underlying fund generally acquires a participation interest in a revolving
credit facility from a bank or other financial institution. The terms of
the participation require the underlying fund to make a pro rata share of
all loans extended to the borrower and entitles the underlying fund to a
pro rata share of all payments made by the borrower. Demand notes and
revolving credit facilities usually provide for floating or variable rates
of interest.
DIVERSIFICATION
With respect to 75% of the value of total assets, the fund will not invest
more than 5% in securities of any one issuer, other than cash, cash items,
or securities issued or guaranteed by the government of the United States
or its agencies or instrumentalities and repurchase agreements
collateralized by U.S. government securities and securities of other
investment companies, or acquire more than 10% of the outstanding voting
securities of any one issuer (for which purposes all indebtedness of an
issuer shall be deemed a single class and all preferred stock of an issuer
shall be deemed a single class, except that futures or option contracts and
securities of mutual funds shall not be subject to this restriction).
NON-DIVERSIFICATION
Some of the underlying funds in which the fund invests may be non-
diversified investment companies. As such, there is no 1940 Act limit on
the percentage of assets that can be invested in any single issuer. An
investment in such underlying funds, therefore, will entail greater risks
than would exist in diversified investment companies because the higher
percentage of investments among fewer issuers may result in greater
fluctuation in the total market value of the underlying fund's portfolio.
Any economic, political, or regulatory developments affecting the value of
the securities of such issuer held by the underlying fund will have a
greater impact on the total value of the underlying fund's portfolio than
would be the case if the fund were diversified among more issuers.
However, it is anticipated that the underlying funds will comply with
Subchapter M of the Internal Revenue Code. This requires that at the end
of each quarter of the taxable year, the aggregate value of all investments
in any one issuer (except U.S. government obligations, cash, cash items and
other investment companies) which exceed 5% of an underlying fund's total
assets shall not exceed 50% of the value of its total assets, and, with
respect to the remaining assets, no more than 25% of an underlying fund's
assets shall be invested in a single issuer.
INDUSTRY CONCENTRATION
Underlying funds may concentrate their investments in one industry.
Because the scope of investment alternatives within an industry is limited,
the value of the shares of such an underlying fund may be subject to
greater market fluctuation than an investment in a fund that invests in a
broader range of securities.
DERIVATIVE CONTRACTS AND SECURITIES
The term "derivative" has traditionally been applied to certain contracts
(including futures, forward, option and swap contracts) that "derive" their
value from changes in the value of an underlying security, currency,
commodity or index. Certain types of securities that incorporate the
performance characteristics of these contracts are also referred to as
"derivatives." The term has also been applied to securities "derived" from
the cash flows from underlying securities, mortgages or other obligations.
Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the
response of certain derivative contracts and securities to market changes
may differ from traditional investments, such as stock and bonds,
derivatives do not necessarily present greater market risks than
traditional investments.
THE FUNDS' INVESTMENT LIMITATIONS
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The following is a list of the Funds' investment limitations, which cannot be
changed without the approval of a majority of a Fund's outstanding voting
securities. As used in this SAI, "a majority of a fund's outstanding voting
securities" means the lesser of (1) 67% of the shares of common stock of the
Fund represented at a meeting at which more than 50% of the outstanding shares
are present, or (2) more than 50% of the outstanding shares of common stock of
the Fund.
SELLING SHORT
None of the Funds, except the STRATEGIC INCOME FUND will sell any securities
short. The STRATEGIC INCOME FUND will not sell securities short unless: (1)
it owns, or has a right to acquire, an equal amount of such securities or (2)
if it does not own the securities, it has segregated an amount of its other
assets equal to the lesser of the market value of the securities sold short
or the amount required to acquire such securities. While in a short
position, the STRATEGIC INCOME FUND will retain the securities, rights, or
segregated assets.
The underlying funds of the INTERNATIONAL EQUITY FUND may engage in short
selling transactions.
BUYING ON MARGIN
None of the Funds will purchase any securities on margin, but they may obtain
such short-term credits as may be necessary for clearance of purchases and
sales of portfolio securities. Regarding the STRATEGIC INCOME FUND, U.S.
GOVERNMENT INCOME FUND, INSURED TAX-FREE BOND FUND, GROWTH EQUITY FUND and
CAPITAL APPRECIATION FUND, the deposit or payment by the Funds of initial or
variation margin in connection with futures contracts or related options
transactions is not considered the purchase of a security on margin.
ISSUING SENIOR SECURITIES
None of the Funds will issue senior securities, except that each fund may
borrow money directly or through reverse repurchase agreements in amounts up
to one-third of the value of its total assets, including the amount borrowed.
The STELLAR FUND will not issue senior securities, except as permitted by its
investment objective and policies. The CAPITAL APPRECIATION FUND and GROWTH
EQUITY FUND will issue senior securities to the extent that the funds may
enter into futures contracts. The INSURED TAX-FREE BOND FUND will not issue
senior securities except for when-issued and delayed-delivery transactions
and futures contracts, each of which might be considered senior securities.
In addition, the INSURED TAX-FREE BOND FUND reserves the right to purchase
municipal securities, which the it has the right or obligation to sell to a
third party (including the issuer of a participation interest).
BORROWING MONEY
Except as described in their respective prospectuses, none of the Funds,
except the STRATEGIC INCOME FUND and INSURED TAX-FREE BOND FUND, will borrow
money or engage in reverse repurchase agreements for investment leverage.
However, each fund may borrow money up to one-third of its value of their
total assets as a temporary, extraordinary, or emergency measure or to
facilitate management of the fund by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. Interest paid on borrowed funds will serve
to reduce the fund's income. A fund will not purchase any securities while
borrowings and reverse repurchase agreements in excess of 5% of its total
assets are outstanding. During the period any reverse repurchase agreements
are outstanding, the Funds will restrict the purchase of portfolio securities
to money market instruments maturing on or before the expiration date of the
reverse repurchase agreements, but only to the extent necessary to assure
completion of the reverse repurchase agreements. The underlying funds of the
INTERNATIONAL EQUITY FUND may borrow money.
The STRATEGIC INCOME FUND may borrow money directly or through reverse
repurchase agreements in amounts up to one-third of the value of its total
assets, including the amount borrowed, either
a) as a temporary, extraordinary, or emergency measure or to facilitate
management of the STRATEGIC INCOME FUND by enabling the fund to meet
redemption requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous, or
b) for investment purposes.
The STRATEGIC INCOME FUND will not purchase any securities for the purpose
stated under clause (i) above while any borrowings in excess of 5% of its
total assets are outstanding.
PLEDGING ASSETS
The Funds will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, they may mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% (15% for the TAX-
FREE MONEY MARKET FUND and OHIO TAX-FREE MONEY MARKET FUND) of the value of
total assets at the time of the pledge.
Regarding the STRATEGIC INCOME FUND, GROWTH EQUITY FUND and CAPITAL
APPRECIATION FUND, the following will not be deemed to be pledges of the
funds' assets:
a) the deposit of assets in escrow in connection with the writing of
covered put or call options and the purchase of securities on a when-
issued basis; and
b) collateral arrangements with respect to (i) the purchase and sale of
stock options (and options on stock indices) and (ii) initial or
variation margin for futures contracts.
Margin deposits for the purchase and sale of futures contracts and related
options are not deemed to be a pledge.
Regarding the U.S. GOVERNMENT INCOME FUND and INSURED TAX-FREE BOND FUND,
margin deposits for the purchase and sale of futures contracts and related
options and segregation or collateral arrangements made in connection with
options activities or the purchase of securities on a when-issued basis are
not deemed to be a pledge.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of their respective
total assets, the TAX-FREE MONEY MARKET FUND, STRATEGIC INCOME FUND, U.S.
GOVERNMENT INCOME FUND, GROWTH EQUITY FUND, STELLAR FUND, CAPITAL
APPRECIATION FUND and INTERNATIONAL EQUITY FUND will not purchase securities
issued by any one issuer (other than cash, cash items, or securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities, and
repurchase agreements collateralized by such securities and securities of
other investment companies) if, as a result, more than 5% of the value of
their respective total assets would be invested in the securities of that
issuer. The funds will not acquire more than 10% of the outstanding voting
securities of any one issuer.
The RELATIVE VALUE FUND and the STELLAR FUND will not invest more than 5% of
their respective total assets in the securities of any one issuer, except in
cash or cash investments, securities guaranteed by the U.S. government, its
agencies or instrumentalities and repurchase agreements collateralized by
such securities. In addition, the STELLAR FUND will not purchase more than
10% of any class of voting securities of any one issuer.
CONCENTRATION OF INVESTMENTS
The STRATEGIC INCOME FUND, GROWTH EQUITY FUND, RELATIVE VALUE FUND, STELLAR
FUND, CAPITAL APPRECIATION FUND and INTERNATIONAL EQUITY FUND will not invest
25% or more of the value of their respective total assets in any one industry
(other than investment companies and securities issued by the U.S.
government, its agencies or instrumentalities).
The INSURED TAX-FREE BOND FUND will not purchase securities if, as a result
of such purchase, 25% or more of the value of its total assets would be
invested in any one industry, industrial development bonds or other
securities, the interest upon which is paid from revenues of similar types of
projects. However, the fund may invest as temporary investments more than
25% of the value of its assets in cash or certain money market instruments,
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or instruments secured by these money market instruments,
such as repurchase agreements. The fund does not intend to purchase
securities (other than securities guaranteed by the U.S. government or its
agencies or direct obligations of the U.S. government) if, as a result of
such purchases, 25% or more of the value of its total assets would be
invested in a governmental subdivision in any one state, territory or
possession of the United States.
UNDERWRITING
The Funds will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
INVESTING IN REAL ESTATE
The Funds will not purchase or sell real estate, including limited
partnership interests. However, they may invest in the securities of
companies whose business involves the purchase or sale of real estate or in
securities that are secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Funds will not purchase or sell commodities, commodity contracts, or
commodity futures contracts. However the STRATEGIC INCOME FUND, U.S.
GOVERNMENT INCOME FUND, INSURED TAX-FREE BOND FUND, GROWTH EQUITY FUND,
CAPITAL APPRECIATION FUND and INTERNATIONAL EQUITY FUND may engage in
transactions involving futures contracts or options on futures contracts.
INVESTING IN MINERALS
The INSURED TAX-FREE BOND FUND, RELATIVE VALUE FUND and STELLAR FUND will not
purchase or sell oil, gas, or other mineral exploration or development
programs or leases, except that INSURED TAX-FREE BOND FUND may purchase and
sell futures contracts. The STELLAR FUND may purchase or sell certain
precious metal securities described in the prospectus.
LENDING CASH OR SECURITIES
The TREASURY FUND will not lend any of its assets, except that it may
purchase or hold U.S. Treasury obligations, including repurchase agreements.
The TAX-FREE MONEY MARKET FUND and OHIO TAX-FREE MONEY MARKET FUND will not
lend any of their assets, except portfolio securities. This shall not
prevent the funds from purchasing or holding bonds, debentures, notes,
certificates of indebtedness or other debt securities, entering into
repurchase agreements or engaging in other transactions where permitted by
their investment objectives, policies, and limitations or the Declaration of
Trust.
The STRATEGIC INCOME FUND, U.S. GOVERNMENT INCOME FUND, GROWTH EQUITY FUND,
CAPITAL APPRECIATION FUND and INTERNATIONAL EQUITY FUND will not lend any of
their respective assets, except portfolio securities up to one-third of the
value of their respective total assets. This shall not prevent the funds
from purchasing or holding U.S. government obligations, money market
instruments, variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted by a
fund's investment objectives, policies, and limitations or the Trust's
Declaration of Trust.
The INSURED TAX-FREE BOND FUND will not lend any of its assets. This shall
not prevent the fund from acquiring publicly or non-publicly issued municipal
securities or temporary investments, entering into repurchase agreements, or
engaging in other transactions in accordance with its investment objective,
policies, and limitations or the Declaration of Trust.
The RELATIVE VALUE FUND and STELLAR FUND will not lend any of their assets,
except that they may purchase or hold corporate or government bonds,
debentures, notes, certificates of indebtedness or other debt securities
permitted by they investment objective and policies.
INVESTING IN RESTRICTED SECURITIES
The INSURED TAX-FREE BOND FUND will not invest more than 15% of the value of
its net assets in securities subject to restrictions on resale under the
Securities Act of 1933.
The TAX-FREE MONEY MARKET FUND, OHIO TAX-FREE MONEY MARKET FUND, RELATIVE
VALUE FUND and STELLAR FUND will not invest more than 10% of the value of
their net assets in securities subject to restrictions on resale under the
Securities Act of 1933 except for certain other restricted securities which
meet the criteria for liquidity as established by the Trustees. The RELATIVE
VALUE FUND and STELLAR FUND may invest in commercial paper issued under
Section 4(2) of the Securities Act of 1933.
DEALING IN PUTS AND CALLS
The INSURED TAX-FREE BOND FUND, RELATIVE VALUE FUND and STELLAR FUND will not
purchase or sell puts, calls, spreads or any combination of them except as
permitted by its investment policies. However, the INSURED TAX-FREE BOND
FUND may purchase put options on municipal securities in an amount up to 5%
of its total assets and may purchase municipal securities accompanied by
agreements of sellers to repurchase them at the fund's option.
PURCHASING SECURITIES TO EXERCISE CONTROL
The RELATIVE VALUE FUND and STELLAR FUND will not purchase securities of a
company for the purpose of exercising control or management. However, each
fund may acquire up to 10% of the voting securities of an issuer and may
exercise its voting power in the funds' best interest. From time to time,
the funds, together with other investment companies advised by affiliates or
subsidiaries of Firstar Bank, N.A., may together buy and hold substantial
amounts of a company's voting stock. All such stock may be voted together.
In some cases, the funds and the other investment companies may collectively
be considered to be in control of the company in which they have invested.
Officers or affiliates of the funds may possibly become directors of
companies in which the funds hold stock.
INVESTING IN NEW ISSUERS
The RELATIVE VALUE FUND and STELLAR FUND will not invest more than 5% of the
value of their total assets in securities of issuers with records of less
than three years of continuous operations, including the operation of any
predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF THE
TRUST
The RELATIVE VALUE FUND and STELLAR FUND will not purchase or retain the
securities of any issuer if the officers and Trustees of the Trust or the
adviser together own more than 5% of the issuer's securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The RELATIVE VALUE FUND and STELLAR FUND may purchase securities of other
investment companies.
The STELLAR FUND will limit its investment in other investment companies to:
o no more than 3% of the total outstanding voting stock of any investment
company,
o no more than 5% of their total assets in any one investment company,
o no more than 10% of their total assets in investment companies in
general.
The fund will not purchase or acquire any security issued by a registered
closed-end investment company if immediately after the purchase or
acquisition 10% or more of the voting securities of the closed-end investment
company would be owned by the fund and other investment companies having the
same adviser and companies controlled by these investment companies. The
fund will purchase securities of closed-end investment companies only in open
market transactions involving only customary broker's commissions. However,
these limitations are not applicable if the securities are acquired in a
merger, consolidation, reorganization, or acquisition of assets. It should
be noted that investment companies incur certain expenses, such as management
fees, and, therefore, any investment by the fund in these securities would be
subject to duplicate expenses.
The RELATIVE VALUE FUND will not purchase securities of other investment
companies, except:
o by purchase in the open market involving only customary brokerage
commissions; or
o as part of a merger, consolidation, reorganization, or other
acquisition.
The Trustees may change the following investment limitations without shareholder
approval. Shareholders will be notified before any material change in these
limitations becomes effective.
INVESTING IN ILLIQUID AND RESTRICTED SECURITIES
The STRATEGIC INCOME FUND, U.S. GOVERNMENT INCOME FUND, GROWTH EQUITY FUND,
RELATIVE VALUE FUND, STELLAR FUND, CAPITAL APPRECIATION and INTERNATIONAL
EQUITY FUND will not invest more than 15% of the value of their respective
net assets in illiquid securities, including repurchase agreements providing
for settlement in more than seven days after notice, non-negotiable fixed
time deposits with maturities over seven days, over-the-counter options and
certain restricted securities not determined by the Trustees to be liquid.
The INSURED TAX-FREE BOND FUND will not invest more than 15% of the value of
its net assets in securities which are not readily marketable or which are
otherwise considered illiquid, including repurchase agreements providing for
settlement in more than seven days after notice, certain restricted
securities not determined by the Trustees to be liquid, and participation
interests and variable rate municipal securities without a demand feature or
with a demand feature of longer than seven days and which the fund's
investment adviser believes cannot be sold within seven days.
The TREASURY FUND, TAX-FREE MONEY MARKET FUND and OHIO TAX-FREE MONEY MARKET
FUND will not invest more than 10% of the value of their respective net
assets in illiquid securities, including certain restricted securities not
determined to be liquid under criteria established by the Trustees and
repurchase agreements providing for settlement in more than seven days after
notice.
Under criteria established by the Board of Trustees, certain restricted
securities are considered to be liquid. The Funds will limit their
purchases of illiquid securities to 15% of their respective net assets
which, include restricted securities not determined by the Trustees to be
liquid, non-negotiable time deposits, over-the-counter options, and
repurchase agreements providing for settlement in more than 7 days after
notice.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The TREASURY FUND, TAX-FREE MONEY MARKET FUND, OHIO TAX-FREE MONEY MARKET
FUND, STRATEGIC INCOME FUND, U.S. GOVERNMENT INCOME FUND, INSURED TAX-FREE
BOND FUND, GROWTH EQUITY FUND and CAPITAL APPRECIATION FUND will limit their
investment in other investment companies to:
o no more than 3% of the total outstanding voting stock of any investment
company,
o no more than 5% of their respective total assets in any one investment
company,
o no more than 10% of their respective total assets in investment
companies in general.
The TREASURY FUND, TAX-FREE MONEY MARKET FUND and OHIO TAX-FREE MONEY MARKET
FUND will limit their investments in the securities of other investment
companies to those of money market funds having investment objectives and
policies similar to their own.
The STRATEGIC INCOME FUND, U.S. GOVERNMENT INCOME FUND, GROWTH EQUITY FUND
and CAPITAL APPRECIATION FUND will purchase securities of investment
companies only in open-market transactions involving customary broker's
commissions. The U.S. GOVERNMENT INCOME FUND will invest in other investment
companies primarily for the purpose of investing its short-term cash on a
temporary basis. The adviser will waive its investment advisory fee on
assets invested in securities of open-end investment companies.
The INSURED TAX-FREE BOND FUND will limit its investments in the securities
of other investment companies to those having investment objectives and
policies similar to its own.
The INSURED TAX-FREE BOND FUND, TAX-FREE MONEY MARKET FUND and OHIO TAX-FREE
MONEY MARKET FUND will not purchase or acquire any security issued by a
registered closed-end investment company if, immediately after the purchase
or acquisition, 10% or more of the voting securities of the closed-end
investment company would be owned by the fund and other investment companies
having the same adviser and companies controlled by these investment
companies. The funds will purchase securities of closed-end investment
companies only in open-market transactions involving customary broker's
commissions. The adviser will waive its investment advisory fee on assets of
the fund invested in securities of open-end investment companies.
These limitations are not applicable if the securities are acquired in a
merger, consolidation, reorganization or acquisition of assets. It should be
noted that investment companies may incur certain expenses that may be
duplicative of certain fees incurred by the funds.
PURCHASING SECURITIES TO EXERCISE CONTROL
The STRATEGIC INCOME FUND, GROWTH EQUITY FUND and CAPITAL APPRECIATION FUND
will not purchase securities of a company for the purpose of exercising
control or management.
WRITING COVERED CALL OPTIONS
The STRATEGIC INCOME FUND, U.S. GOVERNMENT INCOME FUND, GROWTH EQUITY FUND
and CAPITAL APPRECIATION FUND will not write call options on securities
unless the securities are held in the specific fund's portfolio or unless the
fund is entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment.
FOREIGN SECURITIES
The RELATIVE VALUE FUND will not invest more than 10% of its total assets in
securities of foreign issuers. The U.S. GOVERNMENT INCOME FUND will not
invest more than 5% of its total assets in securities of foreign issuers.
CONCENTRATION OF INVESTMENTS
The TAX-FREE MONEY MARKET FUND will not purchase securities if, as a result
of such purchase, more than 25% of the value of the fund's assets would be
invested in any one industry. However, the fund may invest more than 25% of
the value of its assets in cash or cash items, securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities, or
instruments secured by these money market instruments, such as repurchase
agreements.
The TAX-FREE MONEY MARKET FUND does not intend to purchase securities that
would increase the percentage of its assets invested in the securities of
governmental subdivisions located in any one state, territory or U.S.
possession to more than 25%. However, the fund may invest more than 25% of
the value of its assets in tax-exempt project notes guaranteed by the U.S.
government, regardless of the location of the issuing municipality.
If the value of fund assets invested in the securities of a governmental
subdivision changes because of changing values, the Fund will not be required
to make any reduction in its holdings.
The OHIO TAX-FREE MONEY MARKET FUND will not purchase securities if, as a
result of such purchase, more than 25% of the value of the fund's assets
would be invested in any one industry, industrial development bonds or other
securities, the interest upon which is paid from revenues of similar types of
projects. However, the fund may invest more than 25% of the value of its
assets in debt obligations issued by or on behalf of Ohio and its political
subdivisions and financing authorities, cash or cash items, securities issued
or guaranteed by the U.S. government, its agencies or instrumentalities, or
instruments secured by these money market instruments, such as repurchase
agreements.
The OHIO TAX-FREE MONEY MARKET FUND may invest more than 25% of the value of
its assets in tax-exempt project notes guaranteed by the U.S. government,
regardless of the location of the issuing municipality. If the value of fund
assets invested in the securities of a governmental subdivision changes
because of changing values, the fund will not be required to make any
reduction in its holdings.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The funds do not expect to borrow money or pledge securities in excess of 5% of
the value of their respective total assets in the coming fiscal year.
For purposes of their policies and limitations, the consider certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."
As a matter of operating policy, which may be changed without shareholder
approval, the U.S. GOVERNMENT INCOME FUND, GROWTH EQUITY FUND and CAPITAL
APPRECIATION FUND will limit the margin deposits on futures contract and options
entered into by a fund to 5% of its net assets.
As operating policies of the STRATEGIC INCOME FUND which may be changed without
shareholder approval:
a) no securities will be sold short if, after effect is given to any such
short sale, the total market value of all securities sold short would
exceed 25% of the value of the fund's net assets;
b) the fund may not sell short the securities of any single issuer listed
on a national securities exchange to the extent of more than 5% of the
value of the fund's net assets;
c) the fund may not sell short the securities of any class of an issuer to
the extent, at the time of the transaction, of more than 5% of the
outstanding securities of that class; and
d) the fund at no time will have more than 15% of the value of its net
assets in deposits on short sales against the box.
TEMPORARY INVESTMENTS
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From time to time, the TAX-FREE MONEY MARKET FUND, OHIO TAX-FREE MONEY MARKET
FUND, INSURED TAX-FREE BOND FUND, GROWTH EQUITY FUND, RELATIVE VALUE FUND,
CAPITAL APPRECIATION FUND and INTERNATIONAL EQUITY FUND may invest in
temporary investments.
The TAX-FREE MONEY MARKET FUND and OHIO TAX-FREE MONEY MARKET FUND may invest
in high-quality temporary investments for temporary defensive purposes.
Occasionally, such as when suitable municipal securities are not available,
the funds may invest a portion of their assets in cash. Any portion of the
funds' assets maintained in cash reduces the amount of assets in Municipal
Securities and thereby reduce the funds' yield. This policy may result in
high portfolio turnover. Since the cost of these transactions is small, high
turnover is not expected to adversely affect net asset value or yield. The
adviser does not anticipate that portfolio turnover will result in adverse
tax consequences to the funds.
These temporary investments include:
O obligations issued by or on behalf of municipal or corporate issuers
having the same quality and maturity characteristics as Municipal
Securities purchased by the funds;
O marketable obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities; instruments issued by banks or
other depository institutions which have capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment;
O repurchase agreements; and
O prime commercial paper rated A-1 by Standard and Poor's Ratings Group
("S&P"), Prime-1 by Moody's Investors Service, Inc. ("Moody's"), or F-
1 by Fitch Investors Services ("Fitch"), and other short-term credit
instruments.
The INSURED TAX-FREE BOND FUND may invest in temporary investments from time
to time:
O as a reaction to market conditions;
O while waiting to invest proceeds of sales of shares or portfolio
securities, although generally such proceeds from sales of shares will
be invested in municipal securities as quickly as possible;
O in anticipation of redemption requests; or
O for temporary defensive purposes, in which case the fund may invest
more than 20% of the value of its net assets in cash or certain money
market instruments, U.S. Treasury bills or securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities,
or repurchase agreements (see above descriptions).
The RELATIVE VALUE FUND may invest in temporary investments from time to time
for defensive purposes. The fund may invest in securities issued and/or
guaranteed as to payment of principal and interest by the U.S. government,
its agencies or instrumentalities, repurchase agreements and short-term money
market instruments such as:
O instruments of domestic and foreign banks and savings associations if
they have capital, surplus, and undivided profits of over
$100,000,000, or if the principal amount of the instrument is
federally insured; or
O commercial paper rated A-1 by Standard and Poor's Corporation, Prime-1
by Moody's Investors Service, Inc., or F-1 by Fitch Investors Service,
Inc.
For temporary defensive purposes (up to 100% of total assets) and to maintain
liquidity (up to 35% of total assets), the GROWTH EQUITY FUND, CAPITAL
APPRECIATION FUND and INTERNATIONAL EQUITY FUND may invest in U.S. and
foreign short-term money market instruments including:
O commercial paper rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by
Moody's, or F-1 or F-2 by Fitch. In the case where commercial paper
has received different ratings from different rating services, such
commercial paper is acceptable so long as at least one rating is in
the two highest categories of the NRSROs described above;
O instruments of domestic and foreign banks and savings associations
(such as certificates of deposit, demand and time deposits and
bankers' acceptances) if they have capital, surplus, and undivided
profits of over $100,000,000, or if BIF or SAIF insures the principal
amount of the instrument. These instruments may include Eurodollar
Certificates of Deposit, Yankee Certificates of Deposit, and
Eurodollar Time Deposits;
O obligations of the U.S. government or its agencies or
instrumentalities;
O repurchase agreements; and
O other short-term instruments that are not rated but are determined by
the adviser to be of comparable quality to the other obligations in
which the fund may invest.
PORTFOLIO TURNOVER RATES
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Although the following funds (the Bond Funds and Stock Funds) do not intend to
invest for short-term profits, securities in the funds' portfolios will be sold
whenever the adviser believes it is appropriate to do so in light of the Funds'
specific investment objectives. The adviser disregards the length of time a
particular security may have been held by the funds. Generally, a high
portfolio turnover rate results in increased transaction costs and higher taxes
paid by the funds' shareholders. In addition a high rate of portfolio turnover
may result in the realization of a larger amount of capital gains which, when
distributed to the fund's shareholders, are taxable to them. (Regarding the
INTERNATIONAL EQUITY FUND, there is no limit on the underlying funds' portfolio
turnover rates.) The table below shows the turnover rates for the funds for the
past two fiscal years.
Fiscal Year Ending
FUND NOVEMBER 30, 1997 NOVEMBER 30, 1998
The Stellar Insured
Tax-Free Bond Fund 15%1<F45> 14%
U.S. Government Income Fund 140% 88%
Strategic Income Fund 142% 146%
The Stellar Fund 64% 77%
Relative Value Fund 18% 26%
Growth Equity Fund 60% 48%
Capital Appreciation Fund 262% 94%
International Equity Fund N/A 3%2<F46>
1<F45>The portfolio turnover rate is for the period from December 30, 1996
(date of initial public investment) to November 30, 1997.
2<F46> The portfolio turnover rate is for the period from December 3, 1997
(date of initial public investment) to November 30, 1998.
MANAGEMENT OF THE FUND
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The Trust is managed by a Board of Trustees. The Trust's Board of Trustees
consists of six individuals, five of whom are not "interested persons" of the
Trust as that term is defined in the 1940 Act. The Trustees are fiduciaries for
the funds' shareholders and are governed by the laws of the State of
Massachusetts in this regard. They establish policies for the operation of the
Trust and appoint the officers who conduct the daily business of the Trust.
Officers and Trustees are listed below with their addresses, birthdates, present
positions with the Trust and principal occupations.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS BIRTHDATE POSITION AND OFFICE PRINCIPAL OCCUPATION
WITH THE TRUST DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Thomas L. Conlan, Jr.*<F47> May 20, 1938 Trustee President and Chief Executive Officer, Student Loan
c/o Firstar Corporation Funding Resources, Inc., June 1998 to Present;
425 Walnut Street President and Chief Executive Officer, Student Loan
Cincinnati, Ohio 45202 Funding Corporation, 1981 to June 1998; President
and Chief Executive Officer, SLFC, Inc., 1991 to
June 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
Alfred Gottschalk, Ph.D. March 7, 1930 Trustee Chancellor (January 1996 to present), Professor and
c/o Firstar Corporation President, 1971 to 1995, Hebrew Union College-Jewish
425 Walnut Street Cincinnati, Ohio 45202 Institute of Religion.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert J. Hill, D.O. January 13, 1959 Trustee Physician, Ohio Valley Orthopaedic and Sports
c/o Firstar Corporation Medicine Institute, Inc. and Wellington
425 Walnut Street Orthopaedics, 1994 to present; Fellow Physician,
Cincinnati, Ohio 45202 Cleveland Clinic Foundation, 1993 to 1994.
- ------------------------------------------------------------------------------------------------------------------------------------
Dawn M. Hornback September 12, 1963 Trustee Founder, President and Chief Executive Officer of
c/o Firstar Corporation Observatory Group, Inc., August 1990 to present.
425 Walnut Street Observatory Group, Inc. is a marketing
Cincinnati, Ohio 45202 communications firm specializing in the
commercial, medical and educational fields.
- ------------------------------------------------------------------------------------------------------------------------------------
Lawrence M. Turner March 23, 1947 Trustee Vice President and Treasurer, Kroger Company, 1986
c/o Firstar Corporation to present. The Kroger Co. operates supermarkets
425 Walnut Street Cincinnati, Ohio 45202 and convenience stores and processes food.
- ------------------------------------------------------------------------------------------------------------------------------------
William H. Zimmer, III December 19, 1953 Trustee Executive Vice President & Chief Financial Officer,
c/o Firstar Corporation Advanced Communications Group, Inc., 19 to
425 Walnut Street present; Corporate Vice President, Cincinnati Bell,
Cincinnati, Ohio 45202 Inc., 1997 to 1998 Treasurer, Cincinnati Bell, Inc.,
1991 to present; Secretary, Cincinnati Bell, Inc.
1988 to 1997; Assistant Treasurer, Cincinnati Bell,
Inc., 1988 to 1991.
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel B. Benhase November 23, 1959 President Executive Vice President, Firstar Corporation since
Firstar Corporation 1987.
425 Walnut Street
Cincinnati, OH 45202
- ------------------------------------------------------------------------------------------------------------------------------------
Joseph C. Neuberger April 4, 1962 Vice President Vice President, Firstar Mutual Fund Services, LLC,
Firstar Mutual Fund Services, LLC 1994 to present.
615 E. Michigan Street
Milwaukee, WI 53202
- ------------------------------------------------------------------------------------------------------------------------------------
Michael T. Karbouski March 3, 1965 Treasurer Trust Officer, Firstar Mutual Fund Services,
Firstar Mutual Fund Services, LLC LLC, 1990 to present.
615 E. Michigan Street
Milwaukee, WI 53202
- ------------------------------------------------------------------------------------------------------------------------------------
Elaine E. Richards April 8, 1968 Secretary Trust Officer, Firstar Mutual Fund Services, LLC,
Firstar Mutual Fund Services, LLC June 1998 to present; Associate Attorney, Reinhart,
615 E. Michigan Street Boerner, Van Deuren, Norris & Rieselbach, s.c.,
Milwaukee, WI 53202 Milwaukee, Wisconsin, 1995 to 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*<F47>This trustee is deemed to be an "interested person," as defined in the
1940 Act, of the Trust by virtue of his business relationship with the Funds'
investment adviser, and certain of its affiliates. The Student Loan Funding
Corporation and SLFC, Inc., of which Mr. Conlan is President and Chief Executive
Officer, purchase student loans from various financial institutions, including
the Funds' investment adviser and its affiliates. In addition, the Funds'
investment adviser extends credit from time to time to Student Loan Funding
Corporation and SLFC, Inc. to finance their operations.
COMPENSATION
For their service as Trustees, the independent Trustees receive a $3,000 annual
retainer fee and $2,375 per meeting attended, as well as reimbursement for
expenses incurred in connection with attendance at such meetings. The
interested Trustees of the Trust receive no compensation for their service as
Trustees. The table below details the amount of compensation received by the
Trustees from the Trust for the past fiscal year. Presently, none of the
executive officers receive compensation from the Trust. The aggregate
compensation is provided for the Trust, which is comprised of eleven portfolios.
<TABLE>
NAME AND POSITION AGGREGATE COMPENSATION PENSION OR RETIREMENT ESTIMATED ANNUAL TOTAL COMPENSATION
FROM TRUST**<F49> BENEFITS ACCRUED AS PART BENEFITS UPON FROM TRUST AND FUND
OF TRUST EXPENSES RETIREMENT COMPLEX PAID TO TRUSTEES
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas L. Conlan, Jr.*<F48> None None None None
Trustee
Dr. Alfred Gottschalk $11,000 None None $11,000
Trustee
Dr. Robert J. Hill $11,500 None None $11,500
Trustee
Dawn M. Hornback $11,000 None None $11,000
Trustee
Lawrence M. Turner $11,000 None None $11,000
Trustee
William H. Zimmer, III $11,500 None None $11,500
Trustee
*<F48>This trustee is deemed to be an interested person as defined in the 1940 Act.
**<F49>A portion of these fees were paid by the Market Capitalization Fund a former Firstar Stellar Fund that was recently
dissolved.
</TABLE>
SALES LOADS
Unless a trustee falls into one of the following categories, there are currently
no discounts available to Trustees on sales charges applied to shares of the
Funds. The following persons will not have to pay a sales charge on class A
shares:
O Employees and retired employees of Firstar Bank (or Star Bank), or their
affiliates and members of their families (including parents,
grandparents, siblings, spouses, children, and in-laws) of such
employees or retired employees;
O FirstarTrust customers of Firstar Corporation and its subsidiaries; and
O non-trust customers of financial advisers
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- -------------------------------------------------------------------------------
CONTROL PERSON
For certain purposes, Firstar Bank, N.A. may be deemed to control the Funds
because it owns over 25% of the voting shares of the Funds and, as a result,
will be able to affect the outcome of certain matters presented for a vote of
each of the fund's shareholders. Firstar Bank serves as the investment adviser
for the Funds and also serves as custodian. Firstar Bank is located at 425
Walnut Street, Cincinnati, Ohio 45202. Firstar Bank is a national association
and is wholly-owned by Firstar Corporation.
Firstcinco, a commercial bank in Cincinnati, Ohio, also owns over 25% of the
shares of some of the Funds and may be deemed to control those Funds. Firstar
Bank, N.A. has voting rights of all the shares owned by Firstcinco. The table
below shows the approximate percentage of the Funds owned by Firstar Bank, N.A.
and Firstcinco as of March 1, 1999.
PERCENTAGE OWNED BY
FIRSTAR BANK, N.A. A Shares B Shares C Shares Y Shares
- --------------------------------------------------------------------------
Treasury Fund 99.22% 94.83%
Tax-Free Money Market Fund 99.77%
Ohio Tax-Free Money Market Fund 99.81%
PERCENTAGE OWNED BY FISTCINCO A Shares B Shares C Shares Y Shares
- --------------------------------------------------------------------------
Insured Tax-Free Bond Fund 86.92%
U.S. Government Income Fund 67.24%
Strategic Income Fund 52.81%
Relative Value Fund 73.88%
Growth Equity Fund 82.34%
Capital Appreciation Fund 80.00%
International Equity Fund 91.79%
Stellar Fund 80.22%
PRINCIPAL HOLDERS
As of March 1, 1999, the following person is deemed to be a principal holder of
the respective Funds because it beneficially owns 5% or more of the Fund's
outstanding equity securities.
NAME AND ADDRESS FUND/CLASS PERCENTAGE OWNED
Strafe & Co., for the benefit Relative Value - A 8.28%
of Southern Ohio Medical
Center Pension Fund,
Westerville, Ohio
Strafe & Co., for the benefit Growth Equity - A 6.33%
of Southern Ohio Medical Center
Pension Fund,
Westerville, Ohio
MANAGEMENT OWNERSHIP
As of March 1, 1999, the officers and Trustees of the Trust own less than 1% of
the outstanding shares of any of the Funds.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Trust's investment adviser is Firstar Bank, N.A. located at 425 Walnut
Street, Cincinnati, Ohio 45202 ("Firstar Bank"). Firstar Bank is a wholly-owned
subsidiary of Firstar Corporation whose principal business is commercial
banking. On November 20, 1998, Star Banc Corporation merged with Firstar
Corporation. The new entity retained the "Firstar" name and Firstar Corporation
is now the parent company of the adviser. Firstar Bank, N.A. was known as Star
Bank, N.A. prior to the merger.
The merger has produced no significant changes to the management of the Adviser.
Together, the two banks have become the 21st largest bank in the United States
and have blended an expertise of trust administration and investments together
with extensive knowledge in the mutual fund industry.
Firstar Bank manages trust funds and collective investment funds having a market
value in excess of $ 12 billion. As part of its regular banking operations,
Firstar Bank may make loans to public companies. As a result, it may be
possible for the Funds to hold or acquire securities of companies that are also
lending clients of Firstar Bank. The lending relationship will not be a factor
in the selection of securities. Because of internal controls maintained by
Firstar Bank to restrict the flow of non-public information, Trust investments
are typically made without any knowledge of Firstar Bank's or its affiliates'
lending relationships with an issuer.
Firstar Bank shall not be liable to the Trust, the Funds, or any shareholder of
the Funds for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Firstar Corporation is also the parent company to Firstar Investment Management
and Research Company, LLC ("FIRMCO"), a registered investment adviser. FIRMCO
serves as the investment adviser to the Firstar Funds, a separate family of
funds using the "Firstar" name.
ADVISORY FEES
For its advisory services, Firstar Bank receives an annual investment advisory
fee from each fund as described in the prospectus. For the fiscal years (or
period, as the case may be) ended November 30, 1996, 1997 and 1998 the Adviser
earned and was paid the following amounts, unless some portion of the fee was
waived as indicated.
<TABLE>
Advisory fees earned (Advisory fees waived)
- ---------------------------------------------------------------------------------------------------------------
1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Treasury Fund $3,586,051 $4,990,143 $6,734,607
Tax-Free Money Market Fund $984,158 (210,332) $761,494 (138,499) $676,387 (122,979)
Ohio Tax-Free Money Market Fund1<F51> N/A N/A $195,781 (142,326)1<F51>
Strategic Income Fund $689,394 $1,343,811 $1,865,171
U.S. Government Income Fund $702,550 $819,582 $806,064
Insured Tax-Free Bond Fund2<F52> N/A $825,962 (275,321)2<F52>$1,065,733 (355,244)
Growth Equity Fund $455,889 $946,601 $1,269,745
Relative Value Fund $1,249,213 $2,220,214 $3,061,795
Stellar Fund $1,078,738 $1,114,195 $1,057,960
Capital Appreciation Fund $665,476 $774,928 $767,140
International Equity Fund3<F53> N/A N/A $313,7283<F53>
1<F51>For the period from December 2, 1997 (date of initial public investment) to November 30, 1998.
2<F52>For the period from December 30, 1997 (date of initial public investment) to November 30, 1998.
3<F53>For the period from December 3, 1997 (date of initial public investment) to November 30, 1998.
</TABLE>
BROKERAGE TRANSACTIONS
The adviser is responsible for making decisions to buy and sell securities for
the Funds and for placing the Funds' securities. The adviser is also
responsible for negotiating the commissions to be paid on such transactions and
allocating portfolio transactions. The adviser seeks to obtain the best
execution at the best security price available with respect to each transaction.
The best price to a fund means the best net price without regard to the mix
between purchase or sale price and commission if any. While the adviser seeks
reasonably competitive commission rates, the Funds do not necessarily pay the
lowest available commission. Brokerage will not be allocated based on the sale
of the Funds' shares.
During the fiscal years (or period, as the case may be) ended November 30, 1996,
1997 and 1998, the Funds paid the following total brokerage commissions.
1996 1997 1998
- --------------------------------------------------------------------------------
Treasury Fund $0 $0 $0
Tax-Free Money Market Fund1<F54> $0 $0 $0
Ohio Tax-Free Money Market Fund N/A N/A $0
Strategic Income Fund $197,130 $406,396 $395,862
U.S. Government Income Fund $0 $0 $400
Insured Tax-Free Bond Fund N/A $0 $0
Growth Equity Fund $267,175 $274,875 $286,979
Relative Value Fund $146,237 $218,211 $315,245
Stellar Fund $125,215 $145,306 $396,057
Capital Appreciation Fund $415,208 $742,452 $262,127
International Equity Fund N/A N/A $50,105
Section 28(e) of the Securities Exchange Act of 1934, as amended ("Section
28(e)"), permits an investment adviser under certain circumstances, to cause an
account to pay a broker or dealer who supplies brokerage and research services a
commission for effecting a transaction in excess of the amount of commission
another broker or dealer would have charged for effecting the transaction.
Brokerage and research services include:
a)furnishing advice as to the value of securities, the availability of
investing, purchasing or selling securities and the availability of
securities or purchases or sellers of securities;
b)furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of
accruals; and
c)effecting securities transactions and performing functions incidental thereto
(such as clearance, settlement and custody).
In selecting broker or dealers, the adviser considers investment and market
information and other research, such as economic, securities and performance
measurement research provided by such brokers or dealers and the quality and
reliability of brokerage services, including execution capability, performance
and financial responsibility. Accordingly, the commissions charged by any such
broker or dealer may be greater than the amount another firm might charge if the
adviser determines in good faith that the amount of such commissions is
reasonable in relation to the value of the research information and brokerage
services provided by such broker or dealers to the Funds. The adviser believes
that the research information received in this manner provides the Funds with
benefits by supplementing the research otherwise available to the Funds. Such
higher commissions will not be paid by the Funds unless:
a)the adviser determines in good faith that the amount is reasonable in
relation to the services in terms of the particular transaction or in terms
of the adviser's overall responsibilities with respect to the accounts,
including the Funds as to which it exercises investment discretion;
b)such payment is made in compliance with the provisions of Section 28(c) and
to other applicable state and federal laws; and
c)in the opinion of the adviser, the total commissions paid by the Funds will
be reasonable in relation to the benefits to the Funds over the long term.
Although investment decisions for the Funds are made independently from those of
the other accounts managed by the adviser, investments of the type the Funds may
make may also be made by those other accounts. When the Funds and one or more
other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Funds or the size of the position obtained or disposed of by the Funds. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Funds.
Under certain circumstances, a sales charge incurred by the INTERNATIONAL EQUITY
FUND in acquiring shares of an underlying fund may not be taken into account in
determining the gain or loss on the disposition of the shares acquired. If
shares are disposed of within 90 days from the date they were purchased and if
shares of a new underlying fund are subsequently acquired without imposition of
a sales charge or imposition of a reduced sales charge pursuant to a right
granted to the fund to acquire shares without payment of a sales charge or with
the payment of a reduced charge, then the sales charge paid upon the purchase of
the initial shares will be treated as paid in connection with the acquisition of
the new underlying fund's shares rather than the initial shares.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
As of October 1, 1998, Firstar Mutual Fund Services, LLC, 615 East Michigan
Street, Milwaukee, Wisconsin 53202, a subsidiary of Firstar Bank, N.A.,
("Firstar"), provides administrative personnel and services to the Funds.
Firstar provides services such as legal compliance and accounting services.
Firstar provides these services at an annual rate of 0.11% of the average daily
net assets of each fund. Prior to October 1, 1998, Federated Administrative
Services provided administrative services to the Funds at an annual rate of
0.12% of each fund's average daily net assets.
Edgewood Services, Inc. serves as sub-administrator to the Funds. For its
services, Edgewood is paid a fee by the Fund's administrator and is not paid
---
by the Funds. Over the last three fiscal years the Trust on behalf of the
Funds paid the following amount in administrative fees:
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
Fees Paid to: Federated Federated Federated Firstar
- -----------------------------------------------------------------------------------------------------------------------------------
Fiscal year Fiscal year
ended 1996 ended 1997 12/1/97 -9/30/98 10/1/98 - 11/30/98
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury Fund $717,407 $922,287 $1,270,147 $290,973
Tax-Free Money Market Fund1<F55> $179,533 $128,243 $117,566 $24,790
Ohio Tax-Free Money Market Fund N/A N/A $41,217 $5,715
($18,871)
Strategic Income Fund $72,413 $130,615 $190,885 $20,661
U.S. Government Income Fund $117,252 $126,436 $128,867 $27,751
Insured Tax-Free Bond Fund N/A $101,260 $136,827 $20,007
Growth Equity Fund $60,748 $116,489 $164,319 $33,540
Relative Value Fund $166,585 $273,396 $398,051 $82,764
Stellar Fund $113,861 $108,560 $110,278 $19,658
Capital Appreciation Fund $70,082 $72,536 $79,934 $14,310
International Equity Fund N/A N/A $46,194 $8,836
</TABLE>
FUND ACCOUNTING AND DIVIDEND PAYING AGENT SERVICES
- --------------------------------------------------------------------------------
As of October 1, 1998, Firstar provides fund accounting personnel and services
to the Funds pursuant to a Fund Accounting Service Agreement. Under the Fund
Accounting Servicing Agreement, Firstar provides portfolio accounting services,
expense accrual and payment services, fund valuation and financial reporting
services, tax accounting services and compliance control services. Firstar
receives a fund accounting fee, for all of the Funds combined, which is billed
on a monthly basis. Firstar acts as the Funds' dividend paying agent.
Federated Services Company previously provided those services to the Funds.
CUSTODIAN
- --------------------------------------------------------------------------------
Firstar Bank, N.A., 425 Walnut Street, Cincinnati, OH 45202, is custodian for
the cash and securities of the Funds. Under the Custodian Agreement, Firstar
Bank holds the Funds' portfolio securities in safekeeping and keeps all
necessary records and documents relating to its duties. The custodian receives
an annual fee equal to 0.025% of each Fund's average daily net assets.
DISTRIBUTION PLAN
- --------------------------------------------------------------------------------
As noted in the Funds' prospectuses, the Trust on behalf of the Funds has
adopted a Rule 12b-1 Plan, as amended and restated, pursuant to Rule 12b-1
promulgated by the SEC pursuant to the 1940 Act (the "Plan"). The Plan was
adopted to facilitate the sale of a sufficient number of shares to allow the
Funds to achieve economic viability. The Plan is a compensation type of Plan
that provides the Trust the ability to use assets of the Funds to pay securities
dealers, financial institutions and other industry professionals ("shareholder
service organizations") to finance any activity that is principally intended to
result in the sale of the Funds' shares subject to the Plan. Such activities
may include:
O the advertising and marketing of shares of the Funds;
O preparing, printing, and distributing prospectuses and sales literature
to prospective shareholders, brokers, or administrators; and
O implementing and operating the Plan.
The distributor may pay fees to brokers and others for such services. As of
April 1, 1999, Edgewood Services, Inc., Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779, became the distributor for the Funds. From October 1,
1998 to March 31, 1999, B.C. Ziegler and Company, 215 North Main Street, West
Bend, Wisconsin 53095, served as the Funds' distributor. Prior to that,
Federated Securities Corporation, Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779, provided distribution services to the Funds.
In compensation for the services provided pursuant to this Plan, Edgewood
Services, Inc. will be paid a monthly fee computed at the annual rate of up to
0.25% of the average aggregate net asset value of shares of the Funds held
during the month. The Plan provides that the only shares of the Funds subject
to the accrual and payment of Rule 12b-1 fees are the Funds in which there is Y
class of shares. Although Class Y shares are not subject to Rule 12b-1 fees,
Classes A, B or C shares within the particular fund are subject to the fees.
The following classes of the following funds are paying Rule 12b-1 fees because
a Y class of shares exists in the fund:
O TREASURY FUND Class C
O GROWTH EQUITY FUND Class B
O RELATIVE VALUE FUND Classes A and B
O STELLAR FUND Class A
The Trust's Board of Trustees, including all of the independent Trustees as
defined in the 1940 Act, has approved the Plan. The Board of Trustees has
determined that a consistent cash flow resulting from the sale of new shares is
necessary and appropriate to meet redemptions and to take advantage of buying
opportunities without having to make unwarranted liquidations of portfolio
securities. The Board of Trustees believes, therefore, that it will benefit the
Funds to have monies available for the direct distribution activities of the
distributor in promoting the sale of the Funds' shares. Furthermore, having
money available will avoid any uncertainties as to whether other payments by the
Funds constitute distribution expenses on behalf of the Funds. The Plan must be
renewed annually by the Board of Trustees, including a majority of the
independent Trustees who have no direct or indirect financial interest in the
operation of the Plan, cast in person at a meeting called for that purpose. It
is also required that the independent Trustees select and nominate other
independent Trustees.
The Plan and any related agreement may not be amended to materially increase the
amounts to be spent for distribution expenses without approval by a majority of
the Funds' outstanding shares. All material amendments to the Plan or any
related agreements must be approved by a vote of the independent Trustees, cast
in person at a meeting called for the purpose of voting on any such amendment.
The distributor is required to report in writing to the Board of Trustees, at
least quarterly, on the amounts and purpose of any payment made under the Plan.
The distributor is also required to furnish the Board of Trustees with such
other information as may reasonably be requested in order to enable the Trustees
to make an informed determination of whether the Plan should be continued.
With the exception of Firstar Bank, in its capacity as the Funds' investment
adviser, and Edgewood Services Inc., in its capacity as distributor of the
Funds' shares, no "interested person" of the Funds, as defined in the 1940 Act,
and no trustee of the Funds who is not an "interested person" has or had a
direct or indirect financial interest in the Plan or any related argument.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value generally changes each day. The days on which the net asset
value is calculated by the Funds are described in the prospectuses. Dividend
income is recorded on the ex-dividend date, except that certain dividends from
foreign securities where the ex-dividend date may have passed, are recorded as
soon as the Funds are informed of the ex-dividend date.
DETERMINING MARKET VALUE OF SECURITIES
Market or fair values of the Funds' portfolio securities are determined as
follows:
1.For equity securities: according to the last sale price on a national
securities exchange, if applicable.
2.In the absence of recorded sales for listed equity securities:
according to the mean between the last closing bid and asked prices.
3.For unlisted equity securities: latest bid prices.
4.For bonds and other fixed-income securities: as determined by an
independent pricing service.
5.For short-term obligations: according to the mean between bid and asked
prices as furnished by an independent pricing service.
6.For short-term obligations with remaining maturities of 60 days or less
at the time of purchase: at amortized cost.
7.For all other securities: at fair value as determined in good faith by
the Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data.
Regarding the INTERNATIONAL EQUITY FUND, the underlying funds in which the fund
invests may value securities in their portfolios for which market quotations are
readily available at their current market value (generally the last reported
sales price) and all other securities and assets at fair value pursuant to
methods established in good faith by the board of directors/trustees of the
underlying fund.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times that vary from the
closing of the New York Stock Exchange. In computing the net asset value, the
Funds value foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the New York Stock
Exchange. Certain foreign currency exchange rates may also be determined at the
latest rate prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
New York Stock Exchange. If such events materially affect the value of
portfolio securities, these securities may be valued at their fair value as
determined in good faith by the underlying fund's board of directors, although
the actual calculation may be done by others.
PURCHASE, EXCHANGE AND PRICING OF SHARES
- --------------------------------------------------------------------------------
Except in initial circumstances as described in the prospectuses, shares of the
Funds are sold at their net asset value plus a sales charge, on days the New
York Stock Exchange and the Federal Reserve wire system are open for business.
The procedure for purchasing shares of the Funds is explained in the
prospectuses.
CLASS C AND CLASS Y SHARES
Class C and Class Y shares are sold at their net asset value and do not have
sales charges or contingent deferred sales charges. See the prospectuses for
more information.
CLASS A SHARES - REDUCING THE SALES CHARGE
Class A shares of the Funds are sold at their net asset value plus a sales
charge as described in the prospectuses. Shareholders can reduce the sales
charge on purchases of Class A shares by:
o purchasing larger quantities of shares or putting a number of purchases
together to obtain the discounts
o signing a 13-month letter of intent
o using the reinvestment privilege
o making concurrent purchases
Large Purchases and Quantity Discounts As indicated in the prospectuses, the
more shares a shareholder purchases, the smaller the sales charge per
share. If a shareholder purchases Class A shares on the same day as his or
her spouse or children under 21 purchase shares, his or her purchases will
be combined in calculating the sales charges.
Also, if shareholders later purchase additional shares of a fund, the
purchases will be added together with the amount already invested in the
Fund. For example, if a shareholder already owns shares of the STELLAR
FUND with a value at the current net asset value ("NAV") of $90,000.
Later, the shareholder purchases $10,000 more at the current NAV. The
sales charge on the additional purchase would be 3.75%, not 4.50% as shown
in the prospectuses. When making additional purchases, shareholders should
inform the Funds in writing that they already own shares of the fund at the
time of purchasing more shares.
Signing a Letter of Intent If investors intend to purchase at least $100,000
of Class A shares over the next 13 months, they should consider signing a
letter of intent to reduce the sales charge. A letter of intent includes a
provision allowing the Funds to adjust the sales charge depending on the
amount you actually purchase within the 13-month period. It also allows
the custodian to hold the maximum sales charge (4.50% or 1.50% as the case
may be) in shares in escrow until the purchases are completed. The shares
held in escrow in the investor's account will be released when the letter
of intent is fulfilled or when the 13-month period is over, whichever comes
first. If the investor did not purchase the amount stated in the letter of
intent, the fund will redeem the appropriate number of escrowed shares to
cover the difference in the sales charge.
The letter of intent does not obligate the investor to purchase shares, but
simply allows the investor to take advantage of the lower sales charge
applicable to the total amount intended to buy. When the investor
establishes a letter of intent, the balances in any of the Funds' accounts
(except the money market accounts) will be aggregated to provide a purchase
credit towards fulfillment of the letter of intent. The investor's prior
trade prices will not be adjusted, however.
Reinvestment Privilege If Class A shares of any of the Funds have been
redeemed, the investor has a one-time right, within 30 days, to reinvest
the redemption proceeds at the next-determined net asset value without any
sales charge. Shareholders should inform the Funds, in writing, that they
are reinvesting so that they will not be overcharged.
.
Concurrent Purchases Another way to reduce the sales charge is to combine
purchases made at the same time in two or more of the Funds that apply
sales charges. For example, if an investor invests $30,000 in Class A
shares of one of the Funds, and $70,000 in Class A shares of another fund,
the sales charge would be lower. Investors should inform the Funds in
writing about the concurrent purchases so that they will not be
overcharged.
CLASS B SHARES - ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
Class B shares of the Funds are sold at their net asset value plus a contingent
deferred sales charges (CDSC) as described in the prospectuses. No CDSC will
be charged for redemptions made under the following circumstances:
o redemptions made following death or disability (as defined by the IRS)
o redemptions made as minimum required distributions under an IRA or
other retirement plan to a shareholder who is 701/2 years old or older
o involuntary redemptions made in shareholder accounts that do not have
the required minimum balance
Death or Disability To receive the CDSC exemption with respect to death or
disability, Firstar Bank or the distributor must be notified in writing at
the time of the redemption that the shareholder, or his or her executor,
requests the exemption.
IRA or other Retirement Plan The exemption from the CDSC for Individual
Retirement Accounts of other retirement plans does not extend to account
transfers, rollovers, and other redemptions made for purposes of
reinvestment.
Involuntary Redemptions Firstar Stellar Funds reserves the right to redeem
shares of accounts with low balances (balances below $1,000). Shareholders
will not be charged a CDSC for this type of involuntary redemption. See
the prospectuses for more information on accounts with low balances.
EXCHANGE PRIVILEGE
Shareholders may exchange shares within the Firstar Stellar Funds. Prior to any
exchange, shareholders should read a copy of the current prospectus of the fund
into which they wish to exchange. To participate in the exchange privilege,
shareholders must exchange shares having a net asset value of at least $1,000.
If you established your account through a Shareholder Service Organization, you
may be able to exchange a lower amount, but you should consult your account
agreement for procedures. Exercising the exchange privilege is treated as a
sale for federal income tax purposes and you may realize short or long-term
capital gains or losses on the exchange.
Shareholders may exchange shares by telephone or in writing as follows:
Telephone
- ---------
You may exchange shares by telephone only if the shareholders registered on
your account are the same shareholders registered on the account into which you
are exchanging. Exchange requests must be received before 3:30 p.m. (Eastern
time) to be processed that day.
In Writing
- -----------
You may send your exchange request in writing. Please provide the fund name
and account number for each of the Funds involved in the exchange and make sure
the letter of instruction is signed by all shareholders on the account.
Each class of shares may be exchanged as follows:
O Holders of Class C or Y shares of any of the Firstar Stellar Funds may
exchange such shares for Class C or Y shares of any other Firstar Stellar
Fund at net asset value.
O Holders of Class B shares of any Firstar Stellar Fund may exchange such
shares for Class B or C shares of any other Firstar Stellar Fund at net
asset value.
O Holders of Class A shares of any Firstar Stellar Fund may exchange such
shares for Class A or C shares of any other Firstar Stellar Fund at net
asset value plus the difference (if any) between the sales charge already
paid on the shares of the fund which are being exchanged out of, and any
sales charge imposed by the fund which is being exchanged into. In all
cases, shareholders will be required to pay a sales charge only once.
Shares are exchanged at their net asset values. However, additional fees may
apply to class A and B shares as noted in the table below.
A to A Exchange
When you exchange Class A shares of a fund for Class A shares of another fund,
you will have to pay the difference between the fund's sales charge you already
paid and the sales charge of the fund into which you are entering.
A to C Exchange
When you exchange Class A shares of a fund for Class C shares of another fund,
the Class A shares retain their charge to be exercised in further exchanges.
If you later re-exchange the C shares that you obtained from the A-C exchange,
you would exchange at the NAV plus the difference between the sales charge
initially paid and the sales charge of the fund into which you are entering.
B to B Exchange / B to C Exchange
When you exchange Class B shares of a fund for Class B or C shares of another
fund, no sales charges are assessed at the time of the exchange. However, if
you redeem shares within 5 years of the original purchase, a CDSC will be
imposed according to the original purchase date.
NOTE: Firstar Stellar Funds may modify or terminate the exchange privilege at
any time. Investors may have difficulty making exchanges by telephone through
brokers or banks during times of drastic market changes. If you cannot contact
your broker or bank, by telephone, you should send your request in writing via
overnight mail.
EXCHANGING SECURITIES FOR FUND SHARES
The Funds may accept securities in exchange for shares. The Funds will allow
such exchanges only upon the prior approval of the particular fund and a
determination by the fund and the Adviser that the securities to be exchanged
are acceptable.
Any securities exchanged must meet the investment objective and policies of the
fund, must have a readily ascertainable market value, and must not be subject to
restrictions on resale. The fund acquires the exchanged securities for
investment and not for resale. The market value of any securities exchanged in
an initial investment, plus any cash, must be at least $25,000.
Securities accepted by the fund will be valued in the same manner as the fund
values its assets. The basis of the exchange will depend upon the net asset
value of shares of the fund on the day the securities are valued. One share of
the fund will be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription, or other
rights attached to the securities become the property of the fund, along with
the securities.
SHAREHOLDER SERVICES PLAN
Shareholder service organizations are non-affiliated banks and broker/dealers
that provide certain support and distribution services to their customers who
are the beneficial owners of the Funds' shares. Generally, the services
provided include assisting customers in processing purchase, exchange and
redemption requests, although the services vary according to the specific
agreement. Shareholder service organizations are record owners of the shares of
the Funds and are responsible for promptly transmitting orders. The
organizations may charge their customers for services relating to their
investment in the Funds. If you are a customer of a shareholder service
organization, carefully read your account agreement together with the Funds'
prospectuses with regard to services provided, fees charged and any restrictions
imposed.
Firstar Bank has a shareholder services plan that permits the payment of fees to
Firstar Bank and, indirectly, to financial institutions to cause services to be
provided to shareholders by a representative who has knowledge of the
shareholder's particular circumstances and goals. These activities and services
may include, but are not limited to, providing: office space, equipment,
telephone facilities, and various clerical, supervisory, computer and other
personnel as necessary or beneficial to:
o establish and maintain shareholder accounts and records;
o process purchase and redemption transactions and automatic investments
of client account cash balances;
o answer routine client inquiries; and
o assist clients in changing dividend options, account designations and
addresses.
FREQUENT INVESTOR PROGRAM
The Frequent Investor Program is a program that allows investors to win a free
round-trip airline ticket. If investors earn 50,000 points, they win a round-
trip airline ticket to any of the 50 states on any U.S. carrier.
The terms and conditions regarding the program are as follows:
O Investors must purchase Class A or B shares of any of the Firstar
Stellar Funds.
O Investors will earn one point for every dollar invested (gross of sales
charges) in Class A or B shares after August 12, 1996.
O The program does not apply to shares obtained without a sales charge or
a CDSC. It also does not apply to shares acquired through reinvested
dividends or capital gain distributions.
O The program does not apply to Class A or B shares acquired by exchange.
O Investors may redeem shares at any time without losing points.
O Investors may earn up to 100,000 points (2 airline tickets) in any 12-
month period.
O All unused points will expire one year from the latest purchase of
shares of $100 or more.
O Points are not transferable.
Regarding the airline tickets:
O The ticket will be for a non-refundable coach seat.
O The price of the ticket may not exceed $500 (including taxes and
destination charges), however, investors may choose to pay any overage.
O All travel must be within the 50 United States.
O Interim stopovers may not exceed four hours.
O Tickets will be mailed to the investor's account address, although
overnight shipping is available at the investor's expense.
O There are no "blackout" dates.
O Investors must purchase their tickets 21 days in advance, and a
Saturday night stay is required.
O Tickets may be purchased in any individual's name.
NOTE: Firstar Stellar Funds may modify or terminate the frequent investor
program at any time. Firstar Bank may create special offering periods featuring
bonus points or other temporary enhancement to the program. Existing and
prospective shareholders will be given notice of such special offering periods.
CONVERSION TO FEDERAL FUNDS
It is the Funds' policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. Firstar Bank acts as the
shareholder's agent in depositing checks and converting them to federal funds.
REDEEMING SHARES
- --------------------------------------------------------------------------------
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the respective Fund's portfolio. To satisfy
registration requirements in a particular state, redemption in kind will be made
in readily marketable securities to the extent that such securities are
available. If the state's policy changes, the Funds reserve the right to redeem
in kind by delivering those securities it deems appropriate.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 under the 1940 Act under
which the Fund is obligated to redeem shares for any one shareholder in cash
only up to the lesser of $250,000 or 1% of the class' net asset value during any
90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs in the disposition of such securities.
REDEMPTION IN WRITING
To redeem shares, shareholders may send a written request to:
Firstar Stellar Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
The written letter of instructions must include:
o the shareholder(s)' name,
o the fund name,
o the account number,
o the share or dollar amount to be redeemed, and
o signatures by all shareholders on the account.
The proceeds will be wired to the bank account of record or sent to the address
of record within seven calendar days.
If shareholders request redemption proceeds be sent to an address other than
that on record with the fund or proceeds made payable other than to the
shareholder(s) of record, the written request must have signatures guaranteed
by:
o a trust company or commercial bank whose deposits are insured by the
BIF, which is administered by the FDIC;
o a member of the New York, Boston, American, Midwest, or Pacific Stock
Exchange;
o a savings bank or savings association whose deposits are insured by the
SAIF, which is administered by the FDIC; or
o any other "eligible guarantor institution" as defined in the Securities
Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
TAX STATUS
- --------------------------------------------------------------------------------
THE TRUST'S TAX STATUS
The Trust will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
"regulated investment companies" and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Funds must,
among other requirements:
o derive at least 90% of their gross income from dividends, interest and
gains from the sale of securities;
o invest in securities within certain statutory limits; and
o distribute to their shareholders at least 90% of their net income earned
during the year.
In the event the Trust fails to qualify as a "regulated investment company," it
will be treated as a regular corporation for federal income tax purposes.
Accordingly, the Trust would be subject to federal income taxes and any
distributions made by the Funds would be taxable and non-deductible by the
Trust. This would increase the cost of investing in the Funds for shareholders
and would make it more economical for shareholders to invest directly in
securities held by the Funds instead of investing indirectly in such securities
through the Funds.
INTERNATIONAL EQUITY FUND
These requirements may restrict the degree to which the INTERNATIONAL EQUITY
FUND may engage in short-term trading and certain hedging transactions and may
limit the range of the fund's investments.
If permitted by its investment policies, the underlying fund's transactions in
futures contracts, forward contracts, foreign currency transactions, options and
certain other investment and hedging activities are subject to special tax
rules. In a given case, these rules may accelerate income to the underlying
fund, defer its losses, cause adjustments in the holding periods of the
underlying fund's assets, convert short-term capital losses into long-term
capital losses or otherwise affect the character of the underlying fund's
income. These rules could therefore affect the amount, timing and character of
distributions to the fund's shareholders.
Any dividends declared by the Fund in October, November or December to
shareholders of record during those months and paid during the following January
are treated, for tax purposes, as if they were received by each shareholder on
December 31 of the year in which they were declared.
An underlying fund may inadvertently invest in non-U.S. corporations, which are
treated as Passive Foreign Investment Companies ("PFICs") or could become a PFIC
under the Code. This could result in adverse tax consequences upon the
disposition of, or the receipt of "excess distributions" with respect to, such
equity investments. To the extent an underlying fund does invest in PFICs, it
may elect to treat the PFIC as a "qualified electing fund" or mark-to-market its
investments in PFICs annually. In either case, the underlying fund may be
required to distribute amounts in excess of its realized income and gains. To
the extent that the underlying fund itself is required to pay a tax on income or
gain from investment in PFICs, the payment of this tax would reduce the
INTERNATIONAL EQUITY FUND'S economic return.
FOREIGN TAXES
Investment income on certain foreign securities in which the STRATEGIC INCOME
FUND, GROWTH EQUITY FUND, RELATIVE VALUE FUND, CAPITAL APPRECIATION FUND and
INTERNATIONAL EQUITY FUND may invest may be subject to foreign withholding or
other taxes that could reduce the return on these securities. Tax treaties
between the United States and foreign countries, however, may reduce or
eliminate the amount of foreign taxes to which the funds would be subject.
SHAREHOLDERS' TAX STATUS
Regarding the STRATEGIC INCOME FUND, U.S. GOVERNMENT INCOME FUND, GROWTH EQUITY
FUND, RELATIVE VALUE FUND, STELLAR FUND, CAPITAL APPRECIATION FUND and
INTERNATIONAL EQUITY FUND, shareholders are subject to federal income tax on
dividends and capital gains received as cash or additional shares. The
dividends received deduction for corporations will apply to ordinary income
distributions to the extent the distribution represents amounts that would
qualify for the dividends received deduction if the funds were a regular
corporation and to the extent designated by the funds as so qualifying. These
dividends and any short-term capital gains are taxable as ordinary income.
Regarding the INSURED TAX-FREE BOND FUND, no portion of any income dividend paid
by the fund is eligible for the dividends received deduction available to
corporations.
Regarding the TREASURY FUND, shareholders are subject to federal income tax on
dividends received as cash or additional shares. No portion of any income
dividend paid by the fund is eligible for the dividends received deduction
available to corporations. These dividends and any short-term capital gains are
taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at long-term capital gain rates on long-term
capital gains distributed to them regardless of how long they have held fund
shares.
Capital gains experienced by the TREASURY FUND, TAX-FREE MONEY MARKET FUND and
OHIO TAX-FREE MONEY MARKET FUND could result in an increase in dividends.
Capital losses could result in a decrease in dividends. If, for some
extraordinary reason, a fund realizes net long-term capital gains, it will
distribute them at least once every 12 months.
Regarding the INSURED TAX-FREE BOND FUND, capital gains or losses may be
realized by the fund on the sale of portfolio securities. Sales would generally
be made because of:
o the availability of higher relative yields;
o differentials in market values;
o new investment opportunities;
o changes in creditworthiness of an issuer; or
o an attempt to preserve gains or limit losses.
Distribution of long-term capital gains are taxed as such, whether they are
taken in cash or reinvested, and regardless of the length of time the
shareholder has owned the shares.
UNDERWRITERS
- -------------------------------------------------------------------------------
DISTRIBUTION OF SECURITIES
The Funds paid the following amounts under the Rule 12b-1 Plan to Federated
Securities Corporation during the last three fiscal years. As of October 1,
1998, B.C. Ziegler and Company served as the principal distributor for the Funds
from October 1, 1998 to March 31, 1999. The amounts paid by the Funds to B.C.
Ziegler and Company and retained during the fiscal year ended November 30, 1998
are shown on the next table.
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1996 Fiscal Year 1997 12/1/97 - 9/30/98
Fees Paid to Federated Total Amount Total Amount Total Amount
Commission retained commission retained commission retained
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Treasury Fund 0 0 $202,834 0 $539,210 0
Tax-Free Money Market Fund 0 0 0 0 0 0
Ohio Tax-Free Money Market Fund 0 0 0 0 0 0
Strategic Income Fund 0 0 0 0 0 0
U.S. Government Income Fund 0 0 0 0 0 0
Insured Tax-Free Bond Fund 0 0 0 0 0 0
Growth Equity Fund 0 0 $25,307 0 $118,011 0
Relative Value Fund 0 0 $22,038 0 $95,392 0
Stellar Fund $121,479 0 $126,341 0 $104,226 0
Capital Appreciation Fund 0 0 0 0 0 0
International Equity Fund 0 0 0 0 0 0
</TABLE>
- -------------------------------------------------------------------------------
10/1/98 - 11/30/98
Fees Paid to B.C. Ziegler Total commissions Amount retained
- -------------------------------------------------------------------------------
Treasury Fund $125,705 0
Tax-Free Money Market Fund 0 0
Ohio Tax-Free Money Market Fund 0 0
Strategic Income Fund 0 0
U.S. Government Income Fund 0 0
Insured Tax-Free Bond Fund 0 0
Growth Equity Fund $25,638 0
Relative Value Fund $19,784 0
Stellar Fund $18,956 0
Capital Appreciation Fund 0 0
International Equity Fund 0 0
CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
The Funds performance or return may be shown in the form of various performance
figures. The Funds' performance figures are based upon historical results and
are not necessarily representative of future performance. Factors affecting the
Funds' performance include general market conditions, generating expenses, the
imposition of sales charges and investment management.
YIELD -- MONEY MARKET FUNDS
Yields for the money market funds are calculated daily based upon the seven days
ending on the day of the calculation, called the "base period.'' This yield is
computed by:
o determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
shares purchased with dividends earned from the original one share and all
dividends declared on the original and any purchased shares;
o dividing the net change in the account's value by the value of the account
at the beginning of the base period to determine the base period return;
and
o multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
funds, the performance will be reduced for those shareholders paying those fees.
The yields for the 7-day period ended November 30, 1998 were as follows:
- -----------------------------------------------------------------------
YIELDS FOR 7-DAY PERIOD ENDING 11/30/98 C SHARES Y SHARES
- -----------------------------------------------------------------------
Treasury Fund 3.93% 4.08%
Tax-Free Money Market Fund 2.50% N/A
Ohio Tax-Free Money Market Fund 2.68% N/A
- -----------------------------------------------------------------------
EFFECTIVE YIELD -- MONEY MARKET FUNDS
The effective yield for the money market funds is computed by compounding the
unannualized base period return by:
o adding 1 to the base period return;
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.
The effective yields for the 7-day period ended November 30, 1998 were as
follows:
- -----------------------------------------------------------------------
EFFECTIVE YIELDS FOR 7-DAY
PERIOD ENDING 11/30/98 C SHARES Y SHARES
- -----------------------------------------------------------------------
Treasury Fund 4.01% 4.17%
Tax-Free Money Market Fund 2.54% N/A
Ohio Tax-Free Money Market Fund 2.71% N/A
- -----------------------------------------------------------------------
YIELD -- BOND FUND AND STOCK FUNDS
Yield is computed in accordance with a standardized method prescribed by rules
of the Securities and Exchange Commission. Under that method, the current yield
quotation for a fund is based on a one month or 30-day period. The yield is
computed by dividing the net investment income per share earned during the 30-
day or one month period by the maximum offering-price per share on the last day
of the period, according to the following formula:
a-b 6
YIELD = 2[(--- + 1) - 1]
c-d
Where:a = dividends and interest earned during the period.
- --------------------------------------------------------------
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
This value is then annualized using semi-annual compounding. This means that
the amount of income generated during the thirty-day period is assumed to be
generated each month over a 12-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by each class of
shares because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders. To the extent that financial institutions
and broker/dealers charge fees in connection with services provided in
conjunction with an investment in each class of shares, the performance will be
reduced for those shareholders paying those fees.
The funds' yields for the 30-day period ended November 30, 1998 were as follows:
- -------------------------------------------------------------------------------
Yields for 30-day period
ended 11/30/98 Class A Shares Class B Shares Class Y Shares
- -------------------------------------------------------------------------------
Strategic Income Fund 6.30%
U.S. Government Income Fund 4.72% 4.72%
Insured Tax-Free Bond Fund 3.59%
Relative Value Fund 0.63% 0.87% 0.88%
Stellar Fund 2.40% 2.65%
AVERAGE ANNUAL TOTAL RETURNS
The average annual total return is computed by finding the average annual
compounded rates of return over the periods that would equate the initial amount
invested to the redeemable value according to the following formula:
n
P(1+T) = ERV
Where P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the stated periods at the end of the stated periods.
Performance for a specific period is calculated by first taking an investment
(assumed to be $1,000) ("initial investment") in a fund's shares on the first
day of the period and computing the "ending value" of that investment at the end
of the period. The total return percentage is then determined by subtracting
the initial investment from the ending value and dividing the remainder by the
initial investment and expressing the result as a percentage. The calculation
assumes that all income and capital gains dividends paid by a fund have been
reinvested at the net asset value of the fund on the reinvestment date during
the period. Total return may also be shown as the increased dollar value of the
hypothetical investment over the period.
Cumulative total return represents the simple change in value of an investment
over a stated period and may be quoted as a percentage or as a dollar amount.
Total returns may be broken down into their components of income and capital
(including capital gains and changes in share price) in order to illustrate the
relationship between their factor and their contributions to total return.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS ENDED 11/30/98 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
(INCEPTION DATE)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury Fund C Shares 4.69% 4.57 N/A 4.94%
Y Shares 4.84% N/A N/A 4.88%
Tax-Free Money Market Fund C Shares 2.83% 2.85% 2.80%
Ohio Tax-Free Money Market Fund C Shares 3.51%
Strategic Income Fund B Shares (2.16)% 6.54%
U.S. Government Income Fund A Shares 9.00% 6.09% 6.46%
B Shares 6.71%
Insured Tax-Free Bond Fund A Shares 7.20% 7.35%
Growth Equity Fund B Shares 20.76% 25.19%
Y Shares 20.91% 20.00%
Relative Value Fund A Shares 16.67% 20.62% 16.92%
B Shares 1.50%
Y Shares 16.95% 16.36%
Stellar Fund A Shares 5.74% 9.55% 9.56%
Y Shares 6.11% 10.43%
Capital Appreciation Fund A Shares 4.75% 10.35%
International Equity Fund A Shares 3.95%
</TABLE>
TAX EQUIVALENT YIELD
The tax-equivalent yield for the TAX-FREE MONEY MARKET FUND and OHIO TAX-FREE
MONEY MARKET FUND is calculated similarly to the yield, but is adjusted to
reflect the taxable yield that the funds would have had to earn to equal its
actual yield, assuming a 31% tax rate and assuming that income is 100% tax-
exempt. The INSURED TAX-FREE BOND FUND is calculated similarly to the yield,
but is adjusted to reflect the taxable yield that the funds would have had to
earn to equal its actual yield, assuming a 39.60% tax rate and assuming that
income is 100% tax-exempt.
The funds may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal securities in the funds'
portfolio generally remains free from federal income tax,1 and is often free
from state and local taxes as well. As the tables below indicate, a "tax-free"
investment can be an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields. The table below would be
used for the TAX-FREE MONEY MARKET FUND and INSURED TAX-FREE BOND FUND.
<TABLE>
TAXABLE YIELD EQUIVALENT FOR 1999
MULTISTATE MUNICIPAL FUND
FEDERAL INCOME TAX BRACKET:
- ---------------------------------------------------------------------------------------------------------------------------------
15.00% 28.00% 31.00% 36.00% 39.60%
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Joint Return $1 -- $43,050 $42,351--$104,050 $104,051--$158,550 $158,551--$283,150 Over $283,150
Single Return $1 -- $25,750 $25,351--$62,450 $62,451 --$130,250 $130,251--$283,150 Over $283,150
Tax-Exempt Yield Taxable Yield Equivalent
- ---------------------------------------------------------------------------------------------------------------------------------
1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating
the taxable yield equivalent.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of fund shares.
* Some portion of the fund's income may be subject to the federal alternative
minimum tax and state and local income taxes.
The following two tables would be used for the OHIO TAX-FREE MONEY MARKET FUND.
<TABLE>
TAXABLE YIELD EQUIVALENT
STATE OF OHIO
- ---------------------------------------------------------------------------------------------------------------------------------
FEDERAL TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
<S> <C> <C> <C> <C> <C>
COMBINED FEDERAL AND STATE TAX BRACKET:
19.040% 32.715% 37.626% 42.799% 46.399%
- ---------------------------------------------------------------------------------------------------------------------------------
Single Return $1--$25,750 $25,751-$62,450 $62,451-$130,250 $130,251-$283,150 Over $283,150
Tax-Exempt Yield Taxable Yield Equivalent
- ---------------------------------------------------------------------------------------------------------------------------------
1.50% 1.85% 2.23% 2.40% 2.62% 2.80%
2.00% 2.47% 2.97% 3.21% 3.50% 3.73%
2.50% 3.09% 3.72% 4.01% 4.37% 4.66%
3.00% 3.71% 4.96% 4.81% 5.24% 5.60%
3.50% 4.32% 5.20% 5.61% 6.12% 6.53%
4.00% 4.94% 5.94% 6.41% 7.99% 7.46%
4.50% 5.56% 6.69% 7.21% 7.87% 8.40%
5.00% 6.18% 7.43% 8.02% 8.74% 9.33%
5.50% 6.79% 8.17% 8.82% 9.62% 10.26%
6.00% 7.41% 8.92% 9.62% 10.49% 11.19%
</TABLE>
Note: The maximum marginal tax rate for the highest dollar amount in each
bracket was used in calculating the taxable yield equivalent. Furthermore,
additional state and local taxes paid on comparable taxable investments were not
used to increase federal deductions. Because 1999 Ohio tax rates will not be
released until October, 1999, the above calculations use 1998 Ohio tax rates.
<TABLE>
TAXABLE YIELD EQUIVALENT
STATE OF OHIO
- ---------------------------------------------------------------------------------------------------------------------------------
FEDERAL TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
<S> <C> <C> <C> <C> <C>
COMBINED FEDERAL AND STATE TAX BRACKET:
19.040% 32.715% 37.626% 42.799% 46.399%
- ---------------------------------------------------------------------------------------------------------------------------------
Joint Return $1-$43,505 $43,051-105,050 $104,051-$158,550 $158,551-$283,150 Over $283,150
Tax-Exempt Yield Taxable Yield Equivalent
- ---------------------------------------------------------------------------------------------------------------------------------
1.50% 1.85% 2.23% 2.40% 2.62% 2.80%
2.00% 2.47% 3.97% 3.21% 3.50% 3.73%
2.50% 3.09% 3.72% 4.01% 4.37% 4.66%
3.00% 3.71% 4.46% 4.81% 5.24% 5.60%
3.50% 4.32% 5.20% 5.61% 6.12% 6.53%
4.00% 5.94% 6.94% 6.41% 6.99% 7.46%
4.50% 5.56% 6.69% 7.21% 7.87% 8.40%
5.00% 6.18% 7.43% 8.02% 8.74% 9.33%
5.50% 6.79% 8.17% 8.82% 9.62% 10.26%
6.00% 7.41% 9.92% 9.62% 10.49% 11.19%
</TABLE>
Note: The maximum marginal tax rate for the highest dollar amount in each
bracket was used in calculating the taxable yield equivalent. Furthermore,
additional state and local taxes paid on comparable taxable investments were not
used to increase federal deductions. Because 1999 Ohio tax rates will not be
released until October, 1999, the above calculations use 1998 Ohio tax rates.
The charts above are for illustrative purposes only. It is not an indicator of
past or future performance of fund shares.
Some portion of the fund's income may be subject to the federal alternative
minimum tax and state and local income taxes.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of the Funds' shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o various other factors.
The performance of the Funds' shares fluctuates on a daily basis largely because
net earnings and the maximum offering price per share fluctuate daily. Both net
earnings and offering price per share are factors in the computation of yield
and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Funds' performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices that the Funds use in advertising may include:
o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all income dividends and capital gains
distributions, if any. From time to time, the appropriate fund will
quote its Lipper ranking in the "growth" category in advertising and sale
literature.
o EUROPE, AUSTRALASIA, AND FAR EAST (EAFE) INDEX is a market capitalization
weighted foreign securities index, which is widely used to measure the
performance of European, Australian, New Zealand and Far Eastern stock
markets. The index covers approximately 1,020 companies drawn from 21
countries in the above regions. The index values its securities daily in
both U.S. dollars and local currency and calculates total returns
monthly. EAFE U.S. dollar total return is a net dividend figure less
Luxembourg withholding tax. The EAFE is monitored by Capital
International, S.A., in Geneva, Switzerland. This index could be used to
compare the performance of the INTERNATIONAL EQUITY FUND.
o RUSSELL MIDCAP INDEX measures the performance of the 800 smallest
companies in the Russell 1000 Index, which represent approximately 35% of
the total market capitalization of the Russell 1000 Index. This index
could be used to compare the performance of the CAPITAL APPRECIATION
FUND.
o STANDARD & POOR'S DAILY STOCK PRICE INDICES OF 500 AND 400 COMMON STOCKS
are composite indices of common stocks in industry, transportation, and
financial and public utility companies that can be used to compare the
total returns of funds whose portfolios are invested primarily in common
stocks. In addition, the Standard & Poor's indices assume reinvestments
of all dividends paid by stocks listed on its indices. Taxes due on any
of these distributions are not included, nor are brokerage or other fees
calculated in Standard & Poor's figures. This index could be used to
compare the performances of the STRATEGIC FUND, GROWTH EQUITY FUND,
RELATIVE VALUE FUND, STELLAR FUND and CAPITAL APPRECIATION FUND.
o LEHMAN BROTHERS TEN-YEAR INSURED BOND INDEX is an unmanaged index that
reflects the total performance of the Insured Bond sector (includes all
bond insurers with Aaa/AAA ratings) of the Lehman Municipal Bond Index.
The maturities range between eight and twelve years. This index could be
used to compare the performance of the INSURED TAX-FREE BOND FUND.
o LEHMAN BROTHERS TEN-YEAR STATE GENERAL OBLIGATION BONDS is an index
comprised of the same issues noted above except that the maturities range
between nine and eleven years. Index figures are total returns
calculated for the same periods as listed above.
o MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
o MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day compound (effective)
yield. From time to time, the appropriate fund will quote its Money
ranking in advertising and sales literature. This magazine could be used
to compare the performances of the TREASURY FUND, TAX-FREE MONEY MARKET
FUND and OHIO TAX-FREE MONEY MARKET FUND.
o SALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities, issued by the U.S.
Treasury, maturing in 30 days. This index could be used to compare the
performance of the TREASURY FUND.
o SALOMON BROTHERS SIX-MONTH PRIME MUNI NOTES is an index of selected
municipal notes, maturing in six months, whose yields are chosen as
representative of this market. Calculations are made weekly and monthly.
This index could be used to compare the performances of the TAX-FREE
MONEY MARKET FUND and OHIO TAX-FREE MONEY MARKET FUND.
o SALOMON BROTHERS ONE-MONTH TAX-EXEMPT COMMERCIAL PAPER is an index of
selected tax-exempt commercial paper issues, maturing in one month, whose
yields are chosen as representative of this particular market.
Calculations are made weekly and monthly. Ehrlich-Bober & Co., Inc.,
also tracks this Salomon Brothers index. This index could be used to
compare the performances of the TAX-FREE MONEY MARKET FUND and OHIO TAX-
FREE MONEY MARKET FUND.
o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market
funds weekly. Donoghue's Money Market Insight publication reports monthly
and 12 month-to-date investment results for the same money funds. This
report could be used to compare the performances of the TREASURY FUND,
TAX-FREE MONEY MARKET FUND and OHIO TAX-FREE MONEY MARKET FUND.
o DOW JONES INDUSTRIAL AVERAGE (``DJIA'') represents share prices of
selected blue-chip industrial corporations as well as public utility and
transportation companies. The DJIA indicates daily changes in the
average price of stocks in any of its categories. It also reports total
sales for each group of industries. Because it represents the top
corporations of America, the DJIA's index movements are leading economic
indicators for the stock market as a whole. This index could be used to
compare the performances of the RELATIVE VALUE FUND and STELLAR FUND.
o MERRILL LYNCH 1-10 YEAR GOVERNMENT INDEX is an unmanaged index comprised
of U.S. government securities with maturities between 1 and 10 years.
Index returns are calculated as total returns for periods of one, three,
six, and twelve months as well as year-to-date. The index is produced by
Merrill Lynch, Pierce, Fenner & Smith, Inc. This index could be used to
compare the performance of the U.S. GOVERNMENT INCOME FUND.
o LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX is an unmanaged index composed
of all bonds that are investment grade rated Baa or higher by Moody's or
BBB or higher by S&P, if unrated by Moody's. Investments can not be made
in an index. This index could be used to compare the performances of the
U.S. GOVERNMENT INCOME FUND and STELLAR FUND.
o LEHMAN BROTHERS GOVERNMENT (LT) INDEX, for example, is an index composed
of bonds issued by the U.S. government or its agencies which have at
least $1 million outstanding in principal and which have maturities of
ten years or longer. Index figures are total return figures calculated
monthly. This index could be used to compare the performance of the U.S.
GOVERNMENT INCOME FUND.
Advertisements and other sales literature for shares may quote total returns
that are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in share classes
based on reinvestment of dividends over a specified period of time.
Advertisements may quote performance information that does not reflect the
effect of the contingent deferred sales charge.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Funds' returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding, dollar-
cost averaging and systematic investment. In addition, share classes can
compare their performance, or performance for the types of securities in which
they invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Funds may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Funds' portfolio managers and their views and analysis on how
such developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.
INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
Arthur Andersen LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin, 53202,
serves as the independent public accountants for the Funds. Their services
include examination of the Funds' financial statements and the performance of
other related audit and tax services.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Funds' audited financial statements are incorporated by reference to the
Funds' Annual Reports for the fiscal year ended November 30, 1998 as filed with
the SEC.
APPENDIX
- --------------------------------------------------------------------------------
APPENDIX
STANDARD & POOR'S ("S&P") CORPORATE BOND RATING DEFINITIONS
AAA-Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA-Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A-Debt rated "A" has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB-Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB, B, CCC, CC-Debt rated "BB", "B", "CCC", and "CC" is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "CC" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
CI-The rating "CI" is reversed for income bonds on which no interest is being
paid.
D-Debt rated "D" is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATING DEFINITIONS
AAA-Bonds which are rated "Aaa" 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 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 which are rated "Aa" are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than in Aaa securities.
A-Bonds which are rated "A" 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 near future.
BAA-Bonds which are rated "Baa" 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 which are "Ba" are judged to have speculative elements; their future
cannot be considered 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 which are rated "B" generally lack characteristics of a 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 which are rated "Caa" 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 which are "Ca" represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C-Bonds which are rated "C" 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.
FITCH INVESTORS SERVICE, INC. BOND RATING DEFINITIONS
AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered strong, but
may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB-Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C-Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D-Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
FIRSTAR STELLAR FUNDS
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(A) DECLARATION OF TRUST filed July 2, 1993 is incorporated by reference to
Registrant's Post-Effective Amendment No. 19 to the Registration Statement.
(1) AMENDMENT NO. 1 to Declaration of Trust filed April 10, 1989 is
incorporated by reference to Registrant's Pre-Effective Amendment No.
1 to the Registration Statement.
(2) AMENDMENT NO. 2 to Declaration of Trust filed April 10, 1989 is
incorporated by reference to Registrant's Pre-Effective Amendment No.
1 to the Registration Statement.
(3) AMENDMENT NO. 3 to Declaration of Trust filed April 10, 1989 is
incorporated by reference to Registrant's Pre-Effective Amendment No.
1 to the Registration Statement.
(4) AMENDMENT NO. 4 to Declaration of Trust filed December 6, 1989 is
incorporated by reference to Registrant's Post-Effective Amendment
No. 2 to the Registration Statement.
(5) AMENDMENT NO. 5 to Declaration of Trust filed January 29, 1992 is
incorporated by reference to Registrant's Post-Effective Amendment
No. 14 to the Registration Statement.
(6) AMENDMENT NO. 6 to Declaration of Trust filed January 29, 1992 is
incorporated by reference to Registrant's Post-Effective Amendment
No. 14 to the Registration Statement.
(7) AMENDMENT NO. 7 to Declaration of Trust filed January 29, 1992 is
incorporated by reference to Registrant's Post-Effective Amendment
No. 14 to the Registration Statement.
(8) AMENDMENT NO. 8 to Declaration of Trust filed July 2, 1993 is
incorporated by reference to Registrant's Post-Effective Amendment
No. 19 to the Registration Statement.
(9) AMENDMENT NO. 9 to Declaration of Trust filed July 2, 1993 is
incorporated by reference to Registrant's Post-Effective Amendment
No. 19 to the Registration Statement.
(10)AMENDMENT NO. 10 to Declaration of Trust filed July 2, 1993 is
incorporated by reference to Registrant's Post-Effective Amendment
No. 19 to the Registration Statement.
(11)AMENDMENT NO. 11 to Declaration of Trust filed July 2, 1993 is
incorporated by reference to Registrant's Post-Effective Amendment
No. 19 to the Registration Statement.
(12)AMENDMENT NO. 12 to Declaration of Trust filed March 17, 1994 is
incorporated by reference to Registrant's Post-Effective Amendment
No. 22 to the Registration Statement.
(13)AMENDMENT NO. 13 to Declaration of Trust filed May 13, 1994 is
incorporated by reference to Registrant's Post-Effective Amendment
No. 23 to the Registration Statement.
(14)AMENDMENT NO. 14 to Declaration of Trust filed May 13, 1994 is
incorporated by reference to Registrant's Post-Effective Amendment
No. 23 to the Registration Statement.
(15)AMENDMENT NO. 15 to Declaration of Trust filed January 24, 1996 is
incorporated by reference to Registrant's Post-Effective Amendment
No. 32 to the Registration Statement.
(16)AMENDMENT NO. 16 to Declaration of Trust filed January 24, 1996 is
incorporated by reference to Registrant's Post-Effective Amendment
No. 32 to the Registration Statement.
(17)AMENDMENT NO. 17 to Declaration of Trust filed January 29, 1999 is
incorporated by reference to Registrant's Post-Effective Amendment
No. 42.
(18)AMENDMENT NO. 18 to Declaration of Trust filed January 29, 1999 is
incorporated by reference to Registrant's Post-Effective Amendment
No. 42.
(19)AMENDMENT NO. 19 to Declaration of Trust filed January 29, 1999 is
incorporated by reference to Registrant's Post-Effective Amendment
No. 42.
(20)AMENDMENT NO. 20 to Declaration of Trust filed January 29, 1999 is
incorporated by reference to Registrant's Post-Effective Amendment
No. 42.
(B) BY-LAWS filed February 3, 1989 is incorporated by reference to
Registrant's Initial Registration Statement.
(C) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS. See Article VIII and X
of the Articles of Incorporation incorporated by reference to Registrant's
Post-Effective Amendment No. 19 to the Registration Statement filed July 2,
1993.
(D) INVESTMENT ADVISORY CONTRACT between Registrant and Firstar Bank, N.A
through and including Exhibit G is incorporated by reference to Registrant's
Post-Effective Amendment No. 16 to the Registration Statement filed November
20, 1992.
(1) EXHIBIT H TO INVESTMENT ADVISORY CONTRACT of the Registrant is
incorporated by reference to Registrant's Post-Effective Amendment No.
23 to the Registration Statement filed May 13, 1994.
(2) EXHIBIT I TO INVESTMENT ADVISORY CONTRACT of the Registrant is
incorporated by reference to Registrant's Post-Effective Amendment No.
24 to the Registration Statement filed September 15, 1994.
(3) EXHIBIT J TO INVESTMENT ADVISORY CONTRACT of the Registrant is
incorporated by reference to Registrant's Post-Effective Amendment No.
25 to the Registration Statement Form N-1A filed January 26, 1995.
(4) EXHIBIT K TO INVESTMENT ADVISORY CONTRACT of the Registrant is
incorporated by reference to Registrant's Post-Effective Amendment No.
33 to the Registration Statement filed March 25, 1997.
(5) EXHIBIT L TO INVESTMENT ADVISORY CONTRACT of the Registrant is
incorporated by reference to Registrant's Post-Effective Amendment No.
37 to the Registration Statement filed November 24, 1997.
(6) EXHIBIT M TO INVESTMENT ADVISORY CONTRACT of the Registrant is
incorporated by reference to Registrant's Post-Effective Amendment No.
37 to the Registration Statement filed November 24, 1997.
(7) EXHIBIT N TO INVESTMENT ADVISORY CONTRACT of the Registrant is
incorporated by reference to Registrant's Post-Effective Amendment No.
37 to the Registration Statement filed November 24, 1997.
(E) DISTRIBUTION AGREEMENT between Registrant and Edgewood Services, Inc.
dated as of April 1, 1999 with respect to Treasury Fund, Tax-Free Money
Market Fund, Ohio Tax-Free Money Market Fund, The Stellar Fund, Growth Equity
Fund, International Equity Fund, Market Capitalization Fund, Relative Value
Fund, Capital Appreciation Fund, Stellar Insured Tax-Free Bond Fund,
Strategic Income Fund, and U.S. Government Income Fund is filed with this
Post-Effective Amendment No. 44.
(F) BONUS OR PROFIT SHARING CONTRACTS. Not Applicable.
(G) CUSTODIAN CONTRACT between Registrant and Firstar Bank, N.A. dated October
1, 1992 is incorporated by reference to Registrant's Post-Effective Amendment
No. 19 to the Registration Statement filed July 2, 1993.
(1) FEE SCHEDULES OF CUSTODIAN CONTRACT of the Registrant is incorporated by
reference to Registrant's Post-Effective Amendment No. 37 to the
Registration Statement filed November 24, 1997.
(H) OTHER MATERIAL CONTRACTS
(1) SHAREHOLDER RECORDKEEPING AGREEMENT between Registrant and Firstar
Bank, N.A. dated as of January 26, 1998 is incorporated by reference
to Registrant's Post-Effective Amendment No. 41 to the Registration
Statement filed March 23, 1998.
(2) FUND ADMINISTRATION SERVICING AGREEMENT between Registrant and Firstar
Mutual Fund Services, LLC dated October 1, 1998 filed January 29, 1999
is incorporated by reference to Registrant's Post-Effective Amendment
No. 42.
(3) AMENDED AND RESTATED SHAREHOLDER SERVICES PLAN is filed with this
Post-Effective Amendment No. 44.
(4) SHAREHOLDER SERVICES AGREEMENT between Firstar Stellar Funds and
Firstar Bank, N.A. dated as of March 1, 1999 is filed with this
Post-Effective Amendment No. 44.
(5) FUND ACCOUNTING SERVICING AGREEMENT between Registrant and Firstar
Mutual Fund Services, LLC dated October 1, 1998 filed January 29, 1999
is incorporated by reference to Registrant's Post-Effective Amendment
No. 42.
(I) LEGAL OPINION. Not applicable.
(J) OTHER OPINIONS.
(1) Consent of Arthur Andersen LLP dated March 25, 1999 is filed with this
Post-Effective Amendment No. 44.
(K) OMITTED FINANCIAL STATEMENTS. Not applicable.
(L) INITIAL CAPITAL UNDERSTANDING is incorporated by reference to Registrant's
Pre-Effective Amendment No. 1 to the Registration Statement filed April
10,1989.
(M) AMENDED AND RESTATED DISTRIBUTION PLAN AND FORM OF AGREEMENT is filed with
this Post-Effective Amendment No. 44.
(N) FINANCIAL DATA SCHEDULES is filed with this Post-Effective Amendment
No. 44.
(O)AMENDED AND RESTATED MULTIPLE CLASS PLAN including Exhibit A is incorporated
by reference to Registrant's Post-Effective Amendment No. 40 to the
Registration Statement filed March 23, 1998.
(P)POWER OF ATTORNEY filed January 29, 1999 is incorporated by reference to
Registrant's Post-Effective Amendment No. 42.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is controlled by its Board of Trustees.
ITEM 25. INDEMNIFICATION
Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 to the Registration Statement filed July 26, 1989.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
(a) Firstar Bank, N.A. ("Firstar Bank"), a national bank, was
founded in 1863 and is the largest bank and trust organization of
Firstar Corporation. Firstar Bank had an asset base of
$38 billion as of December 31, 1998.
Firstar Bank's expertise in trust administration, investments, and
estate planning ranks it among the most predominant trust
institutions in the Midwest, with assets under management of $12
billion as of December 31, 1998.
The officers and directors of the Firstar Bank any other business,
profession, vocation, or employment of a substantial nature in
which each such officer and director is or has been engaged during
the past two years, is set forth below. Unless otherwise noted,
the position listed under "Other Business, Profession, Vocation or
Employment" is with Firstar Bank.
(b) To be filed by amendment.
ITEM 27. PRINCIPAL UNDERWRITERS:
(a) Edgewood Services, Inc. the Distributor for shares of the
Registrant, acts as principal underwriter for the following
open-end investment companies, including the Registrant:
o Deutsche Portfolios
o Deutsche Funds, Inc.
o Excelsior Funds
o Excelsior Funds, Inc. (formerly, UST Master Funds, Inc.),
o Excelsior Institutional Trust
o Excelsior Tax-Exempt Funds, Inc.
o FTI Funds
o FundManger Portfolios
o Great Plains Funds
o Old Westbury Funds, Inc.
o The Riverfront Funds
o Robertsons Stephens Investment Trust
o WesMark Funds
o WCT Funds.
(b) To the best of Registrant's knowledge, the directors and
executive officers of Edgewood Services, Inc. are as follows:
NAME AND PRINCIPAL POSITION AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS EDGEWOOD SERVICES, INC. WITH REGISTRANT
- -----------------------------------------------------------------------------
Lawrence Caracciolo Director, President None
Arthur L. Cherry Director None
J. Christopher Donahue Director None
Thomas P. Sholes Vice President None
Ernest L. Linane Assistant Vice President None
Christine T. Johnson Assistant Vice President None
Denis McAuley Treasurer None
Leslie K. Rose Secretary None
Amanda J. Reed Assistant Secretary None
The address of each of the foregoing is 5800 Corporate Drive, Pittsburgh PA
15237-5829.
(c) None.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS:
All accounts and records required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at the following locations:
<TABLE>
<S> <C>
Records Relating to Registrant's fund accounting Firstar Mutual Funds Services, LLC
servicing agent and administrator. 615 East Michigan Street
Milwaukee, Wisconsin 53202
Records relating to Registrant's investment adviser Firstar Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
Records relating to Registrant's custodian, transfer agent Firstar Bank, N.A.
425 Walnut Street
Cincinnati, OH 45202
</TABLE>
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS:
Not applicable.
SIGNATURES
-----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FIRSTAR STELLAR FUNDS, certifies
that it meets all of the requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(a) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of Milwaukee
and State of Wisconsin, on the 31st day of March, 1999.
FIRSTAR STELLAR FUNDS
BY: /s/ Elaine E. Richards
--------------------------
Elaine E. Richards, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following persons in
the capacity and on the date indicated:
NAME TITLE DATE
- ---- ----- ----
*<F57>/s/ Thomas L. Conlan, Jr. Trustee March 31, 1999
- ------------------------------
Thomas L. Conlan, Jr.
*<F57>/s/ Dr. Alfred Gottschalk Trustee March 31, 1999
- ------------------------------
Dr. Alfred Gottschalk
*<F57>/s/ Dr. Robert J. Hill Trustee March 31, 1999
- ------------------------------
Dr. Robert J. Hill
*<F57>/s/ William H. Zimmer, III Trustee March 31, 1999
- -------------------------------
William H. Zimmer, III
*<F57>/s/ Dawn M. Hornback Trustee March 31, 1999
- -------------------------------
Dawn M. Hornback
*<F57>/s/ Lawrence M. Turner Trustee March 31, 1999
- -------------------------------
Lawrence M. Turner
*<F57> By /s/ Elaine E. Richards
---------------------------
Elaine E. Richards
Attorney-in-fact
Exhibit (e)
FIRSTAR STELLAR FUNDS
DISTRIBUTOR'S CONTRACT
-----------------------
AGREEMENT made this 1st day of April, 1999, by and between FIRSTAR STELLAR
FUNDS (the "Trust"), a Massachusetts business trust, and EDGEWOOD SERVICES, INC.
("ESI"), a Pennsylvania Corporation.
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Trust hereby appoints ESI as its agent to sell and distribute shares of
the Trust which may be offered in one or more series (the "Funds")
consisting of one or more classes (the "Classes") of shares (the "Shares"),
as described and set forth on one or more exhibits to this Agreement, at
the current offering price thereof as described and set forth in the
current Prospectuses of the Trust. ESI hereby accepts such appointment and
agrees to provide such other services for the Trust, if any, and accept
such compensation from the Trust, if any, as set forth in the applicable
exhibits to this Agreement.
2. The sale of any Shares may be suspended without prior notice whenever in
the judgment of the Trust it is in its best interest to do so.
3. Neither ESI nor any other person is authorized by the Trust to give any
information or to make any representation relative to any Shares other than
those contained in the Registration Statement, Prospectuses, or Statements
of Additional Information ("SAIs") filed with the Securities and Exchange
Commission, as the same may be amended from time to time, or in any
supplemental information to said Prospectuses or SAIs approved by the
Trust. ESI agrees that any other information or representations other than
those specified above which it or any dealer or other person who purchases
Shares through ESI may make in connection with the offer or sale of Shares,
shall be made entirely without liability on the part of the Trust. No
person or dealer, other than ESI, is authorized to act as agent for the
Trust for any purpose. ESI agrees that in offering or selling Shares as
agent of the Trust, it will, in all respects, duly conform to all
applicable state and federal laws and the rules and regulations of the
National Association of Securities Dealers, Inc. ("NASD"), including its
Rules of Fair Practice. ESI will submit to the Trust copies of all sales
literature prepared by ESI before using the same and will not use such
sales literature if disapproved by the Trust. In addition, ESI will review
and file with the NASD all sales literature relating to the Trust which is
prepared by third parties and which is submitted to ESI for review.
4. This Agreement is effective with respect to each Class as of the date of
execution of the applicable exhibit and shall continue in effect with
respect to each Class presently set forth on an exhibit and any subsequent
Classes added pursuant to an exhibit during the initial term of this
Agreement for one year from the date set forth above, and thereafter for
successive periods of one year if such continuance is approved at least
annually by the Trustees of the Trust including a majority of the members
of the Board of Trustees of the Trust who are not interested persons of the
Trust and have no direct or indirect financial interest in the operation of
any Distribution Plan relating to the Trust or in any related documents to
such Plan ("Disinterested Trustees") cast in person at a meeting called for
that purpose. If a Class is added after the first annual approval by the
Trustees as described above, this Agreement will be effective as to that
Class upon execution of the applicable exhibit and will continue in effect
until the next annual approval of this Agreement by the Trustees and
thereafter for successive periods of one year, subject to approval as
described above.
5. This Agreement may be terminated with regard to a particular Fund or Class
at any time, without the payment of any penalty, by the vote of a majority
of the DisinterestedTrustees or by a majority of the outstanding voting
securities of the particular Fund or Class on not more than sixty (60)
days' written notice to any other party to this Agreement. This Agreement
may be terminated with regard to a particular Fund or Class by ESI on sixty
(60) days' written notice to the Trust.
6. This Agreement may not be assigned by ESI and shall automatically terminate
in the event of an assignment by ESI as defined in the Investment Company
Act of 1940, as amended, provided, however, that ESI may employ such other
person, persons, corporation or corporations as it shall determine in order
to assist it in carrying out its duties under this Agreement.
7. ESI shall not be liable to the Trust for anything done or omitted by it,
except acts or omissions involving willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties imposed by this Agreement.
8. This Agreement may be amended at any time by mutual agreement in writing of
all the parties hereto, provided that such amendment is approved by the
Trustees of the Trust including a majority of the Disinterested Trustees of
the Trust cast in person at a meeting called for that purpose.
9. This Agreement shall be construed in accordance with and governed by the
laws of the Commonwealth of Pennsylvania.
10. (a) Subject to the conditions set forth below, the Trust agrees to
indemnify and hold harmless ESI and each person, if any, who controls
ESI within the meaning of Section 15 of the Securities Act of 1933 and
Section 20 of the Securities Act of 1934, as amended, against any and
all loss, liability, claim, damage and expense whatsoever (including
but not limited to any and all expenses whatsoever reasonably incurred
in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever) arising out of or
based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, any
Prospectuses or SAIs (as from time to time amended and supplemented)
or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements
therein not misleading, unless such statement or omission was made in
reliance upon and in conformity with written information furnished to
the Trust about ESI by or on behalf of ESI expressly for use in the
Registration Statement, any Prospectuses and SAIs or any amendment or
supplement thereof.
If any action is brought against ESI or any controlling person thereof
with respect to which indemnity may be sought against the Trust
pursuant to the foregoing paragraph, ESI shall promptly notify the
Trust in writing of the institution of such action and the Trust shall
assume the defense of such action, including the employment of counsel
selected by the Trust and payment of expenses. ESI or any such
controlling person thereof shall have the right to employ separate
counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of ESI or such controlling person unless the
employment of such counsel shall have been authorized in writing by
the Trust in connection with the defense of such action or the Trust
shall not have employed counsel to have charge of the defense of such
action, in any of which events such fees and expenses shall be borne
by the Trust. Anything in this paragraph to the contrary
notwithstanding, the Trust shall not be liable for any settlement of
any such claim of action effected without its written consent. The
Trust agrees promptly to notify ESI of the commencement of any
litigation or proceedings against the Trust or any of its officers or
Trustees or controlling persons in connection with the issue and sale
of Shares or in connection with the Registration Statement,
Prospectuses, or SAIs.
(b) ESI agrees to indemnify and hold harmless the Trust, each of its
Trustees, each of its officers who have signed the Registration
Statement and each other person, if any, who controls the Trust within
the meaning of Section 15 of the Securities Act of 1933, but only with
respect to statements or omissions, if any, made in the Registration
Statement or any Prospectus, SAI, or any amendment or supplement
thereof in reliance upon, and in conformity with, information
furnished to the Trust about ESI by or on behalf of ESI expressly for
use in the Registration Statement or any Prospectus, SAI, or any
amendment or supplement thereof. In case any action shall be brought
against the Trust or any other person so indemnified based on the
Registration Statement or any Prospectus, SAI, or any amendment or
supplement thereof, and with respect to which indemnity may be sought
against ESI, ESI shall have the rights and duties given to the Trust,
and the Trust and each other person so indemnified shall have the
rights and duties given to ESI by the provisions of subsection (a)
above.
(c) Nothing herein contained shall be deemed to protect any person against
liability to the Trust or its shareholders to which such person would
otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of the duties of such person or by
reason of the reckless disregard by such person of the obligations and
duties of such person under this Agreement.
(d) Insofar as indemnification for liabilities may be permitted pursuant
to Section 17 of the Investment Company Act of 1940, as amended, for
Trustees, officers, ESI and controlling persons of the Trust by the
Trustees pursuant to this Agreement, the Trust is aware of the
position of the Securities and Exchange Commission as set forth in the
Investment Company Act Release No. IC-11330. Therefore, the Trust
undertakes that in addition to complying with the applicable
provisions of this Agreement, in the absence of a final decision on
the merits by a court or other body before which the proceeding was
brought, that an indemnification payment will not be made unless in
the absence of such a decision, a reasonable determination based upon
factual review has been made (i) by a majority vote of a quorum of
non-party Disinterested Trustees, or (ii) by independent legal counsel
in a written opinion that the indemnitee was not liable for an act of
willful misfeasance, bad faith, gross negligence or reckless disregard
of duties. The Trust further undertakes that advancement of expenses
incurred in the defense of a proceeding (upon undertaking for
repayment unless it is ultimately determined that indemnification is
appropriate) against an officer, Trustees, ESI or controlling person
of the Trust will not be made absent the fulfillment of at least one
of the following conditions: (i) the indemnitee provides security for
his undertaking; (ii) the Trust is insured against losses arising by
reason of any lawful advances; or (iii) a majority of a quorum of non-
party Disinterested Trustees or independent legal counsel in a written
opinion makes a factual determination that there is reason to believe
the indemnitee will be entitled to indemnification.
11. ESI is hereby expressly put on notice of the limitation of liability as set
forth in Article XI of the Declaration of Trust and agrees that the
obligations assumed by the Trust pursuant to this agreement shall be
limited in any case to the Trust and its assets and ESI shall not seek
satisfaction of any such obligation from the shareholders of the Trust, the
Trustees, officers, employees or agents of the Trust, or any of them.
12. This Agreement will become binding on the parties hereto upon the execution
of the attached exhibits to the Agreement which may be executed in one or
more counterparts.
Exhibit A
to the
Distributor's Contract
FIRSTAR STELLAR FUNDS
Firstar Stellar Growth Equity Fund
Y Shares
Firstar Stellar Relative Value Fund
Y Shares
Firstar Stellar Treasury Fund
Y Shares
Firstar Stellar Fund
Y Shares
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated April 1, 1999 between Firstar Stellar Funds and ESI
with respect to the Class of Shares set forth above:
1. ESI shall maintain membership in the National Securities Clearing
Corporation ("NSCC") Fund/Serv System for the purpose of clearing trades in
shares of Firstar Stellar Funds, as necessary and as may be agreeable
between Firstar Stellar Funds and ESI (provided Firstar Stellar Funds shall
be responsible for settling transactions and transmitting and accepting
funds for trades cleared through NSCC); and
2. ESI shall assist in the administration of the payments of sales charge
concessions and distribution fees to dealers in such manners as may be
mutually acceptable to ESI and Firstar Mutual Fund Services, Inc.
In consideration of the mutual covenants set forth in the Distributor's
Contract dated April 1, 1999 between FIRSTAR STELLAR FUNDS and ESI, Firstar
Stellar Funds executes and delivers this Exhibit on behalf of the Funds and
Classes first set forth in this Exhibit.
Witness the due execution hereof this 1st day of April, 1999.
FIRSTAR STELLAR FUNDS
By:-----------------------------------
Name:---------------------------------
Title:--------------------------------
EDGEWOOD SERVICES, INC.
By:-----------------------------------
Name:---------------------------------
Title:--------------------------------
Exhibit B
to the
Distributor's Contract
FIRSTAR STELLAR FUNDS
Firstar Stellar Capital Appreciation Fund
A Shares
Firstar Stellar Growth Equity Fund
B Shares
Firstar Stellar International Equity Fund
A Shares
Firstar Stellar Ohio Tax-Free Money Market Fund
C Shares
Firstar Stellar Relative Value Fund
A Shares
B Shares
Firstar Stellar Strategic Income Fund
B Shares
Firstar Stellar Tax-Free Money Market Fund
C Shares
Firstar Stellar Treasury Fund
C Shares
Firstar Stellar U.S. Government Income Fund
A Shares
B Shares
The Stellar Fund
A Shares
Firstar Stellar Insured Tax-Free Bond Fund
A Shares
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated April 1, 1999, between Firstar Stellar Funds and
ESI with respect to the Class of shares set forth above.
1. The Trust hereby appoints ESI to engage in activities principally intended
to result in the sale of shares of the above-listed Class ("Shares").
Pursuant to this appointment, ESI is authorized to select a group of
financial institutions ("Financial Institutions") to sell Shares at the
current offering price thereof as described and set forth in the respective
prospectuses of the Trust.
2. During the term of this Agreement, the Trust will pay ESI for services
pursuant to this Agreement, a monthly fee computed at the annual rate of
distribution fee of the average aggregate net asset value of the Shares
held during the month. For the month in which this Agreement becomes
effective or terminates, there shall be an appropriate proration of any fee
payable on the basis of the number of days that the Agreement is in effect
during the month.
3. ESI may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class expenses exceed such lower
expense limitation as ESI may, by notice to the Trust, voluntarily declare
to be effective.
4. ESI will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. ESI, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be paid
shall be determined from time to time by ESI in its sole discretion.
5. ESI will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts expended hereunder including amounts paid
to Financial Institutions and the purpose for such expenditures, relying on
information furnished to ESI by Firstar Stellar Corporation.
6. ESI shall maintain membership in the National Securities Clearing
Corporation ("NSCC") Fund/Serv System for the purpose of clearing trades in
shares of Firstar Stellar Funds, as necessary and as may be agreeable
between Firstar Stellar Funds and ESI (provided Firstar Stellar Funds shall
be responsible for settling transactions and transmitting and accepting
funds for trades cleared through NSCC).
7. ESI shall enter into dealer agreements and related agreements under Firstar
Stellar Funds' Rule 12b-1 Plan and oversee payment of distribution fees to
dealers by Firstar Mutual Fund Services, LLC.
8. ESI shall assist in the administration of the payments of sales charge
concessions and distribution fees to dealers in such manners as may be
mutually acceptable to ESI and Firstar Mutual Fund Services, LLC.
In consideration of the mutual covenants set forth in the Distributor's
Contract dated April 1, 1999 between Firstar Stellar Funds and Edgewood
Services, Inc., Firstar Stellar Funds executes and delivers this Exhibit on
behalf of the Funds and Classes first set forth in this Exhibit.
Witness the due execution hereof this 1st day of April, 1999.
FIRSTAR STELLAR FUNDS
By:-----------------------------------
Name:---------------------------------
Title:--------------------------------
EDGEWOOD SERVICES, INC.
By:-----------------------------------
Name:---------------------------------
Title:--------------------------------
Exhibit (h)(3)
FIRSTAR STELLAR FUNDS
AMENDED AND RESTATED
SHAREHOLDER SERVICES PLAN
This Amended and Restated Shareholder Services Plan ("Plan") is adopted as
of this 1st day of March, 1999, by the Board of Trustees of Firstar Stellar
Funds (the "Fund"), a Massachusetts business trust with respect to certain
classes of shares ("Classes") of the portfolios of the Trust ("the Portfolios")
set forth in exhibits hereto.
1. This Plan is adopted to allow the Fund to make payments as contemplated
herein to obtain certain personal services for shareholders and/or the
maintenance of shareholder accounts ("Services").
2. This Plan is designed to compensate broker/dealers and other
participating financial institutions and other persons ("Providers") for
providing services to the Fund and its shareholders. The Plan will be
administered by the Firstar Mutual Funds Services, LLC ("FMFS"). In
compensation for the services provided pursuant to this Plan, Providers will be
paid a monthly fee computed at the annual rate not to exceed 0.25 of 1% of the
average aggregate net asset value of the shares of the Fund held during the
month.
3. Any payments made by the Portfolios to any Provider pursuant to this
Plan will be made pursuant to written agreements based on the form attached as
Appendix A or any other form approved by the Board of Trustees with Providers.
The "Shareholder Services Agreement" will be entered into by FMFS on behalf of
the Fund and the Provider.
4. The Fund has the right (i) to select, in its sole discretion, the
Providers to participate in the Plan and (ii) to terminate without cause and in
its sole discretion any Shareholder Services Agreement.
5. Quarterly in each year that this Plan remains in effect, FMFS shall
prepare and furnish to the Board of Trustees of the Fund, and the Board of
Trustees shall review, a written report of the amounts expended under the Plan.
6. This Plan shall become effective (i) after approval by majority votes
of: (a) the Fund's Board of Trustees; and (b) the members of the Board of the
Trust who are not interested persons of the Trust and have no direct or indirect
financial interest in the operation of the Trust's Plan or in any related
documents to the Plan ("Disinterested Trustees"), cast in person at a meeting
called for the purpose of voting on the Plan; and (ii) upon execution of an
exhibit adopting this Plan.
7. This Plan shall remain in effect with respect to each Class presently
set forth on an exhibit and any subsequent Classes added pursuant to an exhibit
during the initial year of this Plan for the period of one year from the date
set forth above and may be continued thereafter if this Plan is approved with
respect to each Class at least annually by a majority of the Trust's Board of
Trustees and a majority of the Disinterested Trustees, cast in person at a
meeting called for the purpose of voting on such Plan. If this Plan is adopted
with respect to a class after the first annual approval by the Trustees as
described above, this Plan will be effective as to that Class upon execution of
the applicable exhibit pursuant to the provisions of paragraph 6(ii) above and
will continue in effect until the next annual approval of this Plan by the
Trustees and thereafter for successive periods of one year subject to approval
as described above.
8. This Plan may be amended at any time with respect to any Fund by the
Board of Trustees, provided material amendments to this Plan shall become
effective only upon the approvals set forth in Section 6.
9. This Plan may be terminated at any time by: (a) a majority vote of the
Disinterested Trustees; or (b) a vote of a majority of the outstanding voting
securities of the Fund as defined in Section 2(a)(42) of the Act.
10. While this Plan shall be in effect, the selection and nomination of
Disinterested Trustees of the Fund shall be committed to the discretion of the
Disinterested Trustees then in office.
11. All agreements with any person relating to the implementation of this
Plan shall be in writing and any agreement related to this Plan shall be subject
to termination, without penalty, pursuant to the provisions of Paragraph 9
herein.
12. Firstar Stellar Funds originally adopted this Plan as of March 1, 1994
and was amended and restated as of March 1, 1999.
EXHIBIT A
TO THE
PLAN
FIRSTAR STELLAR FUNDS
This Plan is adopted by Firstar Stellar Funds with respect to the Class of
Shares of the portfolios of the Trust set forth below.
In compensation for the services provided pursuant to this Plan, Providers
will be paid a monthly fee computed at the annual rate of 0.25 of 1% of the
average aggregate net asset value of the Funds held during the month.
Treasury Fund - C, Y
Tax-Free Money Market Fund - C
Ohio Tax-Free Money Market Fund - C
Growth Equity Fund - B, Y
Relative Value Fund - A, B, Y
Capital Appreciation Fund - A
The Stellar Fund - A, Y
International Equity Fund - A
Strategic Income Fund - B
U.S. Government Income Fund - A, B
The Stellar Insured Tax-Free Bond Fund - A
APPENDIX A
SHAREHOLDER SERVICES AGREEMENT
THIS AGREEMENT by and between Firstar Stellar Funds and its individual
series listed on Exhibit 1, as may be amended from time to time, having their
principal office and place of business at Firstar Mutual Funds Services, LLC,
615 East Michigan Street, Milwaukee, Wisconsin 53202 and who have approved a
Shareholder Services Plan (the "Plan") and this form of Agreement (individually
referred to herein as a "Fund" and collectively as "Funds") and the Shareholder
Organization ("Shareholder Organization.")
1. The Funds hereby appoint the Shareholder Organization to render or
cause to be rendered personal services to shareholders of the Funds and/or the
maintenance of accounts of shareholders of the Funds ("Services"). In addition
to providing Services directly to shareholders of the Funds, the Shareholder
Organization is hereby appointed the Funds' agent to select, negotiate and
subcontract for the performance of Services. The Shareholder Organization
hereby accepts such appointments. The Shareholder Organization agrees to
provide or cause to be provided Services that, in its best judgment (subject to
supervision and control of the Funds' Boards of Trustees), are necessary or
desirable for shareholders of the Funds. The Shareholder Organization further
agrees to provide the Funds, upon request, a written description of the
Services, which the Shareholder Organization is providing hereunder.
2. During the term of this Agreement, each Fund will pay the Shareholder
Organization and the Shareholder Organization agrees to accept as full
compensation for its services rendered hereunder a fee at an annual rate,
calculated daily and payable monthly, up to 0.25% of 1% of average net assets of
each Fund.
For the payment period in which this Agreement becomes effective or
terminates with respect to any Fund, there shall be an appropriate proration of
the monthly fee on the basis of the number of days that this Agreement is in
effect with respect to such Fund during the month. To enable the Funds to
comply with an applicable exemptive order, the Shareholder Organization
represents that the fees received pursuant to this Agreement will be disclosed
to and authorized by any person or entity receiving Services, and will not
result in an excessive fee to the Shareholder Organization.
3. This Agreement shall continue in effect for one year from the date of
its execution, and thereafter for successive periods of one year only if the
form of this Agreement is approved at least annually by the Board of each Fund,
including a majority of the members of the Board of the Fund who are not
interested persons of the Fund and have no direct or indirect financial interest
in the operation of the Fund's Plan or in any related documents to the Plan
("Independent Board Members") cast in person at a meeting called for that
purpose.
4. Notwithstanding paragraph 3, this Agreement may be terminated as
follows:
(a) at any time, without the payment of any penalty, by the vote of a
majority of the Independent Board Members of any Fund or by a
vote of a majority of the outstanding voting securities of any
Fund as defined in the Investment Company Act of 1940 on 60 days'
written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as
defined in the Investment Company Act of 1940; and
(c) by any party to the Agreement without cause by giving the other
party at least 60 days' written notice of its intention to
terminate.
5. The Shareholder Organization agrees to obtain any taxpayer
identification number certification from each shareholder of the Funds to which
it provides Services that is required under Section 3406 of the Internal Revenue
Code, and any applicable Treasury regulations, and to provide each Fund or its
designee with timely written notice of any failure to obtain such taxpayer
identification number certification in order to enable the implementation of any
required backup withholding.
6. The Shareholder Organization shall not be liable for any error of
judgment or mistake of law or for any loss suffered by any Fund in connection
with the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. The Shareholder Organization shall be entitled
to rely on and may act upon advice of counsel (who may be counsel for such Fund)
on all matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice. Any person, even though also an officer,
trustee, partner, employee or agent of the Shareholder Organization, who may be
or become a member of such Fund's Board, officer, employee or agent of any Fund,
shall be deemed, when rendering services to such Fund or acting on any business
of such Fund other than services or business in connection with the duties of
the Shareholder Organization hereunder) to be rendering such services to or
acting solely for such Fund and not as an officer, trustee, partner, employee or
agent or one under the control or direction of the Shareholder Organization even
though paid by the Shareholder Organization.
This Section 6 shall survive termination of this Agreement.
7. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
8. The Shareholder Organization is expressly put on notice of the
limitation of liability as set forth in the Declaration of Trust of each Fund
that is a Massachusetts business trust and agrees that the obligations assumed
by each such Fund pursuant to this Agreement shall be limited in any case to
such Fund and its assets and that the Shareholder Organization shall not seek
satisfaction of any such obligations from the shareholders of such Fund, the
Trustees, Officers, Employees or Agents of such Fund, or any of them.
9. The execution and delivery of this Agreement have been authorized by
the Trustees of the Shareholder Organization and signed by an authorized officer
of the Shareholder Organization, acting as such, and neither such authorization
by such Trustees nor such execution and delivery by such officer shall be deemed
to have been made by any of them individually or to impose any liability on any
of them personally, and the obligations of this Agreement are not binding upon
any of the Trustees or shareholders of the Shareholder Organization, but bind
only the trust property of the Shareholder Organization as provided in the
Declaration of Trust of the Shareholder Organization.
10. Notices of any kind to be given hereunder shall be in writing
(including facsimile communication) and shall be duly given if delivered to any
Fund and to such Fund at the following address: Firstar Mutual Fund Services,
LLC, 615 East Michigan Street, Milwaukee, Wisconsin 53202.
11. This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject hereof
whether oral or written. If any provision of this Agreement shall be held or
made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Section 3 and 4, hereof, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and shall be governed by Wisconsin law; provided, however,
that nothing herein shall be construed in a manner inconsistent with the
Investment Company Act of 1940 or any rule or regulation promulgated by the
Securities and Exchange Commission thereunder.
12. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and the same
instrument.
13. This Agreement shall not be assigned by any party without the prior
written consent of the Shareholder Organization in the case of assignment by any
Fund, or of the Funds in the case of assignment by the Shareholder Organization,
except that any party may assign to a successor all of or a substantial portion
of its business to a party controlling, controlled by, or under common control
with such party. Nothing in this Section 13 shall prevent the Shareholder
Organization from delegating its responsibilities to another entity to the
extent provided herein.
Firstar Stellar Funds
Date: -------------------------- By: -----------------------------
Title: --------------------------
The Shareholder Organization, N.A.
Date: -------------------------- By: -----------------------------
Title: --------------------------
EXHIBIT 1 TO
SHAREHOLDER SERVICES AGREEMENT
FIRSTAR STELLAR FUNDS
MAXIMUM CONTRACTUAL FEES:
Capital Appreciation Fund
A Shares 0.25% of ADNA
Growth Equity Fund
B Shares 0.25% of ADNA
Y Shares 0.25% of ADNA
Relative Value Fund
A Shares 0.25% of ADNA
B Shares 0.25% of ADNA
Y Shares 0.25% of ADNA
Strategic Income Fund
B Shares 0.25% of ADNA
Tax-Free Money Market Fund
C Shares 0.25% of ADNA
Treasury Fund
C Shares 0.25% of ADNA
Y Shares 0.25% of ADNA
U.S. Government Income Fund
A Shares 0.25% of ADNA
B Shares 0.25% of ADNA
The Stellar Fund
A Shares 0.25% of ADNA
Y Shares 0.25% of ADNA
The Stellar Insured Tax-Free Bond Fund
A Shares 0.25% of ADNA
International Equity Fund
A Shares 0.25% of ADNA
Ohio Tax-Free Money Market Fund
C Shares 0.25% of ADNA
ADNA = Average daily net assets
Exhibit (h)(4)
SHAREHOLDER SERVICES AGREEMENT
THIS AGREEMENT made as of the first day of March, 1999, by and between
Firstar Stellar Funds and its individual series listed on Exhibit 1, as may be
amended from time to time, having their principal office and place of business
at Firstar Mutual Funds Services, LLC, 615 East Michigan Street, Milwaukee,
Wisconsin 53202 and who have approved a Shareholder Services Plan (the "Plan")
and this form of Agreement (individually referred to herein as a "Fund" and
collectively as "Funds") and Firstar Bank, N.A., a national association having
its principal office and place of business at 425 Walnut Street, Cincinnati,
Ohio 45202 ("Firstar Bank").
1. The Funds hereby appoint Firstar Bank to render or cause to be rendered
personal services to shareholders of the Funds and/or the maintenance of
accounts of shareholders of the Funds ("Services"). In addition to providing
Services directly to shareholders of the Funds, Firstar Bank is hereby appointed
the Funds' agent to select, negotiate and subcontract for the performance of
Services. Firstar Bank hereby accepts such appointments. Firstar Bank agrees
to provide or cause to be provided Services that, in its best judgment (subject
to supervision and control of the Funds' Boards of Trustees), are necessary or
desirable for shareholders of the Funds. Firstar Bank further agrees to provide
the Funds, upon request, a written description of the Services, which Firstar
Bank is providing hereunder.
2. During the term of this Agreement, each Fund will pay Firstar Bank and
Firstar Bank agrees to accept as full compensation for its services rendered
hereunder a fee at an annual rate, calculated daily and payable monthly, up to
0.25% of 1% of average net assets of each Fund.
For the payment period in which this Agreement becomes effective or
terminates with respect to any Fund, there shall be an appropriate proration of
the monthly fee on the basis of the number of days that this Agreement is in
effect with respect to such Fund during the month. To enable the Funds to
comply with an applicable exemptive order, Firstar Bank represents that the fees
received pursuant to this Agreement will be disclosed to and authorized by any
person or entity receiving Services, and will not result in an excessive fee to
Firstar Bank.
3. This Agreement shall continue in effect for one year from the date of
its execution, and thereafter for successive periods of one year only if the
form of this Agreement is approved at least annually by the Board of each Fund,
including a majority of the members of the Board of the Fund who are not
interested persons of the Fund and have no direct or indirect financial interest
in the operation of the Fund's Plan or in any related documents to the Plan
("Independent Board Members") cast in person at a meeting called for that
purpose.
4. Notwithstanding paragraph 3, this Agreement may be terminated as
follows:
(a) at any time, without the payment of any penalty, by the vote of a
majority of the Independent Board Members of any Fund or by a
vote of a majority of the outstanding voting securities of any
Fund as defined in the Investment Company Act of 1940 on 60 days'
written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as
defined in the Investment Company Act of 1940; and
(c) by any party to the Agreement without cause by giving the other
party at least 60 days' written notice of its intention to
terminate.
5. Firstar Bank agrees to obtain any taxpayer identification number
certification from each shareholder of the Funds to which it provides Services
that is required under Section 3406 of the Internal Revenue Code, and any
applicable Treasury regulations, and to provide each Fund or its designee with
timely written notice of any failure to obtain such taxpayer identification
number certification in order to enable the implementation of any required
backup withholding.
6. Firstar Bank shall not be liable for any error of judgment or mistake
of law or for any loss suffered by any Fund in connection with the matters to
which this Agreement relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement. Firstar Bank shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for such Fund) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such advice.
Any person, even though also an officer, trustee, partner, employee or agent of
Firstar Bank, who may be or become a member of such Fund's Board, officer,
employee or agent of any Fund, shall be deemed, when rendering services to such
Fund or acting on any business of such Fund other than services or business in
connection with the duties of Firstar Bank hereunder) to be rendering such
services to or acting solely for such Fund and not as an officer, trustee,
partner, employee or agent or one under the control or direction of Firstar Bank
even though paid by Firstar Bank.
This Section 6 shall survive termination of this Agreement.
7. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
8. Firstar Bank is expressly put on notice of the limitation of liability
as set forth in the Declaration of Trust of each Fund that is a Massachusetts
business trust and agrees that the obligations assumed by each such Fund
pursuant to this Agreement shall be limited in any case to such Fund and its
assets and that Firstar Bank shall not seek satisfaction of any such obligations
from the shareholders of such Fund, the Trustees, Officers, Employees or Agents
of such Fund, or any of them.
9. The execution and delivery of this Agreement have been authorized by
the Trustees of Firstar Bank and signed by an authorized officer of Firstar
Bank, acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, and
the obligations of this Agreement are not binding upon any of the Trustees or
shareholders of Firstar Bank, but bind only the trust property of Firstar Bank
as provided in the Declaration of Trust of Firstar Bank.
10. Notices of any kind to be given hereunder shall be in writing
(including facsimile communication) and shall be duly given if delivered to any
Fund and to such Fund at the following address: Firstar Mutual Fund Services,
LLC, 615 East Michigan Street, Milwaukee, Wisconsin 53202.
11. This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject hereof
whether oral or written. If any provision of this Agreement shall be held or
made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Section 3 and 4, hereof, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and shall be governed by Wisconsin law; provided, however,
that nothing herein shall be construed in a manner inconsistent with the
Investment Company Act of 1940 or any rule or regulation promulgated by the
Securities and Exchange Commission thereunder.
12. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and the same
instrument.
13. This Agreement shall not be assigned by any party without the prior
written consent of Firstar Bank in the case of assignment by any Fund, or of the
Funds in the case of assignment by Firstar Bank, except that any party may
assign to a successor all of or a substantial portion of its business to a party
controlling, controlled by, or under common control with such party. Nothing in
this Section 13 shall prevent Firstar Bank from delegating its responsibilities
to another entity to the extent provided herein.
Dated as of the day and year first above written.
Firstar Stellar Funds
By: -------------------------
Title: -------------------------
Firstar Bank, N.A.
By: -------------------------
Title: -------------------------
EXHIBIT 1
SHAREHOLDER SERVICES AGREEMENT
FIRSTAR STELLAR FUNDS
MAXIMUM CONTRACTUAL FEES:
Capital Appreciation Fund
A Shares 0.25% of ADNA
Growth Equity Fund
B Shares 0.25% of ADNA
Y Shares 0.25% of ADNA
Relative Value Fund
A Shares 0.25% of ADNA
B Shares 0.25% of ADNA
Y Shares 0.25% of ADNA
Strategic Income Fund
B Shares 0.25% of ADNA
Tax-Free Money Market Fund
C Shares 0.25% of ADNA
Treasury Fund
C Shares 0.25% of ADNA
Y Shares 0.25% of ADNA
U.S. Government Income Fund
A Shares 0.25% of ADNA
B Shares 0.25% of ADNA
The Stellar Fund
A Shares 0.25% of ADNA
Y Shares 0.25% of ADNA
The Stellar Insured Tax-Free Bond Fund
A Shares 0.25% of ADNA
International Equity Fund
A Shares 0.25% of ADNA
Ohio Tax-Free Money Market Fund
C Shares 0.25% of ADNA
ADNA = Average daily net assets
Exhibit (j)(1)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference in this Post Effective Amendment No. 42 Form N-1A filing of the
Firstar Stellar Funds (formerly, the Star Funds) of our auditor's reports dated
January 8, 1999 and to all references to our Firm included in or made a part of
this Post Effective Amendment No. 42 Form N-1A
/s/ Arthur Andersen LLP
------------------------------
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
March 25, 1999
Exhibit (m)
FIRSTAR STELLAR FUNDS
AMENDED AND RESTATED
RULE 12B-1 PLAN
This Rule 12b-1 Plan ("Plan") which was adopted as of December 5, 1990, is
hereby amended and restated as of the 1st day of March 1999 by the Board of
Trustees of FIRSTAR STELLAR FUNDS (the "Trust"), a Massachusetts business trust,
with respect to certain portfolios of the Trust (the "Funds") and/or Shares
("Classes") of the Funds set forth in exhibits hereto.
1. This Plan is adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940 ("Act"), so as to allow the Trust to make payments as
contemplated herein, in conjunction with the distribution of Shares, or Classes
of Shares, of the Funds ("Shares").
2. This Plan is designed to finance activities of the Funds' distributor
("the Distributor") principally intended to result in the sale of Shares to
include: (a) providing incentive to broker/dealers ("Brokers") to sell Shares
and to provide administrative support services to the Funds and their
shareholders; (b) compensating other participating financial institutions and
other persons ("Administrators") for providing administrative support services
to the Funds and their shareholders; (c) paying for the costs incurred in
conjunction with advertising and marketing of Shares to include expenses of
preparing, printing and distributing prospectuses and sales literature to
prospective shareholders, Brokers or Administrators; and (d) other costs
incurred in the implementation and operation of the Plan. In compensation for
services provided pursuant to this plan, the Distributor will be paid a fee in
respect of the Funds or Classes set forth in the applicable exhibit.
3. Any payment to the Distributor in accordance with this Plan will be
made pursuant to the "Distributor's Contract" entered into by the Trust and the
Distributor. Any payments made by the Distributor to Brokers and Administrators
with Funds received as compensation under this Plan will be made pursuant to
written agreement based on the form attached as Appendix A or any other form
approved by the Board of Trustees, Brokers and Administrators, the "Rule 12b-1
Agreement" will be entered into by the Distributor and the Broker or
Administrator.
4. The Distributor has the right (i) to select, in its sole discretion,
the Brokers and Administrators to participate in the Plan and (ii) to terminate
without cause and in its sole discretion any Rule 12b-1 Agreement.
5. Quarterly in each year that this Plan remains in effect, the
Distributor shall prepare and furnish to the board of Trustees of the Trust, and
the Board of Trustees shall review, a written report of the amounts expended
under the Plan and the purpose for which such expenditures were made.
6. This Plan shall become effective with respect to each Fund or Class (i)
after approval by majority votes of: (a) the Trust's Board of Trustees; (b) the
Disinterested Trustees of the Trust, cast in person at a meeting called for the
purpose of voting on the Plan; and (c) the outstanding voting securities of the
particular Funds Class, as defined in Section 2(a) (42) of the Act and (ii) upon
execution of an exhibit adopting this Plan with respect to such Class.
7. This Plan shall remain in effect with respect to each Fund Class
presently set forth on an exhibit and any subsequent Funds or Classes added
pursuant to an exhibit during the initial year of this Plan for the period of
one year from the date set forth above and may be continued thereafter if this
Plan is approved with respect to each Fund or Class at least annually by a
majority of the Trust's Board of Trustees and a majority of the Disinterested
Trustees, cast in person at a meeting called for the purpose of voting on such
Plan. If this Plan is adopted with respect to a Fund or Class after the first
annual approval by the Trustees as described above, this Plan will be effective
as to that Fund or Class upon execution of the applicable exhibit pursuant to
the provisions of paragraph 6(ii) above and will continue in effect until the
next annual approval of this Plan by the Trustees and thereafter for successive
periods of one year subject to approval as described above.
8. All material amendments to this Plan must be approved by a vote of the
Board of Trustees of the Trust and of the Disinterested Trustees, cast in person
at a meeting called for the purpose of voting on it.
9. This Plan may not be amended in order to increase materially the costs
which the Funds or Classes may bear for distribution pursuant to the Plan
without being approved by a majority vote of the outstanding voting securities
of the funds or Classes as defined in Section 2(a) (42) of the Act.
10. This Plan may be terminated with respect to a particular Fund or Class
at any time by: (a) a majority vote of the Disinterested Trustees; or (b) a
vote of a majority of the outstanding voting securities of the particular Fund
or Class as defined in Section 2(a) (42) of the Act; or (c) by the Distributor
on 60 days notice to the particular Trust.
11. While this Plan shall be in effect, the selection and nomination of
Disinterested Trustees of the Trust shall be committed to the discretion of the
Disinterested Trustees then in office.
12. All agreements with any person relating to the implementation of this
Plan shall be in writing and any agreement related to this Plan shall be subject
to termination, without penalty, pursuant to the provisions of Paragraph 10
herein.
Date: March 1, 1999
EXHIBIT A
FIRSTAR STELLAR FUNDS
This Plan is adopted by Firstar Stellar Funds with respect to the Class of
Shares of the portfolios of the Trust set forth below.
In compensation for the services provided pursuant to this Plan,
Distributor will be paid a monthly fee computed at the annual rate of 0.25 of 1%
of the average aggregate net asset value of the Funds held during the month.
This monthly fee is currently only applied to the share classes of the
Treasury Fund, Growth Equity Fund, Relative Value Fund and The Stellar Fund
listed below. When a Y class of shares is created for the other funds, they
will pay a monthly fee as discussed above.
Treasury Fund - C
Tax-Free Money Market Fund - C
Ohio Tax-Free Money Market Fund - C
Growth Equity Fund - B
Relative Value Fund - A, B
Capital Appreciation Fund - A
The Stellar Fund - A
International Equity Fund - A
Strategic Income Fund - B
U.S. Government Income Fund - A, B
The Stellar Insured Tax-Free Bond Fund - A
Appendix A
RULE 12B-1 AGREEMENT
This Agreement is made between the Financial Institution executing this
Agreement ("Administrator") and Edgewood Services, Inc. ("Edgewood") for the
mutual funds (referred to individually as the "Fund" and collectively as the
"Funds") for which Edgewood serves as Distributor of shares of beneficial
interest or capital stock ("Shares") and which have adopted a Rule 12b-1 Plan
("Plan") and approved this form of agreement pursuant to Rule 12b-1 under the
Investment Company Act of 1940. In consideration of the mutual covenants
hereinafter contained, it is hereby agreed by and between the parties hereto as
follows:
1. Edgewod hereby appoints Administrator to render or cause to be rendered
sales and administrative support services to the Funds and their shareholders.
2. The services to be provided under Paragraph 1 may include, but are not
limited to advertising, compensation of sales personnel, mailing or
prospectuses, providing assistance and review in designing materials to send to
potential customers, and such other services as are primarily intended to result
in sales of Shares by the Funds.
3. During the term of this Agreement, Edgewood will pay the Administrator
fees for each Fund as set forth in a written schedule delivered to the
Administrator pursuant to this Agreement. Edgewood's fee schedule for
Administrator may be changed by Edgewood sending a new fee schedule to
Administrator pursuant to Paragraph 12 of this Agreement. For the payment
period in which this Agreement becomes effective or terminates, there shall be
an appropriate proration of the fee on the basis of the number of days that the
Rule 12b-1 Agreement is in effect during the quarter.
4. The Administrator will not perform or provide any duties which would
cause it to be a fiduciary under Section 4975 of the Internal Revenue Code, as
amended. For purposes of that Section, the Administrator understands that any
person who exercises any discretionary authority or discretionary control with
respect to any individual retirement account or its assets, or who renders
investment advice for a fee, or has any authority or responsibility to do so, or
has any discretionary authority or discretionary responsibility in the
administration of such an account, is a fiduciary.
5. The Administrator understands that the Department of Labor views ERISA
as prohibiting fiduciaries of discretionary ERISA assets from receiving
administrative service fees or other compensation from funds in which the
fiduciary's discretionary ERISA assets are invested. To date, the Department of
Labor has not issued any exemptive order or advisory opinion that would exempt
fiduciary from this interpretation. Without specific authorization from the
Department of Labor, fiduciaries should carefully avoid
investing discretionary assets in any fund pursuant to an arrangement where the
fiduciary it be compensated by the fund for such investment. Receipt of such
compensation could violate ERISA provisions against fiduciary self-dealing and
conflict of interest and could subject the fiduciary to substantial penalties.
6. The Administrator agrees not to solicit or cause to be solicited
directly, or indirectly at any time in the future, any proxies from the
shareholders of any or all of the Funds in opposition to proxies solicited by
management of the Fund or Funds, unless a court of competent jurisdiction shall
have determined that the conduct of a majority of the Board of Directors or
Trustees of the fund or Funds constitutes willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties. This paragraph 6 will survive
the term of this Agreement.
7. With respect to each Fund, this Agreement shall continue in effect for
one year from the date of its execution, and thereafter for successive periods
of one year if the form of this Agreement is approved at least annually by the
Directors or Trustees of the Fund, including a majority of the members of the
Board of Directors or Trustees of the Fund who are not interested persons of the
Fund and have no direct or indirect financial interest in the operation of the
Fund's Plan or in any related documents to the Plan ("Disinterested Directors or
Trustees") cast in person at a meeting called for that purpose.
8. Notwithstanding paragraph 7, this Agreement may be terminated as
follows:
(a) at any time, without payment of any penalty, by the vote of a
majority of the Disinterested Directors or Trustees of the Fund or by
a vote of a majority of the outstanding voting securities of the Fund
as defined in the Investment Company Action of 1940 on not more than
sixty (60) days' written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as
defined in the Investment Company Act of 1940 or upon the termination
of the "Administrative Support and Distributor's Contract" or
"Distributor's Contract" between the Fund and Edgewood; and
(c) by either party to the Agreement without cause by giving the
other party at least sixty (60) days' written notice of its intention
to terminate.
9. The termination of this Agreement with respect to any one Fund will not
cause the Agreement's termination with respect to any other Fund.
10. The Administrator agrees to obtain any taxpayer identification number
certification from its customers required under Section 3406 of the Internal
Revenue Code, and any applicable Treasury regulations, and to provide Edgewood
or its designee with timely written notice of any failure to obtain such
taxpayer identification number certification in order to enable the
implementation of any required backup withholding.
11. This Agreement supersedes any prior service agreements between the
parties for the Funds.
12. This Agreement may be amended by Edgewood from time to time by the
following procedures. Edgewood will mail a copy of the amendment to the
Administrator's address, as shown below. If the Administrator does not object
to the amendment within thirty (30) days after its receipt, the amendment will
become party of the Agreement. The Administrator's objection must be in writing
and be received by Edgewood within such thirty days.
13. This Agreement shall be construed in accordance with the Laws of the
State of Wisconsin.
--------------------------------
Administrator
--------------------------------
Address
--------------------------------
City State Zip Code
Date: --------------------------
By: --------------------------
Authorized Signature
--------------------------------
Title
--------------------------------
Print Name of Authorized Signature
Edgewood Services, Inc.
Federated Investors Tower
Pittsburgh, Pennsylvania 1522-37798
By: ---------------------------------
FIRSTAR STELLAR FUNDS
EXHIBIT TO
RULE 12B-1 AGREEMENT
MAXIMUM CONTRACTUAL FEES:
Capital Appreciation Fund
A Shares 0.25% of ADNA
Growth Equity Fund
B Shares 0.25% of ADNA
Relative Value Fund
A Shares 0.25% of ADNA
B Shares 0.25% of ADNA
Strategic Income Fund
B Shares 0.25% of ADNA
Tax-Free Money Market Fund
C Shares 0.25% of ADNA
Treasury Fund
C Shares 0.25% of ADNA
U.S. Government Income Fund
A Shares 0.25% of ADNA
B Shares 0.25% of ADNA
The Stellar Fund
A Shares 0.25% of ADNA
The Stellar Insured Tax-Free Bond Fund
A Shares 0.25% of ADNA
International Equity Fund
A Shares 0.25% of ADNA
Ohio Tax-Free Money Market Fund
C Shares 0.25% of ADNA
ADNA = Average daily net assets
[ARTICLE] 6
[CIK] 0000824612
[NAME] STAR FUNDS
[SERIES]
[NUMBER] 011
[NAME] STAR TREASURY FUND - Y SHARES
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 1,739,962
[INVESTMENTS-AT-VALUE] 1,739,962
[RECEIVABLES] 7,500
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 1,747,462
[PAYABLE-FOR-SECURITIES] 74,860
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 7,029
[TOTAL-LIABILITIES] 81,889
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1,123,144
[SHARES-COMMON-STOCK] 1,123,144
[SHARES-COMMON-PRIOR] 659,296
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 1,123,144
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 73,556
[OTHER-INCOME] 0
[EXPENSES-NET] (10,511)
[NET-INVESTMENT-INCOME] 63,045
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 63,045
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (42,075)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 5,673,503
[NUMBER-OF-SHARES-REDEEMED] (5,209,949)
[SHARES-REINVESTED] 294
[NET-CHANGE-IN-ASSETS] 536,878
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 6,735
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 10,511
[AVERAGE-NET-ASSETS] 890,501
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] 0.05
[PER-SHARE-GAIN-APPREC] 0.00
[PER-SHARE-DIVIDEND] (0.05)
[PER-SHARE-DISTRIBUTIONS] .00
[RETURNS-OF-CAPITAL] .00
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] 0.73
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000846030
[NAME] STAR FUNDS
[SERIES]
[NUMBER] 012
[NAME] STAR TREASURY FUND - C SHARES
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 1,739,962
[INVESTMENTS-AT-VALUE] 1,739,962
[RECEIVABLES] 7,500
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 1,747,462
[PAYABLE-FOR-SECURITIES] 74,860
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 7,029
[TOTAL-LIABILITIES] 81,889
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 542,430
[SHARES-COMMON-STOCK] 542,430
[SHARES-COMMON-PRIOR] 469,400
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 542,430
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 73,556
[OTHER-INCOME] 0
[EXPENSES-NET] (10,511)
[NET-INVESTMENT-INCOME] 63,045
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 63,045
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (20,970)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 4,205,837
[NUMBER-OF-SHARES-REDEEMED] (4,132,946)
[SHARES-REINVESTED] 140
[NET-CHANGE-IN-ASSETS] 536,878
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 6,735
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 10,511
[AVERAGE-NET-ASSETS] 457,009
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] 0.05
[PER-SHARE-GAIN-APPREC] 0.00
[PER-SHARE-DIVIDEND] (0.05)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] 0.88
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000846030
[NAME] STAR FUNDS
[SERIES]
[NUMBER] 03
[NAME] STAR TAX-FREE MONEY MARKET FUND
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 133,529
[INVESTMENTS-AT-VALUE] 133,529
[RECEIVABLES] 874
[ASSETS-OTHER] 529
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 134,932
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 376
[TOTAL-LIABILITIES] 376
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 134,556
[SHARES-COMMON-STOCK] 134,556
[SHARES-COMMON-PRIOR] 126,347
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 134,556
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 4,358
[OTHER-INCOME] 0
[EXPENSES-NET] (922)
[NET-INVESTMENT-INCOME] 3,436
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 3,436
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (3,436)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 490,493
[NUMBER-OF-SHARES-REDEEMED] (482,289)
[SHARES-REINVESTED] 6
[NET-CHANGE-IN-ASSETS] 8,209
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 676
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,045
[AVERAGE-NET-ASSETS] 123,044
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] 0.03
[PER-SHARE-GAIN-APPREC] 0.00
[PER-SHARE-DIVIDEND] (0.03)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] 0.75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000846030
[NAME] STAR FUNDS
[SERIES]
[NUMBER] 031
[NAME] STAR RELATIVE VALUE FUND - Y SHARES
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 247,367
[INVESTMENTS-AT-VALUE] 444,774
[RECEIVABLES] 1,029
[ASSETS-OTHER] 84
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 445,887
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 710
[TOTAL-LIABILITIES] 710
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 245,103
[SHARES-COMMON-STOCK] 14,709
[SHARES-COMMON-PRIOR] 13,282
[ACCUMULATED-NII-CURRENT] 887
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 1,781
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 197,406
[NET-ASSETS] 386,405
[DIVIDEND-INCOME] 7,738
[INTEREST-INCOME] 407
[OTHER-INCOME] 0
[EXPENSES-NET] (4,364)
[NET-INVESTMENT-INCOME] 3,780
[REALIZED-GAINS-CURRENT] 1,783
[APPREC-INCREASE-CURRENT] 57,735
[NET-CHANGE-FROM-OPS] 63,298
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (3,346)
[DISTRIBUTIONS-OF-GAINS] (11,017)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3,478
[NUMBER-OF-SHARES-REDEEMED] (2,508)
[SHARES-REINVESTED] 457
[NET-CHANGE-IN-ASSETS] 95,373
[ACCUMULATED-NII-PRIOR] 790
[ACCUMULATED-GAINS-PRIOR] 12,351
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 3,062
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 4,364
[AVERAGE-NET-ASSETS] 359,798
[PER-SHARE-NAV-BEGIN] 23.49
[PER-SHARE-NII] 0.18
[PER-SHARE-GAIN-APPREC] 3.65
[PER-SHARE-DIVIDEND] (0.23)
[PER-SHARE-DISTRIBUTIONS] (0.82)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 26.27
[EXPENSE-RATIO] 1.04
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000846030
[NAME] STAR FUNDS
[SERIES]
[NUMBER] 033
[NAME] STAR RELATIVE VALUE FUND - B SHARES
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 247,367
[INVESTMENTS-AT-VALUE] 444,774
[RECEIVABLES] 1,029
[ASSETS-OTHER] 84
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 445,887
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 710
[TOTAL-LIABILITIES] 710
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 245,103
[SHARES-COMMON-STOCK] 299
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 887
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 1,781
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 197,406
[NET-ASSETS] 7,847
[DIVIDEND-INCOME] 7,738
[INTEREST-INCOME] 407
[OTHER-INCOME] 0
[EXPENSES-NET] (4,364)
[NET-INVESTMENT-INCOME] 3,780
[REALIZED-GAINS-CURRENT] 1,783
[APPREC-INCREASE-CURRENT] 57,735
[NET-CHANGE-FROM-OPS] 63,298
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (24)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 311
[NUMBER-OF-SHARES-REDEEMED] (13)
[SHARES-REINVESTED] 1
[NET-CHANGE-IN-ASSETS] 95,373
[ACCUMULATED-NII-PRIOR] 790
[ACCUMULATED-GAINS-PRIOR] 12,351
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 3,062
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 4,364
[AVERAGE-NET-ASSETS] 4,475
[PER-SHARE-NAV-BEGIN] 26.01
[PER-SHARE-NII] 0.14
[PER-SHARE-GAIN-APPREC] 0.24
[PER-SHARE-DIVIDEND] (0.11)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 26.28
[EXPENSE-RATIO] 1.04
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000846030
[NAME] STAR FUNDS
[SERIES]
[NUMBER] 041
[NAME] THE STELLAR FUND - Y SHARES
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 91,117
[INVESTMENTS-AT-VALUE] 104,875
[RECEIVABLES] 555
[ASSETS-OTHER] 1
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 105,432
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 248
[TOTAL-LIABILITIES] 248
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 81,787
[SHARES-COMMON-STOCK] 4,385
[SHARES-COMMON-PRIOR] 4,467
[ACCUMULATED-NII-CURRENT] 660
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 8,980
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 13,759
[NET-ASSETS] 58,572
[DIVIDEND-INCOME] 2,082
[INTEREST-INCOME] 2,780
[OTHER-INCOME] 0
[EXPENSES-NET] (1,684)
[NET-INVESTMENT-INCOME] 3,178
[REALIZED-GAINS-CURRENT] 8,965
[APPREC-INCREASE-CURRENT] (5,745)
[NET-CHANGE-FROM-OPS] 6,398
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (1,768)
[DISTRIBUTIONS-OF-GAINS] (5,845)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 773
[NUMBER-OF-SHARES-REDEEMED] (1,328)
[SHARES-REINVESTED] 474
[NET-CHANGE-IN-ASSETS] (8,955)
[ACCUMULATED-NII-PRIOR] 216
[ACCUMULATED-GAINS-PRIOR] (10,537)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1,058
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,684
[AVERAGE-NET-ASSETS] 62,098
[PER-SHARE-NAV-BEGIN] 14.27
[PER-SHARE-NII] 0.42
[PER-SHARE-GAIN-APPREC] 0.36
[PER-SHARE-DIVIDEND] (0.39)
[PER-SHARE-DISTRIBUTIONS] (1.30)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 13.36
[EXPENSE-RATIO] 1.40
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000846030
[NAME] STAR FUNDS
[SERIES]
[NUMBER] 042
[NAME] THE STELLAR FUND - A SHARES
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 91,117
[INVESTMENTS-AT-VALUE] 104,875
[RECEIVABLES] 555
[ASSETS-OTHER] 1
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 105,432
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 248
[TOTAL-LIABILITIES] 248
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 81,787
[SHARES-COMMON-STOCK] 3,491
[SHARES-COMMON-PRIOR] 3,532
[ACCUMULATED-NII-CURRENT] 660
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 8,980
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 13,759
[NET-ASSETS] 46,613
[DIVIDEND-INCOME] 2,082
[INTEREST-INCOME] 2,780
[OTHER-INCOME] 0
[EXPENSES-NET] (1,684)
[NET-INVESTMENT-INCOME] 3,178
[REALIZED-GAINS-CURRENT] 8,965
[APPREC-INCREASE-CURRENT] (5,745)
[NET-CHANGE-FROM-OPS] 6,398
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (1,272)
[DISTRIBUTIONS-OF-GAINS] (4,565)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 330
[NUMBER-OF-SHARES-REDEEMED] (817)
[SHARES-REINVESTED] 446
[NET-CHANGE-IN-ASSETS] (8,955)
[ACCUMULATED-NII-PRIOR] 216
[ACCUMULATED-GAINS-PRIOR] (10,537)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1,058
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,684
[AVERAGE-NET-ASSETS] 49,274
[PER-SHARE-NAV-BEGIN] 14.27
[PER-SHARE-NII] 0.38
[PER-SHARE-GAIN-APPREC] 0.35
[PER-SHARE-DIVIDEND] (0.35)
[PER-SHARE-DISTRIBUTIONS] (1.30)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 13.35
[EXPENSE-RATIO] 1.65
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000846030
[NAME] STAR FUNDS
[SERIES]
[NUMBER] 051
[NAME] STAR U.S. GOVERNMENT INCOME FUND - A SHARES
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 142,004
[INVESTMENTS-AT-VALUE] 148,137
[RECEIVABLES] 2,132
[ASSETS-OTHER] 99
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 150,368
[PAYABLE-FOR-SECURITIES] 1,000
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 290
[TOTAL-LIABILITIES] 1,290
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 143,280
[SHARES-COMMON-STOCK] 14,608
[SHARES-COMMON-PRIOR] 13,928
[ACCUMULATED-NII-CURRENT] 117
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (452)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 6,133
[NET-ASSETS] 148,773
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 8,630
[OTHER-INCOME] 0
[EXPENSES-NET] (1,225)
[NET-INVESTMENT-INCOME] 7,405
[REALIZED-GAINS-CURRENT] 1,754
[APPREC-INCREASE-CURRENT] 2,659
[NET-CHANGE-FROM-OPS] 11,818
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (7,417)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3,908
[NUMBER-OF-SHARES-REDEEMED] (3,519)
[SHARES-REINVESTED] 291
[NET-CHANGE-IN-ASSETS] 11,632
[ACCUMULATED-NII-PRIOR] 20
[ACCUMULATED-GAINS-PRIOR] (2,229)
[OVERDISTRIB-NII-PRIOR] 7,632
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 806
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,225
[AVERAGE-NET-ASSETS] 134,227
[PER-SHARE-NAV-BEGIN] 9.87
[PER-SHARE-NII] 0.56
[PER-SHARE-GAIN-APPREC] 0.30
[PER-SHARE-DIVIDEND] (0.55)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 10.18
[EXPENSE-RATIO] 0.91
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000846030
[NAME] STAR FUNDS
[SERIES]
[NUMBER] 052
[NAME] STAR U.S. GOVERNMENT INCOME FUND - B SHARES
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 142,004
[INVESTMENTS-AT-VALUE] 148,137
[RECEIVABLES] 2,132
[ASSETS-OTHER] 99
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 150,368
[PAYABLE-FOR-SECURITIES] 1,000
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 290
[TOTAL-LIABILITIES] 1,290
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 143,280
[SHARES-COMMON-STOCK] 30
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 117
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (452)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 6,133
[NET-ASSETS] 305
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 8,630
[OTHER-INCOME] 0
[EXPENSES-NET] (1,225)
[NET-INVESTMENT-INCOME] 7,405
[REALIZED-GAINS-CURRENT] 1,754
[APPREC-INCREASE-CURRENT] 2,659
[NET-CHANGE-FROM-OPS] 11,818
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (7)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 40
[NUMBER-OF-SHARES-REDEEMED] (11)
[SHARES-REINVESTED] 1
[NET-CHANGE-IN-ASSETS] 11,632
[ACCUMULATED-NII-PRIOR] 20
[ACCUMULATED-GAINS-PRIOR] (2,229)
[OVERDISTRIB-NII-PRIOR] 7,632
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 806
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,225
[AVERAGE-NET-ASSETS] 202
[PER-SHARE-NAV-BEGIN] 9.89
[PER-SHARE-NII] 0.36
[PER-SHARE-GAIN-APPREC] 0.29
[PER-SHARE-DIVIDEND] (0.36)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 10.18
[EXPENSE-RATIO] 0.91
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000846030
[NAME] STAR FUNDS
[SERIES]
[NUMBER] 06
[NAME] STAR CAPITAL APPRECIATION FUND
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 71,087
[INVESTMENTS-AT-VALUE] 80,018
[RECEIVABLES] 92
[ASSETS-OTHER] 14
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 80,124
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 144
[TOTAL-LIABILITIES] 144
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 73,542
[SHARES-COMMON-STOCK] 6,806
[SHARES-COMMON-PRIOR] 5,796
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (2,493)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 8,931
[NET-ASSETS] 79,981
[DIVIDEND-INCOME] 646
[INTEREST-INCOME] 67
[OTHER-INCOME] 0
[EXPENSES-NET] (1,066)
[NET-INVESTMENT-INCOME] (354)
[REALIZED-GAINS-CURRENT] (2,489)
[APPREC-INCREASE-CURRENT] 6,381
[NET-CHANGE-FROM-OPS] 3,539
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (133)
[DISTRIBUTIONS-OF-GAINS] (17,824)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,082
[NUMBER-OF-SHARES-REDEEMED] (1,076)
[SHARES-REINVESTED] 1,004
[NET-CHANGE-IN-ASSETS] (3,137)
[ACCUMULATED-NII-PRIOR] 124
[ACCUMULATED-GAINS-PRIOR] 17,820
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 767
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,066
[AVERAGE-NET-ASSETS] 80,861
[PER-SHARE-NAV-BEGIN] 14.34
[PER-SHARE-NII] (0.05)
[PER-SHARE-GAIN-APPREC] 0.56
[PER-SHARE-DIVIDEND] (0.02)
[PER-SHARE-DISTRIBUTIONS] (3.08)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 11.75
[EXPENSE-RATIO] 1.32
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000846030
[NAME] STAR FUNDS
[SERIES]
[NUMBER] 07
[NAME] STAR STRATEGIC INCOME FUND
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 209,753
[INVESTMENTS-AT-VALUE] 199,114
[RECEIVABLES] 6,634
[ASSETS-OTHER] 20
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 205,768
[PAYABLE-FOR-SECURITIES] 3,017
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 397
[TOTAL-LIABILITIES] 3,414
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 218,026
[SHARES-COMMON-STOCK] 21,046
[SHARES-COMMON-PRIOR] 16,820
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (5,078)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (10,595)
[NET-ASSETS] 202,354
[DIVIDEND-INCOME] 6,748
[INTEREST-INCOME] 9,856
[OTHER-INCOME] 0
[EXPENSES-NET] (2,475)
[NET-INVESTMENT-INCOME] 14,129
[REALIZED-GAINS-CURRENT] (5,003)
[APPREC-INCREASE-CURRENT] (14,078)
[NET-CHANGE-FROM-OPS] (4,952)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (14,228)
[DISTRIBUTIONS-OF-GAINS] (1,594)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 8,201
[NUMBER-OF-SHARES-REDEEMED] (4,485)
[SHARES-REINVESTED] 510
[NET-CHANGE-IN-ASSETS] 22,941
[ACCUMULATED-NII-PRIOR] 302
[ACCUMULATED-GAINS-PRIOR] 1,263
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1,865
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 2,475
[AVERAGE-NET-ASSETS] 196,465
[PER-SHARE-NAV-BEGIN] 10.67
[PER-SHARE-NII] 0.72
[PER-SHARE-GAIN-APPREC] (0.94)
[PER-SHARE-DIVIDEND] (0.73)
[PER-SHARE-DISTRIBUTIONS] (0.10)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 9.62
[EXPENSE-RATIO] 1.26
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000846030
[NAME] STAR FUNDS
[SERIES]
[NUMBER] 081
[NAME] STAR GROWTH EQUITY FUND - Y SHARES
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 122,733
[INVESTMENTS-AT-VALUE] 187,951
[RECEIVABLES] 259
[ASSETS-OTHER] 230
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 188,440
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 487
[TOTAL-LIABILITIES] 487
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 118,422
[SHARES-COMMON-STOCK] 6,226
[SHARES-COMMON-PRIOR] 6,350
[ACCUMULATED-NII-CURRENT] 142
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 4,270
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 65,118
[NET-ASSETS] 121,475
[DIVIDEND-INCOME] 2,159
[INTEREST-INCOME] 320
[OTHER-INCOME] 0
[EXPENSES-NET] (1,996)
[NET-INVESTMENT-INCOME] 483
[REALIZED-GAINS-CURRENT] 4,358
[APPREC-INCREASE-CURRENT] 27,812
[NET-CHANGE-FROM-OPS] 32,652
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (439)
[DISTRIBUTIONS-OF-GAINS] (6,040)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,617
[NUMBER-OF-SHARES-REDEEMED] (1,975)
[SHARES-REINVESTED] 234
[NET-CHANGE-IN-ASSETS] 33,841
[ACCUMULATED-NII-PRIOR] 179
[ACCUMULATED-GAINS-PRIOR] 8,532
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1,270
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,996
[AVERAGE-NET-ASSETS] 112,204
[PER-SHARE-NAV-BEGIN] 17.18
[PER-SHARE-NII] 0.06
[PER-SHARE-GAIN-APPREC] 3.30
[PER-SHARE-DIVIDEND] (0.07)
[PER-SHARE-DISTRIBUTIONS] (0.96)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 19.51
[EXPENSE-RATIO] 1.09
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000846030
[NAME] STAR FUNDS
[SERIES]
[NUMBER] 082
[NAME] STAR GROWTH EQUITY FUND - B SHARES
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 122,733
[INVESTMENTS-AT-VALUE] 187,951
[RECEIVABLES] 259
[ASSETS-OTHER] 230
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 188,440
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 487
[TOTAL-LIABILITIES] 487
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 118,422
[SHARES-COMMON-STOCK] 3,405
[SHARES-COMMON-PRIOR] 2,622
[ACCUMULATED-NII-CURRENT] 142
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 4,270
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 65,118
[NET-ASSETS] 66,478
[DIVIDEND-INCOME] 2,159
[INTEREST-INCOME] 320
[OTHER-INCOME] 0
[EXPENSES-NET] (1,996)
[NET-INVESTMENT-INCOME] 483
[REALIZED-GAINS-CURRENT] 4,358
[APPREC-INCREASE-CURRENT] 27,812
[NET-CHANGE-FROM-OPS] 32,652
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (80)
[DISTRIBUTIONS-OF-GAINS] (2,579)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,071
[NUMBER-OF-SHARES-REDEEMED] (454)
[SHARES-REINVESTED] 167
[NET-CHANGE-IN-ASSETS] 33,841
[ACCUMULATED-NII-PRIOR] 179
[ACCUMULATED-GAINS-PRIOR] 8,532
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1,270
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,996
[AVERAGE-NET-ASSETS] 57,318
[PER-SHARE-NAV-BEGIN] 17.17
[PER-SHARE-NII] 0.02
[PER-SHARE-GAIN-APPREC] 3.32
[PER-SHARE-DIVIDEND] (0.03)
[PER-SHARE-DISTRIBUTIONS] (0.96)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 19.52
[EXPENSE-RATIO] 1.34
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000846030
[NAME] STAR FUNDS
[SERIES]
[NUMBER] 090
[NAME] THE STELLAR INSURED TAX-FREE BOND FUND
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 142,122
[INVESTMENTS-AT-VALUE] 151,112
[RECEIVABLES] 2,340
[ASSETS-OTHER] 2
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 153,454
[PAYABLE-FOR-SECURITIES] 1,015
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 208
[TOTAL-LIABILITIES] 1,223
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 142,963
[SHARES-COMMON-STOCK] 14,514
[SHARES-COMMON-PRIOR] 12,548
[ACCUMULATED-NII-CURRENT] 112
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 167
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 8,990
[NET-ASSETS] 152,231
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 7,420
[OTHER-INCOME] 0
[EXPENSES-NET] (1,126)
[NET-INVESTMENT-INCOME] 6,294
[REALIZED-GAINS-CURRENT] 167
[APPREC-INCREASE-CURRENT] 3,424
[NET-CHANGE-FROM-OPS] 9,885
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (6,255)
[DISTRIBUTIONS-OF-GAINS] (324)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3,500
[NUMBER-OF-SHARES-REDEEMED] (1,545)
[SHARES-REINVESTED] 11
[NET-CHANGE-IN-ASSETS] 23,640
[ACCUMULATED-NII-PRIOR] 74
[ACCUMULATED-GAINS-PRIOR] 324
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 1,066
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 1,481
[AVERAGE-NET-ASSETS] 142,209
[PER-SHARE-NAV-BEGIN] 10.25
[PER-SHARE-NII] 0.46
[PER-SHARE-GAIN-APPREC] 0.26
[PER-SHARE-DIVIDEND] (0.46)
[PER-SHARE-DISTRIBUTIONS] (0.02)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 10.49
[EXPENSE-RATIO] 0.79
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000846030
[NAME] STAR FUNDS
[SERIES]
[NUMBER] 100
[NAME] STAR INTERNATIONAL EQUITY FUND
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 49,376
[INVESTMENTS-AT-VALUE] 48,944
[RECEIVABLES] 46
[ASSETS-OTHER] 3
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 48,993
[PAYABLE-FOR-SECURITIES] 446
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 89
[TOTAL-LIABILITIES] 535
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 47,992
[SHARES-COMMON-STOCK] 4,683
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 63
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 836
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (433)
[NET-ASSETS] 48,459
[DIVIDEND-INCOME] 509
[INTEREST-INCOME] 200
[OTHER-INCOME] 0
[EXPENSES-NET] (553)
[NET-INVESTMENT-INCOME] 156
[REALIZED-GAINS-CURRENT] 836
[APPREC-INCREASE-CURRENT] (433)
[NET-CHANGE-FROM-OPS] 560
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (93)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 5,057
[NUMBER-OF-SHARES-REDEEMED] (379)
[SHARES-REINVESTED] 5
[NET-CHANGE-IN-ASSETS] 48,459
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 93
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 314
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 553
[AVERAGE-NET-ASSETS] 42,273
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] 0.05
[PER-SHARE-GAIN-APPREC] 0.34
[PER-SHARE-DIVIDEND] (0.04)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 10.35
[EXPENSE-RATIO] 1.31
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000846030
[NAME] STAR FUNDS
[SERIES]
[NUMBER] 110
[NAME] STAR MARKET CAPITALIZATION FUND
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 39,937
[INVESTMENTS-AT-VALUE] 42,716
[RECEIVABLES] 18
[ASSETS-OTHER] 1
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 42,735
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 85
[TOTAL-LIABILITIES] 85
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 39,843
[SHARES-COMMON-STOCK] 3,590
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 47
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (20)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 2,779
[NET-ASSETS] 42,649
[DIVIDEND-INCOME] 262
[INTEREST-INCOME] 48
[OTHER-INCOME] 0
[EXPENSES-NET] (257)
[NET-INVESTMENT-INCOME] 53
[REALIZED-GAINS-CURRENT] (20)
[APPREC-INCREASE-CURRENT] 2,779
[NET-CHANGE-FROM-OPS] 2,812
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (6)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3,753
[NUMBER-OF-SHARES-REDEEMED] (164)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 42,649
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 4
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 72
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] (274)
[AVERAGE-NET-ASSETS] 24,713
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] 0.02
[PER-SHARE-GAIN-APPREC] 1.87
[PER-SHARE-DIVIDEND] (0.01)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 11.88
[EXPENSE-RATIO] 1.06
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[CIK] 0000846030
[NAME] STAR FUNDS
[SERIES]
[NUMBER] 120
[NAME] STAR OHIO TAX-FREE MONEY MARKET FUND
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] NOV-30-1998
[PERIOD-START] DEC-01-1997
[PERIOD-END] NOV-30-1998
[INVESTMENTS-AT-COST] 58,026
[INVESTMENTS-AT-VALUE] 58,026
[RECEIVABLES] 324
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 58,350
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 737
[TOTAL-LIABILITIES] 737
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 57,614
[SHARES-COMMON-STOCK] 57,614
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 57,614
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 1,253
[OTHER-INCOME] 0
[EXPENSES-NET] (248)
[NET-INVESTMENT-INCOME] 1,005
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 1,005
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (1,005)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 137,910
[NUMBER-OF-SHARES-REDEEMED] (80,299)
[SHARES-REINVESTED] 3
[NET-CHANGE-IN-ASSETS] 57,614
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 196
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 409
[AVERAGE-NET-ASSETS] 35,786
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] 0.03
[PER-SHARE-GAIN-APPREC] 0.00
[PER-SHARE-DIVIDEND] (0.03)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] 0.69
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
