Filed with the Securities and Exchange Commission on January 28, 1999
1933 Act Registration File No. 33-26915
1940 Act File No.811-5762
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. []
Post-Effective Amendment No. 42 x
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 42 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) 6773863
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
- ------- immediately upon filing pursuant to paragraph (b)
- ------- on -------------- pursuant to paragraph (b)
- ------- 60 days after filing pursuant to paragraph (a)(1)
- ---x--- 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
TREASURY FUND
Providing current income with stable principal
TAX-FREE MONEY MARKET FUND
Providing current income exempt from federal income
tax
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
any fund's shares as an investment
nor has it determined whether this
prospectus is accurate or complete.
Anyone who tells you otherwise is
committing a crime.
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 11
YOUR ACCOUNT INFORMATION
Description of Classes 11
Exchanging Shares 11
Purchasing Shares 12
Selling Shares 14
Dividend Capital Gains 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 shortterm municipal securities. Each of the funds strives to maintain
a share price of $1.
PRINCIPAL RISKS OF THE FUNDS
o An investment in the funds is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. 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.
o Investing in the OHIO TAX-FREE MONEY MARKET FUND has added risks because the
fund is a nondiversified fund under the Investment Company Act of 1940.
Compared with other mutual funds, this fund may invest a greater percentage
of its assets in a more limited number of issues, which as a result, can
increase the fund's volatility.
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
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
shortterm 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. The fund may also retain assets in cash.
WHEN ISSUED/DELAYED DELIVERY
Securities with payment and delivery scheduled for a future time.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS The fund may purchase U.S.
Treasury obligations on a when-issued or delayed delivery basis. One of the
risks of investing in whenissued 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.
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 how the fund's average annual returns for oneyear,
5year and since the fund's inception compare with those of a broad measure of
market performance.
Treasury Fund - C Shares
1990 7.72%
1991 5.72
1992 3.41
1993 2.56
1994 3.30
1995 5.23
1996 4.80
1997 4.85
1998
Best Quarter: Q 199 %
Worst Quarter: Q 199 %
Average annual total return Since
through 12/31/98 1 Year 5 Year inception
Treasury Fund C Shares1<F1>
Y Shares2<F2> N/A
The fund's past performance is not necessarily an indication of how the fund
will perform in the future.
1<F1> C Shares commenced operations April 15, 1989
2<F2> 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 TRANSACTION EXPENSES CLASS Y CLASS C
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
MAXIMUM SALES CHARGE ON PURCHASES
(as a percentage of offering price) None None
MAXIMUM DEFERRED SALES CHARGE None None
MAXIMUM SALES CHARGE ON REINVESTED DIVIDENDS None None
REDEMPTION FEE None None
ESTIMATED ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS)
INVESTMENT MANAGEMENT FEES 0.50% 0.50%
RULE 12B-1 FEES1<F3> None 0.25%
OTHER EXPENSES 0.25% 0.25%
SHAREHOLDER SERVICING FEE2<F4> 0.25% 0.25%
TOTAL FUND OPERATING EXPENSES 1.00% 1.25%
1<F3> Y shares are not subject to a Rule 12b-1 Plan. Class C Shares of the
Treasury Fund can pay up to 0.25% of the average daily net assets for
Rule 12b-1 fees. However, the fund's investment adviser has chosen to
waive a portion of this fee so that the actual amount imposed is 0.15% of
average daily net asset. The adviser can reduce the waiver amount
at any time.
2<F4> Y shares and C shares can pay up to 0.25% of average daily net assets as
a shareholder servicing fee; however, the Y shares and C shares plan to
limit the shareholder servicing fee to 0.05% 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 $80 $240 $420 $930
Class C $100 $320 $550 $1,220
Class descriptions are on page 11.
TAX-FREE MONEY MARKET FUND
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. The fund invests in these sorts
of interests in order to obtain credit enhancement or demand features that would
not be available by directly owning 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 taxexempt or
taxable short-term temporary investments when the fund's investment adviser
determines that market conditions call for a temporary defensive posture.
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.
RISKS 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 shortterm 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.
Another risk is that the fund may invest more than 25% of its total assets in
securities creditenhanced 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.
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 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 how the fund's average annual returns for
oneyear, 5year, and since inception ending 1998 compares with those of a broad
measure of market performance.
Tax-Free Money Market Fund- C Shares
1992 2.59%
1993 1.91
1994 2.15
1995 3.32
1996 2.91
1997 3.02
1998
Calendar Year Returns as of 12/31
Best Quarter: Q 199 %
Worst Quarter: Q 199 %
Average annual total return Since
through 12/31/98 1 Year 5 Year inception
Tax-Free Money Market Fund1<F5>
The fund's past performance is not necessarily an indication of how the fund
will perform in the future.
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 TRANSACTION EXPENSES CLASS C
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
MAXIMUM SALES CHARGE ON PURCHASES
(as a percentage of offering price) None
MAXIMUM DEFERRED SALES CHARGE None
MAXIMUM SALES CHARGE ON REINVESTED DIVIDENDS None
REDEMPTION FEE None
ESTIMATED ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS)
INVESTMENT MANAGEMENT FEES1<F6> 0.55%
RULE 12B-1 FEES2<F7> 0.25%
OTHER EXPENSES 0.32%
SHAREHOLDER SERVICING FEE3<F8> 0.25%
TOTAL FUND OPERATING EXPENSES 1.37%
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, class C 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 fund's distributor if a Y class of
shares is created.
3<F8> The fund can pay up to 0.25% of average daily net assets as a
shareholder servicing fee; however, the fund plans to limit the
shareholder servicing fee to 0.05% 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 $80 $250 $430 $950
Class descriptions are on page 11.
OHIO TAX-FREE MONEY MARKET FUND
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
(including 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. The fund invests in these sorts
of interests in order to obtain credit enhancement or demand features that would
not be available by directly owning 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 taxexempt or
taxable short-term temporary investments when the fund's investment adviser
determines that market conditions call for a temporary defensive posture.
Although the fund is permitted to make taxable, temporary investments, the
adviser currently has no intention to generate income subject to federal income
tax.
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 shortterm 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.
Another risk is that the fund may invest more than 25% of its total assets in
securities creditenhanced 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.
Finally, the fund is a nondiversified fund. That means there is no limit on the
percentage of assets the fund can invest in any one issuer. The value of the
fund's securities can be impacted by economic or political developments
affecting certain securities. 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 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 how the fund's average
annual returns for oneyear and since inception ending 1998 compare with those of
a broad measure of market performance.
Ohio Tax-Free Money Market Fund- C Shares
1998
Calendar Year Returns as of 12/31
Best Quarter: Q 199 %
Worst Quarter: Q 199 %
Average annual total return Since
through 12/31/98 1 Year Inception
Ohio Tax-Free Money Market Fund1<F9>
The fund's past performance is not necessarily an indication of how the fund
will perform in the future.
1<F9> C Shares commenced operations April 15, 1989
FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER TRANSACTION EXPENSES CLASS C
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
MAXIMUM SALES CHARGE ON PURCHASES
(as a percentage of offering price) None
MAXIMUM DEFERRED SALES CHARGE None
MAXIMUM SALES CHARGE ON REINVESTED DIVIDENDS None
REDEMPTION FEE None
ESTIMATED ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS)
INVESTMENT MANAGEMENT FEES1<F10> 0.55%
RULE 12B-1 FEES2<F11> 0.25%
OTHER EXPENSES 0.32%
SHAREHOLDER SERVICING FEE3<F12> 0.25%
TOTAL FUND OPERATING EXPENSES 1.37%
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, class C 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 fund's distributor if a Y class of
shares is created.
3<F12> The fund can pay up to 0.25% of average daily net assets as a
shareholder servicing fee; however, the fund plans to limit the
shareholder servicing fee to 0.05% 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 $80 $250 $430 $950
Class descriptions are on page 11.
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:
Treasury Fund 0.50%
Tax-Free Money Market Fund 0.55%
Ohio Tax-Free Money Market Fund 0.55%
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
$----- billion.
PORTFOLIO MANAGERS
JANE T. KEELAN manages the TAX-FREE MONEY MARKET FUND and OHIO TAX-FREE MONEY
MARKET FUND. Ms. Keelan is a portfolio manager and assistant vice president with
Firstar Bank and has over 11 years of fixed income experience. Ms. Keelan is
currently responsible for focusing on money market portfolio management. She
oversees the money market desk and manages several taxable and tax-exempt money
market mutual funds, commingled funds and several taxable individual portfolios.
Ms. Keelan earned her Bachelor of Arts degree at the University of Wisconsin.
CARL J. SMITH manages the TREASURY FUND. Mr. Smith is a portfolio manager and
vice president with Firstar Bank and has over 10 years of fixed income
experience. Mr. Smith's responsibilities focus on money market portfolio
management as he manages several taxable money market mutual funds, commingled
funds and several taxable individual portfolios. Mr. Smith has operational and
technological expertise in both fixedincome and equity trading systems and is
proficient at analyzing money market instruments. Mr. Smith earned his Bachelor
of Business Administration degree at Cardinal Stritch College.
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 shareholder services to the
Firstar Stellar Funds and is located in Milwaukee, Wisconsin. Firstar Bank,
N.A., the funds' investment adviser, also serves as custodian and transfer agent
for the funds.
DISTRIBUTION OF SHARES
DISTRIBUTOR
B.C. Ziegler and Company, Inc. is the distributor for shares of the funds. B.C.
Ziegler is based in Milwaukee, Wisconsin 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 B.C. Ziegler. B.C.
Ziegler uses this fee to finance activities that promote the sale of the funds'
shares. 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 B.C. Ziegler deems it appropriate, B.C. Ziegler 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 ongoing basis. Over time, these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
B.C. Ziegler 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. The
schedules of such fees and the basis upon which such fees will be paid will be
determined by B.C. Ziegler.
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 class, however, the Y class
pays investment management fees and other fees. Currently, only the TREASURY
FUND sells class Y shares.
EXCHANGING SHARES
You can exchange shares between the Firstar Stellar Funds within the same class.
You also may exchange class C shares (noload 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.
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 longterm 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 and Firstar Funds.
PURCHASING 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 at 12:00 noon (Eastern time). The net asset value for
the TREASURY FUND is determined at 2:00 p.m. (Eastern time).
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.
TIMING OF REQUESTS
All requests (telephone orders and federal funds wire) 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 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)
OPENING AN ACCOUNT
To open an account, first determine if you are buying class C shares or class Y
shares (See page 11 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.
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 11. information. See page 11.
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 amount 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, signatures 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
11 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 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 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.
DIVIDENDS CAPITAL GAINS 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, the fund could earn more dividends.
Capital losses could result in a decrease in dividends for the fund. 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.
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 the TAX-FREE MONEY
MARKET 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.
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, 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 are subject to
20% corporate AMT because the dividends are included in your corporate "adjusted
current earnings."
Corporate AMT treats 75% of the excess pretax 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.
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 AMTs.
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
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
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.
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)
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 0.03 0.05 0.05 0.03
Less distributions
Distributions from net
investment income (0.05) (0.03) (0.05) (0.05) (0.03)
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------
Total return3<F15> 4.85% 3.37% 4.80% 5.23% 3.30%
Ratios & Supplemental data
Actual net assets,
end of period
(000's omitted) $469,400 $659,296 $829,259 $654,963 $386,020
Ratio of Expenses to
Average Net Assets 0.73% 0.72%4<F16> 0.70% 0.71% 0.70%
Ratio of Net Income to
Average Net Assets 4.73% 4.87%4<F16> 4.69% 5.14% 3.24%
</TABLE>
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<F15> Annualized.
TAX-FREE MONEY MARKET FUND1<F17>
(CLASS C SHARES)
<TABLE>
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 0.02
Less distributions
Distributions from net
investment income (0.03) (0.03) (0.03) (0.02)
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------
Total return2<F18> 3.02% 2.91% 3.32% 2.15%
Ratios & Supplemental data
Actual Net assets, end of period
(000's omitted) $126,348 $153,256 $167,356 $135,022
Ratio of Expenses to
Average Net Assets 0.69% 0.70% 0.66% 0.65%
Ratio of Net Income to
Average Net Assets 2.96% 2.87% 3.26% 2.12%
Expense waiver/reimbursement3<F19> 0.10% 0.11% 0.15% 0.15%
</TABLE>
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.
OHIO TAX-FREE MONEY MARKET FUND1<F20>
(Class C Shares)
1998
- ---------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $1.00
- ---------------------------------------------
Income from investment operations
Net investment income
Less distributions
Distributions from
net investment income
- ---------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00
- ---------------------------------------------
Total return2<F21>
Ratios & Supplemental data
Actual Net assets,
end of period
(000's omitted)
Ratio of Expenses to
Average Net Assets
Ratio of Net Income to
Average Net Assets
Expense waiver/reimbursement3<F22>
1<F20> The Ohio Tax-Free Money Market Fund has been operating since November
30, 1997.
2<F21> Based on net asset.
3<F22> This voluntary expense decrease is reflected in both the expense and
net investment income ratios.
YEAR 2000 ISSUE
Like all financial service providers, the funds' investment adviser, the
distributor and other third parties utilize systems that may be affected by year
2000 transition 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 Treasury Fund
Tax-Free Money Market Fund
Ohio Tax-Free Money Market Fund
Growth Equity Fund
Relative Value Fund
The Stellar Fund
Capital Appreciation Fund
International Equity Fund
Strategic Income Fund
U.S. Government Income Fund
The Stellar Insured Tax-Free Bond Fund
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 OTHER 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
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, Washington, D.C. 20549-6009.
Investment Company Act File # 811-05762
FIRSTAR STELLAR STOCK
FUNDS FUNDS
COMBINED
PROSPECTUS
MARCH 31, 1999
GROWTH EQUITY FUND
Maximizing capital appreciation
RELATIVE VALUE FUND
Providing the highest total return from income and capital
appreciation
THE STELLAR FUND
Maximizing total returns from dividend income and capital
appreciation
CAPITAL APPRECIATION FUND
Maximizing capital appreciation
INTERNATIONAL EQUITY FUND
Providing long-term capital appreciation
The Securities and Exchange Commission has not approved any fund's shares as an
investment nor has it determined whether this prospectus is accurate or
complete. Anyone who tells you otherwise is committing a crime.
TABLE OF CONTENTS
THE FUNDS
Overview of the Funds 3
GROWTH EQUITY FUND 4
RELATIVE VALUE FUND 6
THE 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 31
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 choice 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 from other mutual funds investing in non U.S.
companies.
PRINCIPAL RISKS OF THE 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.
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 Liquidity Risk: The investment adviser may not be able to sell stocks at an
optimal time or price.
An investment in the funds is not a deposit of a 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 a long term
o want to diversify their portfolios
o want to allocate some portion of their longterm investments to aggressive
equity investing
o are willing to accept a high degree of volatility and risk in exchange 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
GROWTH EQUITY FUND
INVESTMENT GOAL
The GROWTH EQUITY FUND'S investment objective is to maximize capital
appreciation.
WHAT ARE "GROWTH-ORIENTED" SECURITIES?
Securities of U.S. companies with market capitalizations of $1.5 billion or
greater that show superior growth potential.
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,
o average daily trading volume and
o credit rankings based on nationally recognized statistical rating
o 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.
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 overthecounter market.
The fund may also invest in:
o domestic debt securities (i.e., notes, zero coupon bonds and convertible
securities of U.S. companies)
o government securities (i.e., direct obligations of the U.S. Treasury)
o real estate investment trusts
o structured fixed income securities (i.e., mortgagebacked securities,
adjustable rate mortgage securities, collateralized mortgage obligations and
assetbacked securities)
o international securities (including other investment companies, American
Depositary Receipts and International Depositary Receipts)
o money market instruments
INVESTMENT RISKS
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 shortterm
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.
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 1998, compare with the S&P 500 Index and the Lipper
Growth & Income Average, broad measures of market performance.
Growth Equity Fund - B Shares
1995 29.44%
1996 27.34%
1997 22.65%
1998
Calendar Years Returns as of 12/31
Sales charges are not reflected in the bar chart. If these amounts were
reflected, returns would be less than those shown.
BEST QUARTER: Q 199 %
WORST QUARTER: Q 199 %
Average annual total return Since
through 12/31/98 1 Year Inception
Growth Equity Fund B Shares1<F23>
Y Shares2<F24>
S&P 500 Index3<F25>
Lipper Growth & Income Average4<F26>
The fund's past performance is not necessarily an indication of how the fund
will perform in the future.
1<F23>B Shares commenced operations on December 12, 1994
2<F24>Y Shares commenced operations on August 18, 1997.
3<F25>The S&P 500 Index is an unmanaged index of 500 domestic stocks created by
Standard & Poor's Corporation.
4<F26>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 TRANSACTION EXPENSES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS B CLASS Y
Maximum Sales Charge on Purchases
(as a percentage of offering price) None None
Maximum Deferred Sales Charge1<F27> 5.00% None
Maximum Sales Charge on Reinvested Dividends None None
Redemption Fee None None
ESTIMATED ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS)
Investment Management Fees 0.75% 0.75%
Rule 12b-1 Fees2<F28> 0.25% None
Other Expenses 0.31% 0.31%
Shareholder Servicing Fee3<F29> 0.25% 0.25%
Total Fund Operating Expenses 1.56% 1.31%
1<F27> 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<F28> The Y shares are not subject to a Rule 12b-1 plan.
3<F29> Y shares and B shares can pay up to 0.25% of average daily net assets
as a shareholder servicing fee; however, the Y shares and B shares
plan to limit the shareholder servicing fee to 0.05% 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 $650 $750 $840 $1,580
CLASS Y $110 $340 $580 $1,290
If you did not redeem your shares, you would pay the following expenses:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS B $130 $420 $720 $1,580
CLASS Y $110 $340 $580 $1,290
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 as is consistent with reasonable
risk.
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. Under
normal circumstances, the fund will invest at least 70% of its assets in common
stocks. The fund may invest a portion of its assets in fixedincome securities
such as domestic issues of corporate debt obligations.
The investment adviser uses traditional research techniques when choosing which
stock to invest in. 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, revenue-wise, are in the top 25% of their industries.
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.
INVESTMENT RISKS
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, securities issued by the U.S. government, its agencies or
instrumentalities, and repurchase agreements. To the extent that the fund
engages in this temporary, defensive strategy, the fund may not achieve its
investment objective.
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, 5 years and since the fund's inception compare with the S&P 500 Index and
Lipper Growth & Income Average, broad measures of market performance.
Relative Value Fund - A Share
1992 15.39%
1993 14.47%
1994 -1.54%
1995 35.10%
1996 28.86%
1997 27.69%
1998
Calendar Years Returns as of 12/31
Sales charges are not reflected on the bar chart. If these amounts were
reflected, returns would be less than those shown.
BEST QUARTER: Q 199 %
WORST QUARTER: Q 199 %
Average annual total return Since
through 12/31/98 1 Year 5 Year Inception
Relative Value Fund A Shares1<F30>
B Shares2<F31> N/A N/A
Y Shares3<F32> N/A
S&P 500 Index4<F33>
Lipper Growth & Income Average5<F34>
The fund's past performance is not necessarily an indication of how the fund
will perform in the future.
1<F30> A Shares commenced operations on June 5, 1991.
2<F31> B Shares commenced operations on March 31, 1998
3<F32> Y Shares commenced operations on August 18, 1997.
4<F33> The S&P 500 Index is an unmanaged index of 500 domestic stocks created
by Standard & Poor's Corporation.
5<F34> 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 TRANSACTION EXPENSES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A CLASS B CLASS Y
Maximum Sales Charge on Purchases
(as a percentage of offering price) 4.50% None None
Maximum Deferred Sales Charge1<F35> None 5.00% None
Maximum Sales Charge on Reinvested Dividends None None None
Redemption Fee None None None
ESTIMATED ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS)
Investment Management Fees 0.75% 0.75% 0.75%
Rule 12b-1 Fees2<F36> 0.25% 0.25% None
Other Expenses 0.30% 0.30% 0.30%
Shareholder Servicing Fee3<F37> 0.25% 0.25% 0.25%
Total Fund Operating Expenses 1.55% 1.55% 1.30%
1<F35> 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<F36> Y shares are not subject to a Rule 12b-1 Plan.
3<F37> Y shares, A shares and B shares can pay up to 0.25% of average daily
net assets as a shareholder servicing fee; however, the Y shares, A
shares and B shares plan to limit the shareholder servicing fee to
0.05% 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 $580 $840 $1,130 $1,950
CLASS B $650 $750 $830 $1,570
CLASS Y $110 $330 $580 $1,280
If you did not redeem your shares, you would pay the following expenses:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS A $580 $840 $1,130 $1,950
CLASS B $130 $410 $710 $1,570
CLASS Y $110 $330 $580 $1,280
Class descriptions are on page 18.
THE 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 securities
o domestic fixed-income securities (including structured fixed-income
securities)
o international securities (equity and fixed income)
o real estate securities (REITs),
o precious metal securities, and
o 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 stock contained in the Standard & Poor's 500 Composite
Stock Price Index.
DOMESTIC FIXED-INCOME SECURITIES The fixedincome portion of the fund includes
domestic corporate debt obligations, obligations of the U.S., 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 fixedincome portion of the fund
also includes mortgagebacked securities, adjustable rate mortgage securities,
collateralized mortgage obligations and assetbacked securities.
INTERNATIONAL SECURITIES The international portion of the fund includes equity
securities of nonU.S. companies and corporate and government fixedincome
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 fixedincome 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 openend and
closedend 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 assetbacked 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 assetbacked 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 mortgagebacked securities, adjustable rate mortgage securities,
collateralized mortgage obligations and assetbacked securities
o commercial paper rated A-1 by S&P, Prime1 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
FOREIGN SECURITIES The fund's investments in international securities and
money market securities issued by foreign banks allocated between the various
categories of securities could amount to 50% of the fund's net assets. If the
fund's investments in precious metals securities of foreign issuers are included
with the previous securities, more than 50% of the fund's net assets could be
invested in securities of foreign issuers.
Investing in foreign securities can carry higher returns and risks than those
associated with domestic investments. Because foreign securities may be
denominated in foreign currencies, the value in U.S. dollars of the fund's
assets and income may be affected by changes in exchange rates and regulations.
Although the fund values its assets daily in U.S. dollars, it will not convert
its holding of foreign currencies to U.S. dollars daily. The fund may be
charged a conversion cost when it converts its holdings to another currency.
Also, exchange dealers profit from each currency exchange.
Other differences between investing in foreign and U.S. companies 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.
FIXED INCOME SECURITIES Prices of fixedincome securities fluctuate inversely
to the direction of interest rates. The prices of longerterm fixedincome
securities fluctuate even more widely in response to market interest rate
changes. The fund invests in fixedincome securities that are rated at least BBB
by S&P or Fitch or Baa by Moody's. However, such securities have more
speculative characteristics than those rated higher. Lower rated securities may
be less likely to be able to make principal and interest payments in changing
economic conditions. The fund's investment adviser will re-assess whether the
fund should continue to hold any fixedincome security that is later downgraded
below the eligible rating.
REAL ESTATE INVESTMENT TRUSTS Some of the risks associated with 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 selfliquidation. 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.
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, 5
years and since the fund's inception compare with those of the Index, a
broad measure of market performance.
The Stellar Fund - A Share
1992 10.69%
1993 11.99%
1994 -1.22%
1995 15.67%
1996 16.64%
1997 11.94%
1998
Calendar Years Returns as of 12/31
Sales charges are not reflected on the bar chart. If these amounts were
reflected, returns would be less than those shown.
BEST QUARTER: Q 199 %
WORST QUARTER: Q 199 %
Average annual total return Since
through 12/31/98 1 Year 5 Year Inception
The Stellar Fund A Shares1<F38>
Y Shares2<F39>
The fund's past performance is not necessarily an indication of how the fund
will perform in the future.
1<F38> A Shares commenced operations on October 18, 1991.
2<F39> Y Shares commenced operations on April 11, 1994.
FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER TRANSACTION EXPENSES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A CLASS Y
Maximum Sales Charge on Purchases
(as a percentage of offering price) 4.50% None
Maximum Deferred Sales Charge None None
Maximum Sales Charge on
Reinvested Dividends None None
Redemption Fee None None
ESTIMATED ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS)
Investment Management Fees 0.95% 0.95%
Rule 12b-1 Fees1<F40> 0.25% None
Other Expenses 0.40% 0.40%
Shareholder Servicing Fee2<F41> 0.25% 0.25%
Total Fund Operating Expenses 1.85% 1.60%
1<F40> Y shares are not subject to a Rule 12b-1 Plan.
2<F41> Y shares and A shares can pay up to 0.25% of average daily net assets
as a shareholder servicing fee; however, the Y shares and A shares
plan to limit the shareholder servicing fee to 0.05% 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 $610 $930 $128 $2,260
CLASS Y $140 $430 $740 $1,620
Class descriptions are on page 18.
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)
o international securities (including other investment companies, American
o Depositary Receipts and International Depositary Receipts)
money market instruments
INVESTMENT RISKS
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 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.
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 oneyear and since inception ending 1998 compare with the S&P Midcap 400
Index and Lipper Mid Cap Average, broad measures of market performance.
Capital Appreciation Fund - A Share
1995 17.35%
1996 8.95%
1997 14.26%
1998
Calendar Years Returns as of 12/31
Sales charges are not reflected on the bar chart. If these amounts were
reflected, returns would be less than those shown.
BEST QUARTER: Q 199 %
WORST QUARTER: Q 199 %
Average annual total return Since
through 12/31/98 1 Year Inception
Capital Appreciation Fund1<F42>
S&P Midcap 400 Index2<F43>
Lipper Mid Cap Average3<F44>
The fund's past performance is not necessarily an indication of how the fund
will perform in the future.
1<F42> A Shares commenced operations on June 13, 1994
2<F43> The S&P Midcap 400 Index is an unmanaged index of 400 domestic stocks
created by Standard & Poor's Corporation.
3<F44> The Lipper Mid Cap 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 TRANSACTION EXPENSES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A
Maximum Sales Charge on Purchases
(as a percentage of offering price) 4.50%
Maximum Deferred Sales Charge None
Maximum Sales Charge on
Reinvested Dividends None
Redemption Fee None
ESTIMATED ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS)
Investment Management Fees 0.95%
Rule 12b-1 Fees1<F45> None
Other Expenses 0.34%
Shareholder Servicing Fee2<F46> 0.25%
Total Fund Operating Expenses 1.54%
1<F45> 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<F46> The fund can pay up to 0.25% of average daily net assets as a
shareholder servicing fee; however, the fund plan to limit the
shareholder servicing fee to 0.05% 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 $580 $840 $1,130 $1,940
Class descriptions are on page 18.
INTERNATIONAL EQUITY FUND
INVESTMENT GOAL
The INTERNATIONAL EQUITY FUND'S investment objective is to achieve longterm
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 nonU.S. issuers.
As an operational policy, the fund will likely invest substantially all of its
assets in international equity funds.
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 noload funds including those with
a contingent deferred sales charge. However, the fund anticipates that it will
generally purchase noload fund shares that qualify for a reduced sales charge or
sales charge waiver. The Investment Company Act 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.
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.
The investment adviser identifies and selects a varied portfolio of
international equity funds which represents the greatest longterm 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.
Before investing in an international equity fund, the adviser
FIRST: assesses the relative attractiveness of individual countries,
geographic regions and/or emerging markets.
SECOND: considers the expected returns and risks.
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.
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
nondiversified 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 openend management investment companies, but
may also invest in closedend management investment companies and/or unit
investment trusts. Unlike openend funds that offer and sell their shares at net
asset value plus any applicable sales charge, the shares of closedend funds and
unit investment trusts may trade at a market value that represents a premium,
discount or spread to net asset value.
INVESTMENT RISKS
UNDERLYING FUNDS 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.
FOREIGN SECURITIES 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 selfsufficiency, 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
Other differences between investing in foreign and U.S. companies 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.
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. Shortterm
debt securities include:
o commercial paper
o 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.
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 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 oneyear and since inception ending 1998 compare with those of
a broad measure of market performance.
International Equity Fund - A Shares
1998
Sales charges are not reflected on the bar chart. If these amounts were
reflected, returns would be less than those shown.
BEST QUARTER: Q 199 %
WORST QUARTER: Q 199 %
Average annual total return Since
through 12/31/98 1 Year Inception
International Equity Fund A Shares1<F47>
The fund's past performance is not necessarily an indication of how the fund
will perform in the future.
1<F47> A Shares commenced operations on December 3, 1997.
FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER TRANSACTION EXPENSES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A
Maximum Sales Charge on Purchases
(as a percentage of offering price) 1.50%
Maximum Deferred Sales Charge None
Maximum Sales Charge on
Reinvested Dividends None
Redemption Fee None
ESTIMATED ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS)
Investment Management Fees 0.75%
Rule 12b-1 Fees1 None
Other Expenses 0.94%
Shareholder Servicing Fee2<F49> 0.25%
Total Fund Operating Expenses 1.94%
1<F48> 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<F49> The fund can pay up to 0.25% of average daily net assets as a
shareholder servicing fee; however, the fund plan to limit the
shareholder servicing fee to 0.05% 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
$320 $670 $----- $-----
Class descriptions are on page 18.
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:
The Stellar Fund 0.95%
Relative Value Fund 0.75%
Growth Equity Fund 0.75%
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 $ 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 and Trust Officer and Portfolio Manager of the
FirstarTrust Division at Firstar Bank, N.A., Butler County, since 1979, 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. He
managed the domestic equity securities component of THE STELLAR FUND from its
inception through December 1995. He also supported the domestic and
international equity and fixed income components of Capital Appreciation Fund
from its inception through December 1995. 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.
PETER SORRENTINO, CFA, is Vice President and Director of Portfolio Management
and Research for the Capital Management Division of Firstar Bank. Mr.
Sorrentino has managed the domestic equity component of THE STELLAR FUND since
January 1996 and been the lead manager of THE STELLAR FUND since November 1997.
Mr. Sorrentino has also managed the CAPITAL APPRECIATION FUND since November
1997. In September 1998, Mr. Sorrentino became the portfolio manager of the
INTERNATIONAL EQUITY FUND and assumed responsibility for the REIT component of
THE STELLAR FUND. Prior to joining Firstar Bank in 1996, Mr. Sorrentino served
as Regional Director of Portfolio Management for Banc One Investment Advisors
since 1987. Mr. Sorrentino earned a Bachelor of Business administration degree
in Finance and Accounting from the University of Cincinnati. He also earned the
Chartered Financial Analyst designation.
MARK DUBOIS , CFA, is a Vice President and Trust Officer in FirstarTrust's
Personal Trust area. As a Senior Portfolio Manager, Mr. DuBois is responsible
for implementing and communicating Firstar Bank's investment policy in personal
trusts, agencies, and IRAs. 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. 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 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 and accounting 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 and transfer agent for the funds.
DISTRIBUTION OF SHARES
DISTRIBUTOR
B.C. Ziegler and Company, Inc. is the distributor for shares of the funds. B.C.
Ziegler is based in Milwaukee, Wisconsin 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 B.C. Ziegler.
B.C. Ziegler uses this fee to finance activities that promote the sale of the
funds' shares. 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 B.C. Ziegler deems it appropriate, B.C. Ziegler 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 ongoing basis. Over time, these fees will increase
the cost of your investment and may cost you more than paying other types of
sales charges.
B.C. Ziegler 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.
B.C. Ziegler 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
WHAT SHARES COST -- CLASS Y SHARES
If you purchase class Y shares of THE STELLAR FUND, the RELATIVE VALUE FUND and
the 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, THE 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 SALES CHARGE AS SALES CHARGE AS
OF TRANSACTION A PERCENTAGE A PERCENTAGE
OF PUBLIC OF NET AMOUNT
OFFERING PRICE 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 SALES CHARGE AS SALES CHARGE AS
OF TRANSACTION A PERCENTAGE A PERCENTAGE
OF PUBLIC OF NET AMOUNT
OFFERING PRICE INVESTED
LESS THAN $100,000 1.50% 1.52%
$100,000 - $249,999.99 1.00% .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. See the SAI on ways you can reduce these sales charges.
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 nontrust customers of financial advisers
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 (CDSC) 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%
The SAI gives more information on how to eliminate the CDSC.
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 longterm
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 firstin,
firstout 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
longterm 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 701/2 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, B or Y shares
(see page 18 for class descriptions.) The minimum initial investment amounts
for each fund are as follows:
Classes 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 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.
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 21.
page 21.
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 c/o Firstar Mutual Fund
Services, LLC Services, LLC
P.O. Box 701 615 E. Michigan Street,
Milwaukee, Wisconsin 53201-0701 Third Floor
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.
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 (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
All requests received in good order by Firstar Bank before 3:30 p.m. (Eastern
time) will be executed on that same day. Requests received after 3:30 p.m. will
be processed on the next business day.
EXCHANGING SHARES
You can exchange shares between the Firstar Stellar Funds within the same class.
You also may exchange class C shares (noload 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.
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 fee. Exchanges also have the same tax consequence as
ordinary sales and purchases and you could realize short or longterm 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 and Firstar 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.
(NOTE: For security reasons, requests by telephone may be
recorded.)
BY MAIL Send a letter instructing the Firstar Stellar Funds to
redeem the amount 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, signatures must be guaranteed.
BY FEDERAL Call Firstar Stellar Funds at 1-800-677-FUND to
FUNDS WIRE 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 Call Firstar Stellar Funds at 1-800-677-FUND to
WITHDRAWAL PLAN 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 Consult your account agreement for information on
SERVICE redeeming shares.
ORGANIZATION
BY EXCHANGE Call 1-800-677-FUND to obtain exchange information. See
page 21 for further information.
WHEN REDEMPTION PROCEEDS ARE SENT TO YOU
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.
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
All requests received in good order by Firstar Stellar Funds before 3:30 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 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 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 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:
you are redeeming shares from an IRA account
you request a redemption to be made payable to a person not on record with
the funds, or
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.
DIVIDENDS CAPITAL GAINS DISTRIBUTIONS, AND TAXES
DIVIDENDS AND CAPITAL GAINS
All of the stock funds (except the INTERNATIONAL EQUITY FUND) declare and pay
dividends on a quarterly basis. The INTERNATIONAL EQUITY FUND declares and pays
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 longterm capital gains are
taxable as a 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 , whose
report, along with the funds' financial statements, are included in the funds'
annual report, which is available upon request.
<TABLE>
THE STELLAR FUND1<F50>
(Class A Shares) Year ended November 30
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $13.59 $12.17 $10.90 $11.34
- ------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.36 0.34 0.34 0.29
Net realized and
unrealized gain (loss) 1.18 1.62 1.33 (0.41)
Total from investment operations 1.54 1.96 1.67 (0.12)
Less distributions
Distributions from net
investment income (0.36) (0.34) (0.35) (0.24)
Distributions in excess
of net investment income
Distributions from net
realized gain (0.50) (0.20) (0.05) (0.08)
Total distributions (0.86) (0.54) (0.40) (0.32)
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.27 $13.59 $12.17 $10.90
- ------------------------------------------------------------------------------------------------
Total return2<F51> 11.94% 16.64% 15.67% (1.22%)
Ratios & Supplemental data
Actual net assets,
end of period
(000's omitted) $50,398 $50,094 $48,902 $50,648
Ratio of Expenses to
Average Net Assets 1.56% 1.66% 1.65% 1.55%
Ratio of Net Income to
Average Net Assets 2.63% 2.76% 2.98% 2.32%
Expense waiver/reimbursement3<F52> 0.12%
Portfolio Turnover Rate 64% 65% 104% 79%
</TABLE>
1<F50> The date of initial public investment for class A shares was October
18, 1991.
2<F51> Based on net asset value, which does not reflect the sales charge, if
applicable.
3<F52> This voluntary expense decrease is reflected in both the expense and
net investment income ratios shown above.
<TABLE>
THE STELLAR FUND1<F53>
(Class Y Shares) Year ended November 30
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $13.59 $12.17 $10.90 $11.34
- --------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.40 0.37 0.38 0.21
Net realized and unrealized
gain (loss) 1.18 1.62 1.32 (0.48)
Total from investment operations 1.58 1.99 1.70 (0.27)
Less distributions
Distributions from net
investment income (0.40) (0.37) (0.38) (0.17)
Distributions from net
realized gain (0.50) (0.20) (0.05)
Total distributions (0.90) (0.57) (0.43) (0.17)
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.27 $13.58 $12.17 $10.90
- --------------------------------------------------------------------------------------------------
Total return2<F54> 12.22% 16.94% 15.97% (1.81%)
Ratios & Supplemental data
Actual net assets,
end of period
(000's omitted) $63,742 $67,047 $64,754 $60,822
Ratio of Expenses to
Average Net Assets 1.31% 1.39% 1.40% 1.43%3<F55>
Ratio of Net Income to
Average Net Assets 2.89% 2.85% 3.23% 3.57%3<F55>
Portfolio Turnover Rate 64% 65% 104% 79%
</TABLE>
1<F53> The date of initial public investment for class Y shares was April 11,
1994. For the period from April 5, 1994 (start of business) to April
10, 1991, all income was distributed to the Federated Services
Corporation, the administrator at the time.
2<F54> Based on net asset value.
3<F55> Annualized.
<TABLE>
RELATIVE VALUE FUND1<F56>
(Class A Shares) Year ended November 30
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $19.03 $15.02 $11.36 $11.80
- -------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.67 0.27 0.29 0.23
Net realized and unrealized
gain (loss) 4.45 4.01 3.65 (0.40)
Total from investment operations 5.12 4.28 3.94 (0.17)
Less distributions
Distributions from net
investment income (0.28) (0.26) (0.28) (0.27)
Distributions from net
realized gain (0.39) (0.01) (0.04)
Total distributions (0.67) (0.27) (0.28) (0.27)
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $23.48 $29.03 $15.02 $11.36
- -------------------------------------------------------------------------------------------------
Total return2<F57> 27.69% 28.86% 35.10% (1.54)%
Ratios & Supplemental data
Actual net assets,
end of period
(000's omitted) $37,748 $215,843 $131,979 $74,094
Ratio of Expenses to
Average Net Assets 1.01% 1.04% 1.06% 1.15%
Ratio of Net Income to
Average Net Assets 1.40% 1.71% 2.17% 2.02%
Portfolio Turnover Rate 18% 16% 24% 30%
</TABLE>
1<F56> 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<F57> Based on net asset value, which does not reflect the sales, if
applicable.
RELATIVE VALUE FUND1<F58>
(Class Y Shares) Year ended November 30
1998 1997
- -------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $22.67
- -------------------------------------------------------------------
Income from investment operations
Net investment income 0.08
Net realized and unrealized
gain (loss) 0.81
Total from investment operations 0.89
Less distributions
Distributions from net
investment income (0.07)
Total distributions (0.07)
- -------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $23.49
- -------------------------------------------------------------------
Total return2<F59> 3.93%
Ratios & Supplemental data
Actual net assets, end of period
(000's omitted) $312,056
Ratio of Expenses to
Average Net Assets 1.00%3<F60>
Ratio of Net Income to
Average Net Assets 1.35%3<F60>
Portfolio Turnover Rate 18%
1<F58> The date of initial public investment for class Y shares was August
18, 1997.
2<F59> Based on net asset value.
3<F60> Annualized.
GROWTH EQUITY FUND1<F61>
(Class B Shares) Year ended November 30
1998 1997 1996 1995
- -----------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $15.17 $12.70 $10.00
- ------------------------------------------------------------------------
Income from investment operations
Net investment income 0.19 0.17 0.24
Net realized and unrealized
gain (loss) 2.97 3.12 2.67
Total from investment
operations 3.16 3.29 2.91
Less distributions
Distributions from net
investment income (0.14) (0.16) (0.21)
Distributions from net
realized gain (1.02) (0.66)
Total distributions (1.16) (0.82) (0.21)
- ------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $17.17 $15.17 $12.70
- ------------------------------------------------------------------------
Total return2<F62> 22.65% 27.34% 29.44%
Ratios & Supplemental data
Actual net assets,
end of period
(000's omitted) $45,025 $85,311 $48,699
Ratio of Expenses to
Average Net Assets 1.09% 1.19% 1.17%3<F63>
Ratio of Net Income to
Average Net Assets 0.86% 1.31% 2.00%3<F63>
Expense waiver/reimbursement4<F64> 0.03%
Portfolio Turnover Rate 60% 96% 171%
1<F61> The date of initial public investment for class B shares was December
12, 1994.
2<F62> Based on net asset value, which does not reflect the contingent
deferred sales charge, if applicable.
3<F63> Annualized.
4<F64> This voluntary expense decrease is reflected in both the expense and
net investment income ratios shown above.
GROWTH EQUITY FUND1<F65>
(Class Y Shares) Year ended November 30
1998 1997
- ---------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $16.46
- ---------------------------------------------------------------------
Income from investment operations
Net investment income 0.03
Net realized and
unrealized gain (loss) 0.73
Total from investment operations 0.76
Less distributions
Distributions from net
investment income (0.04)
Total distributions (0.04)
- ---------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $17.18
- ---------------------------------------------------------------------
Total return2<F66> 4.59%
Ratios & Supplemental data
Actual net assets, end of period
(000's omitted) $109,087
Ratio of Expenses to
Average Net Assets 1.06%3<F67>
Ratio of Net Income to
Average Net Assets 0.67%3<F67>
Portfolio Turnover Rate 60%
1<F65> The date of initial public investment for class Y shares was August
18, 1997.
2<F66> Based on net asset value.
3<F67> Annualized.
<TABLE>
CAPITAL APPRECIATION FUND1<F68>
(Class A Shares) Year ended November 30
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $12.55 $11.82 $10.15 $10.00
- -------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.02 (0.03) 0.03
Net realized and
unrealized gain (loss) 1.77 1.05 1.72 0.15
Total from investment operations 1.79 1.02 1.75 0.15
Less distributions
Distributions from
net investment income (0.04)
Distributions from
net realized gain (0.29) (0.04)
Total distributions (0.29) (0.08)
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.34 $12.55 $11.82 $10.15
- -------------------------------------------------------------------------------------------------
Total return2<F69> 14.26% 8.95% 17.35% 1.50%
Ratios & Supplemental data
Actual net assets,
end of period
(000's omitted) $83,118 $79,163 $56,430 $30,013
Ratio of Expenses to
Average Net Assets 1.29% 1.32% 1.47% 1.58%3<F70>
Ratio of Net Income to
Average Net Assets 0.16% (0.24)% 0.28% 0.08%3<F70>
Expense waiver/reimbursement4<F71> 0.01% 0.10%
Portfolio Turnover Rate 262% 174% 144% 36%
</TABLE>
1<F68> The date of initial public investment for class A shares was June 13,
1994.
2<F69> Based on net asset value, which does not reflect the sales charge, if
applicable.
3<F70> Annualized.
4<F71> This voluntary expense decrease is reflected in both the expense and
net investment income ratios shown above.
International Equity Fund1<F72>
(Class A Shares) Year ended November 30
1998
- --------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF PERIOD
- --------------------------------------------------------------
Income from investment operations
Net investment income
Net realized and
unrealized gain (loss)
Total from investment operations
Less distributions
Distributions from
net investment income
Total distributions
- --------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD
- --------------------------------------------------------------
Total return2<F73>
Ratios & Supplemental data
Actual net assets,
end of period
(000's omitted)
Ratio of Expenses to
Average Net Assets
Ratio of Net Income to
Average Net Assets
Portfolio Turnover Rate
1<F72> The date of initial public investment for class A shares was December
3, 1997.
2<F73> Based on net asset value, which does not reflect the sales charge, if
applicable.
3<F74> Annualized.
YEAR 2000 ISSUE
Like all financial service providers, the funds' investment adviser, the
distributor and other third parties utilize systems that may be affected by year
2000 transition 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 TREASURY FUND
FUNDS TAX-FREE MONEY MARKET FUND
OHIO TAX-FREE MONEY MARKET FUND
GROWTH EQUITY FUND
RELATIVE VALUE FUND
THE STELLAR FUND
CAPITAL APPRECIATION FUND
INTERNATIONAL EQUITY FUND
STRATEGIC INCOME FUND
U.S. GOVERNMENT INCOME FUND
THE STELLAR INSURED TAX-FREE BOND FUND
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 OTHER 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
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, Washington, D.C. 20549-6009.
Investment Company Act File # 811-05762
Firstar Stellar BOND
Funds FUNDS
COMBINED
PROSPECTUS
March 31, 1999
STRATEGIC INCOME FUND
Generating high current income
U.S. GOVERNMENT INCOME FUND
Providing current income with capital appreciation
THE STELLAR INSURED TAX-FREE BOND FUND
Providing current income exempt from federal
income tax
The Securities and Exchange Commission has not approved any fund's shares as an
investment nor has it determined whether this prospectus is accurate or
complete. Anyone who tells you otherwise is committing a crime.
TABLE OF CONTENTS
THE FUNDS
Overview of the Funds 3
STRATEGIC INCOME FUND 4
U.S. GOVERNMENT INCOME FUND 7
THE STELLAR 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 Gains 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 quality fixedincome securities. The STRATEGIC
INCOME FUND attempts to generate high current income by investing in 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
securities issued or guaranteed by the U.S. government. THE STELLAR INSURED
TAX-FREE BOND FUND invests in insured municipal securities so that most of its
annual interest income is exempt from federal income tax.
PRINCIPAL RISKS OF THE FUNDS
The main risks of investing in the funds are:
o Market Risks: The funds' investments are subject to market risk so that the
value of the funds' investments may go up or down. If the value of the
funds' investments go down, you may lose money. The market value of
fixedincome securities varies inversely to interest rates. If interest rates
increase, the market value of fixedincome securities declines.
o Individual Bond Risks: The fundsi investments are subject to the risks
inherent in individual bond selections. Even though fixedincome securities
normally fluctuate less in price than stocks, there have been extended
periods of increases in interest rates that have caused significant declines
in the prices of fixedincome securities.
o Credit Risks: Individual issues of fixedincome 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 a 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 fixedincome component to complete their portfolio
o have longterm goals such as planning for retirement
STRATEGIC INCOME FUND
INVESTMENT GOAL
The Strategic Income Fund's investment objective is to generate high current
income.
THE FUND'S INVESTMENT GROUP:
o U.S. government & corporate fixed-income securities
o International securities
o Real estate investment trusts
o Domestic equity securities
o Money market securities
o Structured fixedincome securities
INVESTMENT POLICIES AND PORTFOLIO SECURITIES
The fund attempts to achieve its investment goal by investing in a core asset
group. 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 U.S. government and corporate fixedincome
securities. The fund invests between 0% to 20% of its assets in each of the
other categories shown to the right. 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 also use the following
techniques:
o fundamental and quantitative analysis to select equity securities
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
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 the 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 nonU.S.
companies and corporate and government fixedincome 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 fixedincome
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.
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.
A REIT (real estate investment trust) is a managed portfolio of real estate
investments
DOMESTIC EQUITY SECURITIES The fund's domestic equity securities consist of
high dividend common and preferred stocks of U.S. companies listed on the New
York or American Stock Exchanges or traded in the overthecounter 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, bank instruments, U.S.
obligations, repurchase agreements, and other unrated short-term instruments
that the Adviser believes to be of suitable quality.
STRUCTURED FIXED-INCOME SECURITIES The fund may invest in mortgagebacked
securities, adjustable rate mortgage securities, collateralized mortgage
obligations and assetbacked securities.
INVESTMENT RISKS
FIXED-INCOME SECURITIES Prices of fixedincome securities fluctuate inversely
to the direction of interest rates. The prices of longerterm fixedincome
securities fluctuate even more widely in response to market interest rate
changes. The fixedincome securities in which the fund invests have more
speculative characteristics than those rated higher by nationally recognized
statistical rating organizations. Lower rated securities are less likely to be
able to make principal and interest payments in economy changes. The fund's
adviser will re-assess whether the fund should continue to hold any fixedincome
security that is later downgraded below the eligible rating.
FOREIGN SECURITIES The fund can invest in foreign securities that can carry
higher returns and risks than those associated with domestic investments.
Because foreign securities may be denominated in foreign currencies, the value
in U.S. dollars of the fund's assets and income may be affected by changes in
exchange rates and regulations. Although the fund values its assets daily in
U.S. dollars, it will not convert its holding of foreign currencies to U.S.
dollars daily. The fund may be charged a conversion cost when it converts its
holdings to another currency. Also, exchange dealers profit from each currency
exchange.
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.
PORTFOLIO TURNOVER The fund purchases and sells securities to capture
dividends on particular securities. The fund will purchase a security close to
its exdividend date, thereby entitling the fund to receive the anticipated
dividend. The fund will then sell the security after the exdividend 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 and could
cause you to pay higher taxes.
REAL ESTATE INVESTMENT TRUSTS 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 selfliquidation.
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.
STRUCTURED FIXED-INCOME SECURITIES Mortgagebacked securities are subject to
higher prepayment risks than other types of debt instruments because the
underlying mortgage loans may be prepaid without penalty or premium.
Mortgagebacked securities also have less potential for capital appreciation and
could experience loss due to mortgage foreclosures. The market value of
adjustable rate mortgage securities generally declines when interest rates rise
and generally rises when interest rates decline.
Similar to mortgagebacked securities, assetbacked securities are subject to
higher prepayment risks than other types of debt instruments because the
underlying supporting assetbacked securities may be prepaid without penalty or
premium. Assetbacked securities backed by automobile receivables may not have a
proper security interest in all of the obligations backing the receivables. The
servicer may sell the obligations to another party and, in effect, lower the
fund's interest in the security. Other risks include losing money due to
vehicles re-registering in different states, or recovering insufficient amounts
on repossessed collateral.
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 oneyear
and since inception ending 1998 compare with those of a broad measure of market
performance.
Strategic Income Fund's - B Shares
1995 12.71%
1996 6.99%
1997 9.02%
1998
Sales charges are not reflected in the bar chart. If these amounts were
reflected, returns would be less than those shown.
BEST QUARTER: Q 199 %
WORST QUARTER: Q 199 %
AVERAGE ANNUAL TOTAL RETURN SINCE
THROUGH 12/31/98 1 YEAR INCEPTION
Strategic Income Fund B Shares1<F75>
The fund's past performance is not necessarily an indication of how the fund
will perform in the future.
1<F75> B Shares commenced operations on December 12, 1994.
FUND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER TRANSACTION EXPENSES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS B
Maximum Sales Charge on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge1<F76> 5.00%
Maximum Sales Charge on Reinvested Dividends None
Redemption Fees None
ESTIMATED ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS)
Investment Management Fees 0.95%
Rule 12b-1 Fees2<F77> None
Other Expenses 0.31%
Shareholder Servicing Fee3<F78> 0.25%
Total Fund Operating Expenses 1.51%
1<F76> 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<F77> Currently, class B 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 12b-1 fee to the distributor if a Y class of shares is
created.
3<F78> The fund can pay up to 0.25% of average daily net assets as a
shareholder servicing fee; however, the fund plans to limit the
shareholder servicing fee to 0.05% 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 $650 $730 $810 $1,520
If you did not redeem your shares, you would pay the following expenses:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS B $130 $400 $690 $1,520
Class descriptions are on page 14.
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.
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
o 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 assetbacked securities
o mortgagebacked securities
o commercial paper
o investment grade corporate debt obligations
o debt securities of foreign issues
STRUCTURED FIXED-INCOME SECURITIES A portion of the fund's assets may be
invested in mortgagebacked securities including adjustable rate mortgage
securities, collateralized mortgage obligations and assetbacked securities.
DOMESTIC DEBT SECURITIES A small percentage of the fund's assets may be
invested in 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 Prime1 or Prime2 by Moody's, A1 or A2 by S&P or F1 or
F2 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.
THE FUND ALLOCATES ITS INVESTMENTS AS FOLLOWS:
AT LEAST 65% UP TO 35%
U.S. GOVERNMENT SECURITIES IN OTHER SECURITIES SUCH AS:
o STRUCTURED FIXED INCOME SECURITIES
o CORPORATE DEBT OBLIGATIONS
o MONEY MARKET INSTRUMENTS
o FOREIGN DEBT SECURITIES
INVESTMENT RISKS
FIXED-INCOME SECURITIES Prices of fixedincome securities fluctuate inversely
to the direction of interest rates. The prices of longerterm fixedincome
securities fluctuate even more widely in response to market interest rate
changes.
STRUCTURED FIXED-INCOME SECURITIES Mortgage-backed securities are subject to
prepayment risks because the underlying mortgage loans may be prepaid without
penalty or premium. Mortgagebacked securities also have less potential for
capital appreciation and could experience loss due to mortgage foreclosures.
The market value of adjustable rate mortgage securities generally declines when
interest rates rise and generally rises when interest rates decline.
Similar to mortgagebacked securities, assetbacked securities are subject to
higher prepayment risks than other types of debt instruments because the
underlying supporting assetbacked securities may be prepaid without penalty or
premium. Assetbacked securities backed by automobile receivables may not have a
proper security interest in all of the obligations backing the receivables. The
servicer may sell the obligations to another party and, in effect, lower the
fund's interest in the security. Other risks include losing money due to
vehicles re-registering in different states, or recovering insufficient amounts
on repossessed collateral.
Foreign Securities The fund may invest in foreign securities that can carry
higher returns and risks than those associated with domestic investments.
Because foreign securities may be denominated in foreign currencies, the value
in U.S. dollars of the fund's assets and income may be affected by changes in
exchange rates and regulations. Although the fund values its assets daily in
U.S. dollars, it will not convert its holding of foreign currencies to U.S.
dollars daily. The fund may be charged a conversion cost when it converts its
holdings to another currency. Also, exchange dealers profit from each currency
exchange.
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.
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, 5 years and since the fund's inception compare with those of a broad
measure of market performance.
Strategic Income Fund's - B Shares
1995 12.71%
1996 6.99%
1997 9.02%
1998
Sales charges are not reflected in the bar chart. If these amounts were
reflected, returns would be less than those shown.
BEST QUARTER: Q 199 %
WORST QUARTER: Q 199 %
AVERAGE ANNUAL TOTAL RETURN SINCE
THROUGH 12/31/98 1 YEAR 5 YEAR INCEPTION
U.S. Government
Income Fund A Shares1<F79>
B Shares2<F80> N/A N/A
Lehman Brothers
Government/Corporate Total Index3<F81>
Lipper U.S. Government Fund Avg.4<F82>
The fund's past performance is not necessarily an indication of how the fund
will perform in the future.
1<F79> A Shares commenced operations on January 5, 1993.
2<F80> B Shares commenced operations on March 31, 1998.
3<F81> Lehman Brothers Government/Corporate Total Index is an unmanaged
4<F82> 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 TRANSACTION EXPENSES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A CLASS B
Maximum Sales Charge on Purchases
(as a percentage of offering price) 3.50% None
Maximum Deferred Sales Charge1<F83> None 5.00%
Maximum Sales Charge on
Reinvested Dividends None None
Redemption Fee None None
ESTIMATED ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS)
Investment Management Fees 0.60% 0.60%
Rule 12b-1 Fees2<F84> None None
Other Expenses 0.33% 0.33%
Shareholder Servicing Fee3<F85> 0.25% 0.25%
Total Fund Operating Expenses 1.18% 1.18%
1<F83> 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<F84> Currently, class 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<F85> A shares and B shares can pay up to 0.25% of average daily net assets
as a shareholder servicing fee; however, the A shares and B shares
plan to limit the shareholder servicing fee to 0.05% 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 $440 $640 $850 $1,450
CLASS B $620 $630 $640 $1,140
If you did not redeem your shares, you would pay the following expenses:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS A $580 $840 $1,130 $1,950
CLASS B $90 $300 $510 $1,140
Class descriptions are on page 14.
THE STELLAR INSURED TAX-FREE BOND FUND
INVESTMENT GOAL
THE STELLAR 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 (including federal
alternative minimum tax). Usually, at least 65% of the value of the fund's
assets are invested in municipal securities that are insured as to timely
payment. All taxexempt 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.
Municipal securities are generally issued to finance public works, such as:
o airports
o highways
o mass transportation projects
o bridges
o housing
o water and sewer works
o hospitals
o schools
o streets
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
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
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.
Subject to certain restrictions, the fund may invest more than 25% of its assets
in various IDBs.
INVESTMENT RISKS
MUNICIPAL SECURITIES 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.
FIXED-INCOME SECURITIES Prices of fixedincome securities fluctuate inversely
to the direction of interest rates. The prices of longerterm fixedincome
securities fluctuate even more widely in response to market interest rate
changes.
TEMPORARY INVESTMENTS The fund may invest up to 100% of its assets in
taxexempt or taxable short-term temporary investments to respond to adverse
market, economic, political or other conditions. These temporary investments
include taxexempt 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.
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 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 compare with those of a broad
measure of market performance.
The Stellar Insured Tax-Free Bond Fund - A Shares
1997 6.91%
1998
Sales charges are not reflected in the bar chart. If these amounts were
reflected, returns would be less than those shown.
BEST QUARTER: Q 199 %
WORST QUARTER: Q 199 %
AVERAGE ANNUAL TOTAL RETURN SINCE
THROUGH 12/31/98 1 YEAR INCEPTION
The Stellar Insured Tax-Free
Bond Fund A Shares1<F86>
Lehman Brothers Ten Year Insured
Bond Index2<F87>
Lipper Municipal Bond
Fund Average3<F88>
The fund's past performance is not necessarily an indication of how the fund
will perform in the future.
1<F86> A Shares commenced operations on December 30, 1996
2<F87> The Lehman Brothers Ten Year Insured Bond Index is an unmanaged index
of
3<F88> The Lipper Municipal Bond 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 TRANSACTION EXPENSES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT) CLASS A
Maximum Sales Charge on Purchases
(as a percentage of offering price) 4.50%
Maximum Deferred Sales Charge None
Maximum Sales Charge on Reinvested Dividends None
Redemption Fee None
ESTIMATED ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS)
Investment Management Fees1<F89> 0.75%
Rule 12b-1 Fees2<F90> None
Other Expenses 0.29%
Shareholder Servicing Fee3<F91> 0.25%
Total Fund Operating Expenses 2.08%
1<F89> The amount shown indicates the maximum fee the investment adviser can
charge. The fund's 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 actually 0.50%.
2<F90> 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.
3<F91> The fund can pay up to 0.25% of average daily net assets as a
shareholder servicing fee; however, the fund plans to limit the
shareholder servicing fee to 0.05% 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 $530 $690 $870 $1,380
Class descriptions are on page 14.
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:
The Stellar Insured Tax-Free Bond Fund 0.75%
U.S. Government Income Fund 0.60%
Strategic Income Fund 0.95%
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 $ 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. He has also managed the domestic
and structured fixed income components of STRATEGIC INCOME FUND since its
inception 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.
PETER SORRENTINO, CFA, is Vice President and Director of Portfolio Management
and Research for the Capital Management Division of Firstar Bank. Mr.
Sorrentino has managed the domestic equity component of STRATEGIC INCOME FUND
since January 1996. Prior to joining Firstar Bank in 1996, Mr. Sorrentino
served as Regional Director of Portfolio Management for Banc One Investment
Advisors since 1987. Mr. Sorrentino earned a Bachelor of Business
Administration Degree in Finance and Accounting from the University of
Cincinnati. He also earned the Chartered Financial Analyst designation.
WARREN D. PIERSON, CFA, is a senior portfolio manager at Firstar Bank. Mr.
Pierson manages THE STELLAR INSURED TAX-FREE BOND FUND. He joined Firstar in
1985 and has over 14 years of fixed-income 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 shareholder services to the Firstar Stellar Funds
and is located in Milwaukee, Wisconsin. Firstar Bank, N.A., the funds'
investment adviser, also serves as custodian and transfer agent for the funds.
DISTRIBUTION OF SHARES
DISTRIBUTOR
B.C. Ziegler and Company, Inc. is the distributor for shares of the funds. B.C.
Ziegler is based in Milwaukee, Wisconsin 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 B.C. Ziegler.
B.C. Ziegler uses this fee to finance activities that promote the sale of the
funds' shares. 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 B.C. Ziegler deems it
appropriate, B.C. Ziegler 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
ongoing basis. Over time, these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
B.C. Ziegler 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.
B.C. Ziegler 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. Certain
class A shares may also impose a Rule 12b-1 fee (as discussed above) which is
assessed against the shares of the fund, although none currently do. Currently,
THE STELLAR INSURED TAX-FREE BOND FUND and the 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. Certain class B shares may
also impose a Rule 12b-1 fee (as discussed above) which is assessed against the
shares of the fund, although none currently do. Currently, THE U.S. GOVERNMENT
INCOME FUND and the 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
WHAT SHARES COST -- CLASS A SHARES
If you purchase class A shares of THE STELLAR 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 AMOUNT
OFFERING PRICE 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 AMOUNT
OFFERING PRICE 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: These sales charges are not imposed on shares purchased with reinvested
dividends. See the SAI for ways you can reduce these sales charges.
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 nontrust customers of financial advisers
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 (CDSC) 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%
The SAI gives more information on how to eliminate the CDSC.
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 longterm
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 firstin,
firstout 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
longterm 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
o retirement plan to a shareholder who is 701/2 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 14 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.
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 18.
page 18.
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 c/o Firstar Mutual Fund
Fund Services, LLC 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.
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 (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
All requests received in good order by Firstar Bank before 3:30 p.m. (Eastern
time) will be executed on that same day. Requests received after 3:30 p.m. will
be processed on the next business day.
EXCHANGING SHARES
You can exchange shares between the Firstar Stellar Funds within the same class.
You also may exchange class C shares (noload 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.
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 fee. Exchanges also have the same tax consequence as
ordinary sales and purchases and you could realize short or longterm 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 and Firstar 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.
(NOTE: For security reasons, requests by telephone may
be recorded.)
BY MAIL Send a letter instructing the Firstar Stellar Funds to
redeem the amount 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, signatures 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 Call Firstar Stellar Funds at 1-800-677-FUND
WITHDRAWAL PLAN 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 Consult your account agreement for
SERVICE ORGANIZATION information on redeeming shares.
BY EXCHANGE Call 1-800-677-FUND to obtain exchange information.
See page 18.
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 3:30 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 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 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 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
o record with the funds
You may obtain signature guarantees from most trust companies, commercial banks
or other eligible guarantor institutions.
DIVIDENDS CAPITAL GAINS DISTRIBUTIONS, AND TAXES
DIVIDENDS AND CAPITAL GAINS
THE STELLAR INSURED TAX-FREE BOND FUND and the 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 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 on ordinary income.
Distributions paid by a fund from net realized longterm capital gains are
taxable as a 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 -- THE STELLAR INSURED TAX-FREE BOND FUND
If you are a shareholder THE STELLAR 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 taxexempt 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 realized net 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.
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.
THE STELLAR INSURED TAX-FREE BOND FUND1<F92>
(Class A Shares) Year ended November 30
1998 1997
- -----------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- -----------------------------------------------------------------
Income from investment operations
Net investment income 0.44
Net realized and
unrealized gain (loss) 0.24
Total from investment operations 0.68
Less distributions
Distributions from
net investment income (0.43)
Total distributions (0.43)
- -----------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.25
- -----------------------------------------------------------------
Total return2<F93> 6.91%
Ratios & Supplemental data
Actual net assets,
end of period
(000's omitted) $128,591
Ratio of Expenses to
Average Net Assets 0.79%3<F94>
Ratio of Net Income to
Average Net Assets 4.66%3<F94>
Expense waiver/reimbursement4<F95> 0.25%3<F94>
Portfolio Turnover Rate 15%
1<F92> The date of initial public investment for class A shares was December
30, 1996.
2<F93> Based on net asset value, which does not reflect the sales charge, if
applicable.
3<F94> Annualized.
4<F95> This voluntary expense decrease is reflected in both the expense and
net investment income ratios shown above.
<TABLE>
U.S. GOVERNMENT INCOME FUND1<F96>
(Class A Shares) Year ended November 30
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $9.83 $9.98 $9.24 $10.25
- -----------------------------------------------------------------------------------------------
Income from investment
operations
Net investment income 0.57 0.57 0.60 0.55
Net realized and
unrealized gain (loss) 0.04 (0.15) 0.74 (0.90)
Total from investment
operations 0.61 0.42 1.34 (0.35)
Less distributions
Distributions from
net investment income (0.57) (0.57) (0.60) (0.55)
Distributions from
net realized gain (0.11)
Total distributions (0.57) (0.57) (0.60) (0.66)
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $9.87 $9.83 $9.98 $9.24
- -----------------------------------------------------------------------------------------------
Total return2<F97> 6.46% 4.46% 14.90% (3.53)%
Ratios & Supplemental data
Actual net assets,
end of period
(000's omitted) $137,445 $138,874 $109,666 $87,924
Ratio of Expenses to
Average Net Assets 0.89% 0.92% 0.92% 0.97%
Ratio of Net Income to
Average Net Assets 5.88% 5.88% 6.23% 5.87%
Expense waiver/
reimbursement4<F99> 0.03%
Portfolio Turnover Rate 140% 158% 236% 148%
</TABLE>
1<F96> 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<F97> Based on net asset value, which does not reflect the sales charge, if
applicable.
3<F98> Annualized.
4<F99> This voluntary expense decrease is reflected in both the expense and
net investment income ratios shown above.
U.S. GOVERNMENT INCOME FUND1<F1>
(Class B Shares) Year ended November 30
1998
- -----------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD
- -----------------------------------------------------------------------
Income from investment operations
Net investment income
Net realized and
unrealized gain (loss)
Total from investment operations
Less distributions
Distributions from
net investment income
Total distributions
- -----------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD
- -----------------------------------------------------------------------
Total return2<F2>
Ratios & Supplemental data
Actual net assets,
end of period
(000's omitted)
Ratio of Expenses to
Average Net Assets
Ratio of Net Income
to Average Net Assets
Portfolio Turnover Rate
1<F1> The date of initial public investment for class B shares was March 31,
1998.
2<F2> Based on net asset value, which does not reflect the contingent
deferred sales charge, if applicable.
3<F3> Annualized.
Strategic Income Fund1<F4>
(Class B Shares) Year ended November 30
1998 1997 1996 1995
- ----------------------------------------------------------------------
Net asset value,
beginning of period $10.50 $10.53 $10.00
- ----------------------------------------------------------------------
Income from investment
operations
Net investment income 0.73 0.73 0.69
Net realized and
unrealized gain (loss) 0.18 (0.04) 0.55
Total from
investment operations 0.91 0.69 1.24
Less distributions
Distributions from
net investment income (0.74) (0.72) (0.67)
Distributions from
net realized gain (0.04)
Total distributions (0.74) (0.72) (0.71)
- ----------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $10.67 $10.50 $10.53
- ----------------------------------------------------------------------
Total return2<F5> 9.02% 6.99% 12.71%
Ratios & Supplemental data
Actual net assets,
end of period
(000's omitted) $179,413 $110,775 $47,513
Ratio of Expenses to
Average Net Assets 1.26% 1.36% 1.47%3<F6>
Ratio of Net Income to
Average Net Assets 7.13% 7.26% 7.41%3<F6>
Expense waiver/
reimbursement4<F7> 0.10%3<F6>
Portfolio Turnover Rate 142% 201% 258%
1<F4> The date of initial public investment for class B shares was December
12, 1994.
2<F5> Based on net asset value, which does not reflect the contingent
deferred sales charge, if applicable.
3<F6> Annualized.
4<F7> This voluntary expense decrease is reflected in both the expense and
net investment income ratios shown above.
YEAR 2000 ISSUE
Like all financial service providers, the funds' investment adviser, the
distributor and other third parties utilize systems that may be affected by year
2000 transition 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 TREASURY FUND
FUNDS TAX-FREE MONEY MARKET FUND
OHIO TAX-FREE MONEY MARKET FUND
GROWTH EQUITY FUND
RELATIVE VALUE FUND
THE STELLAR FUND
CAPITAL APPRECIATION FUND
INTERNATIONAL EQUITY FUND
STRATEGIC INCOME FUND
U.S. GOVERNMENT INCOME FUND
THE STELLAR INSURED TAX-FREE BOND FUND
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 OTHER 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
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, Washington, D.C. 20549-6009.
Investment Company Act File # 811-05762
FIRSTAR STELLAR FUNDS
STATEMENT OF ADDITIONAL INFORMATION
March 31, 1999
MONEY MARKET FUNDS
Treasury Fund
Tax-Free Money Market Fund
Ohio Tax-Free Money Market Fund
STOCK FUNDS
The Stellar Fund
Relative Value Fund
Growth Equity Fund
Capital Appreciation Fund
International Equity Fund
BOND FUNDS
The Stellar Insured Tax-Free Bond Fund
U.S. Government Income Fund
Strategic Income 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.
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
Description of the Funds 3
The Fundsi Investments and Risks 4
Regulatory Information about the Money Market Funds 27
More Information about the Ohio Tax-Free Money Market Fund 27
More Information about the International Equity Fund 28
The Funds'Investment Limitations 37
Temporary Investment 43
Portfolio Turnover Rates 44
Management of the Funds 45
Control Persons and Principle Holders of Securities 7
Investment Advisory Services 48
Principal Underwriter and Brokerage Transactions 49
Distribution (Rule 12b-1) Plan 50
Administrator Services 51
Custodian 52
Capital Stock 52
Determining Net Asset Values 53
Purchasing Shares 54
Redeeming Shares 56
Tax Status 58
Underwriters 60
Calculation of Performance Data 61
Performance Comparisons 66
Financial Statements 68
Appendix 69
FIRSTAR STELLAR FUNDS
GENERAL INFORMATION ABOUT FIRSTAR STELLAR FUNDS
Firstar Stellar Funds (the "Trust") is an openend, management investment
company. The Trust is a Massachusetts business trust established under a
Declaration of Trust dated January 23, 1989. 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 approved
changing the Trust's name to "Firstar Stellar Funds."
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 is currently comprised of 11 series of funds (referred to collectively
as the "Funds") that offer separate classes of shares as follows:
3 MONEY MARKET FUNDS
- --------------------
Treasury Fund -- C, Y
Tax-Free Money Market Fund -- C
Ohio Tax-Free Money Market Fund -- C
5 STOCK FUNDS
- -------------
Growth Equity Fund -- B, Y
Relative Value Fund -- A, B, Y
Capital Appreciation Fund -- A
The Stellar Fund -- A, Y
International Equity Fund -- A
3 BOND FUNDS
- ------------
Strategic Income Fund -- B
U.S. Government Income Fund -- A, B
The Stellar Insured Tax-Free Bond Fund -- A
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 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 nondiversified fund and seeks current income exempt
from federal regular income tax and Ohio State personal income taxes consistent
with maintaining stable principal. Regulatory information concerning the money
market funds is located on page 27. In addition, more information regarding the
OHIO TAX-FREE MONEY MARKET FUND is also on page 27.
STOCK FUNDS
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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 longterm capital appreciation. More information regarding the
INTERNATIONAL EQUITY FUND is provided on page 28.
BOND FUNDS
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The general goal of the Firstar Stellar bond funds is to provide current income
by investing in choice fixedincome 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 STELLAR 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.
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 the
Funds, the Funds 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 the Funds
might be delayed pending court action. The Funds believes 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
whenissued or delayed delivery basis. These transactions are arrangements in
which the Funds purchase securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Funds 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.
The Funds may dispose of a commitment prior to settlement if the Funds'
investment adviser deems it appropriate to do so. In addition, the Funds 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. The Funds 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 the Funds sufficient
to make payment for the securities to be purchased are segregated on the Funds'
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
allow the adviser to consider certain restricted securities as liquid.
THE STELLAR FUND, STRATEGIC INCOME FUND, RELATIVE VALUE FUND, GROWTH EQUITY
FUND, CAPITAL APPRECIATION FUND, INTERNATIONAL EQUITY FUND (via underlying
funds), and U.S. GOVERNMENT INCOME FUND 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. 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 the Funds in shares of
other investment companies may duplicate shareholder expenses. In addition, the
CAPITAL APPRECIATION FUND may purchase shares of closedend investment companies
that invest in securities that approximate the composition of a stock index.
U.S. GOVERNMENT OBLIGATIONS
THE STELLAR FUND, GROWTH EQUITY FUND, STRATEGIC INCOME FUND, CAPITAL
APPRECIATION FUND, U.S GOVERNMENT INCOME FUND and RELATIVE VALUE FUND may invest
in U.S. government obligations. The types of U.S. government obligations in
which the 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 INTERNATIONAL EQUITY FUND (via underlying funds) and STRATEGIC INCOME FUND
may make short sales. Short sales are transactions where the funds sell
securities they don't own in anticipation of a decline in the market value of
the securities. The funds must borrow the security to deliver it to the buyer.
The funds are then obligated to replace the security borrowed at the market
price at the time of replacement. Until the security is replaced, the funds are
required to pay the lender any dividends or interest which accrue on the
security during the loan period. To borrow the security, the funds 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 funds replace a borrowed security in connection with a short sale, the
funds 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 the funds 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 funds, 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 the funds enter into a short
sale of a security that the funds own. A broker holds the proceeds of the short
sale until the settlement date, at which time the funds deliver the security to
close the short position. The funds receive 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.
The funds 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
funds replace the borrowed security; conversely, the fund will realize again 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 required in units or attached to securities may be deemed to be
without value for purposes of this policy.
CONVERTIBLE SECURITIES
THE STELLAR FUND, RELATIVE VALUE FUND, GROWTH EQUITY FUND, CAPITAL APPRECIATION
FUND and STRATEGIC INCOME 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 prospectus) 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 nonconvertible 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.
The funds will exchange or convert the convertible securities held in their
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 funds in achieving their investment objectives.
Otherwise, the funds 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 STELLAR FUND, GROWTH EQUITY FUND, CAPITAL APPRECIATION FUND, THE STELLAR
INSURED TAX-FREE BOND FUND and U.S. GOVERNMENT INCOME FUND may invest in zero-
coupon securities. The 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 are debt obligations which are generally issued at a
discount and payable in full at maturity, and which do not provide for current
payments of interest prior to maturity. 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 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,
the funds will be able to have their 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 STELLAR FUND, STRATEGIC INCOME FUND and GROWTH EQUITY 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 shareholder 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.
OVERTHECOUNTER OPTIONS
THE STELLAR FUND, GROWTH EQUITY FUND, CAPITAL APPRECIATION FUND, STRATEGIC
INCOME FUND, INTERNATIONAL EQUITY FUND (via underlying funds) and THE STELLAR
INSURED TAX-FREE BOND FUND may generally purchase overthecounter options on
portfolio securities in negotiated transactions with the writers of the options
when options on the portfolio securities held by the 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 funds' 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 STELLAR FUND, RELATIVE VALUE FUND, GROWTH EQUITY FUND, CAPITAL APPRECIATION
FUND, INTERNATIONAL EQUITY FUND, STRATEGIC INCOME FUND, TREASURY FUND and THE
STELLAR INSURED TAX-FREE BOND Fund may enter into reverse repurchase agreements.
This transaction is similar to borrowing cash. In a reverse repurchase
agreement, the funds transfer 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 funds 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 the funds, 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 funds 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 funds 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 funds 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
STELLAR 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 INTERNATIONAL EQUITY FUND (via underlying funds), THE STELLAR INSURED TAX-
FREE BOND FUND and STRATEGIC INCOME FUND may borrow money for investment
purposes. This borrowing, which is known as leveraging, generally will be
unsecured, except to the extent the funds enter into reverse repurchase
agreements. The Investment Company Act of 1940 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 the funds may engage is the entry into
reverse repurchase agreements with banks, brokers or dealers. These
transactions involve the transfer by the funds of an underlying debt instrument
in return for cash proceeds based on a percentage of the value of the security.
The funds retain the right to receive interest and principal payments on the
security. At an agreed upon future date, the funds repurchase 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 the funds. These agreements, which are treated
as if reestablished each day, are expected to provide the funds with a flexible
borrowing tool.
Borrowing by the funds 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 the funds' portfolio. To the extent the income derived from
securities purchased with borrowed funds exceeds the interest the funds will
have to pay, the funds' 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 the funds will be
less than if borrowing were not used, and, therefore, the amount available for
distribution to shareholders as dividends will be reduced. The funds 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, GROWTH EQUITY FUND, CAPITAL APPRECIATION FUND,
INTERNATIONAL EQUITY FUND (via underlying funds) and U.S. GOVERNMENT INCOME FUND
may lend portfolio securities to onethird of the value of their total assets, on
a short or longterm basis, to broker/dealers, banks, or other institutional
borrowers of securities. The collateral received when the funds 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
funds. During the time portfolio securities are on loan, the borrower pays the
funds any dividends or interest paid on such securities. Loans are subject to
termination at the option of the funds or the borrower. The funds 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 funds 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 funds 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 funds' board of trustees. The funds 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. and foreign 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
funds' investment adviser to be of comparable quality to the other
obligations in which the funds may invest.
INVESTMENTS IN FOREIGN SECURITIES
THE STELLAR FUND, RELATIVE VALUE FUND, GROWTH EQUITY FUND, CAPITAL APPRECIATION
FUND, INTERNATIONAL EQUITY (via underlying funds), STRATEGIC INCOME FUND and
U.S. GOVERNMENT INCOME FUND may invest in foreign securities.
The types of international securities in which THE STELLAR FUND, GROWTH EQUITY
FUND and CAPITAL APPRECIATION FUND may invest include other investment companies
that invest primarily in international securities. The international securities
include equity securities of nonU.S. companies and corporate and government
fixedincome 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 fixedincome 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 funds 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 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 the funds' 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 the
funds convert their holdings to another currency, they 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
o 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 its ability to meet its investment
objective 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 NAV, 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 STELLAR FUND, GROWTH EQUITY FUND, CAPITAL APPRECIATION FUND, U.S. GOVERNMENT
INCOME FUND and STRATEGIC INCOME FUND may engage in options transactions. The
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, the funds 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, the funds become 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 the funds are obligated as the writer of a call option, they 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 funds' 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, the funds might lose the potential for gain on the underlying
security while the option is open, and by writing a put option, the funds might
become obligated to purchase the underlying security for more than the current
market price upon exercise. The funds will write put options only on securities
which the funds wishes to have in its portfolio and where the funds have
determined, as an investment consideration, that it is willing to pay the
exercise price of the option.
The funds may purchase put options and call options. Such investments in put
and call options may not exceed 5% of the funds' assets, represented by the
premium paid, and will only relate to specific securities (or groups of specific
securities) in which the funds may invest. The funds may purchase put and call
options for the purpose of offsetting previously written put and call options of
the same series. If the funds are unable to effect a closing purchase
transaction with respect to covered options it has written, the funds 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 funds' portfolio. A put option gives the funds, 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. The funds will purchase options only to
the extent permitted y 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, GROWTH EQUITY FUND, CAPITAL APPRECIATION FUND,
INTERNATIONAL EQUITY FUND (via underlying funds), THE STELLAR INSURED TAX-FREE
BOND FUND and U.S. GOVERNMENT INCOME FUND may invest in futures and options
transactions as a means of reducing fluctuations in the funds' net asset value.
The funds may attempt to hedge all or a portion of its portfolio 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 its portfolio investments. The funds
will maintain its 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, the funds 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. The funds 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, GROWTH EQUITY FUND, CAPITAL APPRECIATION FUND,
INTERNATIONAL EQUITY FUND, THE STELLAR INSURED TAX-FREE BOND FUND and U.S.
GOVERNMENT INCOME FUND 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, the funds are 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 the funds is valued daily at the official settlement
price of the exchange on which it is traded. Each day the funds pay or receive
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 funds 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
funds will mark to market its open futures position.
The funds are also required to deposit and maintain margin when it writes call
options on futures contracts. When the funds 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 funds' 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 THE STELLAR 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' 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, THE STELLAR 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 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, GROWTH EQUITY FUND, CAPITAL APPRECIATION FUND and THE
STELLAR INSURED TAX-FREE BOND FUND, INTERNATIONAL EQUITY FUND (via underlying
funds), and U.S. GOVERNMENT INCOME FUND may purchase listed put options on
financial 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 may purchase listed put options on futures
contracts. 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, the funds will normally close
out their options by selling an identical option. If the hedge is successful,
the proceeds received by the funds upon the sale of the second option will be
large enough to offset both the premium paid by the funds for the original
option plus the decrease in value of the hedged securities.
Alternatively, the funds may exercise their put options to close out the
position. To do so, they 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 funds would then deliver the futures
contract in return for payment of the strike price. If the funds neither close
out nor exercise 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 STELLAR 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 STELLAR 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 GROWTH EQUITY FUND,
STRATEGIC INCOME FUND, GROWTH EQUITY FUND, CAPITAL APPRECIATION FUND,
INTERNATIONAL EQUITY FUND (via underlying funds), THE STELLAR INSURED TAX-FREE
BOND FUND and U.S. GOVERNMENT INCOME FUND may write listed call options on
futures contracts to hedge its portfolio. When the funds write call options on
futures contracts, they are 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 funds'
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 that the
funds keep the premium received for the option. This premium can substantially
offset the drop in value of the funds' fixed income or indexed portfolio that is
occurring as interest rates rise.
Prior to the expiration of a call written by the funds, or exercise of it by the
buyer, the funds 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 funds for the initial option. The net premium income of the
funds will then substantially offset the decrease in value of the hedged
securities.
The funds will not maintain open positions in futures contracts they have sold
or call options they have 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 funds 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 STELLAR 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, CAPITAL APPRECIATION FUND, INTERNATIONAL EQUITY FUND (via underlying
funds) and GROWTH EQUITY FUND 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 the funds write
a call option on a futures contract, they are 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, the
funds' obligation under a call option on a future (to sell a futures contract)
costs less to fulfill, causing the value of the funds' call option position to
increase.
STOCK INDEX OPTIONS
The STRATEGIC INCOME BOND FUND, CAPITAL APPRECIATION FUND, GROWTH EQUITY 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 the funds write options, an amount equal to the net premium received by the
funds is included in the liability section of the funds' 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 funds enter into a
closing purchase transaction, the funds 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 the funds, 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. The funds 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 funds' 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 the funds 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 the funds of options on stock indices will be subject to the
ability of the funds' 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 INTERNATIONAL FUND (via underlying funds), THE STELLAR INSURED TAX-FREE BOND
FUND and U.S. GOVERNMENT INCOME FUND may purchase put options on portfolio
securities to protect against price movements in the funds' portfolio
securities. A put option gives the funds, 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 funds'
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 the funds use 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 funds'
investment adviser could be incorrect in its expectations about the direction or
extent of market factors such as interest rate movements. In these events, the
funds 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 funds' investment 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. The
funds' 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 funds' ability to hedge its portfolio.
To minimize risks, the funds may not purchase or sell futures contracts or
related options if immediately thereafter the sum of the amount of margin
deposits on the funds' existing futures positions and premiums paid for related
options would exceed 5% of the market value of the funds' 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 the funds 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 funds' 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 the funds sell 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.
MORTGAGEBACKED SECURITIES
The STELLAR FUND, STRATEGIC INCOME FUND, GROWTH EQUITY 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 the funds reinvest the payments and any
unscheduled prepayments of principal received, the funds may receive a rate of
interest which is actually lower than the rate of interest paid on these
securities ("prepayments risks"). Mortgagebacked 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 STELLAR FUND, GROWTH EQUITY FUND, STRATEGIC INCOME 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. The 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, such as the funds, 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 STELLAR FUND, STRATEGIC INCOME FUND, GROWTH EQUITY FUND and U.S. GOVERNMENT
INCOME FUND may invest in CMOs. CMOs are debt obligations collateralized by
mortgage loans or mortgagebacked 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 (NRSRO) 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 fund invests 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 shortestmaturity 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 STELLAR FUND, GROWTH EQUITY FUND, STRATEGIC INCOME FUND and U.S. GOVERNMENT
INCOME FUND may invest in assetbacked securities. Assetbacked securities have
structural characteristics similar to mortgagebacked securities but have
underlying assets that generally are not mortgage loans or interests in mortgage
loans. The 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 nongovernmental 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 the funds reinvests the
payments and any unscheduled prepayments of principal received, the funds may
receive a rate of interest which is actually lower than the rate of interest
paid on these securities ("prepayment risks"). Mortgagebacked and assetbacked
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 assetbacked 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 mortgagebacked 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.
Assetbacked 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
reregistered 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 THE STELLAR
INSURED TAX-FREE BOND FUND invest primarily in municipal securities. The
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
quip 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 the funds.
THE STELLAR 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 the funds has the unconditional
right to demand payment from the issuer of the interest, or the credit enhancer
of payment by either of those issuers. The funds are not required to sell a
Municipal Security if the security's rating is reduced below the required
minimum subsequent to the funds' purchase of the security. The Trustees and the
investment adviser consider this event, however, in the determination of whether
the funds 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'
prospectus.
Regarding THE STELLAR 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 their 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 fund's investment adviser believes will produce current income
consistent with prudent investment. The fund's 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
funds) 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 the funds. By purchasing
participation interests, the funds are buying a security meeting the quality
requirements of each fund and are also receiving the tax-free benefits of the
underlying securities.
In the acquisition of participation interests, the funds' 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 THE STELLAR
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 nationally recognized securities rating organization
("NRSRO"). 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 the funds and
affect their share prices. The funds may have more than 25% of their total
assets invested in securities creditenhanced 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 STELLAR 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
91day 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 fund's
investment adviser believes the security cannot be sold within seven days, the
fund's investment 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 fund's investment
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 STELLAR 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
fund and/or the fund's investment 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 STELLAR 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 STELLAR 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 fund's
investment adviser, such insurance would benefit the fund, for example, through
improvement of portfolio quality or increased liquidity of certain securities.
The fund's investment adviser anticipates that at least 65% of the fund's total
assets will be invested in insured municipal securities.
Issuer-Obtained Insurance Policies are noncancelable 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 fund's investment 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
smallissue industrial development municipal bonds and pollutioncontrol 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 whollyowned 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.
REGULATORY INFORMATION ABOUT THE 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 the funds' prospectus
and 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. 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 its ability to
consider a security as having received the requisite short-term ratings by a
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 their
shareholders.
MORE INFORMATION ABOUT THE OHIO TAX-FREE MONEY MARKET FUND AND INVESTMENT RISKS
As a nondiversified 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 somewhat 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 fully depleted the budget stabilization fund that exceeded $300
million, to achieve balanced budgets as a result of the most recent recession.
The State acted promptly in addressing the fall in revenue 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 in fiscal 1994, 1995 and 1996 resulted in reserve levels that
are well above the levels of 1990. Ohio's budget stabilization fund is now
above $828 million.
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 Aaa 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
Investing in mutual funds involves risk. This risk may be increased when
investing in the INTERNATIONAL EQUITY FUND because it 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 Investment Company Act of 1940 (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 fund's investment 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 fund's investment adviser may have to select
alternative investments. Accordingly, when affiliated persons and other
accounts managed by the fund's investment adviser hold shares of any of the
underlying funds, the fund's ability to invest fully in shares of those funds is
restricted. The fund's investment 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 fund's 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 inkind 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 fund's investment 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 its investment 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 investment 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. The fund
investment adviser considers emerging market countries to be all countries that
are generally considered to have developing or emerging markets. Furthermore,
the fund's investment 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 if 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; 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
o 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 U.S. 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 underling 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 ("CFTC"), the CFTC may
in the future assert authority to regulate forward contracts. In such event, the
underlying fund's ability to utilize forward contracts in the manner set forth
above may be restricted. Forward contracts may limit potential gain from a
positive change in the relationship between the U.S. dollar and foreign
currencies. Unanticipated changes in currency prices may result in poorer
overall performance for the underlying fund than if it had not engaged in such
contracts.
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 ("forward 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 fund's investment
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
The following is a list of the funds' investment limitations. The following
investment limitations cannot be changed without shareholder approval:
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 STELLAR INSURED TAX-FREE BOND FUND,
CAPITAL APPRECIATION FUND, STRATEGIC INCOME FUND, U.S. GOVERNMENT INCOME FUND
and GROWTH EQUITY 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 the Funds 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 STELLAR INSURED TAX-FREE BOND FUND will not issue
senior securities except for whenissued and delayeddelivery transactions and
futures contracts, each of which might be considered senior securities. In
addition, the fund reserves the right to purchase municipal securities, which
the fund has the right or obligation to sell to a third party (including the
issuer of a participation interest).
BORROWING MONEY
Except as described in the prospectus, none of the Funds, except the STRATEGIC
INCOME FUND and THE STELLAR INSURED TAX-FREE BOND FUND, will borrow money or
engage in reverse repurchase agreements for investment leverage. However, the
Funds may borrow money up to one-third of the value of their total assets as a
temporary, extraordinary, or emergency measure or to facilitate management of
the Funds by enabling the Funds 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 Funds' income. The
Funds will not purchase any securities while borrowings and reverse repurchase
agreements in excess of 5% of their 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 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 inconvenience 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 CAPITAL APPRECIATION FUND, GROWTH EQUITY FUND, and STRATEGIC
INCOME 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 THE STELLAR 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 whenissued basis are not
deemed to be a pledge.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets, the
INTERNATIONAL EQUITY FUND, CAPITAL APPRECIATION FUND, GROWTH EQUITY FUND,
STRATEGIC INCOME FUND, U.S. GOVERNMENT INCOME FUND, THE STELLAR FUND and TAX-
FREE MONEY MARKET 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 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 will not invest more than 5% of its 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.
CONCENTRATION OF INVESTMENTS
The INTERNATIONAL EQUITY FUND, CAPITAL APPRECIATION FUND, GROWTH EQUITY FUND,
RELATIVE VALUE FUND, STRATEGIC INCOME FUND AND THE STELLAR FUND will not invest
25% or more of the value of its total assets in any one industry (other than
investment companies and securities issued by the U.S. government, its agencies
or instrumentalities).
THE STELLAR INSURED TAX-FREE BOND FUND will not purchase securities if, as a
result of such purchase, 25% or more of the value of the fund's 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 INTERNATIONAL EQUITY FUND, CAPITAL
APPRECIATION FUND, GROWTH EQUITY FUND, THE STELLAR INSURED TAX-FREE BOND FUND,
U.S. GOVERNMENT INCOME FUND and STRATEGIC INCOME FUND may engage in transactions
involving futures contracts or options on futures contracts.
INVESTING IN MINERALS
THE STELLAR FUND, THE STELLAR INSURED TAX-FREE BOND FUND and RELATIVE VALUE FUND
will not purchase or sell oil, gas, or other mineral exploration or development
programs or leases, except that THE STELLAR 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 STRATEGIC INCOME FUND, U.S. GOVERNMENT INCOME FUND, INTERNATIONAL EQUITY
FUND, CAPITAL APPRECIATION FUND, GROWTH EQUITY FUND will not lend any of their
assets, except portfolio securities up to onethird of the value of their 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 the funds' investment objectives, policies, and
limitations or the Trust's Declaration of Trust.
THE STELLAR 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 Declaration of Trust.
THE STELLAR FUND, RELATIVE VALUE 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.
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 OHIO TAX-FREE MONEY MARKET FUND and 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 Declaration of Trust.
INVESTING IN RESTRICTED SECURITIES
THE STELLAR 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 THE 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 STELLAR FUND and
RELATIVE VALUE FUND may invest in commercial paper issued under Section 4(2) of
the Securities Act of 1933.
DEALING IN PUTS AND CALLS
THE STELLAR FUND, RELATIVE VALUE FUND AND THE STELLAR INSURED TAX-FREE BOND FUND
will not purchase or sell puts, calls, spreads or any combination of them except
as permitted by its investment policies. However, THE STELLAR 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 STELLAR FUND and RELATIVE VALUE FUND will not purchase securities of a
company for the purpose of exercising control or management. However, the funds
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 might collectively be considered to
be in control of the company in which they have invested. Officers or
affiliates of the funds might possibly become directors of companies in which
the funds holds stock.
INVESTING IN NEW ISSUERS
THE STELLAR FUND and RELATIVE VALUE 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 STELLAR FUND and RELATIVE VALUE FUND will not purchase or retain the
securities of any issuer if the officers and trustees of the Trust or the funds'
investment adviser owning individually more than 1/2 of 1% of the issuer's
securities together own more than 5% of the issuer's securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
THE STELLAR FUND and RELATIVE VALUE 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 closedend 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 INTERNATIONAL EQUITY FUND, CAPITAL APPRECIATION, GROWTH EQUITY FUND,
RELATIVE VALUE FUND, STRATEGIC INCOME FUND, THE STELLAR FUND and U.S. GOVERNMENT
INCOME FUND will not invest more than 15% of the value of its 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 STELLAR 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 its 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 Funds' board of trustees, certain restricted
securities are considered to be liquid. The Funds will limit their purchases of
illiquid securities to 15% of their net assets, including restricted securities
not determined by the trustees to be liquid, nonnegotiable time deposits,
overthecounter 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, CAPITAL APPRECIATION FUND, U.S. GOVERNMENT INCOME FUND,
GROWTH EQUITY FUND, and THE STELLAR INSURED TAX-FREE BOND 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 total assets in any one investment company,
o no more than 10% of their 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 its own.
The U.S. GOVERNMENT INCOME FUND, STRATEGIC INCOME FUND, CAPITAL APPRECIATION
FUND and GROWTH EQUITY FUND will purchase securities of investment companies
only in open-market transactions involving only 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 U.S. GOVERNMENT INCOME FUND'S adviser will waive its investment advisory fee
on assets invested in securities of openend investment companies.
THE STELLAR 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 STELLAR 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 closedend 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 closedend investment companies only in openmarket
transactions involving only customary broker's commissions. THE STELLAR INSURED
TAX-FREE BOND FUND'S investment adviser will waive its investment advisory fee
on assets of the fund invested in securities of openend 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 CAPITAL APPRECIATION FUND, GROWTH EQUITY FUND, aND STRATEGIC INCOME FUND
will not purchase securities of a company for the purpose of exercising control
or management.
WRITING COVERED CALL OPTIONS
The CAPITAL APPRECIATION FUND, GROWTH EQUITY FUND, STRATEGIC INCOME FUND, U.S.
GOVERNMENT INCOME 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 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 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 its 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 CAPITAL APPRECIATION FUND, GROWTH EQUITY FUND and U.S. GOVERNMENT
INCOME FUND will limit the margin deposits on futures contract and options
entered into by the 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
From time to time, the TAX-FREE MONEY MARKET FUND, OHIO TAX-FREE MONEY MARKET
FUND, THE STELLAR INSURED TAX-FREE BOND FUND, RELATIVE VALUE FUND, CAPITAL
APPRECIATION FUND, GROWTH EQUITY 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
highquality temporary investments for temporary defensive purposes.
Occasionally, such as when suitable municipal securities are not available, the
funds may invest a portion of its 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 STELLAR 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 CAPITAL APPRECIATION FUND, GROWTH
EQUITY 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;
obligations of the U.S. government or its agencies or instrumentalities;
repurchase agreements; and
other short-term instruments that are not rated but are determined by the
fund's investment adviser to be of comparable quality to the other
obligations in which the fund may invest.
PORTFOLIO TURNOVER RATES
Although the following funds (the stock funds and bond funds) do not intend to
invest for short-term profits, 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<F8>
U.S. Government Income Fund 140%
Strategic Income Fund 142%
The Stellar Fund 64%
Relative Value Fund 18%
Growth Equity Fund 60%
Capital Appreciation Fund 262%
International Equity Fund N/A 2<F9>
1<F8>The portfolio turnover rate is for the period from December 30, 1996
(date of initial public investment) to November 30, 1997.
2<F9>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
The Trust is managed by a board of trustees. The Trust's board of trustees
consist 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.*<F10> May 20, 1938 Trustee President and Chief Executive Officer, The Student
2884 Lengel Road Loan Funding Corporation and SLFC, Inc., Cincinnati,
Cincinnati, Ohio 45244 Ohio (since 19 )
- ------------------------------------------------------------------------------------------------------------------------------------
Alfred Gottschalk, Ph.D. March 7, 1930 Trustee Chancellor (since January 1996), Professor and
2401 Ingleside Avenue President (19711995), Hebrew Union CollegeJewish
Cincinnati, Ohio 45206 Institute of Religion, Cincinnati, Ohio.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert J. Hill, D.O. January 13, 1959 Trustee Physician, President of the Orthopaedic and Sports
8373 Deer Path Lane Medicine Institute, Inc., Cincinnati, Ohio, and
West Chester, Ohio 45069 Wellington Orthopaedics, Cincinnati, Ohio, since
April, 1994, and, prior thereto, Fellow Physician,
the Cleveland Clinic Foundation, Resident Physician,
Michigan State University.
- ------------------------------------------------------------------------------------------------------------------------------------
Dawn M. Hornback September 12, 1963 Trustee Founder, President and Chief Executive Officer of
700 Walnut Street Observatory Group, Inc. Observatory Group, Inc., is
Suite 450 a marketing communications firm specializing in the
Cincinnati, Ohio 45202 commercial, medical and educational fields.
- ------------------------------------------------------------------------------------------------------------------------------------
Lawrence M. Turner March 23, 1947 Trustee Vice President and Treasurer of the Kroger Company.
1014 Vine St. At the Kroger Company, he is responsible for
Cincinnati, Ohio 45202 corporate finance, treasury, capital management,
pension investment and investor relations.
- ------------------------------------------------------------------------------------------------------------------------------------
William H. Zimmer, III December 19, 1953 Trustee Corporate Vice President (November, 1997 to present)
2684 Devils Backbone Road and Treasurer (1991 to present), Secretary (1988-
Cincinnati, Ohio 45233 November, 1997) and Assistant Treasurer (19881991),
Cincinnati Bell Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Daniel B. Benhase November 23, 1959 President Executive Vice President, Star Banc Corporation
Star Banc Corporation since 1987.
425 Walnut Street
Cincinnati, OH 45201-1118
- ------------------------------------------------------------------------------------------------------------------------------------
Joseph C. Neuberger April 4, 1962 Vice President Vice President, Firstar Mutual Fund Services, LLC
Firstar Mutual Fund Services, LLC since 1994; Manager, Arthur Andersen LLP, prior
615 E. Michigan Street thereto
Milwaukee, WI 53202
- ------------------------------------------------------------------------------------------------------------------------------------
Michael T. Karbouski March 3, 1965 Treasurer Trust Officer, Firstar Mutual Fund Services, LLC
Firstar Mutual Fund Services, LLC since 1990.
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 since June 1998; Associate Attorney, Reinhart,
615 E. Michigan Street Boerner, Van Deuren, Norris & Rieselbach, s.c.,
Milwaukee, WI 53202 Milwaukee, Wisconsin, prior thereto.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*<F10> This trustee is deemed to be an "interested person," as defined
in the Investment Company Act of 1940, 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 $ annual
fee and $ 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 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.*<F11> None None None None
Trustee
Dr. Alfred Gottschalk None None None $
Trustee
Dr. Robert J. Hill None None None $
Trustee
Dawn M. Hornback $
Trustee
Lawrence M. Turner $
Trustee
William H. Zimmer, III $
Trustee
</TABLE>
*<F11> This trustee is deemed to be an interested person as defined in the
Investment Company Act of 1940.
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:
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;
FirstarTrust customers of Firstar Corporation and its subsidiaries; and
nontrust 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 fund and also serves as custodian. Firstar Bank is located at 777 E.
Wisconsin Avenue, Milwaukee, Wisconsin, 53202. Firstar Bank is a national
association and is whollyowned by Firstar Corporation. The table below shows
the approximate percentage of the Funds owned by Firstar Bank as of March 1,
1999.
PERCENTAGE OWNED BY FIRSTAR BANK A SHARES B SHARES C SHARES Y SHARES
Treasury Fund -- -- % %
Tax-Free Money Market Fund -- -- % --
Ohio Tax-Free Money Market Fund -- -- % --
The Stellar Fund % -- -- %
Relative Value Fund % -- -- %
Growth Equity Fund % -- -- %
Capital Appreciation Fund % -- -- --
International Equity Fund % -- -- --
The Stellar Tax-Free Bond Fund % -- -- --
U.S. Government Income Fund % % -- --
Strategic Income Fund -- % % -- --
PRINCIPAL HOLDERS
The following persons are deemed to be principal holders of the respective Funds
because they own beneficially 5% or more of the fund's outstanding equity
securities.
NAME AND ADDRESS FUND/CLASS PERCENTAGE OWNED
Firstcinco
MANAGEMENT OWNERSHIP
As a group, the officers and directors 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. ("Firstar Bank") Firstar
Bank is a wholly-owned subsidiary of Firstar Corporation whose principal
business is a commercial bank. On November 20, 1998, 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 $ 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 nonpublic 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 ("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 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.
Advisory fees earned (Advisory fees waived)
- -------------------------------------------------------------------------------
1996 1997 1998
- -------------------------------------------------------------------------------
Treasury Fund $3,586,051 $4,990,143
Tax-Free Money
Market Fund $984,158 (201,332) $761,469 (138,449)
Ohio Tax-Free
Money Market Fund N/A N/A
The Stellar Fund $1,078,738 $1,114,195
Relative Value Fund $1,249,213 $2,220,214
Growth Equity Fund $ 455,889 $ 946,601
Capital Appreciation Fund $ 665,476 $ 744,928
International Equity Fund N/A N/A
The Stellar Insured
Tax-Free Bond Fund1<F12> N/A $825,962 (275,321)
U.S. Government Income Fund $ 702,550 $ 819,582
Strategic Income Fund $ 689,394 $1,343,811
1<F12>For the period December 30, 1997 (date of initial public investment)
to November 30, 1997.
PRINCIPAL UNDERWRITER AND BROKERAGE TRANSACTIONS
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Funds or to the
adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies; industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
Research services provided by brokers and dealers may be used by the adviser or
its affiliates in advising the Funds and other accounts. To the extent that
receipt of these services may supplant services for which the adviser or its
affiliates might otherwise have paid, it would tend to reduce their expenses.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
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
Tax-Free Money Market Fund1 $ 0 $ 0
Ohio Tax-Free Money Market Fund N/A N/A
The Stellar Fund $125,215 $145,306
Relative Value Fund $146,237 $218,211
Growth Equity Fund $267,175 $274,875
Capital Appreciation Fund $415,208 $742,452
International Equity Fund N/A N/A
The Stellar Insured
Tax-Free Bond Fund2 N/A $ 0
U.S. Government Income Fund $ 0 $ 0
Strategic Income Fund $197,130 $406,396
- -----------------------------------------------------------------------------
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.
Regarding the INTERNATIONAL EQUITY FUND, the distributor may assist in the
execution of the fund's portfolio transactions to purchase underlying fund
shares for which it may receive distribution payments from the underlying funds
or their underwriters in accordance with the distribution plans of those funds.
In providing execution assistance, the distributor receives orders from the
adviser; places them with the underlying fund's distributor, transfer agent or
other person, as appropriate; confirms the trade, price and number of shares
purchased; and assures prompt payment by the fund and proper completion of the
order.
With respect to purchases of load fund shares, the adviser may direct
substantially all of the INTERNATIONAL EQUITY FUND'S orders to the distributor,
which may, in its discretion, direct the order to other broker-dealers in
consideration of sales of the fund's shares. The distributor may retain
brokerage commissions on portfolio transactions of mutual funds held in the
fund's portfolio, including funds that have a policy of considering sales of
their shares in selecting broker-dealers for the execution of their portfolio
transactions. Payment of brokerage commissions to the distributor is not a
factor considered by the Adviser in selecting an underlying fund for investment.
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.
DISTRIBUTION PLAN
As noted in the Funds' prospectuses, the Trust has adopted a Plan pursuant to
Rule 12b-1 promulgated by the SEC pursuant to the 1940 Act (the "Plan"). The
Plan provides the Trust the ability to use assets of the Funds to pay securities
dealers, financial institutions and other industry professionals ("Shareholder
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 monitors the arrangements between the Shareholder Organizations
and the Funds in accordance with the distributor's agreement with the Funds and
may pay fees to brokers and others for such services. As of October 1, 1998,
B.C. Ziegler and Company became the distributor for the Funds. Prior to that,
Federated Services Corporation provided distribution services to the Funds. The
board of trustees expects that the adoption of the Plan will result in the sale
of a sufficient number of shares so as to allow the Funds to achieve economic
viability. It is also anticipated that an increase in the size of the Funds
will facilitate. In compensation for the services provided pursuant to this
Plan, B.C. Ziegler will be paid a monthly fee computed at the annual rate of .25
of 1% of the average aggregate net asset value of shares of the Funds held
during the month.
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.
Below are the itemized expenditures the distributor made during the fiscal year
ended November 30, 1998.
- -----------------------------------------------------------------
Advertising $
Printing & Mailing of Prospectuses to
other than current shareholders
Compensation to Dealers
Compensation to Sales Personnel
Interest or Other Finance Changes
Other Fees
- -----------------------------------------------------------------
TOTAL $
- -----------------------------------------------------------------
ADMINISTRATIVE SERVICES
As of October 1, 1998, Firstar Mutual Fund Services, LLC, a subsidiary of
Firstar Bank, N.A., ("Firstar"), provides administrative personnel and services
to the Funds. Firstar provides services such as legal and accounting services.
Firstar's provides these services at an annual rate of 0.11% of the average
daily net assets of the Trust. Prior to October 1, 1998, Federated
Administrative Services provided administrative services to the Funds at an
annual rate of 0.12%. Over the last three fiscal years the Trust 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 $128,243
Tax-Free Money Market Fund1<F13> $179,533
Ohio Tax-Free Money Market Fund N/A N/A
The Stellar Fund $113,861 $108,560
Relative Value Fund $166,585 $273,396
Growth Equity Fund $ 60,748 $116,489
Capital Appreciation Fund $ 70,082 $ 72,536
International Equity Fund N/A N/A
The Stellar Insured Tax-Free Bond Fund2<F14> N/A $101,260
U.S. Government Income Fund $117,252 $126,436
Strategic Income Fund $ 72,413 $130,615
</TABLE>
The administrative services include, but are not limited to, providing office
space, equipment, telephone facilities, various personnel, including clerical
and supervisory, and computers, as is necessary or beneficial to:
o establish and maintain shareholders' accounts and records,
o process purchase and redemption transactions,
o process automatic investments of client account cash balances,
o answer routine client inquiries regarding the Funds,
o assist clients in changing dividend options,
o account designations, and addresses, and
o providing such other services as the Funds may reasonably request.
Firstar Mutual Fund Services, LLC also serves as dividend paying agent and fund
accountant under separate agreements.
CUSTODIAN
Firstar Bank, N.A. is custodian for the securities and cash 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.
CAPITAL STOCK
TITLE AND DESCRIPTION OF SHARE CLASSES
The Trust currently consists of 11 individual fund portfolios. Under the
Declaration of Trust and a Multiple Class Plan developed pursuant to Rule 18f3,
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 frontend 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:
Money Market Funds
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Treasury Fund - C, Y
Tax-Free Money Market Fund - C
Ohio Tax-Free Money Market Fund - C
Stock Funds
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The Stellar Fund - A, Y
Growth Equity Fund - B, Y
Relative Value Fund - A, B, Y
Capital Appreciation Fund - A
International Equity Fund - A
Bond Funds
- -----------
The Stellar Insured Tax-Free Bond Fund - A
U.S. Government Income Fund - A, B
Strategic Income Fund - B
Class 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 the Class A, B and C shares of
the applicable fund and constitute the only expenses allocated to one class and
not the other.
VOTING RIGHTS OF EACH SHARE CLASS
Each share of the Funds gives a shareholder 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 shareholder vote with respect to
the Rule 12b-1 Plan applicable to such class.
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 longterm
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 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
o 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
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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 AC 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.
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 prospectus. 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:
o for equity securities, according to the last sale price on a national
securities exchange, if applicable;
o in the absence of recorded sales for listed equity securities, according to
the mean between the last closing bid and asked prices;
o for unlisted equity securities, latest bid prices;
o for bonds and other fixed income securities, as determined by an independent
pricing service;
o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, or for short-term
obligations with remaining maturities of 60 days or less at the time of
purchase, at amortized cost; or
o 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
may invest 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.
PURCHASING SHARES
Except under certain circumstances described in the prospectus, 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.
Except under the circumstances described in the prospectus, the minimum initial
investment in the Funds by an investor is $1,000. The minimum initial
investment may be waived from time to time for employees and retired employees
of Firstar Bank, N.A., and for members of the families (including parents,
grandparents, siblings, spouses, children, aunts, uncles, and in-laws) of such
employees or retired employees. The procedure for purchasing shares of the
Funds is explained in the prospectus.
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 nonaffiliated 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 this
prospectus 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 establishing and maintaining shareholder accounts and records;
o processing purchase and redemption transactions and automatic investments of
client account cash balances;
o answering routine client inquiries; and
o assisting 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
roundtrip 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 12month
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 nonrefundable 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 investor's expense.
o There are no "blackout" dates
o Investors must purchase your tickets 21days 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.
REDUCING THE SALES CHARGE -- CLASS A SHARES
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 prospectus, 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 NAV of $90,000. Then 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 the prospectus. 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 13month 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
investors account will be released when the letter of intent is fulfilled or
when the 13month 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 Firstar Stellar 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 Firstar Stellar Funds
have been redeemed, the investor has a onetime right, within 30 days, to
reinvest the redemption proceeds at the nextdetermined 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 investors are making 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.
ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE -- CLASS B SHARES
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
o retirement plan to a shareholder who is 701/2 years old or older
involuntary redemptions made in shareholder accounts that do not have the
o 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
prospectus for more information on accounts with low balances.
REDEEMING SHARES
The Funds redeem shares at the next computed net asset value after Firstar Bank
receives the redemption request. Redemptions will be made on days on which the
Funds compute their net asset values. Redemption requests cannot be executed on
days on which the New York Stock Exchange is closed or on federal holidays
restricting wire transfers. Redemption procedures are explained in the
prospectus.
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 this 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 18f1 under the Investment Company
Act of 1940 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.
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 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.
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.
TAX STATUS
THE FUNDS' TAX STATUS
The Funds 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.
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
would be treated as Passive Foreign Investment Companies ("PFICs") or 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 INTERNATIONAL
EQUITY FUND, CAPITAL APPRECIATION FUND, GROWTH EQUITY FUND, RELATIVE VALUE FUND
and STRATEGIC INCOME 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 INTERNATIONAL EQUITY FUND, CAPITAL APPRECIATION FUND, GROWTH
EQUITY FUND, RELATIVE VALUE FUND, STRATEGIC INCOME FUND, THE STELLAR FUND, and
U.S. GOVERNMENT INCOME 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 to the funds 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 STELLAR 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 capital gains 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, the Fund realizes net long-term capital gains, it will
distribute them at least once every 12 months.
Regarding THE STELLAR INSURED TAX-FREE BOND FUND, capital gains or losses may be
realized by the fund on the sale of portfolio securities and as a result of
discounts from par value on securities held to maturity. 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 became the principal distributor for the Funds.
The amounts paid by the Funds to B.C. Ziegler and Company and retained 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
Tax-Free Money Market Fund1<F16>
Ohio Tax-Free Money Market Fund
The Stellar Fund
Relative Value Fund
Growth Equity Fund
Capital Appreciation Fund
International Equity Fund
The Stellar Insured Tax-Free
Bond Fund2<F17>
U.S. Government Income Fund
Strategic Income Fund
</TABLE>
- ----------------------------------------------------------------------
10/1/98 -- 11/30/98
Total Amount
commissions retained
- ----------------------------------------------------------------------
Fees Paid to B.C. Ziegler
Treasury Fund
Tax-Free Money Market Fund1<F18>
Ohio Tax-Free Money Market Fund
The Stellar Fund
Relative Value Fund
Growth Equity Fund
Capital Appreciation Fund
International Equity Fund
The Stellar Insured Tax-Free
Bond Fund2<F19>
U.S. Government Income Fund
Strategic Income Fund
CALCULATION OF PERFORMANCE DATA
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 are as follows:
YIELDS FOR 7-DAY PERIOD ENDING 11/30/98 C SHARES Y SHARES
- -----------------------------------------------------------------------------
Treasury Fund
Tax-Free Money Market Fund
Ohio Tax-Free Money Market Fund
EFFECTIVE YIELD -- MONEY MARKET FUNDS
The effective yield for the money market funds is computed by compounding the
unannualized base period return by:
adding 1 to the base period return;
raising the sum to the 365/7th power; and
subtracting 1 from the result.
The effective yields for the 7-day period ending November 30, 1998 is as
follows:
EFFECTIVE YIELDS FOR 7-DAY
PERIOD ENDING 11/30/98 C SHARES Y SHARES
- -----------------------------------------------------------------------------
Treasury Fund
Tax-Free Money Market Fund
Ohio Tax-Free Money Market Fund
YIELD -- STOCK FUND AND BOND FUNDS
The yield for each class of shares of the stock and bond funds is determined by
dividing the net investment income per share (as defined by the Securities and
Exchange Commission) earned by each class of shares over a thirty-day period by
the maximum offering price per share of each class of shares on the last day of
the period. This value is then annualized using semiannual compounding. This
means that the amount of income generated during the thirtyday period is assumed
to be generated each month over a 12month 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 30day period ended November 30, 1998 was as follows:
YIELDS FOR 30DAY PERIOD
ENDED 11/30/98 CLASS A SHARES CLASS B SHARES CLASS Y SHARES
- --------------------------------------------------------------------------------
The Stellar Fund
Relative Value Fund
Growth Equity Fund
Capital Appreciation Fund
International Equity Fund
The Stellar Insured
Tax-Free Bond Fund2<F20>
U.S. Government Income Fund
Strategic Income Fund
AVERAGE ANNUAL TOTAL RETURNS
The average annual total return for each class of shares is the average
compounded rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned at the
end of the period by the maximum net asset value per share at the end of the
period. The number of shares owned at the end of the period is based on the
number of shares purchased at the beginning of the period with $1,000, less any
applicable sales charge, adjusted over the period by any additional shares,
assuming the quarterly reinvestment of all dividends and distributions.
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS ENDED 11/30/98 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
(INCEPTION DATE)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Treasury Fund C Shares
Y Shares
Tax-Free Money Market Fund C Shares
Ohio Tax-Free Money Market Fund C Shares
The Stellar Fund A Shares
Y Shares
Relative Value Fund A Shares
B Shares
Y Shares
Growth Equity Fund B Shares
Y Shares
Capital Appreciation Fund A Shares
International Equity Fund A Shares
The Stellar Insured Tax-Free Bond Fund A Shares
U.S. Government Income Fund A Shares
B Shares
Strategic Income Fund B Shares
- ----------------------------------------------------------------------------------------------------------------------------
</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 STELLAR 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 THE STELLAR INSURED TAX-FREE BOND
FUND.
<TABLE>
TAXABLE YIELD EQUIVALENT FOR 1999
MULTISTATE MUNICIPAL FUND
<S> <C> <C> <C> <C> <C>
FEDERAL INCOME TAX BRACKET:
- ---------------------------------------------------------------------------------------------------------------------------------
15.00% 28.00% 31.00% 36.00% 39.60%
- ---------------------------------------------------------------------------------------------------------------------------------
Joint Return $1 -- $42,350 $42,351--$102,300 $102,301--$155,950 $155,951--$278,450 Over $278,450
Single Return $1 -- $25,350 $25,351 -- $61,400 $61,401 -- $128,100$128,101 --$278,450 Over $278,450
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.
*<F21> Some portion of the funds' 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>
<TABLE>
TAXABLE YIELD EQUIVALENT FOR 1999
STATE OF OHIO
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
FEDERAL TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE TAX BRACKET:
19.279% 32.933% 37.624% 43.201% 46.801%
- ---------------------------------------------------------------------------------------------------------------------------------
Single Return $1--$25,350 $25,351-$61,400 $61,401-$128,100 $128,101-$278,450 Over $278,450
Tax-Exempt Yield Taxable Yield Equivalent
- ---------------------------------------------------------------------------------------------------------------------------------
1.50% 1.86% 2.24% 2.40% 2.64% 2.82%
2.00% 2.48% 2.98% 3.21% 3.522% 3.76%
2.50% 3.10% 3.73% 4.01% 4.40% 4.70%
3.00% 3.72% 4.47% 4.81% 5.28% 5.64%
3.50% 4.34% 5.22% 5.61% 6.16% 6.58%
4.00% 4.96% 5.96% 6.41% 7.04% 7.52%
4.50% 5.57% 6.71% 7.21% 7.92% 8.46%
5.00% 6.19% 7.46% 8.02% 8.80% 9.40%
5.50% 6.81% 8.20% 8.82% 9.68% 10.34%
6.00% 7.43% 8.95% 9.62% 10.56% 11.28%
</TABLE>
Note: The maximum marginal tax rate for 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.
<TABLE>
TAXABLE YIELD EQUIVALENT FOR 1999
STATE OF OHIO
<S> ~ <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
FEDERAL TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
COMBINED FEDERAL AND STATE TAX BRACKET:
19.993% 34.624% 37.624% 43.201% 46.801%
- ---------------------------------------------------------------------------------------------------------------------------------
Joint Return $1-$42,350 $42,351-102,300 $102,301-$155,950 $155,951-$278,450 Over $278,450
Tax-Exempt Yield Taxable Yield Equivalent
- ---------------------------------------------------------------------------------------------------------------------------------
1.50% 1.87% 2.29% 2.40% 2.64% 2.82%
2.00% 2.50% 3.06% 3.21% 3.52% 3.76%
2.50% 3.12% 3.82% 4.01% 4.40% 4.70%
3.00% 3.75% 4.59% 4.81% 5.28% 5.64%
3.50% 4.37% 5.35% 5.61% 6.16% 6.58%
4.00% 5.00% 6.12% 6.41% 7.04% 7.52%
4.50% 5.62% 6.88% 7.21% 7.92% 8.46%
5.00% 6.25% 7.66% 8.02% 8.80% 9.40%
5.50% 6.87% 8.41% 8.82% 9.68% 10.34%
6.00% 7.50% 9.18% 9.62% 10.56% 11.28%
</TABLE>
Note: The maximum marginal tax rate for 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.
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, AUSTRALIA, 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 18
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 STELLAR
FUND, STRATEGIC FUND, CAPITAL APPRECIATION FUND, GROWTH EQUITY FUND, and
RELATIVE VALUE 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 STELLAR 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 STELLAR FUND and RELATIVE VALUE 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 STELLAR
FUND and U.S. GOVERNMENT INCOME 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 nonstandardized 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.
FINANCIAL STATEMENTS
The Funds' financial statements for the fiscal year ended November 30, 1997, are
incorporated herein by reference from the Funds' Annual Report dated November
30, 1997. A copy of the Annual Report for the Funds may be obtained without
charge by calling 1-800-677-FUND or writing Firstar Stellar Funds at the
following address:
Firstar Stellar Funds
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
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 is filed with this
Post-Effective Amendment No. 42.*<F20>
(18) AMENDMENT NO. 18 to Declaration of Trust is filed with this
Post-Effective Amendment No. 42.*<F20>
(19) AMENDMENT NO. 19 to Declaration of Trust is filed with this
Post-Effective Amendment No. 42.*<F20>
(20) AMENDMENT NO. 20 to Declaration of Trust is filed with this
Post-Effective Amendment No. 42.*<F20>
(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 Star 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 B.C. Ziegler & Company dated
as of October 1, 1998 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. 42.*<F20>
(F) BONUS OR PROFIT SHARING CONTRACTS. Not Applicable.
(G) CUSTODIAN CONTRACT between Registrant and Star 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 Star 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 is filed with this
Post-Effective Amendment No. 42.*<F20>
(3) AMENDED AND RESTATED SHAREHOLDER SERVICES PLAN to be filed by
amendment.
(4) SHAREHOLDER SERVICES AGREEMENT to be filed by amendment.
(5) FUND ACCOUNTING SERVICING AGREEMENT between Registrant and Firstar
Mutual Fund Services, LLC dated October 1, 1998 is filed with this
Post-Effective Amendment No. 42.*<F20>
(I) LEGAL OPINION to be filed by amendment.
(J) OTHER OPINIONS.
(1) To be filed by amendment.
(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 to be filed by amendment.
(1) RULE 12B-1 AGREEMENT to be filed by amendment.
(N) FINANCIAL DATA SCHEDULES to be filed by amendment.
(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 is filed with this Post-Effective Amendment No.
42.*<F20>
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 $
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
$ 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) B.C. Ziegler & Company ("B.C. Ziegler"), the Registrant's current
principal underwriter, serves as principal underwriter of the shares of the
Funds.
(b) To the best of Registrant's knowledge, the directors and
executive officers of B.C. Ziegler & Company are as follows:
<TABLE>
NAME AND PRINCIPAL POSITION AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH B. C. ZIEGLER WITH REGISTRANT
<S> <C> <C>
Peter D. Ziegler Chairman, President, Chief Executive None
Officer and Director
S. Charles O'Meara Senior Vice President and General Counsel, None
Corporate Secretary and Director
D. A. Wallestad Senior Vice President - Acquisition None
Chief Financial Officer and Director
Donald A. Carlson, Jr. Senior Vice President None
J.C. Wagner Senior Vice President - Retail Sales None
and Director
Michael P. Doyle Senior Vice President - Retail Operations None
Ronald N. Spears Senior Vice President None
Jeffrey C. Vredenbregt Vice President, Treasurer, None
Controller and Director
Charles G. Stevens Vice President - Marketing Director None
Jack H. Downer Vice President - MIS Director None
Robert J. Tuszynski Senior Vice President None
9
Gerry Aman Vice President - Insurance None
Sheila K. Hittman Vice President - Personnel None
Robert J. Johnson Vice President - Compliance None
James M. Bushman Vice President - Recruiting and None
Training Coordinator
Lay C. Rosenheimer Vice President - Bond Sales Control None
Darrell P. Frank Vice President - Director of Strategic Change None
M.L. McBain Vice President - Equity Securities None
James L. Brendemuehl Vice President - Managed Products None
Ronald C. Strzok Senior Vice President - Administration None
Roxanne Dalnodar Vice President - Operations None
Kathleen A. Lochen Assistant Secretary None
</TABLE>
The address of each of the foregoing is 215 North Main Street, West Bend,
Wisconsin 53095, (414) 334-5521.
(c) None.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS:
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:
Records Relating to Registrant's Firstar Mutual Funds Services, LLC
fund accounting servicing agent 615 East Michigan Street
and administrator. Milwaukee, Wisconsin 53202
Records relating to Registrant's 425 Walnut Street
investment adviser Cincinnati, OH 45202
Records relating to Registrant's 425 Walnut Street
custodian, transfer agent Cincinnati, OH 45202
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 28th day of January, 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
- ---- ----- ----
*<F21>/s/ Thomas L. Conlan, Jr.
- ---------------------------------
Thomas L. Conlan, Jr. Trustee January 28, 1999
*<F21>/s/ Dr. Alfred Gottschalk
- ---------------------------------
Dr. Alfred Gottschalk Trustee January 28, 1999
*<F21>/s/ Dr. Robert J. Hill
- ---------------------------------
Dr. Robert J. Hill Trustee January 28, 1999
*<F21>/s/ William H. Zimmer, III
- ---------------------------------
William H. Zimmer, III Trustee January 28, 1999
*<F21>/s/ Dawn M. Hornback
- ---------------------------------
Dawn M. Hornback Trustee January 28, 1999
*<F21>/s/ Lawrence M. Turner
- ---------------------------------
Lawrence M. Turner Trustee January 28, 1999
*<F21>By /s/ Elaine E. Richards
--------------------------
Elaine E. Richards
Attorney-in-fact
STAR FUNDS
AMENDMENT NO. 17
DECLARATION OF TRUST
DATED JANUARY 23, 1989
THIS Declaration of Trust is amended as follows:
DELETE the first paragraph of Section 5 of Article III from the Declaration
of Trust and REPLACE it with the following:
"Section 5. Establishment and Designation of Series or Class.
----------- -------------------------------------------------
Without limiting the authority of the Trustees set forth in Article
XII, Section 8 inter alia, to establish and designate any additional
Series or Class or to modify the rights and preferences of any
existing Series or Class, the Series and Classes of the Trust are
established and designated as:
Star Capital Appreciation Fund
Star Growth Equity Fund
Star Relative Value Fund
Star Strategic Income Fund
Star Tax-Free Money Market Fund
Star Treasury Fund
Investment Shares
Trust Shares
Star U.S. Government Income Fund
The Stellar Fund
Investment Shares
Trust Shares
The Stellar Insured Tax-Free Bond Fund"
The undersigned Secretary of Star Funds hereby certifies that the above-
stated Amendment is a true and correct Amendment to the Declaration of Trust, as
adopted by the Board of Trustees on the 6th day of November, 1996.
WITNESS the due execution hereof this 6th day of November, 1996.
/s/ C. Grant Anderson
-----------------------------------
C. Grant Anderson
Secretary
STAR FUNDS
AMENDMENT NO. 18
DECLARATION OF TRUST
DATED JULY 28, 1997
THIS Declaration of Trust is amended as follows:
DELETE the first paragraph of Section 5 of Article III from the Declaration
of Trust and REPLACE it with the following:
"Section 5. Establishment and Designation of Series or Class.
---------- -------------------------------------------------
Without limiting the authority of the Trustees set forth in Article
XII, Section 8, inter alia, to establish and designate any additional
Series or Class or to modify the rights and preferences of any
existing Series or Class, the Series and Classes of the Trust are
established and designated as:
Star Capital Appreciation Fund
Star Equity Index Fund
Star Growth Equity Fund
Investment Shares
Trust Shares
Star International Equity Fund
Star Ohio Tax-Free Money Market Fund
Star Relative Value Fund
Investment Shares
Trust Shares
Star Strategic Income Fund
Star Tax-Free Money Market Fund
Star Treasury Fund
Investment Shares
Trust Shares
Star U.S. Government Income Fund
The Stellar Fund
Investment Shares
Trust Shares
The Stellar Insured Tax-Free Bond Fund"
The undersigned President and Secretary of Star Funds hereby certify that
the above-stated Amendment is a true and correct Amendment to the Declaration of
Trust, as adopted by the Board of Trustees on the 14th day of August, 1997.
WITNESS the due execution hereof this 14th day of August, 1997.
/s/ Edward C. Gonzales
-------------------------------
Edward C. Gonzales
President
/s/ C. Grant Anderson
-------------------------------
C. Grant Anderson
Secretary
STAR FUNDS
AMENDMENT NO. 19
DECLARATION OF TRUST
DATED JANUARY 28, 1989
THIS Declaration of Trust is amended as follows:
DELETE the first paragraph of Section 5 of Article III from the Declaration
of Trust and REPLACE it with the following:
"Section 5. Establishment and Designation of Series or Class. Without
---------- ------------------------------------------------
limiting the authority of the Trustees set forth in Article XII,
Section 8, inter alia, to establish and designate any additional
Series or Class or to modify the rights and preferences of any
existing Series or Class, the Series and Classes of the Trust are
established and designated as:
Star Capital Appreciation Fund
Star Growth Equity Fund
Investment Shares
Trust Shares
Star International Equity Fund
Star Market Capitalization Fund
Star Ohio Tax-Free Money Market Fund
Star Relative Value Fund
Investment Shares
Trust Shares
Star Strategic Income Fund
Star Tax-Free Money Market Fund
Star Treasury Fund
Investment Shares
Trust Shares
Star U.S. Government Income Fund
The Stellar Fund
Investment Shares
Trust Shares
The Stellar Insured Tax-Free Bond Fund
The undersigned hereby certify that the above-stated Amendment is a true
and correct Amendment to the Declaration of Trust, as adopted by the Board of
Trustees on the 18th day of November, 1997.
WITNESS the due execution hereof this 1st day of December, 1997.
/s/ Thomas L. Conlan Jr. /s/ William H. Zimmer III
- -------------------------------- ----------------------------
Thomas L. Conlan, Jr. William H. Zimmer, III
/s/ Edward C. Gonzales /s/ Dawn M. Hornback
- -------------------------------- ----------------------------
Edward C. Gonzales Dawn M. Hornback
/s/ Alfred Gottschalk /s/ Lawrence M. Turner
- -------------------------------- ----------------------------
Alfred Gottschalk Lawrence M. Turner
/s/ Robert J. Hill
- --------------------------------
Robert J. Hill
STAR FUNDS
AMENDMENT NO. 20
DECLARATION OF TRUST
DATED JANUARY 28, 1989
THIS Declaration of Trust is amended as follows:
DELETE the first paragraph of Section 5 of Article III from the Declaration
of Trust and REPLACE it with the following:
"Section 5. Establishment and Designation of Series of Class.
----------------------------------------------------------------
Without limiting the authority of the Trustees set forth in Article
XII, Section 8, inter alia, to establish and designate any additional
Series or Class or to modify the rights and preferences of any
existing Series or Class, the Series and Classes of the Trust are
established and designated as:
Star Capital Appreciation Fund
A Shares
Star Growth Equity Fund
B Shares
Y Shares
Star International Equity Fund
A Shares
Star Market Capitalization Fund
C Shares
Star Ohio Tax-Free Money Market Fund
C Shares
Star Relative Value Fund
A Shares
B Shares
Y Shares
Star Strategic Income Fund
B Shares
Star Tax-Free Money Market Fund
C Shares
Star Treasury Fund
C Shares
Y Shares
Star U.S. Government Income Fund
A Shares
B Shares
The Stellar Fund
A Shares
Y Shares
The Stellar Insured Tax-Free Bond Fund
A Shares
The undersigned herby certify that the above-stated Amendment is a true and
correct Amendment to the Declaration of Trust, as adopted by the Board of
Trustees on the 13th day of February, 1998.
WITNESS the due execution hereof this 13th day of February, 1998
/s/ Thomas L. Conlan, Jr. /s/ William H. Zimmer, III
- -------------------------------- ----------------------------
Thomas L. Conlan, Jr. William H. Zimmer, III
/s/ Edward C. Gonzales /s/ Dawn M. Hornback
- -------------------------------- ----------------------------
Edward C. Gonzales Dawn M. Hornback
/s/ Alfred Gottschalk /s/ Lawrence M. Turner
- -------------------------------- ----------------------------
Alfred Gottschalk Lawrence M. Turner
/s/ Robert J. Hill
- --------------------------------
Robert J. Hill
DISTRIBUTION AGREEMENT
October 1, 1998
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
Ladies and Gentlemen:
This is to confirm that in consideration of the agreements hereinafter
contained, the undersigned, Star Funds, a Massachusetts Business Trust ("Star
Funds"), has agreed that you shall be, for the period of this Agreement, the
distributor of shares of Common Stock (the "Shares") of the current Star Funds'
(Addendum A) and other such funds as may be contemplated (the "Funds").
1. Services as Distributor
-----------------------
1.1 You will act as agent for the distribution of Shares in accordance
with the instructions of Star Funds' Board of Trustees and the registration
statement and prospectuses then in effect with respect to the Funds under the
Securities Act of 1933, as amended, and will transmit promptly any orders
received by you for the purchase or redemption of Shares either directly to Star
Funds' transfer agent for the Fund involved or to any qualified broker/dealer
for transmittal to said agent.
1.1(a) You agree to use your best efforts to solicit orders for the sale
of Shares. You shall direct expenses to be paid for appropriate activities
which you deem reasonable which are primarily intended to result in the sale of
Shares, including, but not limited to, advertising, compensation of
underwriters, dealers and sales personnel, the printing and mailing of
prospectuses to other than current shareholders, and the printing and mailing of
sales literature. In addition, you will provide one or more persons, during
normal business hours, to refer telephone questions to appropriate persons. It
is contemplated that you may enter into selling agreements with qualified
broker/dealers and other persons with respect to the offering of Shares to the
public, and in so doing you will act only on your own behalf as principal.
1.1(b) All Shares of the Funds offered for sale by you shall be offered
for sale to the public at a price per share (the "offering price") equal to (a)
their net asset value (determined in the manner set forth in Star Funds'
Articles of Incorporation and then current prospectuses) plus, except to those
classes of persons set forth in Star Funds' then current prospectuses, (b) a
sales charge which shall be the percentage of the offering price of such shares
as set forth in Star Funds' then current prospectuses. The offering price, if
not an exact multiple of one cent, shall be adjusted to the nearest cent.
Concessions by you to broker/dealers and other persons shall be set forth in
either the selling agreements between you and such broker/dealer and persons or,
if such concessions are described in Star Funds' then current prospectuses for
the Fund, shall be as so set forth. No broker/dealer or other persons who
enters into a selling agreement with you shall be authorized to act as agent for
Star Funds in connection with the offering or sale of its Shares to the public
or otherwise.
1.1(c) If any Shares sold by Star Funds are redeemed or repurchased by
Star Funds or by you as agent or are tendered for redemption within seven
business days after the date of confirmation of the original purchase of said
Shares, you shall forfeit the amount above the net asset value received by you
in respect of such Shares, provided that the portion, if any, of such amount re-
allowed by you to broker/dealers or other persons shall be repayable to Star
Funds only to the extent recovered by you from the broker/dealer or other person
concerned. You shall include in the forms of agreement with such broker/dealers
and other persons a corresponding provision for the forfeiture by them of their
concession with respect to Shares sold by them or their principals and redeemed
or repurchased by Star Funds or by you as agent (or tendered for redemption)
within seven business days after the date of confirmation of such initial
purchases.
1.2 You shall act as distributor of the Shares in compliance with all
applicable laws, rules and regulations, including, without limitation, all rules
and regulations, adopted pursuant to the Investment Company Act of 1940, as
amended, by the Securities and Exchange Commission or any securities association
registered under the Securities Exchange Act of 1934, as amended.
1.3 Whenever in their judgment such action is warranted by market,
economic or political conditions, or by circumstances of any kind, Star Funds'
officers may decline to accept any orders for, or make any sales of, any shares
until such time as they deem it advisable to accept such orders and to make such
sales and Star Funds shall advise you promptly of such determination.
1.4 Star Funds agrees to pay all costs and expenses in connection with the
registration of Shares under the Securities Act of 1933, as amended, and to be
responsible for all expenses in connection with maintaining facilities for the
issue and transfer of Shares and for supplying information, prices and other
data to be furnished by Star Funds hereunder.
1.5 Star Funds agrees to execute any and all documents and to furnish any
and all information and otherwise to take all action which may be reasonably
necessary in the discretion of Star Funds' officers in connection with the
qualification of Shares for sale in such states as you may designate to Star
Funds and Star Funds may approve, and Star Funds agrees to pay all expenses
which may be incurred in connection with such qualification. You shall pay all
expenses connected with your own qualification as a broker under State or
Federal laws and, except as otherwise specifically provided in this agreement,
all other expenses incurred by you in connection with the sale of Shares as
contemplated in this agreement.
1.6 Star Funds shall furnish you from time to time, for use in connection
with the sale of Shares, such information with respect to Star Funds and the
Shares as you may reasonably request, and Star Funds warranties that the
statements contained in any such information, when so signed by Star Funds'
officers, shall be true and correct. Star Funds also shall furnish you upon
request with: (a) annual audited reports of Star Funds' books and accounts with
respect to each of the Funds, made by independent public accountants regularly
retained by Star Funds, (b) semi-annual reports with respect to each of the
Funds prepared by Star Funds, and (c) from time to time such additional
information regarding Star Funds' financial condition as you may reasonably
request.
1.7 Star Funds represents to you that all registration statements and
prospectuses filed by Star Funds with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, with respect to the Shares have
been prepared in conformity with the requirements of said Act and rules and
regulations of the Securities and Exchange commission thereunder. As used in
the agreement the terms "registration statement" and "prospectus" shall mean any
registration statement and prospectus (together with the related statement of
additional information) filed with the Securities and Exchange Commission with
respect to any of the Shares and any amendments and supplements thereto which at
any time shall have been filed with said Commission. Star Funds represents and
warrants to you that any registration statement and prospectus, when such
registration statement becomes effective, will contain all statements required
to be stated therein in conformity with said Act and the rules and regulations
of said Commission; that all statements of fact contained in the registration
statement and prospectus will be materially true and correct when such
registration statement becomes effective; and that neither the registration
statement nor any prospectus when such registration statement becomes effective
will include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statement therein
not misleading. Star Funds may but shall not be obligated to propose from time
to time such amendment or amendments to any prospectus as, in light of future
developments, may, in the opinion of Star Funds' counsel, be necessary or
advisable. If Star Funds shall not propose such an amendment or amendments
and/or supplement or supplements within fifteen days after receipt by Star Funds
of a written request from you to do so, you may, at your option, terminate this
agreement. Star Funds shall not file any amendment to the registration
statement or supplement to any prospectus without giving you reasonable notice
thereof in advance; provided, however, that nothing contained in this agreement
shall in any way limit Star Funds' right to file at any time such amendments to
any registration statement and/or supplements to any prospectus, of whatever
character, as Star Funds may deem advisable, such right being in all respects
absolute and unconditional.
1.8 Star Funds authorizes you to use any prospectus, in the form furnished
to you from time to time, in connection with the sale of Shares. Star Funds
agrees to indemnify, defend and hold you, your several officers and directors,
and any person who controls you within the meaning of Section 15 of the
Securities Act of 1933, as amended, free and harmless from and against any and
all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which you, your officers and directors,
or any such controlling person, may incur under the Securities Act of 1933, as
amended, or under common law or otherwise, arising out of or based upon any
untrue statement, or alleged untrue statement, of a material fact contained in
the registration statement or any prospectus or arising out of or based upon any
omission, or alleged omission, to state a material fact required to be stated in
either any registration statement or any prospectus or necessary to make the
statements in either thereof not misleading; provided, however, that Star Funds'
agreement to indemnify you, your officers or directors, and any such
controlling persons shall not be deemed to cover any claims, demands,
liabilities or expenses arising out of any untrue statement or alleged untrue
statement or omission or alleged omission made in the registration statement or
prospectus in reliance upon and in conformity with written information furnished
to Star Funds or its counsel by you and used in the preparation thereof; and
provided further that Star Funds' agreement to indemnify you and Star Funds'
representations and warranties herein set forth shall not be deemed to cover any
liability to Star Funds or its Shareholder to which you would otherwise be
subject by reason of willful misfeasance, bad faith or negligence in the
performance of your duties, or by reason of your reckless or negligent disregard
of your obligations and duties under this agreement. Star Funds' agreement to
indemnify you, your officers and directors, and any such controlling person, as
aforesaid, is expressly conditioned upon Star Funds' being notified of any
action brought against you, your officers or directors, or any such controlling
person, such notification to be given by letter or by telegram addressed to Star
Funds at its principal office within ten days after the summons or other first
legal process shall have been served. The failure so to notify Star Funds of
any such action shall not relieve Star Funds from any liability which Star Funds
may have to the person against whom such action is brought by reason of any such
untrue, or alleged untrue, statement or omission, or alleged omission, otherwise
than on account of Star Funds' indemnity agreement contained in the paragraph
1.8. Star Funds will be entitled to assume the defense of any suit brought to
enforce any such claim, demand or liability, but, in such case, such defense
shall be conducted by counsel of good standing chosen by Star Funds and approved
by you. In the event Star Funds elects to assume the defense of any such suit
and retain counsel of good standing approved by you which approval shall not be
unreasonably withheld, the defendant or defendants in such suit shall bear the
fees and expenses of any additional counsel retained by any of them; but in case
Star Funds does not elect to assume the defense of any such suit, or in case you
do not approve of counsel chosen by Star Funds, or if under prevailing law,
legal codes of ethics, the same counsel cannot effectively represent the
interest of both Star Funds and you or your directors, officers or controlling
persons, Star Funds will reimburse you, your officers and directors, or the
controlling person or persons named as defendant or defendants in such suit, for
the fees and expenses of any counsel retained by you or them. Star Funds'
indemnification agreement contained in this paragraph 1.8 and Star Funds'
representation and warranties in this agreement shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
you, your officers and directors, or any controlling person, and shall survive
the delivery of any Shares. This agreement of indemnity will insure exclusively
to your benefit, to the benefit of your several officers and directors, and
their respective estates, and to the benefit of any controlling persons and
their successors. Star Funds agrees promptly to notify you of the commencement
of any litigation or proceedings against Star Funds or any of its officers or
directors in connection with the issue and sale of any of the Shares.
1.9 You agree to indemnify, defend and hold Star Funds, its several
officers and directors, any person who controls Star Funds within the meaning of
Section 15 of the Securities Act of 1933, as amended, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith which Star Funds, its officer or
directors, or any such controlling person, may incur under the Securities Act of
1933, as amended, or under common law or otherwise, but only to the extent that
such liability or expense incurred by Star Funds, its officer or directors, or
such controlling person resulting from such claims or demands, shall arise out
of or be based upon any untrue, or alleged untrue, statement of a material fact
contained in information furnished by you to Star Funds or its counsel and used
in Star Funds' registration statement or any prospectus, or shall arise out of
or be based upon any omission, or alleged omission, to state a material fact in
connection with such information furnished by you to Star Funds or its counsel
and required to be stated in any registration statement or prospectus or
necessary to make such information not misleading. Your agreement to indemnify
Star Funds, its officers and directors, and any such controlling person, as
aforesaid, is expressly conditioned upon your being notified of any action
brought against Star Funds, its officers or directors, or any such controlling
person, such notification to be given by letter or telegram addressed to you at
your principal office within ten days after the summons or other first legal
process shall have been served. You shall have the right to control the defense
of such action, with counsel of your own choosing, satisfactory to Star Funds,
if such action is based solely upon such alleged misstatement or omission on
your part, and in any other event Star Funds, its officers or directors or such
controlling persons shall each have the right to participate in the defense or
preparation of the defense of any such action. The failure so to notify you of
any such action shall not relieve you from any liability which you may have to
Star Funds, its officers or directors, or to such controlling person by reasons
of any such untrue, or alleged untrue, statement or omission, or alleged
omission, otherwise than on account of your indemnity agreement contained in
this paragraph 1.9.
1.10 No shares shall be offered by either you or Star Funds under any of
the provisions of this agreement and no orders for the purchase or sale of such
Shares hereunder shall be accepted by Star Funds if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act of 1933, as amended, or if and so long as current prospectuses as
required by Section 10 of said Act, as amended, are not on file with the
Securities and Exchange Commission; provided, however, that nothing contained in
this paragraph 1.10 shall in any way restrict or have an application to or
bearing upon Star Funds' obligation to repurchase Shares from any shareholder in
accordance with the provision of the prospectus or Articles of Incorporation.
1.11 Star Funds agrees to advise you promptly in writing::
(a) of any request by the Securities and Exchange Commission for
amendments to the registration statement or prospectus then in effect;
(b) in the event of the issuance by the Securities and Exchange
commission of any stop order suspending the effectiveness of the
registration statement or prospectuses then in effect or the initiation of
any proceedings for that purpose;
(c) of the happening of any event which make untrue any statement of
a material fact made in the registration statement or prospectuses then in
effect or which requires the making of a change in such registration
statement or prospectuses in order to make the statements therein not
misleading; and
(d) of all actions of the Securities and Exchange Commission with
respect to any amendments to any registration statement or prospectus which
may from time to time be filed with the Securities and Exchange Commission.
2. Term
----
2.1 This agreement shall become effective as the date hereof and, unless
sooner terminated, shall continue until February 28, 1999, and thereafter shall
continue automatically for successive annual periods, provided such continuance
is specifically approved at least annually by (i) Star Funds' Board of Trustees
or (ii) the vote of a majority (as defined in the Investment Company Act of
1940) of the Fund's outstanding Shares, provided that in either event its
continuance also is approved by a majority of Star Funds' trustees which are not
"interested persons" (as defined in said Act) of any party to this agreement, by
vote cast in person at a meeting called for the purpose of voting on such
approval. This agreement is terminable without penalty, on not less than 60
days' notice, by Star Funds' Board of Trustees, by vote of the holders of a
majority (as defined in said Act) of the fund's outstanding Shares, or by you.
This agreement will also terminate automatically in the event of its assignment
(as defined in said Act).
3. Miscellaneous
-------------
3.1 Star Funds recognizes that from time to time your directors, officers
and employees may serve as directors, officers and employees of other
corporations (including other investment companies) and that such other
corporations may include the name B.C. Ziegler and Company as part of their
name, and that you or your affiliates may enter into investment advisory or
other agreements with such other corporations.
3.2 You agree on behalf of yourself and your employees to treat
confidentially and as proprietary information of Star Funds all records and
other information relative to the Funds and prior, present or potential
shareholders of the Funds (and clients of said shareholders), and not to use
such records and information for any purpose other than performance of your
responsibilities and duties hereunder, except after prior notification to and
approval in writing by Star Funds, which approval shall not be unreasonably
withheld and may not be withheld where you may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, and when so requested by Star
Funds.
3.3 No provisions 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.
3.4 This agreement shall be governed by Wisconsin law.
3.5 You are hereby expressly put on notice of the limitation of liability
as set forth in Article XI of the Star Funds' Declaration of Trust and agree
that the obligation assumed by the Star Funds pursuant to this agreement shall
be limited in any case to the Star Funds and its assets and you shall not seek
satisfaction of any such obligation from the shareholders of the Star Funds, the
trustees, officers employees or agents of the Star Funds, or any of them.
3.6 You shall bear all legal fees incident to distribution of the Shares,
3.7 Notices of any kind to be given by either party to the other party
shall be in writing and shall be duly given if mailed or delivered as follows:
Notice to you shall be sent to:
B.C. Ziegler and Company
Attn: Robert J. Tuszynski
215 North Main Street
West Bend, Wisconsin 53095
And notice to the Star Funds shall be sent to:
Star Funds
425 Walnut Street
Cincinnati, Ohio 45202
With copy to:
Tracy Byrd Jamison, Esq.
Cors & Bassett
537 East Pete Rose Way, Suite 400
Cincinnati, Ohio 45202
Please confirm that the foregoing is in accordance with your understanding
by indicating your acceptance hereof at the place below indicated, whereupon it
shall become a binding agreement between us.
Very truly yours,
STAR FUNDS
By:/s/ Robert J. Hill
(Authorized Officer)
Accepted:
B.C. ZIEGLER AND COMPANY
By: /s/ Robert J. Tuszynski
(Authorized Officer)
Addendum A
Tax-Free Money Market Fund
Ohio Tax-Free Money Market Fund
Treasury Fund
Strategic Income Fund
U.S. Government Income Fund
Stellar Insured Tax-Free Bond Fund
Relative Value Fund
Market Capitalization Fund
Growth Equity Fund
Capital Appreciation Fund
Stellar Fund
International Equity Fund
FUND ADMINISTRATION SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this 1st day of October,
1998, by and between Star Funds, Massachusetts business trust (hereinafter
referred to as the "Trust") and Firstar Trust Company, a corporation organized
under the laws of the State of Wisconsin (hereinafter referred to as "FTC").
WHEREAS, the Trust is an open-end management investment company which is
registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Trust is authorized to create separate series, each with its
own separate investment portfolio;
WHEREAS, FTC is a trust company and, among other things, is in the
business of providing fund administration services for the benefit of its
customers; and
WHEREAS, the Trust desires to retain FTC to act as Administrator for each
series of the Trust (hereinafter each series is referred to individually as
"Fund") listed on Exhibit A attached hereto, as may be amended from time to
time.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Trust and FTC agree as follows:
1. APPOINTMENT OF ADMINISTRATOR
The Trust hereby appoints FTC as Administrator of the Trust on the terms
and conditions set forth in this Agreement, and FTC hereby accepts such
appointment and agrees to perform the services and duties set forth in this
Agreement in consideration of the compensation provided for herein.
2. DUTIES AND RESPONSIBILITIES OF FTC
A. General Fund Management
1. Act as liaison among all Fund service providers
2. Coordinate board communication by:
a. Assisting Trust counsel in establishing meeting agendas
b. Preparing board reports based on financial and administrative
data
c. Evaluating independent auditor
d. Securing and monitoring fidelity bond and director and officer
liability coverage, and making the necessary SEC filings
relating thereto
e. Preparing minutes of meetings of the board and shareholders
3. Audits
a. Prepare appropriate schedules and assist independent auditors
b. Provide information to SEC and facilitate audit process
c. Provide office facilities
4. Assist in overall operations of the Fund
5. Pay Fund expenses upon written authorization from the Trust
B.Compliance
1. Regulatory Compliance
a. Monitor compliance with 1940 Act requirements, including:
1) Asset diversification tests
2) Total return and SEC yield calculations
3) Maintenance of books and records under Rule 31a-3
4) Code of Ethics for the disinterested trustees of the Fund
b.Monitor Fund's compliance with the policies and investment
limitations of the Trust as set forth in its Prospectus and
Statement of Additional Information
2. Blue Sky Compliance
a.Prepare and file with the appropriate state securities
authorities any and all required compliance filings relating to
the registration of the securities of the Trust so as to enable
the Trust to make a continuous offering of its shares in all
states
b. Monitor status and maintain registrations in each state
3. SEC Registration and Reporting
a.Assist Trust counsel in updating Prospectus and Statement of
Additional Information and in preparing proxy statements and
Rule 24f-2 notices
b.Prepare annual and semiannual reports
c.Coordinate the printing of publicly disseminated Prospectuses
and reports
d. File fidelity bond under Rule 17g-1
e. File shareholder reports under Rule 30b2-1
4. IRS Compliance
a.Monitor Trust's status as a regulated investment company under
Subchapter M through review of the following:
1) Asset diversification requirements
2) Qualifying income requirements
3) Distribution requirements
b.Calculate required distributions (including excise tax
distributions)
C. Financial Reporting
1. Provide financial data required by Fund's Prospectus and Statement
of Additional Information
2. Prepare financial reports for shareholders, the board, the SEC,
and independent auditors
3. Supervise the Trust's Custodian and Trust Accountants in the
maintenance of the Trust's general ledger and in the preparation
of the Fund's financial statements, including oversight of
expense accruals and payments, of the determination of net asset
value of the Trust's net assets and of the Trust's shares, and of
the declaration and payment of dividends and other distributions
to shareholders
D.Tax Reporting
1. Prepare and file on a timely basis appropriate federal and state
tax returns including Forms 1120/8610 with any necessary
schedules
2. Prepare state income breakdowns where relevant
3. File Form 1099 Miscellaneous for payments to trustees and other
service providers
4. Monitor wash losses
5. Calculate eligible dividend income for corporate shareholders
3. COMPENSATION
The Trust, on behalf of the Fund, agrees to pay FTC for the performance of
the duties listed in this Agreement, the fees and out-of-pocket expenses as
set forth in the attached Exhibit A.
These fees may be changed from time to time, subject to mutual written
Agreement between the Trust and FTC.
The Trust agrees to pay all fees and reimbursable expenses within ten (10)
business days following the receipt of the billing notice.
4. PERFORMANCE OF SERVICE; LIMITATION OF LIABILITY
A. FTC shall exercise reasonable care in the performance of its duties
under this Agreement. FTC shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust in
connection with matters to which this Agreement relates, including
losses resulting from mechanical breakdowns or the failure of
communication or power supplies beyond FTC's control, except a loss
resulting from FTC's refusal or failure to comply with the terms of
this Agreement or from bad faith, negligence, or willful misconduct
on its part in the performance of its duties under this Agreement.
Notwithstanding any other provision of this Agreement, the Trust
shall indemnify and hold harmless FTC from and against any and all
claims, demands, losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature (including
reasonable attorneys' fees) which FTC may sustain or incur or which
may be asserted against FTC by any person arising out of any action
taken or omitted to be taken by it in performing the services
hereunder (i) in accordance with the foregoing standards, or (ii) in
reliance upon any written or oral instruction provided to FTC by any
duly authorized officer of the Trust, such duly authorized officer
to be included in a list of authorized officers furnished to FTC and
as amended from time to time in writing by resolution of the Board
of Trustees of the Trust.
FTC shall indemnify and hold the Trust harmless from and against any
and all claims, demands, losses, expenses, and liabilities (whether
with or without basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which the Trust may sustain
or incur or which may be asserted against the Trust by any person
arising out of any action taken or omitted to be taken by FTC as a
result of FTC's refusal or failure to comply with the terms of this
Agreement, its bad faith, negligence, or willful misconduct.
In the event of a mechanical breakdown or failure of communication
or power supplies beyond its control, FTC shall take all reasonable
steps to minimize service interruptions for any period that such
interruption continues beyond FTC's control. FTC will make every
reasonable effort to restore any lost or damaged data and correct
any errors resulting from such a breakdown at the expense of FTC.
FTC agrees that it shall, at all times, have reasonable contingency
plans with appropriate parties, making reasonable provision for
emergency use of electrical data processing equipment to the extent
appropriate equipment is available. Representatives of the Trust
shall be entitled to inspect FTC's premises and operating
capabilities at any time during regular business hours of FTC, upon
reasonable notice to FTC.
Regardless of the above, FTC reserves the right to reprocess and
correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in this
section shall apply, it is understood that if in any case the
indemnitor may be asked to indemnify or hold the indemnitee
harmless, the indemnitor shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is
further understood that the indemnitee will use all reasonable care
to notify the indemnitor promptly concerning any situation which
presents or appears likely to present the probability of a claim for
indemnification. The indemnitor shall have the option to defend the
indemnitee against any claim which may be the subject of this
indemnification. In the event that the indemnitor so elects, it
will so notify the indemnitee and thereupon the indemnitor shall
take over complete defense of the claim, and the indemnitee shall in
such situation initiate no further legal or other expenses for which
it shall seek indemnification under this section. The indemnitee
shall in no case confess any claim or make any compromise in any
case in which the indemnitor will be asked to indemnify the
indemnitee except with the indemnitor's prior written consent.
5. PROPRIETARY AND CONFIDENTIAL INFORMATION
FTC agrees on behalf of itself and its directors, officers, and employees
to treat confidentially and as proprietary information of the Trust all
records and other information relative to the Trust and prior, present, or
potential shareholders of the Trust (and clients of said shareholders), and
not to use such records and information for any purpose other than the
performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Trust, which approval
shall not be unreasonably withheld and may not be withheld where FTC may be
exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities,
or when so requested by the Trust.
6. DATA NECESSARY TO PERFORM SERVICES
The Trust or its agent, which may be FTC, shall furnish to FTC the data
necessary to perform the services described herein at times and in such
form as mutually agreed upon.
7. TERM OF AGREEMENT
This Agreement shall become effective as of the date hereof and, unless
sooner terminated as provided herein, shall continue automatically in
effect for successive annual periods. The Agreement may be terminated by
either party upon giving ninety (90) days prior written notice to the other
party or such shorter period as is mutually agreed upon by the parties.
However, this Agreement may be amended by mutual written consent of the
parties.
8. NOTICES
Notices of any kind to be given by either party to the other party shall be
in writing and shall be duly given if mailed or delivered as follows:
Notice to FTC shall be sent to:
Firstar Trust Company
Attn.: Mutual Fund Services
615 East Michigan Street
Milwaukee, WI 53202
and notice to the Trust shall be sent to:
Star Funds
425 Walnut Street
Cincinnati, OH 45202
9. DUTIES IN THE EVENT OF TERMINATION
In the event that, in connection with termination, a successor to any of
FTC's duties or responsibilities hereunder is designated by the Trust by
written notice to FTC, FTC will promptly, upon such termination and at the
expense of the Trust, transfer to such successor all relevant books,
records, correspondence, and other data established or maintained by FTC
under this Agreement in a form reasonably acceptable to the Trust (if such
form differs from the form in which FTC has maintained, the Trust shall pay
any expenses associated with transferring the data to such form), and will
cooperate in the transfer of such duties and responsibilities, including
provision for assistance from FTC's personnel in the establishment of
books, records, and other data by such successor.
10. GOVERNING LAW
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the State of Wisconsin. However,
nothing herein shall be construed in a manner inconsistent with the 1940
Act or any rule or regulation promulgated by the Securities and Exchange
Commission thereunder.
11. RECORDS
FTC shall keep records relating to the services to be performed hereunder,
in the form and manner, and for such period as it may deem advisable and is
agreeable to the Trust but not inconsistent with the rules and regulations
of appropriate government authorities, in particular, Section 31 of the
1940 Act and the rules thereunder. FTC agrees that all such records
prepared or maintained by FTC relating to the services to be performed by
FTC hereunder are the property of the Trust and will be preserved,
maintained, and made available in accordance with such section and rules of
the 1940 Act and will be promptly surrendered to the Trust on and in
accordance with its request.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by a duly authorized officer or one or more counterparts as of the day and year
first written above.
STAR FUNDS FIRSTAR TRUST COMPANY
By:/s/ Robert J. Hill By: /s/ Joseph Neuberger
---------------------------- ---------------------------------
Attest: /s/ Stephanie Armour Attest:/s/ Gail Zess
---------------------------- ---------------------------------
FUND ADMINISTRATION AND COMPLIANCE
ANNUAL FEE SCHEDULE
EXHIBIT A
Separate Series of the Star Funds
NAME OF SERIES DATE ADDED
-------------- -----------------
Star Tax-Free Money Market Fund October 1, 1998
Star Ohio Tax-Free Money Market Fund "
Star Treasury Fund "
Star Strategic Income Fund "
Star U.S. Government Income Fund "
Star Relative Value Fund "
Star Market Capitalization Fund "
Star Growth Equity Fund "
Star Capital Appreciation Fund "
Star International Equity Fund "
The Stellar Fund "
Stellar Insured Tax-Free Bond Fund "
Annual fund administration fee
12 basis points on average daily net assets
Plus out-of-pocket expenses, including, but not limited to, the following:
o Postage (including overnight courier service)
o Statement Stock
o Envelopes
o Telephones
o Telecommunication Charges (including FAX)
o Travel
o Duplicating
o Forms
o Supplies
o Microfiche
o Computer Access Charges
o Client Specific System Enhancements
o Access to the Shareholder Recordkeeping System
o Security Pricing Services
o Variable Rate Change Notification Services
o Paydown Factor Notification Services
Fees and out-of-pocket expenses are billed to the fund monthly.
FUND ACCOUNTING SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this 1st day of October,
1998, by and between Star Funds, a Massachusetts business trust (hereinafter
referred to as the "Trust") and Firstar Mutual Fund Services, LLC, a corporation
organized under the laws of the State of Wisconsin (hereinafter referred to as
"FMFS").
WHEREAS, the Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Trust is authorized to create separate series, each with its
own separate investment portfolio;
WHEREAS, FMFS is in the business of providing, among other things, mutual
fund accounting services to investment companies; and
WHEREAS, the Trust desires to retain FMFS to provide accounting services to
each series of the Trust (hereinafter each series is referred to individually as
"Fund") listed on Exhibit A attached hereto, as it may be amended from time to
time.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Trust and FMFS agree as follows:
1. APPOINTMENT OF FUND ACCOUNTANT
The Trust hereby appoints FMFS as Fund Accountant of the Trust on the
terms and conditions set forth in this Agreement, and FMFS hereby accepts such
appointment and agrees to perform the services and duties set forth in this
Agreement in consideration of the compensation provided for herein.
2. DUTIES AND RESPONSIBILITIES OF FMFS
A. Portfolio Accounting Services:
(1) Maintain portfolio records on a trade date+1 basis using security
trade information communicated from the investment manager.
(2) For each valuation date, obtain prices from a pricing source
approved by the Board of Trustees of the Trust and apply those prices
to the portfolio positions. For those securities where market
quotations are not readily available, the Board of Trustees of the
Trust shall approve, in good faith, the method for determining the fair
value for such securities.
(3) Identify interest and dividend accrual balances as of each
valuation date and calculate gross earnings on investments for the
accounting period.
(4) Determine gain/loss on security sales and identify them as short-
term or long-term; account for periodic distributions of gains or
losses to shareholders and maintain undistributed gain or loss balances
as of each valuation date.
B. Expense Accrual and Payment Services:
(1) For each valuation date, calculate the expense accrual amounts as
directed by the Trust as to methodology, rate or dollar amount.
(2) Record payments for Fund expenses upon receipt of written
authorization from the Trust.
(3) Account for Fund expenditures and maintain expense accrual
balances at the level of accounting detail, as agreed upon by FMFS and
the Trust.
(4) Provide expense accrual and payment reporting.
C. Fund Valuation and Financial Reporting Services:
(1) Account for Fund share purchases, sales, exchanges, transfers,
dividend reinvestments, and other Fund share activity as reported by
the transfer agent on a timely basis.
(2) Apply equalization accounting as directed by the Trust.
(3) Determine net investment income (earnings) for the Fund as of
each valuation date. Account for periodic distributions of earnings to
shareholders and maintain undistributed net investment income balances
as of each valuation date.
(4) Maintain a general ledger and other accounts, books, and
financial records for the Fund in the form as agreed upon.
(5) Determine the net asset value of the Fund according to the
accounting policies and procedures set forth in the Fund's Prospectus.
(6) Calculate per share net asset value, per share net earnings, and
other per share amounts reflective of Fund operations at such time as
required by the nature and characteristics of the Fund.
(7) Communicate, at an agreed upon time, the per share price for each
valuation date to parties as agreed upon from time to time.
(8) Prepare monthly reports which document the adequacy of accounting
detail to support month-end ledger balances.
D. Tax Accounting Services:
(1) Maintain accounting records for the investment portfolio of the
Fund to support the tax reporting required for IRS-defined regulated
investment companies.
(2) Maintain tax lot detail for the investment portfolio.
(3) Calculate taxable gain/loss on security sales using the tax lot
relief method designated by the Trust.
(4) Provide the necessary financial information to support the
taxable components of income and capital gains distributions to the
transfer agent to support tax reporting to the shareholders.
E. Compliance Control Services:
(1) Support reporting to regulatory bodies and support financial
statement preparation by making the Fund's accounting records available
to the Trust, the Securities and Exchange Commission, and the outside
auditors.
(2) Maintain accounting records according to the 1940 Act and
regulations provided thereunder.
3. PRICING OF SECURITIES
For each valuation date, obtain prices from a pricing source selected by FMFS
but approved by the Company's Board of Trustees and apply those prices to the
portfolio positions of the Fund. For those securities where market quotations
are not readily available, the Company's Board of Trustees shall approve, in
good faith, the method for determining the fair value for such securities.
If the Trust desires to provide a price which varies from the pricing source,
the Trust shall promptly notify and supply FMFS with the valuation of any such
security on each valuation date. All pricing changes made by the Trust will be
in writing and must specifically identify the securities to be changed by CUSIP,
name of security, new price or rate to be applied, and, if applicable, the time
period for which the new price(s) is/are effective.
4. CHANGES IN ACCOUNTING PROCEDURES
Any resolution passed by the Board of Trustees of the Trust that affects
accounting practices and procedures under this Agreement shall be effective upon
written receipt and acceptance by the FMFS.
5. CHANGES IN EQUIPMENT, SYSTEMS, SERVICE, ETC.
FMFS reserves the right to make changes from time to time, as it deems
advisable, relating to its services, systems, programs, rules, operating
schedules and equipment, so long as such changes do not adversely affect the
service provided to the Trust under this Agreement and are not inconsistent with
the rules and regulations of appropriate governmental authorities, in
particular, the 1940 Act, and the rules thereunder.
6. COMPENSATION
FMFS shall be compensated for providing the services set forth in this Agreement
in accordance with the Fee Schedule attached hereto as Exhibit A and as mutually
agreed upon and amended from time to time. The Trust agrees to pay all fees and
reimbursable expenses within ten (10) business days following the receipt of the
billing notice.
7. PERFORMANCE OF SERVICE; LIMITATION OF LIABILITY
A. FMFS shall exercise reasonable care in the performance of its
duties under this Agreement. FMFS shall not be liable for any loss
suffered by the Trust in connection with matters to which this Agreement
relates, including losses resulting from mechanical breakdowns or the
failure of communication or power supplies beyond FMFS' control, except a
loss resulting from FMFS' refusal or failure to comply with the terms of
this Agreement or from bad faith, negligence, willful misconduct, or
failure to exercise reasonable care on its part in the performance of its
duties under this Agreement. Notwithstanding any other provision of this
Agreement, the Trust shall indemnify and hold harmless FMFS from and
against any and all claims, demands, losses, expenses, and liabilities
(whether with or without basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which FMFS may sustain or incur or
which may be asserted against FMFS by any person arising out of any action
taken or omitted to be taken by it in performing the services hereunder in
sole reliance upon any written or oral instruction provided to FMFS by any
duly authorized officer of the Trust, except any officer who is an employee
of FMFS or an affiliate of FMFS, such duly authorized officer to be
included in a list of authorized officers furnished to FMFS and as amended
from time to time in writing by resolution of the Board of Trustees of the
Trust.
FMFS shall indemnify and hold the Trust harmless from and against any
and all claims, demands, losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which the Trust may sustain or incur or which may be
asserted against the Trust by any person arising out of any action taken or
omitted to be taken by FMFS or as a result of FMFS' refusal or failure to
comply with the terms of this Agreement, its bad faith, negligence, willful
misconduct, or failure to exercise reasonable care.
In the event of a mechanical breakdown or failure of communication or
power supplies beyond its control, FMFS shall take all reasonable steps to
minimize service interruptions for any period that such interruption
continues beyond FMFS control. FMFS will make every reasonable effort to
restore any lost or damaged data and correct any errors resulting from such
a breakdown at the expense of FMFS. FMFS agrees that it shall, at all
times, have reasonable contingency plans with appropriate parties, making
reasonable provision for emergency use of electrical data processing
equipment to the extent appropriate equipment is available.
Representatives of the Trust shall be entitled to inspect FMFS' premises
and operating capabilities at any time during regular business hours of
FMFS, upon reasonable notice to FMFS.
Regardless of the above, FMFS reserves the right to reprocess and
correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in this
section shall apply, it is understood that if in any case the indemnitor
may be asked to indemnify or hold the indemnitee harmless, the indemnitor
shall be fully and promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that the indemnitee
will use all reasonable care to notify the indemnitor promptly concerning
any situation which presents or appears likely to present the probability
of a claim for indemnification.
8. NO AGENCY RELATIONSHIP
Nothing herein contained shall be deemed to authorize or empower FMFS to act as
agent for the other party to this Agreement, or to conduct business in the name
of, or for the account of the other party to this Agreement.
9. RECORDS
FMFS shall keep records relating to the services to be performed hereunder, in
the form and manner, and for such period as it may deem advisable and is
agreeable to the Trust but not inconsistent with the rules and regulations of
appropriate government authorities, in particular, Section 31 of the 1940 Act,
and the rules thereunder. FMFS agrees that all such records prepared or
maintained by FMFS relating to the services to be performed by FMFS hereunder
are the property of the Trust and will be preserved, maintained, and made
available in accordance with such section and rules of the 1940 Act and will be
promptly surrendered to the Trust on and in accordance with its request.
10. DATA NECESSARY TO PERFORM SERVICES
The Trust or its agent, which may be FMFS, shall furnish to FMFS the data
necessary to perform the services described herein at such times and in such
form as mutually agreed upon. If FMFS is also acting as the transfer agent for
the Trust, nothing herein shall be deemed to relieve FMFS of any of its
obligations under the Transfer Agent Servicing Agreement.
11. NOTIFICATION OF ERROR
The Trust will notify FMFS of any balancing or control error caused by FMFS
within three (3) business days after discovery of the error, or within three (3)
business days after discovery of any error or omission not covered in the
balancing or control procedure, or within three (3) business days of receiving
notice from any shareholder.
12. PROPRIETARY AND CONFIDENTIAL INFORMATION
FMFS agrees on behalf of itself and its directors, officers, and employees to
treat confidentially and as proprietary information of the Trust all records and
other information relative to the Trust and prior, present, or potential
shareholders of the Trust (and clients of said shareholders), and not to use
such records and information for any purpose other than the performance of its
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where FMFS may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the Trust.
13. TERM OF AGREEMENT
This Agreement shall become effective as of the date hereof and, unless sooner
terminated as provided herein, shall continue until February 28, 1999, and
thereafter shall continue automatically in effect for successive annual periods.
This Agreement may be terminated by either party upon giving ninety (90) days
prior written notice to the other party or such shorter period as is mutually
agreed upon by the parties. However, this Agreement may be replaced or modified
by a subsequent agreement between the parties.
14. NOTICES
Notices of any kind to be given by either party to the other party shall be in
writing and shall be duly given if mailed or delivered as follows: Notice to
FMFS shall be sent to:
Firstar Mutual Fund Services
615 East Michigan Street
Milwaukee, WI 53202
and notice to the Trust shall be sent to:
Star Funds
425 Walnut Street
Cincinnati, OH 45202
with copy to:
Tracy Byrd Jamison, Esq.
Cors & Bassett
537 East Pete Rose Way, Suite 400
Cincinnati, OH 45202
15. DUTIES IN THE EVENT OF TERMINATION
In the event that in connection with termination, a successor to any of FMFS'
duties or responsibilities hereunder is designated by the Trust by written
notice to FMFS, FMFS will promptly, upon such termination and at the expense of
the Trust transfer to such successor all relevant books, records, correspondence
and other data established or maintained by FMFS under this Agreement in a form
reasonably acceptable to the Trust (if such form differs from the form in which
FMFS has maintained the same, the Trust shall pay any expenses associated with
transferring the same to such form), and will cooperate in the transfer of such
duties and responsibilities, including provision for assistance from FMFS'
personnel in the establishment of books, records and other data by such
successor.
In the event that FMFS terminates this Agreement, FMFS will promptly, upon such
termination at its own expense, transfer to FMFS' successor all relevant books
records, correspondence, and other data established or maintained by FMFS under
this Agreement in a form reasonably acceptable to the Trust, and will cooperate
in the transfer of such duties and responsibilities, including provision for
assistance from FMFS' personnel in the establishment of books, records, and
other data by such successor.
16. LIMITATION ON LIABILITY
You are hereby expressly put on notice of the limitation of liability as set
forth in Article XI of the Trust's Declaration of Trust and agree that the
obligations assumed by the Trust pursuant to this agreement shall be limited in
any case to the Trust and its assets and you 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.
17. COUNSEL FEES
FMFS shall bear all legal fees incident to providing fund accounting services
hereunder, other than such fees as are incident to representing the officers,
trustees and shareholders of the Star Funds.
18. GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the State of
Wisconsin. However, nothing herein shall be construed in a manner inconsistent
with the 1940 Act or any rule or regulation promulgated by the SEC thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by a duly authorized officer on one or more counterparts as of the day
and year first written above.
STAR FUNDS FIRSTAR MUTUAL FUND SERVICES
By:/s/ William Zimmer III By: /s/ Joseph Neuberger
-------------------------------- ------------------------------
Attest: /s/ Debra C. Bertke Attest: /s/ Gail Zess
---------------------------- ---------------------------
FUND ACCOUNTING SERVICES
ANNUAL FEE SCHEDULE
EXHIBIT A
Separate Series of the Star Funds
NAME OF SERIES
--------------
Star Tax-Free Money Market Fund
Star Ohio Tax-Free Money Market Fund
Star Treasury Fund
Star Strategic Income Fund
Star U.S. Government Income Fund
Star Relative Value Fund
Star Market Capitalization Fund
Star Growth Equity Fund
Star Capital Appreciation Fund
Star International Equity Fund
The Stellar Fund
Stellar Insured Tax-Free Bond Fund
Annual Fund Accounting Fee
First $100 Million 3.0 Basis Points
$100 Million - $300 Million 2.0 Basis Points
$300 Million - $500 Million 1.0 Basis Point
Over $500 Million 0.5 Basis Point
Fund Minimum $39,000
Additional Class of Shares $12,000
Plus out-of-pocket expenses, including, but not limited to, the following:
0 Postage (including overnight courier service)
0 Statement Stock
0 Envelopes
0 Telephones
0 Telecommunication Charges (including FAX)
0 Travel
0 Duplicating
0 Forms
0 Supplies
0 Microfiche
0 Computer Access Charges
0 Client Specific System Enhancements
0 Access to the Shareholder Recordkeeping System
0 Security Pricing Services
0 Variable Rate Change Notification Services
0 Paydown Factor Notification Services
Fees and out-of-pocket expenses are billed to the fund monthly.
POWER OF ATTORNEY
-----------------
William H. Zimmer, III, whose signature appears below, does hereby
constitute and appoint Elaine E. Richards his true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent my
deem necessary or advisable or which may be required to enable Star Funds (the
"Trust") to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended (the "Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Trust's Registration
Statement under the said Acts, and any and all amendments (including post-
effective amendments) thereto, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director and/or officer of the Trust said
Registration Statement and any and all such amendments thereto that are filed
with the Securities and Exchange Commission under said Acts, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorney and agent, shall do or cause to be done by
virtue hereof.
Date: 11/12/98 /s/ William H. Zimmer
-------------------- ---------------------
William H. Zimmer, III
POWER OF ATTORNEY
-----------------
Thomas L. Conlan, whose signature appears below, does hereby constitute and
appoint Elaine E. Richards his true and lawful attorney and agent, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorney and agent my deem necessary or
advisable or which may be required to enable Star Funds (the "Trust") to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Trust's Registration Statement under the said
Acts, and any and all amendments (including post-effective amendments) thereto,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a director and/or officer of the Trust said Registration Statement and any and
all such amendments thereto that are filed with the Securities and Exchange
Commission under said Acts, and any other instruments or documents related
thereto, and the undersigned does hereby ratify and confirm all that said
attorney and agent, shall do or cause to be done by virtue hereof.
Date: 11/12/98 /s/ Thomas L. Conlan
-------------------- ---------------------
Thomas L. Conlan, Jr.
POWER OF ATTORNEY
-----------------
Dr. Alfred Gottschalk, whose signature appears below, does hereby
constitute and appoint Elaine E. Richards his true and lawful attorney and
agent, with power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments which said attorney and agent my
deem necessary or advisable or which may be required to enable Star Funds (the
"Trust") to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended (the "Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Trust's Registration
Statement under the said Acts, and any and all amendments (including post-
effective amendments) thereto, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director and/or officer of the Trust said
Registration Statement and any and all such amendments thereto that are filed
with the Securities and Exchange Commission under said Acts, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorney and agent, shall do or cause to be done by
virtue hereof.
Date: 11/12/98 /s/ Alfred Gottschalk
-------------------- ---------------------
Dr. Alfred Gottschalk
POWER OF ATTORNEY
-----------------
Dr. Robert J. Hill, whose signature appears below, does hereby constitute
and appoint Elaine E. Richards his true and lawful attorney and agent, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorney and agent my deem
necessary or advisable or which may be required to enable Star Funds (the
"Trust") to comply with the Investment Company Act of 1940, as amended, and the
Securities Act of 1933, as amended (the "Acts"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Trust's Registration
Statement under the said Acts, and any and all amendments (including post-
effective amendments) thereto, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director and/or officer of the Trust said
Registration Statement and any and all such amendments thereto that are filed
with the Securities and Exchange Commission under said Acts, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorney and agent, shall do or cause to be done by
virtue hereof.
Date: 11/12/98 /s/ Robert J. Hill
-------------------- ---------------------
Dr. Robert J. Hill
POWER OF ATTORNEY
-----------------
Dawn M. Hornback, whose signature appears below, does hereby constitute and
appoint Elaine E. Richards her true and lawful attorney and agent, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorney and agent my deem necessary or
advisable or which may be required to enable Star Funds (the "Trust") to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Trust's Registration Statement under the said
Acts, and any and all amendments (including post-effective amendments) thereto,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a director and/or officer of the Trust said Registration Statement and any and
all such amendments thereto that are filed with the Securities and Exchange
Commission under said Acts, and any other instruments or documents related
thereto, and the undersigned does hereby ratify and confirm all that said
attorney and agent, shall do or cause to be done by virtue hereof.
Date: 11/12/98 /s/ Dawn M. Hornback
-------------------- ---------------------
Dawn M. Hornback
POWER OF ATTORNEY
-----------------
Lawrence Turner, whose signature appears below, does hereby constitute and
appoint Elaine E. Richards his true and lawful attorney and agent, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorney and agent my deem necessary or
advisable or which may be required to enable Star Funds (the "Trust") to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Trust's Registration Statement under the said
Acts, and any and all amendments (including post-effective amendments) thereto,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a director and/or officer of the Trust said Registration Statement and any and
all such amendments thereto that are filed with the Securities and Exchange
Commission under said Acts, and any other instruments or documents related
thereto, and the undersigned does hereby ratify and confirm all that said
attorney and agent, shall do or cause to be done by virtue hereof.
Date: 11/12/98 /s/ Lawrence Turner
-------------------- ---------------------
Lawrence Turner
POWER OF ATTORNEY
-----------------
Dan Benhase, whose signature appears below, does hereby constitute and
appoint Elaine E. Richards his true and lawful attorney and agent, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorney and agent my deem necessary or
advisable or which may be required to enable Star Funds (the "Trust") to comply
with the Investment Company Act of 1940, as amended, and the Securities Act of
1933, as amended (the "Acts"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Trust's Registration Statement under the said
Acts, and any and all amendments (including post-effective amendments) thereto,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a director and/or officer of the Trust said Registration Statement and any and
all such amendments thereto that are filed with the Securities and Exchange
Commission under said Acts, and any other instruments or documents related
thereto, and the undersigned does hereby ratify and confirm all that said
attorney and agent, shall do or cause to be done by virtue hereof.
Date: 11/14/98 /s/ Daniel Benhase
-------------------- ---------------------
Daniel Benhase
